<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1997
REGISTRATION NO. 333-31431
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NEWCOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3699 95-4485355
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION NUMBER)
31166 VIA COLINAS
WESTLAKE VILLAGE, CALIFORNIA 91362
(818) 597-3200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SULTAN W. KHAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEWCOM, INC.
31166 VIA COLINAS
WESTLAKE VILLAGE, CALIFORNIA 91362
(818) 597-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JORGE A. DEL CALVO, ESQ. THOMAS J. POLETTI, ESQ.
L. WILLIAM CARACCIO, ESQ. KATHERINE J. BLAIR, ESQ.
PILLSBURY MADISON & SUTRO LLP DARREN O. BIGBY, ESQ.
2700 SAND HILL ROAD FRESHMAN, MARANTZ, ORLANSKI, COOPER
MENLO PARK, CALIFORNIA 94025 & KLEIN
TEL. (415) 233-4500 9100 WILSHIRE BOULEVARD
FAX. (415) 233-4545 BEVERLY HILLS, CALIFORNIA 90212
TEL. (310) 273-1870
FAX. (310) 274-8357
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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. [_]
(Continued on following page)
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<PAGE>
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(Continued from previous page)
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE PER OFFERING REGISTRATION
REGISTERED REGISTERED(1) SECURITY(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Units, each Unit consists
of one share of Common
Stock, par value $.001
per share, and one
Common Stock Purchase
Warrant(3) ............. 2,300,000 $ 10.00 $23,000,000 $ 6,970
- --------------------------------------------------------------------------------
Common Stock, par value
$.001 per share(4)...... 2,300,000
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Common Stock Purchase
Warrants(5)............. 2,300,000
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Common Stock, par value
$.001 per share,
underlying Warrants(6).. 2,300,000 $ 15.00 $34,500,000 $10,455
- --------------------------------------------------------------------------------
Representative's
Option(7)............... 1 $200.00 $ 200.00 $ 0
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Units underlying
Representative's Option,
each Unit consists of
one share of Common
Stock, par value $.001
per share, and one
Common Stock Purchase
Warrant................. 200,000 $ 11.00 $ 2,200,000 $ 667
- --------------------------------------------------------------------------------
Common Stock, par value
$.001 per share,
underlying
Representative's
Option.................. 200,000
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Common Stock Purchase
Warrants underlying
Representative's
Option.................. 200,000
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Common Stock, par value
$.001 per share,
underlying Common Stock
Purchase Warrants
underlying
Representative's
Option.................. 200,000 $ 15.00 $ 3,000,000 $ 909
- --------------------------------------------------------------------------------
Total Fee................ $19,001*
</TABLE>
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* $16,152 of this amount was previously paid.
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock and Warrants as may be issued by reason of
adjustments in the number of shares of Common Stock and Warrants pursuant
to anti-dilution provisions contained in the Warrants and Representative's
Option. Because such additional shares of Common Stock and Warrants will,
if issued, be issued for no additional consideration, no registration fee
is required.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Includes 300,000 Units subject to the Underwriters' overallotment option
(the "Underwriters' Over-allotment Option"). The Common Shares included in
these Units will be offered by Aura Systems, Inc. and the Warrants
included in these Units will be offered by the Registrant.
(4) Includes 300,000 shares of Common Stock subject to the Underwriters' Over-
allotment Option.
(5) Includes 300,000 Warrants subject to the Underwriters' Over-allotment
Option. The Warrants are exercisable over a five year period commencing on
the Closing Date of the Offering at $14.85 per share.
(6) The number of shares of Common Stock specified is the number which may be
acquired upon exercise of the Warrants at the maximum exercise price
thereof.
(7) The Representative's Option entitles the Representative to purchase
200,000 Units at $11.00 per Unit. The Common Stock and Warrants included
in the Units underlying the Representative's Option may only be purchased
together. The Representative's Option is exercisable over a four year
period commencing on the Closing Date of the Offering.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 26, 1997
PROSPECTUS
2,000,000 UNITS
NEWCOM, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE COMMON STOCK PURCHASE
WARRANT
-----------
Each Unit ("Unit") of NewCom, Inc., a Delaware corporation (the "Company"),
consists of one share of Common Stock, $0.001 par value per share ("Common
Share"), and one Common Stock Purchase Warrant ("Warrant"). All of the Units
offered hereby (the "Offering") are being sold by the Company. The anticipated
initial public offering price of the Units is between $8.00 and $10.00 per Unit
("Offering Price"), of which $.10 is the public offering price allocated to the
Warrants. Upon completion of the Offering, the Common Shares and the Warrants
will immediately trade separately. Each Warrant entitles the holder to purchase
one share of Common Stock at a price of 150% of the Offering Price until that
date which is five years from the date of this Prospectus. The Warrants are
redeemable at the option of the Company, at $.05 per Warrant, at any time on or
after that date which is one year from the date of this Prospectus, or such
earlier date as may be determined by Joseph Charles & Associates, Inc., the
representative (the "Representative") of the Underwriters, upon at least 30
days' notice if the closing price of the Common Stock equals or exceeds 200% of
the Offering Price for 20 consecutive trading days ending within 30 days prior
to the date notice of redemption is given, and at such time as there is a
current effective registration statement covering the Common Shares underlying
the Warrants. Upon 30 days written notice to all holders of the affected class
of Warrants, the Company shall have the right to reduce the exercise price
and/or extend the term of the Warrants. The Units, Common Shares and Warrants
offered hereby are sometimes hereinafter collectively referred to as the
"Securities."
The Company is a majority-owned subsidiary of Aura Systems, Inc., a Delaware
corporation ("Aura"). Upon completion of the Offering, Aura will own
approximately 75% of the outstanding Common Stock of the Company (approximately
72% if the Underwriters' Over-allotment Option is exercised in full) and will
continue to control the Company. See "Principal Stockholders" and "Relationship
with Aura and Certain Transactions."
Prior to the Offering, there has been no public market for the Common Shares
or Warrants of the Company and there can be no assurance that such a market
will develop or be sustained after the Offering. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price of the Units and the terms of the Warrants. The Company has
applied to have the Common Shares and Warrants approved for quotation on the
Nasdaq National Market under the symbols NWCM and NWCMW, respectively, and the
Common Shares and the Warrants will trade separately immediately after the
Offering.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Unit............................ $ $ $
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Total(3)............................ $ $ $
</TABLE>
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(see Notes, next page)
-----------
The Securities are offered by the several 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. The Underwriters reserve the right to withdraw, cancel or modify
the Offering and to reject any offer to purchase in whole or in part. It is
expected that delivery of the certificates representing the Securities will be
made against payment therefor at the offices of Joseph Charles & Associates,
Inc., 9701 Wilshire Boulevard, Ninth Floor, Beverly Hills, California 90212, or
through the facilities of Depository Trust Company, on or about , 1997.
JOSEPH CHARLES & ASSOCIATES, INC.
The date of this Prospectus is , 1997
<PAGE>
NOTES
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a 2.5% non-accountable expense
allowance, of which $40,000 has previously been paid by the Company, and
(ii) the sale to the Representative for $200 of an option (the
"Representative's Option") to purchase 200,000 Units at a price of 110% of
the Offering Price, exercisable over a period of four years commencing one
year from the date of this Prospectus. The Company and Aura have also
agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be
$1,000,000, including the Representative's non-accountable expense
allowance.
(3) Aura and the Company have granted the Underwriters an option (the
"Underwriters' Over-allotment Option"), exercisable within 60 days from
the date of this Prospectus, to purchase up to 300,000 additional Units on
the same terms as set forth above, solely for the purpose of covering
over-allotments, if any. The Common Shares included in such additional
Units will be offered by Aura and the Warrants included in such additional
Units will be offered by the Company. If the Underwriters' Over-allotment
Option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions, and Proceeds to the Company will be $ , $
and $ , respectively, and Aura will receive gross proceeds of $ after
payment of $ of Underwriting Discounts and Commissions. See
"Underwriting."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OR
WARRANTS, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
CONVERTING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
FORWARD-LOOKING STATEMENTS
When included in this Prospectus, the words "expects," "intends,"
"anticipates," "plans," "projects" and "estimates," and analogous or similar
expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," are inherently subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward-looking statements. For a discussion of
certain of such risks, see "Risk Factors." These forward-looking statements
speak only as of the date of this Prospectus. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
----------------
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, and in
accordance therewith will file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The Company
intends to furnish its stockholders and the holders of Securities with annual
reports containing audited financial statements and such other periodic
reports as the Company deems appropriate or as may be required by law. The
Company's fiscal year ends February 28 (February 29 during leap years).
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
(i) assumes no exercise of the Warrants, the Underwriters' Over-allotment
Option or the Representative's Option, (ii) does not include a total of
1,000,000 shares of Common Stock reserved for issuance upon exercise of options
either outstanding or available for grant under the Company's 1997 Stock
Incentive Plan (the "Stock Plan"), and (iii) has been adjusted to reflect a
recapitalization of the Company (the "Recapitalization") to take effect
immediately prior to the closing date of the Offering (the "Closing Date")
pursuant to which (x) a stock split of the outstanding shares of Common Stock
(the "Stock Split") will be effected as a result of which the outstanding
shares of Common Stock of the Company immediately prior to the Closing Date
will be 8,000,000 (for purposes of this Prospectus, assuming an Offering Price
of $9.00 per Unit, such Stock Split is 7,555.556-for-1.0), and (y) the
Certificate of Incorporation of the Company will be amended (the "Certificate
Amendment") to increase the number of authorized shares of Common Stock to
50,000,000 and to create and authorize 5,000,000 shares of Preferred Stock, and
(z) Aura will convert (the "Conversion") $4.0 million in intercompany debt from
NewCom into that number of shares of Common Stock equal to $4.0 million divided
by the Offering Price (for purposes of this Prospectus, assuming an Offering
Price of $9.00 per Unit, Aura will receive 444,444 shares of Common Stock in
the Conversion). See "Description of Securities" and "Underwriting." A glossary
of certain capitalized terms used in this Prospectus begins on page 63.
THE COMPANY
NewCom, Inc. ("NewCom" or the "Company") designs, manufactures and markets
high performance computer communication and multimedia products for the
personal computer ("PC") market. NewCom's communication products include a line
of high speed external and internal data/fax and voice modems, which link PCs
through the worldwide web and through direct connections over telephone lines,
and NewCom's WebPal, an Internet appliance enabling users to access the
worldwide web and perform Internet-specific tasks through their existing
television screens. NewCom's multimedia product line includes a broad range of
add-in subsystems, upgrade kits and Internet access kits that incorporate CD-
ROM drives, speakers, sound cards, modems, microphones and other telephony and
sound solutions. The Company's multimedia products are targeted both to users
that desire to convert their PCs into multimedia systems and to users desiring
to upgrade their current multimedia systems with faster CD-ROM drives, higher
quality sound and increased functionality.
The Company believes that demand for PC communication and multimedia products
is driven by a variety of factors including (i) the growing installed base of
PCs, particularly those sold into the consumer and small office/home office
("SOHO") markets, (ii) continuing advances in technology leading to faster
modems and CD-ROM drives and expanded multimedia functionality and (iii) the
rapid growth of Internet content, bandwidth-intensive interactive software, on-
line services and emerging PC applications such as digital video capture and
playback, video conferencing, telephony, paperless faxing, advanced desktop
publishing, voicemail, high resolution three-dimensional ("3D") games, and
interactive movies and other entertainment media, which increasingly
demonstrates to consumers the need for PC communications and multimedia
products.
NewCom had gross revenues of $73.1 million and $16.1 million during its
fiscal year ended February 28, 1997 ("Fiscal 1997") and the three months ended
May 31, 1997 (the "first quarter of Fiscal 1998"), respectively. The Company's
sales channels include a broad network of national and regional independent
distributors and leading retail and mass merchant chains and catalogues and, to
a lesser extent, original equipment manufacturers and value added resellers
("OEMs/VARs"). NewCom's distributor customers, which accounted for 50% of the
Company's gross revenues during Fiscal 1997, include Dinorall Corporation (dba
Dinexim Corp.), MicroInformatica Corporation and Southern Electronic
Distributors, Inc. The Company's retail
3
<PAGE>
and mass merchant customers, which accounted for 45% of gross revenues during
the same period, include Circuit City Stores, Inc., Best Buy Company, Inc. and
Fry's Electronics.
NewCom does not employ an internal research and development staff. Rather,
the Company strives to identify key emerging technologies in the PC
communication and multimedia industries and to innovatively combine these
technologies into its products using manufacturing techniques that enable the
Company to rapidly bring to market high-quality products at competitive prices.
New products currently being designed by NewCom and anticipated to be
introduced within the next year include a line of Integrated Services Digital
Network ("ISDN") modems, a 33,600 bps modem with video conferencing capability,
and multimedia kits featuring Digital Video Disc-Read Only Memory ("DVD-ROM"),
Compact Disk Recordable ("CDR"), and CDR MPEG (video encoding and decoding)
drives, as well as a 3D graphics card and a deluxe version of the WebPal
Internet appliance. Using integral compression, NewCom's ISDN modems are being
designed to support data rates of up to 512 Kbps. Moreover, unlike most ISDN
modems available today, NewCom's ISDN modems are being designed to function as
both ISDN and standard POTS modems, making it possible for users who have
upgraded their PCs to remain compatible with those who have not. In addition,
the Company is exploring opportunities to design new families of communications
and multimedia products utilizing emerging technologies in the industry such as
cable modem and Asymmetric Digital Subscriber Line ("ADSL") modem technology.
The Company was incorporated under the laws of Delaware in June 1994. The
Company's executive offices are located at 31166 Via Colinas, Westlake Village,
California 91362 and its telephone number is (818) 597-3200.
The NewCom logo is a trademark of the Company. NEWCOM(R) is a registered
trademark of the Company. NavPal, NetTalk, NetFax, NewPal, NewTalk and WebPal
are trademarks of the Company for which trademark applications are pending.
This Prospectus includes product names, trade names and marks of companies
other than the Company. All other company or product names are trademarks,
registered trademarks, trade names or marks of their respective owners and are
not the property of the Company.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 2,000,000 Units(1)
Common Stock Outstanding prior to 8,000,000 Shares
the Offering.....................
Common Stock to be Outstanding 10,000,000 Shares(2)
after the Offering...............
Use of Proceeds................... Proceeds from sale of the Units will be
used for the acquisition of products and
product components, repayment of existing
commercial indebtedness, marketing and
sales and working capital and other general
corporate purposes. The Company will not
receive the proceeds (if any) from the sale
of Common Shares underlying any Units sold
upon exercise of the Underwriters' Over-
allotment Option. See "Use of Proceeds."
Risk Factors...................... The Securities offered hereby involve a
high degree of risk and immediate
substantial dilution. See "Risk Factors"
and "Dilution."
Proposed Nasdaq National Market Common Shares--"NWCM"
symbols.......................... Warrants--"NWCMW"
</TABLE>
- --------
(1) Until completion of the Offering, the Units may only be purchased on the
basis of one Common Share and one Warrant per Unit. Upon completion of the
Offering, the Common Shares and the Warrants will be immediately detachable
and separately transferable. Each Warrant entitles the holder to purchase
one Common Share at a price per share equal to 150% of the Offering Price
until that date which is five years from the date of this Prospectus. The
Warrants are redeemable at the option of the Company, at $.05 per Warrant,
at any time after the first anniversary of the date of this Prospectus, or
such earlier date as may be consented to in writing by the Representative,
upon 30 days prior written notice, if the closing price of the Common
Shares, as reported by the principal exchange on which the Common Shares
are quoted, equals or exceeds 200% of the Offering Price for 20 consecutive
trading days within the 30 day period preceding the date of the notice of
redemption and at such time as there is a current effective registration
statement covering the Common Shares underlying the Warrants. Upon 30 days
written notice to all holders of the Warrants, the Company shall have the
right to reduce the exercise price and/or extend the term of the Warrants.
See "Description of Securities."
(2) Excludes (i) 2,000,000 shares of Common Stock reserved for issuance upon
exercise of the Warrants, (ii) 300,000 shares of Common Stock included in
the Underwriters' Over-allotment Option, (iii) 300,000 shares of Common
Stock issuable upon exercise of the Warrants included in the Underwriters'
Over-allotment Option, (iv) 200,000 shares of Common Stock issuable upon
exercise of the Representative's Option, (v) 200,000 shares of Common Stock
issuable upon exercise of the Warrants included in the Representative's
Option, and (vi) 546,690 shares of Common Stock issuable upon the exercise
of options outstanding as of June 30, 1997. See "Description of
Securities," "Underwriting" and "Management--Stock Incentive Plan."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED MAY 31,
FEBRUARY 28, YEAR ENDED FEBRUARY 28, ---------------------------
1995 FEBRUARY 29, 1996 1997 1996 1997
------------ ----------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross revenues.......... $2,128,361 $33,312,587 $73,120,781 $7,465,720 $16,081,392
Net revenues............ 2,103,438 31,197,429 50,631,690 7,441,383 15,429,677
Gross profit............ 43,893 1,066,184 17,012,606 2,586,871 5,031,794
Income (loss) from oper-
ations................. (383,927) (3,905,880) 5,163,947 955,173 2,296,067
Net income (loss)....... (380,217) (5,185,331) 3,337,271 614,412 1,066,482
Net income (loss) per
share(1)............... $(.05) $(.69) $.44 $.08 $.14
Number of shares used in
computing per share
amounts(1)............. 7,555,556 7,555,556 7,555,556 7,555,556 7,555,556
Pro forma net income per
share(2)............... $.42 $.13
Number of shares used in
computing pro forma net
income per share(2).... 8,000,000 8,000,000
<CAPTION>
MAY 31, 1997
----------------------------------------
PRO FORMA
FEBRUARY 28, 1997 ACTUAL PRO FORMA(2) AS ADJUSTED(3)
----------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets................. $44,329,127 $52,476,020 $52,476,020 $64,626,020
Working capital...................... 21,916,553 31,565,837 31,565,837 47,215,837
Total assets......................... 47,435,171 55,272,094 55,272,094 67,422,094
Total current liabilities............ 22,412,574 20,910,183 20,910,183 17,410,183
Due to Aura(4)....................... 17,249,874 25,522,706 21,522,706 21,522,706
Stockholders' equity................. 7,772,723 8,839,205 12,839,205 28,489,205
</TABLE>
- --------
(1) See Note 1 of Notes to Financial Statements for information regarding
calculation of net income (loss) per share.
(2) Gives effect to the Conversion. Assuming the Conversion was effected June
1, 1996, pro forma net income would be approximately $3,981,000 or $.50 per
share, for the twelve months ended May 31, 1997.
(3) Adjusted to reflect the sale by the Company of 2,000,000 Units offered
hereby at an assumed Offering Price of $9.00 per Unit and the application
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
(4) Represents long-term loans made by Aura to the Company to cover working
capital expenses. At June 30, 1997, the aggregate amount due by the Company
to Aura was approximately $17.0 million.
6
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. Prospective investors should consider carefully the following risk
factors in addition to the other information presented in this Prospectus,
before purchasing the Securities offered hereby. This Prospectus contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from the results discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include those discussed below,
as well as those discussed elsewhere in this Prospectus.
RISK FACTORS RELATING TO THE COMPANY
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS
The Company's future operating results may vary significantly from period to
period as a result of a number of factors, many of which are beyond the
Company's control. These factors include the timing and volume of orders
received during the period, the impact of price competition on the Company's
average selling prices, the availability and pricing of components for the
Company's products, market acceptance of new product introductions by the
Company and its competitors, the ability of the Company to timely collect
outstanding accounts receivable, changes in product or distribution channel
mix, the timing of expenditures in anticipation of future sales, product
returns or price protection charges from customers, the inventory levels and
financial health of the Company's customers, the overall state of the PC
industry and economic conditions generally. The volume and timing of orders
received during a quarter are difficult to forecast. Customers generally order
on an as-needed basis and, accordingly, the Company has historically operated
with a relatively small backlog. Moreover, as often occurs in the PC industry,
a disproportionate percentage of the Company's net sales in any quarter may be
generated in the last month of the quarter. As a result, a shortfall in sales
in any quarter as compared to expectations may not be identifiable until the
end of the quarter. Notwithstanding its relatively small backlog and the
difficulty in forecasting future sales, the Company generally must plan
production, order components and undertake its development, sales and
marketing activities and other commitments months in advance. Accordingly, any
shortfall in revenues in a given quarter may impact the Company's operating
results due to an inability to adjust expenses or inventory during the quarter
to match the level of revenues for the quarter. Although the Company, through
its use of "Just-in-Time" purchasing, whereby components and supplies are
purchased just before they are needed in the manufacturing cycle, and other
manufacturing strategies, has generally been able to avoid problems associated
with excess inventory, there can be no assurance that the market factors
described above will not cause the Company to possess excess inventory in one
or more future quarters, which could result in cash flow difficulties as well
as expenses associated with inventory writeoffs.
The Company's gross margins have been and will continue to be subject to
quarterly fluctuations, due to the market factors described above and changes
in the Company's mix of products sold and in the mix of its distribution
channels. The Company's multimedia products typically have higher gross
margins than its communications products. The Company's efforts to increase
its sales of communication products as a percentage of total revenues in
future periods will result in a reduction in its overall gross margins.
Currently the Company is attempting to increase sales to OEMs/VARs, which
traditionally have had lower gross margins, and to significantly increase its
sales to the retail/mass merchant channel, which typically provides higher
gross margins than OEM/VAR sales but requires higher sales and marketing
expenses. In addition, the Company's anticipated new product introductions,
which typically have higher initial development, production and marketing
expenses, may further negatively impact the Company's future operating
results. Moreover, the Company's industry is characterized by intense
competition and declining average selling prices. As a result of the foregoing
trends and competitive pricing pressures, the Company's margins and results of
operations may decline in the future from the levels experienced to date.
The Company believes that, due to industry seasonality, demand for the
Company's products is strongest during the fourth calendar quarter of the
year, as a result of year-end business purchases and holiday sales. This
seasonality may become more pronounced in the future to the extent that a
greater proportion of the Company's sales consist of sales into the
retail/mass merchant channel.
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LIMITED HISTORY OF INDEPENDENT OPERATIONS; MANAGEMENT OF EXPANSION
While the Company has experienced substantial growth in total revenues since
its inception in 1994, the Company incurred net losses of approximately
$380,000 and $5.2 million, respectively, for the nine months ended February
28, 1995 ("Fiscal 1995") and the fiscal year ended February 29, 1996 ("Fiscal
1996"). Prior to the Offering, the Company benefitted from the financial,
administrative and other resources by Aura. Accordingly, the Company's
prospects must be evaluated in light of the risks, expenses and difficulties
it encounters as an independent business.
Since March 1, 1996, the Company has experienced a significant expansion in
its overall level of business and operations, including product design,
marketing, technical support and sales and distribution. The Company's full-
time employee base has grown from 35 at March 1, 1996, to 73 at June 30, 1997.
This expansion in the scope of the Company's business and operations resulted
in a need for significant investment in infrastructure and systems. While
growth of the Company's business has generated significant accounts
receivable, much of the Company's available cash has been required to finance
the Company's capital expenditures and operations, particularly in the first
quarter of Fiscal 1998. Due to the increases in the Company's overhead and
operating expenses resulting from this expansion, the Company's operating
results, and opportunities for future growth, may be adversely affected if its
revenues remain flat or do not increase to the extent anticipated by the
Company. The Company's accounts receivable have recently increased
significantly due to greater revenues and also due to its receivables being
outstanding for a longer period. This longer collection period resulted, in
part, from the Company's revenue growth increasing beyond the capacity of its
credit and collections personnel. Of the Company's accounts receivable net at
May 31, 1997 of $32.8 million, $20.9 million was over 90 days old and $9.8
million remained outstanding as of August 19, 1997. In response, the Company
has increased the size of its credit and collections staff and intends to add
additional staff in the future. The inability of the Company to collect
significant portions of its accounts receivable on a timely basis or to obtain
adequate financing, in addition to the proceeds of this Offering, to meet its
cash requirements could limit the Company's future growth. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
In addition, the Company's growth has placed significant demands on the
Company's management and on its financial and internal infrastructure. The
Company's future operating results depend on its ability to successfully
implement operating, manufacturing and financial procedures and
infrastructure, to improve coordination among different operating functions,
to strengthen management information systems and telecommunications systems,
and to continue to hire additional personnel, particularly in its customer
service, accounts receivable, engineering and technical support organizations.
Although management has taken actions intended to improve these areas and will
execute the Services Agreement with Aura on the closing of this Offering,
there can be no assurance that the Company will be able to manage these
activities and implement these additional procedures, systems and
infrastructure successfully, and any failure to do so would have a material
adverse effect upon the Company's operating results. There can be no assurance
that the Company's management team and other new personnel can successfully
manage the Company's rapidly evolving business, and failure to do so would
have a material adverse effect upon the Company's operating results.
FUTURE CAPITAL REQUIREMENTS; FUNDING BY AURA; UNCERTAINTY OF ADDITIONAL
FUNDING
The Company incurred a net loss of $5.1 million in Fiscal 1996. Although the
Company achieved profitability on an annual basis in Fiscal 1997 and the first
quarter of Fiscal 1998, there can be no assurance that revenue growth or
profitability will continue on a quarterly or annual basis in the future. The
Company operates in a capital-intensive industry. Since its formation, the
Company has financed it operations and capital requirements primarily with
revenues generated from sales, inter-company loans received from Aura and a
secured commercial line of credit. At June 30, 1997, the Company's outstanding
indebtedness to Aura and under the credit line was approximately $17.0 million
and $3.6 million, respectively. Immediately prior to the Closing Date, the
Company intends to discharge $4.0 million of the amount due to Aura by
effecting the Conversion. While the Company's current cash projections do not
contemplate the need to borrow additional funds from Aura
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following the completion of this Offering, there can be no assurance that
future events will not cause the Company to look to Aura for funding. While
Aura has indicated that it will not provide working capital to the Company on
a basis consistent with past practices, the Company has not received any
indication from Aura that it would not provide term funding to the Company in
the case of unforeseen circumstances. While the Company intends to partially
repay the amount owing under its commercial line of credit with a portion of
the net proceeds of this Offering, management's internal cash projections
estimate future borrowings under such facility or any replacement thereof to
finance operations in an amount equal to or in excess of such repaid amount
within the 12-month period following the completion of this Offering. As a
result, the Company will not significantly benefit from any reduction in
interest expense as a result of such debt repayment.
The Company believes that current and future available capital resources,
including the net proceeds from the Offering, cash flow from operations, and
other existing sources of liquidity, will be adequate to fund its operations
for the 12-month period following the date of this Prospectus including, but
not limited to, funding of the Company's $8.25 million firm commitment to
purchase WebPal units manufactured for the Company (see Note 13 of Notes to
Financial Statements). However, there can be no assurance that sufficient
funds will be available following the completion of the Offering or that
future events will not cause the Company to seek additional capital sooner
including, but not limited to, the failure by the Company to timely collect
outstanding accounts receivable. To the extent the Company is in need of any
additional financing, there can be no assurance that it will be available to
the Company from Aura or any other source on terms acceptable to the Company,
or at all. If additional funds are raised by issuing equity securities,
further dilution to the existing stockholders may result. If adequate funds
are not available, the Company may be required to delay, scale back or
eliminate its product design, manufacturing and marketing programs or to
obtain funds through arrangements with partners or others that may require the
Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain adequate
financing 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."
RAPID TECHNOLOGICAL CHANGE; SHORT PRODUCT LIFE CYCLES
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions, evolving industry
requirements and short product life cycles. The Company believes that these
trends will continue into the foreseeable future. The Company believes that
its future success will depend in large part upon its ability to enhance its
existing products and to successfully bring to market new products that meet
customer requirements and gain market acceptance. There can be no assurance
that the Company will be successful in designing product enhancements or new
products on a timely basis, if at all, or that the Company will be able to
successfully market these enhancements and new products once designed. Since
the Company does not develop internally the software or hardware technology
used in its products, the Company is dependent on its ability to acquire on
commercially reasonable terms the proprietary technology of others. The
Company must monitor industry trends and make choices in selecting new
technologies and features to incorporate into its products. Each new product
cycle presents new opportunities for current or prospective competitors of the
Company to gain market share. If the Company does not successfully introduce
new products within a given product cycle, the Company's sales will be
adversely affected for that cycle and possibly subsequent cycles. Any such
failure could also impair the Company's brand name and ability to command
retail shelf space in future periods. Moreover, because of the short product
life cycles coupled with long lead times for many components used in the
Company's products, the Company may not be able to quickly reduce its
production or inventory levels in response to unexpected shortfalls in sales
or, conversely, to increase production in response to unexpected demand.
Sales of individual products and product lines are typically characterized
by substantial declines in sales, pricing and margins toward the end of the
respective product's life cycle, the precise timing of which may be difficult
to predict. As new products are planned and introduced, the Company attempts
to monitor the inventory of older products and to phase out their manufacture
in a controlled manner. Nevertheless, the Company could experience unexpected
reductions in sales of older generation products as customers anticipate new
products. These reductions could give rise to additional charges for obsolete
or excess inventory, returns of older
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generation products by distributors and mass merchant customers, or
substantial price protection charges. See "--Product Return Risks." To the
extent that the Company is unsuccessful in managing product transitions, its
business and operating results could be materially adversely affected.
The Company's multimedia products are individual add-in subsystems which
function with PCs to provide additional multimedia functionality.
Historically, as a given functionality becomes technologically stable and
widely accepted by PC users, the cost of providing the functionality is
typically reduced by means of large scale integration into semiconductor chips
which are then incorporated onto PC motherboards. The Company expects that
such migration will, in fact, occur with respect to the functionality provided
by the Company's current products. The Company's success is largely dependent
on its ability to continue to design products which incorporate new and
rapidly evolving technologies that system manufacturers have not yet fully
incorporated into PC motherboards. In addition, many OEMs/VARs are
increasingly incorporating sound cards, CD-ROM drives, speakers and other
components of multimedia upgrade kits in their PCs on a pre-installed basis.
The Company anticipates that this trend will result in a reduction in demand
for multimedia upgrade kits based upon such components in the future. While
the Company believes that a market will continue to exist for add-in
subsystems that provide advanced functionalities and offer flexibility in
systems configuration, there can be no assurance that incorporation of new
functionalities onto PC motherboards will not adversely affect the market for
the Company's products or that the Company will continue to design and
successfully introduce new types of multimedia upgrade kits.
COMPONENT SHORTAGES; RELIANCE ON LIMITED SOURCE SUPPLIERS AND THIRD-PARTY
ASSEMBLERS
The Company produces its products using components or subassemblies
purchased from third-party manufacturers and suppliers. Certain of these
components, particularly modem chipsets and application specific integrated
circuit ("ASIC") chipsets which provide multimedia functionality, are
available only from a single source or limited sources. These components are
generally in short supply and frequently subject to allocation by
semiconductor manufacturers. In particular, in Fiscal 1996 the Company
experienced substantial constraints in the availability of modem chipsets from
Rockwell International, its primary supplier at the time, which sharply
impacted the Company's production and sale of its communication products.
Although the Company has since increased its efforts to obtain required
supplies of components, including working closely with component manufacturers
and vendors and qualifying alternative components for inclusion in the
Company's products, component shortages may again become acute and there can
be no assurances that the Company can continue to obtain adequate supplies or
obtain such supplies at their historical cost levels. Currently, the Company
depends to a substantial degree upon Cirrus Logic as the Company's primary
supplier of chips. In addition, since the Company does not develop internally
the software or hardware technology used in its products, the Company depends
on acquiring rights to use the proprietary technology of others. In February
1997 the Company entered into an $8.25 million fixed-price firm commitment to
purchase WebPal units and during the first quarter of Fiscal 1998 made a $3.6
million deposit against initial purchases. Although the Company believes that
other sources of supply are available for delivery of WebPal units, the
Company is and will continue to be dependent upon the ability of the seller to
deliver the WebPal units in a timely manner and in accordance with Company
specifications. Additionally, there can be no assurance that the Company could
recover all or any portion of its deposit in the event of a dispute with or a
deterioration in the financial condition of the seller. Other than the
aforementioned fixed-price commitment, the Company has no guaranteed supply
arrangements with any of its sole or limited source suppliers, including its
chip suppliers. Moreover, the Company does not maintain an extensive inventory
of components and customarily purchases sole or limited source components
pursuant to purchase orders placed from time to time in the ordinary course of
business. The Company's suppliers may, from time to time, experience
production shortfalls or interruptions which impair the supply of components
to the Company. Component shortages are likely to continue, and there can be
no assurance that such shortages will not adversely affect future operating
results.
The Company uses contract assemblers, primarily located in the Peoples
Republic of China, Taiwan and Mexico, to assemble its products. The Company's
relationships with its Chinese, Taiwanese and Mexican contract assemblers are
subject to greater political, legal, economic and other uncertainties than
with its contract
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assemblers located in the United States. In addition, the Company typically
uses only one contract assembler for a given design. Products approved for
sale in certain foreign countries require the use of a manufacturing facility
that has been approved by the applicable foreign regulatory authority, which
limits the number of facilities available to assemble products for those
countries. The failure of a contract assembler to provide acceptable quality
and timely service, or an interruption of supplies from an assembler as a
result of a fire, natural calamity, strike, political unrest, increased
import/export restrictions or other significant events, could materially and
adversely affect the Company's results of operations. See "Business--
Manufacturing."
COMPETITION
The markets for the Company's products are highly competitive. The Company
competes directly against a large number of suppliers of communication
products and multimedia add-in subsystems, and indirectly against OEMs to the
extent they manufacture their own products and add-in subsystems. Such
competitors may develop superior products or products of similar quality for
sale at the same or lower prices. Other competitors may have better access
than the Company to emerging technologies for use in their products, either
through their use of in-house research and development personnel or through
their relationships with third-party semiconductor manufacturers. In addition,
the multimedia market is expected to become increasingly competitive as
functionalities continue to converge and companies that previously supplied
products providing functionalities not currently addressed by the Company
emerge as competitors. Many of the Company's current and potential competitors
have significantly greater market presence, name recognition and financial and
technical resources than the Company, and many have longstanding market
positions and established brand names in their respective markets. While the
Company believes that its semiconductor vendor flexibility enables it to
select from among the most advanced components available, the captive
semiconductor supplies of certain of the Company's current and potential
competitors can provide to them greater control over component design,
availability and cost. The Company believes that certain of the Company's
current and potential competitors compete in their markets largely on the
basis of price, which may result in significant price competition, lower
margins for the Company's products or otherwise affect the market for the
Company's products. There can be no assurance that the Company will be able to
continue to compete successfully in its markets, or to compete successful
against current and new competitors, as the Company's markets continue to
evolve. See "Business--Competition."
Substantially all of the Company's sales to date have consisted of sales of
PC communications and multimedia products. Sales of communications products
and multimedia products accounted for approximately 20% and 80%, respectively,
of the Company's revenues in Fiscal 1996 and 30% and 70%, respectively, in
Fiscal 1997 and are expected to continue to account for substantially all of
the Company's sales in the near term. A decline in demand or average selling
prices for these products, whether as a result of new product introductions or
price competition from competitors, technological change, incorporation of the
products' functionality onto PC motherboards or otherwise, would have a
material adverse effect on the Company's sales and operating results. In
addition, the PC communications and multimedia industries have been marked by
consolidations in recent periods, with a number of firms suffering significant
operating losses and, in certain cases, cessation of business. Given the
Company's concentration in these markets, there can be no assurance that the
volatility and competition pressure of the market will not have a material
adverse effect on the Company's operations in the future.
DISTRIBUTION RISKS; DIVERSIFICATION OF SALES CHANNELS
The Company sells its products primarily to independent regional and
national distributors and retailers/mass merchants and, to a significantly
lesser extent, to OEMs/VARs. The Company's success is dependent on the
continued viability and financial stability of its customer base. The PC
distribution and retail/mass merchant industries have been historically
characterized by rapid change, including periods of widespread consolidations
and the emergence of alternative distribution channels. Such change has
periodically subjected the PC distribution and retail/mass merchant industries
to financial difficulties. The loss of, or reduction in sales to, the
Company's key customers could have a material adverse effect on the Company's
operating results.
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In Fiscal 1997, sales to independent regional and national distributors
accounted for approximately 49% of the Company's gross revenues, constituting
the largest percentage of the Company's sales during that period. In the first
quarter of Fiscal 1998, sales to distributors decreased to approximatley 42%
of gross revenues. These independent distributors are not contractually
committed to future purchases of the Company's products, are subject to only
limited control by the Company, and often carry competitors' products. As a
result, the Company's distributors could discontinue carrying the Company's
products at any time.
The Company has recently undertaken significant efforts to expand its sales
channels, particularly through the expansion of its presence in the U.S.
retail/mass merchant market. During the first quarter of Fiscal 1998, sales to
retailers/mass merchants accounted for approximately 58% of the Company's
gross revenues (increasing from approximately 45% of gross revenues during
Fiscal 1997). The retail/mass merchant channel is substantially different from
the distributor and OEM/VAR channels. Due to competition for limited shelf
space, retailers are in a strong position to negotiate favorable terms of
sale, including price discounts and product return policies. See "--Product
Return Risks." There can be no assurance that the Company will be able to
maintain or increase its sales to retailers/mass merchants on favorable terms,
if at all.
The Company's sales to OEMs/VARs accounted for approximately 6.4% of gross
revenues during Fiscal 1997, as compared to 0.3% of gross revenues during the
first quarter of Fiscal 1998. The decrease in sales to OEMs/VARs for the first
quarter of Fiscal 1998 was primarily due to the Company's focus of its limited
sales and marketing resources on its other more substantial distribution
channels. The Company currently is expanding its sales and marketing efforts
in an attempt to increase the volume of its sales to OEMs. OEMs generally have
significantly different requirements from retailers/mass merchants and
distributors, and often have more stringent quality standards. OEMs generally
also require special distribution arrangements and product pricing. There can
be no assurance the Company will be successful in its efforts to increase
sales to OEMs. The inability of the Company to successfully penetrate the OEM
channel could have a material adverse effect on its future operating results.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business--Sales and Distribution" and "--Technical Support
and Customer Service."
PRODUCT RETURN RISKS
The Company is exposed to the risk of product returns from its retailer/mass
merchant and distributor customers as a result of several factors, including
returns from their customers, contractual stock rotation privileges and
returns of defective products or product components. In addition, the Company
generally accepts returns of unsold product from customers with whom the
Company has severed its customer relationship. Overstocking by the Company's
customers could lead to higher than normal returns, which could have a
material adverse effect on the Company's results of operations. Returned
unused products generally are tested by the Company and, if undamaged, are
repackaged and put back into inventory to be resold. Returned used products
are tested, repaired and used as warranty replacements. Products returned to
the Company due to faulty work by Company subcontractors are returned to the
subcontractors for credit against future purchase orders. The Company also has
a policy of offering price protection to its customers for some or all of
their inventory, whereby when the Company reduces its prices for a product,
the customer receives a credit for the difference between the original
purchase price of the product and the Company's reduced price for the product.
As a result of this policy, significant reductions in prices have had, and may
in the future have, a material adverse effect on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Returns and allowances for the first quarter of Fiscal 1998 were $621,000
(or 3.9% of gross revenues), and were $22.4 million (or 30.6% of gross
revenues) in Fiscal 1997 and $2.0 million (or 5.9% of gross revenues) in
Fiscal 1996. Of these returns in Fiscal 1997, approximately $18.0 million were
attributed to sales made by regional and national distributors and $4.0
million were attributed to sales made by retailers/mass merchants. The
disproportionately large increase in returns in Fiscal 1997 was partially due
to a problem encountered in the middle of the year with a chip used in the
Company's DSVD modems. Due to a defect in the chip's software design, the chip
vendor was unable to satisfy the Company's specifications for DSVD
performance. As a result,
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the Company agreed to accept its customers' return of the modems, which it
thereafter repackaged and resold as a non-DSVD modem product. Aggregate
returns relating to the defective chips were approximately $10.1 million, or
44.9% of total returns in Fiscal 1997. In addition, in Fiscal 1997 the
Company's efforts to upgrade the quality and average size of its customer base
and its resulting cessation of business with several smaller customers
resulted in a higher than normal incidence of product returns from such
customers. While the Company believes that returns associated with the
aforementioned chip defect should not be material in future periods, it is
expected that returns will continue from smaller customers disenfranchised as
a result of the Company's upgrading of its customer base, possibly at
significant levels. There can be no assurance this factor, as well as the
other factors described above, will not continue to result in significant
levels of product returns and allowances in future periods, which may have a
material adverse effect on the Company's operations.
DEPENDENCE ON FUTURE GROWTH OF INTERNET AND INTERNET INFRASTRUCTURE
The growth of the markets for PC communication and multimedia products has
been driven in part by the rapid technological change in those markets and
increased use of the Internet. There can be no assurance that such rapid
technological change will continue or that the telecommunications
infrastructure will be developed to support the high-volume adoption of these
technologies. Moreover, the Company's future success is in significant
respects dependent upon continued growth in the use of and interest in the
Internet. Such growth is a recent phenomenon and there can be no assurance
that the current rate of growth will be sustained in future periods. To the
extent that the Internet continues to experience significant growth in the
number of users and level of use, there can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed upon it
by such growth. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet activity or due to increased
governmental regulation. Any of these factors could materially adversely
affect the market for PC communication and multimedia products and the
Company's results of operations. See "Business--Industry Overview."
RELIANCE ON KEY EMPLOYEES
The Company's success will depend in large part on the continued services of
its President, Chief Executive Officer and Director, Sultan W. Khan, its
Executive Vice President and Director, Asif M. Khan, and other key management
employees. The Company does not maintain "key person" insurance on the lives
of any of these individuals. The loss of one or more key management employees
or the failure to attract and retain additional personnel could have a
material adverse effect on the Company.
PROPRIETARY RIGHTS
The Company does not employ an internal research and development staff and
acquires virtually all of the software and hardware technology used in its PC
communication and multimedia products by licensing such technology from third-
party manufacturers and suppliers. The Company establishes and protects its
proprietary rights in and to its product design, manufacturing, testing,
marketing and customer support methods primarily through a combination of
trade secret and copyright protections. There can be no assurance that the
Company's measures to protect its proprietary rights will deter or prevent
unauthorized use of the Company's trade secrets, proprietary information or
technology. In addition, the laws of certain foreign countries may not protect
the Company's proprietary rights to the same extent as do the laws of the
United States. As is typical in its industry, the Company from time to time
may be subject to legal claims asserting that the Company has violated
intellectual property rights of third parties. In the event a third party were
to sustain a valid claim against the Company and in the event any required
license were not available on commercially reasonable terms, the Company's
operating results could be materially and adversely affected. Litigation,
which could result in substantial cost to and diversion of resources of the
Company, may also be necessary to enforce intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. See "Business--Commitment to Emerging Technologies."
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RISK FACTORS RELATING TO THE OFFERING
CONTROL OF COMPANY BY AURA
Based upon the 10,000,000 shares of Common Stock which will be outstanding
upon completion of the Offering, Aura will beneficially own and control 75% of
the Company's outstanding Common Stock (or approximately 72% if the
Underwriters' Over-allotment Option is exercised in full). In addition,
cumulative voting (which provides that a stockholder can cast votes in the
election of directors equal to the number of shares owned by such stockholder
multiplied by the number of directors to be elected to a single candidate or
among the candidates as the stockholder wishes) is not permitted with respect
to the Company's Common Stock. Accordingly, Aura will have sufficient voting
power to control the outcome of all corporate matters submitted to the vote of
stockholders. Such matters could include the election of directors, changes in
the size and composition of the Board of Directors, proxy contests, mergers
involving the Company, tender offers, open-market purchase programs or other
purchases of Common Stock that could give stockholders of the Company the
opportunity to realize a premium over the then-prevailing market price for
their shares of Common Stock. In addition, the concentration of ownership in
Aura could have the effect of delaying or preventing a change in control of
the Company and may affect the market price of the Securities. See
"Management," "Relationship with Aura and Certain Transactions," "Principal
Stockholders" and "Description of Securities."
POTENTIAL CONFLICTS OF INTEREST; CERTAIN CHARTER PROVISIONS LIMITING LIABILITY
Various conflicts of interest between the Company and Aura could arise
following the completion of the Offering, and persons serving as directors,
officers and employees of both the Company and Aura may have conflicting
duties to each. Currently, Steven C. Veen, the Company's acting Chief
Financial Officer, also serves as Chief Financial Officer of Aura, Michael I.
Froch, the Company's Secretary and a Director, also serves as an employee of
Aura, and Gerald S. Papazian, a Director of the Company, also serves as
President and Chief Operating Officer of Aura. Although the Company currently
is searching for a new Chief Financial Officer to replace Mr. Veen, there can
be no assurance the Company will be successful in hiring such replacement
position in the foreseeable future or at all. Ownership interests of NewCom's
Directors or officers in the common stock of Aura could also create or appear
to create potential conflicts of interest when such directors and officers are
faced with decisions that could have different implications for the Company
and for Aura. See "Principal Stockholders--Ownership of Aura Stock."
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") includes provisions relating to competition by Aura
with the Company, allocations of corporate opportunities, transaction with
interested parties and intercompany agreements and provisions limiting the
liability of certain persons. See "Description of Securities--Certain
Certificate of Incorporation and Bylaw Provisions." The enforceability under
Delaware corporate law of such provisions which eliminate certain rights that
might have been available to stockholders under Delaware law had such
provisions not been included has not been established and thus counsel to the
Company is not able to render an opinion regarding the enforceability of such
provisions. The Company's Restated Certificate provides that any person
purchasing or acquiring an interest in shares of capital stock of the Company,
including the Underwriters, shall be deemed to have consented to the
provisions in the Restated Certificate relating to competition by Aura with
the Company, conflicts of interest, corporate opportunities and intercompany
agreements, and such consent may restrict such person's ability to challenge
transactions carried out in compliance with such provisions. The existence of
these terms and restrictions described above do not limit, impair or waive any
rights conferred by or under the federal securities laws. The Company intends
to disclose the existence of such provisions in its Annual Reports on Form 10-
K as well as in certain other filings with the Commission. The corporate
charter of Aura does not include compatible provisions and, as a result,
persons who are directors and/or officers of the Company and who are also
directors and/or officers of Aura may choose to take action in reliance on
such provisions rather than act in a manner that might be favorable to the
Company but adverse to Aura. See "Description of Securities--Certain
Certificate of Incorporation and Bylaw Provisions."
Under the Restated Certificate, the personal monetary liability of the
directors of the Company for breach of their fiduciary duty of care, including
actions involving gross negligence, are eliminated to the fullest extent
14
<PAGE>
permitted under Delaware law. See "Description of Securities--Certain
Certificate of Incorporation and Bylaw Provisions--Limitations on Directors'
Liability."
INTERCOMPANY AGREEMENTS NOT SUBJECT TO ARM'S-LENGTH NEGOTIATIONS
Aura and the Company have entered into certain intercompany agreements,
including (i) a tax sharing agreement pursuant to which, for the period prior
to the date of deconsolidation of the Company and Aura for tax purposes, Aura
will have sole authority to respond to and conduct all tax proceedings
(including tax audits) relating to the Company, to file federal, state and
local returns on behalf of the Company and to calculate the amount of the
Company's tax liability, however, any tax liability owed by the Company to
Aura for the period from June 1, 1997 through the Deconsolidation Date will be
recorded by the Company as an additional capital contribution by Aura
effective as of the Deconsolidation Date. See "Relationship with Aura and
Certain Transactions--Arrangements and Transactions with Aura Systems, Inc.--
Tax Sharing Agreement", (ii) a noncompetition agreement with terms described
below (the "Noncompetition Agreement"), (iii) an agreement pursuant to which
Aura will continue to provide various corporate services, as more fully
described below, to the Company on an interim basis following the Closing Date
that may be material to the conduct of the Company's business (the "Corporate
Services Agreement"), (iv) a redemption agreement pursuant to which Aura will
have the option to require the Company to apply up to 70% of the net proceeds
the Company receives from the exercise of the Warrants to redeem shares of
Common Stock held by Aura at the Warrant exercise price (the "Redemption
Option Agreement"), and (v) a registration rights agreement, pursuant to which
Aura can require the Company to register, at the Company's expense, all of the
Common Stock held by Aura, with 3.0 million shares subject to such rights
commencing one year from the date of this Prospectus and the balance of such
shares registrable one year thereafter (the "Aura Rights Agreement"). Because
the Company is currently a majority-owned subsidiary of Aura, none of the
intercompany agreements resulted from arm's-length negotiations. These
agreements may include terms and conditions that may be more or less favorable
to the Company than terms contained in similar agreements negotiated with
third parties.
Pursuant to the Underwriting Agreement to be executed by and between the
Representative, as representative of the several Underwriters, Aura and the
Company, the Company and Aura have granted the Underwriters the Underwriters'
Over-allotment Option to purchase up to 300,000 additional Units on the same
terms set forth herein, solely for the purpose of covering over-allotments, if
any. The Common Shares included in such additional Units will be offered by
Aura and the Warrants included in such additional Units will be offered by the
Company.
With respect to matters covered by the Corporate Services Agreement, the
relationship between Aura and the Company is intended to continue on an
interim basis for six months following completion of the Offering, in a manner
generally consistent with past practices. The Corporate Services Agreement is
terminable by either party upon 60 days prior written notice. In the event
that Aura elects to terminate the agreement, there can be no assurance that
the Company would be able to secure alternative sources for such services
within 60 days or that such services could be obtained for costs comparable to
costs charged by Aura within such period. Pursuant to the Noncompetition
Agreement, Aura has covenanted, for a period of three years from the Closing
Date, not to compete with the Company in the design, manufacture, sale or
marketing of PC modem and certain multimedia products and to provide the
Company with an exclusive, fully paid, royalty free, worldwide license,
irrevocable during such three-year period, to make, use and sell any such
competitive products developed or offered by Aura. Except as set forth in the
Noncompetition Agreement, Aura is not restricted from competing with the
Company and there can be no assurance that Aura, following the expiration or
prior termination of the Noncompetition Agreement, will not expand, through
development of new lines of products or businesses, acquisitions or otherwise,
its operations in a way that might compete with the Company's business. See
"Relationship with Aura and Certain Transactions."
