<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
REGISTRATION NO. 333-14185
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
NATURAL GAS VEHICLE SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3714 33-0515639
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
</TABLE>
--------------------------
5580 CHERRY AVENUE
LONG BEACH, CALIFORNIA 90805
(310) 630-5768
(310) 630-0206 (FAX)
(Address and telephone number of Registrant's principal executive offices)
------------------------------
JOHN R. BACON
PRESIDENT
NATURAL GAS VEHICLE SYSTEMS, INC.
5580 CHERRY AVENUE
LONG BEACH, CALIFORNIA 90805
(310) 630-5768
(310) 630-0206 (FAX)
(Name, address and telephone number of agent for service)
------------------------------
Please send a copy of all communications to:
<TABLE>
<S> <C>
LAWRENCE B. FISHER, ESQ. GARY J. SIMON, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP PARKER CHAPIN FLATTAU & KLIMPL, LLP
666 FIFTH AVENUE 1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10103 NEW YORK, NEW YORK 10036
(212) 506-5000 (212) 704-6000
(212) 506-5151 (FAX) (212) 704-6288 (FAX)
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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,
please check the following box. / / ________
--------------------------
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>
NATURAL GAS VEHICLE SYSTEMS, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
- ----------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus.............................. Forepart of the Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds....................................... Use of Proceeds; Capitalization
5. Determination of Offering Price....................... Risk Factors; Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. Not Applicable
8. Plan of Distribution.................................. Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings..................................... Risk Factors; Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................... Management; Principal Stockholders
11. Security Ownership of Certain Beneficial Owners and
Management............................................ Principal Stockholders
12. Description of Securities............................. Description of Capital Stock
13. Interests of Named Experts and Counsel................ Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ Description of Capital Stock
15. Organization Within Last Five Years................... The Company; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Certain Transactions
16. Description of Business............................... Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business
17. Management's Discussion and Analysis or Plan of
Operation............................................. Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property............................... Business
19. Certain Relationships and Related Transactions........ Certain Transactions; Principal Stockholders
</TABLE>
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
- ----------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
20. Market for Common Equity and Related Stockholder
Matters............................................... Outside Front Cover Page of Prospectus; Prospectus
Summary; Dividend Policy; Dilution; Description of
Capital Stock; Shares Eligible for Future Sale
21. Executive Compensation................................ Management
22. Consolidated Financial Statements..................... Consolidated Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 20, 1996
PROSPECTUS
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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
1,500,000 SHARES
NATURAL GAS VEHICLE SYSTEMS, INC.
COMMON STOCK
------------------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Natural Gas Vehicle
Systems, Inc. (the "Company"). Prior to this Offering, there has been no public
market for the Common Stock and there can be no assurance that such a market
will develop after the consummation of this Offering or, if developed, that it
will be sustained. It is currently anticipated that the initial public offering
price per share of Common Stock will be between $6.00 and $7.50. For information
regarding the factors considered in determining the initial public offering
price per share of Common Stock, see "Risk Factors" and "Underwriting." It is
anticipated that the Common Stock will be quoted on the Nasdaq Small Cap Market
("Nasdaq") under the symbol "NGVS."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------
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.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total(3)........................................... $ $ $
</TABLE>
(1) Does not include additional compensation payable to Commonwealth Associates,
the representative of the several Underwriters (the "Representative"),
including a non-accountable expense allowance and a financial advisory fee.
In addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other compensation
payable to the Representative.
(2) Before deducting expenses payable by the Company estimated to be
approximately $450,000, excluding the Underwriters' non-accountable expense
allowance and financial advisory fee. See "Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
225,000 additional shares of Common Stock on the same terms and conditions
as the Common Stock offered hereby solely to cover over-allotments, if any.
If such over-allotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are being offered by the Underwriters named
herein subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify this Offering and to reject any order in
whole or in part. It is expected that delivery of certificates representing the
shares of Common Stock offered hereby will be made against payment therefor at
the offices of Commonwealth Associates at 733 Third Avenue, New York, New York
10017, on or about , 1996.
------------------------
COMMONWEALTH ASSOCIATES
---------------
The date of this Prospectus is , 1996.
<PAGE>
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 LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL CAP MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE
CONTEXT OTHERWISE REQUIRES: (I) THE "COMPANY" REFERS TO NATURAL GAS VEHICLE
SYSTEMS, INC., ITS TWO OPERATING DIVISIONS AND ITS WHOLLY-OWNED SUBSIDIARY, (II)
ALL INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A ONE-FOR-THREE
REVERSE STOCK SPLIT EFFECTED PRIOR TO THE DATE HEREOF, AND (III) ALL INFORMATION
IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION AND NO EXERCISE OF THE WARRANTS TO PURCHASE 150,000 SHARES OF COMMON
STOCK ISSUED TO THE REPRESENTATIVE IN CONNECTION WITH THIS OFFERING (THE
"REPRESENTATIVE'S WARRANTS"). SEE "THE COMPANY."
THE COMPANY
Natural Gas Vehicle Systems, Inc. is the leading United States manufacturer
and distributor of fuel storage systems for use on-board natural gas vehicles.
The Company's fuel storage cylinders are highly-engineered pressure vessels for
the storage of compressed natural gas. Since 1990, the Company and its
predecessors have invested significant resources in product development and
manufacturing capability to meet the expected growth in demand in the natural
gas vehicle market. The United States Clean Air Act Amendments of 1990 (the
"Clean Air Act") and the Energy Policy Act of 1992 (the "Energy Policy Act"), in
combination with clean air laws passed in California, Texas and many other
states, mandate the use of alternative fueled vehicles in the United States,
reflecting the stated national policy of reducing vehicular air pollution and
dependence on foreign oil. Generally, these laws specify more stringent
emissions standards for vehicles (begun in 1994 and becoming progressively more
stringent through the year 2001), and require federal, state and certain other
fleet operators to utilize domestic, non-petroleum fuels in their fleet vehicles
on an increasing basis over time. In March 1996, the Department of Energy
promulgated regulations pursuant to the Energy Policy Act requiring a minimum of
25%, 10% and 30% of newly-manufactured 1997 model year vehicles purchased
beginning September 1, 1996 by federal, state and "fuel provider" fleet
operators, respectively, to operate on non-petroleum based "alternative fuels"
such as compressed natural gas. In December 1996, President Clinton issued an
Executive Order which requires each federal agency to develop and implement
aggressive plans to fulfill the alternative fueled vehicle acquisition
requirements established by the Energy Policy Act, subject to certain limited
exceptions. The Company believes that compressed natural gas is the most viable
alternative fuel currently available.
In September 1996, a bill was introduced in the United States House of
Representatives the stated purpose of which in its present form is to encourage
the increased use of domestic natural gas as a transportation fuel and thereby
realize the broad societal benefits associated with such use, including improved
environmental quality, enhanced energy security, and increased domestic economic
activity. This bill would encourage the use of natural gas vehicles (including
bi-fuel vehicles) through emission reduction credits, tax incentives for fleet
vehicle operators and owners of natural gas fueling stations, fuel credits,
shorter depreciation recovery periods for natural gas vehicles and refueling
property and the establishment of a research, development and demonstration
program at the United States Department of Energy. There can be no assurance
that this bill will be reintroduced in the next legislative session or enacted
into law in its current form, if at all.
The Company currently manufactures and distributes a variety of aluminum and
composite cylinder products and has recently introduced a steel cylinder product
line. The Company believes that the commercialization and further development of
the steel cylinder product line is essential to the Company's expansion plans
since approximately 25% of the United States market and 90% of the international
market consists of steel cylinders. The Company also has an investment in a
regional technology center which converts vehicles to operate on compressed
natural gas. In addition, the Company offers emission testing, diagnostics,
troubleshooting and engineering support both to original equipment manufacturers
("OEMs") and to customers converting their vehicles to operate on compressed
natural gas.
The Company currently markets and sells its compressed natural gas cylinders
throughout the United States for use by automotive OEMs, such as Ford Motor
Company; bus manufacturers, such as Blue Bird Body Company, Transportation
Manufacturing Corporation and El Dorado National Bus; aftermarket
3
<PAGE>
conversion specialists; and utility, government and private fleets, such as
Southern California Gas Co., the United States Postal Service and United Parcel
Service of America, Inc. ("UPS"). The Company currently also supplies cylinders
for use by the Ford Motor Company's program for its F-Series Pick-Up, E-Series
Econoline Van and Contour passenger car natural gas vehicle product lines. In
addition to domestic sales, the Company has also commenced marketing its
compressed natural gas cylinders in the international market and recently
received a purchase order from a Venezuelan company covering 12,000 of the
Company's cylinders through December 31, 1997. The Company is also currently
working with three South Korean companies in connection with the development of
compressed natural gas vehicle designs featuring the Company's cylinders and has
supplied cylinders for use in prototype natural gas vehicles for all three
companies.
In 1995, there were approximately 42,000 natural gas vehicles in operation
in the United States and government and industry sources estimate that, by the
year 2010, two million or more natural gas vehicles will be in operation in the
United States, although there can be no assurance that such levels will be
attained as predicted, if at all. The Company also estimates that there are
approximately one million natural gas vehicles currently in operation worldwide.
In addition to the government mandates contained in the Clean Air Act and
the Energy Policy Act, the Company and certain industry experts believe that the
natural gas vehicle industry will expand in the future for a number of reasons:
- Environmental Benefits--Compressed natural gas is the cleanest burning
fossil fuel and can reduce nitrogen oxide emissions by up to 76%, carbon
monoxide emissions by up to 95%, carbon dioxide emissions by up to 24% and
reactive hydrocarbons by up to 95%, thus meeting stringent governmental
vehicle emissions standards.
- Economics--Compressed natural gas is substantially less expensive on an
energy equivalent basis when compared to conventional refined fuels such
as gasoline and diesel. In addition, vehicle operating costs are reduced
due to less engine wear with resulting lower maintenance costs and longer
engine life.
- Supply--Natural gas is widely available and in abundant supply. United
States domestic reserves are reported to be sufficient to meet an
estimated 50 years of demand and North American supplies are reported to
be sufficient to meet an estimated 150 years of demand at current usage
rates. Natural gas is also readily available in all urban and suburban
areas in the United States through an existing underground pipeline
network.
- Safety--The Company and certain industry experts believe that natural gas
is a safer vehicle fuel than gasoline because (i) the ignition temperature
for natural gas is higher than gasoline, (ii) natural gas is lighter than
air and thus dissipates quickly, and (iii) natural gas can ignite only in
a narrow range of fuel-air ratios.
- Dependence on Foreign Oil and Balance of Payments--Currently, the United
States obtains approximately 52% of its domestic petroleum requirements
from imported oil. In addition to the national security implications
created by this dependency, the importation of petroleum products created
a reported deficit in United States balance of payments of approximately
$45 billion in 1994 with the correspondingly negative impact on the United
States domestic economy. The United States government reports that, unless
an alternative source of energy is found, United States dependence on
imported petroleum will increase to approximately 70% by 2010.
The Company believes that fleets, which are the Company's target market,
currently account for a significant portion of all airborne pollutants in urban
areas and are the primary target of several recent federal and state legislative
mandates requiring conversion to operation on alternative fuels over time. In
the 22 metropolitan regions in the United States designated as serious, severe
or extreme "non-attainment" areas under the Clean Air Act (those geographic
areas which do not meet the Clean Air Act's air pollution standards),
approximately 8.5 million of these vehicles are operated in fleets of 10 or more
vehicles with an operating range of less than 200 miles per day, including
school and transit buses, medium duty trucks, garbage trucks, utility fleet
vehicles, delivery vehicles and certain light-duty fleets, including
4
<PAGE>
taxis and police cars. The majority of these fleet vehicles operate in urban
areas, in stop-and-go driving conditions, with predictable average daily mileage
and central refueling and servicing locations.
The Company's strategy is to take advantage of its expertise and leadership
position in its industry to increase its share of the expanding market for
natural gas vehicle fuel storage cylinders. The Company initially has focused
and will continue to focus on the high fuel-use fleet vehicle segment of the
natural gas vehicle market, in which vehicles consume large quantities of fuel
due to the nature of their operation and usage. For example, the Company is
currently developing a full composite product line which is under limited market
testing by UPS. In addition, the Company believes there are opportunities for
vehicle conversion centers as well as for turnkey projects for fleet operators
seeking a single source to fully establish a natural gas vehicle program,
providing vehicles, refueling, long-term fuel supply contracts and financing.
The Company is evaluating other joint venture opportunities with major regional
gas industry companies to establish regional technology centers to meet the
expected demand for natural gas vehicle production capabilities and conversion
services. The Company also plans to enter certain international markets through
the establishment of technology centers with foreign joint venture partners in
strategic locations throughout the world.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby.................. 1,500,000 shares
Common Stock to be Outstanding prior to the
Offering................................... 2,290,195 shares(1)
Common Stock to be Outstanding after the
Offering................................... 3,790,195 shares(1)
Use of Proceeds.............................. Approximately $3,500,000 for a new
manufacturing facility; approximately
$1,295,000 to repay certain outstanding
indebtedness; approximately $500,000 for the
purchase of manufacturing machinery for steel
cylinder production; and the balance,
approximately $3,064,000, for working capital
and other general corporate purposes. See
"Use of Proceeds" and "Certain Transactions."
Proposed Nasdaq Symbol....................... "NGVS"
Risk Factors................................. The Common Stock offered hereby involves a
high degree of risk. Prospective investors
should carefully consider the factors
discussed under the heading "Risk Factors."
</TABLE>
- ------------------------
(1) Excludes (i) 158,717 shares of Common Stock and 32,000 shares of Preferred
Stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $5.67 (including 2,963 shares of Common Stock issuable
upon exercise of the warrant issued in connection with the Private Placement
(as hereinafter defined) assuming an initial public offering price of $6.75
per share), (ii) 100,000 shares of Common Stock issuable upon the exercise
of outstanding options granted pursuant to the Amended and Restated Natural
Gas Vehicle Systems, Inc. Stock Option Plan (the "1992 Plan") at an exercise
price equal to the initial public offering price per share in this Offering,
(iii) 54,833 shares of Common Stock issuable upon exercise of options
available for future grant pursuant to the Company's 1996 Combined Incentive
and Nonqualified Stock Option Plan (the "1996 Plan") at an exercise price
equal to the initial public offering price per share in this Offering and
(iv) 145,167 shares of Common Stock issuable upon the exercise of
outstanding options granted pursuant to the 1996 Plan at an exercise price
equal to the initial public offering price per share in this Offering. See
"Management--Stock Option Plans" and "Shares Eligible For Future Sale."
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................................. $ 5,189 $ 5,683 $ 4,796 $ 5,939
Operating costs and expenses:
Cost of sales........................................................ 5,868 6,171 4,820 5,475
Research and development............................................. 714 622 465 339
Selling.............................................................. 935 926 627 553
General and administrative........................................... 2,086 1,243 960 895
Restructuring charge................................................. 482 299 -- --
--------- --------- --------- ---------
Loss from operations (1)............................................... (4,896) (3,578) (2,076) (1,323)
Equity in losses of investments........................................ (1,034) (267) (159) (53)
Interest and other expenses, net....................................... (337) (446) (373) (218)
--------- --------- --------- ---------
(1,371) (713) (532) (271)
Net loss............................................................... $ (6,267) $ (4,291) $ (2,608) $ (1,594)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share..................................................... $ (3.83) $ (2.07) $ (1.31) $ (0.58)
Weighted average number of shares outstanding (2)...................... 1,638 2,071 1,984 2,728
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
-------------------- -------------------------
<S> <C> <C> <C> <C>
PRO FORMA,
AS ADJUSTED
1994 1995 ACTUAL (3)
--------- --------- --------- --------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................................... $ (1,313) $ (379) $ (1,629) $ 6,730
Total current assets.............................................. 2,318 2,003 1,973 9,332
Total assets...................................................... 6,547 5,376 5,244 12,603
Short term borrowing.............................................. 245 245 245 245
Total current liabilities......................................... 3,631 2,382 3,602 2,602
Long-term debt, net of current portion............................ 90 -- 100 100
Related party loans, non-current.................................. 5,016 -- -- --
Stockholders' equity (deficit).................................... (2,190) 2,994 1,542 9,901
</TABLE>
- ------------------------
(1) Loss from operations for 1994 and 1995 includes a restructuring charge of
$482,000 in 1994 and $299,000 in 1995. During 1994, the Company implemented
a plan to consolidate facilities and reorganize its operations. As a result,
the Company recorded a one-time restructuring charge related to severance
and relocation costs and the disposal of certain equipment. In December
1995, the Company's Board of Directors approved management's plan to dispose
of the Company's interest in two joint venture regional technology centers.
Accordingly, the Company has recorded a provision to wind down the joint
venture operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of Notes to Consolidated
Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the calculation of the weighted average number of shares outstanding.
6
<PAGE>
(3) Adjusted to reflect the sale of 1,500,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $6.75 per share (after
deducting estimated offering expenses and underwriting discounts and
commissions), and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds," "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY. PROSPECTIVE
INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF THEIR ENTIRE INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; GOING CONCERN UNCERTAINTY
LANGUAGE IN INDEPENDENT AUDITORS' REPORT. The Company has a history of operating
losses and is subject to certain business risks associated with a company in a
developing industry, including constraints on the Company's resources,
uncertainties regarding product development, market acceptance and future
revenues. As of December 31, 1995 and September 30, 1996, the Company had an
accumulated deficit of $20,391,000 and $21,985,000, respectively. Although the
Company has derived revenues from operations for several years, the Company has
incurred losses since inception. The Company's ability to operate its business
successfully will depend, in part, on a variety of factors, many of which are
outside the Company's control, including changes in governmental programs and
requirements, changes in Department of Transportation ("DOT"), National Highway
Transportation Safety Administration and similar regulatory requirements, plant
and equipment repair and maintenance requirements, market acceptance,
technological changes, competition and changes in raw material supplies and
suppliers. There can be no assurance regarding whether or when the Company will
successfully implement its business plan or that the Company will achieve
profitability by generating sufficient revenues to offset anticipated costs.
The Company's independent certified public accountants have included an
explanatory paragraph in their report on the Company's Consolidated Financial
Statements stating that the Consolidated Financial Statements have been prepared
based on the assumption that the Company will continue as a going concern. The
Company has suffered recurring losses from operations and expects to continue to
incur losses for the foreseeable future, which matters raise substantial doubt
about the Company's ability to continue as a going concern. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 1 of Notes to Consolidated Financial Statements.
GOVERNMENT REGULATION. The development of the market for vehicles fueled by
compressed natural gas, the demand for the Company's products and the
development of competition all are affected by local, state and federal
regulations in the United States. The development of any future international
business likewise will be affected by regulations imposed by foreign
governmental authorities. Among the regulations with the greatest potential
effect on the Company's business are environmental regulations which pertain to
air quality standards as well as technical standards which certify products for
use in motor vehicles. Other regulations which may indirectly affect the
Company's business are rules or ordinances regarding pressure vessels and fire
safety which may affect the development of refueling stations for vehicles
fueled by compressed natural gas. There can be no assurance that current
government regulations which promote the use of alternative transportation fuels
will remain in effect or that future governmental actions which might adversely
affect the Company's business, financial condition and results of operations
will not be enacted.
The Company is particularly dependent upon the emission standards and use of
alternative fuels mandated by the Clean Air Act and the Energy Policy Act, as
well as upon requirements mandated by state and foreign governments. In 1995,
the California Air Resources Board modified and lowered its "zero emission
vehicle" requirements and, in 1996, the Department of Energy delayed the
phase-in dates for state and "fuel provider" fleets under the Energy Policy Act.
In addition, the Texas legislature recently enacted legislation defining
reformulated gasoline and "clean diesel" fuel as "clean alternative fuels." Any
future delays in implementation of, or legislative amendments or other
modifications to, or policy changes
8
<PAGE>
affecting, any of the Clean Air Act, the Energy Policy Act or similar statutes
or regulations would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the failure of
governmental agencies to enforce legislation or administrative regulations
mandating more stringent emission standards or the conversion to alternative
fuel technology would have a material adverse effect on the Company's business,
financial condition and results of operations.
In September 1996, a bill was introduced in the United States House of
Representatives the stated purpose of which in its present form is to encourage
the increased use of domestic natural gas as a transportation fuel primarily
through the use of various emissions credits and tax incentives. If this bill is
enacted into law in its present form, however, it would amend certain provisions
of the Energy Policy Act by eliminating the mandated purchase of a specified
percentage of alternative fuel vehicles by alternative fuel providers and
private fleet owners and operators in model year 1999 and thereafter. This bill
would also substantially repeal the fleet requirement program provisions of the
Energy Policy Act which currently require certain private fleet owners and
operators to acquire specified percentages of alternative fuel vehicles in model
year 1999 and thereafter. The elimination of these requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that this bill will be
reintroduced in the next legislative session or enacted into law in its current
form, if at all. See "Business--Government Regulation."
DEPENDENCE ON ALTERNATIVE TRANSPORTATION FUELS MARKET; MARKET ACCEPTANCE OF
NATURAL GAS VEHICLES. There can be no assurance that growth in the market for
alternative transportation fuels will materialize or, if such growth does occur,
that it will result in increased sales of the Company's products. The Company
faces competition from other types of alternative fuels such as electricity,
liquefied petroleum gas (propane), methanol, ethanol, hydrogen, reformulated
gasoline and liquefied natural gas. At present, the absence of a well-developed
infrastructure for the supply of alternative fuels is limiting growth in the
alternative fuels market. Such an infrastructure is necessary for widespread use
of alternative fuels and there can be no assurance that such an infrastructure
will develop. There can be no assurance that gas utility companies and others
will build fueling stations or maintain fueling capacity in the future to
support the development of a viable alternative transportation fuels market. In
addition, growth in the alternative transportation fuels market has been
affected by the fact that consumer passenger vehicles are not yet subject to the
same stringent federal or state environmental emission standards which mandate
the purchase of alternative fuel vehicles by fleet operators. Even if growth in
the alternative transportation fuels market does develop, there can be no
assurance that natural gas will become the alternative fuel of choice.
Furthermore, the Company's industry has been characterized by high up-front
capital costs for natural gas vehicle conversion and the limited range of
vehicles operating on compressed natural gas as compared to petroleum-fueled
vehicles and liquefied natural gas-fueled vehicles. These factors may discourage
potential customers from selecting compressed natural gas as a fuel over other
alternative fuels in the market. If other alternative fuels become more widely
accepted than compressed natural gas, the Company's business, financial
condition and results of operations would be materially adversely affected. See
"Business."
CONCENTRATION OF REVENUES. The Company derives a significant portion of its
revenue from a relatively limited number of customers. During the year ended
December 31, 1994, two customers, NGV Ecotrans Group, L.L.C. (an affiliated
joint venture) and Transtar Technologies, Inc., represented 14% and 13% of the
Company's net sales, respectively. During 1995, revenues from the Company's ten
most significant customers accounted for approximately 72% of its revenues, and
its largest customer accounted for approximately 17% of revenues. During the
nine months ended September 30, 1996, the Company had two customers, GFI Control
Systems, Inc. (a supplier to Ford Motor Company) and Blue Bird Body Company,
which comprised approximately 42% and 18% of net cylinder sales, respectively,
and the Company's ten most significant customers accounted for approximately 66%
of its revenues. There can be no assurance that these customers will continue to
purchase the Company's products and services or do so at the same revenue levels
or margins. The loss of any significant customer could have a material adverse
effect on the
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<PAGE>
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--The Company's Natural Gas Vehicle Production,
Conversion and Service Business" and "--Customers and Marketing."
SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON OFFERING PROCEEDS; FUTURE
NEED FOR ADDITIONAL FINANCING. The Company's capital requirements in connection
with its product development and marketing activities will be significant,
including the need for additional bank or other financing to build or acquire an
additional manufacturing facility. The Company has been dependent upon the
proceeds of sales of its securities to private investors and debt financing to
fund its initial commercial activities. The Company is dependent on the proceeds
of this Offering to continue commercial activities and anticipates, based on its
currently proposed plans and assumptions relating to its operations, that the
net proceeds of this Offering will be adequate to satisfy its capital and
operational requirements for at least 12 months from the consummation of this
Offering. The Company's future liquidity and capital resource requirements will
depend on numerous factors, including the extent to which favorable government
regulation is implemented or enforced, market acceptance of the Company's
products, the costs and timing of expansion of sales, marketing and
manufacturing activities and competition. There can be no assurance that
additional capital will be available on terms acceptable to the Company, if at
all. Furthermore, any additional equity financing may be dilutive to
stockholders and debt financing, if available, likely will include restrictive
covenants. The failure of the Company to raise capital on acceptable terms when
needed could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; INTRODUCTION OF STEEL CYLINDER. The
Company's success will depend in part on its ability to continue to design and
manufacture new competitive products as well as to enhance its existing
products. There can be no assurance that new product lines, such as the
Company's 3600 pounds per square inch ("psi") steel cylinder product line, will
receive necessary government approvals, achieve market acceptance or perform in
accordance with industry standards. The Company's product development efforts
will require additional investments in order to maintain and enhance the
Company's market position. There can be no assurance that unforeseen problems
will not occur with respect to the Company's technology or products. Development
schedules for new products are subject to uncertainty and there can be no
assurance that the Company will meet such schedules. The Company has experienced
delays in new product development in the past and there can be no assurance that
delays will not be experienced in the future. Delays in new product development
can result from a number of factors, including changes in specifications during
the development stage, initial failures of products or unexpected behavior of
products under certain conditions, failure of out-sourced components to meet
specifications or lack of availability of such components, unplanned
interruptions with existing products that can result in reassignment of product
development resources and other factors. Delays in the development and
availability of new products could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--The Company's Fuel Storage Systems Business" and "--Government
Regulation."
FLUCTUATIONS IN PRICE AND QUALITY OF NATURAL GAS. There is substantial
uncertainty in the markets for natural gas and in the future prices at which
natural gas may be sold. A change in the price of natural gas may affect some or
all of the operations of the Company. The availability of a ready market for
natural gas and the prices obtained for such natural gas depend upon numerous
factors beyond the control of the Company, including the supply of natural gas
and national and international economic and political developments. In addition,
the quality of compressed natural gas provided to customers may affect the
performance of natural gas vehicles operated by such customers and the
perception of natural gas vehicles in the alternative transportation fuels
industry. If substandard compressed natural gas is used to fuel a natural gas
vehicle, such natural gas vehicle may perform below industry standards and
create an adverse perception of the natural gas vehicle industry as a whole.
There can be no assurance that the Company's
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<PAGE>
business, financial condition and results of operations will not be adversely
affected by factors related to changing conditions in the natural gas markets
over which the Company may have no control.
DEPENDENCE ON LICENSE AGREEMENT. The Company's composite-reinforced
aluminum fuel storage cylinders are manufactured and sold under a
royalty-bearing, exclusive world-wide license (the "Fawley License") from NCF
Industries, Inc., a California corporation, and Norman C. Fawley, the principal
shareholder of NCF Industries, Inc., pursuant to the provisions of an Amended
Cylinder License Agreement dated as of May 25, 1993. The Fawley License expires
on the later of (i) February 9, 2005 and (ii) the termination of any commercial
sales, manufacturing, distribution, licensing or sublicensing of licensed
products commenced prior to February 9, 2005, unless earlier terminated due to a
default by the Company for failure to make royalty payments, or otherwise. In
the event the Company defaults in the payment of royalties required under the
Fawley License, or otherwise fails to perform the terms thereof, NCF Industries,
Inc. and Norman C. Fawley have the right to terminate the license and to retain
sole use and enjoyment of the licensed patents and know-how pertaining to the
Company's composite-reinforced aluminum fuel storage cylinder. In such event,
the Company may be prohibited from manufacturing or selling such fuel storage
cylinders.
Should the Company default under its license agreement, the Company may lose
its right to market and sell products based upon the licensed technology. In
such event, the Company's business, financial condition and results of
operations would be materially adversely affected. There can be no assurance
that the Company will be able to renew this license agreement upon its
expiration or meet its obligations under this agreement on a timely basis, if at
all. See "Business--License Agreements" and "--Intellectual Property Rights."
EFFECTS OF MATURING DEBT; PLEDGED ASSETS. As of September 30, 1996, the
Company had outstanding approximately $2,360,000 of indebtedness, $1,077,000 of
which is due and payable on demand and $1,000,000 of which is due and payable on
the earlier of February 28, 1997 or five days following the closing date of this
Offering. In December 1996, the Company borrowed an additional $500,000 for
working capital purposes, which amount plus interest is due and payable on
January 31, 1998. The Company has from time to time been in default with respect
to certain of its indebtedness, and has had to negotiate waivers with respect
thereto. See "Certain Transactions" and Notes 8, 9 and 10 of Notes to
Consolidated Financial Statements. Although the Company plans to use
approximately $1,295,000 of the net proceeds of this Offering to reduce its
outstanding indebtedness and to convert $300,000 of currently outstanding
indebtedness held by Equitable Resources Energy Company into shares of Common
Stock at a conversion rate equal to the initial public offering price per share
of Common Stock in this Offering, there can be no assurance that the Company
will have or maintain adequate capital at any given time or from time to time in
the future or not be in default under any of its loan agreements and there is no
assurance that additional capital or waivers in respect of defaulted loans, if
needed by the Company, will be available to it. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources" and "Certain Transactions."
In addition, the Company has pledged all of its assets as collateral for
indebtedness. If the Company defaults on such indebtedness, there can be no
assurance that creditors holding a security interest in the Company's assets
will not proceed against such collateral. Any such proceedings or other actions
by the Company's creditors in the event of the Company's default on indebtedness
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
LEGAL PROCEEDINGS. In February 1996, the Company was served as a defendant
with a summons and complaint in an action for unspecified damages in excess of
$50,000 filed by James and Susan Pettengill which is currently pending in the
United States District Court for the Eastern District of Michigan arising out of
burns resulting from the August 1993 rupture of a pressurized natural gas
cylinder manufactured by the Company's predecessor. The Company has investigated
the incident and believes that any damages
11
<PAGE>
suffered by Mr. Pettengill were not due to any manufacturing flaw or other acts
or omissions by it but were instead caused by the negligence of Mr. Pettengill's
employer in failing to properly maintain the natural gas cylinder, to test the
cylinder pursuant to applicable law, to properly install the cylinder and to
properly instruct Mr. Pettengill in reasonably safe practices regarding the
cylinder, among other things. The Company believes that any liability it may
incur in connection with this lawsuit will be adequately covered by the
Company's insurance policy. Although the Company intends to contest these claims
vigorously, there can be no assurances as to the eventual outcome of such claims
or their effect on the Company's financial condition and results of operations.
An adverse determination in the litigation arising from these claims or the
settlement of such claims in an amount in excess of the Company's insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Litigation."
FLUCTUATIONS IN QUARTERLY RESULTS. The Company's operating results have
fluctuated significantly in the past and will likely continue to fluctuate
significantly in the future as a result of a variety of factors, many of which
are beyond the Company's control. Sales have been dependent on the budget cycles
and funding arrangements of both federal and state agencies, as well as the
purchasing cycles of fleet operators, on the uncertainty associated with the
timing of the delivery of vehicles to be retrofitted, the use to which the
vehicle is put (e.g. school buses are typically retrofitted in the summer
months) and the timing of the implementation of government regulations promoting
the use of alternative fuel technology, as well as other general economic
factors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Potential Fluctuations in Quarterly Results" and
"Business--Government Regulation."
RISK OF INTERNATIONAL OPERATIONS. The Company has recently commenced
marketing its products and technologies in international markets, including both
industrialized and developing countries. The Company's international operations
are subject to various risks common to international activities, including
political instability, economic instability and recessions, exposure to currency
fluctuations, the inherent difficulty of administering business abroad and the
need to comply with a wide variety of foreign import and United States export
laws, tariffs and other regulatory requirements. The Company's competitiveness
in overseas markets generally may be negatively impacted when there is a
significant increase in the value of the dollar against European currencies or
the currencies of other countries where the Company does business. The Company
also expects to continue to face heightened competition from manufacturers and
distributors in foreign markets. In addition, the laws of some foreign countries
do not protect the Company's proprietary rights to the same extent as the laws
of the United States. See "Business--The Company's Target Market--International
Market Development," "--Competition" and "--Government Regulation."
TECHNOLOGICAL CHANGES AND UNCERTAINTY. The market for products in the
natural gas vehicle industry is characterized by rapid changes and evolving
industry standards often resulting in product obsolescence or short product
lifecycles. Accordingly, the ability of the Company to compete will depend on
its ability to introduce its products to the marketplace in a timely manner, and
to enhance and improve its products. There can be no assurance that the
Company's competitors or future competitors will not develop technologies or
products that render the Company's products or technologies obsolete or less
marketable or that the Company will be able to successfully enhance its products
or technologies or adapt them satisfactorily. See "Business--Competition."
LIMITED AVAILABILITY OF RAW MATERIALS AND COMPONENTS. Some of the Company's
raw materials currently are supplied by a small number of specially qualified
producers, including some foreign suppliers. The most sensitive raw material
category is that of extruded aluminum tube stock, which presently is produced by
only three United States companies. Only two of these companies, Aluminum
Company of America ("Alcoa") and Spectrulite Consortium, Inc. ("Spectrulite"),
currently possess the unique press capacity required to produce the particularly
large diameter aluminum tubes upon which the Company is
12
<PAGE>
substantially dependent. Certain natural gas vehicle engine systems and their
components (including on-board emissions diagnostic equipment) are in limited
supply, and the Company's vehicle conversion programs are dependent upon the
availability of those items. In addition, the price and availability of certain
raw materials are subject to market fluctuations. There can be no assurance that
the Company's material requirements can be met in the future as demand grows,
unless additional supply capacity is developed in the United States. The
Company's performance also is materially dependent upon the ability of its
suppliers to keep pace with current and future OEM technologies. While the
Company believes that multiple sources of supply are available for all of its
raw materials, should the Company be unable to obtain adequate quantities of its
raw materials, delays or reductions in product shipments could occur which would
have a material adverse effect on the Company's business, financial condition
and results of operations. The supply and price of raw materials used to produce
the Company's products can be affected by factors beyond the control of the
Company, such as shortages, political instability and market volatility. If any
of the foregoing were to occur, the Company's business, financial condition and
results of operations would be materially adversely affected. While the Company
has the ability to pass certain material price adjustments through to its
customers, there can be no assurance that the Company can continue to pass
through these material price increases or pass them through on a timely basis.
In addition, the Company's results of operations are dependent upon its ability
to accurately forecast its requirements of raw materials. Any failure by the
Company to accurately forecast its demand for raw materials could result in the
Company either being unable to meet higher than anticipated demand for its
products or producing excess inventory, either of which may materially adversely
affect the Company's business, financial condition and results of operations.
See "Business."
COMPETITION. Several companies offer products and services that compete
directly with the Company's compressed natural gas cylinders and installation
services. While the Company is not aware of any competitor that does so, any of
the Company's existing competitors could decide to offer the same range of
vehicle systems and services offered by the Company. If the market for
compressed natural gas fueled fleet vehicles develops as anticipated by the
Company, it is likely that new competitors will enter the market. Many of the
Company's competitors have significantly greater financial, technical and
marketing resources and greater name recognition than the Company. Such
competition may impose additional pricing pressures on the Company. There can be
no assurance that the Company will compete successfully with its existing
competitors or with any new competitors.
In order to meet the emissions standards that have been established by
United States federal and state mandates over the past several years, several
alternative fuels in addition to compressed natural gas are being used or have
been proposed for use in alternative fuel vehicles. These include electricity,
liquefied petroleum gas (propane), methanol, ethanol, hydrogen, reformulated
gasoline and liquefied natural gas. Each of these other fuels have comparative
advantages and disadvantages over compressed natural gas and each is expected to
find at least some niche in the market for alternative fuels. See
"Business--Competing Alternative Fuels" and "--Competition."
DEPENDENCE ON TRANSPORTATION INDUSTRY; IMPACT OF GASOLINE PRICES. The
Company's principal operations are cyclical in that they are directly related to
domestic and foreign vehicle production, which is in turn dependent on general
economic conditions and other factors. These conditions include the level of
economic growth, employment levels, financing availability, interest rates and
consumer confidence. The Company manufactures and supplies products primarily to
the transportation original equipment market, which includes the passenger car
and truck and forklift markets. A significant reduction in vehicle demand may
have a material adverse effect on the level of the Company's sales to OEMs and
the Company's business, financial condition and results of operations. There can
be no assurance that vehicle production levels will not decline in the future.
In addition, there is substantial and continuing pressure from the major OEMs to
reduce sourcing costs, including costs associated with suppliers such as the
Company. Furthermore, the Company's business, financial condition and results of
operations may be directly affected by the price of crude oil in the commodities
markets. If the price of crude oil decreases so as to significantly
13
<PAGE>
reduce the price of gasoline, one of the primary incentives for the use of
alternative fuels would be eliminated and the Company's business, financial
condition and results of operations would be materially adversely affected. See
"Business--The Benefits of Compressed Natural Gas."
LOSS OF NET OPERATING LOSS CARRYFORWARD. Because of the losses incurred by
the Company in prior years, the Company had at December 31, 1995 a net operating
loss carryforward for income tax reporting purposes of approximately $17,000,000
expiring through 2010. Under the Internal Revenue Code of 1986, as amended (the
"Code"), upon the occurrence of a "change in control" of the Company, as defined
in the Code, the ability of the Company to offset taxable income against its net
operating loss carryforwards may be limited. The sale of the shares of Common
Stock offered hereby will trigger the net operating loss carryforward
limitations described above, limiting the annual benefit the Company could
recognize from its net operating loss carryforward. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Net Operating
Losses."
DEPENDENCE ON MANAGEMENT. The Company's growth and profitability are
dependent upon, among other things, the abilities and experience of the
Company's management team. Except for Messrs. Howard T. Phelan and John R.
Bacon, the Company's Chairman of the Board and Chief Executive Officer and the
Company's President and Chief Operating Officer, respectively, none of the
Company's management team has employment agreements with the Company and there
can be no assurance that the Company will be able to retain their services. The
Company is considering obtaining key person life insurance on the lives of each
of Messrs. Phelan and Bacon. If the services of either of these officers were no
longer available to the Company, the Company's business, financial condition and
results of operations could be materially adversely affected. See "Management."
UNCERTAINTY REGARDING PROPRIETARY RIGHTS. The Company relies upon a
combination of nondisclosure and other contractual arrangements and trade
secret, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third parties from whom the Company licenses intellectual
property. The Company enters into confidentiality agreements with each of its
employees and limits distribution of proprietary information. There can be no
assurance that the steps taken by the Company in this regard will be adequate to
deter misappropriation of proprietary information or that the Company will be
able to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights. See "Business--Intellectual Property Rights."
PRODUCT LIABILITY AND SAFETY RISKS. The Company's operations are subject to
all of the risks normally incident to the servicing and operation of
high-pressure natural gas assets, including encountering unexpected pressures,
explosions and fires, which could result in personal injuries, loss of life,
environmental damage, and other damage to the properties of the Company or
others. Errors in product design, manufacture, installation or maintenance could
result in serious personal injury, loss of life, environmental or property
damage and could severely impact the Company's ability to remain a viable
competitor in the natural gas vehicle industry. The Company's activities involve
numerous financial, business, regulatory, environmental, operating and legal
risks. Damages occurring as a result of these risks may give rise to product
liability claims against the Company. Although the Company currently maintains
product liability insurance coverage in the amount of $6 million, such insurance
is becoming increasingly expensive and there can be no assurance that the
Company will be able to maintain such insurance on acceptable terms or that such
insurance will provide adequate coverage against product liability claims. In
addition, while the Company believes that its safety programs and procedures are
adequate, no assurance can be given that accidents of design, manufacture,
installation or maintenance will not occur or that damages from any of these
accidents, if they do occur, will be covered adequately by insurance. A
successful product liability claim against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, the adverse
publicity of any claim against the Company or another industry participant could
adversely affect the Company's business prospects. See "Business--Litigation."
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ARBITRARY OFFERING PRICE. The initial public offering price has been
arbitrarily determined by negotiation between the Company and the
Representative. In determining the offering price the Representative and the
Company considered, among other things, market prices of similar securities of
comparable publicly traded companies, the financial condition and operating
information of companies engaged in activities similar to those of the Company,
the financial condition and prospects of the Company and the general condition
of the securities market. Consequently, the initial public offering price of the
Common Stock does not necessarily bear any relationship to the Company's asset
value, net worth or other established valuation criteria and may not be
indicative of prices that may prevail at any time or from time to time in the
public market for the Common Stock. See "Underwriting."
NO PRIOR PUBLIC TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior
to this Offering, there has been no public market for the Company's Common Stock
and there can be no assurance that an active trading market will develop or be
sustained after this Offering. The initial public offering price negotiated
between the Company and the Representative may not be indicative of prices that
will prevail in the trading market. The market prices for securities of
companies in the Company's industry have at times in the past been volatile. The
announcement of technological innovations or new commercial products by the
Company or its competitors, governmental regulations, regulatory approvals or
developments relating to patents or proprietary rights, publicity regarding
actual or potential products under development by the Company or others, as well
as period-to-period fluctuations in financial results and general economic,
political and market conditions, may have a significant impact on the market
price of the Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this Offering, the
Company will have a total of 3,790,195 shares of Common Stock outstanding
(4,015,195 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 1,500,000 shares (1,725,000 shares if the
Underwriters' over-allotment option is exercised in full) sold in this Offering
and 397,696 currently outstanding shares will be freely tradeable without
restriction or registration under the Securities Act by persons other than
"affiliates" of the Company, as defined under the Securities Act. The remaining
1,892,499 shares of Common Stock outstanding upon completion of this Offering
will be "restricted shares" as that term is defined by Rule 144 as promulgated
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemption provided by Rule 144. All officers, directors and
stockholders of the Company and all holders of any options, warrants or other
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock have agreed that they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose of any shares of Common Stock or other capital stock
of the Company, or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company without the prior written consent of the Representative, on behalf of
the Underwriters, for a period of 18 months from the date of this Prospectus,
provided, however, that (i) any such person may make private sales or bona fide
gifts of securities of the Company during such period if the proposed transferee
agrees to be bound by the above restrictions and (ii) such restrictions shall
not apply with respect to the laws of descent and distribution. As of the date
of this Prospectus, options to purchase a total of 100,000 and 145,167 shares of
Common Stock pursuant to the 1992 Plan and the 1996 Plan, respectively, were
outstanding and an additional 54,833 shares of Common Stock were available for
future option grants under the 1996 Plan. Any future sales of shares of Common
Stock may have an adverse effect on the market price of the Common Stock. See
"Management--Stock Option Plans," "Principal Stockholders," "Shares Eligible for
Future Sale," "Underwriting" and Note 12 of Notes to Consolidated Financial
Statements.
BROAD DISCRETION OF MANAGEMENT AND THE BOARD OF DIRECTORS IN USE OF
PROCEEDS. Although the Company intends to apply the net proceeds of this
Offering in the manner described under "Use of Proceeds," the Company's
management and the Board of Directors have broad discretion within such proposed
uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other
15
<PAGE>
aspects of the use thereof. Approximately 36.6% (45.3% if the Underwriters'
over-allotment option is exercised in full) of the net proceeds of this Offering
will be allocated and used for working capital and other general corporate
purposes. The Company may reallocate the net proceeds of this Offering among the
various categories set forth under "Use of Proceeds" as it, in its sole
discretion, deems necessary or advisable based upon prevailing business
conditions and circumstances. See "Use of Proceeds."
CONTROL BY EXISTING STOCKHOLDERS; BENEFITS OF OFFERING TO
INSIDERS. Following this Offering, the Company's directors, officers and
principal (greater than 5%) stockholders, and certain of their affiliates, will
beneficially own approximately 63% of the outstanding shares of Common Stock. As
a result of such ownership, these stockholders will be able to control the
election of all directors and other actions submitted to a vote of the Company's
stockholders. Upon completion of this Offering, approximately $50,000 of the net
proceeds of this Offering will be used to repay indebtedness to certain
affiliates of certain members of the Board of Directors of the Company. As a
result, certain members of the Board of Directors will benefit from the use of
the proceeds of this Offering. See "Use of Proceeds," "Dilution," "Principal
Stockholders" and "Certain Transactions."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the shares of Common
Stock offered hereby (at an assumed initial public offering price of $6.75 per
share) will incur an immediate dilution in pro forma net tangible book value per
share of Common Stock of $4.14 (61.3%) per share ($3.96 per share (58.6%) if the
Underwriters' over-allotment option is exercised in full). Additional dilution
to future net tangible book value per share may occur upon the exercise of the
Representative's Warrants and options and warrants that are outstanding or to be
issued under the Company's stock option plans or otherwise. See
"Capitalization," "Dilution" and "Certain Transactions."
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<PAGE>
THE COMPANY
The Company is a successor to an aluminum cylinder manufacturing business
started in 1982 and operated by Alcoa Securities Corporation, a wholly-owned
subsidiary of Alcoa, from 1984 until 1987. Between 1987 and 1992, the Company's
predecessors underwent a series of restructurings. The Company was incorporated
in Delaware in 1992 and currently operates through two divisions, CNG Cylinder
Company and NGV Technologies Company, and has one wholly-owned subsidiary:
Natural Gas Vehicle Development Company, Inc., a California corporation
("NGVDC"). Natural Gas Vehicle Development Company Southeast, Inc., a Georgia
corporation, is a wholly-owned subsidiary of NGVDC.
The Company's executive offices are located at 5580 Cherry Avenue, Long
Beach, California 90805. The Company's telephone number is (310) 630-5768 and
its fax number is (310) 630-1382.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered hereby are estimated to be approximately $8,359,000
($9,680,000 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $6.75 per share, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------ -----------
<S> <C> <C>
New Manufacturing Facility.......................................... $ 3,500,000 41.9%
Repayment of Indebtedness........................................... $ 1,295,000 15.5%
Purchase of Manufacturing Machinery for Steel Cylinder.............. $ 500,000 6.0%
Working Capital and General Corporate Purposes...................... $ 3,064,000 36.6%
------------ -----
Total......................................................... $ 8,359,000 100.0%
</TABLE>
The Company plans to use approximately $3,500,000 of the net proceeds, in
conjunction with additional bank or other financing, to build or acquire a new
manufacturing facility which will be designed to permit expansion of the
Company's current manufacturing operations, as well as to produce larger
diameter cylinders (aluminum and steel) than the Company currently is able to
produce. The timing of this application of the net proceeds of this Offering
will be dependent upon several factors, including the identification of a
suitable site and the availability of additional financing. There can be no
assurance that such additional financing will be available on acceptable terms,
if at all. The Company currently anticipates that this application of the net
proceeds will not occur prior to 12 months after the completion of this
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources,"
"Business--Manufacturing" and "--Properties."
Approximately $1,295,000 of the net proceeds of this Offering will be used
to repay certain indebtedness, including approximately $1,000,000 to repay
indebtedness to a private investor maturing on the earlier of February 28, 1997
or five days following the closing date of this Offering and bearing interest at
the rate of 15% per annum; approximately $245,000 to retire the remaining
principal amount due under a Loan and Security Agreement, dated June 2, 1992, by
and between the Company and Silicon Valley Bank, as amended (the "SVB Loan"),
maturing on December 31, 1996 and bearing interest at the prime rate of Silicon
Valley Bank; and approximately $50,000 to repay indebtedness to Clock Spring,
Inc. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Certain
Transactions."
Approximately $500,000 of the net proceeds of this Offering will be used to
purchase manufacturing machinery for a 3,600psi steel cylinder product line
which the Company introduced at the Natural Gas Vehicle Coalition Conference in
September 1996. See "Business--The Company's Fuel Storage Systems Business."
17
<PAGE>
The remaining approximately $3,064,000 of the net proceeds of this Offering,
as well as any net proceeds received from the exercise of the Underwriters'
over-allotment option, will be used for working capital and general corporate
purposes. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Certain Transactions."
These amounts are estimates, and the amount and timing of the expenditures
of the net proceeds for these purposes will depend on numerous factors,
including the status of the Company's commercialization and marketing efforts,
government regulation, competition, manufacturing activities and market
acceptance of the Company's products. The Company may also use a portion of the
net proceeds to acquire natural gas vehicle-related businesses, products or
technologies, although the Company has no agreements and is not involved in any
negotiations with respect to any such transactions. See "Risk Factors--Broad
Discretion of Management and the Board of Directors in Use of Proceeds." Pending
such uses, the Company plans to invest the net proceeds from this Offering in
short-term, investment-grade, interest bearing securities.
The Company currently anticipates that the net proceeds of this Offering
will be adequate to satisfy its capital and operational requirements for at
least 12 months from the consummation of this Offering. The Company's capital
requirements in connection with its product development and marketing activities
will be significant, including the need for additional bank or other financing
to build or acquire an additional manufacturing facility. The Company
anticipates that additional funding will be required after the use of the net
proceeds of the Offering. No assurance can be given that such additional
financing will be available when needed on terms acceptable to the Company, if
at all. See "Risk Factors--Significant Capital Requirements; Dependence on
Offering Proceeds; Future Need for Additional Financing."
DIVIDEND POLICY
The SVB Loan currently prohibits the declaration or payment of cash
dividends on the Company's capital stock without the prior written consent of
Silicon Valley Bank. The Company has never paid cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
Any future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant.
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company as of September 30, 1996, and on a pro forma, as
adjusted basis, to reflect the sale of the Common Stock offered hereby and the
initial application of the estimated net proceeds therefrom, assuming an initial
public offering price of $6.75 per share, after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company. See "Use
of Proceeds." The information set forth below should be read in conjunction with
the Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
<S> <C> <C>
PRO FORMA,
ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
SHORT-TERM DEBT:......................................................................... $ 2,360 $ 1,360
---------- -----------
LONG-TERM DEBT:.......................................................................... $ 100 $ 100
STOCKHOLDERS' EQUITY:
Preferred stock--$.01 par value; 2,000,000 shares authorized; no shares issued and
outstanding.......................................................................... $ 0 $ 0
Common stock--$.01 par value; 20,000,000 shares authorized; 2,290,195 shares issued and
outstanding; 3,790,195 shares issued and outstanding pro forma, as adjusted(1)....... $ 23 $ 38
Additional paid-in capital............................................................. $ 23,504 $ 31,848
Accumulated deficit.................................................................... $ (21,985) $ (21,985)
---------- -----------
Total stockholders' equity......................................................... $ 1,542 $ 9,901
---------- -----------
TOTAL CAPITALIZATION..................................................................... $ 4,002 $ 11,361
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Excludes (i) 158,717 shares of Common Stock and 32,000 shares of Preferred
Stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $5.67 (including 2,963 shares of Common Stock issuable
upon exercise of the warrant issued in connection with the Private Placement
assuming an initial public offering price of $6.75 per share), (ii) 100,000
shares of Common Stock issuable upon the exercise of outstanding options
granted pursuant to the 1992 Plan at an exercise price equal to the initial
public offering price per share in this Offering, (iii) 54,833 shares of
Common Stock issuable upon exercise of options available for future grant
pursuant to the 1996 Plan at an exercise price equal to the initial public
offering price per share in this Offering and (iv) 145,167 shares of Common
Stock issuable upon the exercise of outstanding options granted pursuant to
the 1996 Plan at an exercise price equal to the initial public offering
price per share in this Offering. See "Management--Stock Option Plans" and
"Shares Eligible For Future Sale."
19
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of September
30, 1996 was $1,542,000, or approximately $0.67 per share. Net tangible book
value per share represents the total amount of tangible assets less total
liabilities divided by the number of shares of Common Stock issued and
outstanding. Without taking into account any changes in net tangible book value
arising from operations after September 30, 1996, other than to give effect to
the sale of the 1,500,000 shares of Common Stock offered hereby at an assumed
initial public offering of $6.75 per share (after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company) and the initial application of the estimated net proceeds therefrom,
the pro forma net tangible book value of the Company at September 30, 1996 would
have been $9,901,000, or approximately $2.61 per share. This represents an
immediate increase in net tangible book value of $1.94 per share to existing
stockholders and an immediate dilution in net tangible book value of $4.14 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $ 6.75
Net tangible book value per share as of September 30, 1996.... $ 0.67
Increase per share attributable to this Offering.............. $ 1.94
Pro forma net tangible book value per share after this
Offering.................................................... $ 2.61
---------
Dilution per share to new investors........................... $ 4.14
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis to reflect the same
adjustments described above, the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by (i) existing stockholders of Common Stock at September 30, 1996 and (ii) new
stockholders in the Offering, assuming the sale of the 1,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $6.75
per share. The calculations are based upon total consideration given by new
investors and existing stockholders before any deduction of underwriting
discounts and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1).................................... 2,290,195 60.4% $ 23,527,000 69.9% $ 10.27
New Investors............................................... 1,500,000 39.6% $ 10,125,000 30.1% $ 6.75
---------- --- ------------- --- -----------
Total................................................. 3,790,195 100% $ 33,652,000 100% $ 8.88
---------- --- ------------- --- -----------
---------- --- ------------- --- -----------
</TABLE>
- ------------------------
(1) Excludes (i) 158,717 shares of Common Stock and 32,000 shares of Preferred
Stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $5.67 (including 2,963 shares of Common Stock issuable
upon exercise of the warrant issued in connection with the Private Placement
assuming an initial public offering price of $6.75 per share), (ii) 100,000
shares of Common Stock issuable upon the exercise of outstanding options
granted pursuant to the 1992 Plan at an exercise price equal to the initial
public offering price per share in this Offering, (iii) 54,833 shares of
Common Stock issuable upon exercise of options available for future grant
pursuant to the 1996 Plan at an exercise price equal to the initial public
offering price per share in this Offering and (iv) 145,167 shares of Common
Stock issuable upon the exercise of outstanding options granted pursuant to
the 1996 Plan at an exercise price equal to the initial public offering
price per share in this Offering. See "Management--Stock Option Plans" and
"Shares Eligible For Future Sale."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS AND PERCENTAGES)
The following selected consolidated financial data at December 31, 1995 and
for the years ended December 31, 1994 and 1995 have been derived from the
Company's audited Consolidated Financial Statements included herein. The
selected consolidated financial data at December 31, 1994 have been derived from
audited consolidated financial statements not included herein. The selected
consolidated financial data at September 30, 1996 and for the nine months ended
September 30, 1995 and 1996 were derived from unaudited consolidated financial
data of the Company that, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) necessary to fairly present such data.
The information should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto appearing elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Operating results for the nine month period ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................................. $ 5,189 $ 5,683 $ 4,796 $ 5,939
OPERATING COSTS AND EXPENSES:
Cost of sales........................................................ 5,868 6,171 4,820 5,475
Research and development............................................. 714 622 465 339
Selling.............................................................. 935 926 627 553
General and administrative........................................... 2,086 1,243 960 895
Restructuring charge................................................. 482 299 -- --
--------- --------- --------- ---------
Loss from operations (1)............................................... (4,896) (3,578) (2,076) (1,323)
Equity in losses of investments........................................ (1,034) (267) (159) (53)
Interest and other expenses, net....................................... (337) (446) (373) (218)
--------- --------- --------- ---------
(1,371) (713) (532) (271)
Net loss............................................................... $ (6,267) $ (4,291) $ (2,608) $ (1,594)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, -------------------------
-------------------- PRO FORMA,
1994 1995 ACTUAL AS ADJUSTED(2)
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Working capital (deficit)......................................... $ (1,313) $ (379) $ (1,629) $ 6,730
Total assets...................................................... 6,547 5,376 5,244 12,603
Long-term debt, net of current portion............................ 90 -- 100 100
Related party loans, non-current.................................. 5,016 -- -- --
Stockholders' equity (deficit).................................... (2,190) 2,994 1,542 9,901
</TABLE>
- ------------------------
(1) Loss from operations for 1994 and 1995 includes a restructuring charge of
$482,000 in 1994 and $299,000 in 1995. During 1994, the Company implemented
a plan to consolidate facilities and reorganize its operations. As a result,
the Company recorded a one-time restructuring charge related to severance
and relocation costs and the disposal of certain equipment. In December
1995, the
21
<PAGE>
Company's Board of Directors approved management's plan to dispose of the
Company's interest in two joint venture regional technology centers.
Accordingly, the Company has recorded a provision to wind down the joint
venture operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of Notes to Consolidated
Financial Statements.
(2) Adjusted to reflect the sale of 1,500,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $6.75 per share (after
deducting estimated offering expenses and underwriting discounts and
commissions), and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds," "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
22
<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
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND
OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY
CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company is the leading United States manufacturer and distributor of
fuel storage systems for use on-board natural gas vehicles. The Company
currently manufactures and distributes a variety of aluminum and composite
cylinder types and has recently introduced a steel cylinder product line.
Beginning in 1992, the Company established and operated its first regional
technology center offering emission testing, diagnostics, troubleshooting and
engineering support both to OEMs and to customers converting their vehicles to
operate on compressed natural gas. By the end of 1994, the Company had three
fully operational regional technology centers located in Los Angeles,
California, Austin, Texas and Atlanta, Georgia. All three regional technology
centers were joint venture arrangements wherein the Company partnered with a
local utility.
Revenues to date have been comprised principally of sales of compressed
natural gas cylinders to automotive OEMs, technology centers, aftermarket
conversion specialists, utilities and private fleets. The Company is currently
developing a full composite product line which is under limited market testing
by UPS.
The Company's cost of sales have been relatively high due to the fixed costs
and low utilization rates of the Company's current manufacturing facilities.
Expenditures on research and development reflects the continued emphasis on
product development.
RESTRUCTURING
In 1994, the Company implemented a plan to reorganize its operations. As a
result, the Company recorded a restructuring charge of $482,000 related to
severance and relocation costs and the disposal of certain equipment.
In the second quarter of 1995, the Company's Board of Directors approved
management's plan to withdraw from its joint venture investment in regional
technology centers located in Austin, Texas and Atlanta, Georgia. In Austin, the
relaxation of state regulations to include reformulated gasoline as an
alternative fuel severely reduced the size of the natural gas vehicle market. In
May 1996, the Company withdrew from its Atlanta regional technology center
partnership due to increasing losses and declining revenues from operations. The
Company's former joint venture partners in the Atlanta regional technology
center subsequently closed such center on September 15, 1996. The Company
incurred certain divestiture expenses associated with terminating its ownership
interest in the two joint ventures totalling $299,000. In addition, the Company
incurred $227,000 in general and administrative expenses related to its
withdrawal from the two joint ventures.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, consolidated
statement of operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................................................. 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of sales....................................................... 113.1% 108.6% 100.5% 92.2%
Research and development............................................ 13.8% 10.9% 9.7% 5.7%
Selling............................................................. 18.0% 16.3% 13.1% 9.3%
General and administrative.......................................... 40.2% 21.9% 20.0% 15.1%
Restructuring charge................................................ 9.3% 5.3% 0.0% 0.0%
--------- --------- --------- ---------
Loss from operations.................................................. (94.4%) (63.0%) (43.3%) (22.3%)
Equity in losses of investments....................................... (19.9%) (4.7%) (3.3%) (0.9%)
Interest and other expenses, net...................................... (6.5%) (7.8%) (7.8%) (3.7%)
--------- --------- --------- ---------
(26.4%) (12.5%) (11.1%) (4.6%)
Net loss............................................................ (120.8%) (75.5%) (54.4%) (26.8%)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 (THE "1996 PERIOD") TO NINE
MONTHS ENDED
SEPTEMBER 30, 1995 (THE "1995 PERIOD").
Net sales for the 1996 Period increased $1,144,000, or 23.9%, from the 1995
Period. This increase was primarily due to large OEM sales to GFI Control
Systems, Inc. (for use by Ford Motor Company) and to Blue Bird Body Company.
Cost of sales includes material costs, direct costs and allocated factory
overhead associated with the manufacturing of the cylinders. Cost of sales
increased by $656,000, or 13.6%, from the 1995 Period to the 1996 Period. Cost
of sales did not increase at the same rate as net sales because the Company was
able to realize economies of scale from increased unit sales volumes spread over
certain fixed manufacturing costs.
Research and development costs for the 1996 Period decreased $124,000, or
26.7%, from the 1995 Period. The decrease was comprised of an increase in costs
associated with the development of the composite cylinder offset by a $100,000
research grant contributed by Southern California Gas Co., the Company's partner
in the Los Angeles regional technology center, towards the development of a fast
flow pressure release device that would speed the depressurization of a
cylinder. In addition, the Company began the development of a composite hoop
wrapped steel cylinder in 1996 for the purpose of expanding its product line in
the heavier but more price-sensitive segment of the market.
Selling costs for the 1996 Period decreased $74,000, or 11.8%, from the 1995
Period. The reduction in selling costs is due to a reduction in personnel costs
as the Company focused on developing its relationship with the OEMs by closing
sales offices in the Northeast and Southwest United States and opening a sales
office near Detroit, Michigan.
General and administrative costs for the 1996 Period decreased $65,300, or
6.8%, from the 1995 Period. The decrease in general and administrative costs is
due to a reduction in secretarial and human resources expenditures.
24
<PAGE>
Equity in loss of investments in joint venture technology centers for the
1996 Period decreased by $107,000, or 67.0%, from the 1995 Period. The reduction
in losses was due to the divestiture in the Atlanta, Georgia and Austin, Texas
regional technology centers.
Net interest and other expense for the 1996 Period decreased $157,000, or
42.8%, from the 1995 Period. The reduction is principally due to the conversion
of related-party debt into Common Stock in the fourth quarter of 1995. Interest
expense related to the regional technology centers for the 1995 Period was
$30,000.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 increased $494,000, or 9.5%, from 1994. This increase was
primarily due to an improving natural gas vehicle market, market acceptance of
new 15 inch diameter aluminum cylinders and the introduction in 1995 of a full
composite cylinder.
Cost of sales includes material costs, direct costs and factory overhead
associated with the manufacturing of the cylinders. Cost of sales for 1995
increased by $303,000, or 5.2%, as compared to 1994. Cost of sales did not
increase at the same rate as net sales because the Company was able to realize
economies of scale from increased unit sales volumes spread over certain fixed
manufacturing costs.
Research and development costs for 1995 decreased $92,000, or 12.9%, as
compared to 1994. The level of development costs was relatively comparable from
1995 to 1994 and reflects the Company's ongoing development efforts in new types
of cylinders and the completion of the first stage prototype of a full composite
cylinder.
In 1994, the Company incurred the majority of its costs in developing its
full composite cylinder while in 1995 the Company concentrated on developing a
greater engineering capability to service specific customer needs and to improve
operational efficiency of its manufacturing facility.
Selling costs for 1995 decreased $9,000, or 1%, as compared to 1994. Selling
costs consist of personnel-related costs and sales expenses. Such costs were
comparable from 1995 to 1994 due to offsetting costs from the Company's opening
of a sales office in Detroit to increase its focus on the OEM business and the
Company's closing of its sales offices in Pennsylvania and Kansas in 1995.
General and administrative costs for 1995 decreased $843,000, or 40.4%, as
compared to 1994. The decrease in general and administrative costs is primarily
due to the reduction in administrative personnel and efficiencies gained from
the reorganization of the Company's operations in the fourth quarter of 1994,
including the addition of a new management team.
RESTRUCTURING. In the second quarter of 1995 the Company's Board of
Directors approved management's plan to withdraw from its joint venture
investment in regional technology centers located in Austin and Atlanta. As a
result, the Company wrote down its related investments of $294,000 in these two
regional technology centers.
Equity in loss of investments in joint venture regional technology centers
for 1995 decreased by $767,000, or 74.2%, from 1994. The technology centers
reduced their costs at all facilities and the technology center located in
Austin, Texas began to wind-down its operations in 1995.
Net interest and other expense for 1995 increased $109,000, or 32.3%, as
compared to 1994. The increase reflects the increased borrowings required by the
Company to fund on-going operations. See
"--Liquidity and Capital Resources."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results have fluctuated significantly in the past
and will likely continue to fluctuate significantly in the future as a result of
a variety of factors, many of which are beyond the
25
<PAGE>
Company's control. Sales have been dependent on the budget cycles and funding
arrangements of both federal and state agencies, as well as the purchasing
cycles of fleet operators, on the uncertainty associated with the timing of the
delivery of vehicles to be retrofitted, the use to which the vehicle is put
(e.g. school buses are typically retrofitted in the summer months) and the
timing of the implementation of government regulations promoting the use of
alternative fuel technology, as well as other general economic factors. See
"Business--Government Regulation."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through the
issuance of equity securities and notes to related parties and short-term
borrowings. The Company has not been able to generate sufficient cash from
operations and, as a consequence, additional financing has been required to fund
ongoing operations. Cash used in operations for the nine months ended September
30, 1996 was $1,767,000 as compared to cash used in operations of $1,954,000 for
the nine months ended September 30, 1995. As of September 30, 1996, the Company
had a working capital deficit of $1,629,000 and accounts receivable of
$1,258,000.
The Company has experienced significant working capital deficiencies when
additional financing has been delayed and, as a consequence, its major vendors
have tightened their credit terms to include prepayment or cash on delivery.