WARRANTS SUBJECT TO REDEMPTION
Each Warrant will entitle the holder to purchase one share of Common Stock
at an exercise price equal to 150% of the Offering Price until that date which
is five years from the date of this Prospectus. The Warrants are
15
<PAGE>
redeemable by the Company for $.05 per Warrant at any time one year after the
date of this Prospectus (which period may be reduced or waived by the
Representative in its sole discretion) upon at least 30 days' prior written
notice provided the closing price of the Common Stock for 20 consecutive
trading days within the 30 day period preceding the date of the notice of
redemption equals or exceeds 200% of the Offering Price. A Warrant holder's
right to exercise the Warrants will terminate upon the redemption date,
thereby depriving the Warrants of any value except the right to receive the
redemption price. In the event the Company exercises the right to redeem the
Warrants, a holder would be required either to exercise the Warrants within
the period of the notice of redemption (which could occur at a time when it
may be disadvantageous to do so), to sell the Warrants at the then current
market price when the holder might otherwise wish to hold them, or to accept
the redemption. The Company presently expects to call all of the Warrants for
redemption as soon as permitted provided that a current prospectus relating to
the Common Stock underlying such Warrants is then in effect. See "Description
of Securities--Warrants." There can be no assurance that a Warrant holder
would be able to sell the shares of Common Stock received by it upon exercise
of the Warrants at the then-current market price or at a price which is in
excess of the exercise price of such Warrants. Further, as described in detail
below, the Company may not be able to issue shares of Common Stock to Warrant
holders wishing to exercise their Warrants in response to the Company's notice
of redemption. See "--Current Prospectus and State Blue Sky Registration
Requirements to Exercise Warrants" and "Description of Securities."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIREMENTS TO EXERCISE
WARRANTS
The Company will be able to issue shares of Common Stock upon the exercise
of the Warrants and the Representative's Option only if (i) there is a current
prospectus relating to such Common Stock under an effective registration
statement (including audited financial statements for any companies acquired)
filed with the Commission, and (ii) such Common Stock is then qualified for
sale or exempt therefrom under the applicable state securities laws of the
jurisdictions in which the various holders of Warrants reside. The Company has
agreed with the Representative in the Underwriting Agreement to use its best
efforts to have a registration statement effective at any time that the
exercise price of the Warrants is less than the market price of the Common
Stock (i.e., when the Warrants are "in the money"). After a registration
statement becomes effective, it may require updating by the filing of a post-
effective amendment. There can be no assurance, however, that the Company will
be successful in maintaining a current registration statement. Also, it is
possible that the Company may be unable, for unforeseen reasons, to cause a
registration statement covering the shares underlying the Warrants to be in
effect when the Warrants are exercisable. In that event, the Warrants may
expire unless extended by the Company as permitted by the Warrant.
Because the Warrants and Common Shares included in the Units being offered
hereby will be immediately detachable and separately transferable, it is
possible that the Warrants may be acquired by persons residing in states where
the Company has not registered, or is not exempt from registration, such that
the shares of Common Stock underlying the Warrants may not be sold or
transferred upon exercise of the Warrants. Warrant holders residing in those
states would have no choice but to attempt to sell their Warrants or to let
them expire unexercised. Holders of Warrants should, therefore, contact their
own legal advisor or broker at such time as they may wish to exercise any
Warrants held by them to ascertain whether or not the Company is then
qualified to issue Common Stock under the state securities laws in the state
in which such holder resides. Accordingly, the market for the Warrants may be
limited because of the Company's obligation to fulfill the foregoing
requirements. See "Description of Securities--Warrants."
EFFECT OF ANTI-TAKEOVER PROVISIONS
Upon completion of the Offering, the Company's Board of Directors will have
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights of such shares, without any further vote or action by
the Company's stockholders. Such charter provisions could have the effect of
delaying, deferring or preventing a change of control of the Company. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while
16
<PAGE>
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.
Further, certain provisions of the Company's Restated Certificate and of
Delaware law could delay or make more difficult a merger, tender offer or
proxy contest involving the Company. See "Description of Securities--Preferred
Stock" and "--Delaware Anti-takeover Law and Certain Charter Provisions." The
Company is subject to the anti-takeover provisions of section 203 of the
Delaware General Corporation Law, which prohibits the Company from engaging in
a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person first
becomes an "interested stockholder," unless the business combination is
approved in a prescribed manner. The application of section 203 could have the
effect of delaying or preventing a change of control of the Company. Certain
other provisions of the Company's Restated Certificate or Bylaws may have the
effect of delaying or preventing changes of control or management of the
Company, which could adversely affect the market price of the Company's Common
Stock. See "Description of Securities."
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF SECURITIES' PRICE
Prior to the Offering, there has been no public market for the Company's
Common Shares or Warrants and there can be no assurance that an active trading
market will develop or be sustained after the Offering. The Offering Price
will be determined through negotiations among the Company and the
Representative based on several factors and may not be indicative of the
market price of the Common Shares or Warrants after the Offering. See "--
Arbitrary Determination of Offering Price." The market price of the Securities
is likely to be highly volatile and may be significantly affected by factors
such as actual or anticipated fluctuations in the Company's results of
operations, announcements of technological innovations, introduction of new
products by the Company or its competitors, developments with respect to
patents, copyrights or proprietary rights, conditions and trends in the
computer and other technology industries or the market for add-in subsystems,
changes in or failure by the Company to meet securities analysts'
expectations, general market conditions and other factors. In addition, the
stock market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stocks of technology companies. These broad market fluctuations may adversely
affect the market price of the Securities. In the past, following periods of
volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against that
company. There can be no assurance that such litigation will not occur in the
future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect upon the Company's business,
operating results and financial condition. See "Underwriting."
NO DIVIDENDS ON COMMON STOCK
The Company has not previously paid any cash or other dividends on its
Common Stock and does not anticipate payment of any dividends for the
foreseeable future, it being anticipated that any earnings would be retained
by the Company to finance its operations and future growth and expansion. See
"Dividend Policy."
ARBITRARY DETERMINATION OF OFFERING PRICE
The Offering Price for the Securities will be determined by negotiations
between the Company and the Representative and will not necessarily bear any
relationship to the assets, performance, book value or net worth of the
Company or any other recognized criteria of value. Among the factors to be
considered in determining such price are the business experience of the
Company's management, the prospects for the industry in which the Company
operates, growth prospects of the Company and prevailing market conditions
generally. The Offering Price should not be considered to be an indication of
the actual value of the Company. See "Dilution" and "Underwriting."
17
<PAGE>
CONTRACTUAL OBLIGATIONS TO REPRESENTATIVE
The Underwriting Agreement with the Representative provides for the
Company's continuing involvement with the Representative after the Offering,
including (i) the Company's agreement to retain the Representative as a
consultant for two years from the date of this Prospectus for a fee of $3,000
per month, (ii) the Company's agreement to allow the Representative to
nominate two directors or to designate a consultant to the Board of Directors
for a period of four years from the date of this Prospectus and Aura's
agreement to vote all shares of the Company's Common Stock owned by Aura for
said nominees, (iii) the Company's agreement to appoint the Representative as
Warrant solicitation agent and to pay a fee for such services equal to 3% of
the exercise price of Warrant exercises solicited by the Representative, (iv)
the grant to the Representative of an option to purchase 200,000 Units at an
exercise price of 110% of the Offering Price, and (v) the right of the
Representative to allow the Company to redeem the Warrants at a date earlier
than 12 months after the date of this Prospectus provided the other conditions
for redemption have been satisfied. The ongoing fees to be paid to the
Representative will reduce the amount of working capital available for other
purposes. See "Underwriting." In addition, pursuant to a registration rights
agreement between the Company and the Representative, the holders of the
Representative's Option have the right to require the registration under the
Securities Act, at the Company's expense, of the Common Shares, and Warrants
issuable upon exercise of the Representative's Option and of the shares of
Common Stock issuable upon exercise of the Warrants included therein, as well
as certain "piggyback" registration rights. The cost to the Company of
effecting a demand registration may be substantial. See "Description of
Securities--Registration Rights."
To the extent the Representative elects to effect transactions in the
Company's Common Shares and Warrants, the Representative may exert a
dominating influence on the market for such Common Shares and Warrants. Such
market making activity may be discontinued at any time. In the event the
Representative elects or is forced to discontinue such activity following the
completion of the Offering, the price and liquidity of the Common Shares and
Warrants may be materially adversely affected. Further, as a result of the
Representative's role as Warrant solicitation agent, unless granted an
exemption by the Commission from Rule 10b-6, the Representative may be
prohibited from engaging in any market making activities with regard to the
Company's Securities for the period from two to nine business days prior to
any solicitation by the Representative of the exercise of the Warrants until
the later of (i) the termination of such solicitation activity, or (ii) the
termination, by waiver or otherwise, of any right that the Representative may
have to receive a fee for the exercise of the Warrants following the
solicitation. As a result, the Representative may be unable to continue to
provide a market for the Company's Securities under certain periods while the
Warrants are exercisable. See "Underwriting."
FUTURE ISSUANCES OF STOCK BY THE COMPANY WITHOUT STOCKHOLDER APPROVAL
Following the sale of the Securities offered hereby, the Company will have
outstanding 10,000,000 shares of Common Stock out of a total of 50,000,000
shares of Common Stock authorized, not including up to (i) 2,000,000 shares of
Common Stock issuable upon exercise of the Warrants, (ii) 200,000 shares of
Common Stock issuable upon exercise of the Representative's Option,
(iii) 200,000 shares of Common Stock issuable upon exercise of the Warrants
included in the Representative's Option, (iv) 300,000 shares of Common Stock
issuable upon exercise of the Warrants included in the Underwriters' Over-
allotment Option, and (v) 1,000,000 shares reserved for issuance under the
Company's Stock Plan. If the maximum number of shares of Common Stock are
issued as a result of the exercise of each of the foregoing, a total of
13,700,000 shares of Common Stock will be issued and outstanding. The
remaining 36,300,000 shares of Common Stock and 5,000,000 shares of Preferred
stock authorized but not issued may be issued without any action or approval
of the Company's stockholders. Although there are no present plans, agreements
or undertakings involving the issuance of such shares, except as disclosed in
this Prospectus, any such issuance could be used as a method of discouraging,
delaying or preventing a change in control of the Company or could
significantly dilute the public ownership of the Company, which could
adversely affect the market. There can be no assurance that the Company will
not undertake to issue such shares if it deems it appropriate to do so.
The holders of the Warrants, Representative's Option and any other options,
warrants and other securities convertible into shares of Common Stock have the
opportunity to profit from a rise in the market price of the
18
<PAGE>
Common Stock, if any, without assuming the risk of ownership, with a resulting
dilution in the interest of other stockholders. The existence of the
aforementioned options and warrants and any other options or warrants that may
be granted in the further may prove to be a hinderance to future equity
financing by the Company. Further, the holders of such warrants and options
may exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company. See
"Dilution," "Description of Securities," and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
An investor in the Offering will experience immediate and substantial
dilution of $6.15, or 68%, per share between the adjusted pro forma net
tangible book value per share after the Offering and the Offering Price of
$9.00 per Unit. To the extent that any Warrants, options or other securities
convertible into shares of Common Stock currently outstanding or subsequently
granted to purchase the Common Stock are exercisable at a price less than the
net tangible book value per share following the Offering, there will be
further dilution upon the exercise of such securities. See "Dilution" and
"Description of Securities."
POSSIBLE ADVERSE EFFECTS DUE TO SHARES ELIGIBLE FOR FUTURE SALE
Sales in the public market after the Offering of substantial amounts of
previously issued and currently outstanding shares of Common Stock could
adversely affect the prevailing market price of the Company's Common Stock. In
addition to the 2,000,000 Common Shares offered hereby, and based upon shares
outstanding after giving effect to the Recapitalization, there will be
approximately 10,000,000 shares of Common Stock outstanding as of the Closing
Date, all of which existing shares are "restricted" shares (the "Restricted
Shares") under the Securities Act of 1933, as amended (the "Securities Act").
As a result of the expiration of certain lock-up agreements between certain
stockholders and the Representative, 8,000,000 shares will become available
for sale to the public market beginning one year after the date of this
Prospectus, pursuant to Rule 144 promulgated under the Securities Act, all of
which will be subject to the volume and other restrictions of Rule 144. The
Representative may in its discretion and without notice to the public waive
these lock-up agreements and permit Aura and other holders otherwise agreeing
to lock-up their shares to sell any or all of their shares, the effect of
which could be a substantial decline in the trading price of the Company's
Common Stock or Warrants. In addition, an aggregate of 109,338 shares issuable
upon the exercise of stock options will first become eligible for sale in the
public market one year following the date of this Prospectus and the
expiration of such lock-up agreements, all of which will be subject to the
volume and other restrictions of Rule 144. See "Shares Eligible for Future
Sale." In addition, shares of Common Stock held by Aura are subject to the
Redemption Option Agreement and the Aura Rights Agreement. See "Relationship
With Aura and Certain Transactions."
19
<PAGE>
THE COMPANY
The Company was incorporated in Delaware in June 1994. The Company's
executive offices are located at 31166 Via Colinas, Westlake Village,
California 91362 and its telephone number is (818) 597-3200.
ACQUISITION OF NUVO ASSETS FROM AURA
Prior to September 1994, the Company had no material assets and no
operations. As part of the Company's initial capitalization, in September 1994
Aura contributed to the Company certain assets that Aura had previously
purchased out of the Chapter 7 bankruptcy proceedings of Nuvo Corporation of
America ("Nuvo"). Prior to its bankruptcy, Nuvo had been in the business of
developing, manufacturing and supporting data communication for fax, modem and
memory products and laser printer accessories. The assets acquired from Nuvo
by Aura consisted of inventory, certain furniture, fixtures and equipment and
production drives and tooling equipment relating to Nuvo's modem business.
Aura acquired the Nuvo assets in consideration for issuing 133,333 shares of
Aura common stock valued at $1.0 million. Immediately after the acquisition,
the Nuvo assets were transferred to the Company. Upon the assets being
contributed to the Company, the Company evaluated the assets acquired and made
an allocation of purchase price under APB 16. The Company determined that the
inventory and fixed assets had an aggregate fair value of approximately
$277,000. The remaining purchase price of approximately $723,000 was allocated
to intangible assets consisting of the engineering designs and drawings
(including tooling) that were estimated to have a fair value during purchase
negotiations in excess of that amount. These intangible assets were assigned a
five year amortization period, and currently (approximately 33 months later)
are still utilized by the Company. In addition to purchasing the Nuvo assets,
Aura in late May 1994 hired four former employees of Nuvo including Sultan W.
Khan, Nuvo's former president, and Asif M. Khan, Nuvo's former vice president.
The hiring of the Nuvo employees was not part of the Nuvo asset purchase
transaction or the bankruptcy proceedings, but was negotiated separately
between Aura and each employee. In September 1994, Sultan W. Khan and Asif M.
Khan became the Company's President and Executive Vice President,
respectively.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 Units offered
hereby are estimated to be approximately $15.7 million, assuming an Offering
Price of $9.00 per Unit and after deducting underwriting discounts and
commissions of $1.4 million and other expenses of the Offering estimated to be
$1.0 million (which includes the Representative's non-accountable expense
allowance). The Company expects to use the proceeds substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
----------------------- ------------- -------------
<S> <C> <C>
Products/Components Acquisition(1)............. $ 4.2 million 27%
Repayment of Commercial Line of Credit and
Other Debt(2)................................. 3.5 million 22
Marketing and Sales............................ 2.1 million 13
Working Capital and Other General Corporate
Purposes...................................... 5.9 million 38
------------- ---
$15.7 million 100%
============= ===
</TABLE>
- --------
(1) The products and components to be purchased are expected to include those
contained in the computer communication and multimedia products currently
offered and under development by the Company; the Company is unable to
specifically identify the products or components or the quantities thereof
that will be so purchased. Purchases may include products and components
from Micro Equipment Corporation, a company which Alexander Remington, a
director of the Company, founded and of which he currently acts as Chief
Executive Officer, and from Aura. Such purchases will only be made if they
are approved by a majority of the Company's disinterested independent
directors, are on terms no less favorable to the Company than could be
obtained from unaffiliated parties and are reasonably expected to benefit
the Company. See "Certain Transactions."
(2) The Company's existing commercial line of credit bears interest at the
lending bank's prime rate plus 1.25% (the interest rate was 9.75% at June
30, 1997); at June 30, 1997 the outstanding principal balance of the
credit line was $3.6 million.
The Board of Directors has broad discretion in determining how the net
proceeds of the Offering (other than with respect to the debt repayment
obligations described above) will be applied. Pursuant to the Receivables
Agreement, in the event Aura exercises its right to return to the Company
accounts receivable NewCom is unable to collect, the Company shall be required
to reimburse Aura for the full amount of such receivables. Such reimbursement
amount may be paid with the proceeds of the Offering. Proceeds may also be
used to acquire businesses, technology or products that complement the
business of the Company. No such transactions are being negotiated as of the
date of this Prospectus. Pending use of the proceeds from the Offering as set
forth above, the Company intends to invest all or a portion of such proceeds
in short-term bank certificates of deposit, U.S. Government obligations, money
market investments and short-term investment grade securities.
The Common Shares comprising any and all Units purchased pursuant to
exercise of the Underwriters' Over-allotment Option will be sold by Aura and
the Company will not receive any of the proceeds from the sale of such Common
Shares. The Company will receive the proceeds from the Warrants comprising all
Units purchased pursuant to exercise of the Underwriters' Over-allotment
Option, or $.10 per Unit thus purchased. In addition, pursuant to the
Redemption Option Agreement between the Company and Aura, Aura has the right,
exercisable at its option, to require the Company to apply up to 70% of the
net proceeds received by the Company from the sale of shares of Common Stock
pursuant to exercise of the Warrants (including any Warrants sold pursuant to
the Underwriters' Over-allotment Option and the Representative's Option),
subject to certain limitations, to redeem outstanding shares of Common Stock
currently held by Aura at the Warrant exercise price. Accordingly, the Company
will not retain or use for its benefit any of the proceeds from the sale of
Common Stock as to which Aura exercises its option under the Redemption
Agreement.
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<PAGE>
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock. The
Company intends to retain earnings, if any, to finance the development and
expansion of its business. Accordingly, the Company does not intend to pay
cash dividends in the foreseeable future on its Common Stock. Holders of the
Company's Common Stock are entitled to dividends when, as and if declared by
the Board of Directors out of funds legally available therefor. The payment of
dividends, therefore, is within the discretion of the Company's Board of
Directors. Cash dividends, if any, that may be paid in the future to holders
of Common Stock will be payable when, as and if declared by the Board of
Directors of the Company, based upon the Board's assessment of the financial
condition of the Company, its earnings, need for funds, capital requirements
and other factors, including any applicable laws. In addition, any financing
which the Company may obtain in the future may contain provisions restricting
the Company's ability to pay dividends. The Company is not currently a party
to any agreement restricting the payment of dividends.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of May 31, 1997:
<TABLE>
<CAPTION>
MAY 31, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
----------- ------------ --------------
<S> <C> <C> <C>
Short-term debt(3).................... $ 5,740,236 $ 5,740,236 $ 2,240,236
=========== =========== ===========
Due to Aura(4)........................ $25,522,706 $21,522,706 $21,522,706
----------- ----------- -----------
Stockholders' equity:
Preferred Stock, $.001 par value;
5,000,000 shares authorized(5); no
outstanding shares actual, pro forma
or pro forma as adjusted............ -- -- --
Common Stock, $.001 par value,
50,000,000 shares authorized(5);
7,555,556 shares outstanding,
actual; 8,000,000 shares
outstanding, pro forma; 10,000,000
shares outstanding, pro forma as
adjusted(6)......................... 7,556 8,000 10,000
Additional paid-in capital........... 9,993,444 13,993,000 29,641,000
Accumulated deficit.................. (1,161,795) (1,161,795) (1,161,795)
----------- ----------- -----------
Total stockholders' equity.......... 8,839,205 12,839,205 28,489,205
----------- ----------- -----------
Total capitalization.............. $34,361,911 $34,361,911 $50,011,911
=========== =========== ===========
</TABLE>
- --------
(1) Gives effect to the Conversion.
(2) Adjusted to reflect the sale by the Company of 2,000,000 Units offered
hereby at an assumed Offering Price of $9.00 per Unit and the application
of the estimated net proceeds therefrom. Of the $9.00 Offering Price,
$8.90 is attributed to one Common Share and $.10 is attributed to one
Warrant. See "Use of Proceeds."
(3) See Note 9 of Notes to Financial Statements.
(4) Represents long-term loans made by Aura to the Company to cover working
capital expenses. At June 30, 1997, the aggregate amount due by the
Company to Aura was approximately $17.0 million.
(5) Gives effect to the Certificate Amendment.
(6) Excludes (i) 2,000,000 shares of Common Stock reserved for issuance upon
exercise of the Warrants, (ii) 300,000 shares of Common Stock issuable
upon exercise of the Warrants included in the Underwriters' Over-allotment
Option if exercised in full, (iii) 200,000 shares of Common Stock issuable
upon exercise of the Representative's Option, (iv) 200,000 shares of
Common Stock issuable upon exercise of the Warrants included in the
Representative's Option, and (v) 1,000,000 shares of Common Stock issuable
upon the exercise of options outstanding as of June 30, 1997. See
"Description of Securities," "Underwriting" and "Management--Stock
Incentive Plan."
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<PAGE>
DILUTION
As of May 31, 1997, after giving effect to the Conversion, the Company had a
pro forma net tangible book value of approximately $12.8 million or $1.60 per
share. Pro forma net tangible book value per share represents the amount of
total tangible assets less total liabilities of the Company, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale
of the 2,000,000 Units offered by the Company hereby at an assumed Offering
Price of $9.00 per Unit (and assuming no part of the Offering Price is
allocated to the Warrants), and after deduction of estimated underwriting
discounts and commissions and Offering expenses, the pro forma net tangible
book value of the Company at May 31, 1997 would have been approximately
$28.49 million or $2.85 per share. This represents an immediate increase in
such pro forma net tangible book value of $1.25 per share to existing
stockholders and an immediate dilution of $6.15 per share to new investors
purchasing Units in the Offering, which dilution amounts to approximately 68%
of the initial public offering price per share of Common Stock. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price of the Common Shares offered
hereby(1)..................................................... $9.00
-----
Pro forma Net tangible book value before the offering........ $1.60
Increase per share attributable to new investors............. 1.25
-----
Pro forma net tangible book value after the offering........... 2.85
-----
Dilution per share to new investors (2)........................ $6.15
=====
</TABLE>
- --------
(1) Assumes no allocation of the Offering Price to the Warrants. Before
deduction of underwriting discounts and commissions.
(2) Does not reflect the issuance of up to (i) 2,000,000 shares of Common
Stock reserved for issuance upon exercise of the Warrants, (ii) 300,000
shares of Common Stock issuable if the Warrants included in the
Underwriters' Over-allotment Option are exercised in full, (iii) 400,000
shares of Common Stock issuable if the Representative's Option and the
Warrants included in the Representative's Option are exercised in full,
and (iv) 1,000,000 shares of Common Stock issuable upon the exercise of
options issued or issuable under the Company's Stock Plan, the exercise or
issuance of any of which could have a substantial dilutive effect to new
investors. See "Description of Securities," "Underwriting" and
"Management--Stock Incentive Plan."
The following table summarizes, on an unaudited pro forma basis as of May
31, 1997, after giving effect to the Recapitalization, the differences between
existing stockholders and purchasers of Securities in the Offering with
respect to the number of Common Shares purchased from the Company, the total
consideration paid to the Company, and the average consideration paid per Unit
(based upon an assumed Offering Price of $9.00 per Unit and before deduction
of estimated underwriting discounts and commissions and offering expenses
payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 8,000,000 80.0% $14,001,000(1) 43.8% $1.75
New investors.......... 2,000,000 20.0% 18,000,000 56.2% $9.00(2)
---------- ----- ----------- -----
Total................ 10,000,000(3) 100.0% $32,001,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Includes (i) $1,000 contributed to acquire capital stock of the Company
effective June 1994, (ii) $1.0 million in assets contributed by Aura as
additional paid-in capital effective September 1994, (iii) $9.0 million
contributed by Aura as additional paid-in capital effective March 1996,
and (iv) $4.0 million contributed by Aura to acquire capital stock
pursuant to the Conversion, in each case as adjusted to reflect the Stock
Split and Certificate Amendment.
(2) Of the $9.00 Offering Price, $8.90 is attributed to one Common Share and
$.10 is attributed to one Warrant.
(3) Does not reflect the issuance of up to (i) 2,000,000 shares of Common
Stock reserved for issuance upon exercise of the Warrants,
(ii) 300,000 shares of Common Stock issuable if the Warrants included in
the Underwriters' Over-allotment Option are exercised in full,
(iii) 400,000 shares of Common Stock issuable if the Representative's
Option and the Warrants included in the Representative's Option are
exercised in full, and (iv) 1,000,000 shares of Common Stock issuable upon
the exercise of options issued or issuable under the Company's Stock Plan,
the exercise or issuance of any of which could have a substantial dilutive
effect to new investors. See "Description of Securities," "Underwriting"
and "Management--Stock Incentive Plan."
23
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data of the
Company for the periods indicated and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and the Notes related thereto included
elsewhere in this Prospectus. The Company was incorporated in June 1994 and
commenced operations in September 1994. Accordingly, prior to September 1994,
the Company had no operations and had no assets other than $1,000 in cash
representing Aura's initial purchase of Common Stock. The selected financial
data at February 28, 1995, February 29, 1996 and February 28, 1997 and for the
nine months ended February 28, 1995 and each of the two years in the period
ended February 28, 1997, respectively, have been derived from the financial
statements of the Company that have been audited by Pannell Kerr Forster,
Certified Public Accountants, A Professional Corporation, Los Angeles,
California, included herein. The statement of operations data for the three
months ended May 31, 1996 and 1997, and the balance sheet data at May 31, 1997
are derived from the Company's unaudited financial statements included
elsewhere in this Prospectus and include, in the opinion of the Company, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position at that date and results
of operations for those periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED THREE MONTHS ENDED MAY 31,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, -----------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross revenues.......... $2,128,361 $33,312,587 $73,120,781 $ 7,465,720 $ 16,081,392
Less discounts given... 24,923 128,400 89,117 24,337 30,678
Less returns and
allowances............ -- 1,986,758 22,399,974 -- 621,037
---------- ----------- ----------- ------------ -------------
Net revenues............ 2,103,438 31,197,429 50,631,690 7,441,383 15,429,677
Cost of goods sold..... 2,059,545 30,131,245 33,619,084 4,854,512 10,397,883
---------- ----------- ----------- ------------ -------------
Gross profit............ 43,893 1,066,184 17,012,606 2,586,871 5,031,794
---------- ----------- ----------- ------------ -------------
Expenses:
Research and
development........... 4,201 -- 7,708 -- 6,870
Selling, general and
administrative........ 423,619 4,972,064 11,840,951 1,631,698 2,728,857
---------- ----------- ----------- ------------ -------------
Total expenses....... 427,820 4,972,064 11,848,659 1,631,698 2,735,727
---------- ----------- ----------- ------------ -------------
Income (loss) from
operations............. (383,927) (3,905,880) 5,163,947 955,173 2,296,067
Other (income) expense,
net.................... (3,710) 1,279,451 1,393,676 232,761 518,585
Provision for income
taxes.................. -- -- 433,000 108,000 711,000
---------- ----------- ----------- ------------ -------------
Net income (loss)....... $ (380,217) $(5,185,331) $ 3,337,271 $ 614,412 $ 1,066,482
========== =========== =========== ============ =============
Net income (loss) per
share(1)............... $(.05) $(.69) $.44 $.08 $.14
Number of shares used in
computing per share
amounts................ 7,555,556 7,555,556 7,555,556 7,555,556 7,555,556
<CAPTION>
MAY 31, 1997
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, -----------------------------
1995 1996 1997 ACTUAL PRO FORMA(2)
------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA;
Total current assets.... 1,631,696 24,471,238 44,329,127 52,476,020 52,476,020
Working capital......... 988,840 14,744,627 21,916,553 31,565,837 31,565,837
Total assets............ 2,501,993 25,348,346 47,435,171 55,272,094 55,272,094
Total current
liabilities............ 642,856 9,726,611 22,412,574 20,910,183 20,910,183
Due to Aura(3).......... 1,238,354 20,186,283 17,249,874 25,522,706 21,522,706
Stockholders' equity
(deficit).............. 620,783 (4,564,548) 7,772,723 8,839,205 12,839,205
</TABLE>
- -------
(1) See Note 1 of Notes to Financial Statements for information regarding
calculation of net income (loss) per share.
(2) Gives effect to the Conversion.
(3) Represents long-term loans made by Aura to the Company to cover working
capital expenses. At June 30, 1997, the aggregate amount due by the
Company to Aura was approximately $17.0 million.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains
certain forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. See "Forward-Looking Statements." The Company's actual
results may differ materially from the results discussed in the forward-
looking statements as a result of certain factors, including, but not limited
to, those discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company's Statement of Operations includes revenue and costs directly
attributable to the Company, as well as certain allocations from Aura of
indirect costs. Such allocations generally are based upon the proportionate
labor costs of the Company and the rest of Aura. The results of operations
also include allocations of (i) costs for administrative functions and
services performed on behalf of the Company by centralized staff groups within
Aura; (ii) Aura's general corporate expenses; (iii) pension and other
retirement benefit costs; and (iv) cost of capital. Current and deferred
income taxes and related tax expense have been allocated to the Company as if
it were a separate taxpayer. The allocations and estimates in the financial
statements are based on assumptions which the Company's management believes
are, under the circumstances, a reasonable approximation of the Company's
results of operations on a "stand-alone" basis.
The Company does not employ an internal research and development staff, but
instead focuses on identifying and innovatively incorporating into its
products software and hardware technologies acquired from third-party
manufacturers and suppliers. Accordingly, the Company's research and
development expenses during the periods discussed have been insignificant.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain financial
data as a percentage of net revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
-----------------------------------------------------
NINE MONTHS THREE MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED MAY 31,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, --------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 97.9 96.6 66.4 65.2 67.4
Gross profit............ 2.1 3.4 33.6 34.8 32.6
Expenses
Research and
development.......... 0.2 0.0 0.0 0.0 0.0
Selling, general and
administrative....... 20.1 15.9 23.4 21.9 17.7
Total expenses...... 20.3 15.9 23.4 21.9 17.7
Income (loss) from
operations............. (18.3) (12.5) 10.2 12.9 14.9
Other (income) and
expenses
Miscellaneous income.. (0.2) (0.1) (0.2) (0.0) (0.1)
Interest expense...... 0.0 4.2 3.0 3.2 3.5
Provision for income
taxes.................. 0.0 0.0 0.8 0.0 4.6
Net income (loss)....... (18.1) (16.6) 6.6 9.7 6.9
</TABLE>
25
<PAGE>
THREE MONTHS ENDED MAY 31, 1997 AS COMPARED TO THREE MONTHS ENDED MAY 31, 1996
Revenues. Gross revenues in the three month period ended May 31, 1997 ("the
first quarter of Fiscal 1998") increased by $8.6 million to $16.1 million from
$7.5 million in the first quarter of Fiscal 1997. The increase is primarily a
result of the Company's sales to major mass merchandisers such as Circuit City
Stores, Inc. and Best Buy Company, Inc., which began in the second half of
Fiscal 1997. Gross revenues for the first quarter of Fiscal 1998 were
positively affected by improved sales of multimedia products, which in turn
were driven by sales of the NewCom 12X drive kit and multimedia kits, NewCom
16X drive kit and multimedia kits and NewCom 16X Audiophile multimedia kit,
and offset by decreased sales of the NewCom 8X drive kit and multimedia kits.
Sales of communication products for the first quarter of Fiscal 1998 were
positively affected by sales of the NewCom 33,600 ifx, efx and ifx-m fax
modems, NewTalk 33,600 ifx, vifx and spifx modems and NewCom 56,000 ifx and
fax modems, and offset by decreased sales of the NewTalk 2000 DSVD ifx modem.
Gross revenues from sales of multimedia products for the first quarter of
Fiscal 1997 were positively affected by sales of the newly introduced NewCom
6X drive kit and multimedia kits and NewCom 8X drive kit and multimedia kits.
Gross revenues from sales of communication products in the first quarter of
Fiscal 1997 were driven by sales of the NewCom 14,400 ifx, efx and efx-m fax
modems and NewCom 28,800 ifx, efx and efx-m modems.
Discounts given for the first quarter of Fiscal 1998 were approximately
$31,000 on $16.1 million of gross revenue or 0.2%. Such discounts were
comparable to approximately $24,000 on $7.5 million or 0.3% in the
corresponding prior fiscal period.
Returns and allowances in the first quarter of Fiscal 1998 were $621,037,
compared to none in the corresponding prior fiscal period. In the first
quarter of Fiscal 1998, the returns and allowances were primarily due to
rotation of stock by customers and products returned for exchange by
consumers. Returns and allowances in the first quarter of Fiscal 1998 related
primarily to returns associated with the NewCom 33,600 ifx, efx and ifx-m fax
modems, NewCom 8X drive kit and multimedia kits and NewCom 12X drive kit and
multimedia kits. Such returns and allowances may vary substantially from
quarter to quarter depending on the customer base and general market
conditions.
Net revenues for the first quarter of Fiscal 1998 were $15.4 million as
compared to $7.4 million for the corresponding prior fiscal period, an
increase of 107.3%.
Cost of Goods Sold. Cost of goods sold increased to $10.4 million or 67.4%
of net revenues from $4.9 million or 65.2% in the first quarter of Fiscal 1998
of net revenues in the corresponding prior fiscal period. The increase in the
percentage cost of goods sold resulted from a shifting in the mix of products
sold, with a larger portion of the product being modems, which carry a lower
margin than the multimedia kits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $2.7 million or 17.7% of net revenues in the
first quarter of Fiscal 1998 as compared to $1.6 million or 21.9% of net
revenues in the corresponding prior fiscal period. The decrease as a
percentage of net revenues was due to the fact that expenses required to
establish the infrastructure necessary to achieve higher sales had been
incurred in prior periods.
Interest Expense. Interest expense in the first quarter of Fiscal 1998 has
increased to $535,735 from $240,171 in the corresponding prior fiscal period.
The increase is a result of higher levels of borrowing from commercial sources
during the current year quarter along with higher levels of advances from
Aura. While the Company intends to partially repay the amount owing under its
commercial line of credit with a portion of the net proceeds of this Offering,
management's internal cash projections estimate future borrowings under such
facility or any replacement thereof to finance operations in an amount equal
to or in excess of such repaid amount within the 12 month period following the
completion of this Offering. As a result, the Company will not significantly
benefit from any reduction in interest expense as a result of such debt
repayment.
Income Taxes. The Company incurred a $711,000 provision for income taxes in
the first quarter of Fiscal 1998 compared to $108,000 in the corresponding
prior fiscal period. The Company and Aura have agreed, pursuant to the Tax
Sharing Agreement (as that term is defined herein), that any tax liability
owed by the
26
<PAGE>
Company to Aura for the period from June 1, 1997 through that date on which
Aura owns less than 80% of the Company's outstanding Common Stock (the
"Deconsolidation Date") will be recorded by the Company as an additional
capital contribution by Aura effective as of the Deconsolidation Date. See
"Relationship with Aura and Certain Transactions--Arrangements and
Transactions with Aura Systems, Inc.--Tax Sharing Agreement."
Net Income. Net income for the first quarter of Fiscal 1998 was $1.1 million
as compared to net income of $614,000 for the corresponding prior fiscal
period. Net income for the three months ended May 31, 1996 was positively
affected by the utilization of the Company's net operating loss carry forward.
FISCAL 1997 AS COMPARED TO FISCAL 1996
Revenues. Gross revenues in Fiscal 1997 increased to $73.1 million from
$33.3 million in Fiscal 1996. The increase resulted from an increase in
product sales during the second half of the year to major mass merchandisers
such as Best Buy Company, Inc. and Circuit City Stores, Inc. Gross revenues
for Fiscal 1997 were positively affected by improved sales of multimedia
products, which in turn were driven by sales of the NewCom 8X drive kit and
multimedia kits and the NewCom 12X drive kit and multimedia kits introduced in
April and August 1996, respectively, and offset by decreased sales of NewCom
4X drive kit and multimedia kits no longer offered by the Company. Gross
revenues from communication products were positively affected by sales of the
NewCom 33,600 ifx, efx and efx-m fax modems and the NewTalk 2,000 DSVD ifx
modem, introduced in May and June 1996, respectively, and were offset by
decreased sales of the Company's 28,800 ifx, efx and efx-m fax modems no
longer offered by the Company. Gross revenues for Fiscal 1996 increased
primarily due to sales of newly introduced multimedia products, primarily the
NewCom 4X drive kit and multimedia kits and the NewCom HiFi 16i sound board
introduced in the first quarter of Fiscal 1996. Gross revenues from
communication products were driven by sales of the NewCom 14,400 ifx, efx and
efx-m fax modems and the 28,800 ifx, efx and efx-m fax modems no longer
offered by the Company, offset by decreased sales of the Company's
discontinued 96424 ifx, efx and efx-m fax modems.
Discounts given during Fiscal 1997 were approximately $89,000 on $73.1
million of gross revenues or 0.1%, as compared to approximately $128,000 on
$33.3 million or 0.4% in Fiscal 1996. The Company was required to give higher
discounts in Fiscal 1996 due to a heightened level of price competition for
CD-ROM drives included in the Company's multimedia kits.
Returns and allowances in Fiscal 1997 were $22.4 million (or 30.6% of gross
revenues), as compared to $2.0 million (or 5.9% of gross revenues) in Fiscal
1996. The disproportionately large increase in returns in Fiscal 1997 was
partially due to a problem encountered in the middle of the year with a chip
used in the Company's DSVD modems. Due to a defect in the chip's software
design, the chip vendor was unable to satisfy the Company's specifications for
DSVP performance. As a result, the Company agreed to accept its customers'
return of the modems, which it thereafter repackaged and resold as a non-DSVD
modem product. Aggregate returns relating to the defective chips were
approximately $10.1 million, or 44.9% of total returns in Fiscal 1997. Also,
in Fiscal 1997 the Company's efforts to upgrade the quality and average size
of its customer base and its resulting cessation of business with several
smaller customers resulted in a higher than normal incidence of product
returns from such customers. While the Company believes that returns
associated with the aforementioned chip defect should not be material in
future periods, it is expected that returns will continue from smaller
customers disenfranchised as a result of the Company's upgrading of its
customer base, possibly at significant levels. Returns and allowances for
Fiscal 1997 related primarily to returns associated with the NewCom 33,600
ifx, efx and ifx-m fax modems, NewCom 8X drive kit and multimedia kits and
NewCom 4X drive kit and multimedia kits. Returns and allowances for Fiscal
1996 related primarily to returns associated with NewCom 2X drive kit and
multimedia kits introduced and discontinued in Fiscal 1996, NewCom 4X drive
kit and multimedia kits, NewCom 14,400 ifx, efx and efx-m fax modems and the
Company's discontinued 28,800 ifx, efx and efx-m fax modems.
Net revenues for Fiscal 1997 were $50.6 million as compared to $31.2 million
in Fiscal 1996, an increase of 62.2%.
Cost of Goods Sold. Cost of goods sold increased from approximately $30.1
million in Fiscal 1996 to $33.6 million in Fiscal 1997 but, as a percentage of
net revenues, decreased to 66.4% from 96.6%. The decrease
27
<PAGE>
as a percentage of net revenues was due to the fact the Company was able to
buy components used in its products at more favorable prices during Fiscal
1997 because of the larger volume of its purchases and a decrease in the cost
of such components. The Company was able to take advantage of such cost
decreases because of its use of "Just in Time" inventory acquisition whereby
the Company delays its purchases until just before the components are needed
in the manufacturing cycle rather than pre-purchasing and warehousing
inventory.
Gross Profit. Gross profit for Fiscal 1997 was 33.6% compared to 3.4% for
Fiscal 1996. The increase in gross profit resulted from a decrease in the cost
of goods sold as a percentage of net revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to approximately $11.8 million in Fiscal
1997 from $5.0 million in Fiscal 1996. The increase was a result of the rapid
expansion in infrastructure needed to sustain the growth in sales as well as
an increase in advertising from approximately $4.0 million in Fiscal 1997 as
compared to $1.5 million in Fiscal 1996.
Interest Expense. Interest expense for Fiscal 1997 was $1.5 million as
compared to $1.3 million for Fiscal 1996. The increase was due primarily to
the increase in borrowings against lines of credit and from Aura.
Income Taxes. The Company incurred $433,000 in income taxes for Fiscal 1997
compared to none in Fiscal 1996; no income taxes were due in Fiscal 1996
because of the Company's net loss.
Net Income. Net income for Fiscal 1997 was $3.3 million as compared to a net
loss of $5.2 million for Fiscal 1996. Net income for Fiscal 1997 was
positively affected by the utilization of the Company's net operating loss
carry forward.
FISCAL 1996 AS COMPARED TO NINE MONTHS ENDED FEBRUARY 28, 1995
Revenues. Gross revenues for Fiscal 1996 increased to $33.3 million from
$2.1 million for Fiscal 1995. The increase is due to the establishment of the
channels of distribution that the Company began setting up in September 1994,
when the Company first began shipping product. Gross revenues for Fiscal 1996
increased primarily due to sales of newly introduced multimedia products,
primarily the NewCom 4X drive kit and multimedia kits and the NewCom Hi-Fi 16i
sound board introduced in the first quarter of Fiscal 1996. Gross revenues
from communication products were driven by sales of the NewCom 14,400 ifx, efx
and efx-m fax modems and the NewCom 28,800 ifx, efx and efx-m fax modems (no
longer offered by the Company), offset by decreased sales of the Company's
discontinued 96424 ifx, efx and efx-m fax modems. Gross revenues for Fiscal
1995 consisted primarily of sales of communication products, which sales were
primarily driven by sales of the 14,400 ifx, efx and efx-m fax modems no
longer offered by the Company.
Discounts given during Fiscal 1996 were approximately $128,000 on $33.3
million of gross revenues or 0.4% as compared to approximately $25,000 on $2.1
million of gross revenues or 1.2% in Fiscal 1995. The Company was required to
give higher discounts in Fiscal 1996 due to a heightened level of price
competition for CD-ROM drives included in the Company's multimedia kits.
Returns and allowances for Fiscal 1996 were approximately $2.0 million as
compared to none in Fiscal 1995. The returns and allowances in Fiscal 1996
were primarily due to rotation of stock by customers and products returned for
exchange by consumers. Such returns and allowances were associated primarily
with the Company's 2X drive kit and multimedia kits introduced and
discontinued in Fiscal 1996, NewCom 4X drive kit and multimedia kits, NewCom
14,400 ifx, efx and efx-m fax modems and the discontinued 28,800 ifx, efx and
efx-m fax modems.
Cost of Goods Sold. Cost of goods sold increased to $30.1 million from $2.1
million in Fiscal 1995 in conjunction with the increase in sales. As a
percentage of net revenues, cost of goods sold decreased to 96.6% from 97.9%
in Fiscal 1995.
Gross Profit. Gross profit for Fiscal 1996 was 3.4% as compared to 2.1% in
Fiscal 1995. The improvement in Fiscal 1996 was largely due to the improvement
in cost of goods sold as a percentage of net revenues.
28
<PAGE>
Selling, General and Administrative Expenses. General and administrative
expenses for Fiscal 1996 increased to $5.0 million from $0.4 million in Fiscal
1995 as the Company set up its internal infrastructure.
Interest Expense. Interest expense for Fiscal 1996 was $1.3 million compared
to none in the prior year. The interest expense resulted from the
establishment of a line of credit with a lending institution for the financing
of the Company's accounts receivable, and to an interest charge by Aura on the
loan balances due.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth results of operations for each of the
Company's last 11 quarters. In the opinion of management, this information has
been presented on the same basis as the audited financial statements appearing
elsewhere in this Prospectus, and includes all adjustments, consisting only of
normal recurring adjustments and accruals, that the Company considers
necessary for a fair presentation. The unaudited quarterly information should
be read in conjunction with the audited financial statements of the Company
and the notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
----------------------- --------------------------------------------------
THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER(1) QUARTER QUARTER QUARTER QUARTER QUARTER
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 839,910 $ 1,263,528 $ 2,271,047 $ 8,250,841 $11,073,123 $ 9,602,418
Cost of goods sold...... 755,910 1,303,635 1,941,060 8,798,229 7,806,438 11,585,518
Gross profit............ 84,000 (40,107) 329,987 (547,388) 3,266,685 (1,983,100)
Expenses:
Research and develop-
ment................... -- 4,201 -- -- -- --
Selling, general and ad-
ministrative........... 255,454 168,165 252,153 427,453 643,231 3,649,227
Total expenses.......... 255,454 172,366 252,153 427,453 643,231 3,649,227
Income (loss) from oper-
ations................. (171,454) (212,473) 77,834 (974,841) 2,623,454 (5,632,327)
Interest expense........ -- -- 13,322 76,300 111,063 1,102,055
Other (income) expense.. -- (3,710) 25,120 49,740 (76,759) (21,390)
Income (loss) before in-
come taxes............. (171,454) (208,763) 39,392 (1,100,881) 2,589,150 (6,712,992)
Provision for income
taxes.................. -- -- -- -- -- --
Net income (loss)....... (171,454) (208,763) 39,392 (1,100,881) 2,589,150 (6,712,992)
Net income (loss) per
share.................. (.02) (.03) .01 (.15) .34 (.89)
<CAPTION>
FISCAL 1997 FISCAL 1998
------------------------------------------------- -----------
FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $7,441,383 $11,041,216 $17,920,915 $14,228,176 $15,429,677
Cost of goods sold...... 4,854,512 7,401,456 14,192,913 7,170,203 10,397,883
Gross profit............ 2,586,871 3,639,760 3,728,002 7,057,973 5,031,794
Expenses:
Research and develop-
ment................... -- -- -- 7,708 6,870
Selling, general and ad-
ministrative........... 1,631,698 2,769,972 2,327,698 5,111,583 2,728,857
Total expenses.......... 1,631,698 2,769,972 2,327,698 5,119,291 2,735,727
Income from operations.. 955,173 869,788 1,400,304 1,938,682 2,296,067
Interest expense........ 240,171 436,572 382,625 456,998 535,735
Other income............ (7,410) (7,230) (4,321) (103,729) (17,150)
Income before income
taxes.................. 722,412 440,446 1,022,000 1,585,413 1,777,482
Provision for income
taxes.................. 108,000 -- -- 325,000 711,000
Net income.............. 614,412 440,446 1,022,000 1,260,413 1,066,482
Net income per share.... .08 .06 .14 .17 .14
</TABLE>
- -------
(1) During the second quarter of 1995, the Company had no operations other
than charges payable to Aura for certain corporate services in the
aggregate amount of $20,000.
29
<PAGE>
The Company's past operating results have been, and its future operating
results will be, subject to quarterly and other fluctuations due to a variety
of factors, including changes in pricing policies by the Company, its
competitors or its suppliers, including anticipated and unanticipated
decreases in unit average selling prices of the Company's products,
availability and cost of products from the Company's suppliers, changes in the
mix of products sold and in the mix of sales by distribution channels, the
gain or loss of significant customers, new product introductions by the
Company or its competitors, market acceptance of new or enhanced versions of
the Company's products, seasonal customer demand, and the timing of
significant orders. Operating results could also be adversely affected by
general economic and other conditions affecting the timing of customer orders
and capital spending, a downturn in the market for PCs, and order
cancellations or rescheduling. The Company's customers may change delivery
schedules or cancel orders without significant penalty. The Company
anticipates that operating results will fluctuate on a quarterly basis as a
result of a number of factors, including the factors discussed above. See
"Risk Factors--Potential Fluctuations in Future Operating Results."
The Company believes that, due to industry seasonality, demand for the
Company's products is strongest during the third quarter of its fiscal year
(the fourth calendar quarter of the year), as a result of year-end business
purchases and holiday sales. This seasonality may become more pronounced in
the future to the extent that a greater proportion of the Company's sales
consist of sales into the retail/mass merchant channel.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1997 the Company had a cash overdraft of $23,507, which has been
reclassified to accounts payable, compared to the February 28, 1997 cash
balance of $2.8 million, due primarily to the reduction in debt owing to
commercial lenders. Accounts receivable were $32.8 million at May 31, 1997 as
compared to $30.0 million at February 28, 1997. Inventories were $15.5 million
at May 31, 1997 as compared to $11.5 at February 28, 1997 and $3.6 million at
February 29, 1996. These increases were due to the Company's increased sales
volume. While the Company attempts to purchase higher cost inventory items on
a Just-in-Time basis, a large amount of lower cost, longer lead-time items are
required to be held in stock to support the increasing sales volume. The
inventory at February 28, 1997 represents approximately 110% of the cost of
sales for the first quarter of Fiscal 1998. Other current assets increased by
$4.1 million at May 31, 1997 compared to February 28, 1997, primarily as a
result of prepayments to vendors to initiate manufacturing of the Company's
WebPal product. Net cash used by operating activities increased to $7.9
million at May 31, 1997 from $3.4 million at February 28, 1997 due to the
larger increases in accounts receivable, the increased level of inventories
necessary to support anticipated future sales and a $3.6 million deposit made
in connection with the Company's $8.25 million firm commitment to purchase
WebPal units manufactured for the Company, offset partially by an increase in
accounts payable in the current year quarter as compared to a decrease in
accounts payable in the prior year quarter. See Note 13 of Notes to Financial
Statements.
Since inception, the Company has financed its operations through loans from
Aura. The outstanding balances payable to Aura at Fiscal 1995, 1996 and 1997
year-end and at May 31, 1997 were $1.2 million, $20.2 million, $17.2 million
and $25.5 million, respectively. Intercompany interest expense, included in
the outstanding balance at Fiscal 1996 and Fiscal 1997 year-end was $1.2
million and $1.1 million, respectively, and was charged at the rate of 9% and
8%, respectively, per annum. No interest was charged to the Company on
intercompany indebtedness during Fiscal 1995. Effective March 1, 1996, Aura
contributed $9.0 million of the Company's indebtedness to Aura as additional
paid-in capital, thereby reducing the amount reflected in "Due to Aura." In
addition, subsequent to Fiscal 1997, the Company notified its commercial
lender that it was replacing the facility with a different lender. As a
result, the commercial lender discontinued advancing funds under the line and
Aura agreed to finance the Company's working capital requirements until the
replacement commercial line was put in place. Between March 1, 1997 and May
31, 1997, Aura advanced $8.3 million to the Company; this amount was repaid in
June 1997 when the new commercial line of credit was put into effect with
borrowings under the new line and cash on hand. Immediately prior to the
Closing Date, Aura will effectuate the Conversion whereby $4.0 million in
intercompany indebtedness will be converted into 444,444 Shares of Common
Stock (assuming an Offering Price of $9.00 per Unit). All remaining
intercompany debt will be evidenced by an unsecured promissory note from the
Company to Aura due and payable in full in September 1998. The promissory note
will bear interest at the rate of 9% per annum and will have no prepayment
penalty.
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<PAGE>
Since March 1, 1996, the Company has experienced a significant expansion in
its overall level of business and operations, including product design,
marketing, technical support and sales and distribution. The Company's full-
time employee base has grown from 35 at March 1, 1996, to 73 at June 30, 1997.
This expansion in the scope of the Company's business and operations resulted
in a need for significant investment in infrastructure and systems. Growth of
the Company's business has generated significant accounts receivable; $32.8
million of accounts receivable net were outstanding at May 31, 1997. The
stated payment terms of the Company's sales are typically 30 days from the
date of shipment. The Company's accounts receivable have also recently
increased significantly due to its receivables being outstanding for a longer
period. While the aging of the Company's accounts receivable generally is
affected by the fact that a substantial portion of the Company's sales occur
in the final three weeks of the fiscal quarter, of the $32.8 million of
accounts receivable net outstanding at May 31, 1997, $20.9 million was over 90
days old and $9.8 million remained outstanding as of August 19, 1997.
Management believes this remaining $9.8 million is fully covered by the
Company's allowance for doubtful accounts. This longer collection period
resulted, in part, from the Company's revenue growth increasing beyond the
capacity of its credit and collections personnel. In response, the Company has
increased the size of its credit and collections staff and intends to add
additional staff in the future. The inability of the Company to collect
significant portions of its accounts receivable on a timely basis or to obtain
adequate financing, in addition to the proceeds of this Offering, to meet its
cash requirements could limit the Company's future growth.
Aura also provided certain support services to the Company during these
periods including financial, legal, tax, audit, benefits administration and
personal property insurance. The costs for providing these support services
were allocated by Aura to the Company based upon formulas that in management's
opinion reasonably approximated the actual costs incurred by Aura in providing
these services. The expenses recorded by the Company for these allocations
were $80,000, $120,000 and $120,000 for Fiscal 1995, 1996 and 1997 year-end,
respectively. The amounts allocated by Aura are not necessarily indicative of
the actual costs which may have been incurred had the Company operated as an
unaffiliated entity. The Company intends to continue using the support
services of Aura on an interim basis with rates negotiated in accordance with
a Service Agreement for up to six months from the Offering.
In Fiscal 1996 and 1997, the Company had available a line of credit with a
commercial lending institution that permitted borrowings of up to the lesser
of $9.0 million or 80% of eligible accounts receivable, as defined in the
financing agreement with the lender. The line of credit had an interest rate
equal to the institution's prime rate plus 1/2%. The line of credit was
collateralized by accounts receivable and required the Company to maintain
certain financial ratios. The Company used this facility for funding its
operations during Fiscal 1996 and 1997. At February 29, 1996 and February 28,
1997, the outstanding balance under this line of credit was $2.4 million and
$8.8 million, respectively. In May 1997, the Company replaced this line with
another line of credit with another lending institution that permits
borrowings of up to the lesser of $7.0 million or 60% of eligible accounts
receivable, plus up to $2.0 million of inventory flooring. This new line of
credit has an interest rate equal to the institution's prime rate plus 1.25%.
The new line of credit is secured by substantially all of the operating assets
of the Company. In addition, the Company agreed to issue in favor of the
lender irrevocable letters of credit equal to $750,000. The stated interest
rate on the new financing agreement is higher by 0.75% than the former
arrangement. However, the former arrangement provided for additional lender's
fees which in the aggregate resulted in a substantially higher cost of funds
overall. At May 31, 1997 the outstanding balance under the new line of credit
was approximately $5.7 million.
Net cash used by operating activities for Fiscal 1995, 1996 and 1997 was
$778,530, $19.3 million and $9.7 million, respectively. The Company's net cash
flow used by investing activities for Fiscal 1995, 1996 and 1997 was $125,118,
$224,639 and $2.1 million, respectively. Cash flows from financing activities
for Fiscal 1995, 1996 and 1997 were $1.2 million, $21.3 million and $12.5
million, respectively. During September 1994, Aura contributed assets to the
Company in the amount of $1.0 million. The contributed assets consisted of
inventory valued at $216,297 and property and equipment valued at $61,144 and
engineering designs and drawings valued at $722,559. Effective March 1, 1996,
Aura contributed $9.0 million of the Company's indebtedness to Aura as
additional paid-in capital, thereby reducing the amount reflected in "Due to
Aura."
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<PAGE>
During Fiscal 1995, 1996 and 1997, the Company capitalized costs of
$120,571, $55,235 and $1.7 million, respectively, on special tools and
equipment, which have been designed for the manufacturing and development of
electronic products. The capitalized amounts, included in machinery and
equipment, include allocated costs of direct labor and overhead.
To date, inflation has not had a material effect on the Company's financial
results. There can be no assurance, however, that inflation may not adversely
affect the Company's financial results in the future.
The Company believes that current and future available capital resources,
including the net proceeds from the Offering, cash flow from operations, and
other existing sources of liquidity, will be adequate to fund its operations
for the 12-month period following the date of this Prospectus, including but
not limited to funding of the Company's $8.25 million firm commitment to
purchase WebPal units manufactured for the Company (see Note 13 of Notes to
Financial Statements). As of August 19, 1997, the Company had a cash balance
of $810,000, available borrowings under its commercial credit line of
approximately $3.0 million and current receivables of approximately $19.3
million. However, there can be no assurance that sufficient funds will be
available following the completion of this Offering or that future events will
not cause the Company to seek additional capital sooner including, but not
limited to, the failure by the Company to timely collect outstanding accounts
receivable. While the Company's current cash projections do not contemplate
the need to borrow additional funds from Aura following the completion of this
Offering, there can be no assurance that future events will not cause the
Company to look to Aura for funding. While Aura has indicated that it will not
provide working capital to the Company on a basis consistent with past
practices, the Company has not received any indication from Aura that it would
not provide term funding to the Company in the case of unforeseen
circumstances. To the extent the Company is in need of any additional
financing, there can be no assurance that it will be available to the Company
from Aura or any other source on terms acceptable to the Company, or at all.
If additional funds are raised by issuing equity securities, further dilution
to the existing stockholders may result. If adequate funds are not available,
the Company may be required to delay, scale back or eliminate its product
development, manufacturing and marketing programs or to obtain funds through
arrangements with partners or others that may require the Company to
relinquish rights to certain of its technologies or potential products or
other assets. Accordingly, the inability to obtain adequate financing could
have a material adverse affect on the Company's business, financial condition
and results of operations. See "Risk Factors--Future Capital Requirements;
Uncertainty of Additional Funding."
Although there are no present understandings, commitments or agreements with
respect to any acquisitions of other businesses, products or technologies, the
Company from time to time evaluates potential acquisitions of other
businesses, products and technologies and may in the future require additional
equity or debt financings to consummate such potential acquisitions.
32
<PAGE>
BUSINESS
The following discussion contains forward-looking statements which involve
risks and uncertainties. Such forward-looking statements include, but are not
limited to, statements regarding future events and the Company's plans and
expectations. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements as a result of certain
factors including, but not limited to, those discussed in "Risk Factors," as
well as those discussed elsewhere in the Prospectus or incorporated herein by
reference. See "Forward-Looking Statements."
COMPANY
NewCom, Inc. ("NewCom" or the "Company") designs, manufactures and markets
high performance computer communication and multimedia products for the
personal computer ("PC") market. NewCom's line of communication products
includes a line of high speed external and internal data/fax and voice modems,
which link PCs through the worldwide web and through direct connections over
telephone lines, and NewCom's WebPal, an Internet appliance enabling users to
access the worldwide web and perform Internet specific tasks through their
existing television screens. NewCom's multimedia product line includes a broad
range of add-in subsystems, upgrade kits and Internet access kits that
incorporate CD-ROM drives, speakers, sound cards, modems, microphones and
other telephony and sound solutions. The Company's multimedia products are
targeted both to users that desire to convert their PCs into multimedia
systems and to users desiring to upgrade their current multimedia systems with
faster CD-ROM drives, higher quality sound and increased functionality.
INDUSTRY OVERVIEW
The Company believes that demand for PC communication and multimedia
products is driven by a variety of factors including (i) the growing installed
base of PCs, particularly those sold into the consumer and small office/home
office ("SOHO") markets, (ii) continuing advances in technology, leading to
faster modems and CD drives and expanded multimedia functionality and (iii)
the rapid growth of Internet content, bandwidth-intense interactive software,
on-line services and emerging PC applications such as digital video capture
and playback, video conferencing, telephony, paperless faxing, advanced
desktop publishing, voicemail, high resolution 3D games, and interactive
movies and other entertainment media, which increasingly demonstrates to
consumers the need for PC communications and multimedia products.
Growth in PC Use. Many of NewCom's multimedia and communication products are
purchased for use in home PCs. According to data published by International
Data Corporation ("IDC"), the United States leads the world in the percentage
of households with PCs at 35%. According to a December 1996 IDC survey, as the
rate of growth in the number of U.S. homes with PCs tapers, growth will
continue to be fueled by increases in the number of households acquiring
multiple PCs. IDC projects that by the end of this decade, one in three PC
households will have more than one PC, compared to one in five households in
1996. IDC also reported that in 1996 64.6% of PC households used the PC at
least once per day, up from 55.2% in 1993. Increased usage of modems was also
reported in the survey; 39% of PC households with modems subscribed to an
online service in 1996, up from 26% in 1994. In 1996, 24% of those accessing
the Internet did so on a daily basis, with another 60% surfing on the Internet
at least once a week. IDC has projected that in 1997 PC spending worldwide
will grow by 15.5% to $182.5 billion.
The December 1996 IDC survey also showed that PCs have not achieved
significant penetration into lower and middle income U.S. households, in part
due to the relatively high purchase price of a complete PC system. Industry
sources indicate that Internet access, cost and ease of use are among the main
factors in families' choosing to purchase home systems. NewCom's WebPal has
been designed to address these factors by providing the consumer with an easy
to use, relatively inexpensive means to access the Internet.
Advances in Technology. PC users have consistently demonstrated a desire to
upgrade to higher speed modems, faster CD-ROM drives and higher quality
soundcards. Consumers have in the past replaced first 9,600
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<PAGE>
bps modems, then 14,400 bps, and now 28,800 bps modems with faster modems as
they have became available at an affordable price. A May 1996 industry study
found that the number of PC power users accessing the Internet at 28,800 bps
had increased to 39% from 27% six months earlier. The Company believes the
speed advantage offered by today's emerging new 56,000 bps standard and future
standards (utilizing emerging ADSL and cable modem technologies) of more than
100 Kbps, will once again push many PC users tired of slow content download
and Internet response times to upgrade to the newer, faster standards.
Multimedia products, as well, have benefited from significant and continuing
improvements in speed, sound quality and functionality. New 16 speed and
higher CD-ROM drives, which can transfer data 16 times or more faster than the
once-standard single speed drives, now enable users to play many more high
speed video files directly off of the CD-ROM drive (without requiring any off
load to a fixed hard disk drive), thus saving the user valuable time and hard
disk space.
Expansion of Internet and Other PC Applications. In addition to improvements
in technology, the rapid growth and increased quality of Internet content, on-
line services and other PC applications have contributed to the increasing
number of new uses for PC communications products such as those offered by
NewCom. While recent estimates of the number of Internet users in the United
States range from 15 million to 35 million (depending on how Internet use is
identified), industry sources indicate that the Internet and the use of modems
to access the Internet continue to grow rapidly. IDC has estimated that the
number of Internet users worldwide will be approximately 200 million by the
end of 1999, an increase from approximately 56 million at the end of 1995. A
recent study by Hambrecht & Quist estimates that an industry providing
Internet-related technologies (including equipment, network services,
software, enabling services and Internet expertise) could become a $13 billion
industry by the year 2000.
Adding to the variety of uses for the Internet is the growing number of
software makers that offer new or upgraded software on-line. Hardware vendors,
as well, now almost routinely allow users to download the latest driver
updates off of the vendors' Internet sites. Downloads of large files are time
consuming and inconvenient with slower older modems, making newer faster
modems increasingly more attractive. Fax modem technology, which allows users
to send and receive faxes electronically via their computers without the need
for paper output, is gaining widespread acceptance among PC users. Computer
telephony also promises to increase the usefulness of PC communications
products. Internet phone technology allows users to make long distance phone
calls for the much lower cost of calling the local Internet provider. IDC
estimated that the number of Internet telephony users had grown to 500,000
active users by the end of 1995, and forecasts that such number will grow to
16 million by the end of 1999.
Using computer multimedia and communications technology, desktop
videoconferencing (DVC), audio/visual collaboration via the PC will allow
users to see as well as hear people in other locations while conferencing. IDC
projects that worldwide Desktop Videoconferencing will grow from $604 million
in 1996 to $1.29 billion in 2001.
The widening array of PC applications has also increased the market for
other multimedia products. The multimedia market has been fueled by the
increased volume of software that requires CD-ROM drives, soundcards and high
bandwidth delivery systems. Microsoft, Novell and other large vendors now ship
much of their software on compact discs. Popular games such as Lucas Art's
Rebel Assault and Dark Forces can only be played with a CD-ROM drive. Most
multimedia encyclopedias, as well as learning and game software, now
incorporate quality sound as an integral part of their software programs.
STRATEGY
NewCom's objective is to become a leading supplier of innovative, high
performance communications and multimedia products for the PC market. To
achieve this objective, the Company is pursuing the following strategies:
. Capitalize on Engineering Expertise: The Company strives to identify and
innovatively incorporate into its products key emerging technologies in
the PC communications and multimedia industries.
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<PAGE>
NewCom's engineers maintain a close working relationship with their
counterparts at the major chip manufacturers to ensure the Company is
kept apprised of the latest in chip technology and design.
. Promote Manufacturing Advantages: Management believes NewCom's success
in reaching a particular product niche and gaining market share stems
from its ability to produce products rapidly, cost effectively and with
a high level of reliability. NewCom's manufacturing strategy is
supported by its use of Just-in-Time manufacturing, whereby supplies and
components are purchased just before they are needed during the
manufacturing cycle, its design focus on utilizing interchangeable
circuit boards and other product components, and its relationships with
its primary manufacturing partners in China, Taiwan, Mexico and the
United States.
. Pursue Proven Markets: NewCom will continue to introduce to its existing
markets products with improved performance, additional features and
better pricing. NewCom's use of DSP technology allows software upgrades
to meet evolving standards and add enhancements, while "value
engineering" enables the Company to design and manufacture new
generations of existing products at reduced costs.
. Target Newly Forming Markets: NewCom seeks to identify newly forming
markets and emerging technologies and to capitalize on its ability to
deliver superior products with a favorable price/performance ratio.
Newly forming markets for 56,000 bps modems, CDR and CDR/MPEG drives and
Internet appliances such as WebPal offer the Company significant
opportunities for growth, allowing NewCom to gain access to valuable
shelf space, achieve higher margins and establish a larger presence in
strategic market segments.
. Maintain High Attention to Customer Satisfaction: The Company seeks to
differentiate itself through the quality and level of its technical
support and customer service. The Company performs extensive testing and
preshipping inspection of its products, ships products with installation
discs and user-friendly manuals, and maintains a skilled, full-time
technical support team to respond to customer inquiries.
CURRENT PRODUCTS
NewCom strives to design products that are technologically advanced,
multifunctional, reliable, easy to use and affordable. Below is a description
of NewCom's most current products.
COMMUNICATIONS PRODUCTS
NewCom WebPal. Introduced in June 1997, WebPal is a communication appliance
designed specifically for the non-computer user. Similar in size and cost to a
VCR, WebPal allows users to access the Internet and the World Wide Web through
their existing television screens. WebPal incorporates a World Wide Web
browser and an E-mail service, and uses the television screen to display
information. WebPal connects to the Internet through a telephone line and a
modem included in the box, and requires a standard NTSC or PAL television set
or VGA monitor. A remote control unit is included with WebPal and an optional
remote keyboard is available. WebPal allows any consumer with a television set
and a standard wall telephone jack to surf the Internet and gain access to the
large number of interactive Internet text, graphic and audio pages and web
sites. WebPal is equipped with parallel port, which allows the user to print
output to a printer and to complete future parallel port upgrades such as
adding a hard disk drive. Both the browser/E-mail and the operating system are
stored in flash memory and are upgradable via Internet access. Also, WebPal
does not require the user to use a specific Internet Service Provider (ISP).
This allows many users with existing ISP accounts to continue using these same
accounts with the WebPal appliance, thus avoiding additional ISP monthly
access charges and the inconvenience of changing e-mail addresses. WebPal's
operating environment allows for easy user setup, provides seamless ISP
configuration and access, and supports a variety of add-on peripherals.
Additional specifications and features: 32-bit RISC Multimedia Processor,
standard 16-bit ISA bus for modem, ISDN adaptor or network card, built-in
ports for S-video and composite video for NTSC and PAL, VGA
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<PAGE>
output, standard PS/2 style keyboard and mouse ports, infrared receiver for
remote control unit and remote keyboard, parallel printer port, stereo audio
output, and Smartcard socket.
NewCom 56,000 bps Data/Fax Modem. This high speed internal modem, introduced
by NewCom in May 1997, is a send/receive fax and data modem all in one
computer card. The modem uses X2(R)-compatible technology, currently the most
widely supported 56,000 bps system. The internal version permits installation
using either Plug and Play or ISA Bus Direct. Enhanced models of these modems
include voicemail features or speakerphone and answering machine features.
Since these products are able to be used over standard analog POTS phone
lines, management expects that consumer demand will increase once the 56,000
bps standard for analog modems is fully established in the industry. Although
this product currently has an optimal data download rate of 56,000 bps, noise
and other analog phone line limitations will limit the actual speed of this
modem to lower rates. Management plans to introduce the external versions of
this product in Fall 1997.
Additional specifications and features: built-in enhanced 16550 compatible
UART (with larger buffer), CCITT V.42/MNP 2-4 error correction for reliable
communications, V.42 bis/MNP 5 data compression, auto dial and auto answer
capability, auto redial of busy numbers, tone or pulse dialing, call waiting
support, remote message retrieval, password protected mailboxes, and fax on
demand.
NewTalk 2000 DSVD Data/Fax Voice Modem. This product consists of an internal
DSVD send/receive fax and data modem card, full duplex speakerphone and
voicemail system all in one computer card. The Company's DSVD technology
allows PC users to have both a voice phone connection and a computer data
connection sharing a single standard POTS phone line. The data modem operates
at 33,600 bps transmission rate with a throughput of up to 134,400 bps using
data compression. In fax mode, it operates as a 14,400 class 1 group 3
send/receive facsimile. The product is shipped complete with a microphone,
headset, 3-inch desktop multimedia speakers, a modular null phone cable, a
user manual and DOS and Windows fax software and communications software.
Additional specifications and features: built in enhanced 16550 compatible
UART (with larger buffer), error correction for reliable communications, V.42
bis/MNP 5 data compression, auto dial and auto answer capability, auto redial
of busy numbers, tone or pulse dialing, call waiting support, remote message
retrieval, password protected mailboxes, and fax on demand.
NewTalk 33,600 bps Speakerphone System. The NewTalk 33,600 bps Speakerphone
System is a full duplex speakerphone, voicemail system, send/receive fax and
data modem all in one computer card. The computer card fits inside a DOS,
Windows 3.x or Windows 95 PC and attaches to the computer using the PC's
standard ISA bus interface slot. As a data modem, the system operates at
33,600 bps transmission rate, with a throughput of up to 134,400 bps using
data compression. In fax mode it operates as a 14,400 bps class 1 group 3
send/receive facsimile. The user can install this product using either Plug
and Play or ISA Bus Direct. This modem product line possesses the same data
modem and fax transmission rates as found in the NewTalk Data/Fax Voice Modem
described above. It is shipped complete with a microphone, headset, 3-inch
desktop multimedia speakers, a modular null phone cable, a user manual, and
DOS and Windows fax software and communications software.
Additional specifications and features: built in enhanced 16550 compatible
UART (with larger buffer), CCITT V.34, V.34+ error correction for reliable
communications, V.42 bis/MNP 5 data compression, auto dial and auto answer
capability, auto redial of busy numbers, tone or pulse dialing, call waiting
support, remote message retrieval, password protected mailboxes, and fax on
demand.
NewTalk 33,600 bps Data/Fax Voice Modem. This internal data/fax voice modem
is a voicemail system, send/receive fax and data modem all in one computer
card. The card goes inside a DOS, Windows 3.x or Windows 95 PC and attaches to
the computer using the PC's standard ISA bus interface slot. This product
operates using the fastest established analog modem industry standards
currently on the market. As a data modem, it operates at a 33,600 bps
transmission rate with a throughput of up to 134,400 bps using data
compression. In fax mode, it operates as a 14,400 class 1 group 3 send/receive
facsimile. The user can install
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<PAGE>
this product using either Plug and Play or ISA Bus Director. It is shipped
complete with a modular RJ11 phone cable and a user manual as well as DOS and
Windows fax software and communications software.
Additional specifications features: built in enhanced 16550 compatible UART
(with larger buffer), CCITT V.34, V.34+ error correction for reliable
communications, V.42 bis/MNP 5 data compression, auto dial and auto answer
capability, auto redial of busy numbers, tone or pulse dialing, call waiting
support, remote message retrieval, password protected mailboxes, and fax on
demand.
33,600 bps External Data/Fax Modem. This external data/fax modem hooks up to
the PC from the outside via a cable to the PC's serial port. One model is
designed to work with DOS, Windows 3.1x, or Windows95 PCs and another model is
designed to work with the Apple Macintosh. As a data modem, it operates at a
33,600 bps transmission rate with a throughput of up to 134,400 bps using data
compression. In fax mode, it operates as a 14,400 class 1 group 3 send/receive
facsimile. It is shipped with fax software and communications software, a
power supply, a modular RJ11 phone cable and a user manual.
Additional specifications and features: CCITT, V.34, V.34+ error correction,
V.42 bis/MNP 5 data compression, auto dial and auto answer capability, auto
redial of busy numbers, and tone or pulse dialing.
33,600 bps Internal DOS/Windows Data/Fax Modem. This internal data/fax modem
is a card that fits inside a DOS, Windows 3.x or Windows 95 PC and attaches to
the computer using the PC's standard ISA bus interface slot. As a data modem,
it operates at a 33,600 bps transmission rate with a throughput of up to
134,400 bps using data compression. In fax mode, it operates as a 14,400 class
1 group 3 send/receive facsimile. The user can install this product using
either Plug and Play or ISA Bus Direct. It is also shipped with DOS and
Windows fax software and communications software, a modular RJ11 phone cable
and a user manual.
Additional specifications and features: built in enhanced 16550 compatible
UART (with larger buffer), CCITT V.34, V.34+ error correction, V.42 bis/MNP 5
data compression, auto dial and auto answer capability, auto redial of busy
numbers, and tone or pulse dialing.
COMMUNICATION PRODUCTS WITH DATE OF INITIAL SHIPMENT
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION DATE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
NewCom 14,400 ifx, 14,400 bps data and 14,400 bps send/receive fax November 1994
efx & efx-m modem. Product line includes internal
Windows/DOS PC, external Windows/DOS PC, and
external Apple Macintosh PC versions.
- ---------------------------------------------------------------------------------------
NewCom 33,600 ifx, 33,600 bps data and 14,400 bps send/receive fax May 1996
efx & efx-m modem. Product line includes internal
Windows/DOS PC, external Windows/DOS PC, and
external Apple Macintosh PC versions.
- ---------------------------------------------------------------------------------------
New Talk 33,600 ifx, 33,600 bps data and 14,400 bps send/receive fax June 1997
Vifx & SPifx modem. This product is a Windows/DOS PC internal
card. DSP allows for future software upgrades.
Vifx model includes Voicemail feature. SPifx
model includes speakerphone and answering
machine.
- ---------------------------------------------------------------------------------------
NewTalk 2000 Digital simultaneous voice data modem, June 1996
DSVD ifx speakerphone, answering machine, 33,600 bps
data, 14,400 bps send/receive fax modem. This
product is a Windows/DOS PC internal card.
- ---------------------------------------------------------------------------------------
NewCom 56,000 ifx 56,000 bps data and 14,400 bps send/receive fax May 1997
modem X2-compatible technology. Product line
currently limited to internal Windows/DOS PC
versions.
- ---------------------------------------------------------------------------------------
NewCom WebPal Internet box with 4 meg of RAM and 1 meg of Flash June 1997
memory, including 33,600 bps data modem, 14,400
bps send/receive fax modem, web browser and E
mail service.
- ---------------------------------------------------------------------------------------
NewCom WebPal Internet box with 8 meg of RAM and 2 meg of Flash July 1997
Deluxe memory, including 56,000 bps data modem, 14,400
bps send/receive fax modem, web browser and E
mail service.
- ---------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
MULTIMEDIA PRODUCTS
As used in this Prospectus, "multimedia" refers to the transformation of the
PC from a task oriented device used for such things as word processing to a
user friendly multi-purpose device used for research, education, games,
entertainment and communication, in addition to traditional PC tasks.
Currently, in its basic form, a PC multimedia system is defined as any PC
equipped with a CD-ROM drive and high quality sound capability.
NewCom Multimedia Upgrade Kits. The Company's DOS, Windows 3.x or Windows 95
PC multimedia upgrade kit consists of a high-speed CD-ROM drive bundled with
desktop speakers and a sound card. The CD-ROM drives are compatible with audio
CDs, karaoke CDs and photo CDs, as well as game and reference CDs. NewCom's
multimedia upgrade kits are sold with a large number of included multimedia
CD-ROM software titles that allow the user to immediately utilize the product.
Drive kits without speakers and sound cards are also offered by the Company.
Another NewCom multimedia upgrade kit now being offered is the Audiophile
Multimedia Kit which features a high speed CD-ROM drive, a NewCom 32PnP
Wavetable Sound Card and NC100 speakers in sound enhancing wood based
enclosures. The Audiophile Multimedia Kit incorporates Aura's Neo-radial
speaker technology ("NRT") to provide cutting edge sound quality.
NewCom Multimedia Internet Kits. The Company's multimedia Internet kits
typically contain each of the components and features of its multimedia
upgrade kits, and also come equipped with a 33,600 bps modem and microphone to
provide full interactive connectivity to the Internet.
NewTalk High Fidelity 16i Sound Card. NewCom's internal 16 bit stereo
record/playback sound card is a core component of each of the Company's
multimedia upgrade and multimedia Internet kits. The sound card fits inside a
DOS, Windows 3.x or Windows 95 PC and attaches to the computer using the PC's
standard ISA bus interface slot. Once the sound card is installed, a PC can
play sounds from games, computer encyclopedias, Windows 3.x, Windows 95, and
many other software products. Additionally, the sound card can play standard
audio CDs using the PC's CD-ROM drive. The card has a built-in ATAPI/IDE
internal interface that supports compliant CD-ROM drives and multiple audio
internal interfaces that allow most popular brands of current CD-ROM drives to
hook up directly to it. External interfaces are provided for speakers, line
out, line in, microphone and game port. The sound card has been designed to be
compatible with SoundBlaster(TM), SoundBlaster Pro(TM), Adlib(TM), and Windows
Sound System(TM). The Company offers different enhanced versions of its
NewTalk sound card. One version includes a Wave Table. Another includes both a
Wave Table and SRS 3D(TM), a "surround sound" technology which attempts to
duplicate three-dimensional sound using only two speakers.
NewCom CDR Drive and CDR Multimedia Kits. Whereas conventional CD-ROM
technology only allows the user to retrieve, or "read," information from a
factory-prerecorded compact disc, the CDR drive allows the user to record
information directly onto the compact disc. This drive will utilize "read many
times/write once" technology, that is, once information is recorded onto the
CD it cannot be erased or recorded over again. However, data can be appended
onto the compact disc multiple times until all of the storage space is
utilized. The CDR multimedia kit includes a 2X Write/6X Read Drive, a
Windows/DOS PC SCSI board with high quality audio capture and playback, and a
Windows/DOS PC sound card. The Company also has developed and intends to
market an upgrade kit containing only the NewCom CDR Drive.
NewCom NC Speaker Series. These Audiophile-quality multimedia speakers
incorporate NRT within specially shaped wood enclosures. Many multimedia
speakers offered in the market today are enclosed in plastic. The wood
cabinets used in the NewCom NC speakers minimize resonance and produce sounds
that are cleaner and crisper than what would be produced if plastic were used.
In addition to yielding high quality sound, these NRT speakers emit low
amounts of magnetic leakage so that they can be placed near computer monitors
without adverse effect. A variety of different NC speaker systems are
currently being shipped. The NC100, with 20 W total amplifier power (10
W/channel) and 5 W/(rms) per channel with sound equalization, has one 3-inch
driver in each speaker. The NC 200 has similar specifications to the NC 100
but has the added feature of Polymide tweeters. The NC300, with 30 W total
amplifier power (15 W/channel) and 7.5 W/(rms) per channel with sound
equalization, has two 3-inch drivers and one tweeter in each speaker. The
NC400 subwoofer, with 30 W total amplifier power (15 W/channel) and 7.5
W/(rms) per channel with sound equalization, has one 5.25-inch driver in each
speaker.
38
<PAGE>
MULTIMEDIA PRODUCTS WITH DATE OF INITIAL SHIPMENT
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION DATE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
NewCom Hi-Fi 16i Windows/DOS PC Internal 16 bit stereo sound board April 1995
sound board with built in CD ROM IDE connector. Compatible
with SoundBlaster, SoundBlaster Pro.
- -------------------------------------------------------------------------------------------
NewCom 6X Drive Kit, Windows/DOS PC Internal six speed CD-ROM drive January 1996
Multimedia Kit and with audio cable and IDE cable. Multimedia Kit
Multimedia Internet Kit also has Hi Fi 16i sound board, Titles, cables
and speakers. Multimedia Internet Kit also has
28,800 ifx modem and microphone.
- -------------------------------------------------------------------------------------------
NewCom 8X Drive Kit, Windows/DOS PC Internal eight speed CD-ROM drive April 1996
Multimedia Kit and with audio cable and IDE cable. Multimedia Kit
Multimedia Internet Kit also has Hi-Fi 16i sound board, Titles, cables
and speakers. Multimedia Internet Kit also has
28,800 ifx or 33,600 ifx modem and microphone.
- -------------------------------------------------------------------------------------------
NewCom 10X Drive Kit, Windows/DOS PC Internal ten speed CD-ROM drive August 1996
Multimedia Kit and with audio cable and IDE cable. Multimedia Kit
Multimedia Internet Kit also has Hi-Fi 16i sound board, Titles, cables
and speakers. Multimedia Internet Kit also has
33,600 ifx modem and microphone.
- -------------------------------------------------------------------------------------------
NewCom 12X Drive Kit and Windows/DOS PC Internal twelve speed CD-ROM drive August 1996
Multimedia Kit with audio cable and IDE cable. Multimedia Kit
also has Windows/DOS PC Internal twelve speed
CD-ROM drive, Hi-Fi 16i sound board, Titles,
cables and speakers.
- -------------------------------------------------------------------------------------------
NewCom 12X Multimedia Windows/DOS PC Internal twelve speed CD-ROM November 1996
Internet Kit drive, Hi-Fi 16i sound board, 33,600 ifx modem,
Titles, cables, microphone and speakers.
- -------------------------------------------------------------------------------------------
NewCom 16X Drive Kit and Windows/DOS PC Internal sixteen speed CD-ROM February 1997
Multimedia Kit drive with audio cable and IDE cable. Multimedia
Kit also has Hi-Fi 16i sound board, Titles,
cables and speakers.
- -------------------------------------------------------------------------------------------
NewCom 16X Audiophile Windows/DOS PC Internal sixteen speed CD-ROM April 1997
Multimedia Kit drive, 32 PnP Wavetable Sound Card, speakers
using Aura Neo-radial speaker technology, sound
enhancing wood enclosures, Titles, cables and
microphone.
- -------------------------------------------------------------------------------------------
NewCom 20X Multimedia Twenty speed IDE CD ROM drive bundled with 3-inch May 1997
Upgrade Kit desktop speakers and a sound card. CD-ROM drive
is compatible with audio, karaoke and photo CDs,
and game and reference CDs. Includes large
number of multimedia CD-ROM software titles that
allow the user to immediately use the product.
Drive kits without speakers and sound cards will
also be offered by the Company.
- -------------------------------------------------------------------------------------------
NewCom 24X Multimedia Twenty-four speed IDE CD ROM drive bundled with July 1997
Upgrade Kit 3-inch desktop speakers and a sound card. CD-ROM
drive is compatible with audio, karaoke and
photo CDs, and game and reference CDs. Includes
large number of multimedia CD-ROM software
titles that allow the user to immediately use
the product. Drive kits without speakers and
sound cards will also be offered by the Company.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION DATE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
NewCom CDR Two speed Write/six speed Read Drive, bundled May 1997
Multimedia Kit with a Windows/DOS PC SCSI board with high
quality audio capture and playback, and a full
feature Windows/DOS PC sound card.
- ---------------------------------------------------------------------------------------
NewCom NC Speaker Series Speakers incorporating Aura neo-radial speaker June 1997
technology housed in sound-enhancing wood
enclosures. Speakers offer between 10 to 15 W
total amplifier power, 5 to 7.5 W/(rms) per
channel with sound equalization and a
3-inch to 5.25-inch driver in each speaker.
</TABLE>
PRODUCTS UNDER DEVELOPMENT
The Company is in the process of designing the following new products and
product enhancements that it intends to introduce to market and ship within
the next twelve months:
NewCom CDR MPEG Multimedia Kit. This multimedia kit will include a CDR drive
with the features and functionality described above. In addition, the kit will
optimize storing video to the CDR drive by including MPEG video encoding and
decoding. The multimedia kit will include a 2X Write/4X Read Drive, MPEG 1
encoder/decoder (capture/playback), and a Windows/DOS PC SCSI controller card.
Management plans to ship this product in Fall 1997.
NewCom ISDN Modem. Basic ISDN service typically provides two 64,000bps
channels and one 16,000 bps channel. By incorporating ISDN technology, the
NewCom ISDN modem would allow for a potential data transmission rate of
128,000 bps, as compared to the 33,600 bps rate currently available with
standard analog modems. ISDN service currently can be made available to the
majority of U.S. homes by converting their current standard analog POTS phone
lines to ISDN lines. To allow users of an ISDN modem to communicate with
modems relying on non-ISDN services, the NewCom ISDN modem will be able to
operate as a standard analog 33,600 bps modem. This product also supports
throughput of speeds up to 921,000 bps using proprietary compression
techniques. As ISDN technology gains acceptance, the Company intends to
develop and market enhanced, faster versions of its ISDN modems. Management
plans to ship its first ISDN modems in Fall 1997.
NewTalk 2000 Modem with Video Conferencing. The Company anticipates that
users of this product, utilizing the same standard phone line connection used
to talk with the other party, will also be able to see a small video image of
the person with whom they are talking if that person is also using the NewCom
product. Management believes this product will offer a low cost solution for
video conferencing based on a flexible, software-defined DSP architecture. The
product will work with a color digital parallel camera and Audio Vision
application software on a single line. It will have modem capability of 33,600
bps data transmission and 14,400 bps send/receive fax transmission, a
speakerphone and voicemail. Management plans to ship this product in Fall
1997.
NewCom 3D SVGA Graphics Accelerator Card. This 64-bit video card, which is
still in early development stages, will have 2 megabytes of EDO RAM and will
use the new Cirrus Logic video chip to produce high performance 3D graphics;
this product will support Intel AGP (accelerated graphics port) and Microsoft
Direct3D, enabling arcade level 3D game play on desktop computers. Resolutions
ranging from 640 x 480 to 1600 x 1200 will be supported, with full 32 bit
(16.8 million) colors being supported up to 1024 x 768 in Microsoft Windows
3.1x, Windows 95, and Windows NT. This video card will have a connector that
will allow for future TV tuner or MPEG upgrades. Management plans to ship this
product in Summer 1998.
NewCom NetPro TV Tuner. The NetPro, which is still in early development
stages, will consist of a cable-ready, 125 channel TV tuner that displays
video in a scaleable window on top of any VGA or SVGA display. Management
believes the NetPro TV tuner, which will contain a Windows/DOS PC internal
board, will bring a state of the art TV solution to the VGA world with superb
video and audio quality. Management plans to ship this product in Summer 1998.
40
<PAGE>
NewCom DVD Drive Kit & NewCom DVD Multimedia Kits. These kits, which are
still in early development stages, will be similar to NewCom's other
multimedia kits except that the CD ROM drive will be replaced by a higher
capacity DVD drive. These DVD drives, while remaining backward compatible with
current 680 megabyte CD ROM disc media, will also be able to read the new 4.7
gigabyte DVD disc media. The upcoming dual layer DVD disc media will hold even
more data with a storage capacity of 8.5 gigabytes. Future DVD-Write Once and
DVD-Rewritable drives may also be offered at a later date. Management plans to
ship this product in Summer 1998.
NewCom CD-RW Multimedia Kit. This multimedia kit will be similar to the CDR
Multimedia Kit but will include a CD-RW (Compact Disc ReWriteable) drive
instead of a CDR drive. CD-RW technology allows users to record and rerecord
information onto a compact disc. The CD is sometimes referred to as having
read-many write-many capabilities. Management plans to ship this product in
Fall 1997.
COMMITMENT TO EMERGING TECHNOLOGIES
The Company continues to review opportunities for the development and
introduction of new products and product families that incorporate emerging
technologies to meet changing end-user needs. Although the Company believes
that to date it has been able to respond on a timely basis to technological
innovations and market changes drawing upon its engineering expertise, there
can be no assurance that the Company will be able to anticipate future market
developments or develop products to meet those needs on a timely basis with
price and performance characteristics which would permit those products to
compete successfully. See "Risk Factors--Rapid Technological Change; Short
Product Life Cycles" and "--Competition."
Cable Modem and ADSL Modem Technology. Modems utilizing cable technology are
projected to have an upstream speed of 54 Kbps to 500 Kbps and a downstream
speed of 10 Mbps and will have the advantage of a continuous connection. The
Yankee Group estimates that by the year 2000, there will be 7 million cable
modem customers. Modems utilizing Asymmetric Digital Subscriber Lines are
projected to have an upstream speed of 640 Kbps and a downstream speed of 2
Mbps to 6 Mbps. ADSL service can be made available to U.S. homes by converting
usage of current standard analog POTS phone lines. According to industry
forecasters such as Dataquest, ADSL modem technology is expected to strongly
challenge cable modem technology for control of the high end high speed modem
market. NewCom believes that both technologies currently have significant
potential for growth in the modem market.
Other Technology. NewCom is developing plans to incorporate into its future
modem product lines emerging communications technologies in which the Company
has proprietary rights. First, NewCom has licensed from Aura, on an exclusive
basis with respect to PC applications, rights to two patents with respect to
noise cancellation techniques and two patent applications in blind adaptive
filtering (BAF). The Company believes that these technologies may enhance
modem transmission speeds. Second, the Company has licensed from Aura, on an
exclusive basis with respect to PC applications, rights to two patent
applications with respect to a wavelet approach to spectral speech
compression. The Company believes this approach may facilitate the sending and
storage of speech using less bandwidth and drive space.
SALES AND DISTRIBUTION
As a result of management's broad prior experience in sales and marketing,
the Company has established a comprehensive sales, marketing and distribution
network. The Company's sales and marketing strategy consists of a highly
consumer-oriented approach to regional distributors and retailers/mass
merchants, supplemented by a targeted entry into the OEM/VAR channels. Current
sales of NewCom PC communications and multimedia products are summarized as
follows:
41
<PAGE>
. Distributors--Approximately 49% of gross revenues in Fiscal 1997 and 42%
in the first quarter of Fiscal 1998. Current national and regional
customers include D & H, Southern Electronic Distributors, Inc.
("S.E.D."), Tech Data, Dinorall Corporation (dba DinExim) and
MicroInformatica Corporation.
<TABLE>
<CAPTION>
FIRST QUARTER
FISCAL 1997 OF FISCAL 1998
---------------- ---------------
<S> <C> <C> <C> <C>
MicroInformatica...................... $ 3,697,853 5.1% $ 679,628 4.2%
DinExim............................... 3,449,550 4.7 15,684 .1
S.E.D................................. 3,280,193 4.5 354,978 2.2
----------- ---- ---------- ----
$10,427,596 14.3% $1,050,290 6.5%
=========== ==== ========== ====
. Retailers/Mass Merchants--Approximately 45% of gross revenues in Fiscal
1997 and 58% in the first quarter of Fiscal 1998. Current customers
include Fry's Electronics, Circuit City Stores, Inc., CompUSA, Staples,
Computer City, Sun TV, Electronic Boutique and Best Buy Company, Inc.
<CAPTION>
FIRST QUARTER
FISCAL 1997 OF FISCAL 1998
---------------- ---------------
<S> <C> <C> <C> <C>
Circuit City.......................... $ 8,913,474 12.2% $2,295,505 14.3%
Best Buy.............................. 7,393,515 10.1 3,748,524 23.3
Fry's Electronics..................... 3,685,009 5.0 650,001 4.0
----------- ---- ---------- ----
$19,991,998 27.3% $6,694,030 41.6%
=========== ==== ========== ====
. OEM/VARs--Approximately 6.4% of gross revenues in Fiscal 1997 as
compared to 0.3% in the first quarter of Fiscal 1998. Customers include
Powercomm, Techmedia, and Data Storage Marketing ("D.S.M.").
<CAPTION>
FIRST QUARTER
FISCAL 1997 OF FISCAL 1998
---------------- ---------------
<S> <C> <C> <C> <C>
Tech Media............................ $ 2,195,104 3.0% $ 0 0%
Power Comm............................ 1,614,618 2.2 0 0
D.S.M................................. 872,300 1.2 42,068 .3
----------- ---- ---------- ----
$4,682,022 6.4% $42,068 .3%
=========== ==== ========== ====
</TABLE>
The loss of major customers may have a material adverse effect on the
Company.
Other customers include Micromatix, Misco, Global Computers, Tiger Direct,
Insight and Music Land. The majority of NewCom's domestic sales are made and
supported on a national basis by sales representatives.
The Company reaches its various market segments by a concentrated
telemarketing campaign and a direct marketing approach, utilizing the
industry's top manufacturer's representatives. The Company believes the
strength of its relationships with vendors lies in its personal relationships
with key engineers and salespeople that have been cultivated through senior
management's many years of experience in the industry, which serves to provide
the Company with timely access to new technology and competitive pricing. In
addition, management believes NewCom's reputation for offering high quality
customer service and technical support has significantly enhanced its sales
efforts.
The Company's promotional strategy in both the distributor and mass merchant
channels focuses on utilizing a variety of methods, including improved product
packaging, national co-op advertising with distributors, national co-op
advertising with mass merchants, controlled direct national advertising,
incentive promotions, mass mailings, periodic press releases, and
participation in trade shows.
42
<PAGE>
Management is taking steps to attempt to increase the Company's sales to
OEM/VAR customers. The Company intends to use its new products and its
heightened name recognition to pursue the OEM/VAR channel and make it a larger
segment of NewCom's overall sales. There can be no assurance, however, that
the Company will be successful in increasing its penetration of the OEM/VAR
channel. See "Risk Factors--Distribution Risks; Diversification of Sales
Channels."
After first focusing on building name recognition in the United States,
NewCom has begun to implement plans to market its products overseas. The
Company has acquired modest market shares in South America and the Indian
subcontinent, and it is now turning its attention toward other foreign
markets. Sales to foreign customers are denominated in U.S. dollars.
PRODUCT DESIGN
In order to maintain the interest of its customer base and a competitive
advantage in its distribution channels, NewCom must regularly introduce new PC
communication and multimedia products. NewCom must also constantly update the
software drivers it incorporates into its products so that they stay current
with the changing needs of the market. The Company does not employ an internal
research and development staff and acquires virtually all the software and
hardware technology used in its PC communication and multimedia products by
licensing such technology from third-party manufacturers and suppliers. The
Company's product design efforts focus on achieving three goals: First, NewCom
performs "value engineering," which the Company defines as developing the
means to manufacture new generations of its existing products more efficiently
and with reduced costs. Second, the Company identifies and/or designs new
features and better performing models within its existing product lines by
acquiring and utilizing successively more innovative technologies. Third, the
Company designs new products and product families based on emerging
technologies in the industry. See "Risk Factors--Rapid Technological Change;
Short Product Life Cycles," "--Component Shortages; Reliance on Limited Source
Suppliers and Third Party Assemblers" and "--Proprietary Rights."
The Company believes that keeping current with changes in semiconductor chip
designs is essential to increase the performance and reduce the overall size
of each product. The Company presently maintains an in-house engineering staff
that is knowledgeable in the design of communication and multimedia hardware
and software drivers and utilities. In addition to its in-house engineers,
NewCom relies on outside engineers and utilizes strategic alliances with
industry standard telecommunication and multimedia chip vendors such as
Rockwell International Corporation, Texas Instruments, Cirrus Logic, Opti
Corporation, Yamaha Corporation and Analog Devices Incorporated. Working with
these major chip manufacturers, the Company designs its hardware based upon
the most current available technology. NewCom's engineering goal is to
integrate the latest technology onto the smallest board footprint possible
while maintaining a modular design that is easy for the PC user to upgrade and
maintain. In addition, in order to keep NewCom's products competitively
priced, the Company's engineering team has an ongoing mandate to continually
examine methods to reduce product costs by using newer, lower priced methods
and parts, without sacrificing quality or reliability.
The Company attempts to utilize common chips in its different products in
order to achieve cost effective procurement, improved compatibility, lower
production costs and faster future product design and manufacturing cycles.
NewCom's products are designed to be modular and the basic circuit board and
other components used by the Company are common to various of its products.
Product specific chips can then be purchased and installed as needed during
the completion phase of production. The Company continually evaluates and
licenses communication and multimedia software from established software
developers. This software is bundled with the Company's hardware and improves
the overall value of the product.
43
<PAGE>
MANUFACTURING
NewCom currently utilizes four primary contract manufacturers, located in
each of the Peoples Republic of China, Taiwan, Mexico and the United States.
In February 1997, these contract manufacturers account for 30%, 30%, 15% and
25%, respectively, of the Company's manufacturing output. In house at its
California facility, NewCom integrates the chip sets on to the circuit boards,
runs tests on 100% of the boards as part of its quality control program,
installs value added software to the products and performs all of its own
packaging, inspection and shipping. Products manufactured for the Company in
foreign countries are invoiced and paid in U.S. dollars.
For the Company to grow and achieve its business objectives, it is important
to receive from its manufacturing partners a large part of its product
requirements as finished goods in almost ready to ship condition. The Company
must do this while also securing favorable open account terms. These
manufacturing arrangements allow NewCom to reduce the time it takes to
introduce new products to market. Management believes NewCom's ability to
reach a particular niche and gain market share just as the market is gaining
momentum is dependent upon the Company's ability to produce products quickly,
cost effectively and with a high level of reliability. In forging these
manufacturing relationships NewCom takes great care to insure that its
manufacturing partners produce quality products.
NewCom employs a Just-in-Time ("JIT") manufacturing strategy whereby
supplies and components are purchased just before they are needed during the
manufacturing cycle, rather than purchased at the beginning of the cycle and
held in inventory. Management believes such a strategy has been successful in
limiting the risk of inventory obsolescence and in containing the Company's
investment in product inventory. To facilitate its JIT manufacturing strategy,
the Company designs products with a focus on a commonality of parts. As a
result, a growing number of NewCom's communications and multimedia products
have interchangeable circuit boards.
To reduce costs, NewCom has negotiated agreements with key component
suppliers that allow its manufacturing partners to competitively buy material
under blanket discount agreements.
The Company has no backlog as initial orders are typically 90 days from the
date of shipment.
TECHNICAL SUPPORT AND CUSTOMER SERVICE
NewCom offers its end users multiple avenues to receive technical support
and customer service.
. Phone Support: Support staff can be called by end users with questions
via NewCom's toll free 800 number. Currently a full time support staff
in the California office handles calls by end users weekdays from 6:00
a.m. to 10:00 p.m. P.S.T. and weekends from 8:00 a.m. to 5:00 p.m.
P.S.T. Each member of the support staff is equipped with a PC loaded
with software enabling the member to better help the end user find a
solution.
. E-mail Support: For users with Internet access, NewCom's staff maintains
a dedicated support e-mail address. E-mail is used to send end users the
latest drivers and text help files.
. On-line Support: NewCom offers 24 hour a day access to its on-line
support solutions. For those with access to the Internet, NewCom's web
page offers answers to frequently asked questions ("FAQ") and downloads
of the most up to date software drivers and files. NewCom's web page can
be found at "www.newcominc.com." For those with modems but who do not
have Internet access, NewCom maintains a bulletin board site with an up-
to-date list of FAQs and downloads similar to what is found on its
Internet web page.