These cash shortages have had a significant impact on the operational efficiency
of the Company.
In 1994, the Company's sales and net income were adversely affected by the
industry's reaction to a rupture of a compressed natural gas cylinder which had
been installed in a pick-up truck manufactured by General Motors Corporation
("G.M.") and G.M.'s related decision to temporarily delay production of natural
gas vehicles. Although this incident did not arise from the failure of one of
the Company's compressed natural gas cylinders or otherwise involve the Company,
the ramifications in the natural gas vehicle industry from this accident
contributed to a severe cash shortage experienced by the Company in the second
half of 1995, which adversely affected the Company's efforts to improve on its
1995 results. Subsequently, as a result of capital infusions in December 1995,
June 1996 and September 1996, the Company has been able to improve its operating
results. The Company does not believe that this 1994 cylinder rupture incident
will continue to affect its sales and net income in the future, although there
can be no assurance with respect thereto.
In order to fund ongoing operations, the Company has borrowed from related
parties and raised cash from the sale of its Common Stock. Cash provided by
financing activities for the nine months ended September 30, 1996 was $1,956,000
which was comprised of short-term loans from related parties and an outside
investor.
In April 1996 and July 1996, the Company received $600,000 and $400,000,
respectively, from an investor in exchange for two promissory notes bearing
interest at 15% per annum, each due on the earlier of February 28, 1997 or five
days following the closing date of this Offering. Each of these notes is secured
by certain machinery. The Company intends to repay the $600,000 promissory note
and the $400,000 promissory note with a portion of the net proceeds of this
Offering. See "Use of Proceeds."
In December 1996, the Company received an additional $500,000 from the same
investor in exchange for a promissory note for $500,000 bearing interest at 15%
per annum and maturing in January 1998. This note is secured by all of the
Company's assets. See "Certain Transactions."
In September 1996, the Company sold 13,889 shares of Common Stock at a price
per share of $7.20 and a two-year $100,000 unsecured promissory note bearing
interest at the rate of 12% per annum, including a two-year warrant to purchase
that number of shares of Common Stock equal to $20,000 divided by the higher of
(A) the initial public offering price per share of Common Stock in this
Offering, at an exercise price equal to the initial public offering price per
share in this Offering or (B) $5.00, at an exercise price of $5.00, for an
aggregate consideration of $200,000 (the "Private Placement"). Approximately
$100,000 of the net proceeds of the Private Placement was used for the purchase
of steel cylinder
26
<PAGE>
production equipment and the remaining approximately $100,000 was used for raw
material purchases and other working capital and general corporate purposes.
Cash used by investing activities primarily has consisted of capital
expenditures for equipment used in the manufacturing facility. For the year
ended December 31, 1995 and nine months ended September 30, 1996, capital
expenditures totaled $454,000 and $179,000, respectively. The Company expects to
use a portion of the net proceeds from this Offering to purchase manufacturing
machinery for the steel cylinder and to construct a new manufacturing facility.
The timing of this latter application of the net proceeds of this Offering will
be dependent upon several factors, including the identification of a suitable
site and the availability of additional financing. There can be no assurance
that such additional financing will be available on acceptable terms, if at all.
The Company currently anticipates that this application of the net proceeds will
not occur prior to 12 months after the completion of this Offering.
In addition, the remaining portion of the net proceeds from this Offering
will be used to repay short-term debt and to fund working capital requirements.
See "Use of Proceeds."
The Company expects that its cash used in operating activities and investing
activities will increase in 1997. The Company believes that the net proceeds
from this Offering, together with other available cash, including net cash flow
from operations, will be sufficient to meet the Company's operations and capital
requirements for at least the next 12 months. The Company's capital requirements
depend on numerous factors, but principally on the market's acceptance of the
Company's products and on the development of the natural gas vehicle market in
the future.
The timing of such capital requirements cannot accurately be predicted. If
capital requirements vary materially from those currently planned, the Company
may require additional financing. The Company has no commitments for any
additional financing, and there can be no assurance that any such commitments
can be obtained on favorable terms, if at all. Any additional equity financing
may be dilutive to the Company's stockholders and debt financing, if available,
may involve restrictive covenants with respect to dividends, raising future
capital and other financial and operational matters. If the Company is unable to
obtain additional financing as needed, the Company may be required to reduce the
scope of its operations or its anticipated expansion, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
NET OPERATING LOSSES
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $17,000,000 expiring through 2010. The ultimate realization of the
net operating loss carryforwards will be subject to certain limitations due to
any changes in the Company's ownership and will be dependent upon the Company
attaining future taxable earnings.
The sale of the shares of Common Stock offered hereby will trigger the net
operating loss carryforward limitations described above, limiting the annual
benefit the Company could recognize from its net operating loss carryforward.
OTHER
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." This standard encourages, but
does not require, recognition of compensation expense based on the fair value of
equity instruments granted to employees. The Company does not plan to adopt the
recognition provisions of this standard. The disclosures required by this
standard will be included in a note to the Company's 1996 consolidated financial
statements.
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BUSINESS
GENERAL
Natural Gas Vehicle Systems, Inc. is the leading United States manufacturer
and distributor of fuel storage systems for use on-board natural gas vehicles.
The Company's fuel storage cylinders are highly-engineered pressure vessels for
the storage of compressed natural gas. Since 1990, the Company and its
predecessors have invested significant resources in product development and
manufacturing capability to meet the expected growth in demand in the natural
gas vehicle market. The United States Clean Air Act Amendments of 1990 (the
"Clean Air Act") and the Energy Policy Act of 1992 (the "Energy Policy Act"), in
combination with clean air laws passed in California, Texas and many other
states, mandate the use of alternative fueled vehicles in the United States,
reflecting the stated national policy of reducing vehicular air pollution and
dependence on foreign oil. The Company believes that compressed natural gas is
the most viable alternative fuel currently available. See "--The Benefits of
Compressed Natural Gas."
In September 1996, a bill was introduced in the United States House of
Representatives the stated purpose of which in its present form is to encourage
the increased use of domestic natural gas as a transportation fuel and thereby
realize the broad societal benefits associated with such use, including improved
environmental quality, enhanced energy security, and increased domestic economic
activity. This bill would encourage the use of natural gas vehicles (including
bi-fuel vehicles) through emission reduction credits, tax incentives for fleet
vehicle operators and owners of natural gas fueling stations, fuel credits,
shorter depreciation recovery periods for natural gas vehicles and refueling
property and the establishment of a research, development and demonstration
program at the United States Department of Energy. There can be no assurance
that this bill will be reintroduced in the next legislative session or enacted
into law in its current form, if at all. Although this bill would encourage the
use of natural gas vehicles (including bi-fuel vehicles) through emission
reduction credits, tax incentives, fuel credits and other means, it would also
amend certain provisions of the Energy Policy Act by eliminating the mandated
purchase of a specified percentage of alternative fuel vehicles by alternative
fuel providers and private fleet owners and operators in model year 1999 and
thereafter. See "--Government Regulation."
The Company currently manufactures and distributes a variety of aluminum and
composite cylinder products and has recently introduced a steel cylinder product
line. The Company believes that the commercialization and further development of
the steel cylinder product line is essential to the Company's expansion plans
since approximately 25% of the United States market and 90% of the international
market consists of steel cylinders. The Company also has an investment in a
regional technology center which converts vehicles to operate on compressed
natural gas. In addition, the Company offers emission testing, diagnostics,
troubleshooting and engineering support both to original equipment manufacturers
("OEMs") and to customers converting their vehicles to operate on compressed
natural gas.
The Company currently markets and sells its compressed natural gas cylinders
throughout the United States for use by automotive OEMs, such as Ford Motor
Company; bus manufacturers, such as Blue Bird Body Company, Transportation
Manufacturing Corporation and El Dorado National Bus; aftermarket conversion
specialists; and utility, government and private fleets, such as Southern
California Gas Co., the United States Postal Service and United Parcel Service
of America, Inc. ("UPS"). The Company currently also supplies cylinders for use
by the Ford Motor Company's program for its F-Series Pick-Up,
E-Series Econoline Van and Contour passenger car natural gas vehicle product
lines. In addition to domestic sales, the Company has also commenced marketing
its compressed natural gas cylinders in the international market and recently
received a purchase order from a Venezuelan company covering 12,000 of the
Company's cylinders through December 31, 1997. The Company is also currently
working with three South Korean companies in connection with the development of
compressed natural gas vehicle designs featuring the Company's cylinders and has
supplied cylinders for use in prototype natural gas vehicles for all three
companies.
The Company believes that fleets, which are the Company's target market,
currently account for a significant portion of all airborne pollutants in urban
areas and are the primary target of several recent
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federal and state legislative mandates requiring conversion to operation on
alternative fuels over time. In the 22 metropolitan regions in the United States
designated as serious, severe or extreme "non-attainment" areas under the Clean
Air Act (those geographic areas which do not meet the Clean Air Act's air
pollution standards), approximately 8.5 million of these vehicles are operated
in fleets of 10 or more vehicles with an operating range of less than 200 miles
per day, including school and transit buses, medium duty trucks, garbage trucks,
utility fleet vehicles, delivery vehicles and certain light-duty fleets,
including taxis and police cars. The majority of these fleet vehicles operate in
urban areas, in stop-and-go driving conditions, with predictable average daily
mileage and central refueling and servicing locations.
The Company's strategy is to take advantage of its expertise and leadership
position in its industry to increase its share of the expanding market for
natural gas vehicle fuel storage cylinders. The Company initially has focused
and will continue to focus on the high fuel-use fleet vehicle segment of the
natural gas vehicle market, in which vehicles consume large quantities of fuel
due to the nature of their operation and usage. For example, the Company is
currently developing a full composite product line which is under limited market
testing by UPS. In addition, the Company believes there are opportunities for
vehicle conversion centers as well as for turnkey projects for fleet operators
seeking a single source to fully establish a natural gas vehicle program,
providing vehicles, refueling, long-term fuel supply contracts and financing.
The Company is evaluating other joint venture opportunities with major regional
gas industry companies to establish regional technology centers to meet the
expected demand for natural gas vehicle production capabilities and conversion
services. The Company also plans to enter certain international markets through
the establishment of technology centers with foreign joint venture partners in
strategic locations throughout the world.
INDUSTRY OVERVIEW
NATURAL GAS VEHICLE INDUSTRY. The natural gas vehicle industry in the
United States consists of approximately 280 providers of natural gas vehicle
products and services serving more than 50,000 natural gas vehicles in the
United States. Natural gas vehicle industry participants offer a variety of
products and services, including high-pressure compressed natural gas fuel
vessel storage systems and conversion services and technology. In 1995, there
were approximately 42,000 natural gas vehicles in operation in the United States
and government and industry sources estimate that, by the year 2010, two million
or more natural gas vehicles will be in operation in the United States, although
there can be no assurance that such levels will be attained as predicted, if at
all. The Company also estimates that there are approximately one million natural
gas vehicles currently in operation worldwide. The following table illustrates
the projected worldwide growth in the use of natural gas vehicles from 1994 to
2000:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WORLD DEMAND FOR NATURAL GAS VEHICLES
<S> <C> <C>
(All units in thousands)
World NGVs in use
1994 1,074
2000 2,570
Graphic also represents approximate number of natural gas vehicle units in
use in the United States, Other Americas, Western Europe, Eastern Europe
and Other in 1994 and estimated demand in 2000.
Source: The Freedonia Group Inc.
</TABLE>
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GOVERNMENT MANDATE. The Clean Air Act and the Energy Policy Act, in
combination with clean air laws passed in California, Texas and many other
states, mandate the use of alternative fueled vehicles in the United States,
reflecting the stated national policy of reducing vehicular air pollution and
dependence on foreign oil. Generally, these laws specify more stringent
emissions standards for vehicles (begun in 1994 and becoming progressively more
stringent through the year 2001), and require federal, state and certain other
fleet operators to utilize domestic, non-petroleum fuels in their fleet vehicles
on an increasing basis over time. In March 1996, the Department of Energy
promulgated regulations pursuant to the Energy Policy Act requiring a minimum of
25%, 10% and 30% of newly-manufactured 1997 model year vehicles purchased by
federal, state and "fuel provider" fleet operators, respectively, to operate on
non-petroleum based "alternative fuels" such as compressed natural gas. In
December 1996, President Clinton issued an Executive Order which requires each
federal agency to develop and implement aggressive plans to fulfill the
alternative fueled vehicle acquisition requirements established by the Energy
Policy Act, subject to certain limited exceptions.
In September 1996, a bill was introduced in the United States House of
Representatives the stated purpose of which in its present form is to encourage
the increased use of domestic natural gas as a transportation fuel. Although
this bill would encourage the use of natural gas vehicles (including bi-fuel
vehicles) through emission reduction credits, tax incentives, fuel credits and
other means, it would also amend certain provisions of the Energy Policy Act by
eliminating the mandated purchase of a specified percentage of alternative fuel
vehicles by alternative fuel providers and private fleet owners and operators in
model year 1999 and thereafter. See "--Government Regulation."
The Company and several industry experts believe that the Clean Air Act and
the Energy Policy Act will promote the transition to the use of compressed
natural gas. The Energy Policy Act was introduced in response to the threat from
foreign oil dependence presented by the Gulf War in 1991. United States domestic
reserves are reported to be sufficient to meet an estimated 50 years of demand
and North American supplies are reported to be sufficient to meet an estimated
150 years of demand at current usage rates. Industry sources report that the
United States imported approximately 52% of its total oil consumption in the six
months ended June 30, 1996.
THE BENEFITS OF COMPRESSED NATURAL GAS
In the United States, compressed natural gas first was used as a motor
vehicle fuel at the turn of the century. However, refined petroleum products
(gasoline and diesel) became the dominant motor fuel due to the ease of their
storage compared to compressed natural gas, as well as the lack of pipeline
infrastructure at that time to transport natural gas from the well head to
consumers.
A task force formed by President Clinton to consider federal fleet
conversions concluded in August 1993 that the increased use of motor vehicles
powered by alternative fuels other than gasoline or diesel, including compressed
natural gas, could significantly reduce United States dependence on foreign oil,
increase energy security by diversifying the transportation fuel supply, aid in
revitalizing the domestic energy industry, stimulate the domestic economy,
create American jobs and improve environmental quality, particularly in urban
areas.
In addition to the government mandates contained in the Clean Air Act and
the Energy Policy Act, the Company and certain industry experts believe that
compressed natural gas should be viewed as the most viable of all of the various
motor vehicle "alternative fuels" and is emerging as an important fuel for motor
vehicle fleets for the following reasons:
- ENVIRONMENTAL BENEFITS -- In the United States, the Energy Policy Act and
the Clean Air Act, as well as various state clean air laws, mandate the
use of alternative fuels by fleet vehicles. Compressed natural gas is the
cleanest burning fossil fuel and can reduce nitrogen oxide emissions by up
to 76%, carbon monoxide emissions by up to 95%, carbon dioxide emissions
by up to 24% and reactive hydrocarbons by up to 95%, thus meeting
stringent governmental vehicle emissions
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standards. In addition, natural gas is not a liquid at ambient
temperatures and pressures and thus will not contaminate groundwater.
- ECONOMICS -- Compressed natural gas is substantially less expensive on an
energy equivalent basis when compared to conventional refined fuels such
as gasoline and diesel. In most areas of the United States, compressed
natural gas presently is sold to retail customers at a per gallon
equivalent cost of $0.65-$0.85 as opposed to the current price of
$1.20-$1.55 for unleaded gasoline. In addition, vehicle operating costs
are reduced due to less engine wear with resulting lower maintenance costs
and longer engine life. In addition to these direct operating savings, a
number of tax and other programs are being considered and adopted at the
federal, state and municipal level as well as by regional gas utility
companies as an additional incentive to stimulate and accelerate the
conversion by fleets to vehicles fueled by compressed natural gas.
- SUPPLY -- Natural gas is widely available and in abundant supply. United
States domestic reserves are reported to be sufficient to meet an
estimated 50 years of demand and North American supplies are reported to
be sufficient to meet an estimated 150 years of demand at current usage
rates. The Energy Policy Act mandates the development of
domestically-produced alternative fuels (including natural gas but
excluding reformulated gasoline) in order to limit reliance on imported
energy products and to increase use of domestic energy resources. The
natural gas pipeline infrastructure in the United States is extensive with
service to and throughout every major metropolitan area. Additional
pipeline capacity currently is under construction to further improve
transmission capabilities between Canada and the United States and between
specific United States markets.
- SAFETY -- The Company and certain industry experts believe that natural
gas is a safer vehicle fuel than gasoline because (i) the ignition
temperature for natural gas is higher than gasoline, (ii) natural gas is
lighter than air and thus dissipates quickly, and (iii) natural gas can
ignite only in a narrow range of fuel-air ratios.
- DEPENDENCE ON FOREIGN OIL AND BALANCE OF PAYMENTS -- Currently, the United
States obtains approximately 52% of its domestic petroleum requirements
from imported oil. In addition to the national security implications
created by this dependency, the importation of petroleum products created
a reported deficit in United States balance of payments of approximately
$45 billion in 1994 with the correspondingly negative impact on the United
States domestic economy. The United States government reports that, unless
an alternative source of energy is found, United States dependence on
imported petroleum will increase to approximately 70% by 2010.
COMPETING ALTERNATIVE FUELS
In order to meet the emissions standards that have been mandated by United
States federal and state legislation over the past several years, several
alternative fuels in addition to compressed natural gas have been proposed for
use in alternative fuel vehicles. Each of these other fuels has advantages and
disadvantages in comparison to compressed natural gas.
- ELECTRICITY -- Electricity has been aggressively promoted as a purported
"zero-emissions" alternative fuel, particularly in California. Consumers
are familiar with electricity and may be less resistant to powering their
vehicles the way they power home appliances. A recent United States
Environmental Protection Agency ("EPA") report notes, however, that
electricity is not a true "zero-emissions" fuel. Since it must be made
from primary sources of energy, the fuels used to generate the electricity
produce emissions. Current battery technology also requires a number of
heavy, expensive batteries in an electric vehicle, which batteries
constitute hazardous environmental waste after their useful life has
expired. Current battery technology generally permits only limited driving
range per vehicle, very light load capacity and no
heating/air-conditioning load. Based on these limitations, the Company
believes that, for the near future, electricity may have application only
in small consumer vehicles, and not in fleet vehicles. The Company
believes that hybrid electric
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vehicles, which produce electricity on board from an alternative fuel such
as natural gas, will not be commercially available for a number of years.
- LIQUEFIED PETROLEUM GAS (PROPANE) -- Liquefied petroleum gas is a
by-product of petroleum refining and natural gas production. It currently
is used throughout the United States for heating purposes and as a
petrochemical feedstock. Vehicles powered by propane emit less
ground-level, ozone-forming hydrocarbons than do vehicles fueled with
conventional gasoline. Engines in these vehicles generally are considered
easier to start than gasoline engines in cold weather because propane is
vaporized before injection into the engine. In addition, propane storage
tanks are significantly less expensive than the Company's fuel storage
cylinders. Disadvantages of propane include seasonal variation in price,
limited driving range, limited availability of refueling stations and
restrictions on traveling through tunnels or over bridges due to safety
concerns. Also, there is very limited supply above current levels of
production. The Company believes, however, that propane may be more widely
used in certain areas, such as in Texas, where supply is readily
available.
- METHANOL -- Manufactured from natural gas, coal or biomass, methanol (also
called wood alcohol) can be used to power vehicles when pure or blended
with gasoline. Most methanol in the United States is produced from natural
gas resources. Emissions from methanol, which has a higher octane rating
than gasoline, would be reduced by approximately 30% when compared to
gasoline use. Methanol has an advantage in "dual-fuel" or "flexible fuel"
vehicles in that only one fuel tank system is required. Both gasoline and
methanol can be pumped into the tank. Capital costs of a methanol fueling
system also are lower than for compressed natural gas since current
gasoline stations can be used with the addition of methanol storage tanks.
The Company believes that several disadvantages prevent methanol from
being considered a viable alternative to gasoline. Methanol's energy
density is about half that of gasoline, making it expensive as well as
reducing the range a vehicle can travel on an equivalent tank of fuel.
Methanol also is very corrosive and toxic. Currently, vehicles using
methanol at temperatures below 45 DEG.F are difficult to start due to
methanol's chemical nature. Also, vehicles using methanol emit
formaldehyde in their exhaust. Formaldehyde is a highly reactive compound
which presents significant emissions problems. Due to recent demands,
methanol currently is in relatively short supply.
- ETHANOL -- Ethanol is made by the fermentation of corn or other
agricultural products. Its use in the United States primarily is centered
in the Midwest, where excess corn and grain may be converted into fuel.
Ethanol currently is used as an oxygenate for approximately 9% of all
gasoline sold in the United States. Due to its use as an oxygenate, its
supply currently is on allocation in the United States. Ethanol generally
reduces harmful emissions and is relatively low in toxicity, water soluble
and biodegradable, making the consequences of large fuel spills less
harmful to the environment. In addition, ethanol prevents fuel system
deposits because of its chemically active nature. Due to its corrosive
properties and water solubility, however, ethanol would require special
metals in engines and fuel systems and could not be carried by pipeline.
It also has the same "cold-start" difficulties as methanol. Further, the
unsubsidized cost of production is very high. Finally, the life cycle
emissions of ethanol production actually increase total emissions.
- HYDROGEN -- Hydrogen's chief advantage is that it produces no carbon
dioxide or other greenhouse gases when burned. Hydrogen, however, which
must be manufactured, poses serious storage and volatility problems since
it ignites very easily.
- REFORMULATED GASOLINE -- A number of "clean" gasolines have recently been
introduced into the marketplace and research is continuing to develop even
cleaner fuels. Reformulated gasoline, capable of significantly reducing
hydrocarbon emissions, is now required in some high-ozone areas.
Reformulated gasoline is superior to other alternative fuels in that it
has a ready infrastructure and requires little education among consumers
or modification of engines or fueling systems to gain
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acceptance. Reformulated gasoline's primary disadvantage is that, in order
to permit production, refineries must be refitted, at significant cost,
resulting in higher retail gasoline prices. Further, since reformulated
gasoline is derived from petroleum, its use does not address the problem
of dependence on foreign energy sources. For these reasons, the Energy
Policy Act specifically prohibits the use of reformulated gasoline as a
mandated alternative fuel.
- OTHER ALTERNATIVE FUELS -- Other alternative fuels include liquefied
natural gas, coal-derived liquid fuels, solar and wind power and fuels
(other than alcohols) derived from biological materials, such as
bio-diesel. Management believes that liquefied natural gas, which is
cooled to a cryogenic liquid to allow greater energy storage,
prospectively is a significant alternative fuel for buses and long-
distance heavy-duty trucks. Several hundred of these vehicles are in
operation in the United States today. Various technical problems remain,
however, which have delayed widespread use. Management believes these
remaining alternative fuels are all in various experimental stages.
THE COMPANY'S TARGET MARKET
The Company currently markets its natural gas vehicle products and services
to federal, state, municipal and private fleet vehicle operators, OEMs and to
prospective customers in strategic international markets.
FLEET VEHICLES. Fleets, which the Company believes account for a
significant portion of all airborne pollutants in urban areas, are the primary
target of several recent federal and state legislative mandates requiring
conversion to operation on alternative fuels over time. In the 22 metropolitan
regions in the United States designated as serious, severe or extreme
"non-attainment" areas under the Clean Air Act (those geographic areas which do
not meet the Clean Air Act's air pollution standards), approximately 8.5 million
of these vehicles are operated in fleets of 10 or more vehicles with an
operating range of less than 200 miles per day, including school and transit
buses, medium duty trucks, garbage trucks, utility fleet vehicles, delivery
vehicles and certain light-duty fleets, including taxis and police cars. The
majority of these fleet vehicles operate in urban areas, in stop-and-go driving
conditions, with predictable average daily mileage and central refueling and
servicing locations. In light of these factors, the Company believes that these
fleet vehicles represent the primary target market for the Company's products
and services in the foreseeable future.
Fleet vehicles increasingly are being converted to operate on compressed
natural gas for a number of reasons. First, they are the primary target of
several recent federal and state legislative and regulatory mandates requiring
such conversion over time. Second, the reported average 40% fuel and maintenance
savings generated by the use of compressed natural gas over gasoline
significantly improves operating costs for fleet operators. Third, according to
industry sources, the average range for a fleet vehicle is between 75 and 150
miles/day, which falls within the operating range of a vehicle equipped with
natural gas cylinder fuel storage capacity that does not crowd the vehicle
storage areas. Fourth, some fleet operators economically can invest in a
refueling facility to service their vehicles. Fifth, since natural gas is the
cleanest burning of all fossil fuels, use of compressed natural gas results in
many environmental benefits, including significantly reduced emissions.
Government and industry sources estimate that the number of compressed natural
gas fleet vehicles in the United States will increase from approximately 42,000
in 1995 to two million or more by the year 2010, although there can be no
assurance that such levels will be attained as predicted, if at all.
The Company, and the natural gas vehicle industry as a whole, has been
focusing its efforts on penetrating those fleet vehicle market segments where
vehicles consistently consume large quantities of fuel due to their operational
characteristics and/or usage patterns. High fuel-use fleets include school and
transit buses, medium duty trucks, utility fleets and high fuel-use light duty
fleets, including taxis and police cars. Most of these high fuel-use vehicles
carry multiple fuel cylinders to allow increased range.
Although the consumer market for compressed natural gas passenger vehicles
ultimately may be larger than the fleet vehicle market, it is likely to develop
more slowly for a number of reasons. At the
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present time there are relatively few publicly accessible refueling stations,
which limits the current attractiveness of compressed natural gas as a fuel for
individual consumers. Passenger vehicles are also usually smaller than the
typical fleet vehicle and are driven shorter distances, thus using less fuel and
creating less pollution. Accordingly, consumer passenger vehicles are not yet
subject to the same stringent federal or state environmental emissions standards
which mandate the purchase of alternative fuel vehicles by fleet operators.
OEMS. To date, OEM natural gas vehicles have been produced in low volumes
by four categories of vehicle manufacturers:
- Automakers such as Ford Motor Company, Chrysler Corporation and General
Motors Corporation.
- Bus builders such as Blue Bird Body Company, Bus Industries of America, El
Dorado National Bus, Flexible Bus Company, Nova Bus, New Flyer
Corporation, Neoplan, and Navistar International Corporation.
- Chassis and body builders such as Northrop Grumman Corporation, Oshkosh
Truck Corporation and Utilimaster Corp., a division of Harley-Davidson,
Inc.
- Specialty vehicle builders such as Crane Carrier Company.
Several major automakers have begun to introduce natural gas vehicle
light-duty trucks and passenger cars. Ford Motor Company ("Ford") began
implementation of its natural gas vehicle qualified vehicle modifier ("QVM")
program in 1994 by offering its F-Series pickup trucks in a bi-fuel natural gas
vehicle model, followed by the E-Series vans (1995 model year) and the Contour,
a bi-fuel passenger car, in mid-1996. The Ford QVM program produced three model
lines of vehicles developed for compressed natural gas in the 1996 model year.
Ford also produces a factory-built dedicated-fuel Crown Victoria four-door
sedan. In July 1996, Chrysler Corporation, however, announced a temporary
cessation of production of their natural gas vehicle line until such time as
they can resolve certain cylinder design problems and achieve greater sales
volume. General Motors Corporation has recently announced the introduction of
their Sierra pickup truck to be produced as a natural gas vehicle in January
1997. In addition, Honda Motor Co., Ltd., BMW AG, AB Volvo and other foreign
OEMs have announced natural gas vehicle products and have United States
demonstration projects underway. As the major OEMs introduce the products listed
above, there are still products in the development phase which are expected to
be introduced in 1996 and continue through 1998, particularly from truck and bus
manufacturers.
INTERNATIONAL MARKET DEVELOPMENT. The international market for natural gas
vehicles is directly impacted by the cost of imported oil and the wide
availability of lower-cost natural gas in many countries. The Company estimates
that there are approximately one million natural gas vehicles currently in
operation worldwide.
Many countries with plentiful natural gas resources cannot afford to import
quantities of oil-refined products (e.g., gasoline) or to use significant
quantities of domestically produced oil for motor vehicles. Further, the air
pollution problems of many cities throughout the world now require these cities
to implement vehicle emissions controls. Consequently, large markets for
compressed natural gas vehicles are developing in certain markets such as
Argentina, Australia, Canada, Italy, New Zealand, Venezuela and South Korea. In
virtually all of these countries, tax policy typically is used to create
economic incentives to switch to clean fuels.
The Company has targeted several of these countries as potential markets for
its natural gas cylinders and other services. In Venezuela, for example, the
Company recently received a purchase order from a Venezuelan company covering
12,000 of the Company's cylinders through December 31, 1997. In South Korea, the
Company is currently working with three South Korean companies in connection
with the development of compressed natural gas vehicle designs featuring the
Company's cylinders. The Company has supplied cylinders for use in prototype
natural gas vehicles for all three companies and is negotiating to have the
Company's aluminum cylinders specified in each company's design package,
although there can be no assurance with respect thereto.
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THE COMPANY'S FUEL STORAGE SYSTEMS BUSINESS
The Company currently manufactures 43 standard sizes and types of cylinders,
all of which are highly-engineered and tested pressure vessels. These cylinders
consist of 36 aluminum cylinder types, of which 18 are 3,000psi cylinders and 18
are 3,600psi cylinders, and seven composite cylinder types, all of which are
3,000psi. In addition to its standard size product offerings, the Company has
the ability to produce variable length cylinders from 30 to 100 inches which the
Company believes gives it a competitive advantage.
The Company currently produces sidewall-wrapped composite-reinforced
aluminum cylinders in a variety of sizes to fit a variety of vehicles. In
addition, the Company has developed and is now marketing full-wrap, non-metallic
lined cylinders. The Company also is working with OEM manufacturers to design
vehicle-specific cylinders that can be incorporated into the vehicle frame,
optimizing space utilization and enhancing the structural integrity of the
vehicle. All of the Company's products are manufactured in compliance with DOT
regulations.
The Company has recently introduced a 3,600psi steel cylinder product line
that is designed to compete with current steel cylinder manufacturers. The
Company introduced the steel cylinder at the Natural Gas Vehicle Coalition
Conference in September 1996 and is currently soliciting orders for its steel
cylinder product line. Since steel cylinders have lesser wall thickness than
aluminum or composite cylinder types, they are characterized by increased
cylinder storage capacity. The Company believes that the commercialization and
further development of the steel cylinder product line is essential to the
Company's expansion plans since approximately 25% of the United States market
and 90% of the international market consists of steel cylinders. The Company
also believes that introduction of a steel cylinder to the international market
is important to the Company's business since such markets currently are growing
more rapidly than the United States market. The three types of cylinders offered
by the Company are considered complementary as the natural gas vehicle market
has various requirements and applications for cylinder usage. The Company plans
to use a portion of the net proceeds of this Offering to build a new
manufacturing facility designed to produce larger diameter cylinders (aluminum
and steel) than the Company currently is able to produce. See "Use of Proceeds."
THE COMPANY'S NATURAL GAS VEHICLE PRODUCTION, CONVERSION AND SERVICE BUSINESS
In developing its business strategy, the Company determined that the
conversion of large numbers of vehicle fleets to operate on compressed natural
gas fuel requires strong, highly-qualified natural gas vehicle manufacturing and
technical expertise that is located regionally around the United States.
Consequently, in order to rapidly increase its ability to meet the expected
demand for natural gas vehicle production capabilities, the Company is pursuing
joint ventures with major regional companies, especially gas utilities, to
develop regional technology centers. The Company also is seeking similar
collaborative relationships with other potential joint venture partners in
certain foreign markets. The Company would seek to provide technical expertise
and capital, as well as compressed natural gas cylinders and other technical
equipment, to the joint ventures while the gas company partners would provide
capital, refueling capability and local marketing services. The Company
generally seeks to assist the joint ventures in training, certification
procedures, and operations of the certified emissions testing laboratory. The
Company's wholly-owned subsidiary, NGVDC (or an affiliated entity), acts as the
Company's representative in such joint venture relationships.
NGV ECOTRANS. The Company currently has a 35% interest in NGV Ecotrans
Group, L.L.C. ("NGV Ecotrans"), the largest full-service natural gas vehicle
conversion and technology center in the world, which is located in Los Angeles,
California. Southern California Gas Co. and Cardinal Automotive Incorporated
have a 50% and a 15% interest in NGV Ecotrans, respectively. NGV Ecotrans
provides vehicle production and conversion services and technical services to
fleet customers and government regulators and serves as a data collection point
for industry and government analysis of natural gas vehicle performance. This
regional technology center also provides fleet operators with manuals and
training to properly complete conversions and provides the Company with an
opportunity to work with OEMs to ensure that its installed natural gas vehicle
systems meet warranty requirements.
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NGV Ecotrans operates in a 60,000 square foot facility with hydraulic lifts,
related tooling and diagnostic equipment, and complete emissions test
laboratories which are capable of testing vehicles to the most stringent federal
and state criteria. This regional technology center is designed to be able to
convert 2,500 to 5,000 vehicles annually, with the potential to expand. The
Company previously operated two additional technology centers with joint venture
partners in Atlanta, Georgia and Austin, Texas. In May 1996, the Company
withdrew from its regional technology center partnership in Atlanta, Georgia due
to increasing losses and declining revenues from operations. The Company's
former joint venture partners in the Atlanta regional technology center
subsequently closed such center on September 15, 1996. The Company also closed
its Austin, Texas regional technology center due to recent Texas legislation
defining reformulated gasoline and "clean diesel" as "clean alternative fuels."
This legislation provided strong disincentives to the use of compressed natural
gas as an alternative fuel and temporarily resulted in a serious reduction in
the number of natural gas vehicle conversions conducted by the Austin regional
technology center.
In October 1996, NGV Ecotrans achieved a level of conversion activity
necessary for "break-even" operation and, based upon the number of natural gas
vehicle conversion programs currently underway in the Southern California
region, the Company believes that it is well positioned to take advantage of the
increasing demand for natural gas vehicle conversion services and aggressively
plans to promote its products and expertise in this area. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FUTURE TECHNOLOGY CENTERS. The Company is in active discussions with a
number of gas utility companies and municipalities in the United States and
internationally regarding the opening of the next series of regional technology
centers, including regions covering New York, Chicago and Washington D.C. The
Company also has provided Public Service Company of New Mexico ("PSC/NM") with
technical advice and other support in order to enable PSC/NM to establish a
conversion center in Albuquerque, New Mexico. PSC/NM has agreed to use the
Company's natural gas cylinders in such conversion center whenever practical.
The Company intends to develop some or all of these locations over the next few
years, although there can be no assurance that the Company will be able to
establish any additional regional technology centers or that such technology
centers, if established, will prove profitable to the Company.
ENGINE SYSTEMS SUPPORT. NGV Technologies Company ("NGV Technologies") was
formed in 1991 as a division of the Company's immediate predecessor, primarily
as a technical support group for its cylinder and conversion businesses. NGV
Technologies offers emissions testing, trouble shooting and support to customers
(such as GFI Control Systems, Inc. (a supplier to Ford Motor Company), NGV
Ecotrans, Southern California Gas Co. and Institute of Gas Technology)
converting vehicles to operate on compressed natural gas. In January 1992, the
California Air Resources Board certified NGV Technologies to become a licensed
emission laboratory for the state of California. The laboratory is staffed with
technicians knowledgeable about vehicular engineering requirements used by OEMs.
Through strategic alliances with leading manufacturers of conversion equipment
hardware, NGV Technologies is engaged in the verification, calibration and
testing of California Air Resources Board and EPA certified vehicle conversion
system components. In addition, the emission lab of NGV Technologies assists the
kit suppliers in studying gas composition levels and their effects on vehicle
performance and emissions.
NGV Technologies, together with kit manufacturers, natural gas providers,
and conversion companies, conduct feasibility and effectiveness studies on a
variety of vehicles and engine families targeted for natural gas conversion.
These studies are conducted on both domestic and foreign vehicles and are
designed to determine the best installation configurations for component
packaging and emission improvements. Durability and mileage studies are then
conducted at pre-assigned mileage accumulations to determine conversion
integrity and monitor possible degradation of the systems affecting emissions
and vehicle performance. This process can support market planning in determining
the proper vehicle to be introduced and to which markets it may be targeted.
36
<PAGE>
MANUFACTURING
The Company's composite reinforced aluminum cylinders are manufactured at
the Company's facilities in Long Beach, California. The Company's manufacturing
facilities currently operate with one shift, five days a week. Management
estimates that the current cylinder production capacity is dependent upon the
product mix used in the United States and can achieve approximately 35,000
cylinders annually, assuming three production shifts per day.
Manufacturing the Company's sidewall-wrapped, composite aluminum cylinder is
a highly-engineered process which consists of flow forming primarily extruded
metal tube and then spinning closed ends on it under very high pressures. After
forming, the cylinders are: (1) heat treated, (2) drilled and tapped, (3) wound
with a reinforced, glass composite material, (4) heat cured, (5) autofrettaged
(binding of metal and glass) and (6) given an environmental coating. After
further testing, the cylinders are assembled and undergo final quality control
checks before shipment. Every step of the manufacturing and quality control
process conforms with DOT standards and is subject to DOT inspection. See
"--Government Regulation."
The Company's manufacturing facilities are in two adjacent buildings
consisting in the aggregate of approximately 45,000 square feet which house all
present administrative, sales, manufacturing and under-roof storage activities.
In addition, the Company plans to use a portion of the net proceeds of this
Offering and to seek additional bank or other financing to build or acquire a
new manufacturing facility. The new manufacturing facility will be designed to
permit expansion of the Company's current manufacturing operations, as well as
to produce larger diameter cylinders (aluminum and steel) than the Company
currently is able to produce. See "Use of Proceeds" and "--Properties."
CUSTOMERS AND MARKETING
The Company distributes its products through its regional technology center,
independent conversion shops, utility companies and directly to fleet operators.
It also sells specifically-engineered products directly to OEMs. The Company
employs three full-time sales representatives. In 1995, the Company established
its principal sales office in Detroit headed by an experienced OEM sales and
engineering professional, focusing on OEM sales, and designated field
representatives for the Eastern and Western regions of the country. The
Company's sales representatives work with local utilities, converters, municipal
transit authorities and state and local governments to promote the use of the
Company's products in addition to pursuing direct sales to fleet operators and
OEMs. The Company continues to develop relationships with key utilities around
the country and has significantly enlarged its advertising, promotional and
marketing budgets targeted at trade magazines and trade shows.
The following list represents a cross section of the Company's current
customers:
SELECTED CUSTOMERS
<TABLE>
<CAPTION>
OEM FLEET OPERATORS UTILITIES CONVERTERS
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
GFI Control Systems, Inc. AMOCO Production Company Lone Star Gas Co. Alternate Energy Corp.
(a supplier to Ford)
Champion Motor Coach, Inc. Southwestern Bell Telephone Consolidated Edison Company Carbeuration Labs
Company of New York, Inc.
Ford Motor Company Federal Express Corporation Pacific Gas and Electric Motorfuelers, Inc.
Company
Texas General Services Connecticut Natural Gas Propane Equipment Co.
Administration Corporation
El Dorado National Bus UPS Southern California Gas Co. Hawthorne Power Systems
Tug Manufacturing Texas Dept. of Brooklyn Union Kleenair Systems, Inc.
Transportation
Crane Carrier Company United States Postal Southern Union Gas Co. American Natural Gas Power
Service Company
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
OEM FLEET OPERATORS UTILITIES CONVERTERS
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
John Deere Company City of Long Beach, CA Michigan Gas Company Alternative Fuels
Technology Corporation
Chance Industries, Inc. The Peoples Natural Gas Co. New England Conversion
Center
Blue Bird Body Company Consolidated Natural Gas North American Fleet
Company Services
TMC Company Ltd. The Columbia Gas System, Transtar Technologies, Inc.
Inc.
Northrop Grumman Elizabethtown Gas Co.
Corporation
Bus Industries of America Boston Gas Company
Baltimore Gas and Electric
Company
Atlanta Gas Light Company
Public Service Company of
New Mexico
Equitable Resources, Inc.
</TABLE>
RESEARCH AND DEVELOPMENT
In the years ended December 31, 1994 and 1995, the Company incurred
approximately $714,000 and $622,000 of research and development expenses. In
1994, the Company participated in a federally funded project assigned to
Southwest Research Institute in San Antonio, Texas to develop a concept school
bus designed to illustrate operating and safety improvements. The prototype
school bus designed by this project incorporated four of the Company's natural
gas fuel cylinders.
In 1995, the Company commenced development of its composite-reinforced
3,600psi steel cylinder utilizing contributing funding from the Gas Research
Institute ("GRI") of Chicago. This technology has been fully developed through
prototype, engineering and production phases and recently underwent final design
and third party proof testing required for all new cylinder introductions. The
Company introduced the steel cylinder at the Natural Gas Vehicle Coalition
Conference in September 1996 and is currently soliciting orders for the steel
cylinder product line.
In 1996, the Company began the development of a high-flow pressure relief
device utilizing funding from Southern California Gas Co. to increase the
exhaust flow of natural gas from all current cylinder designs. This new device
would effectively decrease the cost of overall cylinder systems and increase
safety. Many cylinders currently require two pressure relief devices to
accommodate exhaust flow and require piping during installation. The Company's
new device would reduce this requirement.
In addition, the Company has focused on special cylinder designs for
specific OEM applications, as well as the design and construction of
multi-cylinder modules for bus frame installations and special cylinder
protective apparatus unique to the Company's many cylinder designs. The Company
has also been involved in development work with new materials for cylinder
liners, composite winding and protective coatings which will lower cylinder
costs, increase cylinder life and provide additional value-added aspects which
the Company believes are not currently available from competitors.
RAW MATERIALS
Some of the Company's raw materials currently are supplied by a small number
of specially qualified producers, including some foreign suppliers. The most
sensitive raw material category is that of extruded aluminum tube stock, which
presently is produced by only three United States companies. Only two of these
companies, Alcoa and Spectrulite, currently possess the unique press capacity
required to produce
38
<PAGE>
particularly large diameter aluminum tubes. Certain natural gas vehicle engine
systems and their components (including on-board emissions diagnostic equipment)
are in limited supply, and the Company's vehicle conversion programs are
dependent upon the availability of those items. In addition, the price and
availability of certain raw materials are subject to market fluctuations. There
can be no assurance that the Company's material requirements can be met in the
future as demand grows, unless additional supply capacity is developed in the
United States. The Company's performance also is materially dependent upon the
ability of its suppliers to keep pace with current and future OEM technologies.
While the Company believes that multiple sources of supply are available for all
of its raw materials, should the Company be unable to obtain adequate quantities
of its raw materials, delays or reductions in product shipments could occur
which would have a material adverse effect on the Company's business, financial
condition and results of operations. The supply and price of raw materials used
to produce the Company's products can be affected by factors beyond the control
of the Company, such as shortages, political instability and market volatility.
If any of the foregoing were to occur, the Company's business, financial
condition and results of operations would be materially adversely affected.
While the Company has the ability to pass certain material price adjustments
through to its customers, there can be no assurance that the Company can
continue to pass through these material price increases or pass them through on
a timely basis. In addition, the Company's results of operations are dependent
upon its ability to accurately forecast its requirements of raw materials. Any
failure by the Company to accurately forecast its demand for raw materials could
result in the Company either being unable to meet higher than anticipated demand
for its products or producing excess inventory, either of which may materially
adversely affect the Company's business, financial condition and results of
operations.
LICENSE AGREEMENTS
The Company's composite-reinforced aluminum fuel storage cylinders are
manufactured and sold under a royalty-bearing, exclusive world-wide license (the
"Fawley License") from NCF Industries, Inc., a California corporation, and
Norman C. Fawley, the principal shareholder of NCF Industries, Inc., pursuant to
the provisions of an Amended Cylinder License Agreement dated as of May 25,
1993. The Fawley License expires on the later of (i) February 9, 2005, and (ii)
the termination of any commercial sales, manufacturing, distribution, licensing
or sublicensing of licensed products commenced prior to February 9, 2005, unless
earlier terminated. The Company is obligated to pay a monthly license fee equal
to 3% of the price of each licensed product or process shipped by the Company or
its affiliates as well as 3% of the amount of any research and development
contract received by the Company or any affiliate which relates to any product,
process or technology covered by the Fawley License. In the event the Company
defaults in the payment of royalties required under the Fawley License, or
otherwise fails to perform the terms thereof, NCF Industries, Inc. and Norman C.
Fawley have the right to terminate the Fawley License and to retain sole use and
enjoyment of the licensed patents and know-how pertaining to the Company's
composite-reinforced aluminum fuel storage cylinder. The Company has previously
been in default of various conditions under the Fawley License and received
waivers from the licensors with respect to such defaults. There can be no
assurance that the Company will not default on the conditions of the Fawley
License in the future or that, if the Company does default, that adequate
waivers could be obtained. Should the Company default under the Fawley License
and such default was not waived by the licensors, the Company would be
prohibited from manufacturing or selling the fuel storage cylinders and other
products and technology covered by the Fawley License, with a resulting material
adverse effect on the Company's business, financial condition and results of
operations.
The Company is also a party to a Technology Transfer Agreement dated
February 23, 1993 with Alcoa Composites, Inc. ("Alcoa Composites"), a subsidiary
of Alcoa, and Audie L. Price pursuant to which the Company has acquired all
rights and interests under an existing technology license held by Alcoa
Composites to manufacture and sell certain processes and equipment designs for
winding high service pressure cylinders (the "Alcoa License"). The Alcoa License
is an exclusive, world-wide license which extends (i) as to Mr. Price's license
to the Company and the Company's obligations in connection therewith until the
receipt by the Company of a cumulative net selling price of licensed technology
39
<PAGE>
products equal to $100 million and (ii) as to Alcoa Composites' transfer to the
Company and the Company's obligations in connection therewith until February 23,
2003. The Company may also unilaterally terminate the Alcoa License upon 90
days' prior notice to Alcoa Composites. Under the Alcoa License, the Company was
obligated to pay to Mr. Price an annual minimum royalty of $60,000 for the first
three years as well as royalty payments equal to 1.5% of the net selling price
of licensed technology products sold for the first $100 million in net sales. In
addition, the Company is also obligated to pay to Alcoa Composites royalties
equal to 1.5% of the net selling price of licensed technology products sold by
the Company or any licensee of the Company until February 23, 2003, as well as
25% of any royalty or transfer fees that the Company demands from any licensee
until February 23, 2003.
COMPETITION
The Company's business is dependent upon the development of a market for
compressed natural gas as a vehicle fuel over other competing alternative fuels
such as electricity, liquefied petroleum gas (propane), methanol, ethanol,
hydrogen, reformulated gasoline and liquefied natural gas. Although the Company
believes compressed natural gas currently provides advantages over all of such
fuels, there can be no assurance that a market for compressed natural gas as an
alternative transportation fuel will develop (including the requisite refueling
infrastructure therefor).
Currently, several companies offer products and services that compete
directly with the Company's compressed natural gas cylinders and installation
services. While the Company is not aware that any competitor offers the same
range of products and services that it is developing, any of the existing
competitors could decide to offer the same range of vehicle systems and services
offered by the Company. If the market for fleet vehicles fueled by compressed
natural gas develops as anticipated by the Company, it is likely that new
competitors will enter the market. Many of these competitors have significantly
greater financial, technical and marketing resources and greater name
recognition than the Company. Such competition may impose additional pricing
pressures on the Company. There can be no assurance that the Company will
compete successfully with its existing competitors or with any new competitors.
The natural gas vehicle industry is highly competitive. Competition in the
natural gas vehicle fuel storage systems segment of that industry is based
primarily on the ability of the cylinder manufacturer to meet the design
requirements of individual end users and, to a lesser extent, where the weight
of the cylinder is not important, on price. The Company's fuel storage cylinder
products compete directly with products sold by six principal competitors:
Pressed Steel Tank Co., Inc., Comdyne, SCI Systems, Inc., Lincoln Composites,
EDO Corporation and Lucas Industries Inc. The Company does not believe that any
of these competitors produces an aluminum cylinder with a side wall hoop-wrapped
in the full range of sizes offered by the Company or has a product mix as broad
as that offered by the Company, which includes aluminum, composite and steel
cylinders.
The Company believes that most of the natural gas vehicle production for the
foreseeable future in the United States will be achieved through the conversion
of existing gasoline vehicles. There are several other companies which convert
natural gas vehicles, including the following: Alternative Fuels Technologies
Corporation (Jamaica, NY); American Natural Gas Power Company (Houston, TX);
Kleenair Systems, Inc. (Martinsburg, WV); Motorfuelers, Inc. (Clearwater, FL);
Natural Fuels Corporation (Denver, CO); North American Fleet Services (Phoenix,
AZ); and Transtar Technologies, Inc. (Dallas, TX).
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company enters into confidentiality
agreements with its employees and limits distribution of proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights. See "Risk
Factors--Uncertainty Regarding Proprietary Rights" and "Management--Employment
Agreements."
40
<PAGE>
GOVERNMENT REGULATION
CLEAN AIR ACT. The Clean Air Act established emissions standards for
automobile model years beginning in 1994. The Clean Air Act "Tier 1 Standards,"
which became effective in 1994 and cover all newly manufactured passenger cars
and light duty truck vehicles, require a reduction of approximately 40% in
hydrocarbon emissions and 60% in nitrogen oxide emissions from currently
applicable standards. Nationwide, 22 metropolitan regions have been specifically
designated as serious, severe or extreme "non-attainment" areas. A
non-attainment area under the Clean Air Act is a geographic region that has been
designated by the EPA as failing to meet certain air quality standards.
Commencing in 1996, the Tier 1 Standards apply to 100% of applicable vehicle
production. The Clean Air Act also stipulates proposed "Tier 2 Standards"
beginning in the year 2004, which the EPA will introduce if deemed necessary,
technologically feasible and cost effective. The Tier 2 Standards, as currently
proposed, would be 50% more stringent than the Tier 1 Standards for
hydrocarbons, nitrogen oxides and carbon monoxide emissions.
In addition to the Tier 1 Standards, and in an effort to address increased
vehicle emissions in varying weather conditions, the EPA recently has proposed
carbon monoxide emission standards for motor vehicles operated at unusually low
temperatures and in "ozone-depleting" summertime conditions. Moreover, the EPA
is currently studying the emissions which pose significant risks to human health
or about which significant uncertainties remain, including diesel particulates,
benzene, formaldehyde and butadiene, which are byproducts which result from the
use of traditional petroleum-based fuels.
It is estimated that 60% of all airborne emissions in urban areas are
produced by fleet vehicles. Because fleet vehicles are large contributors to
airborne pollution and are concentrated in urban areas which have the most
serious air pollution problems, the Clean Air Act establishes a mandatory
timetable for the adoption of alternative fuel vehicles by fleet operators. This
schedule specifies the percentage of new fleet vehicles acquired by federal,
state, and privately operated vehicle fleets which must use alternative fuels.
Under the Clean Air Act, by 1998, 30% of all newly-purchased passenger cars and
light duty fleet vehicles must use alternative fuels. The percentage increases
to 50% in 1999 and 70% by 2000.
ENERGY POLICY ACT. The Energy Policy Act was passed and signed into law in
1992. In large part the Energy Policy Act was designed to reduce United States
dependence on foreign oil imports by encouraging the use of domestically
produced fuels. As such, the Energy Policy Act contains both mandates and
incentives for the use of alternative fuels in vehicles, reflecting the stated
dual national security objectives of maintaining adequate reserves of domestic
oil and stemming the increase in United States reliance on imported oil. The
Energy Policy Act specifically prohibits the use of reformulated gasoline as a
mandated alternative fuel.
The Energy Policy Act currently requires federal and state fleets and
alternative fuel providers to purchase alternative fuel vehicles. The following
table displays the sequential, mandated implementation of newly-manufactured
fleet vehicle purchases which must utilize non-petroleum based "alternative
fuels."
<TABLE>
<CAPTION>
FISCAL YEAR (MODEL FEDERAL FLEET "FUEL PROVIDER"
YEAR IN CASE OF PROVISIONS STATE FLEET PROVISIONS FLEET PROVISIONS
"FUEL PROVIDERS") (EST. POP. 350,000) (EST. POP. 2,300,000) (EST. POP. 1,200,000)
- ------------------ ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
1996*............. 25% of new vehicles 10% of new vehicles 30% of new vehicles
1997.............. 33% of new vehicles 15% of new vehicles 50% of new vehicles
1998.............. 50% of new vehicles 25% of new vehicles 70% of new vehicles
1999.............. 75% of new vehicles 50% of new vehicles 90% of new vehicles
2000.............. 75% of new vehicles 50% of new vehicles 90% of new vehicles
2001+............. 75% of new vehicles 75% of new vehicles 90% of new vehicles
</TABLE>
- ------------------------
* In 1996, the Department of Energy delayed the phase-in dates for state and
"fuel provider" fleets by one year and there can be no assurance that
additional delays in phase-in dates will not occur in the future or that
such phase-in dates will be enforced. See "Risk Factors--Government
Regulation."
41
<PAGE>
In March 1996, the Department of Energy promulgated regulations pursuant to
the Energy Policy Act requiring a minimum of 25%, 10% and 30% of
newly-manufactured 1997 model year vehicles purchased beginning September 1,
1996 by federal, state and "fuel provider" fleet operators, respectively, to
operate on non-petroleum based "alternative fuels" such as compressed natural
gas. In December 1996, President Clinton issued an Executive Order which
requires each federal agency to develop and implement aggressive plans to
fulfill the alternative fueled vehicle acquisition requirements established by
the Energy Policy Act, subject to certain limited exceptions.
PROPOSED NATURAL GAS VEHICLE INCENTIVES ACT OF 1996. In September 1996, a
bill was introduced in the United States House of Representatives the stated
purpose of which in its present form is to encourage the increased use of
domestic natural gas as a transportation fuel and thereby realize the broad
societal benefits associated with such use, including improved environmental
quality, enhanced energy security, and increased domestic economic activity.
This bill would encourage the use of natural gas vehicles (including bi-fuel
vehicles) through emission reduction credits, tax incentives for fleet vehicle
operators and owners of natural gas fueling stations, fuel credits, shorter
depreciation recovery periods for natural gas vehicles and refueling property
and the establishment of a research, development and demonstration program at
the United States Department of Energy.
If this bill is enacted into law in its present form, however, it would
amend the above provisions of the Energy Policy Act requiring alternative fuel
providers to purchase a specified percentage of alternative fuel vehicles by
eliminating such requirement after model year 1999. This bill would also
substantially repeal the fleet requirement program provisions of the Energy
Policy Act which currently require certain private fleet owners and operators to
acquire specified percentages of alternative fuel vehicles in model year 1999
and thereafter. There can be no assurance that this bill will be reintroduced in
the next legislative session or enacted into law in its current form, if at all.
FEDERAL REGULATION OF NATURAL GAS. The Federal Energy Regulatory Commission
("FERC") regulates the transportation and resale of natural gas in interstate
commerce pursuant to the Natural Gas Act of 1938. On April 8, 1992, FERC issued
Order 636 which extensively revised the regulation of interstate pipelines by
requiring the operators of such pipelines to unbundle their transportation
services from sales services (and allow customers to choose and pay for only the
services they desire). The purpose of FERC Order 636 was to divest the
interstate pipelines of their virtual monopoly over the interstate gas sales
function. Management of the Company believes that the implementation of FERC
Order 636 has increased and will continue to increase the demand for the
Company's products by creating increased emphasis on the importance of timely
and accurate measurement and monitoring in the gas transportation and sales
industries.
DOT REGULATION. The Company's manufacturing and quality control process
must conform with DOT standards and is subject to DOT inspection for compliance
with DOT regulations governing the storage of natural gas as a fuel for use
on-board vehicles in the United States. DOT regulations cover the design and
manufacture of high-pressure compressed natural gas cylinders for vehicles and
no vehicle may operate in the United States using compressed natural gas as a
fuel unless such cylinders have been certified by DOT as being in compliance
with its regulations. The original design and testing of a new natural gas
cylinder type by any manufacturer is a time-consuming and expensive process. The
Company estimates that on-going testing of its natural gas cylinders for DOT
compliance prior to shipment added approximately 3% to the total cost of
manufacturing its cylinders in the nine month period ended September 30, 1996.
ENVIRONMENTAL REGULATION. While various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, may affect the
Company's operations as a result of their effect on natural gas development,
exploration, production, transportation and dispensing operations, the Company's
operations are not currently subject to substantial environmental laws and
regulations. The Company believes it is in material compliance with those
environmental laws and regulations to which it is subject. It is not anticipated
that the Company will
42
<PAGE>
be required in the near future to expend amounts that are material in relation
to its total capital expenditures program by reason of environmental laws and
regulations. However, inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate effect on the Company and
cost of compliance to the Company.
CALIFORNIA AND OTHER STATE ENVIRONMENTAL REGULATIONS. California has
established its own environmental regulations which in many cases are more
stringent than federal regulations and which are aimed at encouraging the
introduction of electric and other low emission alternative fuel vehicles.
California's recently enacted regulations, which include several tiers of
emissions standards, require automobile manufacturers to meet emissions
standards applicable to the entire range of vehicles sold by each manufacturer
in California. The average emissions levels will be determined by calculating
the weighted average of the emissions of the vehicles for each manufacturer.
The Company believes that automobile manufacturers will need to sell a
certain number of vehicles in California which meet these higher standards.
California's nitrogen oxide and hydrocarbon limits are substantially more
stringent than the limits mandated by the Clean Air Act. In addition, these
requirements are scheduled to gradually become even more stringent over the next
decade.
In addition, numerous other states, such as Texas, also have developed their
own regulations mandating the use of alternative fuel vehicles by fleets, which
regulations supplement provisions of the Clean Air Act and the Energy Policy
Act. In certain cases these regulations specify more aggressive conversion
timetables while significantly increasing the expected size of the population of
compressed natural gas vehicles in the future. As of November 1995, 32 states,
including California, Florida, Maryland, Massachusetts, New Jersey, New York,
Pennsylvania, Texas and Virginia, provide legislative incentives for the use of
alternative fuel vehicles. These incentives range from tax credits and cash
rebates for conversions to mandatory targets for use of alternative fuels by
specified future dates. In addition, several other states are currently
considering proposed legislation promoting the use of alternative fuel vehicles.
There can be no assurance that any such legislation will be enacted or that any
currently existing legislation will result in increased use of natural gas
vehicles or be enforced by their respective state governments.
INTERNATIONAL EMISSIONS STANDARDS. Apart from the United States, numerous
countries have taken steps to adopt measures to address automotive pollution.
The European Economic Community proposed the European Emissions Standards in
1994, which have already been adopted by several European countries, including
France, Germany, Italy, the Netherlands, Spain and the United Kingdom.
The European Emissions Standards were effectively as stringent as the
standards imposed by then current United States automotive emissions
regulations. The United Kingdom has proposed new target levels for carbon
dioxide emissions for all auto manufacturers. Similarly, Germany has proposed a
new tax to encourage the reduction of carbon dioxide emissions 25% to 30% from
existing levels by 2005. Hungary is also considering a tax incentive program to
encourage the importation of vehicles already equipped with catalytic
converters.
In Sweden, environmental authorities are proposing auto emissions standards
similar to those adopted in California for passenger and light vehicles. Such
standards are currently proposed to be phased in over a three-year, two-stage
process. Canada is also considering similar restrictions to those proposed in
Sweden. In addition, the Japanese government has announced plans to enact
stringent standards aimed at reducing nitrogen oxide emissions by up to 16% by
the year 2010.
The Company believes that these and other foreign governmental initiatives
designed to reduce vehicular air pollution will promote the worldwide transition
to the use of compressed natural gas and increase consumer awareness of the
natural gas vehicle industry. However, there can be no assurance that any such
legislation will be enacted by foreign governments or that, if enacted, such
legislation will have a positive effect on the natural gas vehicle industry.
43
<PAGE>
EMPLOYEES
As of September 30, 1996, the Company had 43 full-time employees, all of
whom are located at the Company's headquarters and production facilities in Long
Beach, California except for two sales executives, one of whom is located in the
Company's Detroit-area sales office and the other who rents office space in
North Carolina. Of the Company's 43 employees, 7 are administrative personnel, 6
are technical personnel, 5 are sales personnel and 25 are production personnel.
The Company provides its employees with group health and life insurance benefits
and a qualified 401(k) plan. The Company does not match employee contributions
to the 401(k) plan. The Company does not have any collective bargaining,
pension, or non-solicitation agreements with any of its employees other than the
1992 Plan and the 1996 Plan. See "Management--Stock Option Plans." The Company
considers its relations with its employees to be satisfactory.
PROPERTIES
The Company's executive offices and manufacturing facilities are located in
two adjacent buildings in Long Beach, California and consist of approximately
45,000 square feet of space. These facilities currently house all
administrative, sales, manufacturing and under-roof storage activities. The
Company pays an aggregate rent of $16,455 per month for such facilities under
two leases which each expire on January 31, 1997. The Company is currently
negotiating extensions for each of these leases. The Company also currently
leases office space in Bloomfield Hills, Michigan from an unaffiliated third
party at a rent of $800 per month under a lease expiring on June 30, 1997. The
Company uses this office space as its Detroit-area sales office. Management
believes that the Company's existing facilities are suitable and adequate for
their present and proposed uses and that suitable and adequate facilities will
be available on reasonable terms for any additional offices which the Company
may open. The Company plans to use a portion of the net proceeds of this
Offering to build or acquire an additional manufacturing facility to permit
expansion of its current operations. See "Use of Proceeds."
LITIGATION
In February 1996, the Company was served as a defendant with a summons and
complaint in an action for unspecified damages in excess of $50,000 filed by
James and Susan Pettengill which is currently pending in the United States
District Court for the Eastern District of Michigan arising out of burns
resulting from the August 1993 rupture of a pressured natural gas cylinder
manufactured by the Company's predecessor. The Company has investigated the
incident and believes that any damages suffered by Mr. Pettengill were not due
to any manufacturing flaw or other acts or omissions by it but were instead
caused by the negligence of Mr. Pettengill's employer in failing to properly
maintain the natural gas cylinder, to test the cylinder pursuant to applicable
law, to properly install the cylinder and to properly instruct Mr. Pettengill in
reasonably safe practices regarding the cylinder, among other things. The
Company believes that any liability it may incur in connection with this lawsuit
will be adequately covered by the Company's insurance policy. Although the
Company intends to contest these claims vigorously, there can be no assurances
as to the eventual outcome of such claims or their effect on the Company's
financial condition and results of operations. An adverse determination in the
litigation arising from these claims or the settlement of such claims in an
amount in excess of the Company's insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is not currently involved in any other material legal
proceedings.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and executive officers of the
Company, their ages and the positions held by them with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
- ------------------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Howard T. Phelan................................ 60 Chairman of the Board and Chief Executive Officer
John R. Bacon................................... 57 President, Chief Operating Officer and Director
David Dennington................................ 39 Vice President Engineering/Quality Control
Christopher R. Jacobs........................... 36 Vice President Sales/Marketing
Martin B. Richards.............................. 52 Vice President and Chief Financial Officer
Justin Schmidt.................................. 44 Chief Engineer
Paul A. Biddelman............................... 50 Director
James D. Bishop, Jr............................. 36 Director
R. Terry Botruff................................ 53 Director
W. Murray Buttner............................... 64 Director
Ernest L. Daman................................. 73 Director
Helmut Korte.................................... 59 Director
Alan D. Pesky................................... 63 Director
Jeffrey C. Swoveland............................ 41 Director
</TABLE>
The business experience of each of the Company's directors and executive
officers during at least the past five years is set forth below.
BOARD OF DIRECTORS AND KEY MANAGEMENT PERSONNEL
HOWARD T. PHELAN has been Chief Executive Officer and Chairman of the Board
of the Company since 1992. Mr. Phelan is a Charter Member of the Board of
Directors of the Natural Gas Vehicle Coalition (the industry association in
Washington, D.C.) and is also a member of the Coalition's Executive Committee.
He is Chairman of the national NGV Producers Association. He has also been
Chairman of the Southern States NGV Industry Group, formed in response to the
alternative fuel vehicle initiative of the 16 Southern Governors. Mr. Phelan has
a 35-year professional career in financial and technical management. Previously,
he held positions as a senior management consultant at Arthur D. Little Inc., as
chief business officer of Yale University, and as President and Chief Executive
Officer of Welsbach Corporation, which became a New York Stock Exchange-listed
company. Mr. Phelan holds B.S. and M.A.H. degrees from Yale University, and
authored a book on satellite orbit computations for NASA.
JOHN R. BACON has served as President and Chief Operating Officer of the
Company since 1994 and has been a director of the Company since 1995. Mr. Bacon
has brought more than 30 years of automotive experience to the Company. A
graduate from St. Louis University's Business School, he also served in the Air
Force before moving to Detroit and entering the automotive business. In 1989 he
co-founded TDM World Conversions ("TDM"), an automotive engineering and
conversion company serving the major Detroit automakers, of which Mr. Bacon
served as President until 1994. He has been a member of the
45
<PAGE>
Society of Automotive Engineers & Society of Plastic Engineers for over 25 years
and has held numerous positions in industry organizations.
DAVID DENNINGTON has been the Company's Vice President in charge of
Engineering and Quality Control since October 1994. Mr. Dennington has been in
the automotive business for over 18 years and was formerly the Director of
Quality Systems for TDM until October 1994. Mr. Dennington has also worked with
Ford Motor Company to develop their QVM program for conversion companies. A
graduate of Eastern Michigan University's business school, he has also earned
the title of Certified Quality Engineer from the American Society of Quality
Control and has participated in extensive automotive seminars dealing with
manufacturing controls and systems.
CHRISTOPHER R. JACOBS has been the Company's Vice President of Sales and
Marketing since June 1995. From 1982 until 1986, Mr. Jacobs worked for General
Motors Corporation where he held several engineering positions and also worked
as a sales representative. From 1989 until 1995, Mr. Jacobs worked for TDM where
he held positions responsible for product engineering, program management and
sales and marketing. Mr. Jacobs holds a B.S. degree in industrial design from
Western Michigan University as well as an M.S. degree in Business Administration
from Central Michigan University. He has also served as the co-chairman of the
Technical Committee of the Natural Gas Producers Association since 1994.
MARTIN B. RICHARDS has been the Company's Vice President and Chief Financial
Officer since 1992. Mr. Richards has thirteen years of manufacturing company
experience and seven years of distribution company experience. Prior to joining
the Company's predecessor in July 1991, Mr. Richards served as Chief Financial
Officer for Forecast Lighting, Inc., a light fixture manufacturer/distributor in
Los Angeles, California. Mr. Richards received his M.B.A. degree from the
University of Chicago, an M.S.C. in operations research from the London School
of Economics and a B.S.C. degree in mechanical engineering from Imperial
College, London University.
JUSTIN SCHMIDT has been the Company's Chief Engineer since 1995. Mr. Schmidt
joined the Company's predecessor in 1985 after spending 15 years with Galiso,
Inc., a manufacturing company, where he was involved in the design and
application of specialized hydrostatic test systems. Mr. Schmidt also was Vice
President of Production for a division of General Fire Extinguisher, Tech
Hydronics, a contract designer and builder of automated testing systems for fire
extinguishers and gas cylinders, from 1985 until 1988.
PAUL A. BIDDELMAN has been a director of the Company since 1993. Mr.
Biddelman has been a partner of the Hanseatic Group ("Hanseatic"), a private
investment firm based in New York, N.Y. and Hamburg, Germany since 1992 and has
been associated with the principals of Hanseatic since 1975. Mr. Biddelman
joined Hanseatic in early 1992 from Clements Taee Biddelman Inc., a merchant
banking boutique which he co-founded in 1991. Prior to that he held positions at
Drexel Burnham Lambert, Incorporated, Lehman Brothers, Kuhn, Loeb & Co. and
Oppenheimer & Co. He is also a director of Oppenheimer Group Inc., Insituform
Technologies, Inc., Celadon Group, Inc., Electronic Retailing Systems
International Inc., Petroleum Heat and Power Co., Inc., Star Gas Corporation
(the general partner of Star Gas Partners, L.P.) and Premier Parks Inc. He is a
graduate of the Harvard Business School, Columbia Law School, and has a B.S.
degree from Lehigh University.
JAMES D. BISHOP, JR. has been a director of the Company since 1996. Mr.
Bishop has been President of Caithness Corporation ("Caithness") since 1993 and
has held various other positions with Caithness and its affiliates since 1989.
Prior to joining Caithness, Mr. Bishop held several positions in sales,
engineering and systems design with Rolm Corporation, an IBM company which
manufactures telecommunications equipment, from 1983 until 1987. Mr. Bishop
received a B.S. degree in Computer Science and Mathematics from Trinity College
and an M.B.A. in Finance and Business Policy from the Kellogg Graduate School of
Management at Northwestern University. Mr. Bishop, Jr.'s father, James D.
Bishop, Sr., resigned as a director of the Company in October 1996 and Mr.
Bishop, Jr. was elected by the Company's stockholders to fill this vacancy until
the next annual meeting of stockholders.
46
<PAGE>
R. TERRY BOTRUFF has been a director of the Company since 1994. Mr. Botruff
has been manager of the Alternative Transportation Fuels Business Unit of Amoco
Oil Company ("Amoco") since its formation in November 1992. Prior to that, Mr.
Botruff served as Director of Marketing Concepts for Amoco. Mr. Botruff joined
Amoco in 1967 as a Marketing Territory Manager and has held numerous positions
of increasing responsibility, including Staff Director of the Light Oils
Planning Group in Chicago. Mr. Botruff is currently an executive officer of each
of the Natural Gas Vehicle Coalition and the International Association for
Natural Gas Vehicles. Mr. Botruff received a bachelor's degree in business
administration from Western Illinois University.
W. MURRAY BUTTNER has been a director of the Company since 1993. Mr. Buttner
has been Senior Vice-President of Caithness Resources, Inc. ("Caithness
Resources") since 1990. Prior to joining Caithness Resources, Mr. Buttner was a
private investor and director of a number of public and private manufacturing
and service companies. He had previously been Manager of the Corporate Finance
Department of Laird Incorporated. He is a graduate of Yale University and earned
an M.B.A. degree from Stanford Business School.
ERNEST L. DAMAN has been a director of the Company since 1992. Mr. Daman has
been Chairman Emeritus of Foster Wheeler Development Corp. since 1989. In 1995
the White House appointed Mr. Daman as the first state-federal technology
executive within the Office of Science and Technology. In such capacity, he
serves state and federal governments, industry and universities in cooperative
research projects and advises policy makers on environmental protection,
transportation, communication, international science and other technology
matters. Mr. Daman is also a former Chairman of the American Association of
Engineering Societies and a former President of the American Society of
Mechanical Engineers ("ASME"). Mr. Daman has served in numerous important
industry and professional positions including: Senior Vice President of Foster
Wheeler Development Corp.; Fellow, ASME-Institute of Energy (England); Pi Tau
Sigma; and Fellow, AAAS. He was elected to the National Academy of Engineering
in 1988.
HELMUT KORTE has been a director of the Company since 1992. Mr. Korte has
been President of MFM Electrologic, Inc., a manufacturer of specialized metal
forming machines, since November 1994. From April 1993 until October 1994, Mr.
Korte served as a consultant to MFM Electrologic, Inc. He was the founder and
President of Autospin, Inc., a specialty machine tool manufacturer from 1975
until April 1993. Mr. Korte developed the first compressed natural gas cylinder
spinning machine while co-founding the Company's predecessor entity in 1980. He
currently is an owner and president of several private machine building and
specialty metal-working companies in the United States and Germany.
ALAN D. PESKY has been a director of the Company since 1995. Mr. Pesky is a
principal of A. D. Pesky Co., a privately held investment management company.
Prior to this, from 1987 to 1992, he was Chairman of Peak Media, a publishing
company located in Hailey, Idaho. In 1967 Mr. Pesky was a founding partner of
Scali, McCabe, Sloves, Incorporated and during his twenty-year tenure at this
agency he held various titles including Chief Financial Officer,
President-International, Vice Chairman and Chief Operating Officer. He served as
an officer in the United States Army between receiving a B.A. degree from
Lafayette College and an M.B.A. degree from Dartmouth College.
JEFFREY C. SWOVELAND has been a director of the Company since 1996. Mr.
Swoveland is currently Vice President-Finance and Treasurer of Equitable
Resources, Inc. ("ERI") and has served in various capacities with ERI since
1994. Prior to this, Mr. Swoveland served as Vice President-Global Corporate
Banking for Mellon Bank Corporation and as an analyst with Consolidated Natural
Gas. He received a B.S. degree in geology and geophysics from the University of
Missouri and a Master's degree in finance from Carnegie Mellon University.
The Company has two agreements, each of which terminates upon consummation
of this Offering, with ERI Investments, Inc. (formerly EQT Capital Corporation)
and Amoco, respectively, to the effect that a mutually agreed upon
representative of such entities would be appointed as a member of the
47
<PAGE>
Company's Board of Directors. Messrs. Swoveland and Botruff are the designees of
ERI Investments, Inc. and Amoco, respectively.
Each director is elected to the Board of Directors for a term of one year.
The term of office of each director ends when his successor has been elected at
the annual meeting of stockholders and qualified or upon his removal or
resignation. The term in office of each executive officer ends when his
successor has been elected by the Board at any time in its discretion and
qualified or upon his removal or resignation. The Company adopted its
Certificate of Incorporation and By-Laws to provide for indemnification rights
of officers, directors, and others and eliminating the personal liability of
directors for monetary damages to the fullest extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides that a corporation
may indemnify a director, officer, employee or agent made or threatened to be
made a party to an action by reason of the fact that he was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred in connection with
such action if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, if he had no reasonable cause to believe
his conduct was unlawful. The Delaware General Corporation Law does not permit a
corporation to eliminate a director's duty of care, and the provisions of the
Company's Certificate of Incorporation and By-Laws have no effect on the
availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care.
The Company reimburses its independent directors for all reasonable expenses
incurred in connection with travelling to and from meetings of the Board of
Directors and committees thereof. Directors who are officers of the Company are
not entitled to any additional compensation as such.
COMMITTEES OF THE BOARD
The Board has an Executive Committee which consists of four directors. The
Executive Committee can exercise all of the powers of the Board between meetings
of the Board. The present members of the Executive Committee are Messrs.
Biddelman, Buttner, Swoveland and Bacon, with Mr. Buttner serving as Chairman.
In addition, the Board has an Audit Committee which consists of three
directors, at least two of whom cannot be officers or employees of the Company.
The Audit Committee is responsible for the engagement of the Company's
independent auditors and will review with them the scope and timing of their
audit services and any other services they are asked to perform, their report on
the Company's financial statements following completion of their audit and the
Company's policies and procedures with respect to internal accounting and
financial controls. The present members of the Audit Committee are Messrs.
Bacon, Biddelman and Pesky, with Mr. Biddelman serving as Chairman.
The Board also has an Executive Compensation Committee which consists of
three directors. The Executive Compensation Committee is responsible for
approving appointments, promotions and fixing salaries of executives of the
Company between meetings of the full Board. All actions of the Executive
Compensation Committee must be ratified by the Board within six months in order
to remain effective. The present members of the Executive Compensation Committee
are Messrs. Buttner, Daman and Phelan, with Mr. Daman serving as Chairman.
48
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities paid to the Chief
Executive Officer and to each of the Company's four most highly compensated
executive officers other than the Chief Executive Officer who were, at December
31, 1995, executive officers of the Company and whose total salary, bonus and
other compensation exceeded $100,000 during any such year (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
AWARDS
ANNUAL COMPENSATION --------------
----------------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#)(2)
- -------------------------------------- ----------- ---------- ----------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Howard T. Phelan...................... 1995 $ 120,000 $ 62,500 $ 109,471(3) 0
Chairman of the Board and Chief 1994 84,086 0 0 0
Executive Officer 1993 138,663 0 0 30,000
John R. Bacon......................... 1995 $ 200,000 $ 0 $ 0 100,000
President, Chief Operating Officer 1994 34,615(4) 0 30,000(5) 200,000
and Director
Martin B. Richards.................... 1995 $ 100,000 $ 0 $ 19,615(6) 35,000
Vice President and Chief Financial 1994 85,327 0 0 0
Officer 1993 94,135 0 0 20,000
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION ($)
- -------------------------------------- ---------------------
<S> <C>
Howard T. Phelan...................... $ 0
Chairman of the Board and Chief 0
Executive Officer 0
John R. Bacon......................... $ 0
President, Chief Operating Officer 0
and Director
Martin B. Richards.................... $ 0
Vice President and Chief Financial 0
Officer 0
</TABLE>
- ------------------------
(1) None of the information in this table has been adjusted to give effect to
the one-for-three reverse stock split effected prior to the date hereof.
(2) Prior to the date of this Prospectus, the Company intends to cancel all
outstanding stock options and reissue an equivalent number of options (on a
post-reverse stock split basis) with an exercise price equal to the initial
public offering price per share in this Offering.
(3) Consists of $109,471 of deferred compensation for the years 1993 and 1994.
(4) Mr. Bacon's employment with the Company commenced on October 31, 1994.
(5) Consists of 20,000 shares of Common Stock with a fair market value of $1.00
per share granted to Mr. Bacon in 1994 and $10,000 paid to Mr. Bacon for
payment of taxes on such shares.
(6) Consists of $19,615 of deferred compensation for the years 1993 and 1994.
49
<PAGE>
The following table sets forth certain information for the Named Executive
Officers with respect to grants of stock options to purchase Common Stock of the
Company made during the fiscal year ended December 31, 1995.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE
AT ASSUMED ANNUAL
RATE
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION
OPTIONS EMPLOYEES PRICE PER TERM($)(4)
GRANTED IN FISCAL SHARE EXPIRATION --------------------
NAME (#)(2)(3) YEAR ($/SH) DATE 5% 10%
- ------------------------------------------------- ----------- ------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John R. Bacon.................................... 100,000 41.7% $ 3.00 12/14/05 $ 4.89 $ 7.83
Martin B. Richards............................... 10,000 4.2% $ 3.00 6/26/05 $ 4.89 $ 7.83
25,000 10.4% $ 3.00 12/14/05 $ 4.89 $ 7.83
</TABLE>
- ------------------------
(1) None of the information in this table has been adjusted to give effect to
the one-for-three reverse stock split effected prior to the date hereof.
(2) Consists of stock options granted pursuant to the 1992 Plan and the 1996
Plan. The maximum term of each option granted is ten years from the date of
grant. The exercise price is equal to the market value of the stock on the
grant date.
(3) Prior to the date of this Prospectus, the Company intends to cancel all
outstanding stock options and reissue an equivalent number of options (on a
post-reverse stock split basis) with an exercise price equal to the initial
public offering price per share in this Offering.
(4) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annually compounded stock price appreciation of 5% and 10% from the date
the option was granted over the full option term. These assumed annually
compounded rates of stock price appreciation are mandated by the rules of
the Commission and do not represent the Company's estimates or projection of
future Common Stock prices.
EMPLOYMENT AGREEMENTS
Upon completion of this Offering, the Company will enter into two-year
employment agreements (subject to automatic renewal for successive one-year
periods unless terminated by the parties) with each of Howard T. Phelan, the
Company's Chief Executive Officer, and John R. Bacon, the Company's President,
pursuant to which Messrs. Phelan and Bacon shall receive an annual salary of
$120,000 and $200,000, respectively.
Each of the employment agreements with Messrs. Phelan and Bacon will require
the full-time services of such employees. The agreements will also contain
covenants (i) restricting the employee from engaging in any activities
competitive with the business of the Company during the term of such employment
agreements and (ii) prohibiting the employee from disclosure of confidential
information regarding the Company. In the event of termination of either Mr.
Phelan or Mr. Bacon without cause (as defined in their respective employment
agreements), each of these employment agreements will provide that the
terminated employee shall be entitled to a severance payment equal to the
remaining amount of compensation due to such employee under the remaining term
of his employment agreement, payable in equal monthly installments.
50
<PAGE>
STOCK OPTION PLANS
1992 STOCK OPTION PLAN. In May 1992, the Company adopted the Amended and
Restated Natural Gas Vehicle Systems, Inc. Stock Option Plan, which plan amended
and restated the Company's 1992 NGV Systems Executive Stock Option Plan (as
amended and restated, the "1992 Plan"). The purpose of the 1992 Plan was to
encourage and enable selected officers and other key employees of the Company to
acquire and retain a proprietary interest in the Company through ownership of
its stock. Options granted under the 1992 Plan are not "incentive" stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The 1992 Plan, which provided for the issuance of up to a maximum of 300,000
shares of Common Stock (100,000 shares on a post-reverse stock split basis), was
previously administered by a committee consisting of two directors appointed by
the Board of Directors (the "Stock Option Committee"), but is currently
administered by the Board of Directors. The number of shares of Common Stock as
to which stock options were granted to officers or key employees was determined
by the Stock Option Committee based upon such factors as it deemed to be
relevant, such as previous and anticipated contributions to, and duration of
employment with, the Company.
The exercise price per share of a stock option was established by the Stock
Option Committee in its discretion, but may not be less than the fair market
value of a share of Common Stock on the date of grant. Stock options may not be
exercised unless and until the optionee shall have been or remained in the
employ of the Company for one year and are exercisable (subject to such
restrictions and vesting provisions as the Stock Option Committee determined on
the date of grant in its discretion) in part from time to time or in whole at
any time after full vesting for a period not to exceed ten years. Such period
was established by the Stock Option Committee in its discretion on the date of
grant. Stock options terminate immediately upon the date of termination of
employment of an officer or employee who has been employed by the Company for
less than one year and three months after the date of termination of employment
(other than for death or disability, in which event such stock options terminate
one year thereafter) of an officer or employee who has been employed by the
Company for more than one year. Stock options are not transferable otherwise
than by will or the laws of descent and distribution. The 1992 Plan (but not
stock options then outstanding under the 1992 Plan) terminates in May 2002 or on
such earlier date as the Board may determine in its discretion. There are
currently options to purchase an aggregate of 100,000 shares of Common Stock
outstanding under the 1992 Plan.
1996 STOCK OPTION PLAN. In October 1996, the Company adopted the 1996
Combined Incentive and Nonqualified Stock Option Plan (the "1996 Plan"). The
purpose of the 1996 Plan is to enable the Company to attract and retain
qualified personnel and to provide additional incentives to the Company's
officers, directors and employees to advance the interests of the Company by
giving them an opportunity to participate in the ownership of the Company. The
1996 Plan provides for the grant of stock options that are either "incentive" or
"non-qualified" for federal income tax purposes. "Incentive" stock options are
expected to satisfy the requirements of Section 422A of the Code and,
accordingly, no "incentive" stock options may be granted to officers or
directors of the Company who are not also employees of the Company.
The 1996 Plan, which provides for the issuance of up to a maximum of 200,000
shares of Common Stock (subject to adjustment pursuant to customary
anti-dilution provisions) is currently administered by the Board of Directors of
the Company, although the Board in its discretion may delegate any or all of
such authority to a committee of the Board. The number of shares of Common Stock
as to which stock options will be granted to any officer, director or employee
will be determined by the Board based upon such factors as it may deem to be
relevant, such as previous and anticipated contributions to, and duration of
employment with, the Company, provided, however, that no officer, director or
employee of the Company shall receive a grant or grants of options with respect
to more than 50,000 shares of Common Stock (subject to adjustment pursuant to
customary anti-dilution provisions) in any calendar year.
51
<PAGE>
The exercise price per share of a stock option is established by the Board
in its discretion, but may not be less than the fair market value (or not less
than 110% of such value if the individual to whom an "incentive stock option is
granted owns, as of the date of grant, shares of the Company's capital stock
possessing 10% or more of the total voting power of all outstanding shares of
the Company's capital stock) of a share of Common Stock as of the date of grant.
The aggregate fair market value (determined as of the date of grant of shares of
Common Stock) with respect to which "incentive" stock options are exercisable
for the first time by an individual to whom an "incentive" stock option is
granted during any calendar year (under "incentive" stock option plans of the
Company) may not exceed $100,000. Payment for shares of Common Stock purchased
upon the exercise of stock options may be made in cash or by check, or, subject
to applicable laws and if permitted by the Board, by delivery of shares of
Common Stock having a fair market value equal to the exercise price of the stock
options then being exercised.
Stock options may be exercisable (subject to such restrictions and vesting
provisions as the Board may determine on the date of grant in its discretion) in
part from time to time or in whole at any time after full vesting for a period
not to exceed ten years, in the case of both "non-qualified" stock options and
"incentive" stock options, from the date determined by the Board, which in no
event shall be prior to six months after the date of grant. Such period is
established by the Board in its discretion on the date of grant. Stock options
terminate three months after the date of termination of employment or, in the
case of a director who is not also an employee, association with the Company for
a reason other than death or disability (in which event such stock options
terminate one year thereafter), retirement (in which event such stock options
terminate three months after the date of retirement, unless the retired option
holder dies within such stated term, in which case such stock options will
terminate upon the earlier to occur of one year from the date of death and the
expiration of the stated term of such options) or termination for cause (in
which event such stock options immediately terminate). Stock options are not
transferable except upon death (in which case they may be exercised by the
decedent's executor or other legal representative). The 1996 Plan (but not stock
options then outstanding under the 1996 Plan) terminates in October 2006 or on
such earlier date as the Board may determine in its discretion. There are
currently options to purchase an aggregate of 145,167 shares of Common Stock
outstanding under the 1996 Plan.
401(K) PLAN
The Company has established the NGV Systems Inc. Employees' 401(k) Plan (the
"401(k) Plan") for eligible employees of the Company who may contribute up to
15% of their pre-tax annual salaries to the 401(k) Plan, subject to the maximum
annual deferral established by law. All contributions made by an employee are
fully vested and are not subject to forfeiture. The Company is not required to
make any contributions to the 401(k) Plan on behalf of its employees.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock, the only class of capital stock of the Company of
which shares will be outstanding after this Offering, on a comparative basis, as
of December 20, 1996 and as adjusted to reflect the sale of Common Stock offered
hereby (in each case) by (i) all persons who beneficially own, to the knowledge
of the Company, 5% or more of the Common Stock, (ii) each director of the
Company individually, (iii) each Named Executive Officer, and (iv) all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP
OFFERING
NUMBER OF SHARES ------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY BEFORE AFTER
OR NUMBER OF PERSONS IN GROUP (1) OWNED (2) OFFERING OFFERING
- ----------------------------------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Caithness/NCF, L.P........................................................... 763,795 33.4% 20.2%
1114 Avenue of the Americas
35th Floor
New York, NY 10036-7790
Hanseatic Corporation (3).................................................... 373,545 16.0% 9.7%
450 Park Avenue
Suite 2302
New York, NY 10152
ERI Investments, Inc......................................................... 277,778 12.1% 7.3%
c/o Equitable Resources, Inc.
420 Boulevard of the Allies
Pittsburgh, PA 15219
Paul S. Dopp(4).............................................................. 266,667 11.2% 6.9%
10 Commonwealth Drive
Basking Ridge, NJ 07920
Amoco Oil Company............................................................ 255,608 11.2% 6.7%
200 East Randolph Drive
Chicago, IL 60601
NCF Industries, Inc.......................................................... 152,738 6.7% 4.0%
2320 Cherry Industrial Circle
Long Beach, CA 90805-4417
Caithness Resources, Inc..................................................... 114,941 5.0% 3.0%
1114 Avenue of the Americas
35th Floor
New York, NY 10036-7790
Howard T. Phelan (5)......................................................... 83,465 3.6% 2.2%
John R. Bacon (6)............................................................ 80,668 3.4% 2.1%
Paul A. Biddelman (3)........................................................ 373,545 16.0% 9.7%
James D. Bishop, Jr. (7)..................................................... 894,716 39.1% 23.6%
R. Terry Botruff (8)......................................................... 255,608 11.2% 6.7%
W. Murray Buttner (7)........................................................ 894,716 39.1% 23.6%
Ernest L. Daman.............................................................. 3,334 * *
Jeffrey C. Swoveland (9)..................................................... 277,778 12.1% 7.3%
Helmut Korte (10)............................................................ 69,679 3.0% 1.8%
Alan D. Pesky (11)........................................................... 74,306 3.2% 2.0%
Martin B. Richards (12)...................................................... 16,334 * *
All directors and executive officers as a group
(14 persons) (3)(5)(6)(7)(8)(9)(10)(11)(12)................................ 2,149,566 86.6% 54.0%
</TABLE>
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* Represents beneficial ownership of less than 1%.
(1) The address of each person listed, unless otherwise indicated, is c/o
Natural Gas Vehicle Systems, Inc., 5580 Cherry Avenue, Long Beach,
California 90805.
(2) As used in this table "beneficial ownership" means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed as of any date to have "beneficial ownership"
of any security that such person has a right to acquire within 60 days after
such date. Any security that any person named above has the right to acquire
within 60 days is deemed to be outstanding for purposes of calculating the
ownership percentage of such person but is not deemed to be outstanding for
purposes of calculating the ownership percentage of any other person. Unless
otherwise noted, each person listed has the sole power to vote, or direct
the voting of, and power to dispose, or direct the disposition of, all of
such shares.
(3) Includes 324,525 shares of Common Stock and 49,020 shares subject to
warrants beneficially owned by Hanseatic Corporation ("Hanseatic"), which
are exercisable within 60 days of December 20, 1996. These shares and
warrants are held by Hanseatic Americas LDC, a Bahamian limited duration
company in which the sole managing member is Hansabel Partners LLC, a
Delaware limited liability company in which the sole managing member is
Hanseatic. Paul A. Biddelman, a director of the Company, is an officer of
Hanseatic and has shared voting and investment power in the shares of Common
Stock and warrants held by Hanseatic.
(4) Includes 100,000 shares subject to warrants exercisable within 60 days of
December 20, 1996.
(5) Includes 7,334 shares held by Mr. Phelan through his ownership interest in
Caithness/NCF, L.P. and 26,667 shares subject to stock options exercisable
within 60 days of December 20, 1996.
(6) Includes 73,334 shares subject to stock options exercisable within 60 days
of December 20, 1996.
(7) Includes 763,795 shares held by Caithness/NCF, L.P., 15,980 shares held by
Caithness Composites, Inc. and 114,941 shares held by Caithness Resources.
Mr. Bishop, Jr., a director of the Company, is the President of Caithness
Corporation, an affiliate of each of Caithness/NCF, L.P., Caithness
Composites, Inc. and Caithness Resources. Mr. Buttner, a director of the
Company, is a Senior Vice President of Caithness Resources, an affiliate of
each of Caithness/NCF, L.P. and Caithness Composites, Inc. Each of Messrs.
Bishop, Jr. and Buttner disclaim beneficial ownership of all of these
shares.
(8) Includes 255,608 shares held by Amoco Oil Company. Mr. Botruff, a director
of the Company, is an officer of Amoco and is Amoco's designee to the
Company's Board of Directors pursuant to an agreement between the Company
and Amoco. See "Management." Mr. Botruff disclaims beneficial ownership of
the shares of Common Stock held by Amoco.
(9) Includes 277,778 shares held by ERI Investments, Inc. ("ERI"). Mr.
Swoveland, a director of the Company, is an officer of Equitable Resources,
Inc., an affiliate of ERI, and is ERI's designee to the Company's Board of
Directors pursuant to an agreement between the Company and ERI. See
"Management." Mr. Swoveland disclaims beneficial ownership of the shares of
Common Stock held by ERI.
(10) Includes 69,679 shares held by Korte Investments, Inc. Mr. Korte, a
director of the Company, is an officer of Korte Investments, Inc. Mr. Korte
disclaims beneficial ownership of the shares of Common Stock held by Korte
Investments, Inc. except to the extent of his pecuniary interest therein, if
any.
(11) Includes 8,056 shares held jointly by Mr. Pesky with his wife. Also
includes an aggregate of 3,750 shares held in trust for the benefit of Mr.
Pesky's adult children and 62,500 shares held by Three Star Partners, an
affiliate of Mr. Pesky, of which Mr. Pesky disclaims beneficial ownership.
(12) Includes 16,334 shares subject to stock options exercisable within 60 days
of December 20, 1996.
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CERTAIN TRANSACTIONS
In April 1996, the Company entered into a Loan and Security Agreement with
Paul S. Dopp, pursuant to which Mr. Dopp provided the Company with a loan in the
principal amount of $600,000 with interest at the rate of 15% per annum (as
amended, the "Dopp Loan"). Under the Dopp Loan, the Company is obligated to make
monthly payments of interest only from May 1, 1996 through February 1, 1997 and
a final balloon payment of the unpaid principal balance of the Dopp Loan
(including accrued interest thereon) on the earlier of February 28, 1997 or five
days following the closing date of this Offering. The Dopp Loan is subject to a
security interest in certain machinery owned by the Company.
In July 1996, the Company entered into another Loan and Security Agreement
with Mr. Dopp pursuant to which Mr. Dopp provided the Company with a loan in the
principal amount of $400,000 with interest at the rate of 15% per annum (as
amended, the "Second Dopp Loan"). Under the Second Dopp Loan, the Company is
obligated to make monthly payments of interest only from August 1, 1996 through
February 1, 1997 and a final balloon payment of the unpaid principal balance of
the Second Dopp Loan (including accrued interest thereon) on the earlier of
February 28, 1997 or five days following the closing date of this Offering. The
Second Dopp Loan is subject to a security interest in certain machinery owned by
the Company.
In connection with the Second Dopp Loan, the Company issued to Mr. Dopp, for
nominal consideration, warrants to purchase 100,000 shares of Common Stock of
the Company at an exercise price of $3.00 per share at any time until June 30,
2001 (the "Dopp Warrants"). The Dopp Warrants provide for adjustment in the
number of shares of Common Stock issuable upon the exercise thereof and in the
exercise price of the Dopp Warrants as a result of certain dilutive events;
provided, however, that any reverse stock split or combination of the Common
Stock will not reduce the number of shares of Common Stock receivable upon
exercise of the Dopp Warrants.
The Company also agreed to hire Mr. Dopp as a consultant until such time as
the Company has repaid the Dopp Loan and the Second Dopp Loan at a monthly fee
of $7,500 per month plus reasonable, documented out-of-pocket expenses. The
Company intends to repay the Dopp Loan and the Second Dopp Loan out of a portion
of the net proceeds of this Offering. See "Use of Proceeds."
In December 1996, the Company entered into another Loan and Security
Agreement with Mr. Dopp pursuant to which Mr. Dopp provided the Company with a
loan in the principal amount of $500,000 with interest at the rate of 15% per
annum (the "Third Dopp Loan"). Under the Third Dopp Loan, the Company is
obligated to make monthly payments of interest only from January 1, 1997 through
January 1, 1998 and a final balloon payment of the unpaid principal balance of
the Third Dopp Loan (including accrued interest thereon) on January 31, 1998.
The Third Dopp Loan is subject to a security interest in all of the Company's
assets.
In connection with the Dopp Loan, Clock Spring, Inc. ("Clock Spring") and
Caithness Composites, Inc. ("Caithness Composites") granted Mr. Dopp an option
to purchase up to an aggregate of 166,667 shares of Common Stock (the "Option
Shares") owned by them (and currently held in escrow by a third party) at an
exercise price of $3.00 per share expiring on April 4, 1999. In connection with
the Third Dopp Loan, Mr. Dopp exercised his option with respect to the Option
Shares in exchange for two promissory notes payable to Caithness Composites and
Clock Spring in the amounts of $451,166 and $48,834, respectively. Messrs.
Howard T. Phelan, the Chairman and Chief Executive Officer of the Company, and
W. Murray Buttner, a director of the Company, are directors of Clock Spring and
Mr. Buttner is also a Senior Vice President of Caithness Resources, an affiliate
of Caithness Composites.
In April 1996 and July 1996, the Company issued an aggregate 36,016 shares
of Common Stock to Clock Spring in exchange for the cancellation of indebtedness
aggregating $324,138. In addition, the Company currently is indebted to Clock
Spring in the amount of $50,000 pursuant to a demand promissory note bearing
annual interest at the prime rate plus 3%. The Company intends to repay this
promissory note with a portion of the net proceeds of this Offering. Messrs.
Howard T. Phelan, the Chairman and Chief Executive Officer of the Company, and
W. Murray Buttner, a director of the Company, are directors of Clock Spring. See
"Use of Proceeds."
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In March 1996, Caithness/NCF, L.P., a Delaware limited partnership of which
Caithness Composites is the general partner, loaned $250,000 to the Company
pursuant to a promissory note which bears interest at the prime rate plus 3% per
annum and is due and payable on demand. W. Murray Buttner, a director of the
Company, is a Senior Vice President of Caithness Resources, an affiliate of
Caithness/NCF, L.P., and James D. Bishop, Jr., a director of the Company, is the
President of Caithness, a limited partner of Caithness/NCF, L.P.
In March 1996, the Company entered into a Loan and Security Agreement (as
amended, the "Caithness Agreement") with Caithness, a stockholder of the
Company, pursuant to which Caithness agreed to arrange for an irrevocable
standby letter of credit with an expiration date of October 1, 1996 to be issued
by The Bank of New York on account of the Company for the benefit of Alcoa in
the principal amount of $600,000. Caithness provided $600,000 to The Bank of New
York as cash collateral for such line of credit which is evidenced by a
promissory note from the Company in favor of Caithness. Interest on the unpaid
balance of any loan drawn from the line of credit accrues at the prime rate
charged by The Bank of New York plus two percent and is payable on demand. The
line of credit was subject to a security interest in all of the Company's
tangible and intangible assets and terminated on October 1, 1996. The $600,000
cash collateral for this line of credit has been returned to Caithness and
Caithness has loaned the Company $300,000 to purchase raw materials from Alcoa
pursuant to a promissory note bearing interest at the prime rate plus 2% which
is due and payable on demand. W. Murray Buttner, a director of the Company, is a
Senior Vice President of Caithness Resources, an affiliate of Caithness, and
James D. Bishop, Jr., a director of the Company, is the President of Caithness.
In January 1996, W. Murray Buttner, a director of the Company and Senior
Vice President of Caithness Resources, loaned $150,000 to the Company pursuant
to two promissory notes, each of which bears interest at the rate of 11% per
annum and is due and payable on demand. In December 1995, the Company repaid a
$50,000 loan made by Mr. Buttner in May 1995.
In December 1995 and June 1996, the Company issued an aggregate 142,240
shares of Common Stock to Caithness/NCF, L.P., at a conversion rate of $9.00 per
share, in exchange for the cancellation of indebtedness aggregating $1,280,151.
W. Murray Buttner, a director of the Company, is a Senior Vice President of
Caithness Resources, and James D. Bishop, Jr., a director of the Company, is the
President of Caithness. Caithness is a limited partner of Caithness/NCF, L.P.
The Company is currently indebted to Equitable Resources Energy Company in
the amount of $300,000 pursuant to a demand secured promissory note, dated
November 20, 1995, bearing annual interest at 10%. Upon consummation of this
Offering, the Company intends to convert this outstanding indebtedness into
shares of Common Stock at a conversion rate equal to the initial public offering
price per share of Common Stock in this Offering. Jeffrey C. Swoveland, a
director of the Company, is an officer of Equitable Resources, Inc., an
affiliate of Equitable Resources Energy Company.
In May 1995 and December 1995, the Company issued an aggregate 180,081
shares of Common Stock to Hanseatic Corporation, at a conversion rate of $9.00
per share, in exchange for the cancellation of indebtedness aggregating
$1,620,723. Paul A. Biddelman, a director of the Company, is an officer of
Hanseatic Corporation.
In May 1995, the Company issued 255,608 and 166,667 shares of Common Stock
to Amoco and EQT Capital Corporation, each at a conversion rate of $9.00 per
share, in exchange for the cancellation of indebtedness of $2,300,472 and
$1,500,000, respectively. R. Terry Botruff, a director of the Company, is an
officer of Amoco and Jeffrey C. Swoveland, a director of the Company, is an
officer of Equitable Resources, Inc., the successor in interest to EQT Capital
Corporation.
In January 1995, Alan D. Pesky, a director of the Company, and his wife
loaned $100,000 to the Company pursuant to a promissory note bearing interest at
a variable rate of 8-16% per annum. In May 1995, the Company converted $50,000
of such indebtedness into 5,556 shares of Common Stock at a conversion rate of
$9.00 per share. In June 1995, the Company repaid the remaining $50,000 of
indebtedness represented by such promissory note.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, and 2,000,000 shares of Preferred
Stock, par value $0.01 per share. As of the date of this Prospectus, 2,290,195
shares of Common Stock are outstanding. After giving effect to the sale of the
shares of Common Stock offered hereby, there will be 3,790,195 shares of Common
Stock outstanding (4,015,195 shares if the Underwriters' over-allotment option
is exercised in full).
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share on
all matters submitted to a vote at a meeting of stockholders. Each stockholder
may exercise such vote either in person or by proxy. Stockholders are not
entitled to cumulate their votes for the election of directors, which means that
the holders of more than 50% of the Common Stock voting for the election of
directors can elect all of the directors to be elected by holders of Common
Stock, in which event the holders of the remaining Common Stock voting will not
be able to elect any director. Subject to preferences to which holders of
Preferred Stock issued after the sale of the Common Stock offered hereby may be
entitled, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board out of
funds legally available therefor. The Company does not presently anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets of the Company which
are legally available for distribution to stockholders, subject to the prior
rights on liquidation of creditors and to preferences to which holders of
Preferred Stock issued after the sale of the Common Stock offered hereby may be
entitled. The holders of Common Stock have no preemptive, subscription,
redemption or sinking fund rights and the Common Stock is not subject to
redemption. The Common Stock currently outstanding, and the Common Stock offered
hereby, is and will be validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board has the authority to issue Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption (including sinking fund provisions), redemption prices and
liquidation preferences, and the number of shares constituting and the
designation of any such series, without further vote or action by the
stockholders. At present, the Company has no plans to issue any of the Preferred
Stock and is not aware of any pending or proposed transaction that would be
affected by such an issuance.
WARRANTS
As of September 30, 1996, there were outstanding warrants to purchase an
aggregate of 158,717 shares of Common Stock and 32,000 shares of Preferred
Stock.
Silicon Valley Bank is the holder of warrants to purchase 6,734 shares of
Common Stock at an exercise price of $11.88 per share expiring on September 29,
1997 and warrants to purchase 32,000 shares of Preferred Stock at an exercise
price of $5.00 per share expiring on June 2, 1997 (collectively, the "SVB
Warrants"). The exercise price and the number of securities issuable upon
exercise of the SVB Warrants are subject to adjustment upon the occurrence of
certain dilutive events.
Hanseatic Corporation is the holder of warrants to purchase 49,020 shares of
Common Stock at an exercise price of $10.20 per share expiring on March 5, 1998
(the "Hanseatic Warrants"). The Company may redeem all, but not less than all,
of the Hanseatic Warrants at a redemption price of $.10 per warrant at any time
after the first anniversary of an initial public offering by the Company if the
Share Closing Price (as defined in the Hanseatic Warrants) on any 20 trading
days within the consecutive 30 trading day period ending on the date of the
notice of redemption has been in excess of 150% of the Conversion Price
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(as defined in the Hanseatic Warrants) then in effect. Paul A. Biddelman, a
director of the Company, is an officer of Hanseatic Corporation.
Paul S. Dopp is the holder of the Dopp Warrants to purchase 100,000 shares
of Common Stock at an exercise price of $3.00 per share expiring on June 30,
2001. See "Certain Transactions."
Green Fuels, Inc. is the holder of a warrant to purchase that number of
shares of Common Stock equal to $20,000 divided by the higher of (A) the initial
public offering price per share of Common Stock in this Offering, at an exercise
price equal to the initial public offering price per share in this Offering or
(B) $5.00, at an exercise price of $5.00. At an assumed initial public offering
price of $6.75 per share, Green Fuels, Inc. would hold a warrant to purchase
2,963 shares of Common Stock at an exercise price of $6.75 per share.
REGISTRATION RIGHTS
The Company granted certain piggyback registration rights to the holders of
the SVB Warrants and the Dopp Warrants and certain demand and piggyback
registration rights to the holder of the Hanseatic Warrants as well as to the
holders of an aggregate of 588,942 shares of Common Stock. Such holders have
waived any and all rights they may have to register such securities (and
securities issuable upon conversion or exchange of such securities) in
connection with this Offering and for a period of 18 months after completion of
this Offering. See "Shares Eligible for Future Sale."
CERTAIN EFFECTS OF AUTHORIZED AND UNISSUED STOCK
There will be, at the time of the sale of the Common Stock offered hereby,
15,574,588 unissued and unreserved shares of Common Stock (15,349,588 shares if
the Underwriters' over-allotment option is exercised in full) (each including
2,963 shares of Common Stock issuable upon exercise of the warrant issued in
connection with the Private Placement assuming an initial public offering price
of $6.75 per share) and 1,968,000 unissued and unreserved shares of Preferred
Stock. These additional shares may be issued for a variety of proper corporate
purposes, including future public or private offerings to raise additional
capital or facilitate acquisitions. The Company does not presently intend to
issue additional shares of Common Stock or Preferred Stock (other than in
connection with the 1996 Plan or upon the exercise of outstanding warrants or
options).
One of the effects of the existence of unissued and unreserved shares of
Common Stock and Preferred Stock may be to enable the Board to discourage an
attempt to change control of the Company (by means of a tender offer, proxy
contest or otherwise) and thereby to protect the continuity of the Company's
management. If, in the due exercise of its fiduciary duties, the Board
determined that an attempt to change control of the Company was not in the
Company's best interest, the Board could authorize, without having to obtain
approval of the stockholders, the issuance of such shares in one or more
transactions that might prevent or render more difficult the completion of such
attempt. In this regard, the Board has the authority to establish the rights and
preferences of the authorized and unissued shares of Preferred Stock, one or
more series of which could be issued entitling the holders thereof to vote
separately as a class or to cast a proportionately larger vote than the holders
of shares of Common Stock on any proposed action, to elect directors having
terms of office or voting rights greater than the terms of office or voting
rights of other directors, to convert shares of Preferred Stock into a
proportionately larger number of shares of Common Stock or other securities of
the Company, to demand redemption at a specified price under prescribed
circumstances related to such a change or to exercise other rights designed to
impede such a change. The issuance of shares of Preferred Stock, whether or not
related to any attempt to effect such a change, may adversely affect the rights
of the holders of shares of Common Stock.
LIMITATIONS UPON TRANSACTIONS WITH "INTERESTED STOCKHOLDERS"
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years
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after the date of the transaction in which the person became an interested
stockholder unless (i) prior to the date of the business combination, the
transaction is approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, or (iii) on or after such date the business
combination is approved by the board of directors and by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The restrictions of Section 203 do not apply, among
other things, if a corporation, by action of its stockholders, adopts an
amendment to its certificate of incorporation or by-laws expressly electing not
to be governed by Section 203, provided that, in addition to any other vote
required by law, such amendment to the certificate of incorporation or by-laws
must be approved by the affirmative vote of a majority of the shares entitled to
vote. Moreover, an amendment so adopted is not effective until 12 months after
its adoption and does not apply to any business combination between the
corporation and any person who became an interested stockholder of such
corporation on or prior to such adoption. The Company's Certificate of
Incorporation and By-Laws do not currently contain any provisions electing not
to be governed by Section 203 of the Delaware General Corporation Law. The
provisions of Section 203 of the Delaware General Corporation Law may have a
depressive effect on the market price of the Common Stock because they could
impede any merger, consolidating takeover or other business combination
involving the Company, or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation and By-Laws limit, to the maximum
extent permitted by the Delaware General Corporation Law, the personal liability
of directors for monetary damages for breach of their fiduciary duties as a
director, and provide that the Company shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by Delaware law. The Company intends to purchase directors' and
officers' liability insurance after the completion of this Offering. Section 145
of the Delaware General Corporation Law provides that a corporation may
indemnify a director, officer, employee or agent made or threatened to be made a
party to an action by reason of the fact that he was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred in connection with
such action if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, if he had no reasonable cause to believe
his conduct was unlawful. The Delaware General Corporation Law does not permit a
corporation to eliminate a director's duty of care, and the provisions of the
Company's Certificate of Incorporation and By-Laws have no effect on the
availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted for directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have a total of 3,790,195
shares of Common Stock outstanding (4,015,195 if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 1,500,000
shares (1,725,000 shares if the Underwriters' over-allotment option is exercised
in full) sold in this Offering and 397,696 currently outstanding shares will be
freely tradeable without restriction or registration under the Securities Act by
persons other than "affiliates" of the Company, as defined under the Securities
Act. The remaining 1,892,499 shares of Common Stock outstanding upon completion
of the Offering will be "restricted shares" as that term is defined by Rule 144
as promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements, and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least three years, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares purchased from the Company by its employees,
directors, officers or consultants prior to the date of this Prospectus pursuant
to written compensatory benefit plans such as the 1992 Plan and the 1996 Plan
and written contracts such as option agreements. Rule 701 is also available for
sales of shares acquired by persons pursuant to the exercise of options granted
prior to the effective date of this Prospectus, regardless of whether the option
exercise occurs before or after the effective date of this Prospectus.
Securities issued in reliance on Rule 701 are "restricted securities" within the
meaning of Rule 144 and, beginning 90 days after the date of this Prospectus,
may be sold by persons other than affiliates of the Company 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 requirement.
All officers, directors and stockholders of the Company and all holders of
any options, warrants or other securities convertible into, or exercisable or
exchangeable for, shares of Common Stock have agreed that they will not,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose of any shares of
Common Stock or other capital stock of the Company, or any securities
convertible into, or exercisable or exchangeable for, any shares of Common Stock
or other capital stock of the Company without the prior written consent of the
Representative, on behalf of the Underwriters, for a period of 18 months from
the date of this Prospectus, provided, however, that (i) any such person may
make private sales or bona fide gifts of securities of the Company during such
period if the proposed transferee agrees to be bound by the above restrictions
and (ii) such restrictions shall not apply with respect to the laws of descent
and distribution.
There are currently 100,000 shares of Common Stock subject to outstanding
options under the 1992 Plan, 145,167 shares of Common Stock subject to
outstanding options under the 1996 Plan and 54,833 shares of Common Stock
reserved for issuance under the 1996 Plan. At appropriate times subsequent to
completion of the Offering, the Company may file registration statements under
the Securities Act to register the Common Stock to be issued under these plans.
After the effective date of such registration statement, and subject to the
lock-up agreement executed by existing shareholders, shares issued under
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these plans will be freely tradeable without restriction or further registration
under the Securities Act, unless acquired by affiliates of the Company.
No prediction can be made as to the effect, if any, that the sales of the
Common Stock or the availability of such shares for sale in the public market
will have on the market price for the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
after the restrictions described above lapse could adversely affect prevailing
market prices for the Common Stock and impair the ability of the Company to
raise capital through an offering of its equity securities in the future.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for which Commonwealth
Associates is acting as representative (the "Representative"), have agreed,
severally and not jointly, subject to the terms and conditions contained in the
underwriting agreement between the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the several Underwriters, an aggregate of 1,500,000 shares of
Common Stock. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Commonwealth Associates..........................................................
----------
Total...................................................................... 1,500,000
----------
----------
</TABLE>
The Underwriters are committed on a "firm commitment" basis to purchase and
pay for all the shares of Common Stock offered hereby (other than shares offered
pursuant to the Underwriters' over-allotment option), if any shares are
purchased. The shares are being offered by the Underwriters, subject to prior
sale, when, as, and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by counsel and to certain other conditions.
Through the Representative, the Underwriters have advised the Company that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and the
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD") concessions not in excess
of $0. per share, of which not in excess of $0. per share may be
reallowed to other dealers who are members of the NASD. After commencement of
this Offering, the public offering price, the concessions, and the reallowance
may be changed by the Representative. The Representative has informed the
Company that it does not expect sales to discretionary accounts by the
Underwriters to exceed five percent of the shares of Common Stock offered
hereby.
The Company has granted to the Underwriters an option exercisable for 45
days from the date of this Prospectus to purchase up to an additional 225,000
shares of Common Stock (the "Over-allotment Shares") at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriters may exercise this option in whole
or, from time to time, in part, solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the shares of
Common Stock offered hereby.
The Company has agreed to pay the Representative, in its individual rather
than representative capacity, a non-accountable expense allowance equal to 1.5%
of the gross proceeds of this Offering, including any proceeds derived from the
sale of the Over-allotment Shares, $35,000 of which has already been paid, in
connection with certain expenses incurred by the Representative and to reimburse
the Representative for certain other expenses incurred by the Representative.
The Company has agreed to sell to the Representative and its designees
warrants (the "Representative's Warrants") to purchase up to 150,000 shares of
Common Stock at an exercise price per share equal to 150% of the initial public
offering price. The Representative's Warrants are not redeemable and may not be
sold, transferred, assigned, pledged or hypothecated for a period of one year
from the date of this Prospectus, except that they may be assigned, in whole or
in part, to any successor, officer, employee or partner of the Representative,
or to officers, employees or partners of any such successor or partner, and are
exercisable during the four-year period commencing one year from the date of
this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term,
the holders of the Representative's
62
<PAGE>
Warrants are given, at nominal cost, the opportunity to profit from a rise in
the market price of the Common Stock. To the extent that the Representative's
Warrants are exercised or exchanged, dilution to the interests of the Company's
stockholders will occur. Further, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected since the holders
of the Representative's Warrants can be expected to exercise or exchange them at
a time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
Representative's Warrants. Any profit realized by the Representative on the sale
of the Representative's Warrants or the underlying shares of Common Stock may be
deemed additional underwriting compensation. The Representative's Warrants
provide for reductions, which in certain circumstances could be material, in the
exercise price of the Representative's Warrants upon the occurrence of certain
events, including the issuance by the Company of shares of Common Stock for a
price below the exercise price of the Representative's Warrants or the then
market price of the Common Stock, whichever is higher, and corresponding
potentially significant increases in the number of shares purchasable upon
exercise of the Representative's Warrants, for a period of five years from the
date of this Prospectus, except that grants or issuances under the Company's
1992 Plan or 1996 Plan or pursuant to outstanding warrants and any issuance of
shares of Common Stock in connection with certain business combinations shall
not, subject to certain conditions, trigger any such provisions. The
Representative's Warrants provide, subject to certain conditions, for a period
of four years commencing one year from the date of this Prospectus, one "demand"
registration right and will provide, subject to certain conditions, for a period
of three years commencing two years from the date of this Prospectus, certain
"piggyback" registration rights.
In addition, the Company has entered into an agreement to retain the
Representative as its exclusive financial advisor in connection with the
management of this Offering for a period of six months from June 11, 1996 for a
fee of 3% of the gross proceeds of this Offering (including any gross proceeds
derived from the sale of the Over-allotment Shares), payable in full, in
advance, at the closing of this Offering. This agreement does not require the
Representative to devote a specific amount of time to the performance of its
duties thereunder.
The Company has agreed to indemnify the Underwriters, their officers,
directors, employees, affiliates, agents, legal counsel and controlling persons
or contribute to losses arising out of certain liabilities, including
liabilities under the Securities Act.
All of the officers, directors and stockholders of the Company and all
holders of any options, warrants or other securities convertible into or
exercisable for, shares of Common Stock have agreed that they will not, directly
or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose of any shares of Common Stock or
other capital stock of the Company, or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company without the prior written consent of the Representative, on
behalf of the Underwriters, for a period of 18 months from the date of this
Prospectus, provided, however, that (i) any such person may make private sales
or bona fide gifts of securities of the Company during such period if the
proposed transferee agrees to be bound by the above restrictions and (ii) such
restrictions shall not apply with respect to the laws of descent and
distribution.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price has been arbitrarily determined by
negotiation between the Company and the Representative. In determining the
offering price the Representative and the Company considered, among other
things, market prices of similar securities of comparable publicly traded
companies, the financial condition and operating information of companies
engaged in activities similar to those of the Company, the financial condition
and prospects of the Company and the general condition of the securities market.
The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to Registration
Statement of which this Prospectus is a part.
63
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Orrick, Herrington &
Sutcliffe LLP, located at 666 Fifth Avenue, New York, New York 10103. Certain
legal matters will be passed upon for the Underwriters by Parker Chapin Flattau
& Klimpl, LLP, located at 1211 Avenue of the Americas, New York, New York 10036.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995, and for each of the years in the two-year period ended December 31, 1995
have been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1995 financial
statements contains an explanatory paragraph that states that the Company's
recurring losses from operations and net capital deficiency raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a registration statement on Form SB-2
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted from this Prospectus
in accordance with the Commission's rules and regulations. For further
information, reference should be made to the Registration Statement and to the
exhibits filed 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 which may be inspected without charge or copied
at the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Commission's
Public Reference Section at prescribed rates. Registration statements
transmitted through the Commission's Electronic Data Gathering, Analysis and
Retrieval System are also publicly available through the Commission's Internet
site on the World Wide Web (http://www.sec.gov). Descriptions contained in this
Prospectus as to the contents of any contract or other documents filed as an
exhibit to the Registration Statement are not necessarily complete and each such
description is qualified by reference to such contract or document. In addition,
it is anticipated that the Common Stock will be quoted on the Nasdaq Small Cap
Market under the symbol "NGVS". Reports and other information concerning the
Company may be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing financial statements examined by an independent public accounting
firm and such other reports as the Company may determine to be appropriate or as
may be required by law. The Company's fiscal year ends on December 31. The
Company will become a reporting company under the Securities Exchange Act of
1934 after this Offering.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Natural Gas Vehicle Systems, Inc. and Subsidiary:
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited)..................... F-3
Consolidated Statements of Operations for the Years ended December 31, 1994 and 1995 and the Nine Months
ended September 30, 1995 and 1996 (unaudited)............................................................ F-4
Consolidated Statements of Shareholders' Equity for the Years ended December 31, 1994 and 1995 and the Nine
Months ended September 30, 1996 (unaudited).............................................................. F-5
Consolidated Statements of Cash Flows for the Years ended December 31, 1994 and 1995 and the Nine Months
ended September 30, 1995 and 1996 (unaudited)............................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>
F-1
<PAGE>
When the one-for-three reverse stock split described in note 17 of the notes to
consolidated financial statements has been consummated, we will be in a position
to render the following report.
KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Natural Gas Vehicle Systems, Inc.:
We have audited the accompanying consolidated balance sheet of Natural Gas
Vehicle Systems, Inc. and subsidiary as of December 31, 1995 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended December 31, 1994 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Natural Gas
Vehicle Systems, Inc. and subsidiary as of December 31, 1995 and the results of
their operations and their cash flows for the years ended December 31, 1994 and
1995 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
1 to the consolidated financial statements, the Company's recurring losses from
operations and need for future financing or equity raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Long Beach, California
April 11, 1996, except as to the first
two paragraphs of note 17, which is
as of October 10, 1996.
F-2
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash.............................................................................. $ 61 $ 70
Restricted cash................................................................... 350 --
Accounts receivable, net of allowance for doubtful accounts of $105 and $20 as of
December 31, 1995 and September 30, 1996, respectively.......................... 526 1,258
Inventories....................................................................... 1,004 596
Other current assets.............................................................. 62 49
------------ -------------
Total current assets.......................................................... 2,003 1,973
Property and equipment, net......................................................... 3,080 2,845
Investments in joint ventures....................................................... 238 187
Other assets........................................................................ 55 239
------------ -------------
$ 5,376 $ 5,244
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................. $ 1,735 $ 1,159
Due to related parties............................................................ -- 83
Notes payable to bank............................................................. 245 245
Notes payable to third party...................................................... -- 1,000
Current portion of notes payable to related parties............................... 313 1,077
Term debt......................................................................... 89 38
------------ -------------
Total current liabilities..................................................... 2,382 3,602
------------ -------------
Notes payable to related parties, less current portion............................ -- 100
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 2,000,000 shares; none issued and
outstanding..................................................................... -- --
Preference stock, $5 par value. Authorized 50,000 shares; none issued and
outstanding..................................................................... -- --
Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding
2,271,626 and 2,290,195 shares as of December 31, 1995 and September 30, 1996,
respectively.................................................................... 23 23
Additional paid-in capital........................................................ 23,362 23,504
Accumulated deficit............................................................... (20,391) (21,985)
------------ -------------
Net shareholders' equity...................................................... 2,994 1,542
------------ -------------
Commitments and contingencies (note 15)............................................. $ 5,376 $ 5,244
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.............................................................. $ 5,189 $ 5,683 $ 4,796 $ 5,939
Operating costs and expenses:
Cost of sales........................................................ 5,868 6,171 4,820 5,475
Research and development............................................. 714 622 465 339
Selling.............................................................. 935 926 627 553
General and administrative........................................... 2,086 1,243 960 895
Restructuring charge (note 3)........................................ 482 299 -- --
--------- --------- --------- ---------
Loss from operations............................................. (4,896) (3,578) (2,076) (1,323)
--------- --------- --------- ---------
Other income (expense):
Interest expense, net................................................ (337) (446) (373) (218)
Equity in losses of joint ventures................................... (1,034) (267) (159) (53)
--------- --------- --------- ---------
(1,371) (713) (532) (271)
--------- --------- --------- ---------
Net loss......................................................... $ (6,267) $ (4,291) $ (2,608) $ (1,594)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share..................................................... $ (3.83) $ (2.07) $ (1.31) $ (0.58)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding.................................... 1,638 2,071 1,984 2,728
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NET
----------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993....................... 1,173,620 $ 12 $ 13,513 $ (9,833) $ 3,692
Issuance of common stock........................... 18,583 -- 385 -- 385
Net loss........................................... -- -- -- (6,267) (6,267)
---------- --- ----------- ------------ ------
Balance at December 31, 1994....................... 1,192,203 12 13,898 (16,100) (2,190)
Issuance of common stock........................... 401,959 4 3,585 -- 3,589
Conversion of related party debt and related
accrued interest into common stock............... 665,797 7 5,774 -- 5,781
Conversion of deferred compensation into common
stock............................................ 11,667 -- 105 -- 105
Net loss........................................... -- -- -- (4,291) (4,291)
---------- --- ----------- ------------ ------
Balance at December 31, 1995....................... 2,271,626 23 23,362 (20,391) 2,994
Issuance of common stock (unaudited)............... 18,569 -- 142 -- 142
Net loss (unaudited)............................... -- -- -- (1,594) (1,594)
---------- --- ----------- ------------ ------
Balance at September 30, 1996 (unaudited).......... 2,290,195 $ 23 $ 23,504 $ (21,985) $ 1,542
---------- --- ----------- ------------ ------
---------- --- ----------- ------------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER
31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................... $ (6,267) $ (4,291) $ (2,608) $ (1,594)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation............................................................. 473 644 372 414
Undistributed loss of joint ventures..................................... 1,034 267 159 53
Loss on sale of property and equipment................................... -- 111 59 --
Loss on investment in joint venture...................................... -- 299 -- --
Change in assets and liabilities:
Accounts receivable.................................................... (544) 653 489 (732)
Due to related parties................................................. (90) 90 90 83
Inventories............................................................ 739 (303) (314) 406
Other current assets................................................... 581 52 (95) 13
Restricted cash........................................................ -- (350) (350) 350
Other assets........................................................... 152 173 29 (184)
Accounts payable and accrued expenses.................................. 1,194 (530) 129 (576)
--------- --------- --------- ---------
Net cash used in operating activities................................ (2,728) (3,185) (2,040) (1,767)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment......................................... (360) (454) (394) (179)
Proceeds from sale of property and equipment............................... 20 -- -- --
--------- --------- --------- ---------
Net cash used in investing activities................................ (340) (454) (394) (179)
--------- --------- --------- ---------
</TABLE>
(Continued)
F-6
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER
31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from sale of common stock....................................... $ 385 $ 3,515 $ 2,494 $ 142
Proceeds from issuance of notes payable to related parties............... 2,225 821 475 864
Proceeds from issuance of note payable to third party.................... -- -- -- 1,000
Borrowings from bank..................................................... 245 -- -- --
Payment on term debt..................................................... (100) (100) (49) (51)
Payment on long-term debt to related parties............................. (40) (375) (342) --
Fees paid for conversion of notes payable to related parties into common
stock.................................................................. -- (211) (194) --
--------- --------- --------- ---------
Net cash provided by financing activities.......................... 2,715 3,650 2,384 1,955
--------- --------- --------- ---------
Net increase (decrease) in cash.................................... (353) 11 (50) 9
Cash at beginning of period................................................ 403 50 50 61
--------- --------- --------- ---------
Cash at end of period...................................................... $ 50 $ 61 $ -- $ 70
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest................................. $ 49 $ 448 $ 368 $ 210
Cash paid during the period for taxes.................................... -- -- -- --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Supplemental disclosure of noncash financing activities:
During the year ended December 31, 1995, $5,357,000 of related party
indebtedness owed by the Company was canceled and exchanged for common
stock; $710,000 of interest (of which $338,000 was accrued at December 31,
1994) was also canceled and exchanged for common stock and $105,000 of
deferred compensation owed to an officer and shareholder of the Company was
converted into common stock. A rate of $9 per share was used to carry out
all conversions. Financing fees of $211,000 were incurred in the conversion
of this debt.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
BUSINESS
Natural Gas Vehicle Systems, Inc. and subsidiary (the Company) is the
leading United States manufacturer and distributor of fuel storage systems for
use on-board natural gas vehicles. The Company currently manufactures and
distributes a variety of aluminum and composite cylinder products. The Company
also has an investment in a regional technology center which converts vehicles
to operate on compressed natural gas.
LIQUIDITY AND GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and expects to continue to incur
losses for the foreseeable future due to significant costs incurred in
connection with manufacturing and marketing its products. Management is
currently seeking additional financing from outside sources. However, there can
be no assurance that such financing will be obtained. Success of future
operations is dependent upon, among other things, the Company's ability to
obtain further financing. The Company is subject to all of the risks inherent in
new business enterprises and the likelihood of the success of the Company must
be considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with a new business. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Natural Gas
Vehicle Systems, Inc. (NGVSI), its wholly owned subsidiary, and NGV Development
Company, Inc. (NGVD). All significant intercompany balances and transactions
have been eliminated.
INVESTMENT IN JOINT VENTURE
Investments in joint ventures, which ownership interests range from 20% to
50% and in which the Company exercises significant influence over operating and
financial policies, are accounted for using the equity method. The Company's
investments are increased or decreased by the Company's share of earnings or
losses, respectively, less dividends received.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
CONCENTRATION OF CREDIT RISK
The Company sells fuel storage systems to customers primarily located in the
United States and extends credit based on an evaluation of the customers'
financial conditions, generally without requiring
F-8
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
As of and for the nine month period ended September 30, 1996, one customer,
GFI Control Systems, Inc., represented 42% of consolidated revenues and 51% of
the Company's accounts receivable balance.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Machinery and equipment........... 5 to 15 years
Furniture and fixtures............ 3 to 5 years
Tools and dies.................... 5 years
Leasehold improvements............ Shorter of estimated useful life or
lease term
Trucks............................ 3 to 5 years
</TABLE>
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting
for Income Taxes." Under the asset and liability method of SFAS No. 109,
deferred income taxes reflect the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. Changes in tax rates and laws are reflected in earnings
in the period such changes are enacted.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
FINANCIAL INSTRUMENTS
The estimated fair values of cash, restricted cash, due to related parties,
notes payable to banks, notes payable to third party, notes payable to related
parties and term debt approximate their carrying value. Rates currently
available to the bank for debt with similar terms and remaining maturities are
used to estimate fair value of existing debt and notes payable.
COMPUTATION OF NET LOSS PER SHARE
Net loss per share is calculated using the weighted average number of shares
outstanding. Common equivalent shares from stock options and warrants are
included in the computation if their effect on the share calculation is
dilutive.
F-9
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Pursuant to the requirements of the Securities and Exchange Commission,
common stock, stock options and warrants issued by the Company during the twelve
months immediately preceding the filing of an initial public offering have been
included in the calculation of the weighted average shares outstanding as if
they were outstanding for all periods presented using the treasury stock method.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
INTERIM FINANCIAL DATA (UNAUDITED)
The unaudited consolidated financial statements for the nine months ended
September 30, 1995 and 1996 have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations in accordance
with generally accepted accounting principles.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages a
new method of recognizing stock-based compensation expense using the estimated
fair value of employee stock options. Alternatively, companies may choose to
retain the current approach set forth in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and provide expanded footnote
disclosure. The statement is effective for the Company's fiscal year ended
December 31, 1996. The Company does not plan to use the fair-value method when
it adopts the pronouncement.
(2) RESTRICTED CASH
During the period ended December 31, 1995, deposits were made with a bank,
and certificates of deposit obtained for $350,000. No amounts were outstanding
at September 30, 1996. The Company obtained the funds through promissory notes
issued from the Company to related parties. These certificates of deposit were
used as collateral for letters of credit issued by the bank to one of NGVSI's
key suppliers.
(3) RESTRUCTURING CHARGE
During 1994, the Company implemented a plan to consolidate facilities and
reorganize its operations. As a result, the Company recorded a one-time
restructuring charge of $482,000 related to severance and relocation costs and
the disposal of certain equipment, of which $300,000 was accrued for the
settlement of these costs at December 31, 1994. At September 30, 1996, all costs
had been settled and there was no remaining accrual.
F-10
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(3) RESTRUCTURING CHARGE (CONTINUED)
In December 1995, the Company's Board of Directors approved management's
plan to dispose of the Company's interest in two joint ventures, NGV Southeast
Technology Center and NGV Technology Center, LLP. Accordingly, the Company has
recorded a provision of $299,000 to wind down the joint venture operations.