. Fax Support: NewCom offers end users the ability to fax requests for
support. Whenever possible, solutions will be faxed back to the end user
which eliminates the need for further action by the end user and the
support staff.
The Company includes an installation disk with many NewCom products that
detects and reports back to the user which interrupts, DMA channels and COM
ports are available to the user when installing the product. Management
believes this software reduces the number of potential installation problems
and makes the Company's products more user friendly.
44
<PAGE>
COMPETITION
The Company has experienced a tremendous amount of competition in the PC
communication and multimedia products industry. In the communication products
market, the Company's direct U.S. competitors include Zoom Telephonic,
Cardinal Technology, Boca Research, Best Data, Hayes Microcomputers, U.S
Robotics and MicroCom. Potential overseas competitors in this market, such as
Aski, GVC and WiseCom, are primarily from the Far East and generally do not
compete in NewCom's retail market but instead focus on supplying large OEM's.
In the multimedia products market, the Company's direct competitors include
Creative Laboratory Ltd., Aztec Systems Ltd., Diamond Technology, Inc. and
Pinnacle Micro.
Many of the Company's current and potential competitors have a significantly
greater market presence, name recognition and financial and technical
resources than the Company, and many have long standing market positions and
established brand names in their respective markets. While the Company
believes that its semiconductor vendor flexibility enables it to select from
among the most advanced components available, the captive semiconductor
supplies of certain of the Company's current and potential competitors can
provide them with greater control over component design, availability and
cost. NewCom believes that certain of its current and potential competitors
compete in their markets largely on the basis of price, which may result in
significant price competition and lower margins for the Company's products or
otherwise affect the market for the Company's products. In addition, the PC
communication and multimedia industries have been marked by consolidations in
recent periods, with a number of firms suffering significant operating losses
and, in certain cases, cessation of business. Given the Company's
concentration in these markets, there can be no assurance that the volatility
and intense competitive pressure of the market will not adversely affect the
Company's operations in the future. See "Risk Factors--Competition."
The Company seeks to differentiate itself through the quality of its
products and the level of its support and service. The Company designs its
products for high reliability, good price value, compatibility with existing
and emerging industry standards, and up to date product features and
performance. NewCom has attempted to establish brand name recognition through
periodic advertising on prime time television and through print advertising in
major trade magazines and periodicals. To assure compatibility with multiple
PC's, the Company performs extensive testing on its products.
The market for the Company's products is characterized by rapidly changing
technology, short product life cycles, and evolving industry standards. The
Company believes that its future success will depend upon its ability to
continually enhance its existing products and to introduce new products on a
timely basis. Accordingly, the Company intends to continue to make investments
in product and technological development.
PERSONNEL
As of June 30, 1997, NewCom employed 73 full-time employees. From time to
time, the Company also hires temporary employees. The Company's employees are
not represented by any collective bargaining agreements and the Company has
never experienced a work stoppage. The Company believes that its relations
with its employees are good.
FACILITIES
The Company's headquarters are located in a 33,000 square foot facility in
Westlake Village, California, subleased by the Company from Aura pursuant to a
lease expiring in May 2000. The Company believes that its current facilities,
together with certain additional warehouse and assembly facilities the Company
intends to lease in Fall 1997, will be adequate for the next 12 months. In
addition, management believes that such additional facilities will be
available in the future as needed on commercially reasonable terms.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sultan W. Khan............. 52 Chief Executive Officer, President and Director
Asif M. Khan............... 52 Executive Vice President and Director
Steven C. Veen............. 41 Chief Financial Officer and Director
Michael I. Froch........... 35 Secretary and Director
David W. Harralson(1)...... 56 Director of Engineering
Sonia Kiarashi(1).......... 38 Director of Marketing and Sales
Zane R. Alsabery........... 40 Director
James M. Curran(2)......... 47 Director
Gerald S. Papazian(2)...... 41 Director
Alexander Remington(2)..... 40 Director
</TABLE>
- --------
(1) Not an executive officer position.
(2) Members of the Audit Committee and Compensation Committee.
Sultan W. Khan has been President and Chief Executive Officer of NewCom
since September 1994. From June to September 1994, Mr. Khan was employed by
Aura to perform special projects. Prior to joining Aura, Mr. Khan was a
founder and President of Nuvo Corporation of America, Inc ("Nuvo"), a
developer, manufacturer and marketer of PC peripheral products. In addition,
he founded Computer Peripherals, Inc. which under his leadership grew into a
multi-million dollar sales company and an industry leader in modem
communication products. Prior to Computer Peripherals, Mr. Khan was employed
by Texas Instruments and, prior thereto, by Data Products, where he was
responsible for developing a high speed band printer family of products. Mr.
Khan received his B.S. in electrical engineering at Cal Polytechnic Institute,
San Luis Obispo, and a M.B.A. at Cal Lutheran College.
Asif M. Khan has been Executive Vice President of NewCom since September
1994. From June to September 1994, Mr. Khan was employed by Aura to perform
special projects. Prior to joining Aura from April 1990 through May 1994, Mr.
Khan served as Executive Vice President of Nuvo. Mr. Khan received his B.S. in
electrical engineering at West Coast University, Los Angeles, his B.S. in
physics and mathematics at Karachi University, Pakistan, and an M.B.A. at the
University of California at Los Angeles.
Steven C. Veen, a Certified Public Accountant, has been Chief Financial
Officer since June 1997. He joined Aura as its Controller in December 1992 and
became its Chief Financial Officer in March 1994, which position he currently
holds. Prior to that, Mr. Veen practiced for over twelve (12) years in varying
capacities in the public accounting profession. In particular, Mr. Veen served
from 1983 to December 1992 with Muller, King, Black, Mathys & Acker, Certified
Public Accountants. He received a B.A. in accounting from Michigan State
University in 1981.
Michael I. Froch has been Secretary and a Director of NewCom, Inc. since
June 1997. From July 1994 through February 1997, Mr. Froch served as Corporate
Attorney at Aura, following which he was appointed as Aura's General Corporate
Counsel and Secretary. From 1991 through 1994, Mr. Froch was engaged in
private law practice in California. Mr. Froch is admitted to the California
and District of Columbia bars. He received his Juris Doctor degree from Santa
Clara University School of Law in 1989 and his A.B. Degree from the University
of California, Berkeley in 1984.
David W. Harralson has been the Director of Engineering for NewCom since
January 1996. For the fifteen year period prior to his employment at NewCom,
Mr. Harralson owned his own software design company, Mephistopheles Systems
Design. Mr. Harralson has enjoyed a career of more than 30 years in military,
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aerospace, space, commercial and consulting activities. Mr. Harralson received
his B.A. in mathematics from California State University at Northridge.
Sonia Kiarashi has been the Director of Marketing and Sales for NewCom since
August 1995 and, prior thereto, served as NewCom's National Sales, Marketing
and Business Manager since September 1994. From June to September 1994, Ms.
Kiarashi was employed by Aura to perform special projects. Prior to joining
Aura, she was employed by Nuvo for several years in the capacity of Sales and
Marketing Manager for North and South America. Prior to that, she held various
management positions at I.C.C., C.P.I. and other companies. Ms. Kiarashi
graduated from the California State University at Fullerton with a B.A. in
business administration with an emphasis in international marketing.
Zane R. Alsabery has been a Director of NewCom since June 1997. From
September 1994 to June 1997, Mr. Alsabery served as the Company's Vice
President of Special Projects. Prior to joining the Company, from June to
September 1994, he was employed by Aura. From April 1984 to June 1994, Mr.
Alsabery served in several full time positions at Interstate Recruiters
Corporation, most recently as Vice President of Corporate Accounts, where he
managed Interstate's management consulting efforts in the high technology and
computer-related industries. Prior to Interstate, Mr. Alsabery served as the
Manager of multi-user system sales at Marcey, Inc. and as a sales
representative at Compal Computer Systems. He received his B.A. in economics
from the University of California, Los Angeles in 1979.
James M. Curran has been a Director of NewCom since June 1997. From August
1996 until the present, Mr. Curran has served as an independent business
consultant. From May 1995 to August 1996 he served as Executive Vice
President, Information Products and Systems, of Visa International. Prior
thereto, Mr. Curran was employed by International Business Machine Corporation
for 22 years, where he most recently served as a Division Director, Software
Solutions Division. He received his B.A. in philosophy from Cathedral College
Seminary in New York in 1972.
Gerald S. Papazian has been a Director of the Company since June 1997. He
joined Aura in August 1988 and currently serves as Aura's President and Chief
Operating Officer. Previously, Mr. Papazian worked at Bear Stearns & Co., an
investment banking firm, where he served from 1986 as Vice President,
Corporate Finance in the Investment Banking Division. Prior to joining Bear
Stearns, Mr. Papazian was an associate attorney in the law firm of Stroock &
Stroock & Lavan. Mr. Papazian received his B.A. in economics from the
University of Southern California in 1977 and a J.D./M.B.A. from the
University of California, Los Angeles, 1981.
Alexander Remington has been a director of NewCom since June 1997. Mr.
Remington is Chief Executive Officer of Micro Equipment Corporation
("M.E.C."), which he founded in 1983. M.E.C. is a distributor and manufacturer
of computer and peripherals products in the U.S. and worldwide. Prior to 1983,
Mr. Remington worked for First Financial Management Corporation for one half
year, during which time he started and managed the Micro Computer division.
Mr. Remington holds a Master of Science degree in Information Computer Science
(ICS).
The bylaws of the Company provide that the authorized number of directors
shall be nine until changed by amendment of the Bylaws duly adopted by the
shareholders amending the Bylaws' Section 1. The directors hold office until
the next annual meeting of shareholders and until their successors have been
elected and qualified. The Company has agreed, if requested by the
Representative at any time within four years after the date of the Prospectus,
to nominate and use its best efforts to elect two designees of the
Representative as directors of the Company or, at the Representative's option,
as non-voting advisors to the Company's Board of Directors. Each such designee
may be a director of the Representative. The persons to be designated by the
Representative have not been identified to date. See "Underwriting."
Directors do not receive any fees for service on the Board of Directors or
any Committee thereof. Directors are reimbursed for their expenses for each
meeting attended. Directors are eligible to participate in the Company's Stock
Plan described below, although as of the date of this Prospectus, no options
have been granted to non-employee directors.
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<PAGE>
Each officer of the Company serves at the discretion of the Board of
Directors. There is no family relationship between Sultan W. Khan and Asif M.
Khan or among any other directors, officers or key employees of the Company.
In April 1994 a petition under the federal bankruptcy laws was filed against
Nuvo which ultimately resulted in the Chapter 7 dissolution and winding-up of
Nuvo and the liquidation of its business assets in September 1994. At the time
these bankruptcy proceedings commenced, Sultan W. Khan, the Company's Chief
Executive Officer, President and a Director, was president of Nuvo, and Asif
M. Khan, the Company's Executive Vice President and a Director, was vice
president of Nuvo.
In October 1996, the Commission issued an order (Securities Act Release No.
7352) instituting an administrative proceeding against Aura and two individual
parties. The proceeding was settled on consent of all the parties, without
admitting or denying any of the Commission's findings. In its order, the
Commission found that Aura and the others violated the reporting,
recordkeeping and anti-fraud provisions of the securities laws in 1993 and
1994 in connection with its reporting on two transactions in reports
previously filed with the Commission. The Commission's order directs that each
party cease and desist from committing or causing any future violation of
these provisions.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to each of the Company's two other most highly
compensated executive officers other than the Chief Executive Officer whose
total annual salary and bonus exceeded $100,000 (the "Named Executive
Officers"), for services rendered in all capacities to the Company and Aura
during Fiscal 1997, 1996 and 1995. No other executive officer of the Company
earned compensation in excess of $100,000 in each of these periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND FISCAL ------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY($)(2) OPTIONS(#) COMPENSATION($)(3)
--------------------- ------ ------------------- ------------ ------------------
<S> <C> <C> <C> <C>
Sultan W. Khan.......... 1997 136,528 -- 1,976
Chief Executive Officer 1996 127,783 -- --
and President(4) 1995 84,527 -- --
Asif M. Khan............ 1997 136,528 -- 1,431
Executive Vice
President(4) 1996 127,783 -- --
1995 84,527 -- --
Steven C. Veen.......... 1997 144,749 -- 1,889
Vice President of
Finance, 1996 121,501 25,000(6) 1,701
Chief Financial
Officer(5) 1995 84,035 -- 1,179
</TABLE>
- --------
(1) The Company has not entered into, and does not currently contemplate
entering into, any employment contracts or compensation agreements with
any of its executive officers.
(2) Includes amounts deferred by each individual under the 401(k) Plan of the
Company or Aura, as applicable. No bonuses were paid to any such
individuals during the periods identified.
(3) Such compensation consists of total matching contributions made by Aura to
the plan account of each individual pursuant to Aura's 401(k) Plan.
(4) All compensation amounts were paid by the Company except $29,076 paid by
Aura through August 26, 1994.
(5) All compensation amounts were paid by Aura.
(6) Reflects options to acquire shares of Aura common stock, granted in
January 1996, having a term of 10 years, with an exercise price of $5.06
per share, vesting at a rate of 20% on each anniversary of the date of
grant.
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<PAGE>
No options to acquire shares of Common Stock of the Company were granted or
exercised during the Company's fiscal year ended February 28, 1997.
STOCK INCENTIVE PLAN
In June 1997 the Company's Board of Directors adopted the Company's 1997
Stock Incentive Plan (the "Stock Plan"). A total of 1,000,000 shares of Common
Stock are currently reserved for issuance under the Stock Plan pursuant to the
direct award or sale of shares or the exercise of options granted under the
Stock Plan. If any option granted under the Stock Plan expires or terminates
for any reason without having been exercised in full, then the unpurchased
shares subject to that option will once again be available for additional
option grants.
Under the Stock Plan, all employees (including officers) and directors of
the Company or any subsidiary and any independent contractor or advisor who
performs services for the Company or a subsidiary are eligible to purchase
shares of Common Stock and to receive awards of shares or grants of
nonstatutory options. Employees are also eligible to receive grants of
incentive stock options ("ISOs") intended to qualify under Section 422A of the
Internal Revenue Code of 1986, as amended ("Code"). The Stock Plan is
administered by a committee of the Board of Directors of the Company, which
selects the persons to whom shares will be sold or awarded or options will be
granted, determines the number of shares to be made subject to each sale,
award or grant, and prescribes other terms and conditions, including the type
of consideration to be paid to the Company upon sale or exercise and vesting
schedules, in connection with each sale, award or grant.
The exercise price under the nonstatutory options generally must be at least
85% of the fair market value of the Common Stock on the date of grant. The
exercise price under ISOs cannot be lower than 100% of the fair market value
of the Common Stock on the date of grant and, in the case of ISOs granted to
holders of more than 10% of the voting power of the Company, not less than
110% of such fair market value. The term of an option cannot exceed ten years,
and the term of an ISO granted to a holder of more than 10% of the voting
power of the Company cannot exceed five years. Options generally expire not
later than ninety days following a termination of employment or six months
following the optionee's death or permanent disability. The purchase price of
shares sold under the Stock Plan generally must be at least 85% of the fair
market value of the Common Stock and, in the case of a holder of more than 10%
of the voting power of the Company, not less than 110% of such fair market
value. Under the Stock Plan, options granted pursuant to the Stock Plan will
generally vest over a period of five years, at a rate of 20% on each
anniversary of the date of grant. Options granted to the Named Executive
Officers vest over a period of four years, at a rate of 25% on each
anniversary of the date of grant.
Effective June 1, 1997, the Company granted options to purchase an aggregate
of 546,690 shares of Common Stock at an exercise price of $8.00 per share.
Options granted to the Company's directors, the Named Executive Officers, and
all directors and executive officers as a group included the following: Sultan
W. Khan, CEO, President and Director, 192,720 shares; Asif M. Khan, Executive
Vice President and Director, 192,720 shares; Zane R. Alsabery, Director,
35,000 shares; and all directors and executive officers as a group, 420,440
shares. A total of 453,310 shares of Common Stock are available for future
issuance under the Stock Plan. Pursuant to the Underwriting Agreement, the
Company has agreed that, for a period of one year following the date of this
Prospectus, the Company will not grant any additional options under the Stock
Plan at an exercise price less than the initial public offering price of the
Common Shares, without the Representative's prior consent which may be
withheld in its sole discretion.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the Delaware General Corporation Law ("Delaware Law"). The Delaware Law
provides that directors of a company will not be personally liable for
monetary damages for breach of their fiduciary duty as directors, except for
liability (i) for any breach of their duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for
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<PAGE>
unlawful payment of dividend or unlawful stock repurchase or redemption, as
provided Section 174 of the Delaware Law, or (iv) for any transaction from
which the director derived an improper personal benefit. Any amendment or
repeal of these provisions requires the approval of the holders of shares
representing at least 66 2/3% of the shares of the Company entitled to vote in
the election of directors, voting as one class.
The Company's Certificate of Incorporation and Bylaws also provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the Delaware Law. The Company has entered into separate
indemnification agreements with its directors that could require the Company,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. The Company believes that the limitation of liability
provision in its Certificate of Incorporation and the indemnification
agreements will facilitate the Company's ability to continue to attract and
retain qualified individuals to serve as directors and officers of the
Company.
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<PAGE>
RELATIONSHIP WITH AURA AND CERTAIN TRANSACTIONS
PRINCIPAL STOCKHOLDER; CONTROL OF THE COMPANY
Prior to the Offering, Aura owned approximately 94% of the then-outstanding
shares of Common Stock of the Company. Upon completion of the Offering, Aura
will own approximately 75% of the outstanding Common Stock (approximately 72%
if the Underwriters' Over-allotment Option is exercised in full). For as long
as Aura continues to own shares of Common Stock representing more than 50% of
the combined voting power of the Common Stock of the Company, Aura will be
able, among other things, to determine any corporate action requiring approval
of holders of Common Stock representing a majority of the combined voting
power of the Common Stock, including the election of the entire Board of
Directors of the Company, without the consent of the other stockholders of the
Company. In addition, through its control of the Board of Directors and
beneficial ownership of Common Stock, Aura will be able to control certain
decisions including decisions with respect to the Company's dividend policy,
the Company's access to capital (including borrowing from third-party lenders
and the issuance of additional equity securities), mergers or other business
combinations involving the Company, the acquisition or disposition of assets
by the Company and any change in control of the Company.
Except for the limited activities described below under "Arrangements and
Transactions with Aura Systems, Inc.," the Company will be operated as a
company independent of Aura. The Company believes that, in the event of an
insolvency, bankruptcy or receivership proceeding involving Aura, a court,
exercising reasonable judgment after full consideration of all relevant
factors, would not order the substantive consolidation of the assets and
liabilities of the Company with Aura.
Other than pursuant to (i) the Underwriting Agreement, in which Aura has
agreed, subject to certain exceptions, not to sell or otherwise dispose of any
shares of Common Stock (or any security convertible into or exchangeable or
exercisable for Common Stock) owned by it for a period of one year following
the date of this Prospectus without the prior written consent of the
Representative, (ii) the Redemption Option Agreement (described below), and
(iii) the Aura Rights Agreement (described below), Aura has no agreement with
the Company not to sell or distribute the outstanding shares of Common Stock
it holds. There can be no assurance concerning the period of time during which
time Aura will maintain its ownership of the Common Stock.
The Company's Restated Certificate contains provisions relating to
competition by Aura with the Company, potential conflicts of interest that may
arise between the Company and Aura, the allocation of business opportunities
that may be suitable for either Aura or the Company and the approval of
transactions between the Company and Aura. The Company's Restated Certificate
also limits the liability of its directors for monetary damages arising from a
breach of their fiduciary duty as directors, except to the extent otherwise
required by the Delaware General Corporations Law. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has also entered into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
ARRANGEMENTS AND TRANSACTIONS WITH AURA SYSTEMS, INC.
The Company and Aura have entered into agreements for the purpose of
defining their ongoing relationships, the material terms of which are
summarized below. These agreements have been developed in the context of a
parent/subsidiary relationship and therefore are not the result of arm's-
length negotiations between independent parties. It is the intention of the
Company and Aura that such agreements and the transactions
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<PAGE>
provided for therein, taken as a whole, are fair to both parties, while
continuing certain mutually beneficial arrangements. However, there can be no
assurance that each of such agreements, or the transactions provided for
therein, have been effected on terms at least as favorable to the Company as
could have been obtained from unaffiliated third parties.
Additional or modified arrangements and transactions may be entered into by
the Company, Aura and its subsidiaries after completion of the Offering. Any
such future arrangements and transactions will be determined through
negotiation between the Company and Aura, and it is possible that conflicts of
interest will be involved. The Audit Committee of the Board of Directors of
the Company, consisting of directors independent of both management and Aura
must independently approve all transactions by and between the Company and
Aura.
The following is a summary of certain arrangements and transactions between
the Company and Aura. The descriptions of agreements set forth below are
intended to be summaries and, while material terms of the agreements are set
forth herein, the descriptions are qualified in their entirety by reference to
the relevant agreements filed as exhibits to the Registration Statement of
which this Prospectus forms a part.
Underwriting Agreement. Pursuant to the Underwriting Agreement to be
executed by and between the Representative, as representative of the several
Underwriters, Aura and the Company, the Company and Aura have granted the
Underwriters the Underwriters' Over-allotment Option to purchase up to 300,000
additional Units on the same terms set forth herein, solely for the purpose of
covering over-allotments, if any. The Common Shares included in such
additional Units will be offered by Aura and the Warrants included in such
additional Units will be offered by the Company.
Aura Rights Agreement. Prior to the completion of this Offering, the Company
and Aura will enter into the Aura Rights Agreement, pursuant to which Aura can
require the Company to register, at the Company's expense, all of the Common
Stock held by Aura, with 3.0 million shares subject to such rights commencing
one year from the date of this Prospectus and the balance of such shares
registrable one year thereafter.
Noncompetition Agreement. Pursuant to the Noncompetition Agreement, Aura has
covenanted, for a period of three years from the Closing Date, not to compete
with the Company in the design, manufacture, sale or marketing of PC modem and
certain multimedia products and to provide the Company with an exclusive,
fully paid, royalty free, worldwide license, irrevocable during such three-
year period, to make, use and sell any such competitive products developed or
offered by Aura within such period. Except as set forth in the Noncompetition
Agreement, Aura is not restricted from competing with the Company.
Redemption Option Agreement. Prior to the completion of the Offering, the
Company and Aura will enter into a Redemption Option Agreement, pursuant to
which Aura can require the Company, solely at Aura's option, to apply up to
70% of the net proceeds the Company receives from the exercise of the Warrants
to redeem shares of Common Stock held by Aura at the Warrant exercise price.
Tax Sharing Agreement. In general, the Company will be included in Aura's
consolidated group for federal income tax purposes for so long as Aura
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock. Each member of a consolidated group is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Accordingly, during the period in which the Company is
included in Aura's consolidated group, the Company could be liable in the
event that any federal tax liability is incurred, but not discharged, by any
other member of Aura's consolidated group. Following the date Aura will own
less than 80% of the outstanding Common Stock (the "Deconsolidation Date"),
the Company will not file a federal consolidated return with Aura. It is
expected that the Company will continue to file California combined reports
with Aura for periods ending after the Deconsolidation Date. Prior to the
completion of the Offering, the Company and Aura plan to enter into a tax
sharing agreement (the "Tax Sharing Agreement") pursuant to which, during the
period from June 1, 1997 up to and including the Deconsolidation Date, the
Company will not be required to reimburse Aura for any amounts of federal
income taxes that the Company would have been required to pay if the Company
were to file its own federal income tax
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<PAGE>
return and was not part of Aura's consolidated group. Any amount not required
to reimbursed will be recorded by the Company as an additional capital
contribution by Aura effective as of the Deconsolidation Date. Pursuant to the
Tax Agreement, Aura has agreed to indemnify and hold harmless the Company for
any penalties and interest in respect of any tax liability attributable to the
consolidated group incurred on or before the Deconsolidation Date.
Corporate Services Agreement. The Company historically has been allocated
expenses of various administrative services provided by Aura. The costs of
such services were not directly attributable to a specific division or
subsidiary and primarily included general corporate overhead such as
accounting and cash management services, human resources, internal audit and
other administrative functions. These expenses were calculated as a pro rata
share of certain administrative costs based on relative assets and liabilities
of each division or subsidiary, which management believes was a reasonable
method of allocation. The allocations of expense for Fiscal 1995, 1996 and
1997 were $80,000, $120,000 and $120,000, respectively.
Prior to the completion of the Offering, the Company and Aura will enter
into a corporate services agreement (the "Corporate Services Agreement")
pursuant to which Aura will continue to provide to the Company on an interim
basis for certain routine and ordinary corporate services, including
financial, insurance accounting, employee benefits, payroll, tax and legal
services. The cash assets of the Company will not be commingled with those of
Aura. For these services, the Company will be assessed a fee of $50,000 per
month, payable on a monthly basis. With respect to matters covered by the
Corporate Services Agreement, the relationship between Aura and the Company is
intended to continue in a manner generally consistent with past practices. The
Company believes that the charges under the Corporate Services Agreement are
reasonable. The initial term of this agreement will be six months. Thereafter,
the agreement will expire unless extended by mutual agreement of the parties.
The agreement may be terminated by either party upon 60 days' prior written
notice.
Sublease Agreement. The Company currently subleases from Aura its principal
operating facilities in Westlake Village, California. In Fiscal 1997, the
Company made lease payments of $191,013 under the sublease, which payments
were made, with Aura's consent, directly to the landlord, and property tax
payments of $7,956.
Each of the Noncompetition Agreement, Redemption Option Agreement, Tax
Sharing Agreement, Corporate Services Agreement, Sublease Agreement and Aura
Rights Agreement are hereinafter collectively referred to as the "Intercompany
Agreements."
RECENT SALES OF SECURITIES TO AFFILIATES
In connection with the formation of the Company, in June 1994 the Company
sold 935.35 shares of Common Stock to Aura and in September 1994 the Company
issued 64.65 shares to other individuals. Assuming an Offering Price of $9.00
per Unit, upon giving effect to the Stock Split these 1,000 shares will be
converted into 7,555,556 shares. See "Description of Securities--Registration
Rights."
In June 1997, incentive stock options to purchase Common Stock of the
Company were granted to certain of the directors, executive officers and key
employees of the Company as follows: Sultan W. Khan, Chief Executive Officer
and President of the Company, 192,720 shares; Asif M. Khan, Executive Vice
President of the Company, 192,720 shares; Zane R. Alsabery, a Director of the
Company, 35,000 shares; and Sonia Kiarashi, Director of Marketing and Sales of
the Company, 50,000 shares. The exercise price of such options was $8.00 per
share, the fair market value of the Common Stock on the date of grant as
determined by the Board of Directors. The options are subject to vesting over
a four-year period at a rate of 25% on each anniversary of the date of grant.
RELATED PARTY TRANSACTIONS
Since inception, the Company has financed its operations through loans from
Aura. The outstanding balances payable to Aura at Fiscal 1995, 1996 and 1997
year-end and at May 31, 1997 were $1.2 million, $20.2 million, $17.2 million
and $25.5 million, respectively. Intercompany interest expense, included in
the
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outstanding balance at Fiscal 1996 and Fiscal 1997 year-end and at May 31,
1997, was $1.2 million, $1.1 million, and approximately $0.4 million,
respectively, and was charged at the rate of 9%, 8% and 8%, respectively, per
annum. No interest was charged to the Company on intercompany indebtedness
during Fiscal 1995. Effective March 1, 1996, Aura contributed $9.0 million of
the Company's indebtedness to Aura as additional paid-in capital, thereby
reducing the amount reflected in "Due to Aura." Subsequent to Fiscal 1997, the
Company notified its commercial lender that it was replacing the facility with
a different lender. As a result, the commercial lender discontinued advancing
funds under the line and Aura agreed to finance the Company's working capital
requirements until the replacement commercial line was put in place. Between
March 1, 1997 and May 31, 1997, Aura advanced $8.3 million to the Company;
this amount was repaid in June 1997 when the new commercial line of credit was
put into effect with borrowings under the new line and cash on hand.
Immediately prior to the Closing Date, Aura will effectuate the Conversion
whereby $4.0 million in intercompany indebtedness will be converted into
444,444 Shares of Common Stock (assuming an Offering Price of $9.00 per Unit).
All remaining intercompany debt will be evidenced by an unsecured promissory
note from the Company to Aura due and payable in full in September 1998. The
promissory note will bear interest at the rate of 9% per annum and will have
no prepayment penalty.
In Fiscal 1997, the Company purchased speaker components from Aura for use
in NewCom's multimedia kit products, for which Aura received $543,719.
Alexander Remington, a director of the Company, founded and currently serves
as Chief Executive Officer of Micro Equipment Corporation ("M.E.C."). M.E.C.
(and an affiliated company) purchased certain product from the Company in the
amount of zero and $6.1 million in the first quarter of Fiscal 1998 and in
Fiscal 1997, respectively. The stated terms were payment 30 days from the date
of shipment.
In addition, M.E.C. served as a supplier of products and components to the
Company in the amount of $3.3 million and $12.5 million in the first quarter
of Fiscal 1998 and in Fiscal 1997, respectively. The Company may continue to
purchase products and components from M.E.C. in the future, generally
consisting of those products and components included in the Company's
communication and multimedia products currently offered and under development,
although the Company is unable to specifically identify the products or
components or amounts thereof that may be so purchased. Purchases from M.E.C.
will only be made if they are approved by a majority of the Company's
disinterested directors, are on terms no less favorable to the Company than
could be obtained from unaffiliated parties and are reasonably expected to
benefit the Company.
The Company currently subleases from Aura its facilities in Westlake
Village, California. In Fiscal 1997, the Company made lease payments of
$191,013 under the sublease, which payments were made, with Aura's consent,
directly to the landlord, and property tax payments of $7,956.
James M. Curran, a director of the Company, has served as a business sales
consultant to Aura since March 1997. For his services, Mr. Curran has received
$67,700 from Aura through June 30, 1997.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy, adopted in June 1997, that all
transactions by the Company with officers, directors, 5% stockholders and
their affiliates will be entered into only if such transactions are approved
by a majority of the disinterested independent directors, are on terms no less
favorable to the Company than could be obtained from unaffiliated parties and
are reasonably expected to benefit the Company. Each of the Intercompany
Agreements has been approved by a majority of the Company's disinterested
directors in accordance with the foregoing policy.
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
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PRINCIPAL STOCKHOLDERS
OWNERSHIP OF NEWCOM STOCK
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock on a pro forma basis as of June 30,
1997, (i) by each person or entity known by the Company to own beneficially
more than 5% of the Company's Common Stock, (ii) by each of the Company's
directors, (iii) by each executive officer of the Company named in the Summary
Compensation Table and (iv) by all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES PERCENTAGE BENEFICIALLY OWNED(1)
BENEFICIALLY ---------------------------------
NAME AND ADDRESS OF OWNER OWNED(1) BEFORE OFFERING AFTER OFFERING(2)
- ------------------------- ------------ --------------- -----------------
<S> <C> <C> <C>
Aura Systems, Inc.(3)(4)..... 7,511,533(5) 94% 75%(5)
Sultan W. Khan(3)(6)......... 220,622 3% 2%
Asif M. Khan(3)(6)........... 220,622 3% 2%
Steven C. Veen(3)............ -- -- --
Michael I. Froch(3).......... -- -- --
Zane R. Alsabery(3)(7)....... 26,984 * *
Gerald S. Papazian(3)........ -- -- --
Alexander Remington(3)....... -- -- --
James M. Curran(3)........... -- -- --
All executive officers and
directors as a group (8
persons).................... 468,228 5.9% 4.7%
</TABLE>
- --------
* Denotes less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Commission, and includes generally voting power and/or investment power
with respect to securities. Shares of Common Stock subject to options
currently exercisable or exercisable within sixty days of the date of this
Prospectus are deemed outstanding for computing the beneficial ownership
percentage of the person holding such options but are not deemed
outstanding for computing the beneficial ownership percentage of any other
person. See "Management--Stock Incentive Plan." Except as indicated by
footnote, to the knowledge of the Company, the persons named in the table
above have the sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
(2) Adjusted to give effect to the sale of 2,000,000 Units offered hereby.
Assumes no exercise of the Warrants, Underwriters' Over-allotment Option,
Representative's Option or any options under the Company's Stock Plan.
(3) c/o NewCom, Inc.; 31166 Via Colinas; Westlake Village, CA 91362
(4) May be deemed to be a parent or promoter of the Company, as those terms
are defined in the Securities Act. Aura has agreed to vote all shares held
by it for a period of forty eight (48) months following the completion of
this Offering for the election to the Company's Board of Directors of two
designees of the Representative reasonably acceptable to the Company. See
"Underwriting."
(5) In the event the Underwriters' Over-allotment Option was exercised in full
by the Representative in the Offering, Aura's resulting Shares
Beneficially Owned and Approximate Percentage Beneficially Owned/After
Offering would be 7,211,533 shares and 72%, respectively. In the event all
of the Warrants issued in the Offering (including those included in the
Underwriters' Over-allotment Option) were exercised and Aura elected to
exercise in full its Redemption Option with respect thereto, Aura's
resulting Shares Beneficially Owned/After Offering and Approximate
Percentage Beneficially Owned would be 5,601,533 shares and 40%,
respectively.
(6) Includes 220,622 shares of Common Stock issued and outstanding and held by
Mr. Khan. Excludes 192,720 shares of Common Stock issuable pursuant to
options, none of which are exercisable within sixty days of June 30, 1997.
(7) Includes 26,984 shares of Common Stock issued and outstanding and held by
Mr. Alsabery. Excludes 35,000 shares of Common Stock issuable pursuant to
options, none of which are exercisable within sixty days of June 30, 1997.
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OWNERSHIP OF AURA STOCK
The principal stockholder of the Company is Aura. The address of Aura is
2335 Alaska Avenue, El Segundo, California 90245. Prior to the completion of
the Offering, Aura will own 7,511,533 shares of Common Stock, representing 94%
of the shares of Common Stock then outstanding. Under Delaware law, Aura is
able, acting alone, to cause to be elected the entire Board of Directors of
the Company and to control the vote on all matters submitted to a vote of the
Company's stockholders, including extraordinary corporate transactions.
Currently, the Company's Board of Directors is comprised entirely of designees
of Aura and three of the Company's eight directors are also directors and/or
officers of Aura. Upon completion of the Offering, Aura will own approximately
75% of the outstanding Common Stock of the Company (approximately 72% if the
Underwriters' Over-allotment Option is exercised in full), and the Company
will expand its Board of Directors to include two additional director
positions.
At June 30, 1997, the beneficial ownership of Aura common stock by the
Company's directors, the Named Executive Officers, and all directors and
executive officers as a group included the following: Sultan W. Khan, Chief
Executive Officer, President and Director, 973 shares; Asif M. Khan, Executive
Vice President and Director, 755 shares; Zane R. Alsabery, Director, 8 shares;
Gerald S. Papazian, Director, 123,282 shares; Steven C. Veen, Chief Financial
Officer and Director, 73,199 shares; Michael I. Froch, Secretary and Director,
15,362 shares; James M. Curran, Director, 0 shares; Alexander Remington,
Director, 34,000 shares; and all directors and executive officers as a group
(8 persons), 232,579 shares. To the Company's knowledge, the persons named in
above have sole voting and investment power with respect to all shares of Aura
common stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the footnotes
to this table. None of the individual directors or the Named Executive
Officers beneficially own 1.0% or more of outstanding shares of Aura capital
stock. All of the Company's directors and the Named Executive Officers,
collectively as a group, beneficially own less than 1.0% of such capital
stock.
DESCRIPTION OF SECURITIES
Upon the closing of the Offering, the authorized capital stock of the
Company, after giving effect to the Recapitalization, will consist of
50,000,000 shares of Common Stock, $.001 par value per share and 5,000,000
shares of Preferred Stock, $.001 par value per share.
UNITS
Each of the 2,000,000 Units offered hereby consists of one share of the
Company's Common Stock, $.001 par value per share, and one Common Stock
Purchase Warrant. Upon completion of the Offering, the Common Shares and
Warrants comprising the Units will be immediately detachable and separately
transferable. The assumed Offering Price of $9.00 per Unit is allocated $8.90
to the Common Share and $.10 to the Warrant.
COMMON STOCK
Upon giving effect to the Recapitalization and conversion, there will be
8,000,000 issued and outstanding shares of Common Stock. Immediately prior to
the date of this Prospectus, Aura was the stockholder of record of 7,511,533
shares, or 94% of the Company. Holders of the Common Stock do not have
preemptive rights to purchase additional shares of Common Stock or other
subscription rights. The Common Stock carries no conversion rights and is not
subject to redemption or to any sinking fund provisions. All shares of Common
Stock are entitled to share equally in dividends from sources legally
available therefor when, as and if declared by the Board of Directors and,
upon liquidation or dissolution of the Company, whether voluntary or
involuntary, to share equally in the assets of the Company available for
distribution to stockholders. All outstanding shares of Common Stock are
validly authorized and issued, fully paid and nonassessable, and all shares to
be sold and issued as contemplated hereby, will be validly authorized and
issued, fully paid and nonassessable. The Board of Directors is authorized to
issue additional shares of Common Stock, not to exceed the amount authorized
by the Company's Certificate of Incorporation, and to issue options and
warrants for the purchase of such shares, on
56
<PAGE>
such terms and conditions and for such consideration as the Board may deem
appropriate without further stockholder action. The above description
concerning the Common Stock of the Company does not purport to be complete.
Reference is made to the Company's Certificate of Incorporation and bylaws
which are available for inspection upon proper notice at the Company's
offices, as well as to the applicable statutes of the State of Delaware for a
more complete description concerning the rights and liabilities of
stockholders.
Prior to the Offering, there has been no market for the Common Stock of the
Company, and no predictions can be made of the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of the Common Stock of the Company in the public market may adversely affect
prevailing market prices, and may impair the Company's ability to raise
capital at that time through the sale of its equity securities.
Each holder of Common Stock is entitled to one vote per share on all matters
on which such stockholders are entitled to vote. Since the shares of Common
Stock do not have cumulative voting rights, the holders of more than 50% of
the shares voting for the election of directors can elect all the directors if
they choose to do so and, in such event, the holders of the remaining shares
will not be able to elect any person to the Board of Directors. Immediately
following completion of the Offering (assuming no exercise of the
Underwriters' Over-allotment Option), Aura will hold 75% of the outstanding
shares of Common Stock.
PREFERRED STOCK
There are currently no shares of Preferred Stock outstanding. Upon giving
effect to the Certificate Amendment, the Board of Directors has the authority,
without further action by the stockholders, to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, without any further vote or action by the stockholders. The
issuance of Preferred Stock could adversely affect the voting power of the
holders of Common Stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation, and could have the effect of
delaying, deferring or preventing a change in the control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
WARRANTS
There are currently no warrants issued by the Company outstanding. Upon
consummation of the sale of Units offered hereby, assuming no exercise of the
Underwriters' Over-allotment Option, 2,000,000 Warrants will be issued and
outstanding. The initial offering price of the Warrants is $0.10 per Warrant.
Upon completion of the Offering, the Common Shares and Warrants comprising the
Units will be immediately detachable and separately transferable. See "Risk
Factors."
Each Warrant entitles the holder to purchase one share of Common Stock at
150% of the Offering Price until that date which is five years from the date
of this Prospectus. The Common Stock underlying the Warrants will, upon
exercise of the Warrants, be validly issued, fully paid and nonassessable. The
Warrants are redeemable at the option of the Company for $.05 per Warrant, at
any time after the first anniversary of the date of this Prospectus, or at
such earlier date as may be determined by the Representative, upon 30 days
prior written notice, if the closing price of the Common Stock, as reported by
the principal exchange on which the Common Stock is traded, equals or exceeds
200% of the Offering Price per share, for 20 consecutive trading days during
the 30-day period preceding the date of the notice of redemption and at such
time as there is a current effective registration statement covering the
Common Stock underlying the Warrants. Upon 30 days prior written notice to all
holders of the Warrants, the Company shall have the right to reduce the
exercise price and/or extend the term of the Warrants.
The Company will deliver Warrant certificates to the purchasers of Units
representing one Warrant for each Unit purchased. Thereafter, Warrant
certificates may be exchanged for new certificates of different
57
<PAGE>
denominations, and may be exercised or transferred by presenting them at the
offices of the Transfer Agent. Holders of the Warrants may sell the Warrants
if a market exists rather than exercise them, subject to the requirement that
each Warrant may not trade separately from the Common Share to which it is
attached without the consent of the Representative or the Company, as
applicable. However, there can be no assurance that a market will develop or
continue as to the Warrants or the Units. If the Company is unable to qualify
its Common Stock underlying such Warrants for sale in certain states, holders
of the Company's Warrants in those states will have no choice but to either
sell such Warrants (or the Units of which they are a part) or allow such
Warrants to expire.
Each Warrant may be exercised by surrendering the Warrant certificate, with
the form of election to purchase on the reverse side of the Warrant
certificate properly completed and executed, together with payment of the
exercise price to the Warrant Agent. The Warrants may be exercised in whole or
from time to time in part. If less than all of the Warrants evidenced by a
Warrant certificate are exercised, a new Warrant certificate will be issued
for the remaining number of Warrants.
Holders of the Warrants are protected against dilution of the equity
interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as
to terminate the Warrants, the Warrants may be exercised immediately prior to
such action. In the event of liquidation, dissolution or winding up of the
Company, holders of the Warrants are not entitled to participate in the
Company's assets.
For the life of the Warrants, the holders thereof are given the opportunity
to profit from a rise in the market price of the Common Stock of the Company.
The exercise of the Warrants will result in the dilution of the then book
value of the Common Stock of the Company held by the public investors and
would result in a dilution of their percentage ownership of the Company. The
terms upon which the Company may obtain additional capital may be adversely
affected through the period that the Warrants remain exercisable. The holders
of these Warrants may be expected to exercise them at a time when the Company
would, in all likelihood, be able to obtain equity capital on terms more
favorable than those provided for by the Warrants. See "Risk Factors--Future
Issuances of Stock by the Company Without Stockholder Approval."
The Warrants can only be exercised when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrant holders will be unable to exercise the
Warrants and the Warrants may become valueless. Moreover, if the shares of
Common Stock underlying the Warrants are not registered or qualified for sale
in the state in which a Warrant holder resides, such holder might not be
permitted to exercise the Warrants. See "Risk Factors--Current Prospectus and
State Blue Sky Registration Requirements to Exercise Warrants."
In the event that the Warrants are called for redemption, the Warrant
holders may not be able to exercise their Warrants in the event that the
Company has not updated this Prospectus in accordance with the requirements of
the Act or these securities have not been qualified for sale under the laws of
the state where the Warrant holder resides. See "Risk Factors--Current
Prospectus and State Blue Sky Registration Requirements to Exercise Warrants."
In addition, in the event that the Warrants have been called for redemption,
such call for redemption could require the Warrant holder to either (i)
assuming the necessary updating to the Prospectus and state blue sky
qualifications have been effected, exercise the Warrants and pay the exercise
price at a time when, in the event of a decrease in market price from the
period preceding the issuance of the call for redemption, it may be less than
advantageous economically to do so, or (ii) accept the redemption price,
which, in the event of an increase in the price of the stock, could be
substantially less than the market value thereof at the time of redemption.
See "Risk Factors--Warrants Subject to Redemption."
OPTIONS
As of the date hereof, options to purchase an aggregate of 546,690 shares of
Common Stock have been granted and are outstanding. Options to purchase an
aggregate of 453,310 shares of the Company are reserved
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<PAGE>
for future issuance under the Stock Plan. See "Management--Stock Incentive
Plan." Shares of Common Stock received upon the exercise of such options are
subject to the provisions of Commission Rule 144.
REPRESENTATIVE'S OPTION
At the closing of this offering, the Company has agreed to sell to the
Representative, for an aggregate purchase price of $200, a warrant (the
"Representative's Option") to purchase up to 200,000 Units (each Unit
consisting of one share of Common Stock and one Warrant, each identical to the
Common Shares and Warrants offered hereby). The Representative's Option will
be exercisable for a period of four years commencing one year after the
Closing Date at 110% of the Public Offering Price and will contain customary
antidilution provisions.
REGISTRATION RIGHTS
Representative's Option. The Representative's Option to acquire up to
200,000 Units contains certain registration rights under the Securities Act
relating to the shares of Common Stock and Warrants included in the Units
underlying the Representative's Option and the shares of Common Stock issuable
upon exercise of the Warrants included in such Units (collectively, the
"Representative Shares"). Under the terms of the Representative's Option, the
Company is obligated to register all or part of the Representative Shares if
it receives a request to do so by the holders owning or entitled to purchase a
majority of the Representative Shares, provided that the request is made 12
months after the date of this Prospectus. The Representative's Option provides
for two such requests, one of which will be at the Company's expense. The
demand registration right contained in the Representative's Option will expire
five years from the date of this Prospectus. In addition, if the Company
proposes to register any of its securities under the Securities Act for its
own account, holders of the Representative's Option or Representative Shares
are entitled to notice of such registration and the Company is obligated to
use all reasonable efforts to cause the Representative Shares to be included,
provided that the underwriter of any such offering shall have the right to
limit the number of shares included in the registration. The Company is
responsible for all expenses incurred in connection with any such piggyback
registration of the Representative Shares. The piggyback registration rights
contained in the Representative's Option will expire no later than five years
from the date of this Prospectus. The exercise of such registration rights by
the Representative may result in dilution in the interests in the Company of
then-present stockholders, hinder efforts by the Company to arrange future
financings of the Company and/or have an adverse effect on the market price of
the Company's Common Stock and Warrants. See "Underwriting."
Aura Rights Agreement. Pursuant to the Aura Rights Agreement, Aura, or its
permitted transferee, is entitled to certain demand and incidental
registration rights with respect to the shares of Common Stock Aura will hold
upon completion of the Offering (the "Registrable Securities"), subject to
certain customary limitations. One year after the date of this Prospectus,
Aura will be entitled to request that the Company file a registration
statement under the Securities Act covering the resale of some or all of its
Registrable Securities, provided that during the first year following the
commencement of such rights Aura will not be permitted to cause more than
3,000,000 Registrable Securities to be so registered. The Company is required
to bear all costs associated with such registration. In addition, commencing
one year following the date of this Prospectus, whenever the Company proposes
to register any of its securities under the Securities Act, for its own
account or that of any other stockholder, holders of Registrable Securities
are entitled, subject to certain restrictions (including the 3,000,000 shares
limitation during the first year such rights are in effect and customary
underwriters' "cutback" limitations), to include their Registrable Securities
in such registration. Subject to certain limitations, the holders of
Registrable Securities may also require the Company to register such shares on
Form S-3 no more than once every 12 months (commencing on the first
anniversary of the date of this Prospectus), provided that the anticipated
aggregate proceeds would exceed $1.0 million. The Company is required to bear
all registration and selling expenses (other than underwriters' discounts and
commissions and the fees of more than a single special counsel to the selling
Stockholders) in connection with the registration of Registrable Securities in
one demand registration, two piggy-back registrations and all Form S-3
registrations. Registration rights under the Aura Rights Agreement may be
transferred to an assignee or transferee provided that such assignee or
transferee acquires at least 500,000 Registrable Securities held by the
transferring holder.
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These registration rights may be amended or waived (either generally or in a
particular instance) only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding. The
registration rights granted under the Aura Rights Agreement shall not be
exercisable by a holder during the period in which the holder may sell all of
the holder's shares under Rule 144 or Rule 144A during a single 90-day period.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Certificate of Incorporation and Bylaws. The Company's Amended and Restated
Certificate of Incorporation ("Restated Certificate") and Bylaws require the
Company to indemnify the current and former directors and officers of the
Company, and permit the Company to indemnify any current or former employee or
agent of the Company, to the fullest extent permitted by law. The Restated
Certificate eliminates a director's liability for monetary damages for conduct
as a director, unless the elimination of liability is prohibited by the
Delaware General Corporation Law, such as the breach of a director's duty of
loyalty or acts or omissions which involve intentional misconduct or knowing
violation of law. These provisions do not eliminate a director's duty of care.
Moreover, the provisions do not eliminate or limit a director's liability for
violation of certain laws, including federal securities laws. The Company
believes that these provisions will assist the Company in attracting or
retaining qualified individuals to serve as directors and officers.
Under the Restated Certificate, the Board of Directors has the power to
authorize the issuance of up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without further vote or action by the
stockholders. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of and the voting and other rights of the holders of the Common Stock.
These provisions of the Restated Certificate could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal and to discourage certain
tactics that may be used in proxy fights. Such provisions, however, could have
the effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit fluctuations in the market
price of the Company's shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in the management of the Company.
The Restated Certificate provides that the Company's Bylaws may be repealed
or amended only by a two-thirds vote of the Board of Directors or a two-thirds
stockholder vote. Further, the Restated Certificate requires that all
stockholder action be taken at a stockholders' meeting. In addition, those
provisions of the Restated Certificate may only be amended or repealed by the
holders of at least two-thirds of the voting power of all the then-outstanding
shares of stock entitled to vote generally for the election of directors
voting together as a single class. The provisions described above, together
with the ability of the Board of Directors to issue Preferred Stock as
described under "--Preferred Stock," may have the effect of deterring a
hostile takeover or delaying a change in control or management of the Company.
See "Risk Factors--Effect of Anti-takeover Provisions."
Delaware Takeover Statute. The Company is subject to section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation
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outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The Restated Certificate provides that any person purchasing or acquiring an
interest in shares of capital stock of the Company is deemed to have consented
to the following provisions relating to intercompany agreements and to
transactions with interested parties and corporate opportunities. The
corporate charter of Aura does not include comparable provisions relating to
intercompany agreements, transactions with interested parties or corporate
opportunities.