(4) INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
(UNAUDITED)
Raw materials................................................... $ 376 $ 403
Work in process................................................. 154 37
Finished goods.................................................. 474 156
------ ------
$ 1,004 $ 596
------ ------
------ ------
</TABLE>
(5) PROPERTY AND EQUIPMENT (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
(UNAUDITED)
Machinery and equipment......................................... $ 4,336 $ 4,462
Furniture and fixtures.......................................... 265 318
Tools and dies.................................................. 327 327
Leasehold improvements.......................................... 235 235
Vehicles........................................................ 17 17
------ ------
5,180 5,359
Less accumulated depreciation and amortization.................. (2,100) (2,514)
------ ------
$ 3,080 $ 2,845
------ ------
------ ------
</TABLE>
(6) INVESTMENTS IN JOINT VENTURES
Investments carried at equity and the percentage interest owned consist of
the following joint ventures:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 AND 1995 1996
--------------- ---------------
<S> <C> <C>
(UNAUDITED)
NGV Technology Center, LLP..................................... 50.00% 50.00%
NGV Ecotrans Group, LLC........................................ 50.00 35.00
NGV Southeast Technology Center................................ 33.33 --
----- -----
----- -----
</TABLE>
F-11
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(6) INVESTMENTS IN JOINT VENTURES (CONTINUED)
During the nine months ended September 30, 1996, the Company disposed of its
ownership interests in NGV Southeast Technology Center and reduced its ownership
interest in NGV Ecotrans Technology Center.
Summarized financial information of the unconsolidated joint ventures is
presented below (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
COMBINED RESULTS OF OPERATIONS 1994 1995 1995 1996
- ------------------------------------------------------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................... $ 5,089 $ 6,643 $ 5,489 $ 2,124
Operating loss......................................... (1,885) (795) (519) (247)
Net loss............................................... (1,911) (824) (551) (235)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
COMBINED FINANCIAL POSITION 1995 1996
- ---------------------------------------------------------------- ------------- -------------
<S> <C> <C>
(UNAUDITED)
Total assets.................................................... $ 3,166 $ 1,558
Total liabilities............................................... 1,438 447
Partners' equity................................................ 1,728 1,111
------ ------
------ ------
</TABLE>
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
(UNAUDITED)
Accounts payable................................................ $ 1,046 $ 540
Amounts due to GFI Control Systems, Inc......................... 112 56
Other accrued expenses.......................................... 577 563
------ ------
$ 1,735 $ 1,159
------ ------
------ ------
</TABLE>
(8) NOTES PAYABLE TO BANK
The Company has a credit agreement with its bank that provides for a
revolving line of credit of $245,000 collateralized by a $250,000 standby letter
of credit provided by a shareholder. Borrowings under the revolving line of
credit bear interest at prime rate (prime rate was 8.25% at September 30, 1996).
At December 31, 1995 and September 30, 1996, there were outstanding borrowings
under the line of credit of $245,000. As part of the credit agreement, the
Company granted warrants to its bank. Such warrants are exercisable into 32,000
shares of preferred stock at $5 per share and 6,734 shares of common stock at
F-12
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(8) NOTES PAYABLE TO BANK (CONTINUED)
$11.88 per share. The warrants expire in August 1997. The value of the warrants
was not considered material when issued. The credit agreement expires on
December 31, 1996.
(9) NOTES PAYABLE TO THIRD PARTY
The Company has two promissory notes amounting to $1 million ($400,000 and
$600,000) at September 30, 1996 with an investor, bearing interest at 12% per
annum, due on November 30, 1996. The promissory notes are secured by certain
equipment of the Company. In connection with the $400,000 promissory note the
Company also provided the investor with (i) warrants exercisable into 100,000
shares of common stock at $3 per share and (ii) a consulting fee payable in the
amount of $3,000 per month as long as the Company has an unpaid balance related
to the promissory notes amounting to $1,000,000. The value of the warrants was
not deemed material at the time of issuance.
F-13
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(10) RELATED PARTY TRANSACTIONS
NOTES PAYABLE
The Company is affiliated with certain entities through common ownership.
The Company's notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
--------------- -------------
<S> <C> <C>
(UNAUDITED)
Promissory note to Equitable Resources Energy Company, bearing
annual interest at 10%, due on demand......................... $ 50 $ 300
Promissory note to Caithness/NCF Limited Partners, bearing
annual interest at 10%, due on demand and secured by
substantially all of the assets of the Company................ 250 250
Promissory note to Southern Union, bearing interest at prime
rate, due on demand........................................... 13 --
Promissory note to Caithness Corporation, bearing interest at
prime rate plus 2%, due on demand............................. -- 300
Promissory note to Clock Spring Inc., bearing interest at prime
rate plus 3%, due on demand................................... -- 50
Promissory note to directors, bearing interest at 11%, due on
demand........................................................ -- 177
----- ------
Current portion of notes payable to related parties............. $ 313 $ 1,077
----- ------
----- ------
Promissory note to Green Fuels, Inc., bearing interest at 12%,
due September 12, 1998........................................ -- 100
----- ------
Notes payable to related parties, less current portion.......... -- 100
----- ------
----- ------
</TABLE>
The prime rate was 8.25% at September 30, 1996.
On May 31, 1995, debt of $3,225,000 outstanding at December 31, 1994 was
canceled and exchanged for common stock at a rate of $9 per share of common
stock, less financing fees of $111,000. In addition, associated interest
totaling $462,000 was converted into shares at the same rate, less financing
fees of $16,000.
On December 31, 1995, debt of $2,132,000 outstanding at December 31, 1994
was canceled and exchanged for common stock at a rate of $9 per share of common
stock, less financing fees of $75,000. In addition, associated interest totaling
$249,000 was converted into shares at the same rate, less financing fees of
$9,000.
In September 1996, the Company completed a bridge financing of one unit
consisting of (i) 13,889 shares of the Company's common stock at a price per
share of $7.20 and (ii) a two-year $100,000
F-14
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(10) RELATED PARTY TRANSACTIONS (CONTINUED)
unsecured promissory note to Green Fuels, Inc. bearing interest at the rate of
12% per annum, including a detachable two-year warrant to purchase that number
of shares of common stock equal to $20,000 divided by the higher of (a) the
initial public offering per share of common stock (IPO Price) at an exercise
price equal to the IPO Price or (b) $5.00 at an exercise price of $5.00. The
value of the warrant was not deemed material at the time of issuance.
SALES TO JOINT VENTURES
Sales to joint ventures consist of the following (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER
31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
NGVTC...................................................... $ 110 $ 91 $ 84 $ --
NGV Ecotrans............................................... 707 375 310 167
NGV Southeast.............................................. 523 383 294 78
--------- --------- --------- ---------
$ 1,340 $ 849 $ 688 $ 245
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
OTHER
The Company paid certain fees to shareholders and employees under
established royalty agreements. Royalties paid for the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1996 totaled approximately
$186,000, $207,000 and $147,000, respectively.
(11) INCOME TAXES
Due to the Company's net operating losses, there is no income tax benefit or
expense for the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996.
F-15
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(11) INCOME TAXES (CONTINUED)
The components of the net deferred tax consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Deferred tax assets:
Allowance for bad debts.................................................. $ 96 $ 46
Inventory................................................................ 74 51
Accumulated depreciation................................................. 490 444
Accrued compensation..................................................... 146 8
Other accruals........................................................... 131 45
Net operating loss carryforwards......................................... 5,592 7,480
--------- ---------
Total deferred tax assets............................................ 6,529 8,074
Valuation allowance........................................................ (6,529) (8,074)
--------- ---------
Net deferred tax asset............................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the deferred tax
assets and the level of the valuation allowance. At such time as it is
determined that it is more likely than not that deferred tax assets are
realizable, the valuation allowance will be reduced.
The Company's effective tax rate differs from the statutory Federal income
tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
<S> <C> <C>
1994 1995
----- -----
Income tax benefit at statutory rate......................................... (34)% (34)%
Losses carried forward to future periods..................................... 34 34
-- --
Effective tax rate....................................................... --% --%
-- --
-- --
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $17,000,000 expiring through 2010. The ultimate realization of the
net operating loss carryforward will be subject to certain limitations due to
any changes in the Company's ownership and will be dependent upon the Company
attaining future taxable earnings.
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the tax loss carryforward
that can be utilized, which could result in a part of such losses expiring
before they are used.
F-16
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(12) SHAREHOLDERS' EQUITY
PREFERENCE, PREFERRED AND COMMON STOCK
The holders of preference stock shall have the same rights and privileges as
the holders of common stock, except that in case of the dissolution or
liquidation of the Company, the holders of preference stock shall be entitled to
receive payment of the par value (preference stock, $5 par value) thereof from
the Company's assets remaining after paying the debts and liabilities of the
Company, before any payment or other distribution shall be made to the holders
of common stock. The holders of preferred stock shall have such rights and
privileges as shall be determined by the Board of Directors and filed as a
Certificate of Designation with the Delaware Secretary of State prior to the
issuance of such preferred stock in one or more series. As of December 31, 1995
and September 30, 1996, no shares of preference or preferred stock were
outstanding.
STOCK OPTION PLAN
The Company has a nonqualified stock option plan for key employees,
including directors and executive officers of the Company. The exercise price of
the options is established at the discretion of a Committee of the Board of
Directors, provided that it may not be less than estimated fair value at the
time of grant. The plan provides that the options are exercisable based on
vesting schedules, generally over a five-year period. The options expire ten
years from the date of grant.
The following table summarizes all activity under the Stock Option Plan:
<TABLE>
<CAPTION>
STOCK EXERCISE PRICE
OPTIONS PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1993................................... 68,335 $ 18.00
Granted.......................................................... 66,666 18.00
Exercised........................................................ --
Canceled......................................................... (11,333) 18.00
---------
Outstanding at December 31, 1994................................... 123,668 18.00
Granted.......................................................... 83,333 9.00
Exercised........................................................ --
Canceled......................................................... (27,834) 9.00-18.00
---------
Outstanding at December 31, 1995................................... 179,167 9.00-18.00
Granted (unaudited).............................................. --
Exercised (unaudited)............................................ --
Canceled (unaudited)............................................. (2,000) 9.00
---------
Outstanding at September 30, 1996 (unaudited)...................... 177,167 9.00-18.00
--------- --------------
--------- --------------
</TABLE>
F-17
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(12) SHAREHOLDERS' EQUITY (CONTINUED)
WARRANTS
As part of the credit agreement described in note 8, the Company granted
warrants to its bank. Such warrants are exercisable into 32,000 shares of
preferred stock at $5 per share and 6,734 shares of common stock at $11.88 per
share. The warrants expire in August 1997.
The Hanseatic Corporation, a related party, has warrants to purchase 49,020
shares of common stock at $10.20 per share. The warrants are subject to certain
adjustments.
As part of a credit agreement, the Company granted warrants to an investor.
Such warrants are exercisable into 100,000 shares of common stock at $3.00 per
share. The value of the warrants was not considered material when issued.
(13) 401(K) PLAN
The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code (the Plan). The terms of the Plan provide that employees over 21
years of age who were employed as of August 1, 1992 shall be eligible to
participate in the Plan. All employees who are hired after August 1, 1992 shall
be eligible to participate in the Plan if they are over 21 years of age and have
completed three consecutive months of eligible service during which the employee
has 250 or more hours of service or one year of eligible service. The Company
made no contributions to the Plan during the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1996.
(14) DEFERRED COMPENSATION
The Company deferred a certain percentage of compensation to its key
employees beginning September 18, 1993 and ceased deferring such compensation in
November 1994, except for officers of the Company. During 1995, $228,000 of
deferred compensation was repaid and $105,000 was converted into shares of the
Company's common stock at $9 per share. As of December 31, 1995 and September
30, 1996, deferred compensation was $18,000, which is included in accrued
expenses in the consolidated balance sheets.
(15) COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and various office equipment under
operating leases which expire through May 1998.
Future minimum rental commitments under these operating leases are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- --------------------------------------------------------------------------------------
<S> <C>
1996............................................................................... $ 214,000
1997............................................................................... 25,000
1998............................................................................... 9,000
----------
$ 248,000
----------
----------
</TABLE>
F-18
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(15) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense incurred by the Company totaled approximately $378,000,
$223,000, $166,000 and $155,000 during the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1995 and 1996, respectively.
The Company is from time to time involved in routine legal matters
incidental to its businesses. In the opinion of the Company, the resolution of
such matters will not have a material effect on its financial condition or
results of operations.
(16) MAJOR CUSTOMERS
The Company operates in one business, compressed natural gas cylinder sales.
The joint ventures (note 6) are engaged in technology center operations. The
combined results of operations and financial position of the unconsolidated
joint ventures are disclosed in note 6.
During the year ended December 31, 1994, two customers, NGV Ecotrans (joint
venture) and Transtar, represented 14% and 13% of net sales, respectively.
During the year ended December 31, 1995 and the nine months ended September 30,
1996, two customers, GFI Control Systems, Inc. and Blue Bird Body Company,
represented 45% and 22% and 42% and 18% of net sales, respectively.
(17) SUBSEQUENT EVENTS
STOCK SPLIT
On October 10, 1996, the Board of Directors authorized a one-for-three
reverse stock split of the Company's common stock, which subsequently was
approved by the shareholders. All references in the consolidated financial
statements to the number of common shares and per share amounts have been
retroactively restated to reflect the decreased number of common shares
outstanding.
1996 STOCK OPTION PLAN
On October 10, 1996, the Board of Directors adopted the 1996 Combined
Incentive and Nonqualified Stock Option Plan (the "1996 Plan") which reserves
200,000 shares of common stock for issuance under this plan. The 1996 Plan
provides for the grant of incentive stock options and for the grant of
nonqualified stock options to employees and consultants to the Company. Both
incentive stock options and nonqualified stock options are granted at no less
than 100% of fair market value. Outstanding options under the 1996 Plan vest in
varying increments as determined by the Board of Directors, and expire ten years
after grant or upon earlier termination. The Company issued 145,167 options
pursuant to the 1996 Plan; 75,834 of such options were outstanding under the
Company's existing Stock Option Plan as described in Note 12, and were cancelled
and reissued under the 1996 Plan.
BRIDGE FINANCING RENEGOTIATION (UNAUDITED)
On December 17, 1996, the Company renegotiated their bridge financing
agreement as described in note (9) and note (10) to: (i) modify the maturity
date of the outstanding promissory notes amounting to
F-19
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
(UNAUDITED)
(17) SUBSEQUENT EVENTS (CONTINUED)
$1 million ($400,000 and $600,000) to fall due on the earlier of five (5) days
following the closing date of an initial public offering or February 28, 1997
and raise the interest rate on the notes from 12% to 15% per annum, (ii)
increase the consulting fee payable from $3,000 to $7,500 per month, and (iii)
add a third promissory note in the amount of $500,000, bearing interest at 15%
per annum, due on January 31, 1998. The third promissory note is secured by an
interest in all of the Company's assets.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE 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 UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
The Company............................................................... 17
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 23
Business.................................................................. 28
Management................................................................ 45
Principal Stockholders.................................................... 53
Certain Transactions...................................................... 55
Description of Capital Stock.............................................. 57
Shares Eligible for Future Sale........................................... 60
Underwriting.............................................................. 62
Legal Matters............................................................. 64
Experts................................................................... 64
Additional Information.................................................... 64
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,500,000 SHARES
NATURAL GAS VEHICLE
SYSTEMS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
COMMONWEALTH ASSOCIATES
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Article
Seven of the Registrant's Certificate of Incorporation and Article IX, Section 1
of the Registrant's By-Laws provide for mandatory indemnification of its
directors and officers and permissible indemnification of employees and other
agents to the maximum extent permitted by the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law provides that a corporation
may indemnify a director, officer, employee or agent made or threatened to be
made a party to an action by reason of the fact that he was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred in connection with
such action if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, if he had no reasonable cause to believe
his conduct was unlawful. The Delaware General Corporation Law does not permit a
corporation to eliminate a director's duty of care, and the provisions of the
Company's Certificate of Incorporation and By-Laws have no effect on the
availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care. Reference is also made to Section 8 of
the Form of Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities. In
addition, the Registrant intends to purchase directors' and officers' liability
insurance after the completion of this Offering.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 3,920.45
NASD Filing Fee................................................ 1,793.75
Nasdaq Listing Fee............................................. 15,000.00
Printing Costs................................................. 85,000.00
Legal Fees and Expenses........................................ 200,000.00
Accounting Fees and Expenses................................... 95,000.00
Blue Sky Fees and Expenses..................................... 35,000.00
Transfer Agent and Registrar Fees.............................. 10,000.00
Miscellaneous.................................................. 4,285.80
----------
Total...................................................... $450,000.00
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since November 1993, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities:
1. On September 12, 1996, the Registrant sold 13,889 shares of common
stock, $.01 par value ("Common Stock"), to Green Fuels, Inc. and issued to the
same private investor a warrant to purchase that number of shares of Common
Stock equal to $20,000 divided by the higher of (a) the initial public offering
price per share of Common Stock in an initial public offering of Common Stock by
the Registrant or (b) $5.00.
II-1
<PAGE>
2. On July 10, 1996, the Registrant issued 18,008 shares of Common Stock to
Clock Spring, Inc. in exchange for cancellation of indebtedness of $162,069.
3. On June 3, 1996, the Registrant issued 2,681 shares of Common Stock to
Caithness/NCF, L.P. in exchange for cancellation of indebtedness of $24,126.
4. On April 3, 1996, the Registrant issued 18,008 and 166,369 shares of
Common Stock to Clock Spring, Inc. and Caithness Composites, Inc., respectively,
in exchange for cancellation of indebtedness of $162,069 and $1,497,318,
respectively.
5. On January 2, 1996, the Registrant sold 2,000 shares of Common Stock to
Peter Stern for an aggregate cash consideration of $18,000.
6. On December 31, 1995, the Registrant issued 139,559 shares of Common
Stock to Caithness/ NCF, L.P. in exchange for cancellation of indebtedness of
$1,256,025.
7. On December 29, 1995, the Registrant sold 5,000 and 667 shares of Common
Stock to Howard T. Phelan and John R. Bacon, respectively, for an aggregate cash
consideration of $45,000 and $6,000, respectively.
8. On December 4, 1995, the Registrant issued 34,334 shares of Common Stock
to Hanseatic Corporation in exchange for cancellation of indebtedness of
$309,000.
9. On December 1, 1995, the Registrant sold 223 shares of Common Stock to
L.S. Reed Revocable Management Trust for an aggregate cash consideration of
$2,000.
10. On May 31, 1995, the Registrant sold an aggregate of 120,904 shares of
Common Stock to seven private investors (including Howard T. Phelan and Mr. and
Mrs. Alan D. Pesky) for an aggregate cash consideration of $1,060,000.
11. On May 31, 1995, the Registrant issued 255,608, 145,747, 166,667, 5,556
and 2,778 shares of Common Stock to Amoco Oil Company, Hanseatic Corporation,
EQT Capital Corporation, Mr. and Mrs. Alan D. Pesky and Peter Stern in exchange
for cancellation of indebtedness of $2,300,472, $1,311,723, $1,500,000, $50,000
and $25,000, respectively.
12. On December 21, 1994, the Registrant granted 6,667 shares of Common
Stock to John R. Bacon as a signing bonus upon his commencement of employment
with the Registrant.
13. On June 22, 1994, the Registrant sold an aggregate of 3,125 shares of
Common Stock to four private investors for an aggregate cash consideration of
$75,000.
14. On April 18, 1994, the Registrant sold 6,667 shares of Common Stock to
Pilar International Corp. for an aggregate cash consideration of $160,000.
15. On March 1, 1994, the Registrant sold 2,084 shares of Common Stock to
L.S. Reed Revocable Management Trust for an aggregate cash consideration of
$50,000.
16. On December 7, 1993, the Registrant sold 4,167 shares of Common Stock to
each of Little Moose Trust and Overlook Trust for an aggregate cash
consideration of $100,000 each.
17. On November 30, 1993, the Registrant sold 20,834 shares of Common Stock
to Three Star Partners for an aggregate cash consideration of $500,000.
(b) There were no underwriters, brokers or finders employed in connection
with any of the transactions set forth in Item 26.
(c) The issuances described in Item 26(a) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
The recipients of securities in each such transaction represented their
intentions to acquire the
II-2
<PAGE>
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant and represented that they were "accredited investors," as that term
is defined in Rule 501 promulgated under the Securities Act.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement between the Registrant and Commonwealth Associates
("Commonwealth").
3.1** Certificate of Incorporation of the Registrant, as amended.
3.2** By-Laws of the Registrant.
3.3** Form of Restated and Amended Certificate of Incorporation of the Registrant, to be
filed and effective prior to the effectiveness of this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Form of Representative's Warrant Agreement between the Registrant and Commonwealth
(including form of Representative's Warrant).
5.1 Form of Opinion of Orrick, Herrington & Sutcliffe LLP.
10.1** Amended and Restated Natural Gas Vehicle Systems, Inc. Stock Option Plan.
10.2 Form of Natural Gas Vehicle Systems, Inc. 1996 Combined Incentive and Nonqualified
Stock Option Plan.
10.3** Lease Agreement, dated August 23, 1989, by and between the Registrant and S.S.T.
Properties, as amended.
10.4** Lease Agreement, dated January 19, 1995, by and between the Registrant and S.S.T.
Properties.
10.5 Loan and Security Agreement, dated June 2, 1992, by and between the Registrant and
Silicon Valley Bank, as amended.
10.6** Amended Cylinder License Agreement, dated as of May 25, 1993, by and among the
Registrant, CNG Cylinder Corporation, Norman C. Fawley and NCF Industries, Inc.
10.7** Technology Transfer Agreement, dated February 23, 1993, by and among the Registrant,
Alcoa Composites, Inc. and Audie L. Price.
10.8** Joint Venture Agreement, dated as of May 1, 1993, by and between Natural Gas Vehicle
Development Company, Inc. and EcoTrans Aftermarket Corporation, as amended.
10.9* Form of Employment Agreement between the Registrant and Howard T. Phelan.
10.10* Form of Employment Agreement between the Registrant and John R. Bacon.
10.11** Loan and Security Agreement, dated as of March 8, 1996, by and between the
Registrant and Caithness Corporation, as amended.
10.12** Loan and Security Agreement, dated as of April 4, 1996, by and between the
Registrant and Paul S. Dopp, as amended.
10.13** Loan and Security Agreement, dated as of July 1, 1996, by and between the Registrant
and Paul S. Dopp.
10.14** $100,000 Promissory Note, dated September 12, 1996, executed by the Registrant in
favor of Green Fuels, Inc.
10.15** Common Stock Purchase Warrant, dated September 12, 1996, issued by the Registrant to
Green Fuels, Inc.
10.16** $50,000 Promissory Note, dated June 24, 1996, executed by the Registrant in favor of
Clock Spring Company.
10.17** $50,000 Promissory Note, dated January 12, 1996, executed by the Registrant in favor
of W. Murray Buttner.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.18** $100,000 Promissory Note, dated January 30, 1996, executed by the Registrant in
favor of W. Murray Buttner.
10.19 Conversion Agreement, dated as of November 20, 1996, by and between the Registrant
and Equitable Resources Energy Company.
10.20 $250,000 Promissory Note, dated March 16, 1996, executed by the Registrant in favor
of Caithness/NCF, L.P.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Orrick, Herrington & Sutcliffe (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors.
24** Power of Attorney (included on page II-6).
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules
Not Applicable.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended (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.
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 foregoing provisions 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 of 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.
The 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 20th day of December, 1996.
NATURAL GAS VEHICLE SYSTEMS, INC.
BY: /S/ HOWARD T. PHELAN
-----------------------------------------
Howard T. Phelan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of The Board of
/s/ HOWARD T. PHELAN Directors and Chief
- ------------------------------ Executive Officer December 20, 1996
Howard T. Phelan (Principal Executive
Officer)
Vice President and Chief
* Financial Officer
- ------------------------------ (Principal Financial and December 20, 1996
Martin B. Richards Accounting Officer)
* President, Chief Operating
- ------------------------------ Officer and a Director December 20, 1996
John R. Bacon
* Director
- ------------------------------ December 20, 1996
Paul A. Biddelman
* Director
- ------------------------------ December 20, 1996
James D. Bishop, Jr.
* Director
- ------------------------------ December 20, 1996
R. Terry Botruff
* Director
- ------------------------------ December 20, 1996
W. Murray Buttner
* Director
- ------------------------------ December 20, 1996
Ernest L. Daman
* Director
- ------------------------------ December 20, 1996
Helmut Korte
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<S> <C> <C>
/s/ JEFFREY C. SWOVELAND Director
- ------------------------------ December 20, 1996
Jeffrey C. Swoveland
* Director
- ------------------------------ December 20, 1996
Alan D. Pesky
*By: /s/ HOWARD T. PHELAN
-------------------------
Howard T. Phelan
As Attorney-in-Fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- --------- -------------------------------------------------------------------------------------------------- -----
<C> <S> <C>
1.1 Form of Underwriting Agreement between the Registrant and Commonwealth Associates
("Commonwealth").
3.1** Certificate of Incorporation of the Registrant, as amended.
3.2** By-Laws of the Registrant.
3.3** Form of Restated and Amended Certificate of Incorporation of the Registrant, to be filed and
effective prior to the effectiveness of this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Form of Representative's Warrant Agreement between the Registrant and Commonwealth (including form
of Representative's Warrant).
5.1 Form of Opinion of Orrick, Herrington & Sutcliffe LLP.
10.1** Amended and Restated Natural Gas Vehicle Systems, Inc. Stock Option Plan.
10.2 Form of Natural Gas Vehicle Systems, Inc. 1996 Combined Incentive and Nonqualified Stock Option
Plan.
10.3** Lease Agreement, dated August 23, 1989, by and between the Registrant and S.S.T. Properties, as
amended.
10.4** Lease Agreement, dated January 19, 1995, by and between the Registrant and S.S.T. Properties.
10.5 Loan and Security Agreement, dated June 2, 1992, by and between the Registrant and Silicon Valley
Bank, as amended.
10.6** Amended Cylinder License Agreement, dated as of May 25, 1993, by and among the Registrant, CNG
Cylinder Corporation, Norman C. Fawley and NCF Industries, Inc.
10.7** Technology Transfer Agreement, dated February 23, 1993, by and among the Registrant, Alcoa
Composites, Inc. and Audie L. Price.
10.8** Joint Venture Agreement, dated as of May 1, 1993, by and between Natural Gas Vehicle Development
Company, Inc. and EcoTrans Aftermarket Corporation, as amended.
10.9* Form of Employment Agreement between the Registrant and Howard T. Phelan.
10.10* Form of Employment Agreement between the Registrant and John R. Bacon.
10.11** Loan and Security Agreement, dated as of March 8, 1996, by and between the Registrant and
Caithness Corporation, as amended.
10.12** Loan and Security Agreement, dated as of April 4, 1996, by and between the Registrant and Paul S.
Dopp, as amended.
10.13** Loan and Security Agreement, dated as of July 1, 1996, by and between the Registrant and Paul S.
Dopp.
10.14** $100,000 Promissory Note, dated September 12, 1996, executed by the Registrant in favor of Green
Fuels, Inc.
10.15** Common Stock Purchase Warrant, dated September 12, 1996, issued by the Registrant to Green Fuels,
Inc.
10.16** $50,000 Promissory Note, dated June 24, 1996, executed by the Registrant in favor of Clock Spring
Company.
10.17** $50,000 Promissory Note, dated January 12, 1996, executed by the Registrant in favor of W. Murray
Buttner.
10.18** $100,000 Promissory Note, dated January 30, 1996, executed by the Registrant in favor of W. Murray
Buttner.
10.19 Conversion Agreement, dated as of November 20, 1996, by and between the Registrant and Equitable
Resources Energy Company.
10.20 $250,000 Promissory Note, dated March 16, 1996, executed by the Registrant in favor of
Caithness/NCF, L.P.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- --------- -------------------------------------------------------------------------------------------------- -----
21.1** Subsidiaries of the Registrant.
<C> <S> <C>
23.1 Consent of Orrick, Herrington & Sutcliffe (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors.
24** Power of Attorney (included on page II-6).
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
1,500,000 Shares
Common Stock
UNDERWRITING AGREEMENT
January __, 1997
COMMONWEALTH ASSOCIATES
As Representative of the several Underwriters
733 Third Avenue
11th Floor
New York, New York 10017
Gentlemen:
Natural Gas Vehicle Systems, Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement (this "Agreement") with the several underwriters
named in Schedule 1 hereto (the "Underwriters"), for whom you have been duly
authorized to act as representative (in such capacity, the "Representative"), as
set forth below.
1. Securities. Subject to the terms and conditions herein contained, the
Company proposes to issue and sell to the several Underwriters an aggregate of
1,500,000 shares (the "Firm Securities") of the Company's Common Stock, par
value $.01 per share (the "Common Stock"). The Company also proposes to grant to
the several Underwriters an option to purchase up to an additional 225,000
shares of Common Stock as set forth in Schedule 2 hereto (the "Option
Securities") if requested by the Representative as provided in Section 3 of this
Agreement. The Firm Securities and the Option Securities are referred to herein,
collectively, as the "Securities."
The Company also proposes to issue and sell to the Representative,
warrants (the "Representative Warrants") pursuant to the Representative Warrant
Agreement (the "Representative Warrant Agreement") to purchase up to 150,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Representative Warrants are hereinafter referred to as the "Representative
Securities." The Firm Securities, the Option Securities, the Representative
Warrants and the Representative Securities are more fully described in the
Registration Statement and the Prospectus referred to below.
<PAGE>
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the several Underwriters as of the
date hereof, and as of the Firm Closing Date (as hereinafter defined) and any
Option Closing Date (as hereinafter defined), if any, as follows:
(a) A registration statement on Form SB-2 (File No. 333-14185) with
respect to the Securities, including a prospectus subject to completion, has
been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and one
or more amendments to such registration statement may have been so filed. After
the execution of this Agreement, the Company will file with the Commission
either (i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Securities, that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if the
Company does not rely on Rule 434 under the Act, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either clause (i)(A) or (i)(B) of
this sentence as have been provided to and approved by the Representative prior
to the execution of this Agreement, or (ii) if such registration statement, as
it may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement, including
a form of prospectus, a copy of which amendment has been furnished to and
approved by the Representative prior to the execution of this Agreement. As used
in this Agreement, the term "Registration Statement" means such registration
statement, as amended at the time when it was or is declared effective,
including all financial statement schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means: (x) if the Company relies on Rule 434 under the Act, the
Term Sheet relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus identified
therein that such Term Sheet supplements; (y) if the Company does not rely on
Rule 434 under the Act, the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act; or (z) if the Company does not rely on Rule 434
under the Act and if no prospectus is required to be filed pursuant to Rule
424(b) under the Act, such term means the prospectus included in the
Registration Statement; and the term "Term Sheet" means any term sheet that
satisfies the requirements of Rule 434 under the Act. Any reference herein to
the "date" of a Prospectus that includes a Term Sheet shall mean the date of
such Term Sheet.
2
<PAGE>
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When any Preliminary Prospectus was filed
with the Commission it (i) contained all statements required to be stated
therein in accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not include any 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, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein not misleading. When the
Prospectus or any Term Sheet that is a part thereof or any amendment or
supplement to the Prospectus is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or part thereof or such amendment or supplement is
not required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
declared effective) and on the Firm Closing Date and any Option Closing Date
(both as hereinafter defined), the Prospectus, as amended or supplemented at any
such time, (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not or will not include any 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, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein.
(c) The Company is a corporation duly organized, validly existing
and in good standing in the jurisdiction of its incorporation, with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify would not
result in a material adverse change in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company.
(d) The Company does not, directly or indirectly, (i) own any
capital stock of any corporation or joint stock company, interest in any
partnership or limited liability company or other equity interest or
participation in any person, or (ii) control any other
3
<PAGE>
person, other than as described in Exhibit 21 to the Registration Statement
(each of which so described in Exhibit 21, a "Subsidiary"). Each Subsidiary is a
corporation duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), and is duly registered
and qualified to conduct its business and is in good standing in each
jurisdiction where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify would not result in a material adverse change in the
condition (financial or other), business, prospects, properties, net worth or
results of operations of such Subsidiary; all the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable, and are owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and clear of any security
interest, lien, encumbrance, equity, claim or other defect; and there is no
outstanding warrant, option or other right to purchase or otherwise acquire any
capital stock of, or any other equity interest or participation in, any
Subsidiary nor any security or instrument convertible into or exchangeable for
any capital stock of, or any other equity interest or participation in, any
Subsidiary nor any agreement, arrangement or understanding entitling any other
person to exercise control over any Subsidiary. Other than with respect to the
Subsidiaries, the Company does not control, directly or indirectly, any
corporation, partnership, joint venture, association or other business
organization.
(e) The Company has the authorized, issued and outstanding
capitalization, and the capital stock of the Company conforms to the description
thereof, set forth in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus). All of the issued shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable. The Firm Securities and the Option Securities have been
duly authorized and upon the issuance and sale thereof on the Firm Closing Date
or the related Option Closing Date (as the case may be), and after payment
therefor in accordance herewith, will be validly issued, fully paid and
nonassessable. No holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or other rights to subscribe for any of
the Securities, and, except as set forth in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), no
holder of securities of the Company has any right to require the Company to
register the offer or sale of any securities under the Registration Statement or
within 18 months following the effective date thereof.
(f) The Company is the lawful issuer of the Securities to be offered
and sold by it hereunder and upon sale and delivery of, and payment for, such
Securities, as provided herein, the Company will convey to the Underwriters good
and marketable title to such Securities, free and clear of any security
interest, lien, encumbrance, equity, claim or other defect.
4
<PAGE>
(g) Except as disclosed in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there are no
outstanding (i) securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (ii) warrants, options or
rights to subscribe for or purchase from the Company any such capital stock or
any such convertible or exchangeable securities or obligations, or (iii)
obligations of the Company to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any such warrants,
options or rights.
(h) The consolidated financial statements and schedules of the
Company and its Subsidiaries included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the Company and
its Subsidiaries and the results of operations and changes in financial
condition as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved (except as otherwise noted therein) and include all financial
information required to be included by the Act. The financial information
presented under the captions "Prospectus Summary," "Capitalization," "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present, on the basis stated in the Prospectus (or such Preliminary Prospectus),
the information included therein.
(i) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its Subsidiaries and delivered their report with
respect to the audited financial statements and schedules included in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), are independent public
accountants within the meaning of the Act and the applicable rules and
regulations thereunder.
(j) The Company has full power (corporate and other) to enter into
this Agreement and the Financial Advisory Agreement described in the Prospectus
(the "Financial Advisory Agreement") and to carry out all the terms and
provisions hereof and thereof to be carried out by it. The execution and
delivery of this Agreement and the Financial Advisory Agreement have been duly
authorized by the Company and this Agreement and the Financial Advisory
Agreement have been duly executed and delivered by the Company, and are the
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms. The execution and delivery of the
Representative's Warrant Agreement and the Representative's Warrants have been
duly authorized by the Company and the Representative's Warrant Agreement, upon
due execution and delivery thereof by the Company, and the Representative's
Warrants, upon issuance thereof and payment therefor in accordance with the
Representative's Warrant Agreement, shall be valid and binding obligations of
the Company to issue and sell the number and type of securities of the Company
provided for therein, enforceable against the Company in accordance with their
respective
5
<PAGE>
terms. The Representative's Securities have been duly authorized and reserved
for issuance, and, when issued upon exercise of the Representative's Warrant and
payment therefor in accordance therewith and the Representative's Warrant
Agreement, will be validly issued, fully paid and nonassessable. No holders of
outstanding shares of capital stock of the Company are entitled to any
preemptive or other rights to subscribe for any of the Representative's
Securities.
(k) No legal or governmental proceedings are pending to which the
Company or any of its Subsidiaries is a party or to which the property of the
Company or any of its Subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not described therein
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and, to the best knowledge of the Company, after due inquiry, no
such proceedings have been threatened against the Company or any of its
Subsidiaries or with respect to any of their respective properties; and no
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) or filed as required.
(l) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the issuance and sale of
the Representative's Warrant and, upon exercise thereof, the Representative's
Securities to the Representative pursuant to the Representative's Warrant
Agreement, the compliance by the Company with the provisions of this Agreement,
the Financial Advisory Agreement and the Representative's Warrant Agreement, and
the consummation of the other transactions contemplated herein or therein do not
(i) require the consent, approval, authorization, registration or qualification
of or with any governmental authority, except such as have been obtained, such
as may be required under state securities or blue sky laws or the National
Association of Securities Dealers, Inc. (the "NASD") and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii) 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, lease 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 or any of their
respective properties is bound, or the charter documents or by-laws of the
Company or any of its Subsidiaries, or any law or any judgment, decree, order,
rule or regulation of any court or other governmental authority or any
arbitrator applicable to the Company or any of its Subsidiaries.
(m) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), neither the Company
nor any of its Subsidiaries has sustained any material loss or interference with
its businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
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dispute or any legal or governmental proceeding and there has not been any
material adverse change, or any development involving a prospective material
adverse change, in the condition (financial or other), business, prospects,
properties, net worth, or results of operations of the Company or any of its
Subsidiaries, except in each case as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(n) The Company has not directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, attempted to induce any person to purchase, or paid anyone any
compensation for soliciting purchases of, the Securities or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase any
other securities of the Company (except for the sale of Securities by the
Company under this Agreement).
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), (i) neither the
Company nor any of its Subsidiaries has incurred any material liability or
obligation, direct or contingent, nor entered into any material transaction not
in the ordinary course of business; (ii) neither the Company nor any of its
Subsidiaries has purchased any of the Company's outstanding capital stock, nor
declared, set aside, paid or otherwise made any dividend or distribution of any
kind on its capital stock; and (iii) there has not been any material change in
the capital stock, short-term debt or long-term debt of the Company or any of
its Subsidiaries, except in each case as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(p) Each of the Company and each of its Subsidiaries has good and
marketable title in fee simple to all items of real property and marketable
title to all personal property owned by it, in each case free and clear of any
security interest, lien, encumbrance, equity, claim or other defect, except such
as do not materially and adversely affect the value of such property and do not
interfere with the use made or proposed to be made of such property by the
Company and each of its Subsidiaries, and any real property and improvements
thereon held under lease by the Company and each of its Subsidiaries are held
under valid, subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made or proposed to be made of such
property and improvements by the Company and each of its Subsidiaries, in each
case except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(q) No labor dispute with the employees of the Company or any of its
Subsidiaries exists or is threatened or imminent that could result in a material
adverse change in the condition (financial or other), business, prospects,
properties, net worth or results of
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operations of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(r) The Company owns or possesses a valid license or other right to
use all material patents, patent applications, trademarks, service marks, trade
names, brand names, trade dress, copyrights and other proprietary or
confidential information currently employed by it in connection with its
business, and neither the Company nor any of its Subsidiaries have received any
notice of infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(s) The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which it is engaged;
neither the Company nor any of its Subsidiaries have been refused any insurance
coverage sought or applied for; and the Company does not have any reason to
believe that it will not be able to renew existing insurance coverage for it and
its Subsidiaries as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business at a cost
that would not materially and adversely affect the condition (financial or
other), business prospects, properties, net worth or results of operations of
the Company or any of its Subsidiaries, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(t) Each of the Company and each of its Subsidiaries has all
authorizations, approvals, orders, licenses, certificates and permits necessary
or appropriate to conduct its business, and has been and is conducting its
business in compliance therewith and with all applicable federal, state and
local laws, rules and regulations; and neither the Company nor any of its
Subsidiaries have received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license, certificate
or permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company or any of its Subsidiaries. The disclosure in the
Registration Statement and the Prospectus (or, if the Prospectus in not in
existence, the most recent Preliminary Prospectus), concerning the effects of
federal, state and local laws, rules and regulations on the business of the
Company and each of its Subsidiaries as currently conducted and as contemplated
are correct and complete in all respects.
(u) Neither the Company nor any of its Subsidiaries is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the transactions contemplated by this Agreement or the
Representative's Warrant Agreement or the
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<PAGE>
conduct of its business as described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) will not cause the Company or any of its Subsidiaries to
become an investment company subject to registration under such act.
(v) The Company and its Subsidiaries have filed on a consolidated
basis all foreign, federal, state and local income, franchise and other tax
returns that are required to be filed or have requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company or any of its
Subsidiaries) and have paid all taxes required to be paid by them and any other
assessment, fine or penalty levied against them, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith and for which an adequate
reserve has been recorded on the Company's financial statements in accordance
with generally accepted accounting principles, or as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(w) Neither the Company nor any of its Subsidiaries is in violation
of any federal or state law, rule or regulation relating to occupational safety
and health or to the storage, handling or transportation of hazardous or toxic
materials and the Company and each of its Subsidiaries have received all
permits, licenses or other approvals required of them under applicable federal
and state occupational safety and health and environmental laws and regulations
to conduct their business, and the Company and each of its Subsidiaries is in
compliance with all terms and conditions of any such permit, license or
approval, except any such violation, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals which would not, singly or in the
aggregate, materially and adversely affect the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company or any of its Subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Company and each of its Subsidiaries are in
material compliance with all applicable federal, state and local environmental
laws and regulations including, without limitation, those applicable to
emissions to the environment, waste management and waste disposal (collectively,
the "Environmental Laws"), and to the Company's knowledge under current law,
there are no existing circumstances that would prevent, interfere with, or
materially increase the cost of such compliance in the future.
(x) Each certificate signed by any officer of the Company and
delivered to the Representative or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
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(y) The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) Neither the Company or any of its Subsidiaries nor any employee
or agent of the Company or any Subsidiary has made any payment of funds of the
Company or any Subsidiary, or received or retained any funds in violation of any
law, rule or regulation, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus.
(aa) The Company has not, directly or indirectly, at any time (i)
made any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices of 1977,
as amended.
(bb) Except as set forth in the Registration Statement or Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), there is no material claim under any Environmental Law, including
common law, pending or threatened against the Company or any of its Subsidiaries
and, to the Company's knowledge, under applicable law, there are no past or
present actions, activities, circumstances, events or incidents, including,
without limitation, releases of any material into the environment that would
reasonably be expected to form the basis of any material claim against the
Company or any of its Subsidiaries.
(cc) No default exists, and no event has occurred which, with notice
or lapse of time or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, lease 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
or any of their respective properties is bound or may be affected.
(dd) The Company has not distributed and, prior to the later of (i)
the Firm Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection with the
offering and sale of the Securities other than the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the
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<PAGE>
Prospectus or any amendment or supplement thereto, or other materials, if any,
permitted by the Act.
(ee) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Securities to facilitate the sale or resale
thereof.
(ff) Neither the Company, nor any person acting on behalf of the
Company, has employed or engaged any person to act as a broker, finder or other
intermediary in connection with the offering of the Securities or any of the
transactions contemplated hereby, and no person is entitled to any fee,
commission or other compensation relating to any such employment or engagement.
(gg) To the Company's knowledge, except as previously disclosed in
writing by the Company to the Representative, no officer, director or
stockholder of the Company has any National Association of Securities Inc. (the
"NASD") affiliation.
3. Purchase, Sale and Delivery of the Securities and the Representative's
Warrants. (a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each of the Underwriters, and
each of the Underwriters, severally and not jointly, agrees to purchase from the
Company, at a purchase price of $__________ per share, the number of Firm
Securities set forth opposite the name of such Underwriter in Schedule 1 hereto.
One or more certificates in definitive form for the Firm Securities that the
several Underwriters have agreed to purchase hereunder, and in such denomination
or denominations and registered in such name or names as the Representative
shall request upon notice to the Company not later than 5:00 p.m., New York City
time, on the second business day prior to the Firm Closing Date, shall be
delivered by or on behalf of the Company to the Representative for the
respective accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by certified or official bank check
or checks drawn upon or by a New York Clearing House bank and payable in
next-day funds to the order of the Company. Delivery of the documents,
certificates and opinions described in Section 7 of this Agreement and payment
for the Firm Securities shall be made at the offices of Parker Chapin Flattau &
Klimpl, LLP, 1211 Avenue of the Americas, 18th Floor, New York, New York 10036
and delivery of the Firm Securities shall be made at the offices of the
Representative, 733 Third Avenue, 11th Floor, New York, New York 10017 at 9:30
a.m., New York City time, on January __, 1997, or at such other place, time or
date as the Representative and the Company may agree upon or as the
Representative may determine pursuant to Section 9 hereof, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date".
The Company will make such certificate or certificates for the Firm Securities
available for checking and packaging by the Representative at the offices in New
York, New York of the Company's transfer agent or registrar or the
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Representative not later than 5:00 p.m., New York City time, on the business day
prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, (i) the Company hereby grants to the several Underwriters an option
to purchase, severally and not jointly, the Option Securities. The purchase
price to be paid for any Option Securities shall be the same price per share as
the price per share for the Firm Securities set forth above in paragraph (a) of
this Section 3. The option granted hereby may be exercised as to all or any part
of the Option Securities from time to time within forty-five (45) business days
after the date of the Prospectus (or, if such 45th business day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading). The Underwriters shall not be
under any obligation to purchase any of the Option Securities prior to the
exercise of such option. The Representative may from time to time exercise the
option granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company setting forth the aggregate number of Option Securities
as to which the several Underwriters are then exercising the option and the date
and time for delivery of and payment for such Option Securities. Any such date
of delivery shall be determined by the Representative but shall not be earlier
than two business days or later than three business days after such exercise of
the option and, in any event, shall not be earlier than the Firm Closing Date.
The time and date set forth in such notice, or such other time on such other
date as the Representative and the Company may agree upon or as the
Representative may determine pursuant to Section 9 hereof, is herein called the
"Option Closing Date" with respect to such Option Securities. Upon exercise of
the option as provided herein, the Company shall become obligated to sell to
each of the several Underwriters, and, subject to the terms and conditions
herein set forth, each of the Underwriters (severally and not jointly) shall
become obligated to purchase from the Company, the same percentage of the total
number of the Option Securities as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Securities, as adjusted by the Representative in such
manner as it deems advisable to avoid fractional shares. If the option is
exercised as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (a) of this Section 3,
except that reference therein to the Firm Securities and the Firm Closing Date
shall be deemed, for purposes of this paragraph (b), to refer to such Option
Securities and Option Closing Date, respectively.
(c) You, individually and not as the Representative, may (but shall
not be obligated to) make payment on behalf of any Underwriter or Underwriters
for any of the Securities to be purchased by such Underwriter or Underwriters.
No such payment shall relieve such Underwriter or Underwriters from any of its
or their obligations hereunder.
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(d) On the Firm Closing Date, the Company shall issue and sell to
the Representative the Representative's Warrants, at an aggregate purchase price
of $150, pursuant to the Representative's Warrant Agreement. The
Representative's Warrant Agreement and form of Representative's Warrant shall be
substantially in the forms filed as exhibits to the Registration Statement.
4. Offering by the Underwriters. Upon the Company's authorization of the
release of the Firm Securities, the several Underwriters propose to offer such
securities for sale to the public upon the terms set forth in the Prospectus. If
the option set forth in Section 3(b) of this Agreement is exercised, then upon
the Company's authorization of the release of the Option Securities, the several
Underwriters propose to offer such securities for sale to the public upon the
terms set forth in the Prospectus.
5. Covenants of the Company. Except as otherwise stated below, the Company
covenants and agrees with each of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 424(b) and 434 under the
Act. During any time when a prospectus relating to the Securities is required to
be delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission the prospectus, Term Sheet or amendment referred to in the second
sentence of Section 2(a) hereof, any amendment or supplement to such prospectus,
Term Sheet or any amendment to the Registration Statement of which the
Representative shall not previously have been advised and furnished with a copy
for a reasonable period of time prior to the proposed filing and as to which
filing the Representative shall not have given its consent. The Company will use
its best efforts to prepare and file with the Commission, in accordance with the
rules and regulations of the Commission, promptly upon request by the
Representative or counsel for the Underwriters, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be necessary or advisable in connection with the distribution of the Securities
by the several Underwriters, and the Company will use its best efforts to cause
any such amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the Representative,
promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to the Representative of each such filing or
effectiveness.
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(b) The Company will advise the Representative, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any amendment thereto or any order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (ii) the suspension of the qualification of the Securities for offering
or sale in any jurisdiction, (iii) the institution, threatening or contemplation
of any proceeding for any such purpose or (iv) any request made by the
Commission for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. The Company will use
its best efforts to prevent the issuance of any such stop order and, if any such
stop order is issued, to obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the Securities
for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representative may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities; provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representative thereof and, subject to Section 5(a) hereof, the Company will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representative and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto), (ii) to each other
Underwriter, a conformed copy of such registration statement and each amendment
thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Representative may reasonably request; without
limiting the application of clause (iii) of this sentence, the Company, not
later than (A) 6:00 p.m., New York City time, on the date of determination of
the public offering price, if such determination occurred or occurs at or prior
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to 12:00 noon, New York City time, on such date or (B) 6:00 p.m., New York City
time, on the business day following the date of determination of the public
offering price, if such determination occurred or occurs after 12:00 noon, New
York City time, on such date, will deliver to the Representative, without
charge, as many copies of the Prospectus and any amendment or supplement thereto
as the Representative may reasonably request for the purposes of confirming
orders that are expected to settle on the Firm Closing Date.
(f) The Company will use its best efforts to have the Securities
listed, subject to notice of issuance, on the Nasdaq SmallCap Market
concurrently with the effectiveness of the Registration Statement. The Company
will use its best efforts to comply in all material respects with all applicable
maintenance requirements of such Market.
(g) The Company will furnish to the Representative as early as
practicable prior to the Firm Closing Date and the Option Closing Date, if any,
but not later than two business days prior thereto, a copy of the latest
available unaudited consolidated and consolidating interim financial statements,
if any, of the Company and its Subsidiaries which have been read by KPMG Peat
Marwick LLP, as stated in their letter to be furnished pursuant to section 7(d)
hereof.
(h) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representative a consolidated
earnings statement of the Company and its Subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(i) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will not, directly or indirectly, without the prior
written consent of the Representative, issue, sell, offer to sell, contract to
sell, grant any option for sale of or otherwise sell or dispose (or announce any
issuance, sale, offer of sale, contract of sale, grant of any option to purchase
or other sale or disposition) of any securities of the Company for a period of
six (6) months after the date of the Prospectus, except the (i) Firm Securities,
(ii) the Option Securities, if any, (iii) the Representative's Warrants and the
Representative's Securities, (iv) shares of Common Stock and Preferred Stock,
par value $.01 per share, of the Company issuable upon the exercise of
outstanding warrants, and (v) any grants of options and issuances of Common
Stock upon exercise thereof pursuant to the Amended and Restated Natural Gas
Vehicles, Inc. Stock Option Plan or the Company's 1996 Combined Incentive and
Nonqualified Stock Option Plan.
(k) The Company will not, without the prior written consent of the
Representative, for six (6) months from the date of the Prospectus file any
registration statement relating to the offer or sale of the Company's securities
(including any registration statement on Form S-8 or Form S-4).
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(l) The Company will obtain the agreements described in Section 7(f)
hereof prior to the Firm Closing Date.
(m) The Company will not, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.
(n) The Company will not issue press releases or engage in any other
form of publicity through and including 25 days after the Registration Statement
becomes effective without the prior written consent of the Representative, other
than normal and customary releases issued in the ordinary course of the
Company's business.
(o) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company or any of its
Subsidiaries shall occur as a result of which in your opinion the market price
of the Common Stock has been or is likely to be materially affected (regardless
of whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from you
advising the Company to the effect set forth above, forthwith prepare, consult
with you concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
(p) The Company will furnish to the Representative, during the
period ending on the first anniversary hereof, promptly upon request of the
Representative, copies of the Company's quarterly stock transfer sheets, and
during the period ending on the fifth anniversary of the date hereof, (i) as
soon as available, a copy of each report of the Company sent to stockholders or
filed with the Commission, and (ii) from time to time such other information
concerning the Company as the Representative may request.
(q) During the period ending on the third anniversary hereof, the
Company shall not, without the prior written consent of the Representative,
appoint or engage any accounting firm to audit its financial statements, other
than a "Big-Six" accounting firm.
6. Expenses. The Company will pay all costs and expenses incident to the
performance of the Company's obligations under this Agreement, whether or not
the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (a) the printing or other
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production of documents with respect to the transactions, including any costs of
printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Preliminary Prospectus and the
Prospectus and any amendment or supplement thereto, this Agreement, the
Representative's Warrant Agreement, the Selected Dealer Agreement and any blue
sky memoranda, (b) all arrangements relating to the delivery to the Underwriters
of copies of the foregoing documents, (c) the fees and disbursements of the
counsel, the accountants and any other experts or advisors retained by the
Company, (d) the preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Securities, including transfer agent's and
registrar's fees, (e) the qualification of the Securities under state securities
and blue sky laws, including filing fees and fees and disbursements of counsel
for the Underwriters relating thereto, (f) the filing fees of the Commission and
the National Association of Securities Dealers, Inc. relating to the Securities,
(g) any quotation of the Securities on the Nasdaq SmallCap Market relating to
the Securities, (h) any meetings with prospective investors in the Securities
(other than as shall have been specifically approved by the Representative to be
paid for by the Underwriters), (i) advertising relating to the offering of the
Securities (other than as shall have been specifically approved by the
Representative to be paid for by the Underwriters), including five (5)
"tombstone" advertisements (one in the Wall Street Journal, one in Barron's, one
in Investor's Dealers Digest and one in each of two industry publications
mutually selected by the Company and the Representative) with a maximum expense
for all five in the aggregate of $40,000, and (j) four sets of leather bound
volumes of the registration and offering documents for delivery to or at the
direction of the Representative. If the sale of the Securities provided for
herein is not consummated within 120 days of the initial filing, the Company
will pay reasonable Blue Sky counsel fees as billed. Blue Sky fees may be
increased in the event that special work is required, provided, however, that
the Company agrees in advance to such increased fees. If the sale of the
Securities provided for herein is not consummated for any reason, the Company
shall pay the Representative's accountable counsel fees (in addition to Blue Sky
fees) and other accountable out-of-pocket expenses up to $75,000 in total. In
addition to the foregoing, if any Securities are sold to the Underwriters
pursuant hereto, the Company shall reimburse the Representative for its expenses
on the basis of a non-accountable expense allowance in the amount of 2% of the
gross offering proceeds to be received by the Company. The non-accountable
expense allowance, based on the gross proceeds from the sale of the Firm
Securities, shall be deducted from the funds to be paid for the Firm Securities,
pursuant to Section 3 of this Agreement, on the Firm Closing Date. If any Option
Securities are sold, the non-accountable expense allowance based on the gross
proceeds from the sale of the Option Securities shall be deducted from the funds
to be paid for the Option Securities, pursuant to Section 3 of this Agreement,
on the Option Closing Date.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representative's sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, to the accuracy of the statements of the Company's
17
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officers made pursuant to the provisions hereof, to the performance by the
Company of its covenants and agreements hereunder and to the following
additional conditions:
(a) If the Registration Statement or any amendment thereto filed
prior to the Firm Closing Date has not been declared effective as of the time of
execution hereof, the Registration Statement or such amendment shall have been
declared effective not later than 11:00 a.m., New York time, on the date on
which the amendment to the registration statement originally filed with respect
to the Securities or to the Registration Statement, as the case may be,
containing information regarding the initial public offering price of the
Securities has been filed with the Commission, or such later time and date as
shall have been consented to by the Representative; if required, the Prospectus
or any Term Sheet that constitutes a part thereof and any amendment or
supplement thereto shall have been filed with the Commission in the manner and
within the time period required by Rules 424(b) and 434 under the Act; no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued, and no proceedings for that purpose
shall have been instituted or threatened or, to the knowledge of the Company or
the Representative, shall be contemplated by the Commission; and the Company
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Representative shall have received an opinion, dated the
Firm Closing Date, Orrick, Herrington & Sutcliffe LLP, counsel for the Company,
to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing in the jurisdiction of its incorporation,
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus, and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction where
the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify would not result in a material adverse change in the condition
(financial or other), business prospects, properties, net worth or results
of operations of the Company;
(ii) The Company does not, directly or indirectly, (i) own any
capital stock of any corporation or joint stock company, interest in any
partnership or limited liability company or other equity interest or
participation in any person, or (ii) control any other person, other than
the Subsidiaries; each Subsidiary is a corporation duly organized, validly
existing and in good standing in the jurisdiction of its incorporation,
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus, and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction where
the nature of its properties or the conduct of its business requires
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such registration or qualification, except where the failure so to
register or qualify would not result in a material adverse change in the
condition (financial or other), business, prospects, properties, net worth
or results of operations of such Subsidiary; all the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable, and are owned by the
Company directly, or indirectly through one of the other Subsidiaries,
free and clear of any security interest, lien, encumbrance, equity, claim,
or other defect; and, to the best of such counsel's knowledge, there is no
outstanding warrant, option or right to purchase or otherwise acquire any
capital stock of, or any other equity interest or participation in, any
Subsidiary nor any security or instrument convertible into or exercisable
for any capital stock of, or any other equity interest or participation
in, any Subsidiary nor any agreement, arrangement or understanding
entitling any other person to exercise control over any Subsidiary;
(iii) The Company has the authorized, issued and outstanding
capitalization, and the capital stock of the Company conforms to the
description thereof, set forth in the Prospectus; all of the issued shares
of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in
compliance with all applicable federal and state securities laws and were
not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities; the Firm Securities have
been duly authorized by all necessary corporate action of the Company and,
when issued and delivered to and paid for by the Underwriters pursuant to
this Agreement, will be validly issued, fully paid and nonassessable; the
Securities have been duly approved for inclusion, subject to issuance, for
trading on the Nasdaq SmallCap Market; no holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive or
other rights to subscribe for any of the Securities; and no holder of
securities of the Company has any right which has not been waived to
require the Company to register the offer or sale of any securities under
the Registration Statement;
(iv) The statements set forth under the heading "Description
of Capital Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company, provide
a fair summary of such provisions; and the statements set forth under the
headings "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," "Management,"
"Principal Stockholders," "Certain Transactions" and "Description of
Capital Stock" in the Prospectus, insofar as such statements describe
agreements, statements of law, descriptions of statutes, licenses, rules
or regulations, legal conclusions, documents or proceedings, are correct
and complete in all material respects;
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(v) The Company has full power (corporate and other) to enter
into this Agreement and the Financial Advisory Agreement and to carry out
all the terms and provisions hereof and thereof to be carried out by it;
the execution and delivery of this Agreement and the Financial Advisory
Agreement have been duly authorized by all necessary corporate action of
the Company and this Agreement and the Financial Advisory Agreement have
been duly executed and delivered by the Company and are the valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms; the execution and delivery of the
Representative's Warrant Agreement and the Representative's Warrants have
been duly authorized by the Company and the Representative's Warrant
Agreement and the Representative's Warrants have been duly executed and
delivered by the Company and are valid and binding obligations of the
Company to issue and sell the number and type of securities of the Company
provided for therein, the Representative's Securities have been duly
authorized and reserved for issuance by the Company and, when issued upon
exercise of the Representative's Warrant and payment transfer in
accordance therewith and the Representative's Warrant Agreement, will be
validly issued, fully paid and nonassessable; and no holders of
outstanding shares of capital stock of the Company are entitled as such to
any preemptive or other rights to subscribe for any of the
Representative's Securities.
(vi) (A) No legal or governmental proceedings are pending to
which the Company or any of its Subsidiaries is a party or to which the
property of the Company or any of its Subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus
and are not described therein, and, to the best knowledge of such counsel,
no such proceedings have been threatened against the Company or any of its
Subsidiaries with respect to any of their respective properties and (B) no
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required;
(vii) The issuance, offering and sale of the Firm Securities
to the Underwriters by the Company pursuant to this Agreement, the
issuance and sale of the Representative's Warrants and, upon exercise
thereof, the Representative's Securities to the Representative pursuant to
the Representative's Warrant Agreement, the compliance by the Company with
the provisions of this Agreement, the Financial Advisory Agreement and the
Representatives Warrant Agreement and the consummation of the other
transactions contemplated herein or therein do not (A) require the
consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained and such as
may be required under state securities or blue sky laws or the NASD, or
(B) conflict with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease 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
20
<PAGE>
Subsidiaries or any of their respective properties is bound, or the
charter documents or by-laws of the Company or any of its Subsidiaries, or
any law or any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to the Company
or any of its Subsidiaries;
(viii) The Registration Statement is effective under the Act;
any required filing of the Prospectus, or any Term Sheet that constitutes
a part thereof, pursuant to Rules 424(b) and 434 has been made in the
manner and within the time period required by Rules 424(b) and 434; and no
stop order suspending the effectiveness of the Registration Statement or
any amendment thereto has been issued, and no proceedings for that purpose
have been instituted or threatened or, to the best knowledge of such
counsel, are contemplated by the Commission; and
(ix) The registration statement originally filed with respect
to the Securities and each amendment thereto (including the Registration
Statement) and the Prospectus (in each case, other than the financial
statements and schedules and other financial and statistical information
contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable
requirements of the Act and the rules and regulations of the Commission
thereunder.
Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or the date of such opinion, contains or contained
any untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials; provided that such counsel shall
expressly state in its opinion that it is so relying on any such certificate,
that it deems such reliance proper and that the Underwriters and counsel to the
Underwriters may likewise properly rely on any such certificate.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the Firm
Closing.
(c) The Representative shall have received an opinion, dated the
Firm Closing Date, of Parker Chapin Flattau & Klimpl, LLP, counsel for the
Underwriters, with respect to the issuance and sale of the Firm Securities, the
Registration Statement and the Prospectus, and such other related matters as the
Representative may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to render such opinion.
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(d) The Representative shall have received from KPMG Peat Marwick
LLP, a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Representative, to the
effect that:
(i) they are independent accountants with respect to the
Company and its Subsidiaries within the meaning of the Act and the
applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules examined by them and included in the Registration
Statement and the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
rules and regulations thereunder;
(iii) on the basis of their limited review in accordance with
standards established by the American Institute of Certified Public
Accountants of any interim unaudited consolidated financial statements of
the Company and its Subsidiaries as indicated in their report included in
the Registration Statement and the Prospectus, carrying out certain
specified procedures (which do not constitute an examination made in
accordance with generally accepted auditing standards) that would not
necessarily reveal matters of significance with respect to the comments
set forth in this paragraph (iii), a reading of the minute books and other
records of proceedings of the respective stockholders, boards of directors
and any committees thereof of the Company and each of its Subsidiaries and
inquiries of certain officials of the Company and each of its Subsidiaries
who have responsibility for financial and accounting matters, nothing has
come to their attention that caused them to believe that:
(A) the unaudited consolidated financial statements of the
Company included in the Registration Statement and the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related rules and
regulations thereunder or are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in
the Registration Statement and the Prospectus; and
(B) at a specific date not more than five business days prior
to the date of such letter, there has been any change in the capital
stock or long-term debt of the Company or any of its Subsidiaries or
any decreases in net current assets or stockholders' equity of the
Company or any of its Subsidiaries, in each case compared with
amounts shown on the September 30, 1996 unaudited balance sheet
included in the Registration Statement and the Prospectus, or for
the period from September 30, 1996 to such specified date there were
any decreases or increases, as compared with the corresponding
period in the
22
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preceding year, in net sales, cost of sales, research and
development expenses, selling expenses, general and administrative
expenses, loss from operations, net interest expense, equity in
losses of joint ventures, net loss or net loss per share of the
Company or any of its Subsidiaries, except in all instances for
changes, decreases or increases set forth in such letter; and
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information included in the Registration Statement and the
Prospectus that are specified by the Representative, have compared such
amounts, percentages and financial information with the relevant
accounting and financial records of the Company and each of its
Subsidiaries identified in such letter and with information derived from
such records and have found them to be in agreement.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company and each of its Subsidiaries as to the
significance thereof, unless the Representative deems such explanation
unnecessary, and (B) such changes, decreases or increases do not, in the sole
judgment of the Representative, make it impractical or inadvisable to proceed
with the purchase and delivery of the Securities as contemplated by the
Registration Statement, as amended as of the Firm Closing Date.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the Firm Closing.
(e) The Representative shall have received a certificate, dated the
Firm Closing Date, of the Chairman of the Board, the President and the Chief
Financial Officer of the Company to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein not
misleading; and the Prospectus, as amended or supplemented as of the Firm
Closing Date, does not include any 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, not
misleading; and the Company has performed all covenants and agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to the Firm Closing Date;
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<PAGE>
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the
best of the Company's knowledge, are contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its Subsidiaries has sustained any material
loss or interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition (financial or otherwise), business, prospects, net worth or
results of operations of the Company or any of its Subsidiaries, except in
each case as described in or contemplated by the Prospectus (exclusive of
any amendment or supplement thereto).
(f) The Representative shall have received from each person who is
on the date on which the Registration Statement becomes effective a director,
officer or beneficial owner of any of the Company's outstanding Common Stock or
any warrant, option or other right to purchase or otherwise acquire Common Stock
or any security or instrument convertible into or exchangeable for Common Stock
that is exercisable, convertible or exchangeable on such date, an agreement to
the effect that such person will not issue, sell, offer or contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any such securities of the Company to the public (pursuant to Rule
144 under the Act or otherwise) for a period of eighteen (18) months from the
date of the Prospectus without the prior written consent of the Representative,
and that any such sale or other disposition not involving any offering to the
public may be made only if the person purchasing or otherwise acquiring such
securities agrees in writing likewise to be bound by the terms and conditions of
such agreement.
(g) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq SmallCap Market.
(h) On or before the Firm Closing Date, the Company shall have
executed and delivered to the Representative, the Representative's Warrant
Agreement, substantially in the form filed as an exhibit to the Registration
Statement, and the Representative's Warrants, substantially in the form
prescribed therein, in such denominations and to such designees as shall have
been provided to the Company.
(i) On or before the Firm Closing Date, the Company shall have
executed and delivered to the Representative the Financial Advisory Agreement
and paid to the Representative the advisory fee as provided therein.
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(j) On or before the Firm Closing Date, the Representative and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.
All opinions, certificates, letters and other documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory in all material respects to the Representative and
counsel for the Underwriters. The Company shall furnish to the Representative
such conformed copies of such opinions, certificates, letters and other
documents in such quantities as the Representative and counsel for the
Underwriters shall reasonably request.
The respective obligations of the several Underwriters to purchase
and pay for any Option Securities shall be subject, in their discretion, to each
of the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any
claims, losses, damages or liabilities (including attorneys' fees and
reimbursable expenses), joint or several, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such claims, losses, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any breach of any representation, warranty or agreement of
the Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
any Application a material fact required to be stated therein or necessary
to make the statements therein not misleading, or
25
<PAGE>
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including without
limitation, slides, videos, films and tape recordings,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such claim, loss,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representative specifically for use therein. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of the Underwriter
or Underwriters purchasing, in the aggregate, more than fifty percent (50%) of
the Securities, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any such Underwriter or
any person who controls any such Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action, suit
or proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter will, severally and not jointly, indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any claims, losses, damages or liabilities (including
attorneys' fees and reimbursable expenses) to which the Company or any such
director, officer or controlling person of the Company may become subject under
the Act, the Exchange Act or otherwise, insofar as such claims, losses, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application or (ii) the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company, any such director, officer
or controlling person in connection with
26
<PAGE>
investigating or defending any such claim, loss, damage, liability or any action
in respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party under this Section 8,
except to the extent that such omission actually prejudices the Company's
defense of such claim, or otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel selected by the indemnifying party and reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representative in the case of paragraph (a) of this Section 8,
representing the indemnified parties under such paragraph (a) who are parties to
such action or actions) or (ii) the indemnifying party does not promptly retain
counsel reasonably satisfactory to the indemnified party or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 8 is unavailable or insufficient,
for any reason, to hold
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harmless an indemnified party in respect of any claims, losses, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such claims, losses,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that result in such claims, losses,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Underwriters, the parties' relative intents, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take into account the equitable considerations
referred to above in this paragraph (d). Notwithstanding any other provision of
this paragraph (d), no Underwriter shall be obligated to make contributions
hereunder that in the aggregate exceed the total public offering price of the
Securities purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages that such Underwriter has otherwise been
required to pay in respect of the same or any substantially similar claim, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective underwriting
obligations and not joint, and contributions among Underwriters shall be
governed by the provisions of the Agreement Among Underwriters. For purposes of
this paragraph (d), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Company.
9. Default of Underwriters. If one or more Underwriters default in their
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed
28
<PAGE>
to purchase is ten percent or less of the aggregate number of Firm Securities or
Option Securities to be purchased by all of the Underwriters at such time
hereunder, the other Underwriters may make arrangements satisfactory to the
Representative for the purchase of such Securities by other persons (who may
include one or more of the non-defaulting Underwriters, including the
Representative), but if no such arrangements are made by the Firm Closing Date
or the related Option Closing Date, as the case may be, the other Underwriters
shall be obligated severally in proportion to their respective commitments
hereunder to purchase the Firm Securities or Option Securities that such
defaulting Underwriter or Underwriters agreed but failed to purchase. If one or
more Underwriters so default with respect to an aggregate number of Securities
that is more than ten percent of the aggregate number of Firm Securities or
Option Securities, as the case may be, to be purchased by all of the
Underwriters at such time hereunder, and if arrangements satisfactory to the
Representative are not made prior to 5:00 p.m., New York City time, on the
second business day after such default for the purchase by other persons (who
may include one or more of the non-defaulting Underwriters, including the
Representative) of the Securities with respect to which such default occurs,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company other than as provided in Section 10
hereof. In the event of any default by one or more Underwriters as described in
this Section 9, the Representative shall have the right to postpone the Firm
Closing Date or the Option Closing Date, as the case may be, established as
provided in Section 3 hereof for not more than seven business days in order that
any necessary changes may be made in the arrangements or documents for the
purchase and delivery of the Firm Securities or Option Securities, as the case
may be. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 9. Nothing herein shall
relieve any defaulting Underwriter from liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers and the
several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated with respect to the
Firm Securities or any Option Securities in the sole discretion of the
Representative by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have refused, been unable or otherwise failed to perform all obligations
and satisfy all conditions on its part to be performed or satisfied hereunder at
or prior thereto or, if at or prior to the Firm Closing Date or such Option
Closing Date, respectively,
29
<PAGE>
(i) the Company or any of its Subsidiaries shall have, in the
sole judgment of the Representative, sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or any legal or governmental proceeding or there shall
have been any material adverse change, or any development involving a
prospective material adverse change (including without limitation a change
in management or control of the Company), in the condition (financial or
other), business, prospects, properties, net worth or results of
operations of the Company or any of its Subsidiaries, except in each case
as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by
the Commission or the Nasdaq SmallCap Market or trading in securities
generally on the New York Stock Exchange or the Nasdaq SmallCap Market
shall have been suspended or minimum or maximum prices shall have been
established on such exchange or market system;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representative, makes it impractical or inadvisable
to proceed with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by Underwriters. The statements set forth in the
last paragraph on the front cover page and under the heading "Underwriting" in
any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representative to the Company for the purposes of
Sections 2(b) and 8 hereof. The Underwriters confirm that such statements (to
such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if sent
to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Commonwealth Associates, 733
Third Avenue, 11th Floor, New
30
<PAGE>
York, New York 10017, in each case, with a copy to Parker Chapin Flattau &
Klimpl, LLP, 1211 Avenue of the Americas, New York, New York 10036, fax no.
(212) 704-6288, Attention: Gary J. Simon, Esq.; and if sent to the Company,
shall be delivered or sent by mail, telex or facsimile transmission and
confirmed in writing to the Company at 5580 Cherry Avenue, Long Beach,
California 90805; fax number (310) 630-1382, Attention: President, in each case,
with a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York,
New York 10103, fax no. (212) 506-5000, Attention: Lawrence B. Fisher, Esq.
14. Successors. This Agreement shall inure to the benefit of and shall be
binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing in this Agreement is intended
or shall be construed to give any other person any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person, except that (i) the indemnities of the
Company contained in Section 8 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities
of the Underwriters contained in Section 8 of this Agreement shall also be for
the benefit of the directors of the Company, the officers of the Company who
have signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Securities from any Underwriter shall be deemed a
successor because of such purchase.
15. Applicable Law. The validity and interpretation of this Agreement, and
the terms and conditions set forth herein, shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
31
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and each of the
several Underwriters.
Very truly yours,
NATURAL GAS VEHICLE SYSTEMS, INC.
By: ___________________________________
Name: _____________________________
Title: ____________________________
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
COMMONWEALTH ASSOCIATES
By: COMMONWEALTH ASSOCIATES MANAGEMENT
COMPANY, INC., General Partner
By: _______________________________
Name: _________________________
Title:_________________________
For itself and as Representative.
32
<PAGE>
SCHEDULE 1
UNDERWRITERS; FIRM SECURITIES
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
Commonwealth Associates....................
---------
Total...................................... 1,500,000
<PAGE>
SCHEDULE 2
UNDERWRITERS; OPTION SECURITIES
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
Commonwealth Associates....................
---------
Total...................................... 225,000
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT
BETWEEN
NATURAL GAS VEHICLE SYSTEMS, INC.
AND
COMMONWEALTH ASSOCIATES
---------------
Dated as of January __, 1997
---------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of January __, 1997 between
NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware corporation (the "Company"), and
COMMONWEALTH ASSOCIATES ("Commonwealth").
The Company proposes to sell to Commonwealth common stock purchase
warrants (the "Warrants") to purchase an aggregate of 150,000 shares (the
"Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), in connection with a public offering by the Company, pursuant to a
registration statement (the "Registration Statement") on Form SB-2 (File No.
333-14185) filed by the Company with the Securities and Exchange Commission, of
1,500,000 shares of Common Stock (the "Offering").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the Company and Commonwealth hereby agree as
follows:
1. Issuance of Warrants; Form of Warrant; Execution of Warrants. The
Company shall issue, sell and deliver the Warrants to Commonwealth or, at
Commonwealth's direction, to its bona fide officers or designees, for an
aggregate purchase price of $150.00, concurrently with the closing (the
"Closing") under the underwriting agreement dated January __, 1997 between the
Company and Commonwealth (the "Underwriting Agreement") relating to the
Offering. The Warrants, together with the purchase and assignment forms to be
printed on the reverse thereof or attached thereto, shall be substantially in
the form of Exhibit A attached hereto. The Warrants shall be executed on behalf
of the Company by the manual or facsimile signature of its present or any future
Chairman or President, under its corporate seal affixed or in facsimile, and
attested by the manual or facsimile signature of its Secretary or Assistant
Secretary.
2. Registration. The Warrants shall be numbered and shall be registered in
a Warrant register as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant (the "Holder") as the owner in fact thereof
for all purposes and shall not be bound to recognize any equitable or other
claim to or interest in such Warrants on the part of any other person, and shall
not be liable for any registration or transfer of Warrants that are registered
or to be registered in the name of a fiduciary or the nominee of a fiduciary
unless made with the actual knowledge that a fiduciary or nominee is committing
a breach of trust in requesting such registration or transfer, or with such
knowledge of such facts that its participation therein amounts to bad faith. The
Warrants shall be registered initially in the name of "Commonwealth Associates"
in such denominations as Commonwealth may request in writing to the Company;
provided, however, that prior to the Closing, Commonwealth may designate that
the Warrants be issued in varying amounts directly to its bona fide officers or
designees and not to Commonwealth. Such designation will only be made by
Commonwealth if it determines such issuances would not violate the
interpretation of the Board of Governors of the National Association of
Securities Dealers, Inc. (the "NASD") relating to the review of corporate
financing arrangements.
-2-
<PAGE>
3. Transfer of Warrants.
3.1 The Warrants may not be sold, assigned, transferred, pledged or
hypothecated for a period of one year after the effective date of the
Registration Statement, except that they may be assigned, in whole or in part,
to any successor, officer, employee or partner of Commonwealth, or to officers,
employees or partners of any such successor or partner. The Warrants shall be
transferable only on the books of the Company maintained at its principal
executive office (the "Company Office") upon delivery thereof duly indorsed by
the Holder or by the Holder's duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer. In all cases of transfer by an attorney, the original power of
attorney, duly approved, or a copy thereof, duly certified, shall be deposited
and remain with the Company. In case of transfer by executors, administrators,
guardians or other legal representatives, duly authenticated evidence of their
authority shall be produced, and may be required to be deposited and remain with
the Company in its discretion.
3.2 Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the persons entitled thereto. The Warrants may be
exchanged, at the option of the Holder thereof, for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Common Stock upon
surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause Warrants to be
transferred on its books to any person, unless the Holder or Holders thereof
shall furnish to the Company evidence of compliance with the Securities Act of
1933 (the "Act") in accordance with the provisions of section 11 of this
agreement.
4. Exercise of Warrants; Term of Warrants.
4.1 Each Warrant shall entitle the Holder thereof to purchase from the
Company one share of Common Stock at a purchase price of $_____ per share or at
such adjusted purchase price as may be established from time to time pursuant to
the provisions of section 8 hereof, payable in full at the time of exercise of
the Warrant. Except as the context otherwise requires, the term "Exercise Price"
as used in this agreement shall mean the purchase price of one share of Common
Stock, reflecting all appropriate adjustments made in accordance with section 8
hereof. Each Warrant may be exercised for a four-year period commencing on the
first anniversary of the effective date of the Registration Statement. The term
"Expiration Date" as used in this agreement shall mean the latest time and date
at which the Warrants may be exercised. After the Expiration Date, any
unexercised Warrants shall be void and all rights of Holders with respect
thereto shall cease.
4.2 During the period specified in and subject to the provisions of this
section 4, Warrants may be exercised by their surrender at the Company Office
with the election-to-purchase form set forth on (or attached to) the Warrant
duly completed and executed, accompanied by payment in full to the Company of
the aggregate Exercise Price in effect at the
-3-
<PAGE>
time of the exercise, together with any taxes payable pursuant to section 5
hereof, for each share of Common Stock with respect to which Warrants are being
exercised, which amounts shall be paid in full, in United States currency, by a
bank cashier's check or money order payable to the order of the Company or by
wire transfer to an account designated by the Company. Within five (5) business
days after the exercise of any Warrants, the Company shall issue a certificate
or certificates for the number of full Shares to which the Holder is entitled,
registered in accordance with the instructions set forth in the election to
purchase, together with cash as provided in section 9 of this agreement payable
in respect of fractional shares. All Shares shall be duly authorized and validly
issued, fully paid, nonassessable and free of preemptive rights, and free from
all taxes, liens, and charges. Certificates representing such Shares shall be
delivered by the Company in such names and denominations as are required for
delivery to, or in accordance with the instructions of, the Holder.
4.3 Each person in whose name any such certificate for Shares is issued
shall for all purposes be deemed to have become the holder of record of the
Shares represented thereby on the date upon which such Warrants were surrendered
for exercise, accompanied by payment of the Exercise Price as aforesaid,
irrespective of the date of issuance or delivery of such certificate for Shares;
provided, however, that if, at the date of the surrender of such Warrants and
payment of the Exercise Price, the transfer books for the Common Stock or other
class of stock purchasable upon the exercise of such Warrants shall be closed,
the certificates for the Shares or for shares of such other class of stock in
respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall next be opened (whether before or after the
Expiration Date) and, until such date, the Company shall be under no duty to
deliver any certificate for such Shares or for shares of such other class of
stock; provided further, that the transfer books of record, unless otherwise
required by law, shall not be closed at any one time for a period longer than
twenty (20) days.
4.4 The Warrants shall be exercisable, at the election of the Holders
thereof, in full or from time to time in part and, in the event that less than
all of the surrendered Warrants are exercised, the Company shall execute and
mail, by first-class mail, within thirty (30) days of the date upon which the
Warrants were exercised, to the Holder of such Warrants or such other person as
shall be designated in the election to purchase, a new Warrant representing the
number of full Warrants not exercised. In no event shall a fraction of a Warrant
be exercised, and the Company shall distribute no fractions of Warrants under
this or any other section of this agreement.
5. Payment of Taxes. The Company shall promptly pay all documentary stamp
taxes attributable to the issuance of Shares upon the exercise of any Warrants,
but any transfer taxes that may be payable in connection with the issuance of
Warrants or certificates for Shares in any name other than that of the Holder of
the Warrant surrendered shall be paid by such Holder.
6. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen, or destroyed, the Company shall issue and deliver in
exchange and substitution for
-4-
<PAGE>
and upon cancellation of the mutilated Warrant, or in lieu of and substitution
for the lost, stolen, or destroyed Warrant, a new Warrant of like tenor and
representing an equivalent right or interest; but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction of
such Warrant. Applicants for such substitute Warrants shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
7. Reservation of Shares. The Company shall at all times reserve and keep
available for issuance upon the exercise of Warrants a number of its authorized
but unissued shares of Common Stock that will be sufficient to permit the
exercise in full of all outstanding Warrants. Continental Stock Transfer & Trust
Company, the transfer agent for the Company's Common Stock (the "Transfer
Agent"), and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of Warrants, shall be irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued shares as shall be requisite for such purpose. The Company will keep a
copy of this agreement on file with the Transfer Agent and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of Warrants. The Company shall supply the Transfer Agent (and any such
subsequent transfer agent) with duly executed stock certificates for such
purpose and will provide or otherwise make available any cash that may be
payable as provided in section 9 hereof. All Warrants surrendered upon the
exercise thereof shall be canceled and such canceled Warrants shall constitute
sufficient evidence of the number of shares of Common Stock (or other shares of
capital stock) that have been issued upon the exercise of the Warrants. After
the Expiration Date, no shares shall be subject to reservation in respect of any
unexercised Warrants.
8. Adjustments.
8.1 Adjustment of Number of Shares. The number of shares of Common Stock
that the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying:
(a) the number of shares of Common Stock that would otherwise (but
for the provisions of this section 8) be issuable upon such exercise, as
designated by the holder hereof pursuant to section 4; by
(b) a fraction of which the numerator is $_____ and the denominator
is the Exercise Price in effect on the date of such exercise;
provided, however no adjustment pursuant to this section 8 shall occur as a
result of the issuance of (i) shares of Common Stock sold pursuant to the
Underwriting Agreement (including the over-allotment shares referred to
therein), (ii) up to an aggregate of 500,000 shares of Common Stock issued to
employees upon the exercise of options granted pursuant to the Company's Amended
and Restated Natural Gas Vehicle Systems, Inc. Stock Option Plan or 1996
Combined Incentive and Nonqualified Stock Option Plan, (iii) up to an aggregate
of 158,717 shares of Common Stock
-5-
<PAGE>
issued pursuant to warrants of the Company issued and outstanding as of the date
hereof, and (iv) shares of Common Stock issued in connection with any business
combination; provided that the Company's Board of Directors determines that the
consideration for each such share equals or exceeds the fair market value
thereof, in such Board's express reasonable judgment (collectively, the
"Excluded Issuances").
8.2 Adjustment of Exercise Price.
8.2.1 Initial Exercise Price. The Exercise Price, which initially will be
$_____, shall be adjusted and readjusted from time to time as provided in this
section 8 and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by this section 8;
provided, however there shall be no adjustment of the Exercise Price due to the
Excluded Issuances.
8.2.2 Issuance of Additional Shares of Common Stock. In case the Company,
at any time or from time to time after January __, 1997 (the "Effective Date"),
shall issue or sell Additional Shares of Common Stock (as defined below),
including Additional Shares of Common Stock deemed to be issued pursuant to
section 8.3 or section 8.4, without consideration or for a consideration per
share less than either the Exercise Price or the Fair Market Value (as defined
below) of the shares of Common Stock outstanding immediately prior to such issue
or sale, then, and in each such case, the Exercise Price shall be reduced,
subject to section 8.8, concurrently with such issue or sale, to a price
(calculated to the nearest cent) determined by multiplying such Exercise Price
by a fraction of which
(a) the numerator shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issue or sale plus (ii) the number
of shares of Common Stock which the aggregate consideration received by
the Company for the total number of Additional Shares of Common Stock so
issued or sold would purchase at the lesser of such Exercise Price or Fair
Market Value immediately prior to such issue or sale, and
(b) the denominator shall be the number of shares of Common Stock
outstanding immediately after such issue or sale.
For the purposes of this section 8.2.2, (x) immediately after any Additional
Shares of Common Stock shall be deemed to be issued pursuant to section 8.3 or
section 8.4, such Additional Shares shall be deemed to be outstanding, and (y)
treasury shares shall not be deemed to be outstanding. "Additional Shares of
Common Stock" shall mean all shares (including treasury shares) of Common Stock
issued or sold (or pursuant to sections 8.3 or 8.4, deemed to be issued) by the
Company after the Effective Date hereof, whether or not subsequently reacquired
or retired by the Company, other than shares of Common Stock issued upon the
exercise of the Warrants. "Fair Market Value", with respect to shares of Common
Stock outstanding at any time shall be determined as follows:
-6-
<PAGE>
(a) If a public market exists for the Common Stock, the Fair Market
Value of the Common Stock shall be (i) the closing price of the Common
Stock on the Business Day prior to such issuance on the National Market
System of the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") or on the principal national securities
exchange on which the Common Stock is at the time traded or (ii) if there
is not such a sale on such day or if the Common Stock is not at that time
traded on the National Market System of the NASDAQ or on a national
securities exchange, the average of the lowest closing bid and highest
closing asked prices on such day as reported by the National Association
of Securities Dealers (or any successor organization); or
(b) If a public market for the Common Stock does not exist, the Fair
Market Value of the Common Stock shall be determined in good faith by the
Board of Directors promptly after the issuance of any Additional Shares of
Common Stock or the occurrence of any other event or the existence of any
other circumstance as a result of which the Fair Market Value of the
Common Stock would be required for any provision of this agreement and the
Company shall promptly deliver to each Holder a certificate of the
Secretary of the Company setting forth the amount of the Fair Market Value
of the Common Stock and certifying that the amount was determined by the
Board of Directors of the Company. If any Holder disagrees with the Fair
Market Value set forth in that certificate, such Holder may, together with
any other Holders who so disagree, engage an independent investment bank
or firm of independent public accountants to act as appraiser, the expense
of which shall be shared equally by such Holder or Holders, to determine
the Fair Market Value of the Common Stock, and such Holder shall deliver
such appraisal to the Company within 30 days after the date of delivery of
the certificates referenced to above. Within five days after delivery to
the Company of such appraisal, the appraiser engaged by the Holder and a
person designated by the Board (the expense of which shall be borne by the
Company) shall meet in order to resolve any questions or differences with
respect to the Fair Market Value of the Common Stock. If such persons
agree on a Fair Market Value of the Common Stock, such Fair Market Value
shall be the Fair Market Value. If no such agreement is reached, the Fair
Market Value shall be determined within ten days after such meeting by an
appraiser who shall be selected by the appraiser engaged by the Holder and
the person designated by the Board (or, if they do not agree on an
appraiser within ten days, another independent investment bank or firm of
independent public accountants to act as appraiser selected by the
American Arbitration Association), the expense of which shall be shared
equally by such Holder or Holders, on the one hand, and the Company, on
the other hand, and the determination of that third appraiser shall be
conclusive and binding on both the Company and the Holders. In determining
the Fair Market Value of any share of Common Stock, all Warrants shall be
treated as if they had been exercised for the number of shares of Common
Stock issuable upon their exercise, and the Fair Market Value of any
Warrant shall be equal to the Fair Market
-7-
<PAGE>
Value of the Shares of Common Stock issuable upon the exercise of such
Warrant less the exercise price of such Warrant.
8.2.3 Dividends and Distributions. In case the Company at any time or from
time to time after the Effective Date shall declare, order, pay or make a
dividend or other distribution on Common Stock (including, without limitation,
any distribution of stock or other securities, property or options by way of
dividend, spin-off, reclassification, corporate rearrangement, and any
redemption or acquisition of stock or options or other securities), then, and in
each such case, the Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of any class
of securities entitled to receive such dividend or other distribution shall be
reduced, subject to section 8.8, effective as of the close of business on such
record date, to a price (calculated to the nearest cent) determined by
multiplying such Exercise Price by a fraction of which
(a) the numerator shall be the Exercise Price in effect immediately
prior to the close of business on such record date minus the value of such
dividends or other distributions (as determined in good faith by the Board
of Directors of the Company) applicable to one share of Common Stock, and
(b) the denominator shall be such Exercise Price in effect
immediately prior to the close of business on such record date;
provided, however, that no such reduction shall be made pursuant to this section
8.2.3 for a dividend payable in Additional Shares of Common Stock or in Options
(as defined below) for Common Stock, or a dividend payable in cash or other
property and declared out of the earned surplus (i.e., retained earnings, when
and if the Company has any) of the Company (excluding any portion thereof
resulting from a reevaluation of property). For purposes of the foregoing, a
dividend payable other than in cash shall be considered payable out of earned
surplus only to the extent that such earned surplus is charged an amount equal
to the fair value of such dividend at the time of declaration as determined in
good faith by the Board of Directors of the Company. "Options" shall mean
rights, options or warrants to subscribe for, purchase or otherwise acquire
either Additional Shares of Common Stock or Convertible Securities. "Convertible
Securities" shall mean any shares (other than Common Stock), evidences of
indebtedness or other securities directly or indirectly convertible into or
exchangeable for Additional Shares of Common Stock.
8.3 Treatment of Options and Convertible Securities. In case the Company,
at any time or from time to time after the Effective Date shall issue, sell,
grant or assume, or fix a record date for the determination of holders of any
class of securities entitled to receive, any Options or Convertible Securities,
then, and in each such case, the maximum number of Additional Shares of Common
Stock issuable upon the exercise of such Options or the conversion or exchange
of such Convertible Securities shall be deemed to be issued for purposes of
section 8.2.2 as of the time of such issue, sale, grant or assumption, or, in
case such a record date shall have been fixed, as of the close of business on
such record date; provided, however, that such Additional Shares of
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Common Stock shall not be deemed to be issued if the consideration per share of
such shares, as determined pursuant to section 8.5, would be equal to or greater
than the greater of the Exercise Price or the Fair Market Value of the shares of
Common Stock on the Business Day (as defined below) on which such Additional
Shares of Common Stock shall be deemed to be issued; and provided further,
however, that in each such case in which Additional Shares of Common Stock would
have been deemed to be issued,
(a) no further Additional Shares of Common Stock shall be deemed to
be issued upon the subsequent issue or sale of Common Stock or any other
securities of the Company pursuant to the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms shall
provide in any manner for any increase in the consideration payable to the
Company, or decrease in the number of Additional Shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof, the Exercise
Price computed upon the original issue, sale, grant or assumption of such
Options or Convertible Securities (or upon the fixing of the record date
with respect thereto), and any subsequent adjustments in such Exercise
Price, shall, upon any such increase in consideration or decrease in the
number of Additional Shares of Common Stock issuable becoming effective,
be recomputed to reflect such increase or decrease insofar as it affects
such Options, or the rights of conversion or exchange under such
Convertible Securities, as are outstanding at the time such increase or
decrease becomes effective;
(c) upon the expiration of any such Options or of the rights of
conversion or exchange under any such Convertible Securities which shall
not have been exercised, or upon purchase by the Company and cancellation
or retirement of any such Options which shall not have been exercised or
of any such Convertible Securities the rights of conversion or exchange
under which shall not have been exercised, the Exercise Price computed
upon the original issue, sale, grant or assumption of such Options or
Convertible Securities (or upon the fixing of the record date with respect
thereto), and any subsequent adjustments in such Exercise Price, shall,
upon such expiration, cancellation or retirement, be recomputed as if:
(i) in the case of Options for Common Stock or of Convertible
Securities, the only Additional Shares of Common Stock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the consideration
received thereupon was
(A) in the case of Options, an amount equal to (x) the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, plus (y) the
consideration actually
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received by the Company upon exercise of any such Options,
minus (z) the consideration paid by the Company for any
purchase of such Options which were not exercised, or
(B) in the case of Convertible Securities, an amount
equal to (x) the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Convertible Securities (unless theretofore taken into account
pursuant to clause (ii) below) which were actually converted
or exchanged, plus (y) the consideration actually received by
the Company upon such conversion or exchange, minus (z) the
consideration paid by the Company for any purchase of such
Convertible Securities the rights of conversion or exchange
under which were not exercised, and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consideration received
by the Company for the Additional Shares of Common Stock deemed to
have then been issued was an amount equal to (x) the consideration
actually received by the Company for the issue, sale or grant of all
such Options, plus (y) the consideration deemed to be received by
the Company (pursuant to section 8.5) upon the issue or sale of the
Convertible Securities with respect to which such Options were
actually exercised, minus (z) the consideration paid by the Company
for any purchase of such Options that were not exercised; and
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Exercise Price by an amount in excess of
the amount of the adjustment thereof originally made pursuant to the
issue, sale, grant or assumption of such Options or Convertible
Securities.
"Business Day" shall mean any day of the year which is not a Saturday,
Sunday or a day on which banks are required or authorized to close in the State
of New York.
8.4 Treatment of Stock Dividends, Stock Splits, etc. In case the Company
at any time or from time to time after the Effective Date shall fix a record
date for the determination of holders of any class of securities entitled to
receive any dividend or other distribution on any class of stock of the Company
payable in Common Stock, or shall otherwise effect any subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock, then, and in each such case, Additional Shares of Common Stock shall be
deemed to be issued (a) in the case of any such dividend or other distribution,
immediately after the close of business on such record date, or (b) in the case
of any such subdivision, at the close of business on the day immediately prior
to the day upon which such corporate action shall have become effective.
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8.5 Computation of Consideration. For the purposes of this section 8:
(a) The consideration for any Additional Shares of Common Stock
actually issued or sold or for the issue, sale, grant or assumption of any
Options or Convertible Securities, irrespective of the accounting
treatment of such consideration, shall
(i) insofar as it consists of cash, be computed as the amount
of cash actually received by the Company, without deducting any
expenses paid or incurred by the Company, or any commissions or
compensation paid or concessions or discounts allowed by the
Company, to underwriters, dealers or others performing similar
services in connection with any such issue or sale,
(ii) insofar as it consists of consideration (including
securities as defined in the Act) other than cash, be computed as
the market value thereof at the time of any such issue, sale, grant
or assumption as determined in good faith by the Board of Directors
of the Company (which determination shall be evidenced in a
certificate delivered promptly to each Holder and which
determination shall be subject to the procedures for disagreement as
provided in item (b) of the definition of "Fair Market Value" in
section 8.2.2), and
(iii) insofar as Additional Shares of Common Stock are issued
or sold, Options or Convertible Securities are issued, sold, granted
or assumed together with other stock or securities or other assets
of the Company for a consideration that covers both, be the
proportion of such consideration (computed as provided in clauses
(i) and (ii) above) allocable to such Additional Shares of Common
Stock or Convertible Securities as determined in good faith by the
Board of Directors of the Company (which determination shall be
evidenced in a certificate delivered promptly to each Holder and
which determination shall be subject to the procedures for
disagreement as provided in item (b) of the definition of "Fair
Market Value" in section 8.2.2).
(b) The following shall be deemed to be issued without
consideration: (i) all Additional Shares of Common Stock, Options or
Convertible Securities issued in payment of any dividend or other
distribution on any class of stock of the Company, and (ii) all Additional
Shares of Common Stock issued to effect a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock
otherwise than by payment of a dividend in Common Stock. Additional Shares
of Common Stock, Options or Convertible Securities issued to directors,
management, employees and related parties shall be deemed to be issued (i)
without consideration if not issued for cash or property and (ii) for less
than either the Exercise Price or the Fair Market Value to the extent that
any cash or the fair value of property, as determined in
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good faith by the Board of Directors, received for such securities is less
than either the Exercise Price or the Fair Market Value of such
securities.
(c) Additional Shares of Common Stock deemed to have been issued for
consideration pursuant to section 8.3 shall be deemed to have been issued
for a consideration per share determined by dividing
(i) the total amount, if any, actually received by the Company
as consideration for the issue, sale, grant or assumption of the
Options or Convertible Securities in question, 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 Company upon the exercise of all such Options or the
conversion or exchange of all such Convertible Securities or, in the
case of Options for Convertible Securities, the exercise of all such
Options for Convertible Securities and the conversion or exchange of
all such Convertible Securities, in each instance computing such
consideration as provided in the foregoing subdivision (a), by
(ii) 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 or, in the case of
Options for Convertible Securities, the exercise of such Options and
the conversion or exchange of such Convertible Securities.
8.6 Adjustments for Combinations, etc. In case 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 Exercise Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
increased proportionately.
8.7 Dilution in Case of Other Securities. In case any Other Securities (as
defined below) shall be issued or sold, or shall become subject to issue or sale
upon the conversion or exchange of any Common Stock or Other Securities of the
Company (or any issuer of Other Securities or any other Person (as defined
below) referred to in section 9), or shall become subject to subscription,
purchase or other acquisition pursuant to any Options issued, sold, granted or
assumed by the Company (or any such other issuer or Person) for a consideration
that dilutes, in accordance with the standards established in the other
provisions of this section 8 or otherwise, the purchase rights granted by this
Warrant, then, and in each such case, the computations, adjustments and
readjustments provided for in this section 8 with respect to the Exercise Price
shall be made and applied as nearly as possible in the manner so provided, to
determine the amount of Other Securities that the holder of this Warrant shall
be entitled to receive upon the
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exercise of this Warrant, in order to protect such holder against such dilution
of purchase rights. "Person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization or a government or any
agency or political subdivision thereof. "Other Securities" shall mean any stock
(other than Common Stock) of the Company or of any other Person that the Holders
of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 9 or otherwise.
8.8 Minimum Adjustment of Exercise Price. If the amount of any adjustment
of the Exercise Price required pursuant to this section 8 would be less than
$0.10, such amount shall be carried forward, and adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment that,
together with such amount and any other amount or amounts so carried forward,
shall aggregate at least $0.10.
9. Consolidation, Merger, Sale of Assets, Reorganization, etc. General
Provisions.
9.1 In case the Company, after the Effective Date, (a) shall consolidate
with or merge into any other Person and shall not be the continuing or surviving
Person of such consolidation or merger, or (b) shall permit any other Person to
consolidate with or merge into the Company and the Company shall be the
continuing or surviving Person but, in connection with such consolidation or
merger, Common Stock or Other Securities shall be changed into or exchanged for
cash, stock or other securities of any other Person or any other property, or
(c) shall transfer, directly or indirectly through transactions involving any of
or all its subsidiaries, all or substantially all its properties and assets to
any other Person or (d) shall effect a capital reorganization or
reclassification of Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Exercise Price is provided in
section 8.2.2 or section 8.2.3), then, and in the case of each such transaction,
the Company shall make proper provision such that, upon the terms and in the
manner provided in section 8, the holder of this Warrant, upon the exercise
hereof at any time after the consummation of each such transaction, shall be
entitled to receive, at the Exercise Price in effect immediately prior to such
consummation, in lieu of the Common Stock or Other Securities issuable upon such
exercise immediately prior to such consummation, the highest amount of cash,
securities or other property to which such holder would actually have been
entitled as a shareholder upon such consummation if such holder had exercised
this Warrant immediately prior thereto, subject to adjustments subsequent to
such consummation as nearly equivalent as possible to the adjustments provided
for in section 8 and this section 9; provided, however, that if prior to the
consummation of such transaction, a purchase, tender or exchange offer shall
have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the holder of this Warrant, by
written notice to the Company (in compliance with section 15) signed on or
before the date immediately preceding the date of expiration of such purchase,
tender or exchange offer, declares an intention to exercise this Warrant in
whole or in part, such holder shall be entitled, upon consummation of such
offer, to
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receive upon exercise the highest amount of cash, securities or other property
to which such holder would actually have been entitled as a shareholder if such
holder had exercised this Warrant prior to the expiration of such purchase,
tender or exchange offer, and if all shares of Common Stock which such holder
would have owned as a result of such exercise had been purchased pursuant to
such purchase, tender or exchange offer, subject to adjustments from and after
the consummation of such purchase, tender or exchange offer as nearly equivalent
as possible to the adjustments provided for in section 8.
9.2 Assumption of Obligations. Notwithstanding anything contained in this
agreement to the contrary, the Company shall not effect any of the transactions
described in subdivisions (a) through (d) of section 9.1 unless, prior to the
consummation thereof, each Person (other than the Company) that may be required
to deliver any cash, stock or other securities or other property upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to the holder of the Warrants, and reasonably satisfactory to
Commonwealth or holders of a majority-in-interest of the Warrants (a) the
obligations of the Company under this agreement and the Warrants (and if the
Company shall survive the consummation of any such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this agreement and the Warrants) and (b) the
obligation to deliver to such holder such cash, stock or other securities or
other property as such holder may be entitled to receive in accordance with the
provisions of this section 9.
9.3 Other Dilutive Events. The Board of Directors of the Company shall
have an ongoing obligation to determine in good faith whether any event has
occurred as to which the provisions of section 8 shall not be strictly
applicable, but with respect to which the failure to make any adjustment to the
Exercise Price would not fairly protect the purchase rights represented by this
Warrant in accordance with the intent and principles of that section. In each
case in which such determination shall be made, the Company shall appoint a firm
of independent public accountants reasonably acceptable to Commonwealth or a
majority-in-interest of the Warrants, which shall give its opinion upon the
adjustments, if any, consistent with the intent and principles established in
sections 8 and 9, necessary to preserve without dilution the purchase rights
represented by this agreement and the Warrants. Upon receipt of such opinion,
the Company will promptly mail a copy thereof to the holder of the Warrants and
shall make the adjustments described therein.
9.4 No Dilution or Impairment. The Company shall not, by amendment of its
certificate of incorporation or by-laws or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue, sale, grant or
assumption of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this agreement or the
Warrants, but will at all times, whether or not requested to do so, in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holders of the Warrants against dilution or other impairment. Without limiting
the generality of the foregoing, the Company
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(a) shall take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of all Warrants
from time to time outstanding, and
(b) shall not take any action that results in any adjustment of the
Exercise Price if the total number of shares of Common Stock (or Other
Securities) issuable after such action upon the exercise of all Warrants
from time to time outstanding would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's
certificate of incorporation and available for the purpose of issue upon
such exercise.
9.5 Notice, Evidence of Adjustments. Whenever the Exercise Price is
adjusted, as herein provided, the Company shall promptly cause a notice setting
forth the adjusted Exercise Price and adjusted number of Shares issuable upon
exercise of each Warrant to be mailed to the Holders, at their last addresses
appearing in the Warrant register, and shall cause a certified copy thereof to
be mailed to the Transfer Agent. The Company shall retain a firm of independent
public accountants of recognized standing selected by the Board of Directors
(who may be the regular accountants employed by the Company) to make any
computation required by section 8, and a certificate signed by such firm shall
accompany said notice and shall be conclusive evidence of the correctness of
such adjustment.
10. Fractional Interests. The Company shall not be required to issue
fractions of shares of Common Stock on the exercise of Warrants. If more than
one Warrant shall be presented for exercise in full at the same time by the same
Holder, the number of Shares that shall be issuable upon the exercise thereof
shall be computed on the basis of the aggregate number of Shares purchasable on
exercise of the Warrants so presented. If any fraction of a share of Common
Stock would, except for the provisions of this section 10, be issuable on the
exercise of any Warrant (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
Exercise Price then in effect on the date of exercise.
11. Restrictions on Dispositions. The Shares have not been registered
under the Act. Commonwealth represents and warrants to the Company that it
understands that (a) the Shares may not be transferred except pursuant to (i) an
effective registration statement under the Act relating thereto, or (ii) any
available exemption from registration under the Act permitting such disposition
of securities and an opinion of counsel, reasonably satisfactory to counsel for
the Company, that an exemption from such registration is available and (b) the
Warrants may not be transferred except in accordance with the provisions of
section 3, pursuant to an effective registration statement under the Act
relating thereto or pursuant to any available exemption from registration under
the Act permitting such disposition of securities and an opinion of counsel,
reasonably satisfactory to counsel for the Company, that an exemption from such
registration is available.
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12. Certificates to Bear Legends. The Warrants shall be subject to a
stop-transfer order and the certificate or certificates therefor shall bear the
following legend:
NEITHER THE WARRANTS NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE
SOLD OR TRANSFERRED PRIOR TO ________, 1998 (SUBJECT TO CERTAIN LIMITED
EXCEPTIONS), SUCH SECURITIES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT RELATING THERETO, OR (ii) AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES AND AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR
THE COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE, AND
THE WARRANTS MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 3 OF THE WARRANT AGREEMENT DATED THIS DATE BETWEEN NATURAL GAS VEHICLE
SYSTEMS, INC. AND COMMONWEALTH ASSOCIATES PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT RELATING THERETO OR PURSUANT TO ANY AVAILABLE EXEMPTION
FROM REGISTRATION UNDER THE ACT PERMITTING SUCH DISPOSITION OF SECURITIES AND AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
The Shares or other securities issued upon exercise of the Warrants shall
be subject to a stop-transfer order and the certificate or certificates
evidencing any such Shares or securities shall bear a legend in substantially
the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). SUCH SHARES MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
RELATING THERETO, OR (ii) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES AND AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE.
13. Registration Rights.
13.1 Demand Registration Rights. Upon written request of the then
Holder(s) of at least a majority of the Warrants, including Shares, if issued,
made at any time within the period commencing one (1) year and ending five (5)
years after the effective date of the Registration Statement, the Company shall
file within a reasonable period of time and, in any event, within forty-five
(45) days after receipt of such written request, at its sole expense, on no more
than one occasion, a registration statement under the Act registering the
Warrants and/or Shares for sale to the public. Within 15 days after receiving
any such notice, the Company shall give notice to the
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other Holders of the Warrants and/or Shares advising that the Company is
proceeding with such registration statement, and offering to include therein the
Warrants and/or Shares of such other Holders. The Company shall not be obligated
to so include the Warrants and/or Shares of any such other Holder unless such
other Holder shall accept such offer by notice in writing to the Company within
ten (10) days after receipt of such notice from the Company. Without the consent
of each Holder who elects to include Warrants and/or Shares in such registration
(which consent may be unreasonably withheld), no other securities of the Company
shall be entitled to participate in such registration. The Company shall use its
best efforts, through its officers, directors, auditors and counsel in all
matters necessary or advisable, to file and cause to become effective such
registration statement as promptly as practicable and for a period of one (1)
year thereafter to reflect in the registration statement financial statements
that are prepared in accordance with section 10(a)(3) of the Act and any facts
or events arising that, individually or in the aggregate, represent a
fundamental and/or material change in the information set forth in the
registration statement to enable any Holders of Warrants to exercise Warrants
and/or sell the underlying Shares during said one-year period. If any
registration pursuant to this section 13.1 is an underwritten offering, the
Company will select an underwriter (or managing underwriter if such offering
should be syndicated) approved by the Holders of a majority of the Warrants
and/or Shares to be included in such registration, such approval not to be
unreasonably withheld.
13.2 Piggyback Registration Rights. If, at any time within the period
commencing two (2) years from the effective date of the Registration Statement
and ending three (3) years thereafter, it proposes to register any class of
security under the Act in a primary registration on behalf of the Company and/or
in a secondary registration on behalf of holders of such securities and the
registration form to be used may be used for registration of the Warrants and/or
Shares underlying the Warrants, the Company will give prompt written notice
(which, in the case of a registration pursuant to the exercise of demand
registration rights other than those provided in section 13.1 above, shall be
within ten (10) business days after the Company's receipt of notice of such
exercise and, in any event, shall be at least thirty (30) days prior to such
filing) to the Holders of Warrants and/or Shares (regardless of whether some of
the Holders shall have theretofore availed themselves of the right provided in
section 13.1 above) at the address(es) appearing on the records of the Company
of its intention to effect a registration and will offer to include in such
registration such number of Warrants and/or Shares with respect to which the
Company has received written requests for inclusion therein within ten (10) days
after receipt of such notice from the Company. All registrations requested
pursuant to this section 13.2 are referred to herein as "Piggyback
Registrations". This section 13.2 is not applicable to any Registration
Statement to be filed by the Company on Forms S-4 or S-8 or any successor forms.
Notwithstanding the foregoing, if the managing underwriter of the offering
being registered shall determine in good faith and advise the Company in writing
that the distribution of the Warrants and/or Shares requested to be included in
the registration concurrently with the securities being registered by the
Company would materially adversely affect the distribution of such securities by
the Company, then the Holders of such Warrants and/or Shares shall delay their
offering and sale for such period ending on (a) the earlier of (i) ninety (90)
days following the
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effective date of the Company's registration statement and (ii) the day upon
which the underwriting syndicate, if any, for such offering shall have been
disbanded or, (b) such date as the Company, the managing underwriter and Holders
of Warrants and/or Shares shall otherwise agree. In the event of such delay, the
Company shall file such supplements or post-effective amendments and take any
such other steps as may be necessary to permit such Holders to make their
proposed offering and sale for a period of one hundred eighty (180) days
immediately following the end of such period of delay. If any party disapproves
of the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the managing underwriter.
13.3 Other Registration Rights. In addition to the rights above provided,
the Company will cooperate with the then-Holders of the Warrants and/or Shares
in preparing and signing any registration statement or notification on Form 1-A,
in addition to the registration statements and notifications discussed above,
required in order to sell or transfer the aforesaid Shares and will supply all
information required therefor, but such additional registration statement or
notification shall be at the then-Holders' cost and expense unless the Company
elects to register or qualify additional shares of the Common Stock, in which
case the cost and expense of such registration statement or notification will be
pro rated between the Company and the Holders according to the aggregate sales
price of the securities being issued. Notwithstanding the foregoing, the Company
will not be required to file a registration statement or notification on Form
1-A pursuant to this section 13 at a time when the audited financial statements
required to be included therein are not available, which time shall be deemed to
be the period commencing 45 days prior to the end of a fiscal year of the
Company and ending 90 days after the end of such fiscal year.
13.4 Action to be Taken by the Company. In connection with the
registration of Warrants and/or Shares in accordance with sections 13.1, 13.2 or
13.3, the Company shall:
(a) Bear the expenses of any registration under section 13.1 or
section 13.2, including but not limited to legal, accounting and printing
fees, provided, however, that in no event shall the Company be obligated
to pay (A) any fees and disbursements of legal counsel retained by Holders
of Warrants and/or Shares, or (B) any underwriters' discount or commission
payable in respect of such Warrants and/or Shares, payment of which shall,
in each case, be the sole responsibility of the Holders of the Warrants
and/or Shares;
(b) Use its best efforts to register or qualify the Warrants and/or
Shares for offer or sale under state securities or blue sky laws of such
jurisdictions in which the participating Holders propose to offer Warrants
and/or Shares, and to do any and all other acts and things that may be
necessary or advisable to enable the Holders to consummate the proposed
sale, transfer or other disposition of such securities in any
jurisdiction; and
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(c) Enter into a cross-indemnity agreement, in customary form, with
each underwriter, if any, and each Holder of securities included in such
Registration Statement provided that, if so requested by the underwriter,
such holders shall provide the underwriters with several indemnity
agreements as to information regarding such holders.
13.5 Information by Holders. Each Holder shall provide, upon reasonable
request by the Company, information for inclusion in such Registration Statement
as may be required by the applicable rules and regulations of the Act.
14. Notices to Holders.
14.1 Nothing contained in this agreement or in any of the Warrants shall
be construed as conferring upon the Holders thereof the right to vote or to
receive dividends or to consent or to receive notice as stockholders in respect
of the meetings of stockholders or the election of directors of the Company or
any other matter, or any rights whatsoever as stockholders of the Company;
provided, however, that in the event that a meeting of stockholders shall be
called to consider and take action on a proposal for the voluntary dissolution
of the Company, other than in connection with a consolidation, merger, or sale
of all, or substantially all, of its property, assets, business and good will as
an entirety, then and in that event the Company shall cause a notice thereof to
be sent by first-class mail, postage prepaid, at least twenty (20) days prior to
the date fixed as a record date or the date of closing the transfer books in
relation to such meeting, to each registered Holder of Warrants at such Holder's
address appearing on the Warrant register; but failure to mail or to receive
such notice or any defect therein or in the mailing thereof shall not affect the
validity of any action taken in connection with such voluntary dissolution. If
such notice shall have been so given and if such a voluntary dissolution shall
be authorized at such meeting or any adjournment thereof, then from and after
the date on which such voluntary dissolution shall have been duly authorized by
the stockholders, the purchase rights represented by the Warrants and all other
rights with respect thereto shall cease and terminate.
14.2 In the event the Company intends to:
(a) make any distribution on or to holders of its Common Stock (or
other securities that may be purchasable in lieu thereof upon the exercise
of Warrants), including, without limitation, any dividend or distribution
from earned surplus, any dividend or distribution of stock, assets or
evidences of indebtedness, any distribution to be made in connection with
a consolidation or merger in which the Company is the surviving
corporation or any distribution of shares of stock of any corporation at
least a majority of whose outstanding stock is owned by the Company,
(b) issue subscription rights or warrants to holders of its Common
Stock,
-19-
<PAGE>
(c) issue shares of its Common Stock (excluding shares issued in any
of the transactions described in section 8 above) for a consideration per
share less than the Fair Market Value on the date the Company fixes the
offering price of such additional shares or
(d) issue any securities convertible into or exchangeable for its
Common Stock for a consideration per share of Common Stock initially
deliverable upon conversion or exchange of such securities (determined as
provided below) less than the then Fair Market Value or less than the
Exercise Price in effect immediately prior to the issuance of such
securities,
then the Company shall cause a notice of its intention to make such distribution
or issuance to be sent by first-class mail, postage prepaid, at least twenty
(20) days prior to the date fixed as a record date or the date of closing the
transfer books in relation to such distribution, to each registered Holder of
Warrants at such Holder's address appearing on the Warrant register, but failure
to mail or to receive such notice or any defect therein or in the mailing
thereof shall not affect the validity of any action taken in connection with
such distribution or issuance. All computations for purposes of this section 14
shall be made in accordance with the provisions of section 8 hereof.
15. Notices. Any notice or demand required by this agreement to be given
or made by the Holder to or on the Company shall be sufficiently given or made
if sent by first-class or registered mail, postage prepaid, or by facsimile
transmission addressed as follows:
NATURAL GAS VEHICLE SYSTEMS, INC.
5580 Cherry Avenue
Long Beach, California 90805
Facsimile No. (310) 630-0206
Attention: John R. Bacon
Any notice or demand required by this agreement to be given or made by the
Company to or on the Holder of any Warrant shall be sufficiently given or made,
whether or not such Holder receives the notice, if sent by first-class or
registered mail, postage prepaid, addressed to such Holder at his last address
as shown on the books of the Company.
16. Governing Law. The validity, interpretation and performance of this
agreement, of each Warrant issued hereunder and of the respective terms and
provisions thereof shall be governed by the law of the state of New York.
-20-
<PAGE>
17. Counterparts. This agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts shall together constitute but one and the same instrument.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: _____________________________
Name: John R. Bacon
Title: President
COMMONWEALTH ASSOCIATES
By: _____________________________
Name:
Title:
-21-
<PAGE>
EXHIBIT A
(Form of Warrant Certificate)
NEITHER THE WARRANTS NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE
SOLD OR TRANSFERRED PRIOR TO __________, 1998 (SUBJECT TO CERTAIN LIMITED
EXCEPTIONS), SUCH SECURITIES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT RELATING THERETO, OR (ii) AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES AND AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR
THE COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE AND
THE WARRANTS MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 3 OF THE WARRANT AGREEMENT DATED THIS DATE BETWEEN NATURAL GAS VEHICLE
SYSTEMS, INC. AND COMMONWEALTH ASSOCIATES, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT RELATING THERETO OR PURSUANT TO ANY AVAILABLE EXEMPTION
FROM REGISTRATION UNDER THE ACT PERMITTING SUCH DISPOSITION OF SECURITIES AND AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
No. ________ ____________ Warrants
VOID AFTER 5:00 P.M. NEW YORK CITY TIME
On _________, 2002
NATURAL GAS VEHICLE SYSTEMS, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received COMMONWEALTH ASSOCIATES, or
registered assigns, is the registered holder of the number of Warrants set forth
above, each of which entitles the owner thereof to purchase at any time from
__________, 1998 until 5:00 p.m., New York City time on __________, 2002 (the
"Expiration Date"), one fully paid and nonassessable share of the common stock,
par value $.01 per share (the "Common Stock"), of Natural Gas Vehicle Systems,
Inc., a Delaware corporation (the "Company"), at a purchase price per share (the
"Exercise Price") initially equal to $____ upon presentation and surrender of
this Warrant Certificate with the Form of Election to Purchase duly executed.
The number of Warrants evidenced by this Warrant Certificate (and the number of
shares that may be purchased upon exercise thereof) set forth above, and the
Exercise Price per share set forth above, are the number and Exercise Price as
of the date of original issuance of the Warrants, based on the shares
<PAGE>
of Common Stock of the Company as constituted at such date. As provided in the
Warrant Agreement referred to below, the Exercise Price and the number or kind
of shares that may be purchased upon the exercise of the Warrants evidenced by
this Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated as of January
__, 1997 (the "Warrant Agreement") between the Company and Commonwealth
Associates, which Warrant Agreement is hereby incorporated herein by reference
and made a part hereof and to which Warrant Agreement reference is hereby made
for a full description of the rights, limitations of rights, duties and
immunities hereunder of the Company and the holders of the Warrant Certificates.
Copies of the Warrant Agreement are on file at the principal office of the
Company.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Company, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor and date evidencing
Warrants entitling the holder to purchase a like aggregate number of shares of
Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered entitled such holder to purchase. If this Warrant
Certificate shall be exercised in part, the holder hereof shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or to
receive dividends or to consent or to receive notice as a stockholder at the
meetings of stockholders for the election of directors of the Company or any
other matter, or to any rights whatsoever as stockholder of the Company, except
as provided in the Warrant Agreement, until the Warrant or Warrants evidenced by
this Warrant Certificate shall have been exercised and the shares of Common
Stock shall have become deliverable as provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
class of stock purchasable upon the exercise of this Warrant are closed for any
purpose, the Company shall not be required to make delivery of certificates for
shares purchasable upon such exercise until the date of the reopening of said
transfer books.
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<PAGE>
IN WITNESS WHEREOF, Natural Gas Vehicle Systems, Inc. has caused the
signature (or facsimile signature) of its President and Secretary to be printed
hereon and its corporate seal (or facsimile) to be printed hereon.
Dated: January __, 1997
NATURAL GAS VEHICLE SYSTEMS, INC.
By: _____________________________
John R. Bacon
[Corporate Seal]
Attest:
_______________________________
, Secretary
-3-
<PAGE>
FORM OF
ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates).
TO NATURAL GAS VEHICLE SYSTEMS, INC.:
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers unto _______________ this Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint _______________, to transfer the within Warrant Certificate on the books
of the within-named Company, with full power of substitution.
DATED: ,
Signature _________________________
Signature Guaranteed:
NOTICE
The signature of the foregoing assignment must correspond to the name as
written upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate).
TO NATURAL GAS VEHICLE SYSTEMS, INC.:
The undersigned hereby irrevocably elects to exercise Warrants represented
by this Warrant Certificate to purchase the shares of Common Stock issuable upon
the exercise of such Warrants and requests that certificates for such shares be
issued in the name of:
Please insert social security or other
identifying number
_______________________________
_______________________________
_______________________________
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert social security or other
identifying number
_______________________________
_______________________________
_______________________________
(Please print name and address)
Dated: ,
_______________________________
Signature
(Signature must conform in all respects to name of holder as specified on the
face of this Warrant Certificate) Signature Guaranteed:
<PAGE>
[LETTERHEAD OF ORRICK, HERRINGTON & SUTCLIFFE LLP]
December ___, 1996
NATURAL GAS VEHICLE SYSTEMS, INC.
5580 Cherry Avenue
Long Beach, California 90805
Gentlemen:
You have requested our opinion, as counsel for Natural Gas Vehicle
Systems, Inc., a Delaware corporation (the "Company"), in connection with the
registration statement on Form SB-2 (File No. 333-14185), as amended (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Act"), filed by the Company with the Securities and Exchange Commission (the
"SEC").
The Registration Statement relates to the initial public offering by
the Company of up to 1,725,000 shares (the "Shares") of common stock, $.01 par
value per share (the "Common Stock"), of the Company, including up to 225,000
shares of Common Stock which are subject to a forty-five (45) day over-allotment
option granted by the Company to the several underwriters in such public
offering.
We have examined such instruments, documents, records and
certificates which we deemed relevant and necessary for the basis of our opinion
hereinafter expressed. In the course of our examination, we have assumed the
following: (i) the authenticity of all documents submitted to us as original
documents and the genuineness of all signatures, (ii) the authority of all
signatories to sign on behalf of their principals, if any, (iii) the conformity
to original documents of all documents submitted to us as certified or
photostatic copies and (iv) the truth, accuracy and completeness of the
information, representations and warranties contained in the instruments,
documents, records and certificates we have reviewed. As to certain factual
matters, we have relied upon information furnished to us by officers of the
Company.
Based on the foregoing examination and solely in reliance thereon,
we are of the opinion that the Shares of Common Stock to be issued and sold by
the Company have been duly authorized and, when issued and paid for as
contemplated by such Registration Statement, will be validly issued, fully paid
and non-assessable.
As you know, we are not licensed to practice law in the State of
Delaware, and our opinion in the foregoing paragraph as to Delaware law is based
solely on review of the official compilation of the Delaware General Corporation
Law.
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
December ___, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever it appears in said
Registration Statement, including the Prospectus constituting a part thereof, as
originally filed or as subsequently amended or supplemented. In giving such
consent, we do not consider that we are "experts", within the meaning of such
term as used in the Act or the rules and regulations of the SEC issued
thereunder, with respect to any part of the Registration Statement, including
this opinion as an exhibit or otherwise.
Very truly yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
EXHIBIT 10.2
NATURAL GAS VEHICLE SYSTEMS, INC.
1996 COMBINED INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Natural Gas Vehicle Systems, Inc. 1996 Combined
Incentive and Nonqualified Stock Option Plan (the "Plan") is to enable Natural
Gas Vehicle Systems, Inc. (the "Company") to attract and retain the services of
people with training, experience and ability, and to provide additional
incentive to such persons by granting them an opportunity to participate in the
ownership of the Company.
SECTION 2. STOCK SUBJECT TO PLAN
The stock subject to this Plan shall be the Company's common stock, par
value $.01 per share (the "Common Stock"). Such shares may be treasury shares,
authorized but unissued shares, or reacquired Common Stock. Subject to
adjustment as provided in Section 10, the aggregate amount of Common Stock
reserved for issuance or delivery upon exercise of all options granted under
this Plan shall not exceed 200,000 shares of Common Stock, as constituted on the
date of adoption of this Plan by the Board of Directors. If any option granted
under this Plan shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon again
be available for purposes of this Plan.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company, in
accordance with the following terms and conditions:
3.1 GENERAL AUTHORITY. Subject to the express provisions of the Plan,
the Board of Directors shall have the authority, in its discretion, to determine
all matters relating to options to be granted under the Plan, including the
selection of individuals to be granted options, the number of shares to be
subject to each option, the exercise price, the term, and all other terms and
conditions thereof. Grants under this Plan to persons eligible need not be
identical in any respect, even when made simultaneously. The Board of Directors
may from time to time adopt rules and regulations relating to the administration
of the Plan. The interpretation and construction by the Board of Directors of
any terms or provisions of this Plan or any option issued hereunder, or of any
rule or regulation promulgated in connection herewith, shall be conclusive and
binding on all interested parties. The Board of Directors, in its sole
discretion, may grant incentive stock options ("Incentive Stock Options") as
such term is defined in Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), and/or nonqualified stock options ("Nonqualified Stock
Options"). A Nonqualified Stock Option is a stock option which is not an
Incentive Stock Option. The type of option granted, whether an Incentive Stock
Option or a Nonqualified Stock Option, shall be clearly identified by the Board
of Directors when granted. The term "option" when used in this Plan should
refer to Incentive Stock Options and Nonqualified Stock options, collectively.
3.2 DIRECTORS. A member of the Board of Directors who is also an
employee of the Company may be eligible to participate in or receive or hold
options under this Plan, PROVIDED,
<PAGE>
HOWEVER, that no member of the Board of Directors shall vote with respect to the
granting of an option hereunder to himself or herself, as the case may be.
3.3 DELEGATION TO A COMMITTEE. Notwithstanding the foregoing, the Board
of Directors, if it so determines, may delegate to a committee of the Board of
Directors any or all authority for the administration of the Plan, and
thereafter references to the Board of Directors in this Plan shall be deemed to
be references to the committee to the extent provided in the resolution
establishing the committee.
3.4 PERSONS SUBJECT TO SECTION 16(B). Notwithstanding anything in the
Plan to the contrary, the Board of Directors, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan to participants who are officers and directors subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), without so restricting, limiting or conditioning the Plan with respect to
other participants.
3.5 REPLACEMENT OF OPTIONS. The Board of Directors, in its absolute
discretion, may grant options subject to the condition that options previously
granted at a higher or lower exercise price under the Plan be canceled or
exchanged in connection with such grant. The number of shares covered by the
new options, the exercise price, the term and the other terms and conditions of
the new option shall be determined in accordance with the Plan and may be
different from the provisions of the canceled or exchanged options.
Alternatively, the Board of Directors may, with the agreement of the Optionee,
amend previously granted options to establish the exercise price at the then
current fair market value of the Company's Common Stock, maintaining existing
vesting and expiration dates.
3.6 LOANS TO OPTIONEES. The Board of Directors, in its absolute
discretion, may provide that the Company loan to Optionees sufficient funds to
exercise any option granted under the Plan and/or to pay withholding tax due
upon exercise of such option. The Board of Directors shall have the authority
to make such determinations at the time of grant or exercise and shall establish
repayment terms thereof, including installments, maturity and interest rate.
SECTION 4. ELIGIBILITY
Options may be granted to persons for any reason in connection with such
persons' employment by the Company or any of its subsidiary corporations (as
that term is used in Section 422(b) of the Code, hereafter a "Subsidiary") or in
connection with employment by a parent or subsidiary corporation of the Company
that assumes any option issued under the Plan in a transaction to which Section
424(a) of the Code applies. Employment may be by virtue of either being an
employee or independent contractor of the Company. Any individual to whom an
option is granted under this Plan shall be referred to hereinafter as
"Optionee." Any Optionee may receive one or more grants of options as the Board
of Directors shall from time to time determine, and such determinations may be
different as to different Optionees and may vary as to different grants;
PROVIDED, HOWEVER, that no Optionee shall receive a grant or grants of options
with respect to more than 50,000 shares of Common Stock (subject to adjustment
in accordance with the provisions in Section 10.1 hereof) in any calendar year.
Optionees who are not employees will only be eligible to receive Nonqualified
Stock Options.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Board of Directors shall deem advisable and which
2
<PAGE>
are not inconsistent with this Plan. Each option granted hereunder shall
clearly indicate whether it is an Incentive Stock Option or a Nonqualified Stock
Option. Notwithstanding the foregoing, all such options shall include or
incorporate by reference the following terms and conditions:
5.1 NUMBER OF SHARES. The maximum number of shares that may be
purchased pursuant to the exercise of each option and the price per share at
which such option is exercisable (the "exercise price") shall be as established
by the Board of Directors, PROVIDED that the exercise price shall not be less
than the fair market value per share of the Common Stock at the time the option
is granted. For purposes of this Section 5.1, the fair market value per share of
the Common Stock shall be calculated as the average of the high and low bid
prices of stock of that class as of the day immediately preceding the grant of
the option (or if such day is not a trading day in the U.S. securitities
markets, on the nearest preceding trading day) as reported in the automated
quotation system operated by the National Association of Securities Dealers,
Inc. ("NASDAQ"), or if the Common Stock is not traded on NASDAQ, as determined
in good faith by the Board of Directors.
5.2 DURATION OF OPTIONS. Subject to the restrictions contained in
Section 9, the term of each option shall be established by the Board of
Directors and, if not so established, shall be ten years from the date it is
granted, but in no event shall the term of any Incentive Stock Option exceed ten
years.
5.3 EXERCISABILITY. Each option or portion thereof shall become
exercisable upon such date or dates as are established by the Board of
Directors. The Board of Directors, in its sole discretion, may provide for the
acceleration of vesting of an option, in whole or in part, based on such factors
or criteria (including specified performance criteria) as the Board may
determine. Notwithstanding the above, except as provided in Section 10.2, no
portion of any option shall become exercisable before six months after the date
of grant of the option.
5.4 INCENTIVE STOCK OPTION. Any option which is issued as an Incentive
Stock Option under this Plan, shall, notwithstanding any other provisions of
this Plan, or the option terms to the contrary, contain all of the terms,
conditions, restrictions, rights and limitations required to be an Incentive
Stock Option, and any provision to the contrary shall be disregarded.
SECTION 6. NONTRANSFERABILITY OF OPTIONS
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or the applicable
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or the regulations thereunder, and shall not
otherwise be subject to execution, attachment or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any
option under this Plan or any right or privilege conferred hereby, contrary to
the provisions hereof, or upon the sale or levy or any attachment or similar
process contrary to the provisions hereof, such option thereupon shall terminate
and become null and void. The designation of a beneficiary does not constitute
a transfer for purposes of this Plan. During an Optionee's lifetime, any
options granted under this Plan are personal to him or her and are exercisable
solely by such Optionee.
SECTION 7. CERTAIN LIMITATIONS REGARDING INCENTIVE STOCK OPTIONS
The grant of Incentive Stock Options shall be subject to the following
special limitations:
3
<PAGE>
7.1 LIMITATION ON AMOUNT OF GRANTS. In no event shall any Optionee be
granted Incentive Stock Options that in the aggregate (together with all other
Incentive Stock Options granted by the Company or any parent or Subsidiary)
entitle the Optionee to purchase, in any calendar year during which such options
first become exercisable, stock of the Company, any parent or any Subsidiary
having a fair market value (determined as of the time such options are granted)
in excess of $100,000, plus the amount of any unused limit carry-over permitted
under the applicable provisions of the Code. No limitation shall apply to
Nonqualified Stock Options.