Transactions With Interested Parties. The Restated Certificate provides that
no contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) between the Company and Aura or any
Related Entity (as such terms are defined below) or between the Company and
any director or officer of the Company, Aura or any Related Entity shall be
void or voidable solely for the reason that Aura, a Related Entity or any one
or more of the officers or directors of the Company, Aura or any Related
Entity are parties thereto, or solely because of any such directors or
officers are present at, participate in or vote with respect to the
authorization of such contract, agreement, arrangement or transaction (or any
amendment, modification or termination thereof). Further, the Restated
Certificate provides that neither Aura nor any officer or director thereof or
of any Related Entity shall be liable to the Company or its stockholders for
breach of any fiduciary duty or duty of loyalty or failure to act in (or not
opposed to) the best interests of the Company or the derivation of any
improper personal benefit by reason of the fact that Aura or an officer or
director thereof or of such Related Entity in good faith takes any action or
exercises any rights or gives or withholds any consent in connection with any
agreement or contract between Aura or such Related Entity and the Company. No
vote cast or other action taken by any person who is an officer, director or
other representative of Aura or such Related Entity, which vote is cast or
action is taken by such person in his capacity as a director of the Company,
shall constitute an action of or the exercise of a right by or a consent of
Aura, such subsidiary or Related Entity for the purpose of any such agreement
or contract. For purposes of the foregoing, the "Company" and "Aura" include
all corporations and other entities in which the Company or Aura, as the case
may be, owns 50% or more of the outstanding voting stock, and "Related Entity"
means one or more corporations or other entities in which one or more of the
directors of the Company have a direct or indirect financial interest.
Competition by Aura with the Company; Corporate Opportunities. The Restated
Certificate provides that except as Aura may otherwise agree in writing:
(i) neither Aura nor any subsidiary of Aura (other than the Company)
shall have a duty to refrain from engaging directly or indirectly in the
same or similar business activities or lines of business as the Company;
and
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<PAGE>
(ii) neither Aura nor any subsidiary (other than the Company), officer or
director thereof will be liable to the Company or to its stockholders for
breach of any fiduciary duty by reason of any such activities or of such
person's participation therein.
The Restated Certificate also provides that if Aura or any subsidiary of
Aura (other than the Company) acquires knowledge of a potential transaction or
matter which may be a corporate opportunity both for Aura or such subsidiary
and for the Company, except as Aura may otherwise agree in writing, neither
Aura nor such subsidiary (nor the officers and directors of either thereof)
shall have a duty to communicate or offer such corporate opportunity to the
Company and shall not be liable to the Company or its stockholders for breach
of fiduciary duty as a stockholder of the Company or controlling person of a
stockholder by reason of the fact that Aura or such subsidiary pursues or
acquires such opportunity for itself, directs such corporate opportunity to
another person, or does not communicate information regarding such corporate
opportunity to the Company.
Further, the Restated Certificate provides that, except as Aura may
otherwise agree in writing, in the event that a director, officer or employee
of the Company who is also a director, officer or employee of Aura acquires
knowledge of a potential transaction or mater that may be a corporate
opportunity both for the Company and Aura (whether such potential transaction
or mater is proposed by a third party or is conceived by such director,
officer or employee of the Company), such director, officer or employee shall
be entitled to offer such corporate opportunity to the Company or Aura as such
director, officer or employee deems appropriate under the circumstances in his
or her sole discretion, and no such director, officer or employee shall be
liable to the Company or its stockholders for breach of any fiduciary duty or
duty of loyalty or failure to act in (or not opposed to) the best interests of
the Company or the derivation of any improper personal benefit by reason of
the fact that (i) such director, officer or employee offered such corporate
opportunity to Aura (rather than the Company) or did not communicate
information regarding such corporate opportunity to the Company or (ii) Aura
pursues or acquires such corporate opportunity for itself or directs such
corporate opportunity to another person or does not communicate information
regarding such corporate opportunity to the Company.
The enforceability of the provisions discussed above under Delaware
corporate law has not been established and, due to the absence of relevant
judicial authority, counsel to the Company is not able to deliver an opinion
as to the enforceability of such provisions. These provisions of the Restated
Certificate eliminate certain rights that might have been available to
stockholders under Delaware law had such provisions not been included in the
Restated Certificate, although the enforceability of such provisions has not
been established.
At the time of the consummation of the Offering, certain of the directors of
the Company will also be employees and/or directors of Aura.
The foregoing provisions of the Restated Certificate shall expire on the
date that Aura ceases to own beneficially Common Stock representing at least
20% of the number of outstanding shares of Common Stock and no person who is a
director or officer of the Company is also a director or officer of Aura or
its subsidiaries.
Actions Under Intercompany Agreements. The Company's Restated Certificate
will also limit the liability of Aura and its subsidiaries for certain
breaches of their fiduciary duties in connection with action that may be taken
or not taken in good faith under the intercompany agreements. See
"Relationship with Aura and Certain Transactions."
Advance Notice Provision. The Company's Amended and Restated Bylaws provide
for an advance notice procedure for the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as directors
as well as for other stockholder proposals to be considered at annual meetings
of stockholders. In general, notice of intent to nominate a director or raise
matters at such meetings will have to be received by the Company not less than
120 or more than 150 days prior to the first anniversary of the Company's
proxy statement in connection with the previous year's annual meeting, and
must contain certain information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal.
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Limitations on Directors' Liability. The Restated Certificate and the
applicable provisions of the DGCL provide that no director of the Company
shall be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of these provisions will be to eliminate the rights of the Company and
its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
The existence of these terms and restrictions described above do not limit,
impair or waive any rights conferred by or under the federal securities laws.
NASDAQ NATIONAL MARKET LISTING
The Company has applied for inclusion of its Common Stock and Warrants for
quotation on the Nasdaq National Market under the symbols "NWCM" and "NWCMW,"
respectively. This offering is the initial public offering of the Company's
Securities and, accordingly, there is currently no public trading market for
any such Securities. Even if the Company's Common Stock and Warrants are
accepted for quotation on Nasdaq National Market, there can be no assurance
that a public trading market will ever develop or, if one develops, that it
will be maintained. Although it has no legal obligation to do so, the
Representative from time to time may act as a market maker and otherwise
effect transactions for its own account, or for the account of others, in the
Company's Securities. The Representative, if it so participates, may be a
dominating influence in any market that may develop for any of the Company's
Securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the Warrant Agent
for the Warrants is Interwest Transfer Company, Inc., Salt Lake City, Utah.
REPORTS TO SECURITYHOLDERS
The Company will furnish to holders of its Common Stock and Warrants annual
reports containing audited financial statements. The Company may issue other
unaudited interim reports to its securityholders as it deems appropriate.
Contemporaneously with the Offering, the Company shall register its Common
Stock with the Commission, under the provisions of Section 12(g) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in
accordance therewith, the Company will be required to comply with certain
reporting, proxy solicitation and other requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering there has been no public market for the Common Stock
or Warrants of the Company, and no predictions can be made regarding the
effect, if any, that market sales of the Securities or the availability of
Securities for sale will have on the market price prevailing from time to
time. As described below, only a limited number of shares of Common Stock will
be available for sale shortly after the Offering due to certain contractual
and legal restrictions on resale. Nevertheless, sales of substantial amounts
of Common Stock of the Company in the public market after the restrictions
lapse could adversely affect the prevailing market price.
Upon completion of the Offering, the Company will have outstanding
10,000,000 shares of Common Stock, out of a total of 50,000,000 shares of
Common Stock authorized, not including up to (i) 2,000,000 shares of Common
Stock issuable upon exercise of the Warrants, (ii) 200,000 shares of the
Company issuable upon exercise of the Representative's Option,
(iii) 200,000 shares of the Company issuable upon exercise of the Warrants
included in the Representative's Option, (iv) 300,000 shares of Common Stock
issuable upon exercise of the Warrants included in the Underwriters' Over-
allotment Option, and (v) 1,000,000 shares reserved for
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issuance under the Company's Stock Plan. Of the 10,000,000 shares of Common
Stock outstanding, the 2,000,000 Common Shares being sold hereby will be
freely tradable without restriction or registration under the Securities Act,
except for any shares purchased by an affiliate of the Company (in general, a
person who has a control relationship with the Company), which shares will be
subject to the resale limitations of Rule 144 under the Securities Act. All
remaining shares were issued and sold by the Company in private transactions
("Restricted Shares") and, upon the expiration of the Lock-up Period described
below, will be eligible for public sale if registered under the Securities Act
or sold in accordance with Rule 144 or Rule 701 thereunder.
In general, under Rule 144 as in effect commencing April 29, 1997, beginning
ninety days after the date of this Prospectus, an affiliate of the Company, or
a holder of Restricted Shares who owns beneficially shares that were not
acquired from the Company or an affiliate of the Company within the previous
one year, would be entitled to sell within any three month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares
of Common Stock (approximately 100,000 shares immediately after the Offering,
assuming no exercise of the Underwriters' Over-allotment Option) or the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. However, a
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the ninety days immediately
preceding the sale and who owns beneficially Restricted Shares is entitled to
sell such shares under Rule 144(k) without regard to the limitations described
above, provided that at least two years have elapsed since the later of the
date the shares were acquired from the Company or from an affiliate of the
Company. The foregoing is a summary of Rule 144 and is not intended to be a
complete description of it.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisers prior to the closing
of the Offering, pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. In addition, the
Commission has indicated that Rule 701 will apply to stock options granted by
the Company before the Offering, along with the shares acquired upon exercise
of such options. Securities issued in reliance on Rule 701 are deemed to be
Restricted Shares and, beginning ninety days after the date of this Prospectus
(unless subject to the contractual restrictions described above), may be sold
by persons other than affiliates 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 requirements.
Aura, which upon completion of the Offering will hold an aggregate of
7,511,533 shares of Common Stock, and the Company's directors and executive
officers have agreed pursuant to certain agreements that they will not sell
any Common Stock owned by them or issuable upon the exercise of options
previously granted or reserved for grant, without the prior written consent of
the Representative for a period of one year from the date of this Prospectus
(the "Lockup Period"). The Representative may in its discretion and without
notice to the public waive these lock-up agreements and permit Aura and other
holders otherwise agreeing to lock-up their shares to sell any or all of their
shares, the effect of which could be a substantial decline in the trading
price of the Company's Common Stock or Warrants. Following the expiration of
the Lockup Period, approximately 8,109,338 shares of Common Stock, including
109,338 shares issuable upon the exercise of certain options that are
exercisable on or before such expiration, will be available for sale in the
public market subject to compliance with Rule 144 or Rule 701. See
"Underwriting."
In addition, shares of Common Stock held by Aura are subject to the
Redemption Option Agreement and the Aura Rights Agreement.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement,
the Underwriters named below, for whom Joseph Charles & Associates, Inc. is
acting as representative (the "Representative"), have severally agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriters named below, the aggregate number of Units set forth opposite
there respective names in the table below at the price to the public less
underwriting discounts set forth on the cover page of this Prospectus. The
Units are being sold on a firm commitment basis. The Underwriting Agreement
provides, however, that the obligations of the Underwriters to pay for and
accept delivery of the Units are subject to certain conditions precedent, and
that the Underwriters are committed to purchase and pay for all Units if any
Units are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS UNITS
------------ ---------
<S> <C>
Joseph Charles & Associates, Inc..................................
---------
Total........................................................... 2,000,000
=========
</TABLE>
The Representative has informed the Company that the Underwriters do not
expect to sell any Units to any account over which they have discretionary
authority.
The Representative has advised the Company that the Underwriters propose to
offer the Units directly to the public at the initial public offering prices
set forth on the cover page of this Prospectus, and to selected dealers at
that price, less a concession of not more than $0. per Unit. The
Underwriters may allow a discount of not more than $0. per Unit on sales to
certain other dealers. After the initial public offering, the price to the
public of the Units, Common Shares and Warrants and the other terms may be
changed.
The Company and Aura have granted the Representative an option, exercisable
during the 60-day period following the date of this Prospectus, to purchase up
to 300,000 additional Units at the Offering Price less the underwriting
discounts and commissions. The Common Shares included in such additional Units
will be offered by Aura and the Warrants included in such additional Units
will be offered by the Company. The Representative may exercise such option
only for the purpose of covering any overallotments in the sale of the Units
offered hereby.
The Company has agreed to pay the Representative a nonaccountable expense
allowance of 2.5% of the gross proceeds from the sale of Units, or $382,500
(based upon an assumed Offering Price of $9.00 per Unit), against which
$40,000 has heretofore been paid. In addition to the Underwriter's discount
and the non-accountable expense allowance, the Company is required to pay the
costs of qualifying the Securities under federal and state securities laws,
together with legal and accounting fees, printing, road show and other costs
in connection with the Offering.
The Company has agreed to retain the Representative as a financial
consultant for a period of two years from the date of this Prospects for a fee
of $3,000 per month payable on a monthly basis. The financial consulting
services to be provided by the Representative include assisting in the
development of a long-term financial strategy and working with financial
analysts.
The Company has agreed for forty-eight (48) months following the completion
of the Offering to nominate and use its best efforts to cause the election of
two designees of the Representative reasonably acceptable to the Company to
its Board of Directors and Aura has agreed to vote all shares of the Company's
Common Stock owned by it for said nominees. To date, the Representative has
not designated such nominees but has advised the Company that it plans to do
so shortly following completion of the Offering.
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The Company has agreed with the Representative not to solicit Warrant
exercises other than through the Representative. Upon exercise of any
Warrants, the Company will pay the Representative a fee of 3% of the aggregate
exercise price, if (i) the market price of the Company Common Shares on the
date the Warrant is exercised is greater than the then exercise price of the
Warrant; (ii) the exercise of the Warrant was solicited by a member of the
National Association of Securities Dealers, Inc. who is so designated in
writing by the holder exercising the Warrant; (iii) the Warrant is not held in
a discretionary account except where prior specific written approval for the
exercise has been received; (iv) disclosure of compensation arrangements was
made both at the time of the offering and at the time of exercise of the
Warrant; (v) the solicitation of the exercise of the Warrant was not in
violation of Rule 10b-6 promulgated under the Exchange Act; and (vi) the
Representative provides bona fide services in connection with the solicitation
of the Warrant. No solicitation fee will be paid to the Representative on
Warrants exercised within one year of the date of this Prospectus or on
Warrants voluntarily exercised at any time without solicitation. In addition,
unless granted an exemption by the Commission from Rule 10b-6 under the
Exchange Act, the Representative will be prohibited from engaging in any
market making activities or solicited brokerage activities until the later of
the termination of such solicitations activity or the termination by waiver or
otherwise of any right the Representative may have to receive a fee for the
exercise of the Warrants following such solicitation. Such a prohibition,
while in effect, could impair the liquidity and market price of the
Securities.
Except in connection with acquisitions or the exercise of the Warrants, the
Representative's Option or options to purchase up to 1,000,000 Common Shares
that may be reserved or granted under the Company's Stock Plan, the Company
has agreed, for a period of one year from the closing of the Offering, that it
will not issue, sell or purchase any Common Shares, warrants or options or
other equity securities of the Company without the prior written consent of
the Representative. In addition, the officers, directors and principal
stockholders of the Company have agreed that they will not offer, sell or
otherwise dispose of any Common Shares, Warrants or other equity securities of
the Company owned by them to the public for a period of at least one year from
the effective date of the Offering, without the prior written consent of the
Representative. The Representative may in its discretion and without notice to
the public waive these lock-up agreements and permit Aura and other holders
otherwise agreeing to lock-up their shares to sell any or all of their shares,
the effect of which could be a substantial decline in the trading price of the
Company's Common Stock or Warrants.
At the closing of the Offering, the Company will sell and deliver to the
Representative for an aggregate purchase price of $200, the Representative's
Option to purchase 200,000 Units at a price that is equal to 110% of the
Offering Price. The Warrants underlying the Representative's Option will have
an exercise price and other terms identical to the Warrants being offered to
the public pursuant to this Prospectus.
The Representative's Option will be nontransferable for a period of one year
following the date of this Prospectus except to officers of the
Representative. The Representative's Option will also contain antidilution
provisions for stock splits, stock dividends, recombinations and
reorganizations, a one-time demand registration provision (at the Company's
expense) and piggyback registration rights (which registration rights will
expire five years from the date of this Prospectus) and will otherwise be in
form and substance satisfactory to the Representative. The Representative's
Option will be exercisable during the four-year period commencing one year
after the date of this Prospectus.
Prior to the Offering, there has been no public market for the Common Shares
or Warrants and there can be no assurance that a market will develop or be
sustained following the Offering. The Offering Price and the exercise price of
the Warrants will be determined by negotiations between the Representative and
the Company. Among the factors considered in determining the Offering Price
and the exercise price of the Warrants will be the prospects for the Company,
an assessment of the industries in which the Company operates, the assessment
of management, the number of Units offered, the price that purchasers of Units
might be expected to pay given the nature of the Company and the general
condition of the securities markets at the time of the offering. Accordingly,
the Offering Price set forth on the cover page of this Prospectus should not
necessarily be considered an indication of the actual value of the Company or
the Units, Common Shares or Warrants.
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Certain persons participating in the Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Shares and Warrants at levels above those which might otherwise
prevail in the open market, including by entering stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A stabilizing bid
means the placing of any bid or effecting of any purchases, for the purpose of
pegging, fixing or maintaining the price of the Common Shares or Warrants. A
syndicate covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the Representatives to reclaim a selling concession
from a syndicate member in connection with the offering when Common Shares or
Warrants sold by the syndicate member are purchased in syndicate covering
transactions. Such transactions may be effected on the Nasdaq Stock Market, in
the over-the-counter market, or otherwise. Such stabilizing, if commenced, may
be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Securities offered
hereby will be passed upon for the Company by Pillsbury Madison & Sutro LLP,
Menlo Park, California. Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, Beverly Hills, California, has acted as counsel to the
Underwriters with respect to certain legal matters in connection with the
Offering.
EXPERTS
The financial statements of NewCom, Inc. at February 28, 1995, February 29,
1996 and February 28, 1997, for the nine-month period ended February 28, 1995,
and for each of the two years in the period ended February 28, 1997, included
in this Prospectus have been audited by Pannell Kerr Forster, Certified Public
Accountants, a Professional Corporation, Los Angeles, California, as stated in
their report appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Securities offered hereby,
reference is hereby made to such Registration Statement, exhibits and
schedules. Statements contained in this Prospectus regarding the contents of
any contract or other document are not necessarily complete; with respect to
each such contract or document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. A copy of the Registration Statement, including
the exhibits and schedules thereto, may be inspected without charge at the
principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of such material may be obtained from such office upon
payment of the fees prescribed by the Commission.
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GLOSSARY OF TERMS
16550 UART Universal Asynchronous Receiver Transmitter. Buffer
memory that allows for high fax and modem speeds by
holding data until the computer has time to process it.
ADSL Asymmetric Digital Subscriber Line; a fast new modem
technology.
bps Bits per second--the speed at which data and fax are
transmitted. One Kbps is equal to 1,000 bits per second
and one Mbps is equal to 1,000,000 bits per second.
Bus Direct The direct link to a computer's motherboard.
cable modems Modems that hook up to cable systems once used
exclusively for TV.
CCITT Comite Consultatif International Telegraphique et
Telephonique, the international standards body now known
as ITU.
CD Compact Disc.
CD-ROM Compact Disk-Read Only Memory; CD drive technology that
allows data to be read but not written.
CD-RW Compact Disc ReWriteable; CD drive technology that allows
users to record and rerecord information onto a compact
disc. Sometimes referred to as having read-many write-
CDR many capabilities.
Compact Disc Recordable; CD drive technology that allows
data to be read and written; current technology usually
permits data to be read many times but written only once.
computer Using computers to perform telephone functions.
telephony
data fax modem Computer product used for transmission of computer data
and fax data over telephone lines.
DOS Disc operating system, generally refers to Microsoft DOS
or to other Microsoft compliant systems.
DSP Digital Signal Processing; a hardware device whose
functions can change with software modifications
DSVD Digital Simultaneous Voice and Data; allows both voice
and computer data to be simultaneously transmitted over a
single standard phone line.
DVC Desktop Videoconferencing
DVD-ROM Digital Video Disk-Read Only Memory; new standard in CD
technology that is faster and holds many times more data
than CD-ROM; allows data to be read but not written.
error correction Technology which allows for error free transmission over
less than error free phone lines.
full duplex Allows both parties to talk at the same time and be
speakerphone heard.
IDE Integrated Drive Electronics; standard computer interface
for CD-ROM and other drives.
Internet A global open network of thousands of interconnected
computer networks and millions of commuter connections
that allow individuals, businesses and other
organizations to communicate worldwide.
Internet content A phrase that encompasses all of the written, audio and
video information available on the Internet.
Internet page A location of information on the World Wide Web.
Internet phone Uses the Internet modem connection to exchange voice
packets of data, i.e., voice conversations.
ISA
Industry Standard Architecture; standard Windows/DOS PC
bus interface slot.
ISDN
Integrated Services Digital Network; phone line
connection that is digital rather then the standard
analog; allows for much higher data transmission speeds.
ITU
International Telecommunication Union
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Just-in-Time NewCom's purchasing strategy, whereby components and
supplies are purchased just before they are needed in the
manufacturing process.
MNP 5 Microcom Networking Protocol level 5--A data compression
method sometimes used in modems. Produces a compression
ratio of approximately 2 to 1 and is often used as a
fallback to the higher compression V.42bis.
Modem Modulator/Demodulator--An electronic device that converts
binary data to analog tones and voltages that are
suitable for transmissions over standard telephone lines.
MPEG One of the more popular video compression standards that
permits a large amount of video data to be stored or
transmitted in a compressed amount of space.
multimedia Currently in its basic form, a PC multimedia system is
defined as any system with a CD-ROM drive and high
quality sound capability.
NTSC National Television System Committee--The method used to
transmit television signals in North America and Japan.
PAL Phase-Alternational Line--The broadcast color television
standard used in Western Europe and Australia.
POTS Plain Old Telephone Service; standard home or office
analog telephone service.
RISC Reduced Instruction-Set Computer--A central processing
unit technology that is designed to provide faster and
lower-cost processing than the CISC (Complex Instruction-
Set Computing) technology used in most personal
computers.
RJ11 Standard single line or two line telephone modular jack.
S-Video Super-Video--A higher resolution VHS (Video Home System)
video cassette recorder format.
SCSI Small Computer System Interface; A standard computer
system interface that is used on the Apple Macintosh and
has growing usage on Windows/DOS PCs.
sound card A hardware card that hooks up to the bus of a PC and
which outputs sound signals to speakers.
UART Universal Asynchronous Receiver Transmitter.
SVGA Super Video Graphics Array; a video adapter standard.
V.34, V.34+ Error correction standards which allow for high speed
transmission.
V.42 A standard for error detection and error correction
(through retransmission) often implemented in modems.
V.42bis A data compression method sometimes used in modems.
Produces a compression ratio of approximately 4 to 1.
V.42bis/MNP 5 Data compression standard which can increase the
throughput of data transmission by compressing the amount
of data that must be sent.
VAR Value Added Reseller.
VGA Video Graphics Array; a video adapter standard.
video Telephone conferencing in which each party see a video
conferencing transmission of the other party.
Web browsing A phrase used to describe the process of looking for
information on the Internet World Wide Web.
Windows/DOS PC A PC that uses Microsoft's operating system. Also known
as IBM PC clones.
WWW World Wide Web; linked computer around the world.
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NEWCOM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholder's Equity (Deficit)................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NewCom, Inc.
Westlake Village, California
We have audited the accompanying balance sheets of NewCom, Inc. as of
February 28, 1997, February 29, 1996 and February 28, 1995 and the related
statements of operations, statements of stockholder's equity (deficit) and
cash flows for each of the two years in the period ended February 28, 1997,
and for the nine months ended February 28, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NewCom, Inc. as of
February 28, 1997, February 29, 1996 and February 28, 1995 and the results of
its operations and its cash flows for each of the two years in the period
ended February 28, 1997, and for the nine months ended February 28, 1995, in
conformity with generally accepted accounting principles.
Los Angeles, California
June 11, 1997
Pannell Kerr Forster
Certified Public Accountants
A Professional Corporation
F-2
<PAGE>
NEWCOM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MAY 31, 1997
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, ------------------------
1995 1996 1997 ACTUAL PRO FORMA
------------ ------------ ------------ ----------- -----------
(NOTE 2)
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets
Cash and cash
equivalents.......... $ 335,706 $ 2,102,183 $ 2,813,631 $ -- $ --
Accounts receivable,
net.................. 1,023,029 18,734,671 29,974,924 32,844,092 32,844,092
Inventories........... 272,761 3,578,767 11,495,503 15,480,804 15,480,804
Deposits on inventory
purchase............. -- -- -- 3,580,000 3,580,000
Other current assets.. 200 55,617 45,069 571,124 571,124
---------- ----------- ----------- ----------- -----------
Total current
assets.............. 1,631,696 24,471,238 44,329,127 52,476,020 52,476,020
---------- ----------- ----------- ----------- -----------
Property and equipment,
at cost................ 186,262 410,901 2,532,278 2,590,657 2,590,657
Less accumulated
depreciation........... (21,553) (56,989) (260,908) (281,758) (281,758)
---------- ----------- ----------- ----------- -----------
Net property and
equipment........... 164,709 353,912 2,271,370 2,308,899 2,308,899
---------- ----------- ----------- ----------- -----------
Engineering designs and
drawings, net of
accumulated
amortization of $72,256
(1995), $216,768 (1996)
and $361,280 (1997).... 650,303 505,791 361,279 325,151 325,151
Other assets............ 55,285 17,405 473,395 162,024 162,024
---------- ----------- ----------- ----------- -----------
Total assets............ $2,501,993 $25,348,346 $47,435,171 $55,272,094 $55,272,094
---------- ----------- ----------- ----------- -----------
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT):
Current liabilities
Accounts payable...... $ 603,900 $ 7,202,642 $13,354,178 15,066,921 15,066,921
Accrued expenses...... 38,956 126,312 174,740 103,026 103,026
Other debt............ -- 2,397,657 8,883,656 5,740,236 5,740,236
---------- ----------- ----------- ----------- -----------
Total current
liabilities......... 642,856 9,726,611 22,412,574 20,910,183 20,910,183
---------- ----------- ----------- ----------- -----------
Due to Aura............. 1,238,354 20,186,283 17,249,874 25,522,706 21,522,706
---------- ----------- ----------- ----------- -----------
Commitments and
contingencies
Stockholder's equity
(deficit)
Common Stock, par
value $.001 per
share, authorized
50,000,000 shares,
issued and
outstanding 7,555,556
shares (note 17); pro
forma shares issued
and outstanding
8,000,000 (note 2)... 7,556 7,556 7,556 7,556 8,000
Additional paid-in
capital.............. 993,444 993,444 9,993,444 9,993,444 13,993,000
Accumulated deficit... (380,217) (5,565,548) (2,228,277) (1,161,795) (1,161,795)
---------- ----------- ----------- ----------- -----------
620,783 (4,564,548) 7,772,723 8,839,205 12,839,205
---------- ----------- ----------- ----------- -----------
Total liabilities and
stockholder's equity
(deficit).............. $2,501,993 $25,348,346 $47,435,171 $55,272,094 $55,272,094
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
NEWCOM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED YEAR ENDED MAY 31,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, -----------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Gross revenues.......... $2,128,361 $33,312,587 $73,120,781 $7,465,720 $16,081,392
Less discounts given.... 24,923 128,400 89,117 24,337 30,678
Less returns and
allowances............. -- 1,986,758 22,399,974 -- 621,037
---------- ----------- ----------- ---------- -----------
Net revenues............ 2,103,438 31,197,429 50,631,690 7,441,383 15,429,677
Cost of goods sold...... 2,059,545 30,131,245 33,619,084 4,854,512 10,397,883
---------- ----------- ----------- ---------- -----------
Gross profit............ 43,893 1,066,184 17,012,606 2,586,871 5,031,794
---------- ----------- ----------- ---------- -----------
Expenses
Research and
development.......... 4,201 -- 7,708 -- 6,870
Selling, general and
administrative
expenses............. 423,619 4,972,064 11,840,951 1,631,698 2,728,857
---------- ----------- ----------- ---------- -----------
Total expenses...... 427,820 4,972,064 11,848,659 1,631,698 2,735,727
---------- ----------- ----------- ---------- -----------
Income (loss) from
operations............. (383,927) (3,905,880) 5,163,947 955,173 2,296,067
Other (income) and
expenses
Miscellaneous income.. (3,710) (23,289) (122,690) (7,410) (17,150)
Interest expense...... -- 1,302,740 1,516,366 240,171 535,735
---------- ----------- ----------- ---------- -----------
Income (loss) before
taxes.................. (380,217) (5,185,331) 3,770,271 722,412 1,777,482
Provision for income
taxes.................. -- -- 433,000 108,000 711,000
---------- ----------- ----------- ---------- -----------
Net income (loss)....... $ (380,217) $(5,185,331) $ 3,337,271 $ 614,412 $ 1,066,482
---------- ----------- ----------- ---------- -----------
Net income (loss) per
common share........... $ (.05) $ (.69) $ .44 $ .08 $ .14
---------- ----------- ----------- ---------- -----------
Weighted average number
of common shares (note
2)..................... 7,555,556 7,555,556 7,555,556 7,555,556 7,555,556
========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
NEWCOM, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
NINE MONTHS ENDED FEBRUARY 28, 1995 AND THE
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997
AND THE UNAUDITED THREE-MONTH PERIOD ENDED MAY 31, 1997
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNTS CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Stock issued for cash,
July 1, 1994........... 1,000 $ 5 $ 995 $ -- $ 1,000
Assets contributed by
stockholder
(note 1)............... -- -- 1,000,000 -- 1,000,000
Effect of 7,555.556 for
1 stock split (note
17).................... 7,554,556 7,551 (7,551) -- --
Net loss................ -- -- -- (380,217) (380,217)
--------- ------ ---------- ----------- ----------
Balance at February 28,
1995................... 7,555,556 7,556 993,444 (380,217) 620,783
Net loss................ -- -- -- (5,185,331) (5,185,331)
--------- ------ ---------- ----------- ----------
Balance at February 29,
1996................... 7,555,556 7,556 993,444 (5,565,548) (4,564,548)
Capital contribution by
stockholder (note 4)... -- -- 9,000,000 -- 9,000,000
Net income.............. -- -- -- 3,337,271 3,337,271
--------- ------ ---------- ----------- ----------
Balance at February 28,
1997................... 7,555,556 7,556 9,993,444 (2,228,277) 7,772,723
Net income (unaudited).. -- -- -- 1,066,482 1,066,482
--------- ------ ---------- ----------- ----------
Balance at May 31, 1997
(unaudited)............ 7,555,556 $7,556 $9,993,444 $(1,161,795) $8,839,205
========= ====== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
NEWCOM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MAY 31,
------------------------
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997 1996 1997
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net income (loss)...... $ (380,217) $ (5,185,331) $ 3,337,271 $ 722,412 $ 1,066,482
----------- ------------ ------------ ----------- -----------
Adjustments to
reconcile net income
(loss) to net cash
used by operating
activities
Depreciation and
amortization......... 93,809 195,020 348,420 56,978 56,978
Changes in operating
assets and
liabilities
Accounts receivable... (1,023,029) (17,711,642) (11,240,253) (579,711) (2,869,168)
Inventories........... (56,464) (3,306,006) (7,916,736) 361,063 (4,045,301)
Deposits on inventory
purchase............. -- -- -- -- (3,580,000)
Other current assets.. (200) (55,417) 10,548 (2,000) (526,055)
Other assets.......... (55,285) 22,808 (455,990) 8,572 371,371
Accounts payable...... 603,900 6,598,742 6,151,536 (4,061,923) 1,712,743
Accrued expenses...... 38,956 87,356 48,428 82,716 (71,714)
----------- ------------ ------------ ----------- -----------
Total adjustments.... (398,313) (14,169,139) (13,054,047) (4,134,305) (8,951,146)
----------- ------------ ------------ ----------- -----------
Net cash used by
operating
activities.......... (778,530) (19,354,470) (9,716,776) (3,411,893) (7,884,664)
----------- ------------ ------------ ----------- -----------
Cash flows used by
investing activities...
Additions to property
and equipment......... (125,118) (224,639) (2,121,366) (28,505) (58,379)
----------- ------------ ------------ ----------- -----------
Cash flows from
financing activities...
Net proceeds (payments)
from borrowings....... -- 2,397,657 6,485,999 1,016,758 (3,143,420)
Proceeds from issuance
of common stock....... 1,000 -- -- -- --
Cash advances from
Aura.................. 1,581,034 22,237,586 14,832,091 4,057,322 16,200,832
Cash repayments to
Aura.................. (342,680) (3,289,657) (8,768,500) (1,900,000) (7,928,000)
----------- ------------ ------------ ----------- -----------
Net cash provided by
financing
activities.......... 1,239,354 21,345,586 12,549,590 3,174,080 5,129,412
----------- ------------ ------------ ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 335,706 1,766,477 711,448 (266,318) (2,813,631)
Cash and cash
equivalents at
beginning of period.... -- 335,706 2,102,183 2,102,183 2,813,631
----------- ------------ ------------ ----------- -----------
Cash and cash
equivalents at end of
period................. $ 335,706 $ 2,102,183 $ 2,813,631 $ 1,835,865 $ --
=========== ============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
NEWCOM, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT MAY 31, 1997 AND FOR THE THREE MONTH PERIODS ENDED
MAY 31, 1996 AND 1997 IS UNAUDITED)
NOTE 1--BUSINESS AND ORGANIZATION OF COMPANY
NewCom, Inc. (the "Company") specializes in the manufacturing and selling of
high performance computer communication and multimedia products for the IBM
compatible and Apple Macintosh personal computer markets. The Company offers a
line of products including, among others, internal and external data fax
modems, speaker phones, sound cards, and multimedia kits.
The Company was incorporated in June 1994 and commenced operations in early
September 1994. Prior to commencing its operations, the Company had no assets
other than cash of $1,000 from the sale of its stock to Aura Systems, Inc.
("Aura") and other founders.
Concurrent with the commencement of the Company's operations, Aura
contributed to the Company certain assets, valued at $1,000,000, purchased
from the bankruptcy proceeding of Nuvo Corporation of America ("Nuvo"). The
contributed assets consisted of inventory valued at $216,297 and property and
equipment valued at $61,144. The remaining purchase price paid by Aura was
attributed to engineering designs and drawings in the amount of $722,559.
Aura acquired the assets in September 1994 in exchange for 133,333 shares of
its common stock valued at $1,000,000. Previous to Aura's acquisition, Nuvo
had filed for bankruptcy in April 1994, and had ceased operations shortly
thereafter.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
The Company recognizes revenue for product sales upon shipment. The Company
provides for estimated returns and allowances based upon experience (see note
3).
The Company also earns a portion of its revenues from license fees, and
generally records these fees as income when the Company has fulfilled its
obligations under the particular agreement.
Cash equivalents
The Company considers all highly liquid assets, having an original maturity
of less than three months, to be cash equivalents.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual future results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Stock options
The Company intends to account for stock-based compensation under the
provisions of APB Opinion No. 25. Additional pro forma disclosures as to net
income and earnings per share, as if the fair value-based method of accounting
defined by SFAS No. 123 was applied, will be disclosed in the reporting period
of grant.
Per share information
The net income (loss) per common share is based on the weighted average
number of common shares outstanding during the year (see note 17).
F-7
<PAGE>
NEWCOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MAY 31, 1997 AND FOR THE THREE MONTH PERIODS ENDED
MAY 31, 1996 AND 1997 IS UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Research and development
Research and development costs are expensed as incurred.
Advertising costs
Advertising costs are expensed as incurred. Advertising charged to expense
in Fiscal 1995, 1996 and 1997 approximated $19,000, $1,523,000 and $3,990,000,
respectively.
Property and equipment
Property and equipment are stated at cost and are being depreciated using
the straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Machinery and equipment........ 3-10 years
Furniture and fixtures......... 5-10 years
Leasehold improvements......... Life of lease
</TABLE>
During Fiscal 1995, 1996 and 1997, the Company capitalized costs of
$120,571, $55,235 and $1,712,184, respectively, on special tools and
equipment, which have been designed for the manufacturing and development of
electronic products. The capitalized amounts, included in machinery and
equipment, include allocated costs of direct labor and overhead. The Company
expects recovery of these costs from orders.
Depreciation expense of machinery and equipment, furniture and fixtures and
leasehold improvements was $21,553, $50,508 and $203,919, for Fiscal 1995,
1996 and 1997, respectively.
Engineering designs and drawings
Engineering designs and drawings represents the fair value of intangible
assets contributed by Aura in September 1994 (see note 1), and is being
amortized over 5 years on a straight-line basis.
The carrying value of these intangible assets is based on management's
current assessment of recoverability. Management evaluates recoverability
using both objective and subjective factors. Objective factors include
management's best estimates of projected future earnings and cash flows and
analysis of recent sales and earnings trends. Subjective factors include
competitive analysis and the Company's strategic focus.
Unaudited pro forma balance sheet
The unaudited pro forma balance sheet at May 31, 1997 gives effect to the
conversion of advances from Aura of $4,000,000 into 444,444 shares of the
Company's common stock upon the closing of the Company's initial public
offering, assuming an offering price per Unit of $9.00. The unaudited pro
forma balance sheet does not give effect to the offering itself.
Unaudited Note to Financial Statements
Management Opinion
In the opinion of Company management, the accompanying unaudited financial
statements as of May 31, 1997 and for the three months ended May 31, 1996 and
1997, reflect all adjustments (which include only normal
F-8
<PAGE>
NEWCOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MAY 31, 1997 AND FOR THE THREE MONTH PERIODS ENDED
MAY 31, 1996 AND 1997 IS UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
recurring adjustments) and reclassification for comparability necessary to
present fairly the financial position and results of operations.
NOTE 3--PRODUCT RETURN RISKS
The Company is exposed to the risk of product returns from its retailer mass
merchant and distributor customers as a result of several factors, including
returns from their customers, contractual stock rotation privileges, returns
of defective products or product components. In addition, the Company
generally accepts returns of unsold product from customers with whom the
Company has severed its customer relationship. Overstocking by the Company's
customers could lead to higher than normal returns, which could have a
material adverse effect on the Company's results of operations. The Company
also has a policy of offering price protection to its customers for some or
all of their inventory, whereby when the Company reduces its prices for a
product, the customer receives a credit for the difference between the
original purchase price of the product and the Company's reduced price for the
product. As a result of this policy, significant reductions in prices have
had, and may in the future have, a material adverse effect on the Company's
results of operations. The financial statements include adequate provisions to
reserve for future product returns.
NOTE 4--RELATED PARTY TRANSACTIONS
During Fiscal years 1995, 1996 and 1997, Aura loaned funds to the Company as
needed. The balances outstanding were $1,238,354, $20,186,283 and $17,249,874
at February 28, 1995, February 29, 1996 and February 28, 1997, respectively.
The balance outstanding at the end of each period was considered long-term
debt. Effective March 1, 1996, Aura contributed $9,000,000 of the balance
outstanding at February 29, 1996 to the Company as additional paid-in capital.
Intercompany interest expense, included in the outstanding balance at Fiscal
1996 and 1997, was $1,202,236 and $1,147,621, respectively, and was computed
at approximately 9% and 8%, respectively. The interest rates used were
determined by Aura with reference to its estimated cost of borrowed funds. No
interest was charged to the Company on intercompany indebtedness during Fiscal
1995. Fiscal 1995 transactions with Aura that resulted in the balance due to
Aura at February 28, 1995 consisted of cash advances of $1,501,034 and an
$80,000 charge for certain support services described below. Repayments during
the period totaled $342,680. The average outstanding balance due Aura during
Fiscal 1995 was approxixmately $625,000.
In Fiscal 1997, the Company purchased speaker components from Aura, for use
in multimedia kit products in the amount of $543,719.
The Company currently subleases from Aura its facilities in Westlake
Village, California. In Fiscal 1997, the Company made lease payments of
$191,013 under the sublease, which payments were made, with Aura's consent,
directly to the landlord, and property taxes payments of $7,956.
Aura provided certain support services to the Company including financial,
legal, tax, audit, benefits administration and personal property insurance.
These charges are allocated by Aura to the Company based on various formulas
that, in management's opinion, reasonably approximate the actual costs
incurred. The expenses recorded by the Company for these allocations were
$80,000, $120,000 and $120,000 for Fiscal 1995, 1996 and 1997, respectively,
and are included in selling, general and administrative expenses in the
accompanying statements of operations. The amounts allocated by Aura are not
necessarily indicative of the actual costs which may have been incurred had
the Company operated as an unaffiliated entity. However, the Company believes
that the allocation is a reasonable approximation of the Company's operations
on a "stand-alone" basis and is in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin No. 55.
The Company intends to continue using the support services of Aura on an
interim basis at rates negotiated in accordance with a service agreement to be
entered into between the Company and Aura.
F-9
<PAGE>
NEWCOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MAY 31, 1997 AND FOR THE THREE MONTH PERIODS ENDED
MAY 31, 1996 AND 1997 IS UNAUDITED)
NOTE 5--ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, MAY 31,
1995 1996 1997 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Trade debtors........... $1,053,029 $19,791,671 $31,824,924 $34,684,092
Less allowance for
doubtful accounts...... (30,000) (1,057,000) (1,850,000) (1,840,000)
---------- ----------- ----------- -----------
$1,023,029 $18,734,671 $29,974,924 $32,844,092
========== =========== =========== ===========
</TABLE>
Bad debt expense was approximately $30,000, $1,057,000 and $812,000 in
Fiscal 1995, 1996 and 1997, respectively.
Accounts receivable due from major customers were as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, 1996 FEBRUARY 28, 1997
----------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
---------------- ------- ----------- -------
<S> <C> <C> <C>
$ 5,115,804 27.3% $ 4,444,058 14.8%
1,464,300 7.8 3,653,000 12.2
1,406,981 7.5 3,041,096 10.1
1,332,020 7.1 2,742,085 9.2
1,317,333 7.0 1,646,762 5.5
---------------- ---- ----------- ----
$10,636,438 56.7% $15,527,001 51.8%
================ ==== =========== ====
</TABLE>
The above accounts receivable are due from well established mass-market
retailers and distributors. Accordingly, management believes that
recoverability of these receivables does not represent a substantial credit
risk.
NOTE 6--INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or market,
consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, MAY 31,
1995 1996 1997 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Raw materials............. $187,761 $2,053,152 $ 5,882,390 $ 7,172,005
Finished goods............ 85,000 1,525,615 5,613,113 8,308,799
-------- ---------- ----------- -----------
$272,761 $3,578,767 $11,495,503 $15,480,804
======== ========== =========== ===========
</TABLE>
At February 29, 1996, February 28, 1997 and May 31, 1997, raw material
inventory is presented net of a $70,000, $355,000 and $355,000, respectively,
reserve for potential product obsolescence.
F-10
<PAGE>
NEWCOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MAY 31, 1997 AND FOR THE THREE MONTH PERIODS ENDED
MAY 31, 1996 AND 1997 IS UNAUDITED)
NOTE 7--PROPERTY AND EQUIPMENT
Property and equipment, at cost is comprised as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, MAY 31,
1995 1996 1997 1997
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Machinery and
equipment............. $125,118 $311,010 $2,382,646 $2,438,435
Furniture and
fixtures.............. 61,144 62,296 112,037 114,627
Leasehold
improvements.......... -- 37,595 37,595 37,595
-------- -------- ---------- ----------
$186,262 $410,901 $2,532,278 $2,590,657
======== ======== ========== ==========
</TABLE>
NOTE 8--ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, MAY 31,
1995 1996 1997 1997
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Accrued payroll and
related expenses......... $38,956 $114,808 $166,650 $90,776
Other..................... -- 11,504 8,090 12,250
------- -------- -------- --------
$38,956 $126,312 $174,740 $103,026
======= ======== ======== ========
</TABLE>
NOTE 9--OTHER DEBT
The Company has entered into a financing arrangement with a lender who is
providing a line of credit collateralized by accounts receivable. At February
29, 1996 and February 28, 1997 the outstanding balance was $2,397,657 and
$8,883,656, respectively, with a maximum of $2,500,000 and $9,000,000,
respectively. The interest rate was 9.5% at February 28, 1997. In May 1997,
the Company replaced this line with another line of credit with another
lending institution that permits borrowings of up to the lesser of $7.0
million or 60% of eligible accounts receivable, plus up to $2.0 million of
inventory flooring. This line of credit has an interest rate equal to the
institution's prime rate plus 1.25%. The new line of credit is secured by
substantially all of the operating assets of the Company. In addition, the
Company agreed to issue in favor of the lender irrevocable letters of credit
equal to $750,000.
NOTE 10--INCOME TAXES
Under SFAS 109 "Accounting for Income Taxes" the Company utilizes the
liability method of accounting for income taxes. The objective of accounting
for income taxes is to recognize the amount of current and deferred taxes
payable (or refundable) at the date of financial statements (a) as a result of
all events that have been recognized in the financial statements and (b) as
measured by the provisions of enacted tax laws. Income taxes currently payable
are based on the taxable income for the year. A deferred tax liability or
asset is calculated for tax consequences estimated to occur in future years.
The Company's taxable income is included in the consolidated federal income
tax return filed by Aura. For financial reporting purposes the Company's
income tax expense or benefit is computed on a separate entity basis, with the
resulting current income taxes payable or receivable and related deferred
income taxes settled through the intercompany accounts. During Fiscal 1997,
the Company utilized its net operating losses carryforwards of $4,281,000
(Federal) and $3,154,000 (state) to reduce its tax liability to Aura. At
February 28, 1997, the Company had no remaining net operating loss
carryforwards for Federal and state income tax purposes.
F-11
<PAGE>
NEWCOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MAY 31, 1997 AND FOR THE THREE MONTH PERIODS ENDED
MAY 31, 1996 AND 1997 IS UNAUDITED)
NOTE 10--INCOME TAXES--(CONTINUED)
The provision differs from the expense that would result from applying
federal statutory rates to income before taxes because of the inclusion of a
provision for state income taxes.
Temporary differences arise primarily from differences in timing in the
deduction of bad debts, inventory reserves, state income taxes, capitalization
of certain costs in inventory for tax purposes and the use of the straight-
line method of depreciation for financial reporting purposes and accelerated
methods of depreciation for tax purposes.
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- --------
<S> <C> <C> <C>
Federal................................................ $ -- $ -- $270,000
State.................................................. -- -- 163,000
----- ----- --------
$ -- $ -- $433,000
===== ===== ========
</TABLE>
The following is a summary of the company's deferred tax assets and
liabilities:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- ---------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT CURRENT NONCURRENT
-------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax liabilities
resulting from taxable
temporary differences.. $ -- $ -- $ -- $ -- $ -- $(30,000)
Deferred tax assets
resulting from
deductible temporary
differences and loss
carryforwards.......... 12,000 121,000 451,000 1,771,000 882,000 96,000
Valuation allowance..... (12,000) (121,000) (451,000) (1,771,000) (882,000) (66,000)
-------- --------- --------- ----------- --------- --------
$ -- $ -- $ -- $ -- $ -- $ --
======== ========= ========= =========== ========= ========
</TABLE>
NOTE 11--LEASES
The Company subleases office facilities and equipment under operating leases
that expire through Fiscal 2000. Other costs, such as property taxes,
insurance and maintenance, are also paid by the Company. Rental expense
charged to operations was $22,568, $147,635 and $191,013 in Fiscal 1995, 1996
and 1997, respectively.
At February 28, 1997, minimum rentals under noncancellable operating leases
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
1998................................ $193,228
1999................................ 199,025
2000................................ 204,996
--------
$597,249
========
</TABLE>
F-12
<PAGE>
NEWCOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MAY 31, 1997 AND FOR THE THREE MONTH PERIODS ENDED
MAY 31, 1996 AND 1997 IS UNAUDITED)
NOTE 12--SIGNIFICANT CUSTOMERS
Sales to significant customers were as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
1997 MAY 31, 1997
---------------- ---------------
<S> <C> <C> <C> <C>
Circuit City.............................. $ 8,913,474 12.2% $2,295,505 14.3%
Best Buy.................................. 7,393,515 10.1 3,748,524 23.3
Fry's Electronics......................... 3,685,009 5.0 650,001 4.0
----------- ---- ---------- ----
$19,991,998 27.3% $6,694,030 41.6%
=========== ==== ========== ====
</TABLE>
NOTE 13--COMMITMENTS
The Company has a firm fixed price commitment to purchase a certain number
of units of the "WebPal set-top-box" at a total cost of $8,250,000. The price
is fixed and not subject to change. After reaching a threshold purchase of a
certain number of units, the Company and seller have agreed to reevaluate and
renegotiate the pricing and scheduling of an additional number of units
specified in this purchase agreement. The stated purchase price for all units
included in the agreement total $16,500,000. During the first quarter of
Fiscal 1998, deposits of $3,580,000 were paid to the seller to be applied
against the initial purchases under the agreement.
NOTE 14--CONCENTRATIONS OF RISK
The Company's financial instruments potentially subject to concentrations of
credit risk consist primarily of cash, cash equivalents, accounts receivable,
accounts payable and other debt. The carrying value of these financial
instruments approximate their fair value at February 28, 1997.
The Company maintains cash balances at a local financial institution.
Accounts at the institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At February 28, 1997, the Company's uninsured cash
balances total $2,850,000.
The Company produces its products using components or subassemblies
purchased from third-party manufacturers and suppliers. Certain of these
components, particularly modem chipsets and application specific integrated
circuit chipsets which provide multimedia functionality, are available only
from a single source or limited sources. These components are generally in
short supply and frequently subject to allocation by semiconductor
manufacturers.
The Company performs credit checks and evaluates the credit worthiness of
any potential new customers prior to granting credit. UCC financing statements
are filed, when deemed necessary.
NOTE 15--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." The
statement is effective for financial statements for periods ending after
December 15, 1997, and changes the method in which earnings per share will be
determined. Adoption of this statement by the Company will not have a material
impact on earnings per share.
NOTE 16--SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Noncash investing and financing activities:
During September 1994, Aura contributed assets to the Company in the amount
of $1,000,000 (see note 1).