7.2 GRANTS TO 10% SHAREHOLDERS. Incentive Stock Options may be granted
to a person owning more than 10% of the total combined voting power of all
classes of stock of the Company and any parent or Subsidiary only if (i) the
exercise price is at least 110% of the fair market value of the stock at the
time of grant and (ii) the option is not exercisable after the expiration of
five years from the date of grant.
SECTION 8. EXERCISE OF OPTIONS
Options shall be exercised in accordance with the following terms and
conditions:
8.1 PROCEDURE. Options shall be exercised by delivery to the Company of
written notice of the number of shares with respect to which the option is
exercised.
8.2 PAYMENT. Payment of the option price shall be made in full within
five business days of the notice of exercise of the option and shall be in cash
or bank-certified or cashier's checks, or personal check if permitted by the
Board of Directors. If permitted by the Board of Directors, and to the extent
permitted by applicable laws and regulations (including, but not limited to,
federal tax and securities laws and regulations), an option may be exercised by
delivery of shares of Common Stock of the Company held by the Optionee having a
fair market value equal to the exercise price, such fair market value to be
determined in good faith by the Board of Directors. Such payment in stock may
(in the discretion of the Board of Directors) occur in the context of a single
exercise of an option or successive and simultaneous exercises, sometimes
referred to as "pyramiding," which provides that, rather than physically
exchanging certificates for a series of exercises, bookkeeping entries will be
made pursuant to which the Optionee is permitted to retain his existing stock
certificate and a new stock certificate is issued for the net shares.
If the Company's Common Stock is registered under the 1934 Act, and if
permitted by the Board of Directors, and to the extent permitted by applicable
laws and regulations (including, but not limited to, federal tax and securities
laws and regulations), an option also may be exercised by delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds to pay the
exercise price.
8.3 FEDERAL WITHHOLDING TAX REQUIREMENTS. Upon exercise of an option,
the Optionee shall, upon notification of the amount due and prior to or
concurrently with the delivery of the certificates representing the shares, pay
to the Company amounts necessary to satisfy applicable federal, state and local
withholding tax requirements or shall otherwise make arrangements satisfactory
to the Company for such requirements. If permitted by the Board of Directors,
such arrangements may include payment of the appropriate withholding tax in
shares of stock of the Company having a fair market value equal to such
withholding tax, either through delivery of shares held by the optionee or by
reduction in the number of shares to be delivered to the Optionee upon exercise
of such option.
4
<PAGE>
SECTION 9. TERMINATION OF EMPLOYMENT, DISABILITY AND DEATH.
9.1 GENERAL. If the employment of the Optionee by the Company, a parent
or a Subsidiary shall terminate for any reason other than death, disability,
retirement or cause as hereinafter provided, the option may be exercised by the
optionee at any time prior to the expiration of three months after the date of
such termination of employment (unless by its terms the option sooner terminates
or expires), but only if and to the extent the Optionee was entitled to exercise
the option at the date of such termination.
9.2 DISABILITY. If the employment of the Optionee by the Company, a
parent or a Subsidiary is terminated because of the Optionee's disability (as
herein defined), the option may be exercised by the optionee at any time prior
to the expiration of one year after the date of such termination (unless by its
terms the option sooner terminates or expires), but only if and to the extent
the Optionee was entitled to exercise the option at the date of such
termination. For purposes of this section, an Optionee will be considered to be
disabled if the optionee is unable to engage in any substantial gainful activity
by reason of any medically determinable mental or physical impairment which can
be expected to result in death or which has lasted or can be expected to last a
continuous period of not less than 12 months.
9.3 DEATH. In the event of the death of an Optionee while in the
employ of the Company, a parent or a Subsidiary, the option shall be
exercisable on or prior to the expiration of one year after the date of such
death (unless by its terms the option sooner terminates and expires), but only
if and to the extent the Optionee was entitled to exercise the option at the
date of such death and only by the Optionee's personal representative if then
subject to administration as part of the optionee's estate, or by the person or
persons to whom such Optionee's rights under the option shall have passed by the
optionee's will or by the applicable laws of descent and distribution.
9.4 RETIREMENT. If the employment of the Optionee by the Company, a
parent or a Subsidiary is terminated because of the Optionee's retirement (as
herein defined), the option may be exercised by the optionee at any time prior
to the expiration of three months after the date of such termination of
employment, but only if and to the extent the Optionee was entitled to exercise
the option at the date of such termination; PROVIDED, HOWEVER, that if the
Optionee dies within such stated term, any unexercised option held by such
Optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter. For purposes of this section, "retirement" means retirement from
active employment with the Company, a parent or any Subsidiary on or after the
attainment of age 62, or such other retirement date as may be approved by the
Committee for purposes of the Plan and specified in the applicable award
agreement.
9.5 TERMINATION FOR CAUSE. If the Optionee's employment with the
Company, a parent or a Subsidiary is terminated for cause, any option granted
hereunder shall automatically terminate as of the first advice or discussion
thereof, and such Optionee shall thereupon have no right to purchase any shares
pursuant to such option. "Termination for cause" shall mean dismissal for
dishonesty, conviction or confession of a crime punishable by law (except minor
violations), intoxication while at work, fraud, misconduct or disclosure of
confidential information.
9.6 WAIVER OR EXTENSION OF TIME PERIODS. The Board of Directors shall
have the authority, prior to or within the times specified in this Section 9 for
the exercise of any such option, to extend such time period or waive in its
entirety any such time period to the extent that such time period expires prior
to the expiration of the term of such option. In addition, the Board of
Directors may, pursuant to a specific resolution adopted at the time of grant,
modify or eliminate the time periods
5
<PAGE>
specified in this Section 9. However, no Incentive Stock Option may be exercised
after the expiration of ten years from the date such option is granted. If an
Optionee holding an Incentive Stock Option exercises such option, by permission,
after the expiration of the time period specified in this Section 9, the option
will no longer be treated as an Incentive Stock Option under the Code and shall
automatically be converted into a Nonqualified Stock Option.
9.7 TERMINATION OF OPTIONS. To the extent that the option of any
deceased Optionee or of any optionee whose employment is terminated shall not
have been exercised within the limited periods prescribed in this Section 9, all
further rights to purchase shares pursuant to such option shall cease and
terminate at the expiration of such period. No Incentive Stock Option may be
exercised after the expiration of ten years from the date such option is
granted, notwithstanding any provision to the contrary.
9.8 NONEMPLOYEE OPTIONEES. Options granted to Optionees who are not
employees of the Company, a parent or a subsidiary at the time of grant shall
not be subject to the provisions of this Section 9, except as specifically
provided in the option.
SECTION 10. OPTION ADJUSTMENTS
10.1 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate number
and class of shares on which options may be granted under this Plan, the number
and class of shares covered by each outstanding option and the exercise price
per share thereof (but not the total price), and all such options shall each be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares, or the payment of any stock dividend, or any other change in the
outstanding Common Stock of the Company by reason of a recapitalization,
reorganization, merger,, combination or exchange of shares, without the receipt
of consideration by the Company.
10.2 CHANGE OF CONTROL. In addition to any adjustments permitted under
Section 10.1, in the event of a change in control of the Company (as hereinafter
defined), (i) all options then outstanding shall become fully exercisable and
(ii) in the case of a change in control involving a merger of, or consolidation
involving, the Company in which the Company is not the surviving corporation
(the "Surviving Entity"), each outstanding option granted hereunder and not
exercised (a "Predecessor Option") shall be converted into an option (a
"Substitute Option") to acquire common stock of the Surviving Entity, which
Substitute Option shall have the same terms and conditions as the Predecessor
Option, with appropriate adjustments as to the number and kind of shares and
exercise prices. For purposes of this Plan, a "change in control" shall be
deemed to have occurred if (i) any "Person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company (an
"Acquiring Person"), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of more than 33-1/3% of the
then outstanding voting stock of the Company; (ii) the shareholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 80% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; (iii) the
shareholders of the Company approve a plan of reorganization (other than a
reorganization under the United States Bankruptcy Code) or complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets; or (iv) during any period of two
consecutive years (beginning on or after the adoption of this Plan), individuals
who at the beginning
6
<PAGE>
of such period constitute the Board of Directors and any new director (other
than a director who is a representative or nominee of an Acquiring Person) whose
election by the Board of Directors or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, no longer
constitute a majority of the Board of Directors; PROVIDED, HOWEVER, that a
change in control shall not be deemed to have occurred in the event of (x) a
sale or conveyance in which the Company continues as a holding-company of an
entity or entities that conduct the business or businesses formerly conducted by
the Company or (y) any transaction undertaken for the purpose of reincorporating
the Company under the laws of another jurisdiction, if such transaction does not
materially affect the beneficial ownership of the Company's capital stock.
10.3 FRACTIONAL SHARES. In the event of any adjustment in the number
of shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
10.4 DETERMINATION OF BOARD OF DIRECTORS TO BE FINAL. All such
adjustments shall be made by the Board of Directors, and its determination as to
what adjustments shall be made, and the extent thereof, shall be final, binding
and conclusive and shall be given the maximum deference permitted by law.
SECTION 11. SECURITIES REGULATIONS
11.1 COMPLIANCE. Shares shall not be issued with respect to an option
granted under this Plan unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the 1934 Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall further be subject
to the approval of counsel for the Company with respect to such compliance. The
inability of the Company to obtain from any regulatory body having jurisdiction
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder shall relieve the Company of any
liability in respect of the nonissuance or sale of such shares as to which such
requisite authority shall not have been obtained.
11.2 REPRESENTATIONS BY OPTIONEE. As a condition to the exercise of an
option, the Company may require the Optionee to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares,
if, in the opinion of counsel for the Company, such representation is required
by any relevant provision of the laws referred to in Section 11.1. At the option
of the Company, a stop transfer order against any shares of stock may be placed
on the official stock books and records of the company, and a legend indicating
that the stock may not be pledged, sold or otherwise transferred unless an
opinion of counsel was provided (concurred in by counsel for the Company) and
stating that such transfer is not in violation of any applicable law or
regulation may be stamped on the stock certificate in order to assure exemption
from registration. The Board of Directors may also require such other action or
agreement by the Optionees as may from time to time be necessary to comply with
the federal and state securities laws. This provision shall not obligate the
Company to undertake registration of options or stock hereunder.
7
<PAGE>
SECTION 12. EMPLOYMENT RIGHTS
Nothing in this Plan or any option or right granted pursuant hereto shall
confer upon any Optionee any right to be continued in the employment of the
Company, a parent or any Subsidiary of the Company or to remain a director, or
to interfere in any way with the right of the Company, a parent or any
Subsidiary, in its sole discretion, to terminate such Optionee's employment or
service at any time or to remove the Optionee as a director at any time.
SECTION 13. AMENDMENT AND TERMINATION
13.1 ACTION BY BOARD OF DIRECTORS. The Board of Directors may also
terminate the Plan or modify or amend the Plan at any time and for any reason.
No termination, suspension or amendment of the Plan may, without the
consent of each Optionee to whom any option shall theretofore have been granted,
adversely affect the rights of such Optionees under such options.
13.2 AUTOMATIC TERMINATION. Unless the Plan shall theretofore have
been terminated as herein provided, this Plan shall terminate ten years from the
earlier of (i) the date on which the Plan is adopted; or (ii) the date on which
this Plan is approved by the shareholders of the Company. No option may be
granted after such termination or during any suspension of this Plan. The
amendment or termination of this Plan shall not, without the consent of the
Optionee, alter or impair any rights or obligations under any option theretofore
granted under this Plan.
SECTION 14. COMPLIANCE WITH SECTION 16 OF THE 1934 ACT
With respect to persons subject to Section 16 of the 1934 Act, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of this
Plan or action by Plan administrators fails to comply, it shall be deemed null
and void to the extent permitted by law and deemed advisable by the Plan
administrators.
SECTION 15. EFFECTIVE DATE OF THE PLAN
This Plan shall become effective on the date of its adoption by the Board
of Directors of the Company, and options may be granted immediately thereafter,
but any option granted under the Plan is subject to defeasance unless and until
the Plan shall have been approved by the shareholders. If such shareholder
approval is not obtained, the Plan and any options granted thereunder shall be
null and void.
8
<PAGE>
[Logo] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 5580 Cherry Avenue
Long Beach, California 90805
Date: September 30, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994, as amended by those Amendments to Loan Agreement
dated April 3, 1995, May 31, 1995, August 31, 1995, September 30, 1995, December
31, 1995, March 31, 1996, and June 30, 1996, and as otherwise amended from time
to time (the "Loan Agreement"), as follows, effective as of the date hereof.
(Capitalized terms used but not defined in this Agreement, shall have the
meanings set forth in the Loan Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) December 31, 1996 or (ii) the Loan
Termination Date."
2. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
3. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
------------------------------------ ------------------------
President or Vice President Title VP
---------------------
By /s/ Linda Asher
------------------------------------
Secretary or Ass't Secretary
<PAGE>
[LOGO] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 5580 Cherry Avenue
Long Beach, California 90805
Dated as of: June 30, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994, as amended by that Amendment to Loan Agreement
dated April 3, 1995, as amended by that Amendment to Loan Agreement dated May
31, 1995, as amended by that Amendment to Loan Agreement dated August 31, 1995,
as amended by that Amendment to Loan Agreement dated September 30, 1995, as
amended by that Amendment to Loan Agreement dated December 31, 1995, as amended
by that Amendment to Loan Agreement dated March 31, 1996 and as otherwise
amended from time to time (the "Loan Agreement"), as follows, effective as of
the date hereof. (Capitalized terms used but not defined in this Amendment,
shall have the meanings set forth in the Loan Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) September 30, 1996 or (ii) the Loan
Termination Date."
2. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
3. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/ [Illegible] By /s/ [Illegible]
---------------------------- ---------------------------------
President or Vice Presidet Title VP
------------------------------
By /s/ Linda Asher
----------------------------
Secretary or Ass't Secretary
<PAGE>
- --------------------------------------------------------------------------------
[Logo] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: April 3, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON
VALLEY BANK ("Silicon") and the borrower named above (the "Borrower"). The
Parties agree to amend the Amended and Restated Loan and Security Agreement
between them, dated October 12, 1994 (the "Loan Agreement"), as follows,
effective as of the date hereof. (Capitalized terms used but not defined in this
Amendment, shall have the meanings set forth in the Loan Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) May 31, 1995 or (ii) the Loan
Termination Date."
2. No Waiver, Etc. Silicon received a Notice of Attachment (the
"Attachment") regarding the Borrower's bank accounts at Silicon on March 30,
1995. As you know, Section 6.1 (f) of the Loan Agreement states that any "levy,
assessment, attachment, seizure, lien or encumbrance [which] is made on all or
any part of the Collateral which is not cured within 10 days after the
occurrence of the same" constitutes an Event of Default. The willingness of
Silicon to extend the Maturity Date as set forth herein does not in any manner
whatsoever waive, diminish or otherwise affect any of its rights and remedies
relating to the Event of Default arising if the Borrower fails to cure the
Attachment within 10 days of the occurrence of the same.
3. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
4. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the
<PAGE>
parties with respect to the subject hereof. Except as herein
expressly amended, all of the terms and provisions of the Loan Agreement, and
all other documents and agreements between Silicon and the Borrower shall
continue in full force and effect and the same are hereby ratified and
confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/ Authorized Officer By /s/ Authorized Officer
---------------------------- ---------------------------------
President or Vice Presidet Title VP
------------------------------
By /s/ Linda Asher
----------------------------
Secretary or Ass't Secretary
<PAGE>
[LOGO] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 5580 Cherry Avenue
Long Beach, California 90805
Dated as of: June 30, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994, as amended by that Amendment to Loan Agreement
dated April 3, 1995, as amended by that Amendment to Loan Agreement dated May
31, 1995, as amended by that Amendment to Loan Agreement dated August 31, 1995,
as amended by that Amendment to Loan Agreement dated September 30, 1995, as
amended by that Amendment to Loan Agreement dated December 31, 1995, as amended
by that Amendment to Loan Agreement dated March 31, 1996 and as otherwise
amended from time to time (the "Loan Agreement"), as follows, effective as of
the date hereof. (Capitalized terms used but not defined in this Amendment,
shall have the meanings set forth in the Loan Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) September 30, 1996 or (ii) the Loan
Termination Date."
2. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
3. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/ [Illegible] By /s/ [Illegible]
---------------------------- ---------------------------------
President or Vice President Title VP
------------------------------
By /s/ Linda Asher
----------------------------
Secretary or Ass't Secretary
<PAGE>
[LOGO] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 5580 Cherry Avenue
Long Beach, California 90805
Date: March 31, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994, as amended by that Amendment to Loan Agreement
dated April 3, 1995, as amended by that Amendment to Loan Agreement dated May
31, 1995, as amended by that Amendment to Loan Agreement dated August 31, 1995,
as amended by that Amendment to Loan Agreement dated September 30, 1995, as
amended by that Amendment to Loan Agreement dated December 31, 1995 and as
otherwise amended from time to time (the "Loan Agreement"), as follows,
effective as of the date hereof. (Capitalized terms used but not defined in this
Amendment, shall have the meanings set forth in the Loan Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) June 30, 1996 or (ii) the Loan
Termination Date."
2. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
3. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/ [Illegible] By /s/ [Illegible]
---------------------------- ---------------------------------
President or Vice President Title VP
------------------------------
By /s/ Linda Asher
----------------------------
Secretary or Ass't Secretary
<PAGE>
[LOGO] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 5580 Cherry Avenue
Long Beach, California 90805
Date: December 31, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994, as amended by that Amendment to Loan Agreement
dated April 3, 1995, as amended by that Amendment to Loan Agreement dated May
31, 1995, as amended by that Amendment to Loan Agreement dated August 31, 1995,
as amended by that Amendment to Loan Agreement dated September 30, 1995 and as
otherwise amended from time to time (the "Loan Agreement"), as follows,
effective as of the date hereof. (Capitalized terms used but not defined in this
Amendment, shall have the meanings set forth in the Loan Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) March 31, 1996 or (ii) the Loan
Termination Date."
2. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
3. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/ [Illegible] By /s/ [Illegible]
---------------------------- ---------------------------------
President or Vice President Title VP
------------------------------
By /s/ Linda Asher
----------------------------
Secretary or Ass't Secretary
<PAGE>
- --------------------------------------------------------------------------------
[Logo] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 5580 Cherry Avenue
Long Beach, California 90805
Date: September 30, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994, as amended by that Amendment to Loan Agreement
dated April 3, 1995, as amended by that Amendment to Loan Agreement dated May
31, 1995, as amended by that Amendment to Loan Agreement dated August 31, 1995,
and as otherwise amended from time to time (the "Loan Agreement"), as follows,
effective as of the date hereof. (Capitalized terms used but not defined in this
Agreement, shall have the meanings set forth in the Loan Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) December 31, 1995 or (ii) the Loan
Termination Date."
2. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
3. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and undertakings between the parties with respect to
the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
------------------------------------ ------------------------
President or Vice President Title AVP
---------------------
By /s/ Linda Asher
------------------------------------
Secretary or Ass't Secretary
<PAGE>
- --------------------------------------------------------------------------------
[Logo] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 5580 Cherry Avenue
Long Beach, California 90805
Date: August 31, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994, as amended by that Amendment to Loan Agreement
dated April 3, 1995, as amended by that Amendment to Loan Agreement dated May
31, 1995 and as otherwise amended from time to time (the "Loan Agreement"), as
follows, effective as of the date hereof. (Capitalized terms used but not
defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) September 30, 1995 or (ii) the Loan
Termination Date"
2. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
3. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
---------------------------------- -------------------------
President or Vice President Title AVP
----------------------
By /s/ Linda Asher
----------------------------------
Secretary or Ass't Secretary
<PAGE>
- --------------------------------------------------------------------------------
[Logo] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
5580 Cherry Avenue
Long Beach, California 90805
Date: May 31, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994, as amended by that Amendment to Loan Agreement
dated April 3, 1995, and as otherwise amended from time to time (the "Loan
Agreement"), as follows, effective as of the date hereof. (Capitalized terms
used but not defined in this Amendment, shall have the meanings set forth in the
Loan Agreement.)
1. Letter of Credit. The reference in Section 1.1 of the Schedule to Loan
Agreement to "Letter of Credit" shall mean the Letter of Credit, as extended,
modified or otherwise supplemented from time to time.
2. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) August 31, 1995 or (ii) the Loan
Termination Date"
3. No Waiver, Etc. Silicon received a Notice of Attachment (the
"Attachment") regarding the Borrower's bank accounts at Silicon on March 30,
1995. As you know, Section 6.1 (f) of the Loan Agreement states that any "levy,
assessment, attachment, seizure, lien or encumbrance [which] is made on all or
any part of the Collateral which is not cured within 10 days after the
occurrence of the same" constitutes an Event of Default. The willingness of
Silicon to extend the Maturity date as set forth herein does not in any manner
whatsoever waive, diminish or otherwise affect any of its rights and remedies
relating to the Event of Default arising if the Borrower fails to cure the
Attachment within 10 days of the occurrence of the same.
4. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
5. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
- --------------------------------------------------------------------------------
parties with respect to the subject hereof. Except as herein expressly amended,
all of the terms and provisions of the Loan Agreement, and all other documents
and agreements between Silicon and the Borrower shall continue in full force and
effect and the same are hereby ratified and confirmed.
Borrower: Silicon:
NATURAL GAS VEHICLE SYSTEMS, SILICON VALLEY BANK
INC.
By /s/[ILLEGIBLE] By /s/[ILLEGIBLE]
------------------------------- -------------------------
President or Vice President Title AVP
----------------------
By /s/Linda Asher
-------------------------------
Secretary or Ass't Secretary
<PAGE>
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[Logo] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: April 3, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Amended and Restated Loan and Security Agreement between
them, dated October 12, 1994 (the "Loan Agreement"), as follows, effective as of
the date hereof. (Capitalized terms used but not defined in this Amendment,
shall have the meanings set forth in the Loan Agreement.)
1. Amended Maturity Date. Section 5.1 of the Schedule to Loan Agreement is
hereby deleted and replaced with the following:
"Maturity Date
(Section 5.1): The earlier of (i) May 31, 1995 or (ii) the Loan
Termination Date."
2. No Waiver, Etc. Silicon received a Notice of Attachment (the
"Attachment") regarding the Borrower's bank accounts at Silicon on March 30,
1995. As you know, Section 6.1 (f) of the Loan Agreement states that any "levy,
assessment, attachment, seizure, lien or encumbrance [which] is made on all or
any part of the Collateral which is not cured within 10 days after the
occurrence of the same" constitutes an Event of Default. The willingness of
Silicon to extend the Maturity Date as set forth herein does not in any manner
whatsoever waive, diminish or otherwise affect any of its rights and remedies
relating to the Event of Default arising if the Borrower fails to cure the
Attachment within 10 days of the occurrence of the same.
3. Fee. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $1,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable.
4. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the
<PAGE>
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[Logo] Silicon Valley Bank
Certified Resolution
Borrower: Natural Gas Vehicle Systems, Inc., a
corporation organized under the laws of
the State of Delaware
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: October 12, 1994
I, the undersigned, Secretary or Assistant Secretary of the above-named
borrower, a corporation organized under the laws of the state set forth above,
do hereby certify that the following is a full, true and correct copy of
resolutions duly and regularly adopted by the Board of Directors of said
corporation as required by law, and by the by-laws of said corporation, and that
said resolutions are still in full force and effect and have not been in any way
modified, repealed, rescinded, amended or revoked.
RESOLVED, that this corporation borrow from Silicon Valley Bank
("Silicon"), from time to time, such sum or sums of money as, in the
judgment of the officer or officers hereinafter authorized hereby, this
corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, directed and empowered, in the name of this corporation,
to execute and deliver to Silicon, and Silicon is requested to accept, the
loan agreements, security agreements, notes, financing statements, and
other documents and instruments providing for such loans and evidencing
and/or securing such loans, with interest thereon, and said authorized
officers are authorized from time to time to execute renewals, extensions
and/or amendments of said loan agreements, security agreements, and other
documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any and all
indebtedness of this corporation to Silicon, whether arising pursuant to
this resolution or otherwise, to grant, transfer, pledge, mortgage, assign,
or otherwise hypothecate to Silicon, or deed in trust for its benefit, any
property of any and every kind, belonging to this corporation, including,
but not limited to, any and all real property, accounts, inventory,
equipment, general intangibles, instruments, documents, chattel paper,
notes, money, deposit accounts, furniture, fixtures, goods, and other
property of every kind, and to execute and deliver to Silicon any and all
grants, transfers, trust receipts, loan or credit agreements, pledge
agreements, mortgages, deeds of trust, financing statements, security
agreements and other hypothecation agreements, which said instruments and
the note or notes and other instruments referred to in the preceding
paragraph may contain such provisions, covenants, recitals and agreements
as Silicon may require and said authorized officers may approve, and the
execution thereof by said authorized officers shall be conclusive evidence
of such approval.
RESOLVED FURTHER, that Silicon may conclusively rely upon a certified copy
of these resolutions and a certificate of the Secretary or Ass't Secretary
of this corporation as to the officers of this corporation and their
offices and signatures, and continue to conclusively rely on such certified
copy of these resolutions and said certificate for all past, present and
future transactions until written notice of any change hereto or thereto is
given to Silicon by this corporation by certified mail, return receipt
requested.
<PAGE>
Silicon Valley Bank Certified Resolution
- --------------------------------------------------------------------------------
The undersigned further hereby certifies that the following persons are the
duly elected and acting officers of the corporation named above as borrower and
that the following are their actual signatures:
NAMES OFFICE(S) ACTUAL SIGNATURES
Howard T. Phelan Chairman & President x /s/ Howard T. Phelan
- --------------------- ---------------------------- -----------------------
_____________________ ____________________________ x_______________________
_____________________ ____________________________ x_______________________
_____________________ ____________________________ x_______________________
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant
Secretary on the date set forth above.
/s/ Susan E. Blauner
-------------------------
Assistant Secretary
<PAGE>
- --------------------------------------------------------------------------------
Consent
The undersigned, subordinating creditors, acknowledge that their consent to
the foregoing Amendment is not required, but the undersigned nevertheless do
hereby consent to the foregoing Amendment and to the documents and agreements
referred to therein and to all future modifications and amendments thereto, and
to any and all other present and future documents and agreements between or
among the foregoing parties. Nothing herein shall in any way limit any of the
terms or provisions of the subordination agreements, executed by the undersigned
in favor of Silicon, all of which are hereby ratified and affirmed and shall
continue in full force and effect.
Caithness/NCF Company, a California CNG Cylinder Corporation, a California
joint venture corporation
By /s/ Howard T. Phelan By /s/ Howard T. Phelan
- ----------------------------------- ---------------------------------------
Title: Chairman Title: Chairman
Caithness Corporation
By [ILLEGIBLE]
- -----------------------------------
Title: V.P. & CONTROLLER
-1-
<PAGE>
- --------------------------------------------------------------------------------
Consent
The undersigned, subordinating creditor, acknowledges that its consent to
the foregoing Amendment is not required, but the undersigned nevertheless does
hereby consent to the foregoing Amendment and to the documents and agreements
referred to therein and to all future modifications and amendments, thereto, and
to any and all other present and future documents and agreements between or
among the foregoing parties. Nothing herein shall in any way limit any of the
terms or provisions of the subordination agreements executed by the undersigned
in favor of Silicon all of which are hereby ratified and affirmed and shall
continue in full force and effect.
AMOCO OIL COMPANY
By [ILLEGIBLE]
-----------------------------------------
Title: Manager - Alternative Transportation [ILLEGIBLE]
-1-
<PAGE>
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[Logo] Silicon Valley Bank
Schedule to Amended and Restated
Loan and Security Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: October 12, 1994
Credit Limit (Section 1.1): An amount not to exceed the lesser of: (i)
$245,000; or (ii) 98% of the face amount of
an outstanding letter of credit issued by the
Bank of New York, with Caithness Composites,
Inc. as account party, and Silicon as
beneficiary, which Letter of Credit shall be
acceptable to Silicon in its discretion (such
letter of credit is referred to as the
"Letter of Credit"). No Loans shall be made
on and after the date that is thirty (30)
days prior to the expiration date of the
Letter of Credit (such date that is 30 days
prior to such expiration date is referred to
as the "Loan Termination Date").
Interest Rate (Section 1.2): A rate equal to the "Prime Rate" in effect
from time too time.
Interest shall be calculated on the basis of
a 360-day year for the actual number of days
elapsed. "Prime Rate" means the rate
announced from time to time by Silicon as its
"prime rate;" it is a base rate upon which
other rates charged by Silicon are based, and
it is not necessarily the best rate available
at Silicon. The interest rate applicable to
the Obligations shall change on each date
there is a change in the Prime Rate.
Loan Origination Fee
(Section 1.3): $1,000.
Maturity Date
(Section 5.1): The earlier of (i) December 31, 1994 or (ii)
the Loan Termination Date.
Prior Names of Borrower
(Section 3.2): None
Trade Names of Borrower
(Section 3.2): NGV Systems Inc., CNG Cylinder Company, NGV
Systems Company
Other Locations and Addresses
(Section 3.3): 2040 Cherry Industrial Circle, Long Beach,
California 90805 6111 Highway 290 East,
Austin, Texas 78723
<PAGE>
Silicon Valley Bank Schedule to Amended and Restated Loan Agreement
- --------------------------------------------------------------------------------
Material Adverse Litigation
(Section 3.10): None
Negative Covenants-Exceptions
(Section 4.6): Without Silicon's prior written consent,
Borrower may do the following, provided that,
after giving effect thereto, no Event of
Default has occurred and no event has
occurred which, with notice or passage of
time or both, would constitute an Event of
Default, and provided that the following are
done in compliance with all applicable laws,
rules and regulations: (i) repurchase shares
of Borrower's stock pursuant to any employee
stock purchase or benefit plan, provided that
the total amount paid by Borrower for such
stock does not exceed $100,000 in any fiscal
year; and (ii) guarantee obligations of, and
make loans to, Borrower's wholly-owned
subsidiary, NGV Development Co., Inc.
("Subsidiary").
Financial Covenants
(Section 4.1): None.
Other Covenants
(Section 4.1): Borrower shall at all times comply with all
of the following additional covenants:
1. Banking Relationship. Borrower shall at
all times maintain its primary banking
relationship with Silicon.
2. Indebtedness. Without limiting any of the
foregoing terms or provisions of this
Agreement, Borrower shall not in the future
incur indebtedness for borrowed money, except
for (i) indebtedness to Silicon, and (ii)
indebtedness incurred in the future for the
purchase price of or lease of equipment in an
aggregate amount not exceeding $1,000,000 at
any time outstanding.
3. Stock Pledge. Borrower shall maintain in
effect the Pledge Agreement executed and
delivered to Silicon in connection with the
Original Loan Agreement, and Borrower shall
cause said Pledge Agreement to continue in
full force and effect at all times during the
term of this Agreement with respect to 100%
of the outstanding stock of the Subsidiary
now outstanding or hereafter issued and 100%
of all options and warrants to acquire stock
of the Subsidiary hereafter issued. Borrower
represents and warrants that there are no
outstanding options or warrants to acquire
stock of the Subsidiary.
4. Warrant. Borrower shall maintain in full
force and effect the warrant agreement and
related documents executed and delivered by
Borrower to Silicon in connection with the
Original Loan Agreement.
5. Subordination. Borrower shall cause to
remain in effect at all times during the term
of this Agreement the subordination
agreements of Caithness/NCF and CNG Cylinder
Corp. executed and delivered in connection
with the Original Loan Agreement, and the
Intercreditor Agreement dated March 4, 1993
executed and delivered by Amoco Oil Company
in favor of Silicon.
2
<PAGE>
Silicon Valley Bank Schedule to Amended and Restated Loan Agreement
- --------------------------------------------------------------------------------
6. Predecessor Partnership. Borrower
represents and warrants to Silicon that all
of the assets and liabilities of CNG Cylinder
Company of North America, L.P. have been duly
transferred to the Borrower, and that such
transfer was in compliance with all
applicable laws, rules and regulations.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ Howard T. Phelan
------------------------------------
President
By /s/ Susan E. Blauner
------------------------------------
Ass't Secretary
Silicon:
SILICON VALLEY BANK
By [ILLEGIBLE]
------------------------------------
Title [ILLEGIBLE]
---------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
[Logo] Silicon Valley Bank
Amended and Restated Loan and
Security Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: October 12, 1994
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into on the
above date between SILICON VALLEY BANK ("Silicon"), whose address is 3000
Lakeside Drive, Santa Clara, California 95054-2895 and the borrower named above
(the "Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). This Agreement amends and restates in its entirety the
Loan and Security Agreement dated June 2, 1992, as amended by that Amendment to
Loan Agreement dated September 29, 1992, by that letter agreement dated October
30, 1992, by that letter agreement dated November 19, 1992, by that letter
agreement dated December 15, 1992, by that Amendment to Loan Agreement dated
March 29, 1993, by that Amendment to Loan Agreement dated July 22, 1993, by that
Amendment to Loan Agreement dated October 13, 1993, by that Amendment to Loan
Agreement dated June 1, 1994, and as such agreement has otherwise been amended
from time to time (collectively referred to as the "Original Loan Agreement").
1. LOANS
1.1 Loans. Silicon, in its discretion, will make loans to the Borrower (the
"Loans") in amounts determined by Silicon in its discretion up to the amount
(the "Credit Limit") shown on the Schedule to this Agreement (the "Schedule").
The Borrower is responsible for monitoring the total amount of Loans and other
Obligations outstanding from time to time, and Borrower shall not permit the
same, at any time, to exceed the Credit Limit. If at any time the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, the
Borrower shall immediately pay the amount of the excess to Silicon, without
notice of demand. *
* The loan balance under the Original Loan Agreement shall constitute the
initial loan balance hereunder.
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule hereto. Interest shall be payable
monthly, on the due date shown on the monthly billing from Silicon to the
Borrower.
1.3 Fees. The Borrower shall pay to Silicon a loan origination fee in the
amount shown on the Schedule hereto concurrently herewith. This fee is in
addition to all interest and other sums payable to Silicon and is not
refundable.
2. GRANT OF SECURITY INTEREST.
2.1 Obligations. The term "Obligations" as used in this Agreement means the
following: the obligation to pay all Loans and all interest thereon when due,
and to pay and perform when due all other present and future indebtedness,
liabilities, obligations, guarantees, covenants, agreements, warranties and
representations of the Borrower to Silicon, whether joint or several, monetary
or non-monetary, and whether created pursuant to this Agreement or any other
present or future agreement or otherwise. Silicon may, in its discretion,
require that Borrower pay monetary Obligations in cash to Silicon, or charge
them to Borrower's Loan account, in which event they will bear interest at the
same rate applicable to the Loans.
2.2 Collateral. As security for all Obligations, the Borrower hereby grants
Silicon a continuing security interest in all of the Borrower's interest in the
types of property described below, whether now owned or hereafter acquired, and
wherever located (collectively, the "Collateral"): (a) all accounts, contract
rights, chattel, paper, letters of credit, documents, securities, money, and
instruments, and all other obligations now or in the future owing to the
Borrower; (b) All inventory, goods,
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<PAGE>
Silicon Valley Bank Amended and Restated Loan and Security Agreement
- --------------------------------------------------------------------------------
merchandise, materials, raw materials, work in process, finished goods, farm
products, advertising, packaging and shipping materials, supplies, and all other
tangible personal property which is held for sale or lease or furnished under
contracts of service or consumed in the Borrower's business, and all warehouse
receipts and other documents; and (c) All equipment, including without
limitation all machinery, fixtures, trade fixtures, vehicles, furnishings,
furniture, materials, tools, machine tools, office equipment, computers and
peripheral devices, appliances, apparatus, parts, dies, and jigs; (d) All
general intangibles including, but not limited to, deposit accounts, goodwill,
names, trade names, trademarks and the goodwill of the business symbolized
thereby, trade secrets, drawings, blueprints, customer lists, patents, patent
applications, copyrights, security deposits, loan commitment fees, federal,
state and local tax refunds and claims, all rights in all litigation presently
or hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, all claims of
Borrower against Silicon, all rights to purchase or sell real or personal
property, all rights as a licensor or licensee of any kind, all royalties,
licenses, processes, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation
credit, liability, property and other insurance), and all other rights,
privileges and franchises of every kind; (e) All books and records, whether
stored on computers or otherwise maintained; and (f) All substitutions,
additions and accessions to any of the foregoing, and all products, proceeds and
insurance proceeds of the foregoing, and all guaranties of and security for the
foregoing; and all books and records relating to any of the foregoing. Silicon's
security interest in any present or future technology (including patents, trade
secrets, and other technology) shall be subject to any licenses or rights now or
in the future granted by the Borrower to any third parties in the ordinary
course of Borrower's business; provided that if the Borrower proposes to sell,
license or grant any other rights with respect to any technology in a
transaction that, in substance, conveys a major part of the economic value of
that technology, Silicon shall first be requested to release its security
interest in the same, and Silicon may withhold such release in its direction.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents and warrants to Silicon as follows, and the
Borrower covenants, that the following representations will continue to be true,
and that the Borrower will comply with all of the following covenants:
3.1 Corporate Existence and Authority. The Borrower, if a corporation, is
and will continue to be, duly authorized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The Borrower is and
will continue to be qualified and licensed to do business in all jurisdictions
in which any failure to do so would have a material adverse effect on the
Borrower. The execution, delivery and performance by the Borrower of this
Agreement, and all other documents contemplated hereby have been duly and
validly authorized, are enforceable against the Borrower in accordance with
their terms, and do not violate any law or any provision of, and are not grounds
for acceleration under any agreement or instrument which is binding upon the
Borrower.
3.2 Name; Trade Names and Styles. The name of the Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule hereto are
all prior names of the Borrower and all of Borrower's present and prior trade
names. The Borrower shall give Silicon 15 days' prior written notice before
changing its name or doing business under any other name. The Borrower has
complied and will in the future comply, with all laws relating to the conduct of
business under a fictitious business name.
3.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is the Borrower's chief executive office. In addition,
the Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule to this Agreement. The Borrower will give
Silicon at least 15 days prior written notice before changing its chief
executive office or locating the Collateral at any other location.
3.4 Title to Collateral; Permitted Liens. The Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of equipment which are leased by the Borrower. The Collateral now is and
will remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for the following ("Permitted Liens"):
(i) purchase money security interests in specific items of equipment; (ii)
leases of specific items of equipment; (iii) liens for taxes not yet payable;
(iv) additional security interests and liens consented to in writing by Silicon
in its sole discretion, which consent shall not be unreasonably withheld; and
(v) security interests being terminated substantially concurrently with this
Agreement. Silicon will have the right to require, as a condition to its consent
under subparagraph (iv) above, that the holder of the additional security
interest or lien sign an Intercreditor agreement on Silicon's then standard
form, acknowledge that the security interest is subordinate to the security
interest in favor of Silicon, and agree to give written notice of any default to
Silicon at least 60 days prior to taking any action to enforce its subordinate
security interest, and that Borrower agree that any unsecured default in any
obligation secured by the subordinate security interest shall also constitute an
Event of Default under this Agreement. Silicon now has, and will continue to
have, a perfected and enforceable security interest in all of the Collateral,
subject only to the Permitted Liens, and the Borrower will at all times defend
Silicon and the Collateral against all claims of others. None of the Collateral
now is or will be affixed to any real property in such a manner, or with such
intent, as to become a fixture.
3.5 Maintenance of Collateral. The Borrower will maintain the
Collateral in good working condition, and the Borrower will not use
the Collateral for any unlawful
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<PAGE>
Silicon Valley Bank Amended and Restated Loan and Security Agreement
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purpose. The Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.
3.6 Books and Records. The Borrower has maintained and will maintain at the
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 Financial Condition and Statements. All financial statements now or in
the future delivered to Silicon have been, and will be, prepared in conformity
with generally accepted accounting principles and now and in the future will
completely and accurately reflect the financial condition of the Borrower, at
the times and for the periods therein stated. Since the last date covered by any
such statement, there has been no material adverse change in the financial
condition or business of the Borrower. The Borrower is now and will continue to
be solvent. The Borrower will provide Silicon: (i) within 30 days after the end
of each quarter, a quarterly financial statement prepared by the Borrower; and
(ii) within 120 days following the end of the Borrower's fiscal year, complete
annual financial statements, certified by independent certified public
accountants acceptable to Silicon.
3.8 Tax Returns and Payments; Pensions Contributions. The Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and the Borrower has timely paid, and
will timely pay, all foreign, federal, state and local taxes, assessments,
deposits and contributions now or in the future owed by the Borrower. The
Borrower may, however, defer payment off any contested taxes, provided that the
Borrower (i) in good faith contests the Borrower's obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Silicon in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. The Borrower is unaware of any claims or adjustments proposed for
any of the Borrower's prior tax years which could result in additional taxes
becoming due and payable by the Borrower. The Borrower has paid, and shall
continue to pay all amounts necessary to fund all present and future pension,
profit sharing and deferred compensation plans in accordance with their terms,
and the Borrower has not and will not withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any such plan which could result in any liability of the
Borrower, including, without limitation, any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
3.9 Compliance with Law. The Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to the Borrower, including, but not limited to,
those relating to the Borrower's ownership of real or personal property, conduct
and licensing of the Borrower's business, and environmental matters.
3.10 Litigation. Except as disclosed in the schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of the
Borrower's knowledge) threatened by or against or affecting the Borrower in any
court or before any governmental agency (or any basis therefor known to the
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of the Borrower,
or in any material impairment in the ability of the Borrower to carry on its
business in substantially the same manner as it is now being conducted. The
Borrower will promptly inform Silicon in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
the Borrower involving amounts in excess of $250,000.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. ADDITIONAL DUTIES OF THE BORROWER.
4.1 Financial and Other Covenants. The Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule to this
Agreement.
4.2 Overadvance; Proceeds of Accounts. If for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, without
limiting Silicon's other remedies, and whether or not Silicon declares an Event
of Default, Borrower shall remit to Silicon all checks and other proceeds of
Borrower's accounts and general intangibles, in the same form as received by
Borrower, within one day after Borrower's receipt of the same, to be applied to
the Obligations in such order as Silicon shall determine in its discretion.
4.3 Insurance. The Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole and absolute discretion, except that,
provided no Event of Default has occurred, Silicon shall release to the Borrower
insurance proceeds with respect to equipment totaling less than $100,000, which
shall be utilized by the Borrower for the replacement of the equipment with
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Silicon Valley Bank Amended and Restated Loan and Security Agreement
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respect to which the insurance proceeds were paid. Silicon may require
reasonable assurance that the insurance proceeds so released will be so used. If
the Borrower fails to provide or pay for any insurance, Silicon may, but is not
obligated to, obtain the same at the Borrower's expense. The Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
4.4 Reports. The Borrower shall provide Silicon with such written reports
with respect to the Borrower (including without limitation budgets, sales
projections, operating plans and other financial documentation), as Silicon
shall from time to time reasonably specify.
4.5 Access to Collateral, Books and Records. At all reasonable times, and
upon one business day notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy the Borrower's
accounting books and records and Borrower's books and records relating to the
Collateral. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
audits shall be at Silicon's expense. Notwithstanding the foregoing, after the
occurrence of an Event of Default all audits shall be at the Borrower's expense.
4.6 Negative Covenants. Except as may be permitted in the Schedule hereto,
the Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation, except that the
Borrower may merge or consolidate with another corporation if the Borrower is
the surviving corporation in the merger and the aggregate value of the assets
acquired in the merger do no exceed 25% of Borrower's Tangible Net Worth (as
defined in the Schedule to the Original Loan Agreement) as of the end of the
month prior to the effective date of the merger, and the assets of the
corporation acquired in the merger are not subject to any liens or encumbrances,
except Permitted Liens; (ii) acquire any assets outside the ordinary course of
business for an aggregate purchase price exceeding 25% of Borrower's Tangible
Net Worth (as defined in the Schedule to the Original Loan Agreement) as of the
end of the month prior to the effective date of the acquisition; (iii) enter
into any other transaction outside the ordinary course of business (except as
permitted by the other provisions of this Section); (iv) sell or transfer any
Collateral, except for the sale of finished inventory in the ordinary course of
the Borrower's business, and except for the sale of obsolete or unneeded
equipment in the ordinary course of business; (v) make any loans of any money or
any other assets; (vi) incur any debts, outside the ordinary course of business,
which would have a material, adverse effect on the Borrower or on the prospect
of repayment of the Obligations; (vii) guarantee or otherwise become liable with
respect to the obligations of another party or entity; (viii) pay or declare any
dividends on the Borrower's stock (except for dividends payable solely in stock
of the Borrower); (ix) redeem, retire, purchase or otherwise acquire, directly
or indirectly, any of the Borrower's stock; (x) make any change in the
Borrower's capital structure which has a material adverse effect on the Borrower
or on the prospect of repayment of the Obligations; or (xi) dissolve or elect to
dissolve. Transactions permitted by the foregoing provisions of this Section are
only permitted if no Event of Default and no event which (with notice or passage
of time or both) would constitute an Event of Default would occur as a result of
such transaction.
4.7 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to the Borrower, the Borrower shall, without expense to Silicon, make
available the Borrower and its officers, employees and agents and the Borrower's
books and records to the extent that Silicon may deem them reasonably necessary
in order to prosecute or defend any such suit or proceeding.
4.8 Verification Silicon may, from time to time, following prior
notification to Borrower, verify directly with the respective account debtors
the validity, amount and other matters relating to the Borrower's accounts, by
means of mail, telephone or otherwise, either in the name of the Borrower or
Silicon or such other name as Silicon may reasonably choose, provided that no
prior notification to Borrower shall be required following an Event of Default.
4.9 Execute Additional Documentation. The Borrower agrees, at its expense,
on request by Silicon, to execute all documents in form satisfactory to Silicon,
as Silicon may deem reasonably necessary or useful in order to perfect and
maintain Silicon's perfected security interest in the Collateral, and in order
to fully consummate all of the transactions contemplated by this Agreement.
5. TERM
5.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule hereto (the "Maturity Date").
5.2 Early Termination. This Agreement may be terminated, without penalty,
prior to the Maturity Date as follows: (i) by the Borrower, effective three
business days after written notice of termination is given to Silicon; or (ii)
by Silicon at any time after the occurrence of an Event of Default, without
notice, effective immediately.
5.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, the Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier
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Silicon Valley Bank Amended and Restated Loan and Security Agreement
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effective date of termination, there are any outstanding letters of credit
issued by Silicon or issued by another institution based upon an application,
guarantee, indemnity or similar agreement on the part of Silicon, then on such
date Borrower shall provide to Silicon cash collateral in an amount equal to the
face amount of all such letters of credit plus all interest, fees and cost due
or to become due in connection therewith, to secure all of the Obligations
relating to said letters of credit, pursuant to Silicon's then standard from
cash pledge agreement. Notwithstanding any termination of this Agreement, all of
Silicon's security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until all
Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are discretionary on the part of Silicon, Silicon
may, in its sole discretion, refuse to make any further Loans after termination.
No termination shall in any way affect or impair any right or remedy of Silicon,
nor shall any such termination relieve the Borrower of any Obligation to
Silicon, until all of the Obligations have been paid and performed in full. Upon
payment and performance in full of all the Obligations, Silicon shall promptly
deliver to the Borrower termination statements, requests for reconveyances and
such other documents as may be required to fully terminate any of Silicon's
security interests.
6. EVENTS OF DEFAULT AND REMEDIES
6.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and the Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by the Borrower or
any of the Borrower's officers, employees or agents, now or in the future, shall
be untrue or misleading in any material respect; or (b) the Borrower shall fail
to pay when due any Loan or any interest thereon or any other monetary
Obligation; or (c) the total Loans and other Obligations outstanding at any time
exceed the Credit Limit; or (d) the Borrower shall fail to comply with any of
the financial covenants set forth in the Schedule or shall fail to perform any
other non-monetary Obligation which by its nature cannot be cured; or (e) the
Borrower shall fail to pay or perform any other non-monetary Obligation, which
failure is not cured within 5 business days after the date due; or (f) Any levy,
assessment, attachment, seizure, lien or encumbrance is made on all or any part
of the Collateral which is not cured within 10 days after the occurrence of the
same; or (g) Dissolution, termination of existence, insolvency or business
failure of the Borrower; or appointment of a receiver, trustee or custodian, for
all or any part of the property of, assignment for the benefit of creditors by,
or the commencement of any proceeding by the Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (h) the commencement of any proceeding against the Borrower or any guarantor
of any of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; (i) revocation or
termination of, or limitation of liability upon, any guaranty of the
Obligations; or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or (j) the Borrower makes
any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations or if any person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (k) the Borrower shall generally not pay its debts as they become
due; or the Borrower shall conceal, remove or transfer any part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law. Silicon may cease making any Loans
hereunder during any of the above cure periods, and thereafter if an Event of
Default has occurred.
6.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by the Borrower), may do any one or
more of the following: (a) Cease making Loans or otherwise extending credit to
the Borrower under this Agreement or any other document or agreement; (b)
Accelerate and declare all or any part of the Obligations to be immediately due,
payable, and performable, notwithstanding any deferred or installment payments
allowed by any instrument evidencing or relating to any Obligation; (c) Take
possession of any or all of the Collateral wherever it may be found, and for
that purpose the Borrower hereby authorizes Silicon without judicial process to
enter onto any of the Borrower's premises without interference to search for,
take possession of, keep, store, or remove any of the Collateral, and remain on
the premises or cause a custodian to remain on the premises in exclusive control
thereof without charge for so long as Silicon deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, however, that Silicon should seek to take possession
of any or all of the Collateral by Court process, the Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that Silicon
retain possession of and not dispose of any such Collateral until after trial or
final judgement; (d) Require the Borrower to assemble any or all of the
Collateral and make it available to Silicon at places designated by Silicon
which are reasonably convenient to Silicon and the Borrower, and to remove the
Collateral to such locations as Silicon may deem advisable; (e) Require Borrower
to deliver to Silicon, in kind, all checks and other payments received with
respect to all accounts and general intangibles, together with any necessary
indorsement, within one day after the
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Silicon Valley Bank Amended and Restated Loan and Security Agreement
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date received by the Borrower; (f) Complete the processing, manufacturing or
repair of any Collateral prior to a disposition thereof and, for such purpose
and for the purpose of removal, Silicon shall have the right to use the
Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other
property without charge; (g) Sell, lease or otherwise dispose of any of the
Collateral in its condition at the time Silicon obtains possession of it or
after further manufacturing, processing or repair at any one or more public
and/or private sales, in lots or in bulk, for cash, exchange or other property,
or on credit, and to adjourn any such sale from time to time without notice
other than oral announcement at the time scheduled for sale. Silicon shall have
the right to conduct such disposition on the Borrower's premises without charge,
for such time or times as Silicon deems reasonable, or on Silicon's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Silicon may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private disposition. Any sale or other disposition of Collateral
shall not relieve the Borrower of any liability the Borrower may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale; (h) Demand payment of, and collect any accounts and general
intangibles comprising Collateral and, in connection therewith, the Borrower
irrevocably authorize Silicon to endorse or sign the Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to the Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Silicon's
sole discretion, to grant extensions of time to pay, compromise claims and
settle accounts and the like for less than face value; (i) Offset against any
sums in any of Borrower's general, special or other deposit accounts with
Silicon; and (j) Demand and receive possession of any of the Borrower's federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by Silicon with respect to
the foregoing shall be added to and become part of the Obligations, shall be due
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. Without limiting any of Silicon's rights
and remedies, from and after the occurrence of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
four percent per annum.
6.3 Standards for Determining Commercial Reasonableness. The Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to the
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase price
in cash or by cashier's check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Silicon may (but is not obligated to) direct
any prospective purchaser to ascertain directly from the Borrower any and all
information concerning the same. Silicon may employ other methods of noticing
and selling the Collateral, in its discretion, if they are commercially
reasonable.
6.4 Power of Attorney. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, the Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to the
Borrower, and at the Borrower's expense, to do any or all of the following, in
the Borrower's name or otherwise: (a) Execute on behalf of the Borrower any
documents that Silicon may, in its sole and absolute discretion, deem advisable
in order to perfect and maintain Silicon's security interest in the Collateral,
or in order to exercise a right of the Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreement; (b) Execute on behalf of the Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) execute
on behalf of the Borrower any invoices relating to any account, any draft
against any account debtor and any notice to any account debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of the Borrower upon any instruments,
or documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lieu, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle accounts and
general intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of the
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
the Borrower to give Silicon the same rights of access and other rights with
respect thereto as Silicon has under this
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Silicon Valley Bank Amended and Restated Loan and Security Agreement
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Agreement; and (k) Take any action or pay any sum required of the Borrower
pursuant to this Agreement and any other present or future agreements. Silicon
shall exercise the foregoing powers in a commercially reasonable manner. Any and
all reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Silicon with respect to the foregoing shall be added to and become
part of the Obligations, shall be payable on demand, and shall bear interest at
a rate equal to the highest interest rate applicable to any of the Obligations.
In no event shall Silicon's rights under the foregoing power of attorney or any
of Silicon's other rights under this Agreement be deemed to indicate that
Silicon is in control of the business, management or properties of the Borrower.
6.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principle of the Obligations, in such order as
Silicon shall determine in its sole discretion. Any surplus shall be paid to the
Borrower or other persons legally entitled thereto; the Borrower shall remain
liable to Silicon for any deficiency. If, Silicon, in its sole discretion,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale or other disposition of Collateral,
Silicon shall have the option, exercisable at any time, in its sole discretion,
of either reducing the Obligations by the principal amount of purchase price or
deferring the reduction of the Obligations until the actual receipt by Silicon
of the cash therefor.
6.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Silicon shall have all the other rights and remedies accorded
a secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and the Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
7. GENERAL PROVISIONS.
7.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by regular first-class mail, or
certified mail return receipt requested, addressed to Silicon or the Borrower at
the addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. All notices shall be
deemed to have been given upon delivery in thee case of notices personally
delivered to the Borrower or to Silicon, or at the expiration of two business
days following the deposit thereof in the United states mail, with postage
prepaid.
7.2 Severability. Should any provision of this agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
7.3 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between the Borrower and Silicon and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement. There
are no oral understandings, representations or agreements between the parties
which are not set forth in this Agreement or in other written agreements signed
by the parties in connection herewith.
7.4 Waivers. The failure of Silicon at any time or times to require the
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between the Borrower and Silicon shall not
waive or diminish any right of Silicon later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto. None of the provisions of
this Agreement or any other agreement now or in the future executed by the
Borrower and delivered to Silicon shall be deemed to have been waived by any act
or knowledge of Silicon or its agents or employees, but only by a specific
written waiver signed by an officer of Silicon and delivered to the Borrower.
The Borrower waives demand, protest, notice of protest and notice of default or
dishonor, notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, account, general
intangible, document or guaranty at any time held by Silicon on which the
Borrower is or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.
7.5 No Liability for Ordinary Negligence. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by the
Borrower or any other party through the ordinary negligence of Silicon, or any
of its directors, officers, employees, agents, attorneys or any other person
affiliated with or representing Silicon.
7.6 Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by the Borrower and a duly authorized
officer of Silicon.
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Silicon Valley Bank Amended and Restated Loan and Security Agreement
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7.7 Time of Essence. Time is of the essence in the performance by the
Borrower of each and every obligation under this Agreement.
7.8 Attorneys Fees and Costs. The Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed) including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, account debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of the Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to the Borrower. In Satisfying Borrower's obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
only Silicon and not Borrower in connection with this Agreement. If either
Silicon or the Borrower files any lawsuit against the other predicated on a
breach of this Agreement, the prevailing party in such action shall be entitled
to recover its reasonable costs and attorneys' fees, including (but not limited
to) reasonable attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Silicon may be entitled pursuant to this
Paragraph shall immediately become part of the Borrower's Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations.
7.9 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of the parties hereto; provided, however, that
the Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release the
Borrower from its liability for the Obligations.
7.10 Joint and Several Liability. If the Borrower consists of more than one
person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
7.11 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. The Borrower acknowledges that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any manner to construe, limit, define or interpret
any term or provision of this Agreement. This Agreement has been fully reviewed
and negotiated between the parties and no uncertainty or ambiguity in any term
or provision of this Agreement shall be construed strictly against Silicon or
the Borrower under any rule of construction or otherwise.
7.12 Mutual Waiver of Jury Trial. The Borrower and Silicon each hereby
waive the right to trial by jury in any action or proceeding based upon, arising
out of, or in any way relating to, this Agreement or any other present or future
instrument or agreement between Silicon and the Borrower, or any conduct, acts
or omissions of Silicon or the Borrower or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with Silicon or the
Borrower, in all of the foregoing cases, whether sounding in contract or tort or
otherwise.
7.13 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and the
Borrower shall be governed by, and in accordance with, the laws of the State of
California. Any undefined term used in this Agreement that is defined in the
California Uniform Commercial Code shall have the meaning assigned to that term
in the California Uniform Commercial Code. As a material part of the
consideration to Silicon to enter into this Agreement, the Borrower (i) agrees
that all actions and proceedings relating directly or indirectly hereto shall,
at Silicon's option, be litigated in courts located within California, and that
the exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights the Borrower may have to object to
the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ Howard T. Phelan
------------------------------------
President
By /s/ Susan E. Blauner
------------------------------------
Ass't Secretary
Silicon:
SILICON VALLEY BANK
By [ILLEGIBLE]
------------------------------------
Title Vice President
---------------------------------
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[Logo} Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: September 29, 1992
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Loan and Security Agreement between them, dated June 2, 1992
(the "Loan Agreement"), as follows, effective on the date hereof. (Capitalized
terms used but not defined in this Amendment, shall have the meanings set forth
in the Loan Agreement.)
1. Modification of Interest Rate. The section of the Schedule to Loan
Agreement entitled "Interest Rate (Section 1.2)" is hereby deleted and replaced
with the following:
"Interest Rate (Section 1.2):
Accounts Loans: A rate equal to the "Prime Rate" in effect
from time to time, plus 2% per annum, provided that the
interest rate in effect in each month shall not be less than
8.5% per annum, provided, however, until the Borrower raises
net cash proceeds from the issuance of new equity securities
of not less than $5,000,000 (and Silicon's review of the
results of such issuance of securities and Borrower's
financial condition is satisfactory to Silicon in its
discretion) or, Borrower complies with all financial
covenants as set forth in the Loan Agreement, the interest
rate applicable to Accounts Loans shall be equal to 12% per
annum.
Term Loan: 12% per annum
Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as its
"prime rate;" it is a base rate upon which other rates
charged by Silicon are based, and is not necessarily the
best rate available at Silicon. The interest rate applicable
to the Obligations shall change on each date there is a
change in the Prime Rate."
2. Modification of Maturity Date. The section of the Schedule to Loan
Agreement entitled "Maturity Date (Section 5.1)" is hereby deleted and replaced
with the following:
1
<PAGE>
"Maturity Date
(Section 5.1): June 2, 1993. After said Maturity Date no further Accounts
Loans will be made, and on said Maturity Date all
Obligations (other than the Term Loan) shall be due and
payable.
The Term Loan shall be due and payable on or before October
28, 1992."
3. Addition of Tradename. The section of the Schedule to Loan Agreement
entitled "Trade Names of Borrower (Section 3.2)" is hereby amended by adding
thereto the following tradename: "NGV Technology Company." The Borrower agrees
to provide to Silicon UCC Financing Statement change forms reflecting the
addition of this tradename for all UCC filings that Silicon has made relating to
the Borrower.
4. Limited Forbearance Regarding Financial Covenants. Silicon hereby waives
the Borrower's compliance with the financial covenants set forth in the Loan
Agreement through October 28, 1992, provided, however, that such waiver does not
constitute a waiver of any other provision or term of the Loan Agreement or any
related document, nor an agreement to waive in the future this covenant or any
other provision or term of the Loan Agreement or any related document.
5. No Direct Advances to the Borrower, Etc. Until (a) Borrower raises net
proceeds from the issuance of new equity securities of not less than $5,000,000,
and Silicon's review of the results of such issuance of securities and
Borrower's financial condition is satisfactory to Silicon in its discretion or
(b) Borrower complies with all financial covenants as set forth in the Loan
Agreement, Borrower agrees that any and all Accounts Loans shall not be
disbursed directly to Borrower.
6. Existing Overadvances; Reduction of the Term Loan Through Accounts
Loans. As of the date hereof, the Borrower has Obligations outstanding under the
Accounts Loans facility as set forth in Section 1.1 of the Schedule to Loan
Agreement (the "Accounts Line") that exceed the stated limitations applicable
thereto ("Existing Overadvances"). Silicon agrees that the Existing Overadvances
need not be repaid immediately as provided for in Section 1.1 of the Loan
Agreement, provided, however, that the agreement of Silicon to refrain from
requiring the immediate repayment of the Existing Overadvances does not
constitute a waiver of any other provision or term of the Loan Agreement or any
related document, nor an agreement to waive in the future this requirement or
any other provision or term of the Loan Agreement or any related document. The
Existing Overadvances shall be reduced over time to the extent possible through
new sales by the Borrower and the resulting creation of new accounts.
Thereafter, once the Existing Overadvances have been eliminated, at all times
that availability exists under the Accounts Line and the Term Loan remains
outstanding, Borrower hereby authorizes Silicon (a) to make an advance under the
Accounts Loans facility to the extent of the availability thereunder at such
time, (b) to charge such advance to the Borrower's loan account with Silicon,
and (c) to apply the proceeds of all such advances to the reduction of the Term
Loan.
7. Other Covenants. Paragraph 2 of the section entitled "Other Covenants
and Provisions (Section 4.1)" of the Schedule to the Loan Agreement is hereby
deleted and replaced with the following paragraph 2 and a new paragraph 9 shall
be added to end of such section as set forth below:
"2. Additional Reporting Requirements. At all times the Borrower shall
provide the following reports and information in addition to all other
information and reporting requirements hereunder:
2.1 Transaction Reports. The Borrower shall submit a transaction
report, in such form as Silicon shall specify, for each deposit or advance
relating to the Borrower; such report shall include all relevant
attachments and supplementary documentation as Silicon shall request,
including, without limitation, the Borrower's sales and collections
2
<PAGE>
journals. The Transaction Report must be submitted by facsimile to the San
Jose, California office of Silicon by 2 P.M. (PST) on the day of the
transaction. Credit for deposits will be given when Silicon has received
collected funds relating thereto on the business day following the deposit.
The address and telephone numbers for the San Jose, California office of
Silicon are: Silicon Valley Bank, Collateral Control Department, 2254 North
First Street, San Jose, California 95131, (Telephone 408-473-0252, Attn:
Scott Williams, Facsimile 408-954-0832) (such address or at any other
address that Silicon may direct, the "San Jose Address").
2.2 Borrowing Base Certificate. On a semi-monthly basis, the Borrower
shall provide to Silicon at the San Jose Address, a borrowing base
certificate, in such form as Silicon shall specify, and an aged listing of
Borrower's accounts receivable and accounts payable. Such certificate shall
be submitted within 2 days of month end relating to the month end period
and on the 17th of each month relating to the period ending on the 15th of
such month.
2.3 Compliance Certificate. The monthly compliance certificate
referred to in Section 3.7 of the Loan Agreement shall be delivered to
Silicon at both its San Jose Address and at its address in Newport Beach,
California as follows: Silicon Valley Bank, 4600 Campus Drive, Suite 105,
Newport Beach, California 92660 (Telephone 714-252-1300, Facsimile
714-252-0925), or at such other address as Silicon may direct."
......
9. Daily Collateral Control. Borrower shall have the privilege of
collecting Borrower's "accounts" (as defined in the California Uniform
Commercial Code) in trust for Silicon, at Borrower's sole expense, which
privilege may be revoked by Silicon at any time. All proceeds of all of
Borrower's accounts, of every kind, in whatever form received, shall be
held by the Borrower in trust for Silicon and shall be either (i) delivered
by the Borrower to Silicon in kind, in the same form as received, with any
necessary endorsements, within one business day after receipt, or (ii)
within one business day after receipt, deposited to a bank account
previously identified to Silicon, which has been established pursuant to
agreement which provides that all funds in such account are transferred to
Silicon on a daily basis, and in that event the Borrower; shall deliver
copies of all checks and other proceeds so deposited and a copy of the
deposit receipt to Silicon within one business day after such deposit.
Borrower shall have no right to, and agrees not to, comingle any of the
proceeds of the accounts with the Borrower's own funds, and the Borrower
agrees not to use, divert or withhold any such proceeds. The Borrower will,
upon request by Silicon and in such form and at such times as Silicon shall
request, give notice to the account debtors on the accounts of the
assignment of and the grant of a security interest in the accounts to
Silicon and that Silicon may itself give such notice at any time, without
notice to the Borrower, requiring such account debtors to pay the accounts
directly to Silicon, and in any such event, the Borrower's privilege of
collecting the accounts shall automatically be deemed revoked."
7. Warrants. The Borrower shall provide Silicon with five-year warrants to
purchase 16,000 shares of Common stock of the Borrower, at $5.00 per share, on
the terms and conditions in the Warrant to Purchase Stock and related documents
being executed concurrently herewith.
8. Facility Fee. The Borrower shall pay Silicon concurrently herewith a
facility fee of $2,000. Said facility fee shall be in addition to all interest
and other sums payable to Silicon, and shall not be refundable.
9. General Provisions. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations
3
<PAGE>
and agreements of the parties with respect to the subject matter hereof and
supersede all prior discussions, representations, agreements and understandings
between the parties with respect to the subject hereof. Except as herein
expressly amended, all of the terms and provisions of the Loan Agreement, and
all other documents and agreements between Silicon and the Borrower shall
continue in full force and effect and the same are hereby ratified and
confirmed.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ Howard T. Phelan
------------------------------------
President
By /s/ [ILLEGIBLE] 9/29/92
------------------------------------
Secretary or Ass't Secretary
Silicon:
SILICON VALLEY BANK
By [ILLEGIBLE]
------------------------------------
Title Vice President
---------------------------------
Consent
The undersigned, subordinating creditors, acknowledge that their consent to
the foregoing Amendment is not required, but the undersigned nevertheless do
hereby consent to the foregoing Amendment and to the documents and agreements
referred to therein and to all future modifications and amendments thereto, and
to any and all other present and future documents and agreements between or
among the foregoing parties. Nothing herein shall in any way limit any of the
terms or provisions of the subordination agreements executed by the undersigned
in favor of Silicon, all of which are hereby ratified and affirmed and shall
continue in full force and effect.
Caithness/NCF Company, a California CNG Cylinder Co., a California
joint venture Partnership
By /s/ Howard T. Phelan By /s/ Howard T. Phelan
-------------------------------- ----------------------------------
Title: Chairman Title: President
Caithness Corporation
By [ILLEGIBLE]
--------------------------------
Title: Chair 9/29/92
<PAGE>
- --------------------------------------------------------------------------------
Silicon Valley Bank
Registration Rights Agreement
Issuer: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California
Date: September 29, 1992
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the above date by and
between SILICON VALLEY BANK ("Purchaser"), whose address is 3000 Lakeside Drive,
Santa Clara, California 95054-2895 and the above Company, whose address is set
forth above.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire form the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth the
registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registration Securities" means (i) the Shares (if Common
Stock) or all shares of Common Stock of the Company issuable or issued upon
conversion of the Shares and (ii) any Common Stock of company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the Purchaser or qualifying
transferees under subsection 1.8 hereof who hold Registrable Securities.
(d) The term "SEC" means the Securities and Exchange Commission.
1.2 Company Registration.
(a) Registration. If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the account
of any of its shareholders, other than a registration on Form S-1 or S-8
relating solely to employee stock option or purchase plans, or a registration on
Form S-4 relating solely to an SEC Rule 145 transaction, or a registration on
any other form (other than Form S-1, S-2, S-3 or S-18, or their successor forms)
or any successor to such forms, which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale or Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other state securities
laws); and
(ii) include in such registration (and compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 30 days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in subsection 1.2(b)
below.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to subsection
1.2(a)(i). In such event the right of any Holder to registration pursuant to
this subsection 1.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
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Silicon Valley Bank Registration Rights Agreements
- --------------------------------------------------------------------------------
underwriter or underwriters selected for such underwriting by the Company.
1.3 Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 1 including
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and expenses of any
special audits incidental to or required by such registration, shall be borne by
the Company except the Company shall not be required to pay underwriters' fees,
discounts or commissions relating to Registrable Securities. All expenses of any
registered offering not otherwise borne by the Company shall be borne pro rata
among the Holders participating in the offering and the Company.
1.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the company pursuant to this
Registration Rights Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.3, at its expense the Company will:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Security Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes 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 the light of the circumstances then
existing.
1.5 Indemnification.
(a) The Company will indemnify each Holder of Registrable Securities and
each of its officers, directors and partners, and each person controlling such
Holder, with respect to which such registration qualification or compliance has
been effected pursuant to this Rights Agreement, and each underwriter, if any,
and each person who controls any underwriter of the Registrable Securities held
by or issuable to such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934, as amended ("Exchange Act"), or any state securities law applicable
to the Company or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any such state law and relating to action or inaction
required of the company in connection with any such registration, qualification
of compliance, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, within a
reasonable amount of time after incurred for any reasonable legal and any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.5(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability, or action
if such settlement is effected without consent of the Company (which consent
shall not be unreasonably withheld); and provided further, that the Company will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or issuable to such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering
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<PAGE>
Silicon Valley Bank Registration Rights Agreements
- --------------------------------------------------------------------------------
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, partners, persons or underwriters for any reasonable
legal or any other expenses incurred in connection with investigating, defending
or settling any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld); and provided further, that the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall not in any event exceed the aggregate proceeds received by such Holder
from the sale of Registrable Securities held by such Holder in such
registration.
(c) Each party entitled to indemnification under this subsection 1.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying of its
obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.6 Information by Holder. Any Holder or Holders of Registrable Securities
included in any registration shall promptly furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 Rule 144 Reporting. With a view to making available to Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees at all times to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, after 90 days after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to furnish to such
Holder 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 so filed by the
Company as the Holder may reasonably request in complying with any rule or
regulation of the SEC allowing the Holder to sell any such securities without
registration.
1.8 Transfer of Registration Rights. Holders' rights to cause the Company
to register their securities and keep information available, granted to them by
the company under subsections 1.2 and 1.7 may be assigned to a transferee or
assignee of a Holder's Registrable Securities not sold to the public, provided,
that the Company is given written notice by such Holder at the time of or within
a reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned. The Company may prohibit the transfer of
any Holders' rights under this section 1.8 to any proposed transferee or
assignee who the Company reasonably believes is a competitor of the Company.
2. General.
2.1 Waivers and Amendments. With the written consent of the record or
beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities. Upon the effectuation of
each such waiver, consent, agreement of amendment or modification, the Company
shall promptly give written
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Silicon Valley Bank Registration Rights Agreements
- --------------------------------------------------------------------------------
notice thereof to the record holders of the Registrable Securities who have not
previously consented thereto in writing. This Agreement or any provision hereof
may be changed, waived, discharged or terminated only by a changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this subsection 2.1.
2.2 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California.
2.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
2.4 Entire Agreement. Except as set forth below, this Agreement and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 Notices. etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth in the heading
to this Agreement, or at such other address as such Holder shall have furnished
to the Company in writing, or (b) if to the Company, at the Company's address
set forth in the heading to this Agreement, or at such other address as the
Company shall have furnished to the Holder in writing.
2.6 Severability. In case any provision of this Agreement shall be invalid,
illegal, or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement or any provision of the other Agreements
shall not in any way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not be considered
in construing this Agreement.
2.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
Company:
NATURAL GAS VEHICLE SYSTEMS, INC.
By [ILLEGIBLE]
-----------
President
By [ILLEGIBLE]
-----------
Secretary or Ass't Secretary
2/29/92
Purchaser:
SILICON VALLEY BANK
By [ILLEGIBLE]
-----------
Title [ILLEGIBLE]
-4-
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
-------------------------
WARRANT TO PURCHASE STOCK
Warrant to Purchase Issue Date: September 29, 1992
16,000 Shares of the Expiration Date: September 29, 1997
Common Stock of Initial Exercise Price: $5 per share
Natural Gas Vehicle Systems, Inc.
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to
purchase the number of fully paid and non-assessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 Alternative Stock Appreciation Right. At Holder's option, the Company
shall pay Holder the fair market value of the Shares issuable upon conversion of
this Warrant pursuant to Section 1.2 in cash in lieu of such Shares.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in the
case of mutilation, or surrender and cancellation of this Warrant, the Company
at its expense shall execute and deliver, in lieu of this Warrant, a new warrant
of like tenor.
1.7 Repurchase on Sale. Merger or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant, "Acquisition" means
any sale, license, or other disposition of all or substantially all of the
assets or the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2. Assumption of Warrant. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3. Nonassumption. If upon the closing of any Acquisition the successor
entity does not assume the obligations of this Warrant and Holder has not
otherwise exercised this Warrant in full, then the unexercised portion of this
Warrant shall be deemed to have been automatically converted pursuant to Section
1.2 and thereafter Holder shall participate in the acquisition on the same terms
as other holders of the same class of securities of the Company.
<PAGE>
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[LOGO] Silicon Valley Bank
Antidilution Agreement
Issuer: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California
Date: September 29, 1992
THIS AGREEMENT is entered into as of the above date by and between SILICON
VALLEY BANK ("Purchaser"), whose address is 3000 Lakeside Drive, Santa Clara,
California 95054-2895, and the above Company, whose address is set forth above.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire to
set forth the adjustment in the number of Shares issuable upon exercise of the
Warrant as a result of a Diluting Issuance (as defined in Exhibit A to the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set forth
in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Definitions. As used in this Antidilution Agreement, the following terms
have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe for,
purchase, or otherwise acquire common stock or Convertible Securities.
(b) "Convertible Securities" means any evidences of indebtedness, shares of
stock, or other securities directly or indirectly convertible into or
exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a record date for
determining persons entitled to receive, any security (including Options),
whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock (including reissued
shares) issued (or deemed to be issued pursuant to Section 2) after the date of
the warrant Additional Common Shares does not include, however, any common stock
issued in a transaction described in Sections 2.1 and 2.2 of the Warrant; any
common stock Issued upon conversion of preferred stock outstanding on the date
of the Warrant; the Shares; or common stock issued as incentive or in a
nonfinancing transaction to employees, officers, directors, or consultants to
the Company.
(e) The shares of common stock ultimately Issuable upon exercise of an
Option (including the shares of common stock ultimately Issuable upon conversion
or exercise of a Convertible Security Issuable pursuant to an Option) are deemed
to be Issued when the Option is Issued. The shares of common stock ultimately
Issuable upon conversion or exercise of a Convertible Security (other than a
Convertible Security Issued pursuant to an Option) shall be deemed issued upon
Issuance of the Convertible Security.
2. Deemed Issuance of Additional Common Shares. The shares of common stock
ultimately Issuable upon exercise of an Option (including the shares of common
stock ultimately Issuable upon conversion or exercise of a Convertible Security
Issuable pursuant to an Option) are deemed to be Issued when the Option is
Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
3. Adjustment of Warrant Price for Diluting Issuances.
3.1 Weighted Average Adjustment. If the Company Issues Additional Common
Shares after the date of the Warrant and the consideration per Additional Common
Share (determined pursuant to Section 9) is less than the Warrant Price in
effect immediately before such Issue, the Warrant Price in effect immediately
before such Issue shall
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Silicon Valley Bank Antidilution Agreement
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be reduced, concurrently with such Issue, to a price (calculated to the nearest
hundredth of a cent) determined by multiplying the Warrant Price by a fraction:
(a) the numerator of which is the amount of common stock outstanding
immediately before such Issue plus the amount of common stock that the aggregate
consideration received by the Company for the Additional Common Shares would
purchase at the Warrant Price in effect immediately before such Issue, and
(b) the denominator of which is the amount of common stock outstanding
immediately before such Issue plus the number of such Additional Common Shares.
3.2 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price, the number of Shares issuable upon exercise of the Warrant shall be
increased to equal the quotient obtained by dividing (a) the product resulting
from multiplying (i) the number of Shares issuable upon exercise of the Warrant
and (ii) the Warrant Price, in each case as in effect immediately before such
adjustment, by (b) the adjusted Warrant Price.
3.3 Securities Deemed Outstanding. For the purpose of this Section 3, all
securities issuable upon exercise of any outstanding Convertible Securities or
Options, warrants, or other rights to acquire securities of the Company shall be
deemed to be outstanding.
4. No Adjustment for Issuances Following Deemed Issuances. No adjustment to
the Warrant Price shall be made upon the exercise of Options or conversion of
Convertible Securities.
5. Adjustment Following Changes in Terms of Options or Convertible
Securities. If the consideration payable to, or the amount of common stock
issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. Recomputation Upon Expiration of Options or Convertible Securities. The
Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
actually received therefor was the consideration actually received by the
Company (determined pursuant to Section 9), if any, upon the Issue of the
Options for the Convertible Securities,
7. Limit on Readjustments. No readjustment of the Warrant Price pursuant to
Sections 5 or 6 shall increase the Warrant Price more than the amount of any
decrease made in respect of the Issue of any Options or Convertible Securities.
8. 30 Day Options. In the case of any Options that expire by their terms
not more than 30 days after the date of Issue thereof, no adjustment of the
Warrant Price shall be made until the expiration or exercise of all such
Options.
9. Computation of Consideration The consideration received by the Company
for the Issue of any Additional Common Shares shall be computed as follows:
(a) Cash shall be valued at the amount of cash received by the Corporation,
excluding amounts paid or payable for accrued interest or accrued dividends.
(b) Property. Property other than cash shall be computed at the fair market
value thereof at the time of the Issue as determined in good faith by the Board
of Directors of the Company.
(c) Mixed Consideration. The consideration for Additional common Shares
Issued together with other property of the Company for consideration that covers
both shall be determined in good faith by the Board of Directors.
(d) Options and Convertible Securities. The consideration per Additional
Common Share for Options and Convertible Securities shall be determined by
dividing:
(i) the total amount, if any, received or receivable by the Company for the
Issue of the Options or Convertible Securities, plus the minimum 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 Company upon exercise of the Options or
conversion of the Convertible Securities, by
(ii) the maximum amount 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) ultimately Issuable upon the exercise of
such Options or the conversion of such Convertible Securities.
10. General
10.1 Governing Law. This Antidilution Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
10.2 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
10.3 Entire Agreement. Except as set forth below, this Antidilution
Agreement and the other documents delivered pursuant hereto constitute the full
and entire
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Silicon Valley Bank Antidilution Agreement
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understanding and agreement between the parties with regard to the subject
hereof and thereof.
10.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth in the heading
to this Agreement, or at such other address as Purchaser shall have furnished to
the Company in writing, or (b) if to the Company, at the Company's address set
forth in the heading to this Agreement, or at such other address as the Company
shall have furnished to the Purchaser in writing.
10.5 Severability. In case any provision of this Antidilution Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Antidilution Agreement shall
not in any way be affected or impaired thereby.
10.6 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
Company:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ [Illegible]
-------------------------------
President or Vice President
By /s/ [Illegible]
-------------------------------
Secretary or Ass't Secretary
Puchaser:
SILICON VALLEY BANK
By /s/ [Illegible]
-------------------------------
Title Vice President
----------------------------
38112-V1 2/10/92
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[LOGO] Silicon Valley Bank
Loan and Security Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: June 2, 1992
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is 3000 Lakeside Drive, Santa
Ana, California 95054-2895 and the borrower named above (the "Borrower"), whose
chief executive office is located at the above address ("Borrower's Address").
1. LOANS.
1.1 Loans. Silicon, in its discretion, will make loans to the Borrower (the
"Loans") in amounts determined by Silicon in its discretion up to the amount
(the "Credit Limit") shown on the Schedule to this Agreement (the "Schedule").
The Borrower is responsible for monitoring the total amount of Loans and other
Obligations outstanding from time to time, and Borrower shall not permit the
same, at any time, to exceed the Credit Limit if at any time the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, the
Borrower shall immediately pay the amount of the excess to Silicon, without
notice or demand.
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule hereto. Interest shall be payable
monthly, on the due date shown on the monthly billing from Silicon to the
Borrower.
1.3 Fees. The Borrower shall pay to Silicon a loan origination fee in the
amount shown on the Schedule hereto concurrently herewith. This fee is in
addition to all interest and other sums payable to Silicon and is not
refundable.
2. GRANT OF SECURITY INTEREST.
2.1 Obligations. The term "Obligations" as used in this Agreement means the
following: the obligation to pay all Loans and all interest thereon when due,
and to pay and perform when due all other present and future indebtedness,
liabilities, obligations, guarantees, covenants, agreements, warranties and
representations of the Borrower to Silicon, whether joint or several, monetary
or non-monetary, and whether created pursuant to this Agreement or any other
present or future agreement or otherwise. Silicon may, in its discretion,
require that Borrower pay monetary Obligations in cash to Silicon, or charge
them to Borrower's Loan account, in which event they will bear interest at the
same rate applicable to the Loans.
2.2 Collateral. As security for all Obligations, the Borrower hereby grants
Silicon a continuing security interest in all of the Borrower's interest in the
types of property described below, whether now owned or hereafter acquired, and
wherever located (collectively, the "Collateral"): (a) All accounts, contract
rights, chattel paper, letters of credit, documents, securities, money, and
instruments, and all other obligations now or in the future owing to the
Borrower; (b) All inventory, goods, merchandise, materials, raw materials, work
in process, finished goods, farm products, advertising, packaging and shipping
materials, supplies, and all other tangible personal property which is held for
sale or lease or furnished under contracts of service or consumed in the
Borrower's business, and all warehouse receipts and other documents; and (c) All
equipment, including without limitation all machinery, fixtures, trade fixtures,
vehicles, furnishings, furniture, materials, tools, machine tools, office
equipment, computers and peripheral devices, appliances, apparatus, parts, dies,
and jigs; (d) All general intangibles including, but not limited to, deposit
accounts, goodwill, names, trade names, trademarks and the goodwill of the
business symbolized thereby, trade secrets, drawings, blueprints, customer
lists, patents, patent applications, copyrights, security deposits, loan
commitment fees, federal, state and local tax refunds and claims, all rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, all rights to purchase or
sell real or
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Silicon Valley Bank Loan and Security Agreement
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personal property, all rights as a licensor or licensee of any kind, all
royalties, licenses, processes, telephone numbers, proprietary information,
purchase orders, and all insurance policies and claims (including without
limitation credit, liability, property and other insurance), and all other
rights, privileges and franchises of every kind; (e) All books and records,
whether stored on computers or otherwise maintained; and (f) All substitutions,
additions and accessions to any of the foregoing, and all products, proceeds and
insurance proceeds of the foregoing, and all guaranties of and security for the
foregoing; and all books and records relating to any of the foregoing. Silicon's
security interest in any present or future technology (including patents, trade
secrets, and other technology) shall be subject to any licenses or rights now or
in the future granted by the Borrower to any third parties in the ordinary
course of Borrower's business; provided that if the Borrower proposes to sell,
license or grant any other rights with respect to any technology in a
transaction that, in substance, conveys a major part of the economic value of
that technology, Silicon shall first be requested to release its security
interest in the same, and Silicon may withhold such release in its discretion.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents and warrants to Silicon as follows, and the
Borrower covenants that the following representations will continue to be true,
and that the Borrower will comply with all of the following covenants:
3.1 Corporate Existence and Authority. The Borrower, if a corporation, is
and will continue to be, duly authorized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The Borrower is and
will continue to be qualified and licensed to do business in all jurisdictions
in which any failure to do so would have a material adverse effect on the
Borrower. The execution, delivery and performance by the Borrower of this
Agreement, and all other documents contemplated hereby have been duly and
validly authorized, are enforceable against the Borrower in accordance with
their terms, and do not violate any law or any provision of, and are not grounds
for acceleration under, any agreement or instrument which is binding upon the
Borrower.
3.2 Name; Trade Names and Styles. The name of the Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule hereto are
all prior names of the Borrower and all of Borrower's present and prior trade
names. The Borrower shall give Silicon 15 days' prior written notice before
changing its name or doing business under any other name. The Borrower has
complied, and will in the future comply, with all laws relating to the conduct
of business under a fictitious business name.
3.3 Place of Business; Location of Collateral The address set forth in the
heading to this Agreement is the Borrower's chief executive office. In addition,
the Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule to this Agreement. The Borrower will give
Silicon at least 15 days prior written notice before changing its chief
executive office or locating the Collateral at any other location.
3.4 Title of Collateral; Permitted Liens. The Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of equipment which are leased by the Borrower. The Collateral now is and
will remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for the following ("Permitted Liens"):
(i) purchase money security interests in specific items of equipment; (ii)
leases of specific items of equipment; (iii) liens for taxes not yet payable;
(iv) additional security interests and liens consented to in writing by Silicon
in its sole discretion, which consent shall not be unreasonably withheld; and
(v) security interests being terminated substantially concurrently with this
Agreement. Silicon will have the right to require, as a condition to its consent
under subparagraph (iv) above, that the holder of the additional security
interest or lien sign an intercreditor agreement on Silicon's then standard
form, acknowledge that the security interest is subordinate to the security
interest in favor of Silicon, and agree to give written notice of any default to
Silicon at least 60 days prior to taking any action to enforce its subordinate
security interest, and that the Borrower agree that any uncured default in any
obligation secured by the subordinate security interest shall also constitute an
Event of Default under this Agreement. Silicon now has, and will continue to
have, a perfected and enforceable security interest in all of the Collateral,
subject only to the Permitted Liens, and the Borrower will at all times defend
Silicon and the Collateral against all claims of others. None of the Collateral
now is or will be affixed to any real property in such a manner, or with such
intent, as to become a fixture.
3.5 Maintenance of Collateral. The Borrower will maintain the Collateral in
good working condition, and the Borrower will not use the Collateral for any
unlawful purpose. The Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 Books and Records. The Borrower has maintained and will maintain at the
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 Financial Condition and Statements. All financial statements now or in
the future delivered to Silicon have been, and will be, prepared in conformity
with generally accepted accounting principles and now and in the future will
completely and accurately reflect the financial condition of the Borrower, at
the times and for the periods therein stated. Since the last date covered by any
such statement, there has been no material adverse change in the financial
condition or business of the Borrower. The Borrower is now and will continue to
be solvent. The Borrower will provide Silicon: (i) within 30 days after the end
of each month, a monthly financial statement prepared by the Borrower, and a
Compliance Certificate in such
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Silicon Valley Bank Loan and Security Agreement
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form as Silicon shall reasonably specify, signed by the Chief Financial Officer
of the Borrower, certifying that as of the end of such month the Borrower was in
full compliance with all of the terms and conditions of this Agreement, and
setting forth calculations showing compliance with the financial covenants set
forth on the Schedule and such other information as Silicon shall reasonably
request; and (ii) within 120 days following the end of the Borrower's fiscal
year, complete annual financial statements, certified by independent certified
public accountants acceptable to Silicon.
3.8 Tax Returns and Payments; Pension Contributions. The Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and the Borrower has timely paid, and
will timely pay, all foreign, federal, State and local taxes, assessments,
deposits and contributions now or in the future owed by the Borrower. The
Borrower may, however, defer payment of any contested taxes, provided that the
Borrower (i) in good faith contests the Borrower's obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Silicon in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. The Borrower is unaware of any claims or adjustments proposed for
any of the Borrower's prior tax years which could result in additional taxes
becoming due and payable by the Borrower. The Borrower has paid, and shall
continue to pay all amounts necessary to fund all present and future pension,
profit sharing and referred compensation plans in accordance with their terms,
and the Borrower has not and will not withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any such plan which could result in any liability of the
Borrower, including, without limitation, any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
3.9 Compliance with Law. The Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to the Borrower, including, but not limited to,
those relating to the Borrower's ownership of real or personal property, conduct
and licensing of the Borrower's business, and environmental matters.
3.10 Litigation. Except as disclosed in the schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of the
Borrower's knowledge) threatened by or against or affecting the Borrower in any
court or before any governmental agency (or any basis therefor known to the
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of the Borrower,
or in any material impairment in the ability of the Borrower to carry on its
business in substantially the same manner as it is now being conducted. The
Borrower will promptly inform Silicon in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
the Borrower involving amounts in excess of $250,000.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. ADDITIONAL DUTIES OF THE BORROWER.
4.1 Financial and Other Covenants. The Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule to this
Agreement.
4.2 Overadvance; Proceeds of Accounts. If for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, without
limiting Silicon's other remedies, and whether or not Silicon declares an Event
of Default, Borrower shall remit to Silicon all checks and other proceeds of
Borrower's accounts and general intangibles, in the same form as received by
Borrower, within one day after Borrower's receipt of the same, to be applied to
the Obligations in such order as Silicon shall determine in its discretion.
4.3 Insurance. The Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole and absolute discretion, except that,
provided no Event of Default has occurred, Silicon shall release to the Borrower
insurance proceeds with respect to equipment totaling less than $100,000, which
shall be utilized by the Borrower for the replacement of the equipment with
respect to which the insurance proceeds were paid. Silicon may require
reasonable assurance that the insurance proceeds so released will be so used. If
the Borrower fails to provide or pay for any insurance, Silicon may, but is not
obligated to, obtain the same at the Borrower's expense. The Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
4.4 Reports. The Borrower shall provide Silicon with such written reports
with respect to the Borrower (including without limitation budgets, sales
projections, operating plans and other financial documentation), as Silicon
shall from time to time reasonably specify.
4.5 Access to Collateral, Books and Records. At all reasonable times, and
upon one business day notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy the Borrower's
accounting books and records and Borrower's books and records relating to the
Collateral. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
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audits shill be at Silicon's expense, except that the Borrower shall reimburse
Silicon for its reasonable out of pocket costs for semi-annual accounts
receivable audits by third parties retained by Silicon, and Silicon may debit
Borrower's deposit accounts with Silicon for the cost of such semi-annual
accounts receivable audits (in which event Silicon shall send notification
thereof to the Borrower). Notwithstanding the foregoing, after the occurrence of
an Event of Default all audits shall be at the Borrower's expense.
4.6 Negative Covenants. Except as may be permitted in the Schedule hereto,
the Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation, except that the
Borrower may merge or consolidate with another corporation if the Borrower is
the surviving corporation in the merger and the aggregate value of the assets
acquired in the merger do not exceed 25% of Borrower's Tangible Net Worth (as
defined in the Schedule) as of the end of the month prior to the effective date
of the merger, and the assets of the corporation acquired in the merger are not
subject to any liens or encumbrances, except Permitted Liens; (ii) acquire any
assets outside the ordinary course of business for an aggregate purchase price
exceeding 25% of Borrower's Tangible Net Worth (as defined in the Schedule) as
of the end of the month prior to the effective date of the acquisition; (iii)
enter into any other transaction outside the ordinary course of business (except
as permitted by the other provisions of this Section); (iv) sell or transfer any
Collateral, except for the sale of finished inventory in the ordinary course of
the Borrower's business, and except for the sale of obsolete or unneeded
equipment in the ordinary course of business; (v) make any loans of any money or
any other assets; (vi) incur any debts, outside the ordinary course of business,
which would have a material, adverse effect on the Borrower or on the prospect
of repayment of the Obligations; (vii) guarantee or otherwise become liable with
respect to the obligations of another party or entity; (viii) pay or declare any
dividends on the Borrower's stock (except for dividends payable solely in stock
of the Borrower); (ix) redeem, retire, purchase or otherwise acquire, directly
or indirectly, any of the Borrower's stock; (x) make any change in the
Borrower's capital structure which has a material adverse effect on the Borrower
or on the prospect of repayment of the Obligations; or (xi) dissolve or elect to
dissolve. Transactions permitted by the foregoing provisions of this Section are
only permitted if no Event of Default and no event which (with notice or passage
of time or both) would constitute an Event of Default would occur as a result of
such transaction.
4.7 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to the Borrower, the Borrower shall, without expense to Silicon, make
available the Borrower and its officers, employees and agents and the Borrower's
books and records to the extent that Silicon may deem them reasonably necessary
in order to prosecute or defend any such suit or proceeding.
4.8 Verification. Silicon may, from time to time, following prior
notification to Borrower, verify directly with the respective account debtors
the validity, amount and other matters relating to the Borrower's accounts, by
means of mail, telephone or otherwise, either in the name of the Borrower or
Silicon or such other name as Silicon may reasonably choose, provided that no
prior notification to Borrower shall be required following an Event of Default.
4.9 Execute Additional Documentation. The Borrower agrees, at its expense,
on request by Silicon, to execute all documents in form satisfactory to Silicon,
as Silicon, may deem reasonably necessary or useful in order to perfect and
maintain Silicon's perfected security interest in the Collateral, and in order
to fully consummate all of the transactions contemplated by this Agreement.
5.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule hereto (the "Maturity Date").
5.2 Early Termination. This Agreement may be terminated, without penalty,
prior to the Maturity Date as follows: (i) by the Borrower, effective three
business days after written notice of termination is given to Silicon; or (ii)
by Silicon at any time after the occurrence of an Event of Default, without
notice, effective immediately.
5.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, the Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable*.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding letters of
credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such letters of credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said letters of credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations ** have been paid and performed in full; provided
that, without limiting the fact that loans are discretionary on the part of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of Silicon, nor shall any such termination relieve the Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations, Silicon
shall promptly deliver to the Borrower termination statements, requests for
reconveyances and such other documents as
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Silicon Valley Bank Loan and Security Agreement
- --------------------------------------------------------------------------------
may be required to fully terminate any of Silicon's security interests.
* except that the Term Loan set forth in the Schedule shall be payable as
set forth in the Schedule.
** including without limitation the Term Loan
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and the Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by the Borrower or
any of the Borrower's officers, employees or agents, now or in the future, shall
be untrue or misleading in any material respect; or (b) the Borrower shall fail
to pay when due any Loan or any interest thereon or any other monetary
Obligation; or (c) the total Loans and other Obligations outstanding at any time
exceed the Credit Limit; or (d) the Borrower shall fail to comply with any of
the financial covenants set forth in the Schedule or shall fail to perform any
other non-monetary Obligation which by its nature cannot be cured; or (e) the
Borrower shall fail to pay or perform any other non-monetary Obligation, which
failure is not cured within 5 business days after the date due; or (f) Any levy,
assessment, attachment, seizure, lien or encumbrance is made on all or any part
of the Collateral which is not cured within 10 days after the occurrence of the
same; or (g) Dissolution, termination of existence, insolvency or business
failure of the Borrower; or appointment of a receiver, trustee or custodian, for
all or any part of the property of, assignment for the benefit of creditors by,
or the commencement of any proceeding by the Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (h) the commencement of any proceeding against the Borrower or any guarantor
of any of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; (i) revocation or
termination of, or limitation of liability upon, any guaranty of the
Obligations; or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or (j) the Borrower makes
any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations or if any person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (k) the Borrower shall generally not pay its debts as they become
due; or the Borrower shall conceal, remove or transfer any part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law. Silicon may cease making any Loans
hereunder during any of the above cure periods, and thereafter if an Event of
Default has occurred.
6.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by the Borrower), may do any one or
more of the following: (a) Cease making Loans or otherwise extending credit to
the Borrower under this Agreement or any other document or agreement; (b)
Accelerate and declare all or any part of the Obligations to be immediately due,
payable, and performable, notwithstanding any deferred or installment payments
allowed by any instrument evidencing or relating to any Obligation; (c) Take
possession of any or all of the Collateral wherever it may be found, and for
that purpose the Borrower hereby authorizes Silicon without judicial process to
enter onto any of the Borrower's premises without interference to search for,
take possession of, keep, store, or remove any of the Collateral, and remain on
the premises or cause a custodian to remain on the premises in exclusive control
thereof without charge for so long as Silicon deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, however, that should Silicon seek to take possession
of any or all of the Collateral by Court process, the Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that Silicon
retain possession of and not dispose of any such Collateral until after trial or
final judgment; (d) Require the Borrower to assemble any or all of the
Collateral and make it available to Silicon at places designated by Silicon
which are reasonably convenient to Silicon and the Borrower, and to remove the
Collateral to such locations as Silicon may deem advisable; (e) Require Borrower
to deliver to Silicon, in kind, all checks and other payments received with
respect to all accounts and general intangibles, together with any necessary
endorsements, within one day after the date received by the Borrower; (f)
Complete the processing, manufacturing or repair of any Collateral prior to a
disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use the Borrower's premises, vehicles, hoists,
lifts, cranes, equipment and all other property without charge; (g) Sell, lease
or otherwise dispose of any of the Collateral in its condition at the time
Silicon obtains possession of it or after further manufacturing, processing or
repair, at any one or more public and/or private sales, in lots or in bulk, for
cash, exchange other property, or on credit, and to adjourn any such sale from
time to time without notice other than oral announcement at the time scheduled
for sale. Silicon shall have the right to conduct such disposition on the
Borrower's premises without charge, for such time or times as Silicon deems
reasonable, or on Silicon's premises, or elsewhere and the Collateral need not
be located at the place of disposition. Silicon may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral
-5-
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Silicon Valley Bank Loan and Security Agreement
- --------------------------------------------------------------------------------
shall not relieve the Borrower of any liability the Borrower may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale; (h) Demand payment of and collect any accounts and general
intangibles comprising Collateral and, in connection therewith, the Borrower
irrevocably authorizes Silicon to endorse or sign the Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to the Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Silicon's
sole discretion, to grant extensions of time to pay, compromise claims and
settle accounts and the like for less than face value; (i) Offset against any
sums in any of Borrower's general, special or other deposit accounts with
Silicon; and (j) Demand and receive possession of any of the Borrower's federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by Silicon with respect to
the foregoing shall be added to and become part of the Obligations, shall be due
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. Without limiting any of Silicon's rights
and remedies, from and after the occurrence of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
four percent per annum.
6.3 Standards for Determining Commercial Reasonableness. The Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to the
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in
cash or by cashier's check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Silicon may (but is not obligated to) direct
any prospective purchaser to ascertain directly from the Borrower any and all
information concerning the same. Silicon may employ other methods of noticing
and selling the Collateral, in its discretion, if they are commercially
reasonable.
6.4 Power of Attorney. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, the Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to the
Borrower, and at the Borrower's expense, to do any or all of the following, in
the Borrower's name or otherwise: (a) Execute on behalf of the Borrower any
documents that Silicon may, in its sole and absolute discretion, deem advisable
in order to perfect and maintain Silicon's security interest in the Collateral,
or in order to exercise a right of the Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of the Borrower any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or to lease (as lessor or lessee) any real or personal
property which is part of Silicon's Collateral or in which Silicon has an
interest; (c) Execute on behalf of the Borrower, any invoices relating to any
account, any draft against any account debtor and any notice to any account
debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
the Borrower upon any instruments, or documents, evidence of payment or
Collateral that may come into Silicon's possession; (e) Endorse all checks and
other forms of remittances received by Silicon; (f) Pay, contest or settle any
lien, charge, encumbrance, security interest and adverse claim in or to any of
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle accounts and general intangibles for less than face value and
execute all releases and other documents in connection therewith; (h) Pay any
sums required on account of the Borrower's taxes or to secure the release of any
liens therefor. or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, the Borrower to give Silicon the same
rights of access and other rights with respect thereto as Silicon has under this
Agreement; and (k) Take any action or pay any sum required of the Borrower
pursuant to this Agreement and any other present or future agreements. Silicon
shall exercise the foregoing powers in a commercially reasonable manner. Any and
all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon with respect to
the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall Silicon's
rights under the foregoing power of attorney or any of Silicon's other rights
under this Agreement be deemed to indicate that Silicon is in control of the
business, management or properties of the Borrower.
6.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Silicon shall determine in
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Silicon Valley Bank Loan and Security Agreement
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its sole discretion. Any surplus shall be paid to the Borrower or other persons
legally entitled thereto; the Borrower shall remain liable to Silicon for any
deficiency. If, Silicon, in its sole discretion, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
sale or other disposition of Collateral, Silicon shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of purchase price or deferring the reduction
of the Obligations until the actual receipt by Silicon of the cash therefor.
6.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Silicon shall have all the other rights and remedies accorded
a secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and the Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
duly paid and performed.
7. GENERAL PROVISIONS.
7.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by regular first-class mail, or
certified mail return receipt requested, addressed to Silicon or the Borrower at
the addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered to the Borrower or to Silicon, or at the expiration of two business
days following the deposit thereof in the United States mail, with postage
prepaid.
7.2 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
7.3 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between the Borrower and Silicon and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement. There
are no oral understandings, representations or agreements between the parties
which are not set forth in this Agreement or in other written agreements signed
by the parties in connection herewith.
7.4 Waivers. The failure of Silicon at any time or times to require the
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between the Borrower and Silicon shall not
waive or diminish any right of Silicon later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto. None of the provisions of
this Agreement or any other agreement now or in the future executed by the
Borrower and delivered to Silicon shall be deemed to have been waived by any act
or knowledge of Silicon or its agents or employees, but only by a specific
written waiver signed by an officer of Silicon and delivered to the Borrower.
The Borrower waives demand, protest, notice of protest and notice of default or
dishonor, notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, account, general
intangible, document or guaranty at any time held by Silicon on which the
Borrower is or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.
7.5 No Liability for Ordinary Negligence. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by the
Borrower or any other party through the ordinary negligence of Silicon, or any
of its directors, officers, employees, agents, attorneys or any other person
affiliated with or representing Silicon.
7.6 Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by the Borrower and a duly authorized
officer of Silicon.
7.7 Time of Essence. Time is of the essence in the performance by the
Borrower of each and every obligation under this Agreement.
7.8 Attorneys Fees and Costs. The Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, account debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of the Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise
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Silicon Valley Bank Loan and Security Agreement
- --------------------------------------------------------------------------------
represent Silicon in any litigation relating to the Borrower. In satisfy
Borrower's obligation hereunder to reimburse Silicon for attorneys fees.
Borrower may for convenience issue checks directly to Silicon's attorneys. Levy
& Norminton but Borrower acknowledges and agrees that Levy & Norminton is
representing only Silicon and not Borrower in connection with this Agreement. If
either Silicon or the Borrower files any lawsuit against the other predicated on
a breach of this Agreement, the prevailing party in such action shall be
entitled to recover its reasonable costs and attorneys' fees, including (but not
limited to) reasonable attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Silicon may be entitled pursuant to this
Paragraph shall immediately become part of the Borrower's Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations.
7.9 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of the parties hereto; provided, however, that
the Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release the
Borrower from its liability for the Obligations.
7.10 Joint and Several Liability. If the Borrower consists of more than one
person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
7.11 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. The Borrower acknowledges that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any manner to construe, limit, define or interpret
any term or provision of this Agreement. This Agreement has been fully reviewed
and negotiated between the parties and no uncertainty or ambiguity in any term
or provision of this Agreement shall be construed strictly against Silicon or
the Borrower under any rule of construction or otherwise.
7.12 Mutual Waiver of Jury Trial. The Borrower and Silicon each hereby
waive the right to trial by Jury in any action or proceeding based upon, arising
out of, or in any way relating to, this Agreement or any other present or future
instrument or agreement between Silicon and the Borrower, or any conduct, acts
or omissions of Silicon or the Borrower or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with Silicon or the
Borrower, in all of the foregoing cases, whether sounding in contract or tort or
otherwise.
7.13 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and the
Borrower shall be governed by, and in accordance with, the laws of the State of
California. Any undefined term used in this Agreement that is defined in the
California Uniform Commercial Code shall have the meaning assigned to that term
in the California Uniform Commercial Code. As a material part of the
consideration to Silicon to enter into this Agreement, the Borrower (i) agrees
that all actions and proceedings relating directly or indirectly hereto shall,
at Silicon's option, be litigated in courts located within California, and that
the exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all right the Borrower may have to object to
the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ [Illegible]
-------------------------------
President or Vice President
By /s/ [Illegible]
-------------------------------
Secretary or Ass't Secretary
Silicon:
By /s/ [Illegible]
-------------------------------
Title VP
----------------------------
25,318-1
-8-
<PAGE>
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[LOGO] Silicon Valley Bank
Schedule to
Loan and Security Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: June 2, 1992
Credit Limit (Section 1.1): An amount equal to the sum of (1) and
(2) below:
(1) Term Loan. A term loan (the "Term
Loan") in an amount up to 70% of the
cost (excluding tax and installation) of
a new Automatic Spinforming Machine for
High Pressure Cylinders, Model No.
"Autospin" AST 13.80 CNC, to be
purchased by Borrower on or before
August 29, 1992 (such purchase to be
evidenced by documentation reasonably
acceptable to Silicon), but in no event
shall the Term Loan be more than
$600,000, PLUS
(2) Accounts Loans. An amount not to
exceed the lesser of: (i) $1,000,000; or
(ii) 70% of the Net Amount of Borrower's
accounts, which Silicon in its
discretion deems eligible for borrowing;
PROVIDED THAT, in no event may the total
amount of the outstanding Accounts Loans
and Term Loan exceed the total sum of
$800,000 until Borrower satisfies all of
the Term Loan Extension Conditions set
forth in Section 5.1 below.
"Net Amount" of an account means the
gross amount of the account, minus all
applicable sales, use, excise and other
similar taxes and minus all discounts,
credits and allowances of any nature
granted or claimed.
As used in this Agreement, "Loans"
include loans made pursuant to
subsection (1) and (2) above. Loans
shall be made first under the Accounts
Loans facility until all Loan &
available thereunder have been made, and
then under the Term Loan facility.
Interest on all Loans shall be payable
monthly as provided in Section 1.2 of
this Loan Agreement and Section 1.2 of
this Schedule.
Without limiting the fact that the
determination of which accounts are
eligible for borrowing is a matter of
Silicon's discretion, the following will
not be deemed eligible for borrowing:
accounts outstanding for more than 90
days from the invoice date, accounts
subject to any contingencies, accounts
owing from an account debtor outside the
United States (unless pre-approved by
Silicon in its discretion, or backed by
a letter of credit
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Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
satisfactory to Silicon, or FCIA insured
satisfactory to Silicon). accounts owing
from one account debtor to the extent
they exceed 25% of the total eligible
accounts outstanding, accounts owing
from an affiliate of Borrower, and
accounts owing from an account debtor to
whom Borrower is or may be liable for
goods purchased from such account debtor
or otherwise. In addition, if more than
50% of the accounts owing from an
account debtor are outstanding more than
90 days from the invoice date or are
otherwise not eligible accounts, then
all accounts owing from that account
debtor will be deemed ineligible for
borrowing.
Letter of Credit Sub-Limit: Silicon, in its discretion, will from
time to time during the term of this
Agreement issue letters of credit for
the account of the Borrower ("Letters of
Credit"), in an aggregate amount at any
one time outstanding not to exceed
$250,000, upon the request of the
Borrower and upon execution and delivery
by the Borrower of Applications for
Letters of Credit and such other
documentation as Silicon shall specify
(the "Letter of Credit Documentation").
Fees for the Letters of Credit shall be
as provided in the Letter of Credit
Documentation.
The Credit Limit set forth in
Subparagraph (2) of the Section entitled
"Credit Limit" above shall be deemed to
be utilized in an amount equal to 100%
of the amount of Letters of Credit from
time to time outstanding.
Interest Rate (Section 1.2): Accounts Loans: A rate equal to the
"Prime Rate" in effect from time to
time, plus 2% per annum, provided that
the interest rate in effect in each
month shall not be less than 8.5% per
annum.
Term Loan: 12% per annum, provided if
the Borrower exercises the option
provided in Section 5.1 below to extend
the term of the Term Loan, the Term Loan
shall bear interest, commencing August
31, 1992, at a rate equal to the "Prime
Rate" in effect from time to time, plus
3% per annum, provided that the interest
rate in effect in each month shall not
be less than 9.5% per annum.
Interest shall be calculated on the
basis of a 360-day year for the actual
number of days elapsed. "Prime Rate"
means the rate announced from time to
time by Silicon as its "prime rate;" it
is a base rate upon which other rates
charged by Silicon are based, and it is
not necessary the best rate available at
Silicon. The interest rate applicable to
the Obligations shall change on each
date there is a change in the Prime
Rate.
Loan Origination Fee (Section 1.3): $16,000. (My Commitment Fee previously
paid by the Borrower in connection with
this loan shall be credited against this
Fee.)
Maturity Date (Section 5.1): June 2, 1993. After said Maturity Date
no further Accounts Loans will be made,
and on said Maturity Date all
Obligations (other than the Term Loan)
shall be due and payable.
The Term Loan shall be due and payable
on or before August 28, 1992. Borrower
shall have the option (exercisable by
written notice to Silicon on or before
August 28, 1992) to pay the principal
amount of the Term Loan in 48 equal
monthly installments of principal,
commencing on August 31, 1992 and
continuing on the last day of each
succeeding month until paid in full;
provided the following
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<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
conditions (the "Term Loan Extension
Conditions") are first satisfied: (i) on
or before August 28, 1992 Borrower
raises net proceeds from the issuance of
new equity securities of not less than
$12,000,000, and Silicon's review of the
results of such issuance of securities
and Borrower's financial condition is
satisfactory to Silicon in its
discretion; and (ii) Borrower and
Silicon agree in writing on debt
coverage and liquidity ratio
requirements which are satisfactory to
them; and (iii) no Event of Default has
occurred and no event has occurred and
is continuing which, with notice or
passage of time or both would constitute
an Event of Default.
Prior Names of Borrower
(Section 3.2): None
Trade Names of Borrower
(Section 3.2): NGV Systems Inc., CNG Cylinder Company,
NGV Systems Company
Other Locations and Addresses
(Section 3.3): 2040 Cherry Industrial Circle, Long
Beach, California 90805 6111 Highway 290
East, Austin, Texas 78723
Material Adverse Litigation
(Section 3.10): None
Negative Covenants-Exceptions
(Section 4.6): Without Silicon's prior written consent,
Borrower may do the following, provided
that, after giving effect thereto, no
Event of Default has occurred and no
event has occurred which, with notice or
passage of time or both, would
constitute an Event of Default, and
provided that the following are done in
compliance with all applicable laws,
rules and regulations: (i) repurchase
shares of Borrower's stock pursuant to
any employee stock purchase or benefit
plan, provided that the total amount
paid by Borrower for such stock does not
exceed $100,000 in any fiscal year; (ii)
guarantee obligations of, and make loans
to, Borrower's wholly-owned subsidiary,
NOV Development Co., Inc.
("Subsidiary"); (iii) grant a prior
security interest to Autospin, Inc. in a
Three-Roller Flow Forming Machine Model
"Leifeld" ST 65-132 CNC, Serial No.
15.1338.0 3/1 and related accessories,
provided Autospin enters into a
stand-still agreement with Silicon on
terms acceptable to Silicon.
Financial Covenants
(Section 4.1): Borrower shall comply with all of the
following covenants. Compliance shall be
determined as of the end of each month,
except as otherwise specifically
provided below:
Working Capital: Borrower shall maintain an excess of
current assets over current liabilities
of not less than $700,000.
Quick Asset Ratio: Borrower shall maintain a ratio of
"Quick Assets" to current liabilities of
not less than 1.0 to 1.
Tangible Net Worth: Borrower shall maintain a tangible net
worth of not less than $2,000,000.
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<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
Debt to Tangible
Net Worth Ratio: Borrower shall maintain a ratio of total
liabilities to tangible net worth of not
more than 0.50 to 1.
Profitability Borrower shall not incur a loss (after
taxes) for the fiscal quarter ending
June 30, 1992 in excess of $750,000, nor
shall Borrower incur a loss (after
taxes) for the fiscal quarter ending
September 30, 1992 in excess of
$250,000, nor shall Borrower incur a
loss (after taxes) for any subsequent
fiscal quarter.
Definitions: "Current assets, and "current
liabilities" shall have the meanings
ascribed to them in accordance with
generally accepted accounting
principles.
"Tangible net worth" means the excess of
total assets over total liabilities,
determined in accordance with generally
accepted accounting principles,
excluding however all assets which would
be classified as intangible assets under
generally accepted accounting
principles, including without limitation
goodwill, licenses, patents, trademarks,
trade names, copyrights, and franchises.
"Quick Assets" means cash on hand or on
deposit in banks, readily marketable
securities issued by the United States,
readily marketable commercial paper
rated "A-1" by Standard & Poor's
Corporation (or a similar rating by a
similar rating organization),
certificates of deposit and banker's
acceptances, and accounts receivable
(net of allowance for doubtful
accounts).
Subordinated Debt: "Liabilities" for purposes of the
foregoing covenants do not include
indebtedness which is subordinated to
the indebtedness to Silicon under a
subordination agreement in form
specified by Silicon or by language in
the instrument evidencing the
indebtedness which is acceptable to
Silicon.
Other Covenants
(Section 4.1): Borrower shall at all times comply with
all of the following additional
covenants:
1. Banking Relationship. Borrower shall
at all times maintain its primary
banking relationship with Silicon.
2. Monthly Borrowing Base Certificate
and Listing. Within 20 days after the
end of each month, Borrower shall
provide Silicon with a Borrowing Base
certificate in such form as Silicon
shall specify, and an aged listing of
Borrower's accounts receivable.
3. Warrants. The Borrower shall provide
Silicon with five-year warrants to
purchase 32,000 shares of Preferred
stock of the Borrower, at $5 per share
(the "Silicon Price Per Share"), on the
terms and conditions in the Warrant to
Purchase Stock and related documents
being executed concurrently with this
agreement in the event that, on or
before August 28, 1992, Borrower issues
additional shares of its Preferred Stock
or its Common Stock, in a transaction in
which at least $500,000 is raised, at a
price per share higher than $5 per share
(the lowest of such prices being
referred to herein as the "New Price Per
Share"), Borrower shall give prompt
written notice thereof to Silicon, and
the Warrant and all documents relating
thereto shall be automatically deemed
modified so that (i) the number of
shares subject to the Warrant is equal
to $160,000 divided by the New Price Per
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<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
Share, and (ii) the Silicon Price Per
Share is equal to the New Price Per
Share. Silicon and Borrower shall
execute and deliver appropriate
documentation to further evidence said
modifications, but said modifications
shall be fully effective notwithstanding
any failure to execute such
documentation.
4. Indebtedness. Without limiting any of
the foregoing terms or provisions of
this Agreement, Borrower shall not in
the future incur indebtedness for
borrowed money, except for (i)
indebtedness to Silicon, and (ii)
indebtedness incurred in the future for
the purchase price of or lease of
equipment in an aggregate amount not
exceeding $1,000,000 at any time
outstanding.
5. Initial audit The first, semi-annual
audit referred to in Section 4.5 of this
Agreement shall be completed within 120
days after the date hereof and the
results of the same shall be
satisfactory to Silicon.
6. Stock Pledge. Borrower shall
concurrently execute and deliver a
Pledge Agreement to Silicon, on
Silicon's standard form, granting
Silicon a security interest in 100% of
the outstanding stock of the Subsidiary
to secure all of the Obligations, and
Borrower shall cause said Pledge
Agreement to continue in full force and
effect at all times during the term of
this Agreement with respect to 100% of
the outstanding stock of the Subsidiary
now outstanding or hereafter issued and
100% of all options and warrants to
acquire stock of the Subsidiary
hereafter issued. Borrower represents
and warrants that there are no
outstanding options or warrants to
acquire stock of the Subsidiary.
7. Subordination. Borrower shall
concurrently cause Caithness/NCF and CNG
Cylinder Corp. to execute and deliver
Subordination Agreements in such form as
Silicon shall specify, subordinating to
the Obligations the indebtedness of the
Borrower to such persons, in the amounts
of not less than $3,764,200 and
$501,811, respectively, which Borrower
represents and warrants represent the
present unpaid balances of the
indebtedness of the Borrower to such
persons, and Borrower shall cause said
Subordination Agreements to continue in
full force and effect at all times
during the term of this Agreement.
8. Predecessor Partnership. Borrower
represents and warrants to Silicon that
all of the assets and liabilities of CNG
Cylinder Company of North America, L.P.
have been duly transferred to the
Borrower, and that such transfer was in
compliance with all applicable laws,
rules and regulations.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ [Illegible]
---------------------------------
President and Vice President
By /s/ [Illegible]
---------------------------------
Secretary or Ass't Secretary
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<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
Silicon:
SILICON VALLEY BANK
By /s/ [Illegible]
---------------------------------
Title VP
------------------------------
-6-
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] Silicon Valley
Bank Pledge Agreement
Pledgor: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California 90805
Date: June 2, 1992
THIS PLEDGE AGREEMENT ("Pledge Agreement"), dated the above date, is
entered into at between SILICON VALLEY BANK ("Silicon"), whose address is 3000
Lakeside Drive, Santa Clara, California 9505-2895, and the pledgor named above
("Pledgor"), whose address is set forth above.
1. Pledge of Stock. Pledgor shall concurrently deliver to Silicon the stock
certificates and other securities listed on Exhibit A hereto, together with duly
executed instruments of assignment thereof to Silicon (which, together with all
replacements and substitutions therefor are hereinafter referred to as the
"Securities"). Pledgor hereby pledges to Silicon and grants Silicon a security
interest in the Securities, and all rights and remedies relating to, or arising
out of any and all of the foregoing, and all proceeds thereof (collectively,
the "Collateral") to secure the payment and performance of all debts, duties,
obligations, liabilities, representations, warranties and guaranties of Pledgor
to Silicon, heretofore, now, or hereafter made, incurred or crested, of every
kind and nature (collectively, the "Obligations"), including, but not limited
to, those arising under the Loan and Security Agreement of even date (the "Loan
Agreement"). Any and all stock dividends, rights, warrants, options, puts,
calls, conversion rights and other securities and any and all property and money
distributed or delivered with respect to the Securities or issued upon the
exercise of any puts, calls, conversion rights, options, warrants or other
rights included in or pertaining to the Securities shall be included in the term
"Securities" as used herein and shall be subject to this Pledge Agreement, and
Pledgor shall deliver the same to Silicon immediately upon receipt thereof
together with any necessary instruments of transfer; provided, however, that
until an Event of Default (as hereinafter defined) shall occur, Pledgor may
retain any dividends paid in cash or its equivalent, with respect to any stock
included in the Securities and any interest paid with respect to any bonds,
debentures or other evidences of indebtedness included in the Securities.
Pledgor hereby acknowledges that the acceptance of the pledge of the Securities
by Silicon shall not constitute a commitment of any kind by Silicon to permit
Pledgor to incur Obligations.
2. Voting and Other Rights. Pledgor shall have the right to exercise all
voting rights with respect to the Securities, provided no Event of Default (as
hereinafter defined) has occurred. Upon the occurrence of any Event of Default,
Silicon shall have the right (but not any obligation) to exercise all voting
rights with respect to the Securities. Provided no Event of Default has
occurred, Pledgor shall have the right to exercise all puts, calls, straddles,
conversion rights, options, warrants, and other rights and remedies with respect
to the Securities, provided Pledgor obtains the prior written consent of Silicon
thereto. Silicon shall have no responsibility or liability whatsoever for the
exercise of, or failure to exercise, any puts, calls, straddles, conversion
rights, options, warrants, rights to vote or consent, or other rights with
respect to any of the Securities. * an Event of Default has occurred, Silicon
shall have the right from time to time to transfer all or any part of the
Securities to Silicon's own name or the name of its nominee. *If
3. Representations and Warranties. Pledgor hereby represents and warrants
to Silicon that Pledgor now has, and throughout the term of this Agreement will
at all times have, good title to the Securities and the other Collateral, free
and clear of any and all security interests, liens and claims of any kind
whatsoever.*
*Pledgor further represents and warrants that the Collateral represents
100% of the outstanding stock of the issuer thereof, and Borrower shall cause
the Collateral at all times: to include 100% of the outstanding stock of said
issuer now outstanding or hereafter issued and 100% of all options and warrants
to acquire stock of said issuer hereafter issued. Borrower represents and
warrants that there are no outstanding options or warrants to acquire stock of
said Issuer.
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<PAGE>
- --------------------------------------------------------------------------------
4. Events of Default. If any one or more of the following events shall
occur, any such event shall constitute an Event of Default and Pledgor shall
provide Silicon with immediate notice thereof, (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Pledgor or any
of Pledgors officers, employees or agents now or hereafter is incorrect, false,
untrue or misleading in any material respect; or (b) Pledgor shall fail to
promptly pay or perform when due part or all of any of the Obligations, or any
default or event of default shall occur under the Loan Agreement or any other
present or future instrument, document or agreement between Silicon and Pledgor.
5. Remedies. If an Event of Default shall occur, Pledgor shall give
immediate written notice thereof to Silicon. Upon the occurrence of an Event of
Default, and at any time thereafter, Silicon shall have the right, without
notice to or demand upon Pledgor, to exercise any one or more of the following
remedies: (a) accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any agreement or instrument evidencing or
relating to any of the same; (b) sell or otherwise dispose of the Securities,
and other Collateral, at a public or private sale, for cash, or other property,
or on credit, with the authority to adjourn or postpone any such sale from time
to time without notice other than oral announcement at the time scheduled for
sale. Silicon may directly or through any affiliate purchase the Securities, and
other Collateral, at any such public disposition, and if permissible under
applicable law, at any private disposition. Pledgor and Silicon hereby agree
that it shall conclusively be deemed commercially reasonable for Silicon, in
connection with any sale or disposition of the Securities, to impose
restrictions and conditions as to the investment intent of a purchaser or
bidder, the ability of a purchaser or bidder to bear the economic risk of an
investment in the Securities, the knowledge and experience in business and
financial matters of a purchaser or bidder, the access of a purchaser or bidder
to information concerning the issuer of the Securities, as well as legend
conditions and stop transfer instructions restricting subsequent transfer of the
Securities, and any other restrictions or conditions which Silicon believes to
be necessary or advisable in order to comply with any state or federal
securities or other laws. Pledgor acknowledges that the foregoing restrictions
may result in fewer proceeds being received upon such sale then would otherwise
be the case. Pledgor hereby agrees to provide to Silicon any and all information
required by Silicon in connection with any sales of Securities by Silicon
hereunder. If after the occurrence of any Event of Default, Rule 144 promulgated
by the Securities and Exchange Commission (or any other similar rule) is
available for use by Silicon in connection with the sales of any Securities
hereunder, Pledgor agrees not to utilize Rule 144 in the sale of any securities
held by Pledgor of the same class as the Securities, without the prior written
consent of Silicon. Any and all attorneys' fees, expenses, costs, liabilities
and obligations incurred by Silicon in connection with the foregoing shall be
added to and become a part of the Obligations and shall be due from Pledgor to
Silicon upon demand.
6. Remedies, Cumulative; No Waiver. The failure of Silicon to enforce any
of the provisions of this Agreement at any time or for any period of time shall
not be construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to Silicon by law.
7. Term. This Agreement and Silicon's rights hereunder shall continue in
full force and effect until all of the Obligations have been fully paid,
performed and discharged and the Loan Agreement and all other agreements between
Borrower and Silicon have terminated. Upon termination, Silicon shall return the
Collateral to Pledgor, with any necessary instruments of transfer.
8. General Provisions. This Agreement and the documents referred to herein
are the entire and only agreements between Pledgor and Silicon with respect 10
the subject matter hereof, and all representations, warranties, agreements, or
undertakings heretofore or contemporaneously made, with respect to the subject
matter hereof, which are not set forth herein or therein, are superseded hereby.
The terms and provisions hereof may not be waived, altered, modified, or amended
except in a writing executed by Pledgor and Silicon. All rights, benefits and
privileges hereunder shall inure to the benefit of and be enforceable by Silicon
and its successors and assigns and shall be binding upon Pledgor and its
successors and assigns; provided that Pledgor may not transfer any of its rights
hereunder without the prior written consent of Silicon. Paragraph headings are
used herein for convenience only. Pledgor acknowledges that the same may not
describe completely the subject matter of the applicable paragraph, and the same
shall not be used in any manner to construe, limit, define or interpret any term
or provision hereof. Pledgor shall upon demand reimburse Silicon for all costs,
fees and expenses (including without limitation attorneys' fees, whether or not
suit be brought), which are incurred by Silicon in connection with, or arising
out of, this agreement. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed, and interpreted in accordance with the internal laws (and not
conflict of laws rules) of the State of California. Pledgor hereby agrees that
all actions or proceedings relating directly or indirectly hereto may, at the
option of Silicon, be litigated in courts located within said State, and Pledgor
hereby expressly consents to the jurisdiction of any such court and consents to
the service of process in any such action or proceeding by personal delivery or
by certified or registered mailing directed to Pledgor at its last address known
to Silicon.
9. Mutual Waiver Rights to Jury Trial. SILICON AND PLEDGOR EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO: (i) THIS
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<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
SILICON AND PLEDGOR, OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR
PLEDGOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY
OTHER PERSONS AFFILIATED WITH SILICON OR PLEDGOR; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
PLEDGOR:
Natural Gas Vehicle Systems, Inc.
By /s/ [Illegible]
-----------------------------
President or Vice President
By /s/ [Illegible]
-----------------------------
Secretary or Ass't Secretary
SILICON:
SILICON VALLEY BANK
By /s/ [Illegible]
-----------------------------
Title VP
---------------------------
25,320
Exhibit A
1,000 shares of Common Stock of NGV
Development Company, Inc.
-3-
<PAGE>
STOCK ASSIGNMENT
SEPARATE FROM CERTIFICATE
For Value Received, Natural Gas Vehicle Systems, Inc. hereby sells, assigns
and transfers unto Silicon Valley Bank ONE THOUSAND (1,000) Shares of the Common
Stock of NGV Development Company, Inc. standing in its name on the books of said
corporation represented by Certificate No. ___________ herewith, and do hereby
irrevocably constitute and appoint ___________________________ attorney to
transfer the said stock on the books of the within named Company with full power
of substitution in the premises.
IMPORTANT: The Signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement or any change whatsoever.
Natural Gas Vehicle Systems, Inc.
By /s/ [Illegible]
---------------------------------
President or Vice-President
By /s/ [Illegible]
---------------------------------
Secretary or Ass't Secretary
<PAGE>
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[LOGO] Silicon Valley Bank
Registration Rights Agreement
Issuer: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California
Date: June 2, 1992
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the above date by and
between SILICON Valley BANK ("Purchaser"), whose address is 3000 Lakeside Drive,
Santa Clara, California 95054-2895 and the above Company, whose address is set
forth above.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth the
registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration Statement or document.
(b) The term "Registrable Securities" means (i) the Shares (if Common
Stock) or all shares of Common Stock of the Company issuable or issued upon
conversion of the Shares and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the Purchaser or qualifying
transferees under subsection 1.8 hereof who hold Registrable Securities.
(d) The term "SEC" means the Securities and Exchange Commission.
1.2 Company Registration.
(a) Registration. If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the account
of any of its shareholders, other than a registration on Form S-1 or S-8
relating solely to employee stock option or purchase plans, or a registration on
Form S-4 relating solely to an SEC Rule 145 transaction, or a registration on
any other form (other than Form S-1, S-2, S-3 or S-18, or their successor forms)
or any successor to such forms, which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale Of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other State securities
laws); and
(ii) include in such registration (and compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 30 day: after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in subsection 12(b)
below.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise
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<PAGE>
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the Holders as a part of the written notice given pursuant to subsection
1.2(a)(i). In such event the right of any Holder to registration pursuant to
this subsection 1.2 shall be conditioned upon such holders participation in such
underwriting and the inclusion of such Holder1s Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other shareholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
1.3 Expenses of REgistration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 1 including
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and expenses of any
special audits incidental to or required by such registration, shall be borne by
the Company except the Company shall not be required to pay underwriters fees,
discounts or commissions relating to Registrable Securities. All expenses of any
registered offering not otherwise borne by the Company shall be borne pro rata
among the Holders participating in the offering and the Company.
1.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 12, at its expense the Company will:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes 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 the light of the circumstances then
existing.
1.5 Indemnification.
(a) The Company will indemnify each Holder of Registrable Securities and
each of its officers, directors and partners, and each person controlling such
Holder, with respect to which such registration, qualification or compliance has
been effected pursuant to this Rights Agreement, and each underwriter, if any,
and each person who controls any underwriter of the Registrable Securities held
by or issuable to such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934, as amended ("Exchange Act"), or any state securities law applicable
to the Company or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any such state law and relating to action or inaction
required of the Company in connection with any such registration, qualification
of compliance, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, within a
reasonable amount of time after incurred for any reasonable legal and any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.5(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability, or
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<PAGE>
- --------------------------------------------------------------------------------
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld); and provided further, that the
Company will not be liable in any such case, the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Molder or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by or issuable to such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, partners, persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
specifically for use therein; provided, however, that the indemnity agreement
contained in this subsection 1.5(b) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld); and provided further, that the total amount for
which any Holder shall be liable under this subsection 1.5(b) shall not in any
event exceed the aggregate proceeds received by such Holder from the sale of
Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this subsection l.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may he sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying of its
obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.6 Information by Holder. Any Holder or Holders of Registrable Securities
included in any registration shall promptly furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 Rule 144 Reporting. With a view to making available to Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees at all times to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, after 90 days after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to furnish to such
Holder 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 so filed by the
Company as the Holder may reasonably request in complying with any rule or
regulation of the SEC allowing the Holder to sell any such securities without
registration.
-3-
<PAGE>
- --------------------------------------------------------------------------------
1.8 Transfer of Registration Rights. Holders' rights to cause the Company
to register their Securities and keep information available, granted to them by
the Company under subsections 1.2 and 1.7 may be assigned to a transferee or
assignee of a Holder's Registrable Securities not sold to the public, provided,
that the Company is given written notice by such Holder at the time of or within
a reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned. The Company may prohibit the transfer of
any Holders' rights under this subsection 1.8 to any proposed transferee or
assignee who the Company reasonably believes is a competitor of the Company.