F-13
<PAGE>
NEWCOM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MAY 31, 1997 AND FOR THE THREE MONTH PERIODS ENDED
MAY 31, 1996 AND 1997 IS UNAUDITED)
Effective March 1, 1996, Aura contributed $9,000,000 to additional paid-in
capital, which was reflected in "Due to Aura" at February 29, 1996 (see note
4).
Cash paid for income taxes was $800, $800 and $800 for Fiscal 1995, 1996 and
1997, respectively. Cash paid for interest was $0, $100,504 and $310,204 for
Fiscal 1995, 1996 and 1997, respectively.
NOTE 17--SUBSEQUENT EVENTS
The Company is currently in the process of an initial public offering (the
"Offering") of its common stock.
In connection with the Offering, the Company intends to effect a 7,555.556-
for-1 Common stock split, change the Common Stock par value from $.005 to
$.001 per share, and change the authorized shares of Common Stock from 100,000
to 50,000,000. In addition, 5,000,000 shares of Preferred Stock, par value
$.001 per share, will be authorized prior to the Offering. The accompanying
financial statements give retroactive effect to the stock split and the par
value change as though effected at the beginning of the initial period
presented.
Upon the closing of the Offering, advances from Aura, totaling $4,000,000,
will be converted into 444,444 shares of the Company's common stock, assuming
an offering price of $9.00 per Unit.
Aura and the Company have entered into certain intercompany agreements,
including (i) a tax sharing agreement pursuant to which, for the period prior
to the date on which Aura owns less than 80% of the Company's outstanding
Common Stock (the Deconsolidation Date), Aura will have sole authority to
respond to and conduct all tax proceedings (including tax audits) relating to
the Company, to file federal, state and local returns on behalf of the Company
and to calculate the amount of the Company's tax liability, any tax liability
owed by the Company to Aura for the period from June 1, 1997 through the
Deconsolidation Date will be recorded by the Company as an additional capital
contribution by Aura effective as of the Deconsolidation Date, (ii) a
noncompetition agreement, (iii) an agreement pursuant to which Aura will
continue to provide various corporate services to the Company on an interim
basis following the effective date of the initial public offering ("IPO") that
may be material to the conduct of the Company's business, (iv) a redemption
agreement pursuant to which Aura will have the option to require the Company
to apply up to 70% of the net proceeds the Company receives from the exercise
of the Warrants to redeem shares of Common Stock held by Aura at the Warrant
exercise price, and (v) a registration rights agreement, pursuant to which
Aura can require the Company to register, at the Company's expense, all of the
Common Stock held by Aura, with 3.0 million shares subject to such rights
commencing one year from the date of the IPO and the balance of such shares
registrable one year thereafter. Because the Company is currently a majority-
owned subsidiary of Aura, none of the intercompany agreements resulted from
arm's-length negotiations. These agreements may include terms and conditions
that may be more or less favorable to the Company than terms contained in
similar agreements negotiated with third parties.
Effective June 1, 1997, the Company granted options to purchase an aggregate
of 546,690 shares of Common Stock at an exercise price of $8.00 per share.
Options granted to the Company's directors, the Named Executive Officers, and
all directors and executive officers as a group included the following: Sultan
W. Khan, CEO, President and Director, 192,720 shares; Asif M. Khan, Executive
Vice President and Director, 192,720 shares; Zane Alsabery, Director, 35,000
shares; and all directors and executive officers as a group, 420,440 shares. A
total of 453,310 shares of Common Stock are available for future issuance
under the Company's stock plan. Pursuant to an underwriting agreement, the
Company has agreed that, for a period of one year following the date of the
Prospectus, the Company will not grant any additional options under the
Company's stock plan at an exercise price less than the initial public
offering price of the Common Shares, without the Underwriters' prior consent
which may be withheld in its sole discretion.
F-14
<PAGE>
[PHOTO OF PRODUCT] 33,600 BPS
EXTERNAL DATA/FAX MODEM
[PHOTO OF PRODUCT] WEBPAL INTERNET APPLIANCE
[PHOTO OF PRODUCT] 24X
MULTIMEDIA UPGRADE KIT
[PHOTO OF PRODUCT] NC100
SPEAKERS
[PHOTO OF PRODUCT] 56,000 BPS INTERNAL
DATA/FAX MODEM
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
The Company.............................................................. 20
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 22
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Financial Data.................................................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 33
Management............................................................... 46
Relationship with Aura and Certain Transactions.......................... 51
Principal Stockholders................................................... 55
Description of Securities................................................ 56
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 67
Experts.................................................................. 67
Additional Information................................................... 67
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 PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE COMMON STOCK
PURCHASE WARRANT
NEWCOM, INC.
---------------
PROSPECTUS
---------------
JOSEPH CHARLES & ASSOCIATES, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
----------
<S> <C>
SEC registration fee.......................................... $ 19,001
National Association of Securities Dealers, Inc. filing fee... 6,770
Nasdaq filing fee............................................. 28,000
Printing and engraving expenses............................... 115,000
Registrar and Transfer Agent fees............................. 10,000
Accounting fees and expenses.................................. 100,000
Legal fees and expenses....................................... 160,000
Blue Sky fees and expenses.................................... 30,000
Representative's Nonaccountable Expense Allowance............. 517,500
Miscellaneous................................................. 13,729
----------
Total....................................................... $1,000,000
==========
</TABLE>
- --------
* All expenses listed above are estimates except the SEC registration fee and
the National Association of Securities Dealers, Inc. filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation (Exhibit 3.1 hereto) and the Registrant's Bylaws
(Exhibit 3.2 hereto) provide for indemnification of the Registrant's
directors, officers, employees and other agents to the extent and under the
circumstances permitted by the Delaware General Corporation Law. The
Registrant has also entered into agreements with its directors that will
require the Registrant, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors
to the fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Representatives of the Registrant, its directors and officers, and by the
Registrant of the Representatives, for certain liabilities, including
liabilities arising under the Act, and affords certain rights of contribution
with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The share and per share numbers presented below have been adjusted to
reflect the 7,555.556-for-1.0 split of the Registrant's Common Stock that will
occur prior to the consummation of the offering being made hereby.
(a) In June 1994, the Registrant issued 7,067,089 shares of its Common Stock
to Aura Systems, Inc., for an aggregate consideration of $935.35. The
Registrant relied on the exemption provided by Section 4(2) of the Act.
(b) In September 1994, the Registrant issued 488,467 shares of its Common
Stock to four of its employees for an aggregate consideration of $64.65. The
Registrant relied on the exemption provided by Section 4(2) of the Act.
II-1
<PAGE>
(c) On June 1, 1997, the Registrant granted options to acquire 520,440
shares of its Common Stock to five employees under its Stock Plan. The
exercise price per share was $8.00, for an aggregate consideration of $4.2
million. The Registrant relied on the exemption provided by Rule 701 under the
Act.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates and warrants issued in such transactions. All recipients had
adequate access, through employment or other relationships, to information
about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement
3(i).1 Certificate of Incorporation.
3(i).2 Form of Amended and Restated Certificate of Incorporation to be filed prior
to the effective date of this Registration Statement.
3(ii) Bylaws of the Registrant, as amended.
4.1 Specimen Common Stock Certificate.
4.2 Form of Redeemable Common Stock Purchase Warrant.
4.3* Form of Representative's Option.
4.4 Form of Representative's Warrant.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1* Sublease Agreement Between NewCom, Inc. and Aura Systems, Inc.
10.2 Corporate Services Agreement Between NewCom, Inc. and Aura Systems, Inc.
10.3 Tax Sharing Agreement between NewCom, Inc. and Aura Systems, Inc.
10.4 Noncompetition Agreement between NewCom, Inc. and Aura Systems, Inc.
10.5 Form of Redemption Option Agreement between NewCom, Inc. and Aura Systems,
Inc.
10.6 1997 Stock Incentive Plan and Forms of Agreements thereunder.
10.7* Registration Rights Agreement between NewCom, Inc. and Aura Systems, Inc.
10.8* Form of Sales Representative Agreement.
10.9 Form of Promissory Note of NewCom, Inc. issuable to Aura Systems, Inc.
10.10 Form of Warrant Agreement between NewCom, Inc. and Interwest Transfer
Company, Inc.
10.11 Common Stock Purchase Agreement dated September 1, 1994 between NewCom, Inc.
and Aura Systems, Inc.
10.12 Form of Employee Stock Purchase Agreement between NewCom, Inc. and each of
Sultan Khan, Asif Khan, Zane Alsabery, and Geoffrey Farrer.
10.13 Business Financing Agreement dated as of December 23, 1996 between Deutsche
Financial Services Corporation and NewCom, Inc.
10.14 Form of Financial Consulting Agreement.
10.15* Form of Distributor Purchase Agreement.
10.16* Form of Authorized Independently Contracted Sales Agent Agreement.
11.1* Statement of computation of earnings per share.
23.1 Consent of Pannell Kerr Forster, Certified Public Accountants, A
Professional Corporation
23.2* Consent of Pillsbury Madison & Sutro LLP (included in its opinion filed as
Exhibit 5.1 to this Registration Statement).
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
II-2
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts (and accompanying Independent
Auditors' Report)
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "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 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 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 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.
(3) The Registrant will provide to the underwriters at the closing(s)
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.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;"
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Form S-1 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Westlake Village, State of California, on this 25th day of August,
1997.
Newcom, Inc.
/s/ Sultan W. Khan
By __________________________________
Sultan W. Khan
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Sultan W. Khan President and Chief August 25, 1997
- ------------------------------------- Executive Officer
SULTAN W. KHAN (Principal
Executive Officer)
and Director
* Asif M. Khan Executive Vice August 25, 1997
- ------------------------------------- President and
ASIF M. KHAN Director
* Steven C. Veen Vice President, August 25, 1997
- ------------------------------------- Finance and Chief
STEVEN C. VEEN Financial Officer
(Principal
Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Michael I. Froch Secretary and
- ------------------------------------- Director August 25, 1997
MICHAEL I. FROCH
* Zane R. Alsabery Director August 25, 1997
- -------------------------------------
ZANE R. ALSABERY
* James M. Curran Director
- ------------------------------------- August 25, 1997
JAMES M. CURRAN
* Gerald S. Papazian Director
- ------------------------------------- August 25, 1997
GERALD S. PAPAZIAN
* Alexander Remington Director
- ------------------------------------- August 25, 1997
ALEXANDER REMINGTON
*By: /s/ Sultan W. Khan
- -------------------------------------
Sultan W. Khan,
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
SCHEDULE II
NEWCOM, INC.
VALUATION AND QUALIFYING ACCOUNTS
NINE MONTHS ENDED FEBRUARY 28, 1995, AND YEARS ENDED FEBRUARY 29, 1996 AND
FEBRUARY 28, 1997, AND THREE MONTHS ENDED MAY 31, 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowances are deducted
from the assets to
which they apply
Nine months ended
February 28, 1995:
Allowance for:
Uncollectible
Accounts............. $ -- $ 30,000 $-- $ -- $ 30,000
========== ========== ==== ======== ==========
Year ended February 29,
1996:
Allowance for:
Reserve for potential
product
obsolescence......... $ -- $ 70,000 $-- $ -- $ 70,000
Uncollectible
accounts............. 30,000 935,000 -- (30,000) 935,000
Reserve for returns... -- 122,000 -- -- 122,000
---------- ---------- ---- -------- ----------
$ 30,000 $1,127,000 $-- $(30,000) $1,127,000
========== ========== ==== ======== ==========
Year ended February 28,
1997:
Allowance for:
Reserve for potential
product
obsolescence......... $ 70,000 $ 285,000 $-- $ -- $ 355,000
Uncollectible
accounts............. 935,000 7,000 -- (19,000) 923,000
Reserve for returns... 122,000 805,000 -- -- 927,000
---------- ---------- ---- -------- ----------
$1,127,000 $1,097,000 $-- $(19,000) $2,205,000
========== ========== ==== ======== ==========
Three months ended May
31, 1997:
Allowance for:
Reserve for potential
product
obsolescence......... $ 355,000 -- -- -- 355,000
Uncollectible
accounts............. 923,000 61,000 -- (66,000) 918,000
Reserve for returns... 927,000 -- -- (5,000) 922,000
---------- ---------- ---- -------- ----------
$2,205,000 $ 61,000 $-- $(71,000) $2,195,000
========== ========== ==== ======== ==========
</TABLE>
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Our audits were made for the purpose of forming an opinion on the basic
financial statements as of February 28, 1997, February 29, 1996 and February
28, 1995 and for the two years ended February 28, 1997 and the nine months
ended February 28, 1995 taken as a whole. The schedule listed in the
accompanying Index at Item 16 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
Pannell Kerr Forster
Certificate Public Accountants
A Professional Corporation
Los Angeles, California
June 11, 1997
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement
3(i).1 Certificate of Incorporation.
3(i).2 Form of Amended and Restated Certificate of Incorporation to be filed prior
to the effective date of this Registration Statement.
3(ii) Bylaws of the Registrant, as amended.
4.1 Specimen Common Stock Certificate.
4.2 Form of Redeemable Common Stock Purchase Warrant.
4.3* Form of Representative's Option.
4.4 Form of Representative's Warrant.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1* Sublease Agreement Between NewCom, Inc. and Aura Systems, Inc.
10.2 Corporate Services Agreement Between NewCom, Inc. and Aura Systems, Inc.
10.3 Tax Sharing Agreement between NewCom, Inc. and Aura Systems, Inc.
10.4 Noncompetition Agreement between NewCom, Inc. and Aura Systems, Inc.
10.5 Form of Redemption Option Agreement between NewCom, Inc. and Aura Systems,
Inc.
10.6 1997 Stock Incentive Plan and Forms of Agreements thereunder.
10.7* Registration Rights Agreement between NewCom, Inc. and Aura Systems, Inc.
10.8* Form of Sales Representative Agreement.
10.9 Form of Promissory Note of NewCom, Inc. issuable to Aura Systems, Inc.
10.10 Form of Warrant Agreement between NewCom, Inc. and Interwest Transfer
Company, Inc.
10.11 Common Stock Purchase Agreement dated September 1, 1994 between NewCom, Inc.
and Aura Systems, Inc.
10.12 Form of Employee Stock Purchase Agreement between NewCom, Inc. and each of
Sultan Khan, Asif Khan, Zane Alsabery, and Geoffrey Farrer.
10.13 Business Financing Agreement dated as of December 23, 1996 between Deutsche
Financial Services Corporation and NewCom, Inc.
10.14 Form of Financial Consulting Agreement.
10.15* Form of Distributor Purchase Agreement.
10.16* Form of Authorized Independently Contracted Sales Agent Agreement.
11.1* Statement of computation of earnings per share.
23.1 Consent of Pannell Kerr Forster, Certified Public Accountants, A
Professional Corporation
23.2* Consent of Pillsbury Madison & Sutro LLP (included in its opinion filed as
Exhibit 5.1 to this Registration Statement).
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 3(i).1
CERTIFICATE OF INCORPORATION
OF
NEWCOM, INC.
* * * * *
1. The name of this corporation is Newcom, Inc. (hereinafter referred to
as the "Corporation").
2. The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is Corporation
Service Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is one hundred thousand (100,000) and the par value of each
of such shares is five hundredths of one cent ($.005) amounting in the aggregate
to five hundred dollars ($500).
5. The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
- ---------------------- ---------------------
<S> <C>
Stuart L. Merkadeau c/o Graham & James
801 S. Figueroa St.
14th Floor
Los Angeles, CA 90017
</TABLE>
6. The Corporation is to have perpetual existence.
7. To the fullest extent permitted by the General Corporation Law of
Delaware, a director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director.
8. The Corporation shall to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said Section from and against any and all of the expenses,
liabilities or other matters referred to or covered by said Section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be
-1-
<PAGE>
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
9. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the bylaws of the Corporation.
10. Elections of directors need not be by written ballot unless the bylaws
of the Corporation shall so provide.
11. Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the state of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the Corporation.
12. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of Delaware,
does make this certificate, hereby declaring and certifying that this is my act
and deed and the facts herein stated are true, and accordingly have hereunto set
my hand this 16th day of June, 1994.
/s/ Stuart L. Merkadeau
-----------------------
Stuart L. Merkadeau, Incorporator
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<PAGE>
EXHIBIT 3(i).2
AMENDED AND RESTATED
--------------------
CERTIFICATE OF INCORPORATION
----------------------------
OF
--
NEWCOM, INC.
------------
ARTICLE I
---------
The name of the Corporation is NewCom, Inc.
ARTICLE II
----------
The registered office of the Corporation within the State of Delaware is
located at 9 East Loockerman Street, City of Dover, County of Kent, Dover,
Delaware 19901. The name of its registered agent at that address is National
Corporate Research, Ltd.
ARTICLE III
-----------
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
----------
The Corporation is authorized to issued two classes of shares, to be
designated Common Stock and Preferred Stock, respectively. The Corporation is
authorized to issue 50,000,000 shares of Common Stock with a par value of $.001
per share and 5,000,000 shares of Preferred Stock with a par value of $.001 per
share. The Preferred Stock may be issued in any number of series, as determined
by the Board of Directors. The Board of Directors may by resolution fix the
designation and number of shares of any such series, and may determine, alter or
revoke the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series. The Board of Directors may thereafter
in the same manner, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series, increase or decrease the number of shares of any such
series (but not below the number of shares of that series then outstanding). In
case the number of shares of any series shall be decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
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<PAGE>
ARTICLE V
---------
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation. Election of directors need not be by
written ballot unless the bylaws so provide.
ARTICLE VI
----------
The Board of Directors shall have the power without the assent or vote of
the stockholders to make, alter, amend, change, add to or repeal the bylaws of
the Corporation.
ARTICLE VII
-----------
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receivers appointed for the Corporation under the provisions of section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the Corporation under the
provisions of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority, in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE VIII
------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty
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<PAGE>
to the Corporation and its stockholders; (b) for acts or omissions not in good
faith or which involve intentional misconduct or knowing violations of law; (c)
under section 174 of the Delaware General Corporation Law; or (d) for any
transaction from which the director derived an improper personal benefit. Any
repeal or modification of the foregoing provisions of this Article VIII shall
not adversely affect any right or protection of any director, officer, employee
or agent of the Corporation existing at the time of such repeal or modification.
ARTICLE IX
----------
Section 1. In anticipation that the Corporation will cease to be a 93%
owned subsidiary of Aura Systems, Inc. ("Aura"), but that Aura will remain a
stockholder of the Corporation, and in anticipation that the Corporation and
Aura may engage in the same or similar activities or lines of business and have
an interest in the same areas of corporate opportunities, and in recognition of
(i) the benefits to be derived by the Corporation throughout its continued
contractual, corporate and business relations with Aura (including service of
officers and directors of Aura as officers and directors of the Corporation) and
(ii) the difficulties attendant to any director, who desires and endeavors fully
to satisfy such director's fiduciary duties, in determining the full scope of
such duties in any particular situation, the provisions of this Article IX are
set forth to regulate, define and guide the conduct of certain affairs of the
Corporation as they may involve Aura and its officers and directors, and the
powers, rights, duties and liabilities of the Corporation of its officers,
directors and stockholders in connection therewith.
Section 2. Except as Aura may otherwise agree in writing:
(a) Aura shall not have a duty to refrain from engaging directly or
indirectly in the same or similar business activities or lines of business
as the Corporation; and
(b) neither Aura nor any officer of director thereof shall be liable
to the Corporation or its stockholders for breach of any fiduciary duty by
reason of any such activities of Aura or of such person's participation
therein.
In the event that Aura acquires knowledge of a potential transaction or matter
that may be a corporate opportunity for both Aura and the Corporation, Aura (and
its officers and directors) shall have no duty to communicate or offer such
corporate opportunity to the Corporation and shall not be liable to the
Corporation or its stockholders for breach of any fiduciary duty as a
stockholder of the Corporation or controlling person of a stockholder by reason
of the fact that
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<PAGE>
Aura pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person or entity, or does not communicate
information regarding, or offer, such corporate opportunity to the Corporation.
Section 3. In the event that a director, officer or employee of the
Corporation who is also a director, officer or employee of Aura acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for the Corporation and Aura (whether such potential transaction or
matter is proposed by a third-party or is conceived of by such director, officer
or employee of the Corporation), such director, officer or employee shall be
entitled to offer such corporate opportunity to the Corporation or Aura as such
director, officer or employee deems appropriate under the circumstances in his
or her sole discretion, and no such director, officer or employee shall be
liable to the Corporation or its stockholders for breach of any fiduciary duty
or duty of loyalty or failure to act in (or not opposed to) the best interests
of the Corporation or the derivation of any improper personal benefit by reason
of the fact that (i) such director, officer or employee offered such corporate
opportunity to Aura (rather than the Corporation) or did not communicate
information regarding such corporate opportunity to the Corporation or (ii) Aura
pursues or acquires such corporate opportunity for itself or directs such
corporate opportunity to another person or does not communicate information
regarding such corporate opportunity to the Corporation.
Section 4. Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation shall be deemed to
have notice of and to have consented to the provisions of this Article IX.
Section 5. For purposes of this Article IX and Article X only, (i) the
term "Corporation" shall mean the Corporation and all corporations,
partnerships, joint ventures, associations and other entities in which the
Corporation beneficially owns (directly or indirectly) fifty percent or more of
the outstanding voting stock, voting power or similar voting interests, and
(ii) the term "Aura" shall mean Aura and all corporations, partnerships, joint
ventures, associations and other entities (other than the Corporation, defined
in accordance with clause (i) of this Section 5) in which Aura beneficially owns
(directly or indirectly) fifty percent or more of the outstanding voting stock,
voting power or similar voting interests.
Section 6. Notwithstanding anything in this Amended and Restated
Certificate of Incorporation to the contrary, the foregoing provisions of this
Article IX shall expire on the date that Aura ceases to own beneficially Common
Stock representing at least 20% of the number of outstanding shares of Common
Stock of the Corporation and no person who is a director or officer of the
Corporation is also a director or officer of Aura. Neither
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<PAGE>
the alteration, amendment, change or repeal of any provision of this Article IX
nor the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with any provision of this Article IX shall eliminate
or reduce the effect of this Article IX in respect of any matter occurring, or
any cause of action, suit or claim that, but for this Article IX, would accrue
or arise, prior to such alteration, amendment, repeal or adoption.
Section 7. The provisions of this Article IX are in addition to the
provisions of Article X.
ARTICLE X
---------
Section 1. No contract, agreement, arrangement or transaction (or any
amendment, modification or termination thereof) between the Corporation and Aura
or any Related Entity (as defined below) or between the Corporation and one or
more of the directors or officers of the Corporation, Aura or any Related
Entity, shall be void or voidable solely for the reason that Aura, a Related
Entity or any one or more of the officers or directors of the Corporation, Aura
or any Related Entity are parties thereto, or solely because any such directors
or officers are present at or participate in the meeting of the Board of
Directors or committee thereof which authorizes the contract, agreement,
arrangement, transaction, amendment, modification or termination or solely
because his or their votes are counted for such purpose, but any such contract,
agreement, arrangement or transaction (or any amendment, modification or
termination thereof) shall be governed by the provisions of this Amended and
Restated Certificate of Incorporation, the Corporation's Bylaws, Delaware Law
and other applicable law. For purposes of this Article X, (i) the term "Related
Entities" means one or more corporations, partnerships, joint ventures,
associations or other organizations in which one or more of the directors of the
Corporation have a direct or indirect financial interest and (ii) the terms the
"Corporation" and "Aura" have the meanings set forth in Article IX, Section 5.
Section 2. Directors of the Corporation who are also directors or officers
of Aura or of any Related Entity may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee that authorizes
or approves any such contract, agreement, arrangement or transaction (or
amendment, modification or termination thereof). Outstanding shares of Common
Stock owned by Aura and any Related Entities may be counted in determining the
presence of a quorum at a meeting of stockholders that authorizes or approves
any such contract, agreement, arrangement or transaction (or amendment,
modification or termination thereof).
Section 3. Neither Aura nor any officer or director thereof or of any
Related Entity shall be liable to the
-5-
<PAGE>
Corporation or its stockholders for breach of any fiduciary duty or duty of
loyalty or failure to act in (or not opposed to) the best interests of the
Corporation or the derivation of any improper personal benefit by reason of the
fact that Aura or an officer of director thereof or of such Related Entity in
good faith takes any action or exercises any rights or gives or withholds any
consent in connection with any agreement or contract between Aura or such
Related Entity and the Corporation. No vote cast or other action taken by any
person who is an officer, director or other representative of Aura or such
Related Entity, which vote is cast or action is taken by such person in his or
her capacity as a director of this Corporation, shall constitute an action of or
the exercise of a right by or a consent of Aura or such Related Entity for the
purpose of any such agreement or contract.
Section 4. Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation shall be deemed to
have notice of and to have consented to the provisions of this Article X.
Section 5. For purposes of this Article X, any contract, agreement,
arrangement or transaction with any corporation, partnership, joint venture,
association or other entity in which the Corporation beneficially owns (directly
or indirectly) fifty percent or more of the outstanding voting stock, voting
power or similar voting interests, or which any officer or director thereto,
shall be deemed to be a contract, agreement, arrangement or transaction with the
Corporation.
Section 6. Neither the alteration, amendment, change or repeal of any
provision of the Article X nor the adoption of any provision inconsistent with
any provision of this Article X shall eliminate or reduce the effect of this
Article X in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article X, would accrue and arise, prior to such
alternation, amendment, change, repeal or adoption.
Section 7. The provisions of this Article X are in addition to the
provisions of Article IX.
ARTICLE XI
----------
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon a stockholder herein are
granted subject to this reservation.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been duly adopted by the written consent of the sole stockholder of the
Corporation in accordance with the
-6-
<PAGE>
provisions of sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, and has been executed this _____ day of September, 1997.
NEWCOM, INC.
By ______________________________
Name ____________________________
Title ___________________________
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<PAGE>
EXHIBIT 3(ii)
AMENDED AND RESTATED
B Y L A W S
OF
NEWCOM, INC.
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 Offices........................................................................ 1
1.1 Principal Office............................................................... 1
1.2 Additional Offices............................................................. 1
ARTICLE 2 Meeting of Stockholders........................................................ 1
2.1 Place of Meeting............................................................... 1
2.2 Annual Meeting................................................................. 1
2.3 Special Meetings............................................................... 2
2.4 Notice of Meetings............................................................. 2
2.5 Business Matter of a Special Meeting........................................... 3
2.6 List of Stockholders........................................................... 3
2.7 Organization and Conduct of Business........................................... 3
2.8 Quorum and Adjournments........................................................ 3
2.9 Voting Rights.................................................................. 4
2.10 Majority Vote.................................................................. 4
2.11 Record Date for Stockholder Notice and
Voting......................................................................... 4
2.12 Proxies........................................................................ 4
2.13 Inspectors of Election......................................................... 5
2.14 Action Without Meeting......................................................... 5
ARTICLE 3 Directors...................................................................... 5
3.1 Number; Qualifications......................................................... 5
3.2 Resignation and Vacancies...................................................... 5
3.3 Removal of Directors........................................................... 6
3.4 Powers......................................................................... 6
3.5 Place of Meetings.............................................................. 7
3.6 Annual Meetings................................................................ 7
3.7 Regular Meetings............................................................... 7
3.8 Special Meetings............................................................... 7
3.9 Quorum and Adjournments........................................................ 7
3.10 Action Without Meeting......................................................... 8
3.11 Telephone Meetings............................................................. 8
3.12 Waiver of Notice............................................................... 8
3.13 Fees and Compensation of Directors............................................. 8
3.14 Rights of Inspection........................................................... 8
3.15 Nominating Procedures.......................................................... 9
ARTICLE 4 Committees of Directors........................................................ 9
4.1 Selection...................................................................... 9
4.2 Power.......................................................................... 10
4.3 Committee Minutes.............................................................. 10
ARTICLE 5 Officers....................................................................... 10
5.1 Officers Designated............................................................ 10
5.2 Appointment of Officers........................................................ 10
5.3 Subordinate Officers........................................................... 11
5.4 Removal and Resignation of Officers............................................ 11
5.5 Vacancies in Offices........................................................... 11
5.6 Compensation................................................................... 11
5.7 The Chairman of the Board...................................................... 11
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
5.8 The President.................................................................. 11
5.9 The Vice President............................................................. 12
5.10 The Secretary.................................................................. 12
5.11 The Assistant Secretary........................................................ 12
5.12 The Treasurer.................................................................. 12
5.13 The Assistant Treasurer........................................................ 13
ARTICLE 6 Stock Certificates............................................................. 13
6.1 Certificates for Shares........................................................ 13
6.2 Signatures on Certificates..................................................... 13
6.3 Transfer of Stock.............................................................. 13
6.4 Registered Stockholders........................................................ 14
6.5 Record Date.................................................................... 14
6.6 Lost, Stolen or Destroyed Certificates......................................... 14
ARTICLE 7 Notices........................................................................ 14
7.1 Notice......................................................................... 14
7.2 Waiver......................................................................... 15
ARTICLE 8 General Provisions............................................................. 15
8.1 Dividends...................................................................... 15
8.2 Dividend Reserve............................................................... 15
8.3 Checks......................................................................... 15
8.4 Fiscal Year 15
8.5 Corporate Seal.................................................................. 15
8.6 Execution of Corporate Contracts and
Instruments.................................................................... 15
ARTICLE 9 Amendments..................................................................... 16
</TABLE>
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<PAGE>
B Y L A W S
-----------
OF
--
NEWCOM, INC.
------------
(a Delaware corporation)
ARTICLE 1
---------
Offices
-------
1.1 Principal Office. The principal executive office of the Corporation
----------------
shall be 9 East Loockerman Square, City of Dover, County of Kent, Dover,
Delaware 19901, and the name of the registered agent in charge thereof is
National Corporate Research, Ltd.
1.2 Additional Offices. The Corporation may also have offices at such
------------------
other places, either within or without the State of Delaware, as the Board of
Directors (the "Board") may from time to time designate or the business of the
Corporation may require.
ARTICLE 2
---------
Meeting of Stockholders
-----------------------
2.1 Place of Meeting. All meetings of the stockholders for the election
----------------
of directors shall be held at the principal office of the Corporation, at such
place as may be fixed from time to time by the Board or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the Board and stated in the notice of the meeting. Meetings of
stockholders for any purpose may be held at such time and place within or
without the State of Delaware as the Board may fix from time to time and as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
2.2 Annual Meeting. Annual meetings of stockholders shall be held each
--------------
year at such date and time as shall be designated from time to time by the Board
and stated in the notice of the meeting. At such annual meetings, the
stockholders shall elect a Board and transact such other business as may
properly be brought before the meetings.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board, otherwise properly brought before the meeting by or at the direction
of the Board, or otherwise properly brought before
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<PAGE>
the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than fifty (50) days nor more than seventy-five (75) days
prior to the meeting; provided, however, that in the event that less than sixty-
five (65) days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 15th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class and number of shares of the Corporation which are beneficially owned
by the stockholder, (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.2 by any stockholder of any business
properly brought before the annual meeting in accordance with said procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
2.3 Special Meetings. Special meetings of the stockholders, for any
----------------
purpose or purposes, may, unless otherwise prescribed by statute or by the
Certificate of Incorporation, be called only by the Chairman of the Board, the
President, or the Board.
2.4 Notice of Meetings. Written notice of stockholders' meetings,
------------------
stating the place, date and time of the meeting and the purpose or purposes for
which the meeting is called, shall be given to each stockholder entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days prior to
the meeting.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting
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<PAGE>
at which the adjournment is taken; provided, however, that if the date of any
adjourned meeting is more than thirty (30) days after the date for which the
meeting was originally noticed, or if a new record date is fixed for the
adjourned meeting, written notice of the place, date and time of the adjourned
meeting shall be given in conformity herewith. At any adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting.
2.5 Business Matter of a Special Meeting. Business transacted at any
------------------------------------
special meeting of stockholders shall be limited to the purposes stated in the
notice.
2.6 List of Stockholders. The officer in charge of the stock ledger of
--------------------
the Corporation or the transfer agent shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, at a place
within the city where the meeting is to be held, which place, if other than the
place of the meeting, shall be specified in the notice of the meeting. The list
shall also be produced and kept at the place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present in person
thereat.
2.7 Organization and Conduct of Business. The Chairman of the Board or,
------------------------------------
in his or her absence, the President of the Corporation or, in their absence,
such person as the Board may have designated or, in the absence of such a
person, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her in order.
2.8 Quorum and Adjournments. Except where otherwise provided by law or
-----------------------
the Certificate of Incorporation or these Bylaws, the holders of a majority of
the stock issued and outstanding and entitled to vote, present in person or
represented in proxy, shall constitute a quorum at all meetings of the
stockholders. The stockholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to have less than a quorum
if any action taken (other than adjournment) is approved by at least a
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<PAGE>
majority of the shares required to constitute a quorum. At such adjourned
meeting at which a quorum is present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If, however, a quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat who are
present in person or represented by proxy shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented.
2.9 Voting Rights. Unless otherwise provided in the Certificate of
-------------
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
2.10 Majority Vote. When a quorum is present at any meeting, the vote of
-------------
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation or of these Bylaws, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
2.11 Record Date for Stockholder Notice and Voting. For purposes of
---------------------------------------------
determining the stockholders entitled to notice of any meeting or to vote, or
entitled to receive payment of any dividend or other distribution, or entitled
to exercise any right in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten (10)
days before the date of any such meeting nor more than sixty (60) days before
any other action.
If the Board does not so fix a record date, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
2.12 Proxies. Every person entitled to vote for directors or on any
-------
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the Corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. A validly executed proxy which does not state
that it is
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<PAGE>
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it, before the vote pursuant to that proxy, by a writing
delivered to the Corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the Corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven months from the date of the proxy,
unless otherwise provided in the proxy.
2.13 Inspectors of Election. Before any meeting of stockholders the
----------------------
Board may appoint any person other than nominees for office to act as inspectors
of election at the meeting or its adjournment. If no inspectors of election are
so appointed, the chairman of the meeting may, and on the request of any
stockholder or a stockholder's proxy shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either one (1) or three (3). If
inspectors are appointed at a meeting on the request of one or more stockholders
or proxies, the holders of a majority of shares or their proxies present at the
meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
2.14 Action Without Meeting. Any action required to be taken at any
----------------------
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE 3
---------
Directors
---------
3.1 Number; Qualifications. The Board shall consist of one or more
----------------------
members, the number thereof to be determined from time to time by resolution of
the Board. The directors shall be elected at the annual meeting of the
stockholders or at any special meeting of stockholders, except as provided in
Section 3.2, and each director so elected shall hold office until his successor
is elected and qualified or until his earlier resignation or removal. Directors
need not be stockholders.
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<PAGE>
3.2 Resignation and Vacancies. A vacancy or vacancies in the Board shall
-------------------------
be deemed to exist in the case of the death, resignation or removal of any
director, or if the authorized number of directors be increased. Vacancies may
be filled by a majority of the remaining directors, though less than a quorum,
or by a sole remaining director, unless otherwise provided in the Certificate of
Incorporation. The stockholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors. If the Board
accepts the resignation of a director tendered to take effect at a future time,
the Board shall have power to elect a successor to take office when the
resignation is to become effective. If there are no directors in office, then
an election of directors may be held in the manner provided by statute.
3.3 Removal of Directors. Unless otherwise restricted by statute, the
--------------------
Certificate of Incorporation or these Bylaws, any director or the entire Board
may be removed, with or without cause, by the holders of at least a majority of
the shares entitled to vote at an election of directors.
3.4 Powers. The business of the Corporation shall be managed by or under
------
the direction of the Board which may exercise all such powers of the
Corporation and do all such lawful acts and things which are not by statute or
by the Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
Corporation; prescribe any powers and duties for them that are consistent
with law, with the Certificate of Incorporation, and with these Bylaws;
fix their compensation; and require from them security for faithful
service;
(b) Confer upon any office the power to appoint, remove and suspend
subordinate officers, employees and agents;
(c) Change the principal executive office or the principal business
office in the State of California or any other state from one location to
another; cause the Corporation to be qualified to do business in any other
state, territory, dependency or country and conduct business within or
without the State of California; and designate any place within or without
the State of California for the holding of any stockholders meeting, or
meetings, including annual meetings;
-6-
<PAGE>
(d) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates;
(e) Authorize the issuance of shares of stock of the Corporation on
any lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities cancelled, tangible or intangible
property actually received;
(f) Borrow money and incur indebtedness on behalf of the
Corporation, and cause to be executed and delivered for the Corporation's
purposes, in the corporate name, promissory notes, bonds, debentures,
deeds of trust, mortgages, pledges, hypothecations and other evidences of
debt and securities;
(g) Declare dividends from time to time in accordance with law;
(h) Adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees and
agents of the Corporation and its subsidiaries as it may determine; and
(i) Adopt from time to time regulations not inconsistent with these
Bylaws for the management of the Corporation's business and affairs.
3.5 Place of Meetings. The Board may hold meetings, both regular and
-----------------
special, either within or without the State of Delaware.
3.6 Annual Meetings. The annual meetings of the Board shall be held
---------------
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the Board, provided a quorum shall be present.
The annual meetings shall be for the purposes of organization, and an election
of officers and the transaction of other business.
3.7 Regular Meetings. Regular meetings of the Board may be held without
----------------
notice at such time and place as may be determined from time to time by the
Board.
3.8 Special Meetings. Special meetings of the Board may be called by the
----------------
Chairman of the Board, the President, a Vice President or a majority of the
Board. Four (4) hours' notice to each director, either personally or by
telegram, cable, facsimile, commercial delivery service, telex or similar means
sent to such director's business or home address, or two (2) day's notice by
written notice deposited in the mail or delivered by a nationally recognized
courier service, shall be given to each director by the Secretary or by the
person calling the meeting.
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<PAGE>
3.9 Quorum and Adjournments. At all meetings of the Board, a majority of
-----------------------
the directors then in office shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board, except as may otherwise
be specifically provided by law or the Certificate of Incorporation. If a
quorum is not present at any meeting of the Board, the directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting at which the adjournment is taken, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved of by at least a majority of the required quorum for that meeting.
3.10 Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
3.11 Telephone Meetings. Unless otherwise restricted by the Certificate
------------------
of Incorporation or these Bylaws, any member of the Board or any committee may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.12 Waiver of Notice. Notice of a meeting need not be given to any
----------------
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
3.13 Fees and Compensation of Directors. Unless otherwise restricted by
----------------------------------
the Certificate of Incorporation or these Bylaws, the Board shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board and may be paid a
fixed sum for attendance at each meeting of the Board or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.14 Rights of Inspection. Every director shall have the absolute right
--------------------
at any reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the
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<PAGE>
physical properties of the Corporation and also of its subsidiary corporations,
domestic or foreign. Such inspection by a director may be made in person or by
agent or attorney and includes the right to copy and obtain extracts.
3.15 Nominating Procedures. Subject to the rights of holders of any
---------------------
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for election to the Board of
Directors of the Corporation at a meeting of stockholders may be made on behalf
of the board by the nominating committee appointed by the Board, or by any
stockholder of the Corporation entitled to vote for the election of directors at
such meeting. Such nominations, other than those made by the nominating
committee on behalf of the board, shall be made by notice in writing delivered
or mailed by first-class United States mail or a nationally recognized courier
service, postage prepaid, to the Secretary or Assistant Secretary of the
Corporation, and received by him not less than one hundred twenty (120) days
prior to any meeting of stockholders called for the election of directors;
provided, however, that if less than one hundred (100) days' notice of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary or the Assistant Secretary of the Corporation not
later than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. Such notice shall set forth as to each
proposed nominee who is not an incumbent director (i) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee, (iii)
the number of shares of stock of the Corporation which are beneficially owned by
each such nominee and by the nominating stockholder, and (iv) any other
information concerning the nominee that must be disclosed of nominees in proxy
solicitations regulated by Regulation 14A of the Securities Exchange Act of
1934. The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if the chairman should so determine, the chairman shall
so declare to the meeting and the defective nomination shall be disregarded.
ARTICLE 4
---------
Committees of Directors
-----------------------
4.1 Selection. The Board may, by resolution passed by a majority of the
---------
entire Board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or she or
-9-
<PAGE>
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member.
4.2 Power. Any such committee, to the extent provided in the resolution
-----
of the Board, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board as provided in Section 151(a)
of the General Corporation Law of Delaware, fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the Corporation), adopting an
agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of dissolution, removing or indemnifying directors
or amending the Bylaws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provides, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock or to adopt a certificate of ownership and merger. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board.
4.3 Committee Minutes. Each committee shall keep regular minutes of its
-----------------
meetings and report the same to the Board when required.
ARTICLE 5
---------
Officers
--------
5.1 Officers Designated. The officers of the Corporation shall be chosen
-------------------
by the Board and shall be a President, a Secretary and a Treasurer. The Board
may also choose a Chairman of the Board, one or more Vice Presidents, and one or
more assistant Secretaries and assistant Treasurers. Any number of offices may
be held by the same person, unless the Certificate of Incorporation or these
Bylaws otherwise provide.
5.2 Appointment of Officers. The officers of the Corporation, except
-----------------------
such officers as may be appointed in accordance with the provisions of Section
5.3 or 5.5 of this Article 5, shall be appointed by the Board, and each shall
serve
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<PAGE>
at the pleasure of the Board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 Subordinate Officers. The Board may appoint, and may empower the
--------------------
President to appoint, such other officers and agents as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the Bylaws or as the
Board may from time to time determine.
5.4 Removal and Resignation of Officers. Subject to the rights, if any,
-----------------------------------
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by an affirmative vote of the majority of the
Board, at any regular or special meeting of the Board, or, except in case of an
officer chosen by the Board, by any officer upon whom such power of removal may
be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointment to that office.
5.6 Compensation. The salaries of all officers of the Corporation shall
------------
be fixed from time to time by the Board and no officer shall be prevented from
receiving a salary because he is also a director of the Corporation.
5.7 The Chairman of the Board. The Chairman of the Board, if such an
-------------------------
officer be elected, shall, if present, perform such other powers and duties as
may be assigned to him from time to time by the Board. If there is no
President, the Chairman of the Board shall also be the Chief Executive Officer
of the Corporation and shall have the powers and duties prescribed in Section
5.8 of this Article 5.
5.8 The President. Subject to such supervisory powers, if any, as may be
-------------
given by the Board to the Chairman of the Board, if there be such an officer,
the President shall be the Chief Executive Officer of the Corporation, shall
preside at all meetings of the stockholders and in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board, shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board are carried into effect. He or she
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal
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<PAGE>
of the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board to some other officer or agent of the
Corporation.
5.9 The Vice President. The Vice President (or in the event there be
------------------
more than one, the Vice Presidents in the order designated by the directors, or
in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his disability or refusal to
act, perform the duties of the President, and when so acting, shall have the
powers of and subject to all the restrictions upon the President. The Vice
President(s) shall perform such other duties and have such other powers as may
from time to time be prescribed for them by the Board, the President, the
Chairman of the Board or these Bylaws.
5.10 The Secretary. The Secretary shall attend all meetings of the
-------------
Board and the stockholders and record all votes and the proceedings of the
meetings in a book to be kept for that purpose and shall perform like duties for
the standing committees, when required. The Secretary shall give, or cause to
be given, notice of all meetings of stockholders and special meetings of the
Board, and shall perform such other duties as may from time to time be
prescribed by the Board, the Chairman of the Board or the President, under whose
supervision he or she shall act. The Secretary shall have custody of the seal
of the Corporation, and the Secretary, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his or her signature or by the signature of
such Assistant Secretary. The Board may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing thereof
by his or her signature. The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
5.11 The Assistant Secretary. The Assistant Secretary, or if there be
-----------------------
more than one, the Assistant Secretaries in the order designated by the Board
(or in the absence of any designation, in the order of their election) shall,
in the absence of the Secretary or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board.
5.12 The Treasurer. The Treasurer shall have the custody of the
-------------
Corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belong-
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<PAGE>
ing to the Corporation and shall deposit all moneys and other valuable effects
in the name and to the credit of the Corporation in such depositories as may be
designated by the Board. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the President and the Board, at its regular
meetings, or when the Board so requires, an account of all his or her
transactions as Treasurer and of the financial condition of the Corporation.
5.13 The Assistant Treasurer. The Assistant Treasurer, or if there shall
-----------------------
be more than one, the Assistant Treasurers in the order designated by the Board
(or in the absence of any designation, in the order of their election) shall, in
the absence of the Treasurer or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board.
ARTICLE 6
---------
Stock Certificates
------------------
6.1 Certificates for Shares. The shares of the Corporation shall be
-----------------------
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the Corporation by, the Chairman of the Board, or
the President or a Vice President and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation.
Within a reasonable time after the issuance or transfer of uncertified
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required by the General Corporation Law of the
State of Delaware or a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
6.2 Signatures on Certificates. Any or all of the signatures on a
--------------------------
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
6.3 Transfer of Stock. Upon surrender to the Corporation or the transfer
-----------------
agent of the Corporation of a certificate of shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer, it shall
be
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<PAGE>
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated share, such uncertificated shares shall be cancelled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation.
6.4 Registered Stockholders. The Corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a percent registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
6.5 Record Date. In order that the Corporation may determine the
-----------
stockholders of record who are entitled to receive notice of, or to vote at, any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or to
exercise any rights in respect of any change, conversion, or exchange of stock
or for the purpose of any lawful action, the Board may fix, in advance, a record
date which shall not be more than sixty (60) nor less than ten (10) days prior
to the date of such meeting, nor more than sixty (60) days prior to the date of
any other action. A determination of stockholders of record entitled to notice
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
6.6 Lost, Stolen or Destroyed Certificates. The Board may direct that a
--------------------------------------
new certificate or certificates be issued to replace any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing the issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of the lost, stolen or destroyed certificate or certificates, or his
or her legal representative, to advertise the same in such manner as it shall
require, and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
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<PAGE>
ARTICLE 7
---------
Notices
-------
7.1 Notice. Whenever, under the provisions of the statutes or of the
------
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any director or stockholder it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his or her address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or telephone.
7.2 Waiver. Whenever any notice is required to be given under the
------
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE 8
---------
General Provisions
------------------
8.1 Dividends. Dividends upon the capital stock of the Corporation,
---------
subject to any restrictions contained in the General Corporation Laws of
Delaware or the provisions of the Certificate of Incorporation, if any, may be
declared by the Board at any regular or special meeting. Dividends may be paid
in cash, in property or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
8.2 Dividend Reserve. Before payment of any dividend, there may be set
----------------
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
8.3 Checks. All checks or demands for money and notes of the Corporation
------
shall be signed by such officer or officers or such other person or persons as
the Board may from time to time designate.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by
-----------
resolution of the Board of Directors.
8.5 Corporate Seal. The Board may provide a suitable seal, containing
--------------
the name of the Corporation, which seal shall
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<PAGE>
be in charge of the Secretary. If and when so directed by the Board or a
committee thereof, duplicates of the seal may be kept and used by the Treasurer
or by an Assistant Secretary or Assistant Treasurer.
8.6 Execution of Corporate Contracts and Instruments. The Board, except
------------------------------------------------
as otherwise provided in these Bylaws, may authorize any officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board
or within the agency power of an officer, no officer, agent or employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for
any amount.
ARTICLE 9
---------
Amendments
----------
The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation, provided, however, that any adoption,
amendment or repeal of Bylaws of the Corporation by the board of directors shall
require the approval of at least sixty-six and two-thirds percent of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the board). The stockholders
shall also have power to adopt, amend or repeal Bylaws of the Corporation,
provided, however, that in addition to any vote of the holders of any class or
series of stock of this Corporation required by law or by the Certificate of
Incorporation of the Corporation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent of the voting power of all of the then
outstanding shares of the stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, shall be required
for such adoption, amendment or repeal by the stockholders of any provisions of
the Bylaws of the Corporation.
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<PAGE>
CERTIFICATE OF SECRETARY
------------------------
I, the undersigned, hereby certify:
1. That I am the duly elected, acting and qualified Secretary of
NewCom, Inc., a Delaware corporation; and
2. That the foregoing Amended and Restated Bylaws, comprising sixteen
(16) pages, constitute the Bylaws of such Corporation as duly adopted by written
consent of the board of directors of such Corporation dated __________, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said Corporation this _____ day of _________, 1996.
Name
Title
<PAGE>
Exhibit 4.1
SEE RESTRICTIVE LEGENDS ON REVERSE
COMMON STOCK
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
JUNE 16, 1994
NUMBER SHARES
**C-J** **XXX**
NEWCOM, INC.
THIS CERTIFIES THAT **SPECIMEN** is the record
---------------------------------------------
holder of ***Specimen Shares of the Common Stock of
--------------------------------------
NEWCOM, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed, or
assigned.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers, and its Corporate Seal to be hereunto
affixed
this day of A.D. 1997
-------------- ------------ --
- --------------------------- -----------------------
PRESIDENT SECRETARY
<PAGE>
CERTIFICATE
FOR
SHARES
OF
CAPITAL STOCK
ISSUED TO
----------------------
DATED
----------------------
For Value Received,____ hereby sell, assign and transfer
unto _____________________________________________________
___________________________________________________ Shares
of the Capital Stock represented by the within
Certificate and do hereby irrevocably constitute and appoint
___________________________________________________ Attorney
to transfer the said Stock in the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________ 19____
In presence of ___________________________________
----------------------
NOTICE. THE SIGNATURE OF 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 WHATEVER
<PAGE>
Exhibit 4.2
NEWCOM, INC.
------------
REDEEMABLE COMMON STOCK PURCHASE WARRANT
----------------------------------------
No. __________ _______ Warrants
THIS CERTIFIES THAT, for value received, _________________
____________________ as registered owner (the "Registered Owner") of this
Redeemable Common Stock Purchase Warrant (the "Warrant"), is entitled at any
time commencing on __________, 1997 and before 5:00 p.m. Pacific Time on
__________, 2002 (the "Expiration Date"), which is the last day of the five (5)
year period commencing on the date the Registration Statement on Form S-1 (No.
333-31431) was initially declared effective by the Securities and Exchange
Commission (the "Effective Date"), to subscribe for, purchase and receive one
fully paid and nonassessable share of common stock, $0.001 par value (a
"Warrant Share"), of NewCom, Inc., a Delaware corporation (the "Company"), for
each one Warrant specified above, at the price of $_____ per share (the
"Exercise Price"), upon presentation and surrender of this Warrant, together
with payment of the Exercise Price for the Warrant Shares to be purchased, to
the Company at its principal office or to the Company's warrant agent, Interwest
Transfer Company, Inc. (the "Warrant Agent"), at the Warrant Agent's principal
office in the manner described in the Warrant Agreement (the "Warrant
Agreement") between the Company and the Warrant Agent; provided, however, that
upon the occurrence of any of the events specified in such Warrant Agreement,
the rights granted by this Warrant shall be adjusted as specified therein. This
Certificate and the Warrant represented hereby are issued pursuant to and are
subject in all respects to the terms and conditions set forth in the Warrant
Agreement.
Upon exercise of this Warrant, the form of Election to Purchase hereinafter
provided must be duly executed, the Exercise Price must be paid in lawful money
of the United States of America in cash, certified check, bank draft or wire
transfer and the instructions for the registration and delivery of the Warrant
Shares acquired by such exercise must be completed. If the rights represented
hereby shall not be exercised at or before 5:00 p.m., Pacific Time on the
Expiration Date, this Warrant shall become and be void without further force or
effect, and all rights represented hereby shall cease and expire.
Commencing one year from the Effective Date, or such earlier date as may be
determined by Joseph Charles & Associates, Inc., the representative of the
underwriters in connection with the public offering of the Warrants, the Company
may, at its option, redeem this Warrant in whole for a redemption price of
$0.05 per Warrant, on thirty (30) days prior written notice to the Registered
Owner; provided, however, the right to redeem this Warrant may be exercised by
the Company
-1-
<PAGE>
only in the event (i) the closing price for the Company's Common Stock equals or
exceeds $_____ for twenty (20) consecutive trading days during the thirty (30)
day period immediately prior to such notice, and (ii) the Company has a
registration statement (or a post-effective amendment to an existing
registration statement) pertaining to the Warrant Shares effective with the
Securities and Exchange Commission, which registration statement would enable
the Registered Owner to exercise the Warrant. In the event the Company
exercises its right to redeem this Warrant, the Expiration Date will be deemed
to be, and this Warrant will be exercisable until the close of business on, the
date fixed for redemption in such notice. If this Warrant has been called for
redemption and is not exercised by such time, this Warrant will cease to be
exercisable and the Registered Owner hereof will be entitled only to the
redemption price of $0.05 per Warrant.
Upon thirty (30) days prior written notice to all Registered Owners of the
Warrants, the Company shall have the right to reduce the Exercise Price and/or
extend the term of the Warrants.
Subject to the terms contained herein and in the Warrant Agreement, this
Warrant may be assigned or exercised by the Registered Owner in whole or in part
by execution by the Registered Owner of the form of Assignment or Election to
Purchase, as appropriate, appearing on the reverse side hereof. If the
assignment is in whole, the Company shall execute and deliver a new Warrant or
Warrants of like tenor to this Warrant to the appropriate assignee expressly
evidencing the right to purchase the aggregate number of Warrant Shares
purchasable hereunder; and if the assignment is in part, the Company shall
execute and deliver to the appropriate assignee a new Warrant or Warrants of
like tenor expressly evidencing the right to purchase the portion of the
aggregate number of Warrant Shares as shall be contemplated by any such
assignment, and shall concurrently execute and deliver to the Registered Owner a
new Warrant of like tenor evidencing the right to purchase the remaining portion
of Warrant Shares purchasable hereunder which has not been transferred to the
assignee. In the event this Warrant is exercised in part only, the Company
shall cause to be delivered to the Registered Owner a new Warrant of like tenor
evidencing the right of the Registered Owner to purchase the number of Warrant
Shares purchasable hereunder as to which this Warrant has not been exercised.
No fractional shares will be issued upon exercise of this Warrant.
In no event shall this Warrant (or the Warrant Shares issuable upon full or
partial exercise hereof) be offered or sold except in conformity with all
applicable state and federal securities laws.
The Company and the Warrant Agent may deem and treat the Registered Owner
hereof as the absolute owner of this Warrant
-2-
<PAGE>
Certificate (notwithstanding any notation of ownership or other writing hereon
made by anyone) for all purposes and neither the Company nor the Warrant Agent
shall be affected by any notice to the contrary. The Registered Owner of this
Warrant, as such, shall not have any rights of a shareholder of the Company,
either at law or at equity, and the rights of the Registered Owner, as such, are
limited to those rights expressly provided in this Warrant Certificate and in
the Warrant Agreement. This certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officers.
Dated: __________, 1997
NEWCOM, INC.
By___________________________
Sultan W. Khan
Chief Executive Officer and
President
By___________________________
Michael I. Froch
Secretary
COUNTERSIGNED:
WARRANT AGENT
- -------------
INTERWEST TRANSFER COMPANY, INC.
- --------------------------------
Authorized Officer
-3-
<PAGE>
NEWCOM, INC.
------------
ELECTION TO PURCHASE
--------------------
The undersigned hereby irrevocably elects to exercise the within Warrant
and to purchase __________ shares of Common Stock of NewCom, Inc. and hereby
makes payment of $______________ (at the rate of $_____ per share) in payment of
the Exercise Price pursuant hereto. Please issue the shares as to which this
Warrant is exercised in accordance with the instructions given below.
INSTRUCTIONS FOR REGISTRATION OF SHARES
---------------------------------------
Please insert Social Security or other
identifying number of Registered Owner _______________________________________
Name _________________________________________________________________________
(Type or Print in Block Letters)
Address ______________________________________________________________________
If such number of shares purchased shall not be all the Warrant Shares
purchasable upon the exercise of this Warrant, a new Warrant for the balance of
such Warrants remaining unexercised shall be registered in the name of and
delivered to:
Please insert Social Security or
other identifying number _____________________________________________________
Name _________________________________________________________________________
(Type or Print in Block Letters)
Address ______________________________________________________________________
Dated: __________, 199__
--------------------------
Signature
NOTICE: THE SIGNATURE ABOVE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE WARRANT IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed: Date:
- -------------------------- ---------------------
-1-
<PAGE>
If the Warrant Shares or Warrants for any unexercised balance are to be issued
or paid to a person other than the person in whose name the within Warrant is
registered, or if otherwise requested by the Company or the Warrant Agent, the
signature(s) should be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program), pursuant to S.E.C. Rule
17Ad-15.
REFERENCE IS MADE TO THE WARRANT AGREEMENT REFERRED TO ON THE FRONT SIDE HEREOF
AND THE PROVISIONS OF SUCH WARRANT AGREEMENT SHALL FOR ALL PURPOSES HAVE THE
SAME EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
-2-
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, ____________________ does hereby sell, assign and
transfer unto:
Please insert Social Security or
other identifying number _____________________________________________________
______________________________________________________________________________
(Type or Print in Block Letters the Name and Address, Including Zip Code, of
Assignee)
the right to purchase __________ shares of Common Stock of NewCom, Inc.,
evidenced by the within Warrant, and does hereby irrevocably constitute and
appoint ____________________ Attorney to transfer such right on the books of
NewCom, Inc., with full power of substitution in the premises.
If such number of shares assigned shall not be all the Warrant Shares
purchasable upon the exercise of this Warrant, a new Warrant for the balance of
such Warrants remaining unexercised and unassigned shall be registered in the
name of and delivered to:
Please insert Social Security or
other identifying number _____________________________________________________
Name _________________________________________________________________________
(Type or Print in Block Letters)
Address ______________________________________________________________________
Dated: __________, 199__
----------------------------
Signature
NOTICE: THE SIGNATURE ABOVE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed: Date:
- -------------------------------- ----------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
-1-
<PAGE>
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
REFERENCE IS MADE TO THE WARRANT AGREEMENT REFERRED TO ON THE FRONT SIDE HEREOF
AND THE PROVISIONS OF SUCH WARRANT AGREEMENT SHALL FOR ALL PURPOSES HAVE THE
SAME EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
-2-
<PAGE>
Exhibit 4.4
Warrant to Purchase 200,000
Units, consisting of one
Share of Common Stock and
one Common Stock
Purchase Warrant
REPRESENTATIVE'S WARRANT
------------------------
Dated: , 1997
THIS CERTIFIES THAT JOSEPH CHARLES & ASSOCIATES, INC. (herein sometimes
called the "Holder" or the "Representative") is entitled to purchase from
NEWCOM, INC., a Delaware corporation (the "Company"), at the price and during
the period as hereinafter specified, up to Two Hundred Thousand (200,000) Units
(the "Units"), each Unit consisting of one (1) share of common stock, $.001 par
value per share (the "Common Stock") and one (1) Common Stock Purchase Warrant
(the "Warrants") to purchase one (1) share of Common Stock at a purchase price
of $____ per share subject to adjustment as described below, at any time during
the four-year period commencing one (1) year from the effective date of the
Registration Statement (the "Effective Date").
This Representative's Warrant (the "Representative's Warrant") is issued
pursuant to an Underwriting Agreement between the Company, Aura Systems, Inc.
("Aura") and Joseph Charles & Associates, Inc., as Representative of the several
Underwriters set forth in Schedule I to said Underwriting Agreement, in
connection with a public offering, through the Representative, of 2,000,000
Units as therein described (and up to 300,000 additional Units covered by an
over-allotment option granted by the Company and Aura to the Underwriters; the
shares of Common Stock included in such additional Units will be offered by Aura
and the Warrants included in such additional Units will be offered by the
Company), and in consideration of $200 received by the Company for the
Representative's Warrant. Except as specifically otherwise provided herein, the
Common Stock and the Warrants issued pursuant to the Representative's Warrant
shall bear the same terms and conditions as described under the caption
"Description of the Units" in the Registration Statement on Form S-1, File No.
333-31431 (the "Registration Statement") except that (i) the Holder shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Representative's Warrant, the Common Stock and the Warrants issuable
pursuant thereto and the Common Stock issuable pursuant to such Warrants as more
fully described in paragraph 6 herein; and (ii) the Warrants will be exercisable
only during the period commencing upon such date as the Representative's Warrant
is exercised and expiring five (5) years from the Effective Date.
1. The rights represented by the Representative's Warrant shall be
exercised at the price, subject to adjustment in accordance with Section 8
hereof (the "Exercise Price"), and during the periods as follows:
1
<PAGE>
(a) During the period from the Effective Date to and through
_________, 1998 (the "First Anniversary Date"), inclusive, the
Holder shall have no right to purchase any Units hereunder,
except that in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety prior
to the First Anniversary Date (other than (i) a merger or
consolidation in which the Company is the continuing corporation
and which does not result in any reclassification or
reorganization of an outstanding shares of Common Stock or (ii)
any sale/leaseback, mortgage or other financing transaction), the
Holder shall have the right to exercise the Representative's
Warrant concurrently with such event and into the kind and amount
of shares of stock and other securities and property (including
cash) receivable by a holder of the number of shares of Common
Stock into which the Representative's Warrant and the Warrants
underlying the Representative's Warrant were exercisable
immediately prior thereto.
(b) Between __________, 1998 and 2002, (five (5) years from the
Effective Date, i.e. the "Expiration Date") inclusive, the Holder
shall have the option to purchase Units hereunder at a price of
$_____ per Unit (110% of public offering price per Unit).
(c) After the Expiration Date, the Holder shall have no right to
purchase any Units hereunder.
2. (a) The rights represented by the Representative's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Representative's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of Units specified in the above-mentioned purchase form
together with applicable stock transfer taxes, if any; and (iii) delivery to the
Company of a duly executed agreement signed by the person(s) designated in the
purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. The Representative's Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Representative's Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for shares of Common
Stock and Warrants shall be issuable upon such exercise shall become the holder
or holders of record of such Common Stock and Warrants at that time and date.
The Common Stock and Warrants and the certificates for the Common Stock and
Warrants so purchased shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) business days, after the rights represented by this
Representative's Warrant shall have been so exercised.
2
<PAGE>
(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Representative's Warrant in whole or
in part by receiving shares of Common Stock equal to the value (as determined
below) of this Representative's Warrant, or any part hereof, upon surrender of
the Representative's Warrant at the principal office of the Company together
with notice of such election in which event the Company shall issue to the
Holder a number of shares of Common Stock computed using the following formula:
X = Y(A-B) + Z(A-C)
------ ------
A A
Where X = the number of Shares of Common Stock to be issued to the
Holder;
Y = the number of Shares of Common Stock underlying the Units
(exclusive of any shares issuable upon exercise of any
Warrants underlying the Units) to be exercised under this
Representative's Warrant (the "Shares");
A = the current fair market value of one share of Common Stock;
B = the Exercise Price of the Representative's Warrant;
Z = the number of shares of Common Stock issuable upon exercise
of the Warrants included in the Units underlying this
Representative's Warrant; and
C = the exercise price of the Warrants included in the Units
underlying this Representative's Warrant.
As used herein, current fair market value of Common Stock
shall mean with respect to each share of Common Stock the average
of the closing prices of the Company's Common Stock sold on the
principal national securities exchanges on which the Common Stock
is at the time admitted to trading or listed, or, if there have
been no sales of any such exchange on such day, the average of
the highest bid and lowest ask price on such day as reported by
NASDAQ, or any similar organization if NASDAQ is no longer
reporting such information, either (i) on the date which the form
of election is deemed to have been sent to the Company (the
"Notice Date") or (ii) over a period of five (5) trading days
preceding the Notice Date, whichever of (i) or (ii) is greater.
If on the date for which current fair market value is to be
determined the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Common Stock shall be
the highest price per share which the Company could then obtain
from a willing buyer (not a current employee or director) for
shares of
3
<PAGE>
Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the
Company has become subject to a binding agreement for a
merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the
current fair market value of the Common Stock shall be
deemed to be the value to be received by the holders of the
Company's Common Stock for each share thereof pursuant to
the Company's acquisition.
3. The Representative's Warrant shall not be transferred, sold, assigned,
or hypothecated for a period of one year commencing on the Effective Date except
that it may be transferred to successors of the Holder, and may be assigned in
whole or in part to any person who is an officer of the Holder to any members of
the selling group and/or the officers or partners thereof during such period.
This Representative's Warrant must be executed immediately upon its transfer at
any time after one year from the Effective Date, and if not so executed, shall
lapse. Any such assignment shall be effected by the Holder by (i) executing the
form of assignment at the end hereof and (ii) surrendering the Representative's
Warrant for cancellation at the office or agency of the Company referred to in
paragraph 2 hereof, accompanied by a certificate (signed by an officer of the
Holder if the Holder is a corporation) stating that each transferee is a
permitted transferee under this paragraph 3; whereupon the Company shall issue,
in the name or names specified by the Holder (including the Holder), a new
Representative's Warrant or Warrants of like tenor and representing in the
aggregate rights to purchase the same number of Units as are purchasable
hereunder at such time.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued as part of the Units purchased hereunder will, upon issuance and
delivery against payment therefor of the requisite purchase price, be duly and
validly issued, fully paid and nonassessable. The Company further covenants and
agrees that, during the periods within which the Representative's Warrant may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the Representative's Warrant and that it will have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of the
Warrants included in the Units issuable upon exercise of the Representative's
Warrant.
5. The Representative's Warrant shall not entitle the Holder to any
voting rights or other rights, including without limitation notice of meetings
of other actions or receipt of dividends, as a shareholder of the Company.
6. (a) The Company shall advise the Holder or its permitted transferee,
whether the Holder holds the Representative's Warrant or has exercised the
Representative's Warrant and holds Units or any of the securities underlying the
Units, by written notice at least four weeks prior to the filing of any new
registration
4
<PAGE>
statement thereto under the Act, or the filing of a notification on Form 1-A
under the Act for a public offering of securities, covering any securities of
the Company, for its own account or for the account of others, except for any
registration statement filed on Form S-4 or S-8 (or other comparable form), and
will, during the five (5) year period from the Effective Date, upon the request
of the Holder, include in any such new registration statement (or notification
as the case may be) such information as may be required to permit a public
offering of, all or any of the Units underlying the Representative's Warrant,
the Common Stock or Warrants included in the Units or the Common Stock issuable
upon the exercise of the Warrants (the "Registrable Securities"). For so long as
the Warrants remain outstanding and as long as required by the Securities Act
(so long as the Holder's ability to exercise any Warrant is not adversely
affected), the Company currently intends to file post-effective amendments to
the Registration Statement (or any new registration statement filed by the
Company) setting forth or otherwise incorporating certain information contained
in the then most recent quarterly report on Form 10-Q or annual report on Form
10-K filed by the Company (each such post-effective amendment, a "Quarterly
Amendment"). The parties hereby agree that if at any time during such five (5)
year period the Company receives written notice from the Holder at least two
weeks prior to the filing of any such Quarterly Amendment indicating such
Holder's intention to offer Registrable Securities in such Quarterly Amendment,
the Company will include in such Quarterly Amendment such information as may be
required to permit a public offering of such Registrable Securities. The
delivery by the Holder of any such notice shall not constitute a demand made
pursuant to Section 6(b). The Company shall supply prospectuses and such other
documents as the Holder may reasonably request in order to facilitate the public
sale or other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
(i) as such Holder designates and (ii) with respect to which the Company
obtained a qualification in connection with its initial public offering; and do
any and all other acts and things which may be necessary or desirable to enable
such Holder to consummate the public sale or other disposition of the
Registrable Securities, all at no expense to the Holder or the Representative
(other than sales commissions, underwriting discounts or commissions, or other
expenses of such sale), and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7.
(b) At any time during the four (4) year period beginning one (1) year
after the Effective Date, a 50% Holder (as defined below) may request, on one
occasion, that the Company register under the Act any and all of the Registrable
Securities held by such 50% Holder. Upon the receipt of any such notice, the
Company will promptly, but no later than four weeks after receipt of such
notice, file a post-effective amendment to the current Registration Statement or
a new registration statement pursuant to the Act, so that such designated
Registrable Securities may be publicly sold under the Act as promptly as
practicable thereafter and the Company will use reasonable efforts to cause such
registration to become and remain effective (including the taking of such
reasonable steps as are necessary to obtain the removal of any stop order)
within 120 days after the receipt of such notice, provided, that such Holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The 50% Holder may, at its
option, request the registration of any of the securities underlying the
Representative's Warrant in a registration statement made by the Company as
contemplated by Section 6(a) or in connection with a request made pursuant to
this Section 6(b) prior to acquisition of the Units issuable upon exercise of
the Representative's
5
<PAGE>
Warrant. The 50% Holder may, at its option, request such post-effective
amendment or new registration statement during the described period with respect
to the Representative's Warrant, the Units as units, or separately as to the
Common Stock and/or Warrants included in the Units and/or the Common Stock
issuable upon the exercise of the Warrants, and such registration rights may be
exercised by the 50% Holder prior to or subsequent to the exercise of the
Representative's Warrant. Within ten days after receiving any such notice
pursuant to this subsection (b) of paragraph 6, the Company shall give notice to
any other Holders of the Representative's Warrant, advising that the Company is
proceeding with such post-effective amendment or registration statement and
offering to include therein the securities underlying that part of the Warrant
held by the other Holders, provided that they shall furnish the Company with
such appropriate information (relating to the intentions of such Holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of the post-effective amendment or new registration statement
shall be borne by the Company, except that the Holder(s) shall bear the fees of
their own counsel and any other advisors retained by them and any underwriting
discounts or commissions applicable to any of the securities sold by them. The
Company will use its best efforts to maintain such registration statement or
post-effective amendment current under the Act for a period of at least 180 days
from the effective date thereof. The Company shall supply prospectuses, and such
other documents as the Holder(s) may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Securities, use its best
efforts to register and qualify any of the Registrable Securities for sale in
such states (i) as such Holder(s) designate and (ii) with respect to which the
Company obtained a qualification in connection with its initial public offering
and furnish indemnification in the manner provided in paragraph 7 hereof.
Notwithstanding the foregoing set forth in this paragraph 6(b), the Company
shall not be required to include in any registration statement any Registration
Securities which in the opinion of counsel to the Company (which opinion is
reasonably acceptable to counsel to the Representative) would be saleable
immediately without restriction under Rule 144 (or its successor) if the
Representative's Warrant was exercised pursuant to paragraph 2(b) herein.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Representative's Warrant and/or the Units,
other Common Stock and the Warrants underlying the Representative's Warrant
(considered in the aggregate.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any Units, Common Stock or Warrants issued upon exercise of (or
issuable upon the exercise of any Warrants purchasable under) the
Representative's Warrant is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each Holder of the securities covered
by such registration statement, amendment or supplement (such Holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in
6
<PAGE>
respect thereof, arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement as declared effective or any final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of or are based
upon 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 and will reimburse the Distributing Holder or such controlling person
or underwriter for any legal or other expense reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished by such
Distributing Holder or any other Distributing Holder for use in the preparation
thereof and provided further, that the indemnity agreement provided in this
Section 7(a) with respect to any preliminary prospectus shall not inure to the
benefit of any Distributing Holder, controlling person of such Distributing
Holder, underwriter or controlling person of such underwriter from whom the
person asserting any losses, claims, charges, liabilities or litigation based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material fact, received such
preliminary prospectus, if a copy of the prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the time required by
the Act and the Rules and Regulations thereunder.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon 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 loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect
7
<PAGE>
thereof is to be made against any indemnifying party, give the indemnifying
party notice 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 otherwise than under this paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement hereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. The Exercise Price in effect at the time and the number and kind of
securities purchasable upon the exercise of the Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common Stock
(other than issuance of Common Stock pursuant to the Contingent Stock Issuance,
as defined in the Registration Statement), (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine or reclassify its outstanding shares of Common Stock into a smaller
number of shares, or (iv) enter into any transaction whereby the Warrants or
outstanding shares of Common Stock of the Company are at any time changed into
or exchanged for a different number or kind of shares or other security of the
Company or of another corporation through reorganization, merger, consolidation,
liquidation or recapitalization, then appropriate adjustments in the number of
Shares (or other securities for which such Shares have previously been exchanged
or converted) subject to this Representative's Warrant shall be made and the
Exercise Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination,
reclassification, reorganization, merger, consolidation, liquidation or
recapitalization shall be proportionately adjusted so that the Holder of this
Representative's Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares of Common Stock which, if this
Representative's Warrant had been exercised by such Holder immediately prior to
such date, he would have been entitled to receive upon such dividend,
distribution, subdivision, combination, reclassification, reorganization,
merger, consolidation, liquidation or recapitalization. For example, if the
Company declares a 2 for 1 stock distribution and the Exercise Price hereof
immediately prior to such event was $_____ per Unit and the number of Shares
comprising the Units issuable upon exercise of this Representative's Warrant was
200,000, the adjusted Exercise Price immediately after such event would be
$_____ per Unit (giving no value to the Warrants included in the Units) and the
adjusted number of Shares comprising the Units issuable upon exercise of this
Representative's Warrant would be 400,000. Such adjustment shall be made
successively
8
<PAGE>
whenever any event listed above shall occur. Any adjustments in the number and
exercise price of the Warrants included in the Units shall be made in accordance
with the provisions of the Warrant Agreement dated as of __________, 1995,
between and among the Company and Interwest Transfer Company, Inc. and shall be
made irrespective of whether such Warrants are outstanding or not.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the Exercise Price on a per share basis giving no
value to the Warrants included in the Units (the "Per Share Exercise Price") on
such record date, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the number of shares of Common Stock
then comprising a Unit by the Per Share Exercise Price in effect immediately
prior to the date of issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock then outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at the Per Share Exercise Price in effect immediately
prior to the date of such issuance, and the denominator of which shall be sum of
the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants the Exercise Price shall be readjusted
to the Exercise Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of deliver
of only the number of shares of Common Stock (or securities convertible into
Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above, then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising a Unit by the Per Share Exercise Price in effect immediately
prior thereto, multiplied by a fraction, the numerator of which shall be the
total number of shares of Common Stock then outstanding multiplied by the
current market price per share of Common Stock (as defined in Subsection (e)
below), less the fair market value (as determined by the Company's Board of
Directors) of said assets, or evidences of indebtedness so distributed or of
such rights or warrants, and the denominator of which shall be the total number
of shares of Common Stock outstanding multiplied by such current market price
per share of Common Stock. Such adjustment shall be
9
<PAGE>
made whenever any such distribution is made and shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of the
Representative's Warrant is adjusted pursuant to Subsections (a), (b) or (c)
above, the number of Units purchasable upon exercise of this Representative's
Warrant shall simultaneously be adjusted by multiplying the number of Units
issuable upon exercise of this Representative's Warrant by the Exercise Price in
effect on the date hereof and dividing the product so obtained by the Exercise
Price, as adjusted.
(e) For the purpose of any computation under Subsection (c) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices of the Common Stock for 30 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or, if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors as set forth in Section 2(b)
herein.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which may by reason of
this Subsection (f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in addition
to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal income tax
liability to the holders of the Common Stock or securities convertible into
Common Stock (including Warrants issuable upon exercise of the Representative's
Warrant).
(g) 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 Units issuable upon exercise of the Representative's
Warrant to be mailed to the Holder, at its address set forth herein, and shall
cause a certified copy thereof to be mailed to the Company's transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
10
<PAGE>
(h) In the event that at any time, as a result of an adjustment made
pursuant to the provisions of this Section 8, the Holder of the Representative's
Warrant thereafter shall become entitled to receive any shares of the Company
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of the Representative's Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Subsections (a) to (f), inclusive, above.
9. This Agreement shall be governed by and in accordance with the laws of
the State of California without regard to conflict of laws provision.
IN WITNESS WHEREOF, NEWCOM, INC. has caused this Representative's Warrant
to be signed by its duly authorized officers under its corporate seal, and this
Representative's Warrant to be dated ____________, 1997.
NEWCOM, INC.
By:________________________________
Sultan W. Khan, Chief Executive
Officer and President
Attest:
______________________________
Asif M. Khan,
its Executive Vice President
11
<PAGE>
PURCHASE FORM
-------------
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Representative's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, _______________ Units of NEWCOM, INC.,
each Unit consisting of one (1) share of $.001 par value Common Stock and one
(1) Warrant to purchase one (1) share of Common Stock, and herewith makes
payment of $_______ therefor, and requests that the Warrants and certificates
for shares of Common Stock be issued in the name(s) of, and delivered to
________________________, whose address(es) is (are):
Dated: _______________, ____
By:________________________________
___________________________________
___________________________________
Address
<PAGE>
TRANSFER FORM
-------------
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase Units represented by
the foregoing Representative's Warrant to the extent of __________ Units, and
appoints _________________________ attorney to transfer such rights on the books
of _________________ ____________, with full power of substitution in the
premises.
Dated: _______________, ____
By:________________________________
___________________________________
___________________________________
Address
In the presence of:
<PAGE>
Exhibit 10.2
CORPORATE SERVICES AGREEMENT
----------------------------
THIS CORPORATE SERVICES AGREEMENT (this "Agreement") is entered into as of
________, 1997 by and between NEWCOM, INC., a Delaware corporation ("NewCom"),
------------
and AURA SYSTEMS, INC., a Delaware corporation ("Aura").
------------------
RECITALS:
A. NewCom is currently a majority-owned subsidiary of Aura and obtains
certain administrative and other services from Aura.
B. NewCom is currently considering an initial public offering (the
"Offering") of its securities, including up to approximately 1,700,000 shares of
its common stock, $0.001 par value (the "Common Stock").
C. After such Offering, Aura will own approximately seventy seven percent
(77%) of the Common Stock of NewCom.
D. After the Offering, NewCom desires to continue to obtain certain
administrative and other services from Aura and Aura is willing to continue to
furnish or make such services available to NewCom in a manner generally
consistent with past practices.
E. By this Agreement, Aura and NewCom desire to set forth the basis for
Aura's providing services of the type referred to herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. Services. Beginning on the date of this Agreement, Aura will provide
--------
or otherwise make available to NewCom certain services, including, but not
limited to, the following:
1.1 Central Services. Aura shall provide to NewCom all services and
----------------
functions set forth on Exhibit A attached hereto.
---------
1.2 Similar Routine Services. Aura shall also provide such other similar
------------------------
routine services in addition to those enumerated in Section 1.1 above as
reasonably requested by NewCom (such services collectively with the Central
Services, the "Services").
1.3 Additional Services. In addition to the Services, certain specific
-------------------
services may be made available to NewCom by Aura on an as-requested basis.
These services are services that are not included in the Central Services, and
are not, in Aura's good faith judgment, routine administrative services, or are
services that create unusual burdens or demands on Aura's resources (the
"Additional Services").
-1-
<PAGE>
1.4 Aura Obligations. By agreeing to provide the Services, Aura is making
----------------
no representations or warranties as to the quality, suitability or adequacy of
the Services for any purpose or use. In providing the Services, Aura shall not
be obligated to (i) hire any additional employees; (ii) maintain the employment
of any specific current Aura employee; or (iii) purchase, lease or license any
additional equipment, software or facility.
2. Fees.
----
2.1 Fixed Fee for Services. For performing the Services, Aura will charge
----------------------
NewCom a monthly fixed fee of $50,000 (the "Fixed Fee") (such amount to be
prorated on a daily basis for any partial month of Services), which Fixed Fee is
intended to compensate Aura for all of NewCom's pro rata share of the aggregate
costs actually incurred by Aura in connection with the provision of such
Services to all recipients thereof. The Fixed Fee may be adjusted on an annual
basis by mutual agreement of Aura and NewCom.
2.2 Fees for Additional Services. Prior to performing Additional Services
----------------------------
for NewCom, Aura shall notify NewCom of the cost of such Additional Services and
obtain NewCom's consent prior to performing such Additional Services. Aura will
charge NewCom for the costs actually incurred (including overhead and general
administrative expenses) for such Additional Services that are requested by
NewCom and supplied by Aura.
2.3 Fixed Fee Payment Date. The Fixed Fee for Services pursuant to
----------------------
Section 2.1 will be paid by NewCom to Aura on the fifteenth (15th) calendar day
of the month after the month in which such Services were provided.
2.4 Charges for Additional Services. Charges for Additional Services
-------------------------------
provided pursuant to Section 2.2, if any, will be determined and payable at the
end of each Aura accounting period. The charges will be due when billed and
shall be paid no later than thirty (30) days from the date of billing.
2.5 Direct Payment. In connection with the provision of Additional
--------------
Services by Aura, if Additional Services are provided directly by a third party
outside provider to NewCom, or if in connection with the provision of such
Additional Services out-of-pocket costs are incurred by Aura, the cost thereof
will be paid by NewCom. To the extent that NewCom is billed by such third party
outside provider directly, NewCom shall pay the bill directly. If Aura is
billed for such Additional Services, Aura may pay the bill and charge NewCom the
amount of the bill or forward the bill to NewCom for payment by NewCom.
3. NewCom's Directors and Officers. Nothing contained herein shall be
-------------------------------
construed to relieve the directors or officers of NewCom from the performance of
their respective duties or to limit the exercise of their powers in accordance
with the Certificate of Incorporation or Bylaws of NewCom or in accordance with
any applicable statute or regulation.
-2-
<PAGE>
4. No Liability; No Third Party Beneficiaries. In furnishing NewCom with
------------------------------------------
Services or Additional Services as herein provided, neither Aura nor any of its
officers, directors, employees or agents shall be liable to NewCom or its
employees, creditors or stockholders for errors of judgment or for anything
except willful malfeasance, bad faith, gross negligence or reckless disregard in
the performance of such duties under the terms of this Agreement. The
provisions of this Agreement are for the sole benefit of Aura and NewCom and
will not, except to the extent otherwise expressly stated herein, inure to the
benefit of any third party.
5. Term of Agreement.
-----------------
5.1 Initial Term. The initial term of this Agreement shall begin on the
------------
date of this Agreement and continue for a term of six (6) months. This
Agreement shall automatically expire at the end of the initial term, unless
extended by mutual agreement of the parties.
5.2 Termination. This Agreement may be terminated at any time by either
-----------
party upon sixty (60) days' prior written notice to the other party.
6. Independent Contractors. Aura and NewCom each hereby declares and
-----------------------
represents that each is engaged in an independent business and will perform its
obligations under this Agreement as an independent contractor and not as the
agent or employee of the other, that each party shall and hereby retains the
right to exercise full control of and supervision over the performance of its
own obligations hereunder and shall retain full control over the employment,
direction, compensation, and discharge of all of its employees assisting in the
performance of such obligations, and that no act of commission or omission of
either party hereto shall be construed to make or render the other party, its
principal, agent, joint venturer or associate, except to the extent specified
herein.
7. Other Activities of Aura. NewCom recognizes that Aura now renders and
------------------------
may continue to render services to other companies that may conduct activities
similar to those of NewCom. Aura shall be free to render such services, and
NewCom hereby consents thereto; provided, however, that the provision of such
services does not conflict with the terms of the Noncompetition Agreement, dated
of even date herewith, between NewCom and Aura. Aura shall not be required to
devote full time and attention to the performance of its duties under this
Agreement, but shall devote only so much of its time and attention as it deems
reasonable or necessary to perform the services required hereunder.
8. Indemnification.
---------------
8.1 Indemnification by NewCom. NewCom shall indemnify, defend and hold
-------------------------
Aura and its directors, officers, and employees, harmless from and against all
damages, losses and out-of-pocket expenses (including fees) incurred by Aura in
the course of providing the Services, except for damages, losses and out-of
pocket expenses incurred as a result of any willful malfeasance, bad faith,
gross negligence or reckless disregard in the performance of duties by Aura or
any director, officer or employee of Aura.
-3-
<PAGE>
8.2 Indemnification by Aura. Aura shall indemnify, defend and hold NewCom
-----------------------
and its directors, officers and employees harmless from and against all damages,
losses and out-of-pocket expenses (including fees) caused by or arising out of
any willful malfeasance, bad faith, gross negligence or reckless disregard in
the performance of duties by Aura or any director, officer or employee of Aura.
9. Confidentiality. Any and all information which is not generally known
---------------
to the public which is exchanged between the parties in connection with this
Agreement, whether of a technical or business nature, shall be considered to be
confidential. The parties agree that confidential information shall not be
disclosed to any third party or parties without the written consent of the
nondisclosing party. Each party shall take reasonable measures to protect
against nondisclosure of confidential information by its directors, officers and
employees. Confidential information shall not include any information (i) which
is or becomes part of the public domain, (ii) which is obtained from third
parties who are not bound by confidentiality obligations or (iii) which is
required to be disclosed by law or the rules of any state or Federal regulatory
agency or the National Association of Securities Dealers, Inc. The provisions
of this section shall survive the termination of this Agreement.
10. Miscellaneous.
-------------
10.1 Notices. All notices, billings, requests, demands, approvals,
-------
consents, and other communications which are required or may be given under this
Agreement shall be in writing and will be deemed to have been duly given if
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid to the parties at their respective addresses set
forth below:
If to NewCom: If to Aura:
NewCom, Inc. Aura Systems, Inc.
31166 Via Colinas 2335 Alaska Avenue
Westlake Village, CA 91362 El Segundo, CA 94025
Attn: Sultan W. Khan Attn: Gerald S. Papazian
10.2 No Assignment. This Agreement shall not be assignable by either party
-------------
except with the prior written consent of the other party to this Agreement.
10.3 Applicable Law. This Agreement shall be governed in all respects by
--------------
the laws of the State of California without regard to the conflicts of law
provisions thereof.
10.4 Headings. The section headings used in this Agreement are for
--------
convenience of reference only and will not be considered in the interpretation
or construction of any of the provisions thereof.
-4-
<PAGE>
10.5 Amendments and Waivers. No amendment, waiver of compliance with any
----------------------
provision or condition hereof, or consent pursuant to this Agreement, will be
effective unless evidenced by an instrument in writing signed by the party to be
charged.
10.6 Severability. If any terms or provisions hereof or the application
------------
thereof to any circumstances shall be found by any court having jurisdiction to
be invalid or unenforceable to any extent, such term or provision shall be
ineffective to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
10.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
NEWCOM, INC.
By: _____________________________
Title: __________________________
AURA SYSTEMS, INC.
By: _____________________________
Title: __________________________
-5-
<PAGE>
EXHIBIT A
CENTRAL SERVICES
----------------
(a) Records Retention. Aura shall provide assistance in the storage and
-----------------
retrieval, both electronic and physical, of business and transaction
documentation and information.
(b) Financial Accounting. Aura shall provide assistance with internal and
--------------------
external financial reporting, management of general ledger functions and fixed
asset and real property accounting.
(c) Corporate Project Control. Aura shall provide assistance, training and
-------------------------
coordination of corporate project control activities.
(d) Cost Accounting. Aura shall provide assistance in assigning project
---------------
account and contract numbers, maintaining organization tables and group
receivable analysis.
(e) Corporate Development. Aura shall provide assistance with corporate
---------------------
planning, government relations and corporate quality assurance.
(f) Corporate Information Services. Aura shall be responsible for
------------------------------
developing application software for NewCom's Management Information System
(MIS), writing program codes and distributing MIS reports.
(g) Tax. Aura shall be responsible for the preparation and filing of
---
Federal, state and local tax returns pursuant to and in accordance with the
terms of the Tax Sharing Agreement of even date herewith between Aura and
NewCom. In addition, Aura shall provide tax research and planning and
assistance on tax audits (Federal, state and local). NewCom shall be
responsible for the preparation and filing of property, sales and use tax
returns.
(h) Corporate Contracts. Aura shall provide assistance on general
-------------------
contracting issues and internal administration procedures and conflicts of
interest.
(i) Risk Management and Insurance. Aura shall include NewCom and its
-----------------------------
property and employees, where applicable, within insurance coverage obtained by
Aura ("Aura Insurance"), except for Directors and Officers Liability Insurance,
which shall be procured by NewCom with the assistance of Aura Risk Management at
the sole cost of NewCom. NewCom shall be responsible for coordinating with Aura
Risk Management any other insurance policy or coverage NewCom desires and shall
be solely responsible for any expense or settlement which is (i) not within the
scope of the Aura Insurance or (ii) a policy exclusion or limitation under the
Aura Insurance. Any claim expense or settlement amounts that are within any
deductible or self-insured retention applicable to any policy shall be included
in the monthly Fixed Fee (as defined in Section 2.1). NewCom shall not take any
action which shall cause a default or limit Aura's ability to make any claim
under the Aura
-6-
<PAGE>
Insurance and NewCom agrees to indemnify and hold harmless Aura for any expenses
that are the result of NewCom's breach of policy provisions which results in
denial of coverage to Aura. With respect to any claim made under the Aura
Insurance which is applicable to or desired by NewCom, NewCom shall notify Aura
of such claim, cooperate with Aura in the presentation and prosecution of such
claim, and consult with Aura on any dispute regarding such claim; provided,
however, that as between Aura and NewCom, Aura shall have final decision-making
authority over such claim.
(j) Legal. Aura shall provide, when requested, general legal advice,
-----
review and guidance in the areas of contracts, intellectual property, labor and
corporate matters. Aura shall provide assistance for SEC compliance,
acquisitions and strategic arrangements and will maintain NewCom's corporate
records, including minutes of meetings of the Boards of Directors and
Stockholders. Legal services provided by lawyers other than Aura's in-house
counsel shall be coordinated with and approved by NewCom prior to obtaining such
services and the cost of such services shall be invoiced to and paid by NewCom
in accordance with the provisions of Sections 2.2 and 2.5 of this Agreement.
(k) Human Resources/Payroll. Aura shall administer, oversee and maintain
-----------------------
Aura programs and benefits in which NewCom employees participate, provide
support and assistance in employee relation matters, interface with governmental
agencies including the EEOC and maintain and update employee policies and
procedures. Aura shall also provide payroll and related services for NewCom's
employees. NewCom shall provide to Aura all necessary information required for
participation in such plans by employees and for payroll and other related
services.
(l) Stock Programs. Aura shall administer the participation of NewCom's
--------------
employees in certain stock benefit programs and plans maintained by Aura such as
stock option plans, bonus plans and stock purchase plans.
(m) Retirement Programs. Aura shall administer the participation of
-------------------
NewCom's employees in the employee benefit plans sponsored by Aura such as the
following: [EMPLOYEE STOCK OWNERSHIP PLAN, PROFIT SHARING PLAN, CASH OR DEFERRED
ARRANGEMENT AND CERTAIN BONUS AND DEFERRAL PLANS.] NewCom shall provide to Aura
all necessary information required for participation in such plans by its
employees. Aura shall be responsible for filing all required reports under
ERISA for employee benefit plans sponsored by Aura in which NewCom employees
participate.
(n) Real Estate/Facilities. To the extent that NewCom requires new or
----------------------
additional facilities, Aura shall assist NewCom in locating such facilities and
will provide assistance in the negotiation and documentation of leases.
-7-
<PAGE>
EXHIBIT 10.3
TAX SHARING AGREEMENT
---------------------
THIS TAX SHARING AGREEMENT ("Agreement") is dated as of _____________,
1997, by and between NEWCOM, INC. ("NewCom"), a Delaware corporation, and AURA
------------ ----
SYSTEMS, INC. ("Aura"), a Delaware corporation.
- -------------
RECITALS:
A. Aura currently owns approximately ninety-four percent (94%) of the
issued and outstanding shares of NewCom's common stock, $0.001 par value (the
"Common Stock").
B. Based on Aura's ownership of the Common Stock (i) NewCom has been a
member of an affiliated group (within the meaning of section 1504(a) of the
Internal Revenue Code of 1986, as amended (the "Code")) of which Aura is the
common parent corporation (the "Group"), and (ii) Aura has included and, prior
to a Deconsolidation Date (as defined herein), will continue to include NewCom
in its consolidated federal income tax returns (in accordance with Code sections
1501 and 1502).
C. Sections 1503 and 1552 of the Code provide that earnings and profits
of the members of an affiliated group are to be determined by allocating the tax
liability of the group for a particular taxable year among the members of the
group in accordance with whichever of the several allowable methods the group
shall have adopted in the group's consolidated federal income tax returns.
D. NewCom anticipates that, in connection with an initial public offering
(the "IPO") of its securities, NewCom will offer to the public up to
approximately 1,700,000 shares of Common Stock.
E. After the IPO, Aura will own less than eighty percent (80%) of the
issued and outstanding shares of Common Stock and, accordingly, NewCom will
cease to be a member of the Group.
F. The parties hereto deem it equitable that, with respect to all taxable
years (or shorter periods) encompassing the period commencing June 1, 1997 up to
and including the Deconsolidation Date for which a consolidated or combined
return is filed on behalf of the Group, any Separate Company Tax Liability of
NewCom (as hereinafter defined) shall be handled pursuant to the terms hereof.
G. The parties hereto wish to set forth in this Agreement the agreement
between Aura and NewCom with respect to the allocation and settlement of the
federal, state and local taxes of the Group with respect to each taxable period
ending on or after the date hereof prior to the Deconsolidation Date (the
"Affiliation Periods").
-1-
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. Filing of Returns. Prior to a Deconsolidation Date, with respect to
-----------------
each Affiliation Period, Aura shall file, and NewCom shall agree to join in the
filing of, consolidated federal income tax returns on behalf of the Group. For
the purposes hereof, a "Deconsolidation Date" shall mean such date on which Aura
owns less than eighty percent (80%) of the outstanding Common Stock. NewCom
shall execute and file such consents, elections and other documents as Aura
reasonably requests with respect to the filing of the Group's consolidated
federal income tax returns, and shall, consistent with Section 4 hereof, timely
provide to Aura such information as may be necessary for the filing of such
returns or for the determination of amounts due under this Agreement. NewCom
acknowledges and agrees that the rights conferred upon Aura in connection with
the filing of the Group's returns include, without limitation, the right to
reasonably determine the allocation of income (or loss) of Aura and any other
subsidiary between the last Affiliation Period and the next taxable period.
NewCom shall file all federal, state, local and foreign tax returns with respect
to all periods for which NewCom is not includable on a return of Aura, and
NewCom shall be responsible for the payment of all taxes in connection
therewith. NewCom shall file any such tax returns in a manner consistent with
the manner in which Aura filed its returns for Affiliation Periods (except as
required by law or to the extent any inconsistency would not adversely affect
the returns of the Group).
2. Tax Payments and Reimbursements.
-------------------------------
(a) Due Dates. Except as otherwise provided herein, for any Affiliation
---------
Period prior to the Deconsolidation Date, (i) NewCom will pay to Aura the amount
due Aura, as determined under Section 2(b) below, on the Deconsolidation Date;
and (ii) Aura will pay NewCom the amount due NewCom, as determined under Section
2(c) below, no later than the due date for the filing of any federal income tax
return of the Group that includes NewCom; provided, however, that no later than
each estimated federal income tax payment date of the Group for which the Group
actually incurs a federal income tax liability with respect to an Affiliation
Period, [NEWCOM SHALL PAY TO AURA THE MINIMUM AMOUNT REQUIRED TO BE PAID TO
AVOID THE IMPOSITION OF ANY PENALTIES OR ADDITIONS TO TAX UNDER THE CODE,
DETERMINED ON THE SAME BASIS AS THE TOTAL AMOUNT DUE FOR AN AFFILIATION PERIOD
UNDER SECTION 2(b).; ALTHOUGH AN UNLIKELY SCENARIO, SHOULD WE INCLUDE THE
BRACKETED LANGUAGE?] The amount of any overpayment or underpayment pursuant to
this Section 2(a) shall be credited against, or added to, as the case may be,
the amount otherwise required to be paid for the period within which the amount
of such overpayment or underpayment first becomes reasonably ascertainable. The
settlement of any amount due Aura, as determined under Section 2(b), shall be
satisfied only by the recordation by NewCom on its books of a capital
contribution by Aura to NewCom of such amount. The settlement of any amount due
NewCom, as determined under Section 2(c), may be satisfied by check, wire
transfer or through intercompany accounts as the parties may mutually agree.
(b) Amount Due to Aura. NewCom shall pay Aura in the time and manner
------------------
described in Section 2(a) an amount equal to any "Separate Company Tax
Liability" of
-2-
<PAGE>
NewCom. The "Separate Company Tax Liability" for any Affiliation Period shall
be the amount, if any, of the federal income tax liability (including, without
limitation, liability for any penalty, fine, additions to tax, interest, minimum
tax and other items applicable to a subsidiary in connection with the
determination of the subsidiary's tax liability) allocable pursuant to Treas.
Reg. Section 1.1552-1(a)(2).
The Separate Company Tax Liability for NewCom shall be determined by Aura
(with the cooperation and assistance of NewCom) in a manner consistent with (i)
general tax accounting principles, (ii) the Code and regulations thereunder and
(iii) so long as a reasonable legal basis exists therefor, prior custom and
practice. Notwithstanding anything to the contrary herein, Separate Company Tax
Liability shall be construed to include NewCom's federal or applicable state
income or franchise tax liability, including any applicable alternative minimum
tax liability, but only to the extent that such alternative minimum tax
liability is incurred by the consolidated (combined) filing group, as the case
may be (including any liability attributable to any items of recapture)
determined for tax reporting purposes on a quarterly basis.
In addition, transactions or items between Aura and NewCom that are
deferred under the federal income tax return shall also be deferred for purposes
of this Agreement until such time as they are restored or otherwise triggered
into income under the Code or regulations.
(c) Amount due to NewCom. In the event NewCom does not have Separate
--------------------
Company Tax Liability for an Affiliation Period, but instead either incurs net
losses or credits for such period, Aura shall pay NewCom in the time and manner
prescribed in Section 2 the amount by which the Group's federal income tax
liability for such period is actually reduced by reason of the actual use of
such losses or credits in the Group's federal income tax return attributable to
NewCom.
In the event NewCom incurs any tax losses or tax credits that, as permitted
under the Code and the regulations, are carried back or forward to one or more
Affiliation Periods, Aura shall pay NewCom an amount equal to the amount by
which the Group's federal income tax liability is actually reduced by reason of
the actual use of such carried over losses or credits in the Group's federal
income tax return. Any payment from Aura to NewCom required on account of such
carryover shall be paid within 15 days of the date the benefit of the carryover
is realized by Aura by reason of the receipts of a refund or credit of taxes.
Notwithstanding the foregoing, NewCom will relinquish the carryback of any
net operating losses under section 172(b)(3) of the Code (or any successor
provision) to Affiliation Periods unless Aura expressly agrees to such
carryback; further, NewCom will not be entitled to any payments under this
Agreement or otherwise if it (or any Subsidiary, as defined in Section 5)
sustains losses or credits in taxable periods that are eligible to be carried
back to Affiliation Periods, unless (i) Aura, in its sole and absolute
discretion, elects to file a claim for refund with respect to such carryback
items or agrees to permit NewCom to file such claim, (ii) Aura actually receives
a refund or credit of taxes with respect thereto
-3-
<PAGE>
(in which event, any other provision herein notwithstanding, NewCom shall be
entitled to the amount determined in the previous paragraph including any
interest actually paid by the taxing authority attributable thereto less the
amount reasonably determined by Aura to be equal to the present value
(determined at the then applicable short-term federal rate under the Code) of
any tax benefit of the Group that may be deferred or eliminated and any future
increase in tax liability of the Group that may be incurred because of such
carryback) and (iii) Aura is indemnified by NewCom in a form satisfactory to
Aura for its reasonable costs and expenses incurred in pursuing such refund
(which costs shall be paid by NewCom regardless of whether any refund is
obtained). Any subsequent adjustment to a loss or credit carry back shall be
treated as an adjustment to tax liability in Section 3 below.
(d) Paying Agent. Aura agrees to make all required payments to the
------------
Internal Revenue Service ("IRS") of the consolidated federal income tax
liability, if any, of the Group.
3. Adjustments to Tax Liability.
----------------------------
(a) Adjustment-Related Payments. If the consolidated federal income tax
---------------------------
liability of the Group or any of its members is adjusted for any taxable period
for any reason other than a loss or credit carryback to the extent already
provided for in Section 2, whether by means of an amended return, judicial
decision, claim for refund or tax audit by the IRS, Separate Company Tax
Liability shall be recomputed to give effect to such adjustment, and the amount
of any payments due under Section 2 hereof shall be appropriately adjusted.