2. General.
2.1 Waivers and Amendments. With the written consent of the record or
beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities. Upon the effectuation of
each such waiver, consent, agreement of amendment or modification, the Company
shall promptly give written notice thereof to the record holders of the
Registrable Securities who have not previously consented thereto in writing.
This Agreement or any provision hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, except to
the extent provided in this subsection 2.1.
2.2 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California. shall be mailed by first class mail, postage prepaid, certified or
registered mail, return receipt requested, addressed (a) if to Holder, at such
Holder's address as set forth in the heading to this Agreement, or at such other
address as such Holder shall have furnished to the Company in writing, or (b) if
to the Company, at the Company's address set forth in the heading to this
Agreement, or at such other address as the Company shall have furnished to the
Holder in writing.
2.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
2.4 Entire Agreement. Except as set forth below, this Agreement and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth in the heading
to this Agreement, or at such other address as such Holder shall have furnished
to the Company in writing, or (b) if to the Company, at the Company's address
set forth in the heading to this Agreement, or at such other address as the
Company shall have furnished to the Holder in writing.
2.6 Severability. In case any provision of this Agreement shall be invalid,
illegal, or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement or any provision of the other Agreements
shall not in any way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
Company:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ [Illegible]
-------------------------------
President or Vice President
By /s/ [Illegible]
-------------------------------
Purchaser:
SILICON VALLEY BANK
By
-------------------------------
Title
----------------------------
25,321
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<PAGE>
- --------------------------------------------------------------------------------
[LOGO] Silicon Valley Bank
Subordination Agreement
Creditor: Borrower:
Caithness/NCF Company, Natural Gas Vehicle Systems, Inc.
a California joint venture
2250 Cherry Industrial Circle Date: June 2, 1992
Long Beach, California 90805
This Subordination Agreement is entered into between SILICON VALLEY BANK
("Silicon") and the creditor named above (the "Creditor").
1. Subordination. To induce Silicon in its discretion to extend credit to
the above-named borrower (the "Borrower") at any time, in such manner, upon such
terms and for such amounts as may be mutually agreeable to Silicon and the
Borrower (but without obligation on Silicon's part to do so), the Creditor
hereby agrees to subordinate and does hereby subordinate payment by the Borrower
of any and all indebtedness of the Borrower, now or hereafter incurred, created
or evidenced, to the Creditor, however such indebtedness may be hereafter
extended, renewed or evidenced (together with all collateral, security and
guarantees, if any, for the payment of any such indebtedness) (collectively, the
"Junior Debt"), to the payment to Silicon of any and all present and future
indebtedness, liabilities, guarantees and other obligations, of every kind and
description, of the Borrower to Silicon (collectively, the "Senior Debt"), and
the Creditor agrees not to ask for, demand, sue for, take or receive any
payments with respect to all or any part of the Junior Debt or any security
therefor, unless and until all of the Senior Debt have been paid and performed
in full, except that, so long as all financial covenants of the Borrower to
Silicon are met both before and immediately after giving effect to the following
payments, and so long as no default or event of default has occurred under any
document, instrument or agreement evidencing, securing or relating to the Senior
Debt both before and after giving effect to the following payments and provided
that the Term Loan Extension Conditions set forth in Section 5.1 of the Schedule
to the Loan and Security Agreement between Silicon and the Borrower dated June
2, 1992 have been met, Creditor may accept payment of the following amounts on
the Junior Debt.
Payment in accordance with the terms of the
Junior Debt (but without the effect of rights of
acceleration on default or other events)
The word "indebtedness" is used herein in its most comprehensive sense and
includes without limitation any and all present and future loans, advances,
credit, debts, obligations, liabilities, representations, warranties, and
guarantees, of any kind and nature, absolute or contingent, liquidated or
unliquidated, and individual or joint. Creditor represents and warrants to
Silicon that the Borrower is now indebted to the Creditor in the following
amounts under the following described notes and/or documents and that the same
is all outstanding indebtedness owing from the Borrower to the Creditor:
$3,764,200 under Agreement dated__________________
2 Distribution of Assets. The Creditor further agrees that upon any
distribution of the assets or readjustment of the indebtedness of the Borrower
whether by reason of liquidation, composition, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding involving the readjustment of all or any of the Junior Debt, or the
application of the assets of the Borrower to the payment or liquidation thereof,
Silicon shall be entitled to receive payment in full of all of the Senior Debt
prior to the payment of all or any part of the Junior Debt, and in order to
enable Silicon to enforce its rights hereunder in any such action or proceeding,
Silicon is hereby irrevocably authorized and empowered in its discretion (but
without any
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<PAGE>
Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
obligation on Silicon's part) to make and present for and on behalf of the
Creditor such proofs of claim against the Borrower on account of the Junior Debt
as Silicon may deem expedient or proper and to vote such proofs of claim in any
such proceeding and to receive and collect any and all dividends or other
payments or disbursements made thereon in whatever form the same may be paid or
issued and to apply same on account of the Senior Debt. The Creditor further
agrees to execute and deliver to Silicon such assignments or other instruments
as may be required by Silicon in order to enable Silicon to enforce any and all
such claims and to collect any and all dividends or other payments or
disbursements which may be made at any time on account of all and any of the
Junior Debt.
3. Transfer of Subordinated Debt. The Creditor shall not sell, pledge,
assign or otherwise transfer, at any time while this Agreement remains in
effect, any rights, claim or interest of any kind in or to any of the Junior
Debt, either principal or interest, without first notifying Silicon and making
such transfer expressly subject to this Subordination Agreement in form and
substance satisfactory to Silicon. The Creditor represents and warrants to
Silicon that the Creditor has not sold, pledged, assigned or otherwise
transferred any of the Junior Debt, or any interest therein or collateral or
security therefor to any other person. The Creditor will concurrently endorse
all notes and other written evidence of the Junior Debt with a statement that
they are subordinated to the Senior Debt pursuant to the terms of this
Agreement, in such form as Silicon shall require, and the Creditor will exhibit
the originals of such notes and other written evidence of the Junior Debt to
Silicon so that Silicon can confirm that such endorsement has been made (but no
failure to do any of the foregoing shall affect the subordination of the Junior
Debt provided for herein, which shall be fully effective upon execution of this
Agreement).
4. Silicon's Rights. This is a continuing agreement of subordination and
Silicon may continue, without notice to the Creditor, to extend credit or other
accommodation or benefit and loan monies to or for the account of the Borrower
in reliance hereon. Silicon may at any time, in its discretion, renew or extend
the time of payment of all or any Senior Debt, modify the Senior Debt and any
terms or provisions thereof or of any agreement relating thereto, waive or
release any collateral which may be held therefor at any time, and make and
enter into any such agreement or agreements as Silicon may deem proper or
desirable relating to the Senior Debt, without notice to or further consent from
the Creditor and without any manner impairing or affecting this Agreement or any
of Silicon's rights hereunder. The Creditor waives notice of acceptance hereof,
notice of the creation of any Senior Debt, the giving or extension of any credit
by Silicon to the Borrower, or the taking, waiving or releasing of any security
therefor, or the making of any modifications, and the Creditor waives
presentment, demand, protest, notice of protest, notice of default, and all
other notices to which the Creditor might otherwise be entitled.
5. Mutual Waiver of Jury Trial. SILICON AND CREDITOR EACH HEREBY WAVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND CREDITOR; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF SILICON OR CREDITOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
SILICON OR CREDITOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
6. General. This Agreement sets forth in full all of the representations
and agreements of the parties with respect to the subject matter hereof and
supersedes all prior discussions, representations, agreements and understandings
between the parties. This Agreement may not be modified or amended, nor may any
rights hereunder be waived, except in a writing signed by the parties hereto. In
the event of any litigation between the parties based upon, arising out of, or
in any way relating to this Agreement, the prevailing party shall be entitled to
recover all of his costs and expenses (including without limitation attorneys'
fees) from the non-prevailing party. The parties agree to cooperate fully with
each other and take all further actions and execute all further documents from
time to time as may be reasonably necessary to carry out the purposes of this
Agreement. At Silicon's option, all actions and proceedings based upon, arising
out of or relating in any way directly or indirectly to, this Agreement shall be
litigated exclusively in courts located within Orange County, California, and
Creditor consents to the jurisdiction of any such court and consents to the
service of process in any such action or proceeding by personal delivery,
first-class mail, or any other method permitted by law, and waives any and all
rights to transfer or change the venue of any such action or proceeding to any
court located outside Orange County, California. This Agreement is being entered
into, and shall be governed by the laws of the State of California.
"Subordinating Creditor:"
Caithness/NCF Company, a California joint venture
By ____________________________
Howard T. Phelan, Chairman
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<PAGE>
Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
obligation on Silicon's part) to make and present for and on behalf of the
Creditor such proofs of claim against the Borrower on account of the Junior Debt
as Silicon may deem expedient or proper and to vote such proofs of claim in any
such proceeding and to receive and collect any and all dividends or other
payments or disbursements made thereon in whatever form the same may be paid or
issued and to apply same on account of the Senior Debt. The Creditor further
agrees to execute and deliver to Silicon such assignments or other instruments
as may be required by Silicon in order to enable Silicon to enforce any and all
such claims and to collect any and all dividends or other payments or
disbursements which may be made at any time on account of all and any of the
Junior Debt.
3. Transfer of Subordinated Debt. The Creditor shall not sell, pledge,
assign or otherwise transfer, at any time while this Agreement remains in
effect, any rights, claim or interest of any kind in or to any of the Junior
Debt, either principal or interest, without first notifying Silicon and making
such transfer expressly subject to this Subordination Agreement in form and
substance satisfactory to Silicon. The Creditor represents and warrants to
Silicon that the Creditor has not sold, pledged, assigned or otherwise
transferred any of the Junior Debt, or any interest therein or collateral or
security therefor to any other person. The Creditor will concurrently endorse
all notes and other written evidence of the Junior Debt with a statement that
they are subordinated to the Senior Debt pursuant to the terms of this
Agreement, in such form as Silicon shall require, and the Creditor will exhibit
the originals of such notes and other written evidence of the Junior Debt to
Silicon so that Silicon can confirm that such endorsement has been made (but no
failure to do any of the foregoing shall affect the subordination of the Junior
Debt provided for herein, which shall be fully effective upon execution of this
Agreement).
4. Silicon's Rights. This is a continuing agreement of subordination and
Silicon may continue, without notice to the Creditor, to extend credit or other
accommodation or benefit and loan monies to or for the account of the Borrower
in reliance hereon. Silicon may at any time, in its discretion, renew or extend
the time of payment of all or any Senior Debt, modify the Senior Debt and any
terms or provisions thereof or of any agreement relating thereto, waive or
release any collateral which may be held therefor at any time, and make and
enter into any such agreement or agreements as Silicon may deem proper or
desirable relating to the Senior Debt, without notice to or further consent from
the Creditor and without any manner impairing or affecting this Agreement or any
of Silicon's rights hereunder. The Creditor waives notice of acceptance hereof,
notice of the creation of any Senior Debt, the giving or extension of any credit
by Silicon to the Borrower, or the taking, waiving or releasing of any security
therefor, or the making of any modifications, and the Creditor waives
presentment, demand, protest, notice of protest, notice of default, and all
other notices to which the Creditor might otherwise be entitled.
5. Mutual Waiver of Jury Trial. SILICON AND CREDITOR EACH HEREBY WAVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND CREDITOR; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF SILICON OR CREDITOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
SILICON OR CREDITOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
6. General. This Agreement sets forth in full all of the representations
and agreements of the parties with respect to the subject matter hereof and
supersedes all prior discussions, representations, agreements and understandings
between the parties. This Agreement may not be modified or amended, nor may any
rights hereunder be waived, except in a writing signed by the parties hereto. In
the event of any litigation between the parties based upon, arising out of, or
in any way relating to this Agreement, the prevailing party shall be entitled to
recover all of his costs and expenses (including without limitation attorneys'
fees) from the non-prevailing party. The parties agree to cooperate fully with
each other and take all further actions and execute all further documents from
time to time as may be reasonably necessary to carry out the purposes of this
Agreement. At Silicon's option, all actions and proceedings based upon, arising
out of or relating in any way directly or indirectly to, this Agreement shall be
litigated exclusively in courts located within Orange County, California, and
Creditor consents to the jurisdiction of any such court and consents to the
service of process in any such action or proceeding by personal delivery,
first-class mail, or any other method permitted by law, and waives any and all
rights to transfer or change the venue of any such action or proceeding to any
court located outside Orange County, California. This Agreement is being entered
into, and shall be governed by the laws of the State of California.
"Subordinating Creditor:"
Caithness/NCF Company, a California joint venture
By /s/ Howard T. Phelan
----------------------------
Howard T. Phelan, Chairman
STATE OF NEW YORK )
: ss:
COUNTY OF QUEENS )
On this 2nd day of June, 1992, before me personally came Howard T. Phelan, to me
known and known to me to be the individual described in, and who executed the
foregoing instrument and he duly acknowledged to me that he executed the same.
/s/ Lillian Y. Rodriguez
- --------------------------------
Notary Public
LILLIAN Y. RODRIGUEZ
NOTARY PUBLIC, State of New York
No. 41-4959417
Qualified in Queens County
Certificate filed in New York County
Commission Expires November 27, 1993
-2-
<PAGE>
Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
BORROWER'S AGREEMENT
The undersigned Borrower hereby acknowledges receipt of a copy of the
foregoing Subordination Agreement and agrees not to pay any Junior Debt, except
as provided therein. In the event Borrower breaches this Agreement or any of the
provisions of the foregoing Subordination Agreement, Borrower agrees that, in
addition to all other rights and remedies Silicon has, all of the Senior Debt
shall, at Silicon's option and without notice or demand, become immediately due
and payable, unless Silicon expressly agrees in writing to waive such breach. No
waiver by Silicon of any breach shall be effective unless in writing signed by
one of Silicon's authorized officers, and no such waiver shall be deemed to
extend to or waive any other or subsequent breach. Borrower further agrees that
any default or event of default by Borrower on the Junior Debt or under any
present or future instrument or agreement between Borrower and the Creditor
shall constitute a default and event of default under all present and future
instruments and agreements between Borrower and Silicon. Borrower further agrees
that, at any time and from time to time, the foregoing Subordination Agreement
may be altered, modified or amended by Silicon and the Creditor without notice
to Borrower and without further consent by Borrower.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ [ILLEGIBLE]
-----------------------------------
President
Accepted:
SILICON VALLEY BANK
By /s/ [ILLEGIBLE]
------------------------------
Title VP
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<PAGE>
Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
BORROWER'S AGREEMENT
The undersigned Borrower hereby acknowledges receipt of a copy of the
foregoing Subordination Agreement and agrees not to pay any Junior Debt, except
as provided therein. In the event Borrower breaches this Agreement or any of the
provisions of the foregoing Subordination Agreement, Borrower agrees that, in
addition to all other rights and remedies Silicon has, all of the Senior Debt
shall, at Silicon's option and without notice or demand, become immediately due
and payable, unless Silicon expressly agrees in writing to waive such breach. No
waiver by Silicon of any breach shall be effective unless in writing signed by
one of Silicon's authorized officers, and no such waiver shall be deemed to
extend to or waive any other or subsequent breach. Borrower further agrees that
any default or event of default by Borrower on the Junior Debt or under any
present or future instrument or agreement between Borrower and the Creditor
shall constitute a default and event of default under all present and future
instruments and agreements between Borrower and Silicon. Borrower further agrees
that, at any time and from time to time, the foregoing Subordination Agreement
may be altered, modified or amended by Silicon and the Creditor without notice
to Borrower and without further consent by Borrower.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ Howard T. Phelan
-----------------------------------
President
Accepted:
SILICON VALLEY BANK
By /s/ [ILLEGIBLE]
------------------------------
Title VP
STATE OF NEW YORK )
: ss:
COUNTY OF QUEENS )
On this 2nd day of June, 1992, before me personally came Howard T. Phelan, to me
known and known to me to be the individual described in, and who executed the
foregoing instrument and he duly acknowledged to me that he executed the same.
/s/ Lillian Y. Rodriguez
--------------------------------
Notary Public
LILLIAN Y. RODRIGUEZ
NOTARY PUBLIC, State of New York
No. 41-4959417
Qualified in Queens County
Certificate filed in New York County
Commission Expires November 27, 1993
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<PAGE>
- --------------------------------------------------------------------------------
[LOGO] Silicon Valley Bank
Subordination Agreement
Creditor: Borrower:
CNG Cylinder Corporation, Natural Gas Vehicle Systems, Inc.
a California corporation
2250 Cherry Industrial Circle Date: June 2, 1992
Long Beach, California 90805
This Subordination Agreement is entered into between SILICON VALLEY BANK
("Silicon") and the creditor named above (the "Creditor").
1. Subordination. To induce Silicon in its discretion to extend credit to
the above-named borrower (the "Borrower") at any time, in such manner, upon such
terms and for such amounts as may be mutually agreeable to Silicon and the
Borrower (but without obligation on Silicon's part to do so), the Creditor
hereby agrees to subordinate and does hereby subordinate payment by the Borrower
of any and all indebtedness of the Borrower, now or hereafter incurred, created
or evidenced, to the Creditor, however such indebtedness may be hereafter
extended, renewed or evidenced (together with all collateral, security and
guarantees, if any, for the payment of any such indebtedness) (collectively, the
"Junior Debt"), to the payment to Silicon of any and all present and future
indebtedness, liabilities, guarantees and other obligations, of every kind and
description, of the Borrower to Silicon (collectively, the "Senior Debt"), and
the Creditor agrees not to ask for, demand, sue for, take or receive any
payments with respect to all or any part of the Junior Debt or any security
therefor, unless and until all of the Senior Debt have been paid and performed
in full, except that, so long as all financial covenants of the Borrower to
Silicon are met both before and immediately after giving effect to the following
payments, and so long as no default or event of default has occurred under any
document, instrument or agreement evidencing, securing or relating to the Senior
Debt both before and after giving effect to the following payments and provided
that the Term Loan Extension Conditions set forth in Section 5.1 of the Schedule
to the Loan and Security Agreement between Silicon and the Borrower dated June
2, 1992 have been met, Creditor may accept payment of the following amounts on
the Junior Debt.
Payment in accordance with the terms of the
Junior Debt (but without the effect of rights of
acceleration on default or other events)
The word "indebtedness" is used herein in its most comprehensive sense and
includes without limitation any and all present and future loans, advances,
credit, debts, obligations, liabilities, representations, warranties, and
guarantees, of any kind and nature, absolute or contingent, liquidated or
unliquidated, and individual or joint. Creditor represents and warrants to
Silicon that the Borrower is now indebted to the Creditor in the following
amounts under the following described notes and/or documents and that the same
is all outstanding indebtedness owing from the Borrower to the Creditor:
$501,811 under Agreement dated__________________
2. Distribution of Assets. The Creditor further agrees that upon any
distribution of the assets or readjustment of the indebtedness of the Borrower
whether by reason of liquidation, composition, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding involving the readjustment of all or any of the Junior Debt, or the
application of the assets of the Borrower to the payment or liquidation thereof,
Silicon shall be entitled to receive payment in full of all of the Senior Debt
prior to the payment of all or any part of the Junior Debt, and in order to
enable Silicon to enforce its rights hereunder in any such action or proceeding,
Silicon is hereby irrevocably authorized and empowered in its discretion (but
without any
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<PAGE>
Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
obligation on Silicon's part) to make and present for and on behalf of the
Creditor such proofs of claim against the Borrower on account of the Junior Debt
as Silicon may deem expedient or proper and to vote such proofs of claim in any
such proceeding and to receive and collect any and all dividends or other
payments or disbursements made thereon in whatever form the same may be paid or
issued and to apply same on account of the Senior Debt. The Creditor further
agrees to execute and deliver to Silicon such assignments or other instruments
as may be required by Silicon in order to enable Silicon to enforce any and all
such claims and to collect any and all dividends or other payments or
disbursements which may be made at any time on account of all and any of the
Junior Debt.
3. Transfer of Subordinated Debt. The Creditor shall not sell, pledge,
assign or otherwise transfer, at any time while this Agreement remains in
effect, any rights, claim or interest of any kind in or to any of the Junior
Debt, either principal or interest, without first notifying Silicon and making
such transfer expressly subject to this Subordination Agreement in form and
substance satisfactory to Silicon. The Creditor represents and warrants to
Silicon that the Creditor has not sold, pledged, assigned or otherwise
transferred any of the Junior Debt, or any interest therein or collateral or
security therefor to any other person. The Creditor will concurrently endorse
all notes and other written evidence of the Junior Debt with a statement that
they are subordinated to the Senior Debt pursuant to the terms of this
Agreement, in such form as Silicon shall require, and the Creditor will exhibit
the originals of such notes and other written evidence of the Junior Debt to
Silicon so that Silicon can confirm that such endorsement has been made (but no
failure to do any of the foregoing shall affect the subordination of the Junior
Debt provided for herein, which shall be fully effective upon execution of this
Agreement).
4. Silicon's Rights. This is a continuing agreement of subordination and
Silicon may continue, without notice to the Creditor, to extend credit or other
accommodation or benefit and loan monies to or for the account of the Borrower
in reliance hereon. Silicon may at any time, in its discretion, renew or extend
the time of payment of all or any Senior Debt, modify the Senior Debt and any
terms or provisions thereof or of any agreement relating thereto, waive or
release any collateral which may be held therefor at any time, and make and
enter into any such agreement or agreements as Silicon may deem proper or
desirable relating to the Senior Debt, without notice to or further consent from
the Creditor and without any manner impairing or affecting this Agreement or any
of Silicon's rights hereunder. The Creditor waives notice of acceptance hereof,
notice of the creation of any Senior Debt, the giving or extension of any credit
by Silicon to the Borrower, or the taking, waiving or releasing of any security
therefor, or the making of any modifications, and the Creditor waives
presentment, demand, protest, notice of protest, notice of default, and all
other notices to which the Creditor might otherwise be entitled.
5. Mutual Waiver of Jury Trial. SILICON AND CREDITOR EACH HEREBY WAVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND CREDITOR; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF SILICON OR CREDITOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
SILICON OR CREDITOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
6. General. This Agreement sets forth in full all of the representations
and agreements of the parties with respect to the subject matter hereof and
supersedes all prior discussions, representations, agreements and understandings
between the parties. This Agreement may not be modified or amended, nor may any
rights hereunder be waived, except in a writing signed by the parties hereto. In
the event of any litigation between the parties based upon, arising out of, or
in any way relating to this Agreement, the prevailing party shall be entitled to
recover all of his costs and expenses (including without limitation attorneys'
fees) from the non-prevailing party. The parties agree to cooperate fully with
each other and take all further actions and execute all further documents from
time to time as may be reasonably necessary to carry out the purposes of this
Agreement. At Silicon's option, all actions and proceedings based upon, arising
out of or relating in any way directly or indirectly to, this Agreement shall be
litigated exclusively in courts located within Orange County, California, and
Creditor consents to the jurisdiction of any such court and consents to the
service of process in any such action or proceeding by personal delivery,
first-class mail, or any other method permitted by law, and waives any and all
rights to transfer or change the venue of any such action or proceeding to any
court located outside Orange County, California. This Agreement is being entered
into, and shall be governed by the laws of the State of California.
"Subordinating Creditor:"
CNG Cylinder Corporation
By _______________________________
Norman C. Fawley, President
-2-
<PAGE>
Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
obligation on Silicon's part) to make and present for and on behalf of the
Creditor such proofs of claim against the Borrower on account of the Junior Debt
as Silicon may deem expedient or proper and to vote such proofs of claim in any
such proceeding and to receive and collect any and all dividends or other
payments or disbursements made thereon in whatever form the same may be paid or
issued and to apply same on account of the Senior Debt. The Creditor further
agrees to execute and deliver to Silicon such assignments or other instruments
as may be required by Silicon in order to enable Silicon to enforce any and all
such claims and to collect any and all dividends or other payments or
disbursements which may be made at any time on account of all and any of the
Junior Debt.
3. Transfer of Subordinated Debt. The Creditor shall not sell, pledge,
assign or otherwise transfer, at any time while this Agreement remains in
effect, any rights, claim or interest of any kind in or to any of the Junior
Debt, either principal or interest, without first notifying Silicon and making
such transfer expressly subject to this Subordination Agreement in form and
substance satisfactory to Silicon. The Creditor represents and warrants to
Silicon that the Creditor has not sold, pledged, assigned or otherwise
transferred any of the Junior Debt, or any interest therein or collateral or
security therefor to any other person. The Creditor will concurrently endorse
all notes and other written evidence of the Junior Debt with a statement that
they are subordinated to the Senior Debt pursuant to the terms of this
Agreement, in such form as Silicon shall require, and the Creditor will exhibit
the originals of such notes and other written evidence of the Junior Debt to
Silicon so that Silicon can confirm that such endorsement has been made (but no
failure to do any of the foregoing shall affect the subordination of the Junior
Debt provided for herein, which shall be fully effective upon execution of this
Agreement).
4. Silicon's Rights. This is a continuing agreement of subordination and
Silicon may continue, without notice to the Creditor, to extend credit or other
accommodation or benefit and loan monies to or for the account of the Borrower
in reliance hereon. Silicon may at any time, in its discretion, renew or extend
the time of payment of all or any Senior Debt, modify the Senior Debt and any
terms or provisions thereof or of any agreement relating thereto, waive or
release any collateral which may be held therefor at any time, and make and
enter into any such agreement or agreements as Silicon may deem proper or
desirable relating to the Senior Debt, without notice to or further consent from
the Creditor and without any manner impairing or affecting this Agreement or any
of Silicon's rights hereunder. The Creditor waives notice of acceptance hereof,
notice of the creation of any Senior Debt, the giving or extension of any credit
by Silicon to the Borrower, or the taking, waiving or releasing of any security
therefor, or the making of any modifications, and the Creditor waives
presentment, demand, protest, notice of protest, notice of default, and all
other notices to which the Creditor might otherwise be entitled.
5. Mutual Waiver of Jury Trial. SILICON AND CREDITOR EACH HEREBY WAVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND CREDITOR; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF SILICON OR CREDITOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
SILICON OR CREDITOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
6. General. This Agreement sets forth in full all of the representations
and agreements of the parties with respect to the subject matter hereof and
supersedes all prior discussions, representations, agreements and understandings
between the parties. This Agreement may not be modified or amended, nor may any
rights hereunder be waived, except in a writing signed by the parties hereto. In
the event of any litigation between the parties based upon, arising out of, or
in any way relating to this Agreement, the prevailing party shall be entitled to
recover all of his costs and expenses (including without limitation attorneys'
fees) from the non-prevailing party. The parties agree to cooperate fully with
each other and take all further actions and execute all further documents from
time to time as may be reasonably necessary to carry out the purposes of this
Agreement. At Silicon's option, all actions and proceedings based upon, arising
out of or relating in any way directly or indirectly to, this Agreement shall be
litigated exclusively in courts located within Orange County, California, and
Creditor consents to the jurisdiction of any such court and consents to the
service of process in any such action or proceeding by personal delivery,
first-class mail, or any other method permitted by law, and waives any and all
rights to transfer or change the venue of any such action or proceeding to any
court located outside Orange County, California. This Agreement is being entered
into, and shall be governed by the laws of the State of California.
"Subordinating Creditor:"
CNG Cylinder Corporation
By /s/ Howard T. Phelan
----------------------------------
Howard T. Phelan, Chairman
JAMES SULLIVAN
NOTARY PUBLIC, State of New York
No. 41-3895382
Certified in New York County
Commission Expires January 31, 1994
/s/ James Sullivan
-2-
<PAGE>
Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
BORROWER'S AGREEMENT
The undersigned Borrower hereby acknowledges receipt of a copy of the
foregoing Subordination Agreement and agrees not to pay any Junior Debt, except
as provided therein. In the event Borrower breaches this Agreement or any of the
provisions of the foregoing Subordination Agreement, Borrower agrees that, in
addition to all other rights and remedies Silicon has, all of the Senior Debt
shall, at Silicon's option and without notice or demand, become immediately due
and payable, unless Silicon expressly agrees in writing to waive such breach. No
waiver by Silicon of any breach shall be effective unless in writing signed by
one of Silicon's authorized officers, and no such waiver shall be deemed to
extend to or waive any other or subsequent breach. Borrower further agrees that
any default or event of default by Borrower on the Junior Debt or under any
present or future instrument or agreement between Borrower and the Creditor
shall constitute a default and event of default under all present and future
instruments and agreements between Borrower and Silicon. Borrower further agrees
that, at any time and from time to time, the foregoing Subordination Agreement
may be altered, modified or amended by Silicon and the Creditor without notice
to Borrower and without further consent by Borrower.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By [Illegible]
------------------------------
President or Vice President
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Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
BORROWER'S AGREEMENT
The undersigned Borrower hereby acknowledges receipt of a copy of the
foregoing Subordination Agreement and agrees not to pay any Junior Debt, except
as provided therein. In the event Borrower breaches this Agreement or any of the
provisions of the foregoing Subordination Agreement, Borrower agrees that, in
addition to all other rights and remedies Silicon has, all of the Senior Debt
shall, at Silicon's option and without notice or demand, become immediately due
and payable, unless Silicon expressly agrees in writing to waive such breach. No
waiver by Silicon of any breach shall be effective unless in writing signed by
one of Silicon's authorized officers, and no such waiver shall be deemed to
extend to or waive any other or subsequent breach. Borrower further agrees that
any default or event of default by Borrower on the Junior Debt or under any
present or future instrument or agreement between Borrower and the Creditor
shall constitute a default and event of default under all present and future
instruments and agreements between Borrower and Silicon. Borrower further agrees
that, at any time and from time to time, the foregoing Subordination Agreement
may be altered, modified or amended by Silicon and the Creditor without notice
to Borrower and without further consent by Borrower.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ Howard T. Phelan
--------------------------------
President
Accepted:
SILICON VALLEY BANK
By /s/ [ILLEGIBLE]
----------------------------------
Title VP
JAMES SULLIVAN
NOTARY PUBLIC, State of New York
No. 41-3895382
Certified in New York County
Commission Expires January 31, 1994
[SEAL] /s/ James Sullivan
-3-
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] Silicon Valley Bank
Subordination Agreement
Borrower: Natural Gas Vehicle Systems, Inc.
Subordinating
Creditor: Caithness Corporation
Date: June 2, 1992
This Subordination Agreement is executed by the above-named Subordinating
Creditor ("Subordinating Creditor") in favor of Silicon Valley Bank ("Silicon"),
whose address is 3000 Lakeside Drive, Santa Clara, California 95O54-2895, with
respect to the above-named Borrower ("Borrower"). In order to induce Silicon to
extend or continue to extend financing to the Borrower (but without obligation
on Silicon's part to do so), the Subordinating Creditor hereby agrees as
follows:
1. Subordination of Security Interest All security interests now or
hereafter acquired by Silicon in any or all of the Collateral (as defined
below), in which the Borrower now has or hereafter acquires any ownership,
leasehold or other interest shall at all times be prior and superior to any
lien, ownership interest, security interest or other interest or claim now held
or hereafter acquired by the Subordinating Creditor in the Collateral (the
"Subordinate Interest"). Said priority shall be applicable irrespective of the
time or order of attachment or perfection of any security interest or the time
or order of filing of any financing statements or other documents, or any
statutes, rules or law, or court decisions to the contrary. Upon any disposition
of any of the Collateral by Silicon, the Subordinating Creditor agrees, if
requested by Silicon, to execute and immediately deliver any and all releases or
other documents or agreements which Silicon deem necessary to accomplish a
disposition thereof free of the Subordinate Interest. Subordinating Creditor
represents and warrants to Silicon that Subordinating Creditor is the sole
holder of all security interests perfected by that certain UCC-1 Financing
Statement executed by the predecessor of Borrower, CNG Cylinder Company of North
America, L.P. and Subordinating Creditor and filed in the office of the
California Secretary of State on the following date, bearing the following file
number:
Date File No.
---- --------
November 18, 1991 91244309
2. "Collateral." As used in this Agreement, "Collateral" shall mean all of
the following types of property, in which the Borrower now has or hereafter
acquires any ownership, leasehold or other interest, wherever located: (a) All
accounts, contract rights, chattel paper, letters of credit, documents,
securities, money, and instruments, and all other obligations now or in the
future owing to the Borrower; {b) All inventory, goods, merchandise, materials,
raw materials, work in process, finished goods, farm products, advertising,
packaging and shipping materials, supplies, and all other tangible Personal
property which is held for sale or lease or furnished under contracts of service
or consumed in the Borrower's business, and all warehouse receipts and other
documents; and (c) All equipment, including without limitation all machinery,
fixtures, trade fixtures, vehicles, furnishings, furniture, materials, tools,
machine tools, office equipment, computers and peripheral devices, appliances,
apparatus, parts, dies, and jigs; (d) All general intangibles including, but not
limited to, deposit accounts, goodwill, names, trade names, trademarks and the
goodwill of the business symbolized thereby, trade secrets, drawings,
blueprints, customer lists, patents, patent applications, copyrights, security
deposits, loan commitment fees, federal, state and local tax refunds and claims,
all rights in all litigation presently or hereafter pending for any cause or
claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Silicon, all rights
to purchase or sell real or personal property, all rights as licensor or
licensee of any kind, all royalties, licenses, processes, telephone numbers,
proprietary information, purchase orders, and all insurance policies and claims
(including without limitation credit, liability, property and other insurance),
and all other rights, privileges and franchises of every kind; (e) All books and
records, whether stored on computers or otherwise
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<PAGE>
Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
maintained; and (f) All substitutions, additions and accessions to any of the
foregoing, and all products, proceeds and insurance proceeds of the foregoing,
and all guaranties of and security for the foregoing; and all books and records
relating to any of the foregoing.
3. Disposition of Collateral. The Subordinating Creditor agrees that, until
Silicon have received payment in full of all indebtedness, liabilities,
guarantees and other obligations of the Borrower to Silicon, now existing or
hereafter arising (the "Silicon Debt"), Silicon may dispose of, and exercise any
other rights with respect to, any or all of the Collateral, free of the
Subordinate Interest, provided that the Subordinating Creditor retains any
rights it may have as a junior secured creditor with respect to the Surplus, if
any, arising from any such disposition or enforcement. The Subordinating
Creditor agrees that any funds of the Borrower which it obtains through the
exercise of any right of setoff or other similar right constitute Collateral,
and the Subordinating Creditor shall immediately pay such funds to Silicon to be
applied to the outstanding Silicon Debt.
4. Subordination of Debt. Subordinating Creditor hereby subordinates
payment by the Borrower of any and all indebtedness, liabilities, guarantees and
other obligations of the Borrower to Subordinating Creditor, now existing or
hereafter arising (collectively, the "Subordinated Debt"), to the payment to
Silicon, in full in cash, of all Silicon Debt, and Subordinating Creditor agrees
not to ask for, demand, sue for, take or receive all or any part of the
Subordinated Debt nor any security therefor unless and until all of the Silicon
Debt has been paid and performed in full, in cash; provided that, so long as all
financial covenants of the Borrower to Silicon are met both before and
immediately after giving effect to the following payments, and so long as no
default or event of default has occurred under any document, instrument or
agreement evidencing, securing or relating to the Silicon Debt both before and
after giving effect to the following payments and provided that the Term Loan
Extension Conditions set forth in Section 5.1 of the Schedule to the Loan and
Security Agreement between Silicon and the Borrower dated June 2, 1992 have been
met, Subordinated Creditor may accept payment of the following amounts on the
Subordinated Debt:
Payment in accordance with the terms of the Subordinated
Debt (but without the effect of rights of acceleration on
default or other events)
Subordinating Creditor further agrees that upon any distribution of the assets
or readjustment of the indebtedess of the Borrower whether by reason of
liquidation, composition, bankruptcy, arrangement, receivership, assignment for
the benefit of creditors or any other action or proceeding involving the
readjustment of all or any of the Subordinating Debt, or the application of the
assets of the Borrower to the payment or liquidation thereof, Silicon shall be
entitled to receive payment in full of all of the Silicon Debt prior to the
payment of all or any part of the Subordinated Debt, and in order to enable
Silicon to enforce its rights hereunder in any such action or proceeding,
Silicon is hereby irrevocably authorized and empowered in its discretion (but
without any obligation on its part) to make and present for and on behalf of
Subordinating Creditor such proofs of claim against the Borrower on account of
the Subordinated Debt as Silicon may deem expedient or proper and to vote such
proofs of claim in any such proceeding and to receive and collect any and all
dividends or other payments or disbursements made thereon in whatever form the
same may be paid or issued and to apply same on account of the Silicon Debt.
Subordinating Creditor further agrees to execute and deliver to Silicon such
assignments or other instruments as may be required by Silicon in order to
enable Silicon to enforce any and all such claims and to collect any and all
dividends or other payments or disbursements which may be made at any time on
account of all and any of the Subordinated Debt, Subordinating Creditor shall
endorse all notes and other written evidence of the Subordinated Debt with a
statement that they are subordinated to the Silicon Debt pursuant to the terms
of this agreement, in such form as Silicon shall require, and Subordinating
Creditor will exhibit the originals of such notes and other written evidence of
the Subordinated Debt to Silicon so that Silicon can confirm that such
endorsement has been made, but this Subordination Agreement shall be fully
effective, even if no such endorsement is made.
5. Modifications to Silicon Debt; Waivers. Until Silicon have received
payment in full of all Silicon Debt, the Subordinating Creditor agrees that, in
addition to any other rights that Silicon may have at law or in equity, Silicon
may at any time, and from time to time, without the Subordinating Creditor's
consent and without notice to the Subordinating Creditor, renew, extend or
increase any of the Silicon Debt or that of any other person at any time
directly or indirectly liable for the payment of any silicon Debt, accept
partial payments of the Silicon Debt, settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the Silicon Debt,
make loans or advances to the Borrower secured in whole or in part by the
Collateral or refrain from making any loans or advances to the Borrower, change,
waive, alter or vary the interest charge on, or any other terms or provisions of
the Silicon Debt or any present or future instrument, document or agreement
between Silicon and the Borrower, release, exchange, fail to perfect, delay the
perfection of, fail to resort to, or realize upon any Collateral, and take any
other action or omit to take any other action with respect to the Silicon Debt
or the Collateral as Silicon deem necessary or advisable in Siliconr sole
discretion, The Subordinating Creditor waives any right to require Silicon to
marshal any assets in favor of the Subordinating Creditor or against or in
payment of any or all of the Silicon Debt. Subordinating Creditor further waives
any defense arising by reason of any claim or defense based upon an election of
remedies by Silicon which in any manner impairs, affects, reduces, releases,
destroys and/or extinguishes the
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Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
Subordinating Creditor's subrogation rights, rights to proceed against the
Borrower for reimbursement, and/or any other rights of the Subordinating
Creditor.
6. Default. The Subordinating Creditor shall promptly give Silicon written
notice of any default or event of default under any document, instrument or
agreement evidencing, securing or relating to any of the Subordinated Debt, and,
until the Silicon Debt has been paid and performed in full, the Subordinating
Creditor shall not collect, take possession of, foreclose upon, or exercise any
other rights or remedies with respect to, the Collateral, judicially or
non-judicially, or attempt to do any of the foregoing.
7. No Commitment. It is understood and agreed that this Agreement shall in
no way be construed as a commitment or agreement by Silicon to continue
financing arrangements with the Borrower and that Silicon may terminate such
arrangements at any time, in accordance with Silicon's agreements with the
Borrower.
8. No Contest. Subordinating Creditor agrees not to contest the validity,
perfection, priority or enforceability of Silicon's security interest in the
Collateral or the Silicon Debt.
9. Financial Condition of Borrower. The Subordinating Creditor is presently
informed of the financial condition of the Borrower and of all other
circumstances which a diligent inquiry would reveal and which bear upon the risk
of non-payment of the Silicon Debt and the Subordinated Debt. The Subordinating
Creditor covenants that it will continue to keep itself informed as to the
Borrower's financial condition and all other circumstances which bear upon the
risk of non-payment of the Silicon Debt and the Subordinated Debt. The
Subordinating Creditor waives any right to require Silicon to disclose to it any
information which Silicon may now or hereafter acquire concerning the Borrower.
10. Revivor. If, after payment of the Silicon Debt, the Borrower thereafter
becomes liable to Silicon on account of the Silicon Debt, or any payment made on
the Silicon Debt shall for any reason be returned by Silicon, this Agreement
shall thereupon in all respects become effective with respect to such subsequent
or reinstated Silicon Debt, without the necessity of any further act or
agreement between Silicon and the Subordinating Creditor.
11. Mutual Waiver of Jury Trial. Subordinating Creditor and Silicon each
hereby waive the right to trial by jury in any action or proceeding based upon,
arising out of; or in any way relating to: (i) this Agreement; or (ii) any other
present or future instrument or agreement between Subordinating Creditor and
Silicon; or (iii) any conduct, acts or omissions of Subordinating Creditor or
Silicon or any of their directors, officers, employees, agents, attorneys or any
other persons affiliated with Subordinating Creditor or Silicon; in each of the
foregoing cases, whether sounding in contract or tort or otherwise.
12. General. The Subordinating Creditor agrees, upon Silicon's request, to
execute all such documents and instruments and take all such actions as Silicon
shall deem necessary or advisable in order to carry out the purposes of this
Agreement, including, without limitation appropriate amendments to financing
statements executed by the Borrower in favor of Subordinating Creditor in order
to refer to this Agreement (but this Agreement shall remain fully effective
notwithstanding any failure to execute any additional documents or instruments).
The word "indebtedness" is used in this agreement in its most comprehensive
sense and includes without limitation any and all present and future loans,
advances, credit, debts, obligations, liabilities, representations, warranties,
and guarantees, of any kind and nature, absolute or contingent, liquidated or
unliquidated, and individual or joint. Subordinating Creditor represents and
warrants that it has not heretofore transferred or assigned the Subordinated
Debt, the Subordinate Interest or any financing statement naming Borrower as
debtor and Subordinating Creditor as secured party, and that it will not do so
without prior written notice to Silicon and without making such transfer or
assignment expressly subject to this Agreement, This Agreement is solely for the
benefit of Silicon and Silicon's successors and assigns, and neither the
Borrower nor any other person shall have any right, benefit, priority or
interest under, or because of the existence of, this Agreement, All of Silicon's
rights and remedies hereunder and under applicable law are cumulative and not
exclusive. This Agreement sets forth in full the terms of agreement between the
parties with respect to the subject matter hereof, and may not be modified or
amended, nor may any rights hereunder be waived, except in a writing signed by
Silicon and the Subordinating Creditor. The Subordinating Creditor agrees to
reimburse Silicon, upon demand, for all costs and expenses (including reasonable
attorneys' fees) incurred by Silicon in enforcing this Agreement against
Subordinating Creditor, whether or not suit be brought, In the event of any
litigation between the parties based upon or arising out of this Agreement, the
prevailing party shall be entitled to recover all of its costs and expenses
(including without limitation attorneys fees) from the non-prevailing party.
This Agreement shall be construed in accordance with, and governed by, the laws
of the State of California. As a material part of the consideration to the
parties for entering into this Agreement, each party (i) agrees that all actions
and proceedings based upon, arising out of or relating in any way directly or
indirectly to, this Agreement shall be litigated exclusively in courts located
within Los Angeles County, California, (ii) consents to the jurisdiction of any
such court and consents to the service of process in any such action or
proceeding by personal delivery, first-class mail, or any other method permitted
by law, and (iii) waives any and all rights to transfer or change the venue of
any such action or proceeding to any court located outside Los Angeles County,
California. This Agreement shall be binding upon the Subordinating Creditor and
its successors and assigns and shall inure to the benefit of Silicon and
Silicon's successors and assigns.
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Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
13. ADDITIONAL PROVISIONS.
(a) The provisions of Section 4 of the Purchase, Resale and Security
Agreement dated October 1, 1991 between Borrower and Subordinating Creditor
shall not be operative so long as any of the Silicon Debt is outstanding, and
said Purchase, Resale and Security Agreement shall in all respects be subject to
all of the terms and provisions of this Subordination Agreement.
"Subordinating Creditor:"
CAITHNESS CORPORATION
By /s/ [Illegible]
----------------------------
Vice President
Address: 161 Chestnut Ridge Road
Saddle River, New Jersey 07458
CONSENT AND AGREEMENT OF BORROWER
The undersigned Borrower hereby approves of, agrees to and consents to all
of the terms and provisions of the foregoing Subordination Agreement and agrees
to be bound thereby and further agrees that any default or event of default by
the Borrower under any present or future instrument or agreement between the
Borrower and the Subordinating Creditor shall constitute an immediate default
and event of default under all present and future instruments and agreements
between the Borrower and Silicon. Borrower further agrees that, at any time and
from time to Lime, the foregoing Agreement may be altered, modified or amended
by Silicon and the Subordinating Creditor without notice to or the consent of
Borrower.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ Howard T. Phelan
------------------------------
President
Accepted:
SILICON VALLEY BANK
By /s/ [ILLEGIBLE]
------------------------------
Title VP
STATE OF NEW YORK )
: ss:
COUNTY OF QUEENS )
On this 2nd day of June, 1992, before me personally came Howard T. Phelan, to me
known and known to me to be the individual described in, and who executed the
foregoing instrument and he duly acknowledged to me that he executed the same.
/s/ Lillian Y. Rodriguez
--------------------------------
Notary Public
LILLIAN Y. RODRIGUEZ
NOTARY PUBLIC, State of New York
No. 41-4959417
Qualified in Queens County
Certificate filed in New York County
Commission Expires November 27, 1995
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Silicon Valley Bank Subordination Agreement
- --------------------------------------------------------------------------------
13. ADDITIONAL PROVISIONS.
(a) The provisions of Section 4 of the Purchase, Resale and Security
Agreement dated October 1, 1991 between Borrower and Subordinating Creditor
shall not be operative so long as any of the Silicon Debt is outstanding, and
said Purchase, Resale and Security Agreement shall in all respects be subject to
all of the terms and provisions of this Subordination Agreement.
"Subordinating Creditor:"
CAITHNESS CORPORATION
By ___________________________
Vice President
Address: 161 Chestnut Ridge Road
Saddle River, New Jersey 07458
CONSENT AND AGREEMENT OF BORROWER
The undersigned Borrower hereby approves of, agrees to and consents to all
of the terms and provisions of the foregoing Subordination Agreement and agrees
to be bound thereby and further agrees that any default or event of default by
the Borrower under any present or future instrument or agreement between the
Borrower and the Subordinating Creditor shall constitute an immediate default
and event of default under all present and future instruments and agreements
between the Borrower and Silicon. Borrower further agrees that, at any time and
from time to Lime, the foregoing Agreement may be altered, modified or amended
by Silicon and the Subordinating Creditor without notice to or the consent of
Borrower.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ [ILLEGIBLE]
------------------------------
President
Accepted:
SILICON VALLEY BANK
By /s/ [ILLEGIBLE]
------------------------------
Title VP
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<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.
-------------------------
WARRANT TO PURCHASE STOCK
Warrant to Purchase Issue Date: June 2, 1992
32,000 Shares of the Expiration Date: June 2, 1997
Preferred Stock of Initial Exercise Price: $5 per share
Natural Gas Vehicle Systems, Inc.
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to
purchase the number of fully paid and non-assessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 Alternative Stock Appreciation Right. At Holder's option, the Company
shall pay Holder the fair market value of the Shares issuable upon conversion of
this Warrant pursuant to Section 1.2 in cash in lieu of such Shares.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in the
case of mutilation, or surrender and cancellation of this Warrant, the Company
at its expense shall execute and deliver, in lieu of this Warrant, a new warrant
of like tenor.
1.7 Repurchase on Sale. Merger or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant, "Acquisition" means
any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2. Assumption of Warrant. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and
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<PAGE>
subsequent closing. The Warrant Price shall be adjusted accordingly.
1.7.3. Nonassumption. If upon the closing of any Acquisition the successor
entity does not assume the obligations of this Warrant and Holder has not
otherwise exercised this Warrant in full, then the unexercised portion of this
Warrant shall be deemed to have been automatically converted pursuant to Section
1.2 and thereafter Holder shall participate in the acquisition on the same terms
as other holders of the same class of securities of the Company.
1.7.4. Purchase Right. Notwithstanding the foregoing, at the election of
Holder, the Company shall purchase the unexercised portion of this Warrant for
cash upon the closing of any Acquisition for an amount equal to (a) the fair
market value of any consideration that would have been received by Holder in
consideration of the Shares had Holder exercised the unexercised portion of this
Warrant immediately before the record date for determining the shareholders
entitled to participate in the proceeds of the Acquisition, less (b) the
aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends Splits. Etc. If the Company declares or pays a dividend
on its common stock (or the Shares if the Shares are securities other than
common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification Exchange or Substitution. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the number of
Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit A).
2.5 No Impairment. The Company shall not, by amendment of its Articles of
Incorporation or through a 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 under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon exercise
or conversion of the Warrant and the number of Shares to be issued shall be
rounded down to the nearest whole Share. If a fractional share interest arises
upon any exercise or conversion of the Warrant, the Company shall eliminate such
fractional share interest by paying Holder amount computed by multiplying the
fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1. Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
<PAGE>
(a) The initial Warrant Price referenced on the first page of this Warrant
is not greater than (i) the price per share at which the Shares were last issued
in an arms-length transaction in which at least $500,000 of the Shares were sold
and (ii) the fair market value of the Shares as of the date of this Warrant
(b) All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) 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;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or any
of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This Warrant is exercisable, in whole or in
part, at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holder written notice of Holder's right to
exercise this Warrant in the form attached as Appendix 2 not more than 90 days
and not less than 30 days before the Expiration Date. If the notice is not so
given, the Expiration Date shall automatically be extended until 30 days after
the date the Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, H reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holders notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
<PAGE>
4.5 Notices. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ [Illegible]
-------------------------------
Chairman of the Board, President or
Vice President
By /s/ [Illegible]
-------------------------------
Secretary or Ass't Secretary
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____ shares of the
Common/Series ___ Preferred [strike one] Stock of _____ pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant . This
conversion is exercised with respect to _____ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
_____________________________
(NAME)
_____________________________
_____________________________
(ADDRESS)
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
_____________________________
(Signature)
_____________________________
(Date)
<PAGE>
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_________________________, ____
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Offer
Dear____:
This is to advise you that the Warrant issued to you described below will
expire on ___________________, 19__.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
(Name of Issuer)
By _____________________________
Its ____________________________
EXHIBIT A
ANTI-DILUTION PROVISIONS
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, or, if the Shares are common stock, less than the then conversion
price of the Company's Series __ Preferred Stock, then the number of shares of
common stock issuable upon conversion of the Shares, or if the Shares are common
stock, the number of Shares issuable upon exercise of the Warrant, shall be
adjusted as a result of Diluting Issuances in accordance with the Holder's
standard form of Anti-Dilution Agreement in effect on the Issue Date.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion
of the Shares, shall be deemed "registrable securities" or otherwise entitled to
"piggy back" registration rights in accordance with the terms of the following
agreement (the "Agreement") between the Company and its investor(s):
___________________________________________________________________________
_____[Identity Agreement by date, title and parties. If no Agreement exists,
indicate by "none".]
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration rights thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached, Holder shall be deemed to be a party to the Agreement.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
<PAGE>
[Logo] Silicon Valley Bank
Antidilution Agreement
Issuer: Natural Gas Vehicle Systems, Inc.
Address: 2250 Cherry Industrial Circle
Long Beach, California
Date: June 2, 1992
THIS AGREEMENT is entered into as of the above date by and between SILICON
VALLEY BANK ("Purchaser"), whose address is 3000 Lakeside Drive, Santa Clara,
California 95054-2895, and the above Company, whose address is set forth above.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire to
set forth the adjustment in the number of Shares issuable upon exercise of the
Warrant as a result of a Diluting Issuance (as defined in Exhibit A to the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set forth
in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Definitions. As used in this Antidilution Agreement, the following terms
have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe for,
purchase, or otherwise acquire common stock or Convertible Securities.
(b) "Convertible Securities" means any evidences of indebtedness, shares of
stock, or other securities directly or indirectly convertible into or
exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a record date for
determining persons entitled to receive, any security (including Options),
whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock (including reissued
shares) issued (or deemed to be issued pursuant to Section 2) after the date of
the Warrant. Additional Common Shares does not include, however, any common
stock issued in a transaction described in Sections 2.1 and 2.2 of the Warrant;
any common stock issued upon conversion of preferred stock outstanding on the
date of the Warrant; the Shares; or common stock Issued as incentive or in a
nonfinancing transaction to employees, officers, directors, or consultants to
the Company.
(e) The shares of common stock ultimately Issuable upon exercise of an
Option (including the shares of common stock ultimately Issuable upon conversion
or exercise of a Convertible Security Issuable pursuant to an Option) are deemed
to be Issued when the Option is Issued. The shares of common stock ultimately
Issuable upon conversion or exercise of a Convertible Security (other than a
Convertible Security Issued pursuant to an Option) shall be deemed Issued upon
Issuance of the Convertible Security.
2. Deemed Issuance of Additional Common Shares. The shares of common stock
ultimately Issuable upon exercise of an Option (including the shares of common
stock ultimately Issuable upon conversion or exercise of a Convertible Security
Issuable pursuant to an Option) are deemed to be Issued when the Option is
Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
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<PAGE>
3. Adjustment of Warrant Price for Diluting Issuances.
3.1 Weighted Average Adjustment. If the Company Issues Additional Common
Shares after the date of the Warrant and the consideration per Additional Common
Share (determined pursuant to Section 9) is less than the Warrant Price in
effect immediately before such Issue, the Warrant Price in effect immediately
before such Issue shall be reduced, concurrently with such Issue, to a price
(calculated to the nearest hundredth of a cent) determined by multiplying the
Warrant Price by a fraction:
(a) the numerator of which is the amount of common stock outstanding
immediately before such Issue plus the amount of common stock that the aggregate
consideration received by the Company for the Additional Common Shares would
purchase at the Warrant Price in effect immediately before such Issue, and
(b) the denominator of which is the amount of common stock outstanding
immediately before such Issue plus the number of such Additional Common Shares.
3.2 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price, the number of Shares issuable upon exercise of the Warrant shall be
increased to equal the quotient obtained by dividing (a) the product resulting
from multiplying (i) the number of Shares issuable upon exercise of the Warrant
and (ii) the Warrant Price, in each case as in effect immediately before such
adjustment, by (b) the adjusted Warrant Price.
3.3 Securities Deemed Outstanding. For the purpose of this Section 3, all
securities issuable upon exercise of any outstanding Convertible Securities or
Options, warrants, or other rights to acquire securities of the Company shall be
deemed to be outstanding.
4. No Adjustment for Issuances Following Deemed Issuances. No adjustment to
the Warrant Price shall be made upon the exercise of Options or conversion of
Convertible Securities.
5. Adjustment Following Changes in Terms of Options or Convertible
Securities. If the consideration payable to, or the amount of common stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. Recomputation Upon Expiration of Options or Convertible Securities. The
Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. Limit on Readjustments. No readjustment of the Warrant Price pursuant to
Sections 5 or 6 shall increase the Warrant Price more than the amount of any
decrease made in respect of the Issue of any Options or Convertible Securities.
8. 30 Day Options. In the case of any Options that expire by their terms
not more than 30 days after the date of Issue thereof, no adjustment of the
Warrant Price shall be made until the expiration or exercise of all such
Options.
9. Computation of Consideration. The consideration received by the Company
for the Issue of any Additional Common Shares shall be computed as follows:
(a) Cash shall be valued at the amount of cash received by the Corporation,
excluding amount paid or payable for accrued interest or accrued dividends.
(b) Property. Property other than cash shall be computed at the fair market
value thereof at the time of the Issue as determined in good faith by the Board
of Directors of the Company.
(c) Mixed Consideration. The consideration for Additional common Shares
Issued together with other property of the Company for consideration that covers
both shall be determined in good faith by the Board of Directors.
(d) Options and Convertible Securities. The consideration per Additional
Common Share for Options and Convertible Securities shall be determined by
dividing:
(i) the total amount, if any, received or receivable by the Company for the
Issue of the Options or Convertible Securities, plus the minimum 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 Company upon exercise of the Options or
conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of
-2-
<PAGE>
such number) ultimately Issuable upon the exercise of such Options or the
conversion of such Convertible Securities.
10. General.
10.1 Governing Law. This Antidilution Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
10.2 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
10.3 Entire Agreement. Except as set forth below, this Antidilution
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
10.4 Notices. etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth in the heading
to this Agreement, or at such other address as Purchaser shall have furnished to
the Company in writing, or (b) if to the Company, at the Company's address set
forth in the heading to this Agreement, or at such other address as the Company
shall have furnished to the Purchaser in writing.
10.5 Severability. In case any provision of this Antidilution Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Antidilution Agreement shall
not in any way be affected or impaired thereby.
10.6 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
Company:
NATURAL GAS VEHICLE SYSTEMS, INC.
By /s/ [Illegible]
----------------------------
President or Vice President
By /s/ [Illegible]
----------------------------
Secretary or Ass't Secretary
Purchaser:
SILICON VALLEY BANK
By /s/ [Illegible]
----------------------------
Title VP
--------------------------
38112-V1 2/10/92
25,321
-3-
<PAGE>
CONVERSION AGREEMENT
THIS AGREEMENT is made as of the 20th day of November, 1996, by and
between NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware corporation with offices
at 5580 Cherry Avenue, Long Beach, California 90805 (the "Company"); and
EQUITABLE RESOURCES ENERGY COMPANY, a West Virginia corporation with offices at
420 Boulevard of the Allies, Pittsburgh, Pennsylvania 15219 ("Equitable").
RECITALS
WHEREAS, Equitable is the holder of that certain demand secured promissory
note dated November 20, 1995 (the "Note"), bearing annual interest at 10%,
executed and delivered by the Company in the original principal amount of
$300,000; and
WHEREAS, the Company and Equitable desire to convert all indebtedness due
under the Note into Common Stock of the Company at a conversion price equal to
the initial public offering price per share (the "IPO Price") of the Company's
common stock, $.01 par value ("Common Stock"), in a public offering of
securities of the Company (an "IPO");
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Conversion. In the event that the Company shall have a registration
statement declared effective by the Securities and Exchange Commission with
regard to securities of the Company being sold in an IPO (such date being
hereinafter referred to as the "Effective Date"), the Company shall promptly
notify Equitable of such IPO and Equitable shall surrender the Note to the
Company on the closing date of the IPO (the "Closing Date") at the place and
time specified for such closing. Within five (5) business days after the Closing
Date, the Company shall issue and deliver to Equitable, registered in
Equitable's name, a certificate or certificates for the Conversion Shares (as
hereinafter defined). The Conversion Shares, when issued and delivered in
accordance with this Agreement, will be validly issued, fully-paid and
non-assessable shares of Common Stock of the Company, free and clear of any
mortgage, deed of trust, pledge, lien, security interest or any charge or
encumbrance of any nature. The Company has duly reserved for issuance from the
authorized but unissued Common Stock of the Company such number of shares
thereof sufficient for issuance under this Agreement.
2. Conversion Shares. The "Conversion Shares" shall be that number of
shares of Common Stock of the Company equal to the quotient obtained by dividing
the amount of aggregate indebtedness of the Company to Equitable under the Note
as of the Closing Date, including all obligations for the repayment of principal
thereunder together with all accrued and unpaid interest through such Closing
Date (the "Indebtedness"), by the IPO Price. Any fractional shares resulting
from such calculation shall be eliminated by rounding such fractional share
interest up to the nearest whole number of shares of Common Stock.
3. Investment Purpose. Any acquisition of Conversion Shares by Equitable
hereunder will be for investment purposes only, for its own account, and not
with a view to the further distribution thereof. Equitable acknowledges that the
Conversion Shares will not have been registered under the Securities Act of
1933, as amended (the "Act"), or the securities laws
<PAGE>
of any state and may not be offered or sold by Equitable unless subsequently
registered under said Act and all applicable securities laws or unless
exemptions from the registration requirements thereof are available for the
transaction. The certificates representing the Conversion Shares shall bear a
legend reflecting the foregoing restrictions on transfer.
4. Cancellation of Note. Upon the surrender of the Note to the Company and
the issuance of the Conversion Shares in accordance with the terms of this
Agreement, the Note and all indebtedness thereunder shall be deemed cancelled as
of the Closing Date.
5. Lock-up Agreement. In connection with the IPO, Equitable hereby agrees
that, for a period of eighteen (18) months following the Effective Date (the
"Lock-up Period"), it will not, directly or indirectly, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose of any shares of Common Stock or other capital stock of the Company,
or any securities convertible into, or exercisable or exchangeable for, any
shares of Common Stock or other capital stock of the Company (collectively, the
"Securities"), without the prior written consent of Commonwealth Associates, as
representative of the several underwriters for the IPO; provided, however, that
(a) Equitable may make private sales or bona fide gifts of Securities during the
Lock-up Period if the proposed transferee agrees to be bound by the restrictions
contained in this Section 5 and (b) the restrictions contained in this Section 5
shall not apply to Equitable with respect to the laws of descent and
distribution.
6. Assignment. The respective rights and obligations of Equitable and the
Company under this Agreement shall not be assignable by either Equitable or the
Company without the prior written consent of the other, provided, however, that
any such assignment shall not release Equitable from its obligations hereunder.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Nothing herein
express or implied is intended to confer upon any person, other than the parties
hereto and their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
7. Notices. Any notice, consent, request, claim, demand, instruction or
other communication required, contemplated, or permitted to be given hereunder
by Equitable or the Company shall be in writing and shall be delivered either by
personal delivery, private courier service or postage pre-paid, registered or
certified mail, return receipt requested, addressed:
If to Equitable, to:
Equitable Resources Energy Company
420 Boulevard of the Allies
Pittsburgh, Pennsylvania 15219
Attention: President
If to the Company, to:
Natural Gas Vehicle Systems, Inc.
5580 Cherry Avenue
2
<PAGE>
Long Beach, California 90805
Attention: John R. Bacon, President
with a copy to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Lawrence B. Fisher, Esq.
or to such other address as either party may from time to time designate by
notice to the other. Notice by courier or registered or certified mail shall be
effective on the date it is officially recorded as delivered to the intended
recipient by return receipt or the date of attempted delivery where delivery is
received by the intended recipient. Notice by personal delivery shall be deemed
to have been delivered to and received by the addressee, and shall be effective,
on the date of personal delivery.
8. Termination. This Agreement shall terminate and be null and void with
no further legal effect in the event that the IPO shall not have been
consummated by February 15, 1997.
9. Entire Agreement; Modification. This Agreement sets forth the entire
understanding of the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings, whether oral or written.
This Agreement shall not be modified, amended or terminated except by written
agreement of the parties. Captions appearing in this Agreement are for
convenience only and shall not be deemed to explain, limit, or amplify the
provisions hereof.
10. Waiver. The terms, covenants, representations, warranties and
conditions of this Agreement may be waived only by a written instrument executed
by the party waiving compliance. The failure of a party at any time to require
performance of any provisions hereof shall, in no manner, affect the right at a
later date to enforce the same. No waiver by a party of any condition, or breach
of any provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
condition or the breach of any other provision, term, covenant, representation
or warranty of this Agreement.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
12. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ATTEST: EQUITABLE RESOURCES ENERGY
COMPANY
/s/ Henry E. Reich, Jr. By: /s/ Jeffrey C. Swoveland
- ---------------------------- --------------------------
Henry E. Reich, Jr. Name: Jeffrey C. Swoveland
Assistant Corporate Secretary Title: Treasurer
ATTEST: NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ Howard T. Phelan
- ---------------------------- --------------------------
Name: Howard T. Phelan
Title: Chairman & CEO
4
<PAGE>
PROMISSORY NOTE
$250,000 Long Beach, California
March 16, 1996
UPON DEMAND, for value received, Natural Gas Vehicle Systems, Inc., a
Delaware corporation, whose address is 2250 Cherry Industrial Circle, Long
Beach, California 90805 (the "Maker") promises to pay to the order of
Caithness/NCF L.P., a Delaware limited partnership, whose address is 1114
Avenue of the Americas, 35th Floor, New York, New York 10036-7790, the
principal sum of TWO-HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($250,000)
together with interest thereon at the rate of Prime rate plus 3% per annum.
Maker waives presentment, notice of dishonor, protest and notice of
protest. If Maker fails to make timely the payments required by this Promissory
Note, Maker shall pay costs of collection and reasonable attorneys' fees.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ Martin Richards
-------------------------------
Martin Richards
Title: V/P Controller
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated April 11, 1996, except as to the
first two paragraphs of note 17, which is dated as of October 10, 1996, with
respect to the consolidated financial statements of Natural Gas Vehicle
Systems, Inc. and subsidiary included herein, and to the reference to our
firm under the heading "Experts" in the Registration Statement.
Our report dated April 11, 1996, except as to the first two paragraphs of
note 17, which is dated as of October 10, 1996, contains an explanatory
paragraph that states that the Company has suffered recurring losses from
operations and has a net capital deficiency, which raise substantial doubt
about its ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome
of that uncertainty.
/s/ KPMG Peat Marwick LLP
December 20, 1996
Long Beach, California