Any additional payment between Aura and NewCom required by reason of such
recomputed Separate Company Tax Liability or Group tax refund or credit shall
include an allocable share of any refunded interest received from the IRS, if
applicable, or deficiency interest, penalties and additions to tax, if
applicable (such allocable share of refunded interest or deficiency interest,
penalties and additions to tax shall be paid or charged, respectively, to NewCom
to the extent such amount relates to (i) reduced Group tax liability due to
decreased Separate Company Tax Liability or increased Group tax refund or credit
resulting from increased use of NewCom losses or credits, on the one hand, or
(ii) increased Group tax liability due to increased Separate Company Tax
Liability or decreased Group tax benefits arising from decreased use of NewCom
losses or credits, on the other hand).
(b) Timing of Payments. Any payments to be paid to or by NewCom under this
------------------
Section 3 shall be made on or before the earliest to occur of (i) a decision by
a court of competent jurisdiction that is not subject to further judicial review
(by appeal or otherwise) and has become final, (ii) the expiration of the time
for (A) filing a claim for refund or (B) instituting suit in respect to a claim
for refund disallowed in whole or in part by the IRS or for which the IRS took
no action, (iii) the execution of a closing agreement under section 7121 of the
Code or the acceptance by the IRS or its counsel of an offer in compromise under
section 7122 of the Code (or any successor provisions), (iv) the expiration of
30 days after (A) IRS acceptance of a Waiver of Restrictions on Assessment and
Collection of Deficiency in Tax on Overassessment on Internal Revenue Form 870
or 870-AD (or any successor or comparable form), or (B) the expiration of the
ninety-day period after receipt of the statutory notice of deficiency resulting
in immediate assessment, unless within such 30
-4-
<PAGE>
days Aura notifies NewCom of its intent to attempt recovery of any relevant
amounts paid under the waiver by filing a timely claim for refund or NewCom has
requested that Aura attempt recovery of relevant amounts paid and complied with
and subject to Section 7 hereof, (v) the expiration of the statute of
limitations with respect to the relevant period or (vi) any other event the
parties reasonably agree is a final determination of the tax liability at issue.
4. Books and Records. Aura and NewCom agree that the preparation of the
-----------------
federal income and other tax returns, amended returns, claims for refund or IRS
examination or litigation relating to the foregoing may require the use of
records and information that is within the exclusive possession and control of
either of Aura and NewCom. Aura and NewCom will provide such records,
information and assistance (which may include making employees of any of the
foregoing entities available to provide additional information and explanation
material hereunder) as are requested by Aura or NewCom, as the case may be,
during regular business hours, in connection with any of the developments
described in the preceding sentence; provided, however, that NewCom shall
provide Aura with all information necessary to enable Aura to file the Group
consolidated federal income tax return for each Affiliation Period as soon as
practicable (but in no event later than five months) after the last day of such
Affiliation Period, and on the date the Group federal income tax returns that
include NewCom are filed Aura shall provide NewCom with those portions of such
returns relating to NewCom. Each of the parties agrees that it shall retain,
until the expiration of the applicable statute of limitations (including
extensions), copies of any tax returns for any Affiliation Periods and for any
other periods that might be subject to adjustment under this Agreement, and
supporting work schedules and other records or information, that may be relevant
to the tax returns of the parties hereto, and that it will not destroy or
otherwise dispose of such records and information without providing the other
party with a reasonable opportunity to review and copy such records and
information.
5. Assignment. This Agreement shall not be transferable or assignable by
----------
either party hereto without the prior written consent of the other party hereto.
The rights and obligations hereunder of the parties shall be binding upon and
inure to the benefit of the parties and their respective permitted successors
and assigns. This Agreement shall be binding upon each corporation in which
NewCom owns, directly or indirectly, stock meeting the requirements of section
1504(a)(2) of the Code (a "Subsidiary"), whether or not NewCom owns stock in
such corporation upon the execution of this Agreement or at any time during
Affiliation Periods, and NewCom shall cause each such corporation as soon as
practicable to assent formally to the terms hereof. Except as herein otherwise
specifically provided, nothing in this Agreement shall confer any right or
benefit upon any person or entity other than the parties hereto and their
respective successors and permitted assigns.
6. Disputes. Any dispute concerning the interpretation of a Section or
--------
amount of payment due under this Agreement shall be resolved by Aura's regular
outside accounting firm, whose judgment shall be conclusive and binding on the
parties and who shall act in consultation with Aura's tax counsel.
-5-
<PAGE>
7. Tax Controversies. If any party receives notice of a tax examination,
-----------------
audit or challenge involving amounts subject to this Agreement, such party shall
timely notify the other party of the information and shall provide the other
party a written copy of any relevant letters, forms or schedules received from
the IRS or otherwise in its possession and shall provide notice and information
relating to all material proceedings in connection therewith. In any audit
conference or other proceeding with the IRS or in any judicial proceedings
concerning the determination of the federal income tax liabilities of the Group
or any of its members, including NewCom, the Group and each of its members shall
be represented by persons selected by Aura. Except as otherwise expressly
provided in Section 6, the settlement and terms of settlement of any issues
relating to such proceeding shall be in the sole discretion of Aura, and NewCom
hereby appoints Aura as its agent for the purpose of proposing and concluding
any such settlement. Notwithstanding anything to the contrary in this
Agreement, in no event shall Aura be obligated to file any amended returns or
claims for refund with respect to Affiliation Periods.
8. State and Local Taxes. To the extent appropriate, all provisions of
---------------------
this Agreement shall apply with the same force and effect to any state or local
income tax liabilities that are computed on a combined, consolidated or unitary
method; provided, however, that appropriate adjustments shall be made to the
provisions hereof, including computation of Separate Company Tax Liability, with
respect to any period within an Affiliation Period during which NewCom or NewCom
items were not included on a return of Aura or other members of the Group, or
were included on a return of members of the Group other than Aura. [LWC: THE
PROSPECTUS, AT P. 48, SAYS THAT IT IS EXPECTED THAT AURA AND NEWCOM WILL
CONTINUE TO FILE COMBINED REPORTS IN CALIFORNIA. I AM SORRY TO CONFESS THAT I
AM UNCLEAR HOW TO HANDLE THIS STATEMENT IN THIS AGREEMENT]
9. Apportionment For Tax Purposes. For each taxable year of the Group,
------------------------------
the group's consolidated federal tax liability shall be apportioned for purposes
of computing earnings and profits in accordance with the method provided in
Section 1552(a)(2) of the Code and Treas. Reg. Section 1.1552-1(a)(2).
10. Excess Loss Account Income. If the amount of any excess loss account
--------------------------
(as defined in Treas. Reg. Section 1.1502-32(e)) in the stock of a Subsidiary is
required for any reason to be included in the consolidated federal taxable
income of the Group, NewCom or other applicable Subsidiary shall pay to Aura the
amount of any income or franchise tax liability resulting from such inclusion.
Such payment shall be made within ten (10) days following the end of the taxable
year in which such inclusion occurred.
11. Additional Group Members. If at any time Aura or NewCom acquires or
------------------------
forms one or more subsidiary corporations that are includable corporations in
the Group consolidated federal income tax returns, Aura or NewCom, as the case
may be, shall cause such corporations to become subject to this Agreement and
all references to Subsidiary or Subsidiaries herein, where appropriate, shall
thereafter be interpreted to refer to NewCom and such Subsidiaries as a group.
-6-
<PAGE>
12. Indemnity. If any party to this Agreement other than Aura is required
---------
to pay tax to the IRS or any state taxing authority in excess of its Separate
Company Tax Liability as determined hereunder, such party shall be entitled to
reimbursement of the excess liability payment from the party to whom the excess
is properly allocable under this Agreement.
13. Miscellaneous.
-------------
(a) Injunction. The parties acknowledge that irreparable damage would
----------
occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or was otherwise breached. The
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof in any court having jurisdiction, such remedy being
in addition to any other remedy to which they may be entitled at law or equity.
(b) Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable. In the
event that any such term, provision, covenant or restriction is held to be
invalid, void or unenforceable, the parties hereto shall use their best efforts
to find and employ an alternate means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction.
(c) Further Assurances. Subject to the provisions hereof, the parties
------------------
hereto shall make, execute, acknowledge and deliver such other instruments and
documents, and take all such other actions, as may be reasonably required in
order to effectuate the purposes of this Agreement and to consummate the
transactions contemplated hereby. Subject to the provisions hereof, each of the
parties shall, in connection with entering into this Agreement, performing its
obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority and promptly provide the parties with all such information as they may
reasonably request in order to be able to comply with the provisions of this
sentence.
(d) Parties in Interest. Except as herein otherwise specifically provided,
-------------------
nothing in this Agreement expressed or implied is intended to confer any right
or benefit upon any person, firm or corporation other than the parties and their
respective successors and permitted assigns.
(e) Waivers. No failure or delay on the part of the parties in exercising
-------
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial
-7-
<PAGE>
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. No modification or waiver
of any provision of this Agreement nor consent to any departure by the parties
therefrom shall in any event be effective unless the same shall be in writing,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.
(f) Setoff. All payments to be made by any party under this Agreement
------
shall be made without setoff, counterclaim or withholding, all of which are
expressly waived.
(g) Change of Law. If, due to any change in applicable law or regulations
-------------
or the interpretation thereof by any court of law or other governing body having
jurisdiction subsequent to the effective date of this Agreement, performance of
any provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
(h) Confidentiality. Subject to any contrary requirement of law and the
---------------
right of each party to enforce its rights hereunder in any legal action, each
party agrees that it shall keep strictly confidential, and shall cause its
employees and agents to keep strictly confidential, any information which it or
any of its agents or employees may acquire pursuant to, or in the course of
performing its obligations under, any provision of this Agreement; provided,
however, that such obligation to maintain confidentiality shall not apply to
information which (i) at the time of disclosure was in the public domain not as
a result of acts by the receiving party or (ii) was in the possession of the
receiving party at the time of disclosure.
(i) Headings. Descriptive headings are for convenience only and shall not
--------
control or affect the meaning or construction of any provision of this
Agreement.
(j) Counterparts. For the convenience of the parties, any number of
------------
counterparts of this Agreement may be executed by the parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original
instrument.
(k) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without regard to its
conflict of law provisions.
(l) Effect of Agreement. This Agreement shall supersede any other tax
-------------------
sharing arrangement or agreement in effect between the parties. Nothing in this
Agreement is intended to change or otherwise affect any election made by or on
behalf of the Group with respect to the calculation of earnings and profits
under section 1552 of the Code.
-8-
<PAGE>
(m) Interest. Any payment required to be made hereunder and not made when
--------
due shall bear interest at the rate per annum determined, from time to time, by
the prevailing average borrowing rate of the party required to make payment.
(n) Term of Agreement. This Agreement shall become effective as of the
-----------------
date hereof and shall continue, unless earlier terminated by mutual agreement of
the parties, until expiration of the statute of limitations for all Affiliation
Periods.
(o) Modifications. This Agreement may be modified or amended only pursuant
-------------
to an instrument in writing executed by all the parties hereto.
(p) Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties relating to the allocation of the consolidated and combined
tax liabilities of the Group between or among the parties.
(q) Notices. All notices, consents, requests, instructions, approvals and
-------
other communications provided for herein shall be validly given, made or served,
if in writing and delivered personally, by telegram or sent be registered mail,
postage prepaid to:
If to Aura: Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Gerald S. Papazian
If to NewCom: NewCom, Inc.
31166 Via Colinas
Westlake Village, CA 91362
Attn: Sultan W. Kahn
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 13(q).
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be executed by their duly authorized officers on ________, 1997.
AURA SYSTEMS, INC.
By ____________________________
President
-9-
<PAGE>
NEWCOM, INC.
By ______________________________
President
-10-
<PAGE>
Exhibit 10.4
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is made as of the ___ day
of September, 1997 (the "Effective Date"), between AURA SYSTEMS, INC., a
------------------
Delaware corporation ("Aura"), and NEWCOM, INC., a Delaware corporation
------------
("NewCom").
RECITALS:
A. Aura is an existing corporation duly organized and in good standing
under the laws of the State of Delaware with its principal executive offices
located in El Segundo, California.
B. NewCom is an existing corporation duly organized and in good standing
under the laws of the State of Delaware with its principal executive offices
located in Westlake Village, California.
C. Each of the parties to this Agreement has obtained all necessary
corporate approvals for the execution and delivery of this Agreement.
D. Each of the parties to this Agreement intend to conduct their
relationship hereunder on an arm's length basis.
E. Aura currently owns more than ninety percent (90%) of the outstanding
common stock of NewCom. NewCom is currently considering an initial public
offering (the "IPO") of its securities, including approximately 1.7 million
shares of its common stock, $0.001 par value per share (the "Common Stock").
F. In connection with the execution and delivery of this Agreement, Aura
and NewCom have entered into (1) a Common Stock Redemption Option Agreement of
even date herewith (the "Redemption Option Agreement"), (2) a Tax Sharing
Agreement of even date herewith (the "Tax Sharing Agreement"), (3) a Corporate
Services Agreement of even date herewith (the "Services Agreement"), (4) a
Registration Rights Agreement of even date herewith (the "Aura Rights
Agreement") and (5) a Sublease Agreement of even date herewith (the "Sublease").
The Redemption Option Agreement, Tax Sharing Agreement, Services Agreement, Aura
Rights Agreement and Sublease are herein collectively referred to as the
"Related Agreements."
G. Noncompetition and Grant of License. In connection with the IPO, Aura
-----------------------------------
and NewCom have agreed that Aura will not compete with NewCom in certain
businesses and that Aura will grant to NewCom a license on certain products and
technology pursuant to the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of their
mutual
-1-
<PAGE>
promises and obligations herein contained, intending to be legally bound, the
parties do hereby agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 "Affiliate" means any entity as to which Aura shall control more than
fifty percent (50%) of the outstanding voting power for the election of
directors (or similar officials) of such entity, other than NewCom.
1.2 "Aura" shall mean Aura and all corporations, partnerships, joint
ventures, associations and other entities (other than NewCom) in which Aura
beneficially owns (directly or indirectly) fifty percent (50%) or more of the
outstanding voting stock, voting power or similar voting interests.
1.3 "NewCom" shall mean NewCom and all corporations, partnerships, joint
ventures, associations and other entities in which NewCom beneficially owns
(directly or indirectly) fifty percent (50%) or more of the outstanding voting
stock, voting power or similar voting interests.
1.4 "PC Communication Products Business" shall mean the development,
design, manufacture, marketing and sale of personal computer communication
products including, without limitation, external and internal data/fax and voice
modems, ISDN modems, cable modems, ADSL modems and Internet communication
appliances.
1.5 "PC Multimedia Products Business" shall mean the development, design,
manufacture, marketing and sales of multimedia products for the personal
computer market including, without limitation, add-in subsystems, upgrade kits
and Internet access kits that incorporate one or more components including CD-
ROM drives, speakers, soundcards, modems, microphones and other telephony and
sound solutions, including DVD CDR (read/write) and CDR-MPEG (video encoding and
decoding) drives and 3-D graphics cards.
1.6 "Related Entities" means any entity as to which NewCom shall control
more than fifty percent (50%) of the outstanding voting power for the election
of directors (or similar officials) of such entity.
ARTICLE 2 - NONCOMPETITION
2.1 Noncompetition by Aura. In anticipation that NewCom will cease to be
----------------------
an over ninety percent (90%) owned subsidiary of Aura, but that Aura will remain
a significant stockholder of NewCom, Aura covenants and agrees that for the term
of this Agreement, neither Aura nor any Affiliate will directly or indirectly
compete with NewCom in the PC Communication Product Business or the PC
Multimedia Products Business in any jurisdiction in any country worldwide. The
parties hereby acknowledge and agree that the time and scope of the covenants
set forth in this Section are reasonable in light of the nature, business,
operations and prospects of the PC Communication Products Business or the PC
Multimedia Products Business.
-2-
<PAGE>
2.2 Scope of Businesses. The determination as to the scope of the PC
-------------------
Communication Products Business and the PC Multimedia Products Business shall be
mutually agreed upon by the parties. Absent such mutual agreement, such
determination shall be settled pursuant to the provisions of Article 5.
ARTICLE 3 - LICENSE
3.1 License. Aura hereby grants to NewCom and NewCom hereby accepts an
-------
exclusive, fully paid, royalty free, worldwide license to make, use or sell any
technology or products developed or offered by Aura during the term of this
Agreement, which technology or products are within the scope of the PC
Communication Products Business or the PC Multimedia Products Business (the
"License").
3.2 Irrevocability of License. The License granted in Section 3.1 shall
-------------------------
be irrevocable during the term of this Agreement.
ARTICLE 4 - TERM AND TERMINATION
4.1 Term. The term of this Agreement shall commence on the Effective Date
----
and shall continue for three (3) years thereafter, unless terminated earlier
pursuant to Section 4.2 or extended by the mutual agreement of the parties.
4.2 Termination. Either party shall have the right to terminate this
-----------
Agreement upon the occurrence of any of the following events:
(a) A breach of this Agreement by Aura or any of its Affiliates that is
not cured within thirty (30) days after receipt of written notice of such breach
from NewCom; or
(b) Aura ceases to beneficially own Common Stock representing at least
twenty percent (20%) of the outstanding shares of Common Stock of NewCom.
ARTICLE 5 - RESOLUTION OF DISPUTES
5.1 Arbitration. Any controversy or claim between Aura and NewCom arising
-----------
out of or relating to this Agreement or any agreements or instruments relating
hereto or delivered in connection herewith, will, at the request of any party be
determined by arbitration conducted in Los Angeles, California.
(a) The arbitration shall be conducted in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association. The arbitrator(s) shall give effect to statutes of
limitation in determining any claim. Any controversy concerning whether an issue
is arbitrable shall be determined by the arbitrator(s). The award rendered by
the arbitrator(s) shall set forth findings of facts and conclusions of law and
shall be final, and the judgment may be entered in any court having jurisdiction
thereof. A failure by the arbitrator(s) to make findings of fact and conclusions
of law shall be
-3-
<PAGE>
grounds for overturning the award. The institution and maintenance of an action
for judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) In any arbitration proceeding, the arbitrator(s) is (are) authorized
to apportion costs and expenses, including investigation, legal and other
expenses, which may include, if applicable, a reasonable estimate of allocated
costs and expenses of in-house legal counsel and legal staff. Such costs and
expenses are to be awarded only after the conclusion of the arbitration and will
not be advanced during the course of such arbitration.
ARTICLE 6 - MISCELLANEOUS PROVISIONS
6.1 Confidentiality. Each of the parties hereto further agrees and
---------------
warrants that, during and after the term of this Agreement, neither Aura nor any
of its Affiliates nor NewCom nor any Related Entities, will at any time,
directly or indirectly, except as may be required by law, divulge, furnish or
make accessible to anyone, or appropriate to its own use, or to the use of any
third party, any knowledge or information with respect to secret, confidential,
or proprietary information concerning the PC Communication Products Business or
the PC Multimedia Products Business.
6.2 Remedies for Breach. Both parties recognize that any breach of this
-------------------
Agreement hereof at any time could result in irreparable damage to NewCom in an
amount difficult to ascertain. Accordingly, in addition to any other relief to
which NewCom may be entitled, NewCom shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to obtain damages for such breach of this Agreement,
to enforce the specific performance of the terms and conditions of this
Agreement by Aura or an Affiliate.
6.3 Several Promises. The parties hereto intend that the covenants set
----------------
forth in Section 2.1 hereof shall be construed as a series of separate promises,
each promise for each jurisdiction to which this Agreement may apply. Except
for such geographic coverage, each such separate promise shall be deemed
identical in terms. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. If any particular provisions or portion of this
Agreement shall be adjudicated to be invalid or unenforceable by a court of
competent jurisdiction, this Agreement shall be deemed amended to delete
therefrom such provision or portion adjudicated to be invalid or unenforceable,
such amendment to apply only with respect to the operation of this paragraph in
the particular jurisdiction in which such adjudication is made.
6.4 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California without regard to principles of
conflicts of laws.
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<PAGE>
6.5 Notices. Any notice permitted or required by this Agreement shall be
-------
deemed given when sent by personal service, by certified or registered mail
return receipt requested, postage prepaid, by facsimile transmission or by
overnight delivery by a nationally recognized courier and addressed as follows:
If to NewCom:
President and Chief Executive Officer
31166 Via Colinas
Westlake Village, CA 91312
Fax: (818) 597-3210
If to Aura:
President or Chief Executive Officer
2335 Alaska Avenue
El Segundo, CA 90245
Fax: (310) 643-8719
6.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which, when executed by both parties to this Agreement,
shall be deemed to be an original, and all of which counterparts together shall
constitute one and the same instrument.
6.7 Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties with respect to its subject matter, superseding all prior oral and
written communications, proposals, negotiations, representations,
understandings, courses of dealing, agreements, contracts, and the like between
the parties.
6.8 Amendments. This Agreement may be changed, amended, modified, or
----------
rescinded only by an instrument in writing signed by the party against which
enforcement of such change, amendment, modification or rescission is sought.
6.9 Waivers. The provisions of this Agreement may be waived only by a
-------
written instrument executed by the party so waiving. Except as expressly set
forth herein, the failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect such
party's right at a later time to enforce the same. No waiver by any party of
any condition, or breach of any provision of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of any other condition
or of the breach of any other provision of this Agreement.
6.10 Relationship. Nothing in this Agreement shall be deemed to create a
------------
partnership, joint venture or agency relationship between the parties. Both
parties are independent contractors and neither party is to be considered the
agent or legal representative of the other for any purpose whatsoever.
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<PAGE>
6.11 Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the parties and their respective successors and assigns, except that
no obligation under this Agreement may be delegated, nor may this Agreement be
assigned, without the prior written consent of the other party. Any such
purported assignment of this Agreement without the prior written consent of the
other party shall be void and without effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
AURA SYSTEMS, INC.
By______________________________
Its_____________________________
NEWCOM, INC.
By______________________________
Its_____________________________
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<PAGE>
EXHIBIT 10.5
REDEMPTION OPTION AGREEMENT
---------------------------
THIS REDEMPTION OPTION AGREEMENT (the "Agreement") shall be effective as of
September __, 1997, by and among NEWCOM, INC., a Delaware corporation
------------
("NewCom"), and AURA SYSTEMS, INC., a Delaware corporation ("Aura").
-----------------
RECITALS:
A. NewCom proposes to complete an initial public offering (the "IPO") of
Units, each Unit to consist of one share of NewCom Common Stock, $0.001 par
value per share (the "Common Stock"), and one Common Stock Purchase Warrant
("Warrant"). After the IPO, Aura will be the record and beneficial owner of
approximately seventy-five percent (75%) of the issued and outstanding shares of
Common Stock.
B. Pursuant to the IPO, NewCom will sell up to _________ Warrants. Each
Warrant entitles the holder thereof to purchase one share of Common Stock at an
exercise price equal to one hundred fifty percent (150%) of the IPO price of
each Unit (the "Warrant Exercise Price") until the date five (5) years from the
date of the final prospectus for the IPO. A complete description of the terms
of the Warrant is contained in the Form of Warrant attached hereto as Exhibit A.
---------
C. Aura wishes to acquire the option to sell to NewCom, and to require
NewCom to redeem from Aura, up to _____________ shares [70% of total number of
Warrants sold in the IPO] of Common Stock held by Aura (the "Redeemable Shares")
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
contained herein, the parties agree as follows:
1. Grant of Option.
---------------
(a) Subject to the terms and conditions of this Agreement, Aura, from time
to time following each Exercise Period (as defined in Section 3) shall have the
option, exercisable in Aura's sole discretion (the "Redemption Option"), to sell
to NewCom and NewCom shall redeem from Aura, up to that number of Redeemable
Shares as is determined by the Redemption Formula set forth in Section 2 hereof.
(b) If Aura exercises timely its Redemption Option following any Exercise
Period, NewCom agrees to redeem from Aura, and Aura agrees to sell to NewCom, up
to that number of Redeemable Shares as is determined by the Redemption Formula
at the Redemption Price (as defined below).
(c) The "Redemption Price" per share for the Redeemable Shares shall be
equal to the Warrant Exercise Price.
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<PAGE>
2. Redemption Formula. The number of shares of Common Stock subject to
------------------
Aura's Redemption Option is equal to the quotient of (a) seventy percent (70%)
of the total amount of Net Proceeds (as defined below) received by NewCom from
Warrants exercised during the applicable Exercise Period, divided by (b) the
Redemption Price; provided, however, that any fractional share of Common Stock
resulting from the Redemption Formula shall not be redeemed and shall be carried
over to the following Exercise Period. For purposes of this Agreement, "Net
Proceeds" shall mean (i) the product of (A) the Warrant Exercise Price,
multiplied by (B) the number of Warrants exercised, less (ii) the amount of any
commissions, if any, paid by NewCom to a broker, dealer or underwriter in
connection with such exercise.
3. Exercise Period and Monthly Notice. To facilitate the orderly
----------------------------------
redemption of the Redeemable Shares, for each full calendar month (an "Exercise
Period") after the effective date of this Agreement in which one or more
Warrants are exercised, NewCom shall notify Aura in writing (the "Monthly
Notice") by the fifth (5th) business day of the following month of (a) the total
number of Warrants exercised in such Exercise Period and (b) the aggregate
amount of Net Proceeds received by NewCom therefrom.
4. Exercise of Redemption Option. After receiving the Monthly Notice, if
-----------------------------
Aura wishes to exercise its Redemption Option, Aura shall notify NewCom in
writing (a "Redemption Notice") within thirty (30) calendar days of receipt of
the Monthly Notice of (a) Aura's exercise of its Redemption Option and (b) the
number of Redeemable Shares Aura wishes to have redeemed (the "Redeemed
Shares"); provided, however, that such number of Redeemed Shares shall not
exceed the number of Redeemable Shares that Aura is permitted to sell to NewCom
at that time based on the Redemption Formula.
5. Redemption of Redeemable Shares. Within five (5) business days of
-------------------------------
receipt by NewCom of a Redemption Notice, NewCom shall tender to Aura an amount
equal to the product of (a) the number of Redeemed Shares multiplied by (b) the
Redemption Price against delivery by Aura of properly endorsed share
certificates representing the Redeemed Shares.
6. Representations and Warranties of Aura. Aura hereby represents and
--------------------------------------
warrants that:
(a) Aura is the owner of the Redeemable Shares, free and clear of any
encumbrances or rights of third parties; and
(b) Aura has the power and authority to enter into this Agreement and to
perform the same, and is not a party to or obligated under or restricted by any
contract or other provision, which has not been waived, that will be violated
in any material respect by entering into and performing this Agreement.
-2-
<PAGE>
7. Representations and Warranties of NewCom. NewCom hereby represents and
----------------------------------------
warrants that:
(a) NewCom has full power and is duly authorized by law to obligate itself
to redeem the Redeemable Shares; and
(b) NewCom is not a party to or obligated under or restricted by its
articles of incorporation, bylaws, any contract or other provision, which has
not been waived, that will be violated in any material respect by making and
performing this Agreement.
8. Governing Law; Survival of Rights and Assignability; Severability.
-----------------------------------------------------------------
This Agreement shall be governed in all respects by the laws of the State of
Delaware without regard to the conflicts of law provisions thereof, and shall
bind and inure to the benefit of the successors and assigns of the parties
hereto; provided, that neither party hereto may assign or delegate any of their
rights or obligations hereunder without the express written consent of the other
party hereto. If any provision of this Agreement shall be held to be invalid,
the remainder of this Agreement shall not be affected thereby.
9. Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes any
prior agreement or understandings among them, oral or written, all of which are
hereby canceled. This Agreement may not be modified or amended without the
express written consent of the parties hereto.
10. Captions. The paragraph titles or captions contained in this
--------
Agreement are inserted only as a matter of convenience of reference. Such
titles and captions in no way define, limit, extend or describe the scope of
this Agreement or the intent of any provision hereof.
11. No Waiver. The failure of any party to seek redress for violation, or
---------
to insist on strict performance, of any covenant of this Agreement shall not
prevent a subsequent act which would have constituted a violation from having
the effect of an original violation.
12. No Third Party Beneficiary. Nothing expressed or implied in this
--------------------------
Agreement is intended, or shall be construed, to confer upon or give any person,
firm, corporation, partnership, association or other entity, other than the
parties hereto and their respective permitted successors and assigns, any rights
or remedies under or by reason of this Agreement.
13. 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.
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<PAGE>
14. Notices. All notices, consents, requests, instructions, approvals
-------
and other communications provided for herein and all legal process in regard
hereto shall be in writing and shall be deemed to have been duly given, when
delivered by hand or three (3) days after deposited in the United States mail,
by registered or certified mail, return receipt requested, postage prepaid, as
follows:
If to NewCom:
NewCom, Inc.
31166 Via Colinas
Westlake Village, CA 91362
Attn: Sultan Kahn
With a copy to:
L. William Caraccio
Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, CA 94025
If to Aura:
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 94025
Attn: Gerald S. Papazian
With a copy to:
_____________________________
_____________________________
_____________________________
15. Expenses. Each of the parties hereto agrees to pay all of the
--------
respective expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
16. Attorneys' Fees. In the event any suit or other legal proceeding is
---------------
brought for the enforcement of any of the provisions of this Agreement, the
parties hereto agree that the prevailing party or parties shall be entitled to
recover from the other party or parties upon final judgment on the merits
reasonable attorneys' fees (and sales taxes thereon, if any), including
attorneys' fees for any appeal, and costs incurred in bringing such suit or
proceeding.
17. Agent. Neither party is hereby constituted an agent or legal
-----
representative of the other party hereto and neither is granted any right or
authority hereunder to assume or create any
-4-
<PAGE>
obligation, express or implied, or to make any representation, covenant,
warranty, or guaranty, except as expressly granted or made in this Agreement.
18. Other Documents. The parties hereto shall cooperate in the
---------------
effectuation of the transactions contemplated hereby and shall execute any and
all additional documents and shall take such additional actions as shall be
reasonably necessary or appropriate for such purposes.
IN WITNESS WHEREOF, the undersigned have executed this Agreement.
NEWCOM, INC., a Delaware
corporation
By ________________________________
Title _____________________________
AURA SYSTEMS, INC., a Delaware
corporation
By ________________________________
Title _____________________________
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<PAGE>
EXHIBIT 10.6
NEWCOM, INC.
1997 STOCK INCENTIVE PLAN
(Adopted Effective May __, 1997)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. INTRODUCTION.............................. 1
ARTICLE 2. ADMINISTRATION............................ 1
2.1 Committee Composition..................... 1
2.2 Committee Responsibilities................ 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS............... 2
3.1 Basic Limitation 2
3.2 Additional Shares......................... 2
3.3 Dividend Equivalents...................... 2
ARTICLE 4. ELIGIBILITY............................... 2
4.1 General Rules 2
4.2 Incentive Stock Options................... 2
4.3 Limits on Awards.......................... 2
ARTICLE 5. OPTIONS................................... 3
5.1 Stock Option Agreement.................... 3
5.2 Number of Shares.......................... 3
5.3 Exercise Price 3
5.4 Exercisability and Term................... 3
5.5 Effect of Change in Control............... 3
5.6 Modification or Assumption of Options..... 3
ARTICLE 6. PAYMENT FOR OPTION SHARES................. 4
6.1 General Rule 4
6.2 Surrender of Stock........................ 4
6.3 Exercise/Sale 4
6.4 Exercise/Pledge 4
6.5 Promissory Note 4
6.6 Other Forms of Payment.................... 4
ARTICLE 7. STOCK APPRECIATION RIGHTS................. 5
7.1 SAR Agreement 5
7.2 Number of Shares.......................... 5
7.3 Exercise Price 5
7.4 Exercisability and Term................... 5
7.5 Effect of Change in Control............... 5
7.6 Exercise of SARs.......................... 5
7.7 Modification or Assumption of SARs........ 6
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS......... 6
8.1 Time, Amount and Form of Awards........... 6
8.2 Payment for Awards........................ 6
8.3 Vesting Conditions........................ 6
8.4 Form and Time of Settlement of Stock Units 6
8.5 Death of Recipient........................ 6
8.6 Creditors' Rights......................... 7
ARTICLE 9. VOTING AND DIVIDEND RIGHTS................ 7
9.1 Restricted Shares......................... 7
9.2 Stock Units 7
ARTICLE 10. PROTECTION AGAINST DILUTION............... 7
10.1 Adjustments 7
10.2 Reorganizations 8
ARTICLE 11. AWARDS UNDER OTHER PLANS.................. 8
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.. 8
12.1 Effective Date 8
12.2 Elections to Receive NSOs or Stock Units.. 8
12.3 Number and Terms of NSOs.................. 8
12.4 Number and Terms of Stock Units........... 8
ARTICLE 13. LIMITATION ON RIGHTS...................... 9
13.1 Retention Rights 9
13.2 Stockholders' Rights...................... 9
13.3 Regulatory Requirements................... 9
ARTICLE 14. LIMITATION ON PAYMENTS.................... 9
14.1 Basic Rule 9
14.2 Reduction of Payments..................... 9
14.3 Overpayments and Underpayments............ 10
14.4 Related Corporations...................... 10
ARTICLE 15. WITHHOLDING TAXES......................... 10
15.1 General 10
15.2 Share Withholding......................... 11
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.......... 11
16.1 General 11
</TABLE>
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<PAGE>
<TABLE>
Page
----
<S> <C> <C>
ARTICLE 17. FUTURE OF THE PLAN........................ 11
17.1 Term of the Plan.......................... 11
17.2 Amendment or Termination.................. 11
ARTICLE 18. DEFINITIONS............................... 11
ARTICLE 19. EXECUTION................................. 14
</TABLE>
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<PAGE>
NEWCOM, INC.
------------
1997 STOCK INCENTIVE PLAN
-------------------------
(Adopted Effective May __, 1997)
ARTICLE 1. INTRODUCTION.
--------- ------------
The Plan was adopted by the Board effective May __, 1997, subject to
approval by the Company's stockholders.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by (a) encouraging Key Employees to focus
on critical long-range objectives, (b) encouraging the attraction and retention
of Key Employees with exceptional qualifications and (c) linking Key Employees
directly to stockholder interests through increased stock ownership. The Plan
seeks to achieve this purpose by providing for Awards in the form of Restricted
Shares, Stock Units, Options (which may constitute incentive stock options or
nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
--------- --------------
2.1 Committee Composition. The Plan shall be administered by the
---------------------
Committee. Effective with the Company's initial public offering, the Committee
shall consist of two or more directors of the Company who shall satisfy the
requirements of Rule 16b-3 (or its successor) under the Exchange Act with
respect to the grant of Awards to persons who are officers or directors of the
Company under Section 16 of the Exchange Act.
The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not qualify under
Rule 16b-3, who may administer the Plan with respect to Key Employees who are
not considered officers or directors of the Company under Section 16 of the
Exchange Act, may grant Awards under the Plan to such Key Employees and may
determine all terms of such Awards.
2.2 Committee Responsibilities. The Committee shall:
--------------------------
(a) Select the Key Employees who are to receive Awards under the Plan;
(b) Determine the type, number, vesting requirements and other features
and conditions of such Awards;
(c) Interpret the Plan; and
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<PAGE>
(d) Make all other decisions relating to the operation of the Plan.
The Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
--------- ---------------------------
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
----------------
authorized but unissued shares or treasury shares. The aggregate number of
Restricted Shares, Stock Units, Options and SARs awarded under the Plan shall
not exceed __________ shares. The limitation of this Section 31 shall be
subject to adjustment pursuant to Article 10.
3.2 Additional Shares. If Stock Units, Options or SARs are forfeited or
-----------------
if Options or SARs terminate for any other reason before being exercised, then
the corresponding Common Shares shall again become available for Awards under
the Plan. If SARs are exercised, then only the number of Common Shares (if any)
actually issued in settlement of such SARs shall reduce the number available
under Section 31 and the balance shall again become available for Awards under
the Plan. If Restricted Shares are forfeited, then such Shares shall again
become available for Awards under the Plan.
3.3 Dividend Equivalents. Any dividend equivalents distributed under the
--------------------
Plan shall not be applied against the number of Restricted Shares, Stock Units,
Options or SARs available for Awards, whether or not such dividend equivalents
are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
--------- -----------
4.1 General Rules. Only Key Employees (including, without limitation,
-------------
independent contractors who are not members of the Board) shall be eligible for
designation as Participants by the Committee. All Outside Directors shall be
eligible for making an election described in Article 12.
4.2 Incentive Stock Options. Only Key Employees who are common-law
-----------------------
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the requirements set forth in section 422(c)(6) of the
Code are satisfied.
4.3 Limits on Awards. No Key Employee shall receive Options or SARs to
----------------
purchase Common Shares during any fiscal year covering in excess of __________
Common Shares; provided, however, a newly hired Key Employee may receive Options
or SARs to purchase up to __________ Common Shares during the portion of the
fiscal year remaining after his or her date of hire.
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<PAGE>
ARTICLE 5. OPTIONS.
--------- -------
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan, including
but not limited to rights of repurchase and rights of first refusal. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a cash
payment or in consideration of a reduction in the Optionee's other compensation.
A Stock Option Agreement may provide that new Options will be granted
automatically to the Optionee when he or she exercises the prior Options.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price; provided that the Exercise Price of an ISO shall in no event be
less than one hundred percent (100%) of the Fair Market Value of a Common Share
on the date of grant. In the case of an NSO, a Stock Option Agreement may
specify an Exercise Price that varies in accordance with a predetermined formula
while the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
-----------------------
the date when all or any installment of the Option is to become exercisable.
The Stock Option Agreement shall also specify the term of the Option; provided
that the term of an ISO shall in no event exceed ten (10) years from the date of
grant. A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee's death, disability or retirement or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. Options may be awarded in combination
with SARs, and such an Award may provide that the Options will not be
exercisable unless the related SARs are forfeited. NSOs may also be awarded in
combination with Restricted Shares or Stock Units, and such an Award may provide
that the NSOs will not be exercisable unless the related Restricted Shares or
Stock Units are forfeited.
5.5 Effect of Change in Control. The Committee may determine, at the time
---------------------------
of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.
5.6 Modification or Assumption of Options. Within the limitations of the
-------------------------------------
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an
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<PAGE>
Option shall, without the consent of the Optionee, alter or impair his or her
rights or obligations under such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
--------- -------------------------
6.1 General Rule. The entire Exercise Price for the Common Shares issued
------------
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
------------------
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for such duration as
shall be specified by the Committee. Such Common Shares shall be valued at
their Fair Market Value on the date when the new Common Shares are purchased
under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
-------------
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
---------------
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
---------------
payment may be made with a full-recourse promissory note; provided that the par
value of the Common Shares shall be paid in cash.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
----------------------
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
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<PAGE>
ARTICLE 7. STOCK APPRECIATION RIGHTS.
--------- -------------------------
7.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced
-------------
by an SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various
SAR Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
----------------
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 10.
7.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price.
--------------
An SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
-----------------------
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end
of its term in the event of the termination of the Optionee's service. SARs may
also be awarded in combination with Options, Restricted Shares or Stock Units,
and such an Award may provide that the SARs will not be exercisable unless the
related Options, Restricted Shares or Stock Units are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 Effect of Change in Control. The Committee may determine, at the time
---------------------------
of granting an SAR or thereafter, that such SAR shall become fully exercisable
as to all Common Shares subject to such SAR in the event that a Change in
Control occurs with respect to the Company.
7.6 Exercise of SARs. If, on the date when an SAR expires, the Exercise
----------------
Price under such SAR is less than the Fair Market Value on such date but any
portion of such SAR has not been exercised or surrendered, then such SAR shall
automatically be deemed to be exercised as of such date with respect to such
portion. Upon exercise of an SAR, the Optionee (or any person having the right
to exercise the SAR after his or her death) shall receive from the Company (a)
Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the
Committee shall determine. The amount of cash and/or the Fair Market Value of
Common Shares received upon exercise of SARs shall, in the aggregate, be equal
to the amount by which the Fair Market Value (on the date of surrender) of the
Common Shares subject to the SARs exceeds the Exercise Price.
-5-
<PAGE>
7.7 Modification or Assumption of SARs. Within the limitations of the
----------------------------------
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
--------- ---------------------------------
8.1 Time, Amount and Form of Awards. Awards under the Plan may be granted
-------------------------------
in the form of Restricted Shares, in the form of Stock Units, or in any
combination of both. Restricted Shares or Stock Units may also be awarded in
combination with NSOs or SARs, and such an Award may provide that the Restricted
Shares or Stock Units will be forfeited in the event that the related NSOs or
SARs are exercised.
8.2 Payment for Awards. To the extent that an Award is granted in the
------------------
form of newly issued Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to pay the Company in cash an amount
equal to the par value of such Restricted Shares. To the extent that an Award
is granted in the form of Restricted Shares from the Company's treasury or in
the form of Stock Units, no cash consideration shall be required of the Award
recipients.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock Units
------------------
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. A Stock Award Agreement may
provide for accelerated vesting in the event of the Participant's death,
disability or retirement or other events. The Committee may determine, at the
time of making an Award or thereafter, that such Award shall become fully vested
in the event that a Change in Control occurs with respect to the Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of vested
------------------------------------------
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both. The actual number of Stock Units eligible for settlement
may be larger or smaller than the number included in the original Award, based
on predetermined performance factors. Methods of converting Stock Units into
cash may include (without limitation) a method based on the average Fair Market
Value of Common Shares over a series of trading days. Vested Stock Units may be
settled in a lump sum or in installments. The distribution may occur or
commence when all vesting conditions applicable to the Stock Units have been
satisfied or have lapsed, or it may be deferred to any later date. The amount
of a deferred distribution may be increased by an interest factor or by dividend
equivalents. Until an Award of Stock Units is settled, the number of such Stock
Units shall be subject to adjustment pursuant to Article 10.
8.5 Death of Recipient. Any Stock Units Award that becomes payable after
------------------
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries
-6-
<PAGE>
for this purpose by filing the prescribed form with the Company. A beneficiary
designation may be changed by filing the prescribed form with the Company at any
time before the Award recipient's death. If no beneficiary was designated or if
no designated beneficiary survives the Award recipient, then any Stock Units
Award that becomes payable after the recipient's death shall be distributed to
the recipient's estate.
8.6 Creditors' Rights. A holder of Stock Units shall have no rights other
-----------------
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
--------- --------------------------
9.1 Restricted Shares. The holders of Restricted Shares awarded under the
-----------------
Plan shall have the same voting, dividend and other rights as the Company's
other stockholders. A Stock Award Agreement, however, may require that the
holders of Restricted Shares invest any cash dividends received in additional
Restricted Shares. Such additional Restricted Shares shall be subject to the
same conditions and restrictions as the Award with respect to which the
dividends were paid. Such additional Restricted Shares shall not reduce the
number of Common Shares available under Article 3.
9.2 Stock Units. The holders of Stock Units shall have no voting rights.
-----------
Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at
the Committee's discretion, carry with it a right to dividend equivalents. Such
right entitles the holder to be credited with an amount equal to all cash
dividends paid on one Common Share while the Stock Unit is outstanding.
Dividend equivalents may be converted into additional Stock Units. Settlement
of dividend equivalents may be made in the form of cash, in the form of Common
Shares, or in a combination of both. Prior to distribution, any dividend
equivalents which are not paid shall be subject to the same conditions and
restrictions as the Stock Units to which they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
---------- ---------------------------
10.1 Adjustments. In the event of a subdivision of the outstanding Common
-----------
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Article 3;
(b) The number of Stock Units included in any prior Award which has
not yet been settled;
-7-
<PAGE>
(c) The number of Common Shares covered by each outstanding Option and
SAR; or
(d) The Exercise Price under each outstanding Option and SAR.
Except as provided in this Article 10, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
10.2 Reorganizations. In the event that the Company is a party to a
---------------
merger or other reorganization, outstanding Options, SARs, Restricted Shares and
Stock Units shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting and
accelerated expiration, or for settlement in cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
---------- ------------------------
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
---------- ----------------------------------------
12.1 Effective Date. No provision of this Article 12 shall be effective
--------------
unless and until the Board has determined to implement such provision.
12.2 Elections to Receive NSOs or Stock Units. An Outside Director may
----------------------------------------
elect to receive his or her annual retainer payments and meeting fees from the
Company in the form of cash, NSOs, Stock Units, or a combination thereof. Such
NSOs and Stock Units shall be issued under the Plan. An election under this
Article 12 shall be filed with the Company on the prescribed form and subject
to such filing deadlines and election procedures as shall be established by the
Committee.
12.3 Number and Terms of NSOs. The number of NSOs to be granted to
------------------------
Outside Directors in lieu of annual retainers and meeting fees that would
otherwise be paid in cash shall be calculated in a manner determined by the
Board. The terms of such NSOs shall also be determined by the Board.
12.4 Number and Terms of Stock Units. The number of Stock Units to be
-------------------------------
granted to Outside Directors shall be calculated by dividing the amount of the
annual retainer or the meeting fee that would otherwise be paid in cash by the
arithmetic mean of the Fair Market Values of a Common Share on the ten (10)
consecutive trading days ending with the date
-8-
<PAGE>
when such retainer or fee is payable. The terms of such Stock Units shall be
determined by the Board.
ARTICLE 13. LIMITATION ON RIGHTS.
---------- --------------------
13.1 Retention Rights. Neither the Plan nor any Award granted under the
----------------
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent or a Subsidiary. The Company
and its Parents and Subsidiaries reserve the right to terminate the service of
any employee, consultant or director at any time, with or without cause, subject
to applicable laws, the Company's certificate of incorporation and by-laws and a
written employment agreement (if any).
13.2 Stockholders' Rights. A Participant shall have no dividend rights,
--------------------
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Articles 8, 9 and 10.
13.3 Regulatory Requirements. Any other provision of the Plan
-----------------------
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 14. LIMITATION ON PAYMENTS.
---------- ----------------------
14.1 Basic Rule. Any provision of the Plan to the contrary
----------
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company under the Plan to or for the benefit of a Participant (a "Payment")
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in section 280G of the
Code, then the aggregate present value of all Payments shall be reduced (but not
below zero) to the Reduced Amount; provided that the Committee, at the time of
making an Award under this Plan or at any time thereafter, may specify in
writing that such Award shall not be so reduced and shall not be subject to this
Article 14. For purposes of this Article 14, the "Reduced Amount" shall be
the amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Company because of section 280G of the Code.
14.2 Reduction of Payments. If the Auditors determine that any Payment
---------------------
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as
-9-
<PAGE>
after such election the aggregate present value of the Payments equals the
Reduced Amount) and shall advise the Company in writing of his or her election
within ten (10) days of receipt of notice. If no such election is made by the
Participant within such ten (10) day period, then the Company may elect which
and how much of the Payments shall be eliminated or reduced (as long as after
such election the aggregate present value of the Payments equals the Reduced
Amount) and shall notify the Participant promptly of such election. For
purposes of this Article 14, present value shall be determined in accordance
with section 280G(d)(4) of the Code. All determinations made by the Auditors
under this Article 14 shall be binding upon the Company and the Participant and
shall be made within sixty (60) days of the date when a Payment becomes payable
or transferable. As promptly as practicable following such determination and
the elections hereunder, the Company shall pay or transfer to or for the benefit
of the Participant such amounts as are then due to him or her under the Plan and
shall promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.
14.3 Overpayments and Underpayments. As a result of uncertainty in the
------------------------------
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
14.4 Related Corporations. For purposes of this Article 14, the term
--------------------
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 15. WITHHOLDING TAXES.
---------- -----------------
15.1 General. To the extent required by applicable federal, state, local
-------
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
-10-
<PAGE>
15.2 Share Withholding. A Participant may satisfy all or part of his or
-----------------
her withholding or income tax obligations by having the Company withhold all or
a portion of any Common Shares that otherwise would be issued to him or her or
by surrendering all or a portion of any Common Shares that he or she previously
acquired. Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Shares to the Company may be subject to restrictions.
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.
---------- --------------------------------
16.1 General. Except as provided in Article 15 or the Award agreement,
-------
an Award granted under the Plan shall not be anticipated, assigned, attached,
garnished, optioned, transferred or made subject to any creditor's process,
whether voluntarily, involuntarily or by operation of law. Except as provided in
the Award agreement, an Option or SAR may be exercised during the lifetime of
the Optionee only by him or her or by his or her guardian or legal
representative. This Article 16 shall not preclude a Participant from
designating a beneficiary who will receive any outstanding Awards in the event
of the Participant's death, nor shall it preclude a transfer of Awards by will
or by the laws of descent and distribution.
ARTICLE 17. FUTURE OF THE PLAN.
---------- ------------------
17.1 Term of the Plan. The Plan, as set forth herein, shall become
----------------
effective on September 18, 1996, subject to the approval of the Company's
stockholders within twelve (12) months of September 18, 1996. The Plan shall
remain in effect until it is terminated under Section 17.2, except that no ISOs
shall be granted after September 17, 2006.
17.2 Amendment or Termination. The Board may, at any time and for any
------------------------
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 18. DEFINITIONS.
---------- -----------
18.1 "Award" means any award of an Option, an SAR, a Restricted Share or a
-----
Stock Unit under the Plan.
18.2 "Board" means the Company's Board of Directors, as constituted from
-----
time to time.
18.3 "Change in Control" shall be deemed to occur upon any "person" (as
-----------------
defined in Section 13(d) of the Exchange Act), other than the Company, its
Parent or Subsidiary or employee benefit plan or trust maintained by the
Company, its Parent or Subsidiary, becoming the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or
-11-
<PAGE>
indirectly, of more than 25% of the Common Shares of the Company outstanding at
such time, without the prior approval of the Board.
18.4 "Code" means the Internal Revenue Code of 1986, as amended.
----
18.5 "Committee" means a committee of the Board, as described in Article
---------
2.
18.6 "Common Share" means one share of the common stock of the Company.
------------
18.7 "Company" means NewCom, Inc., a Delaware corporation, or its
-------
successor.
18.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
18.9 "Exercise Price," in the case of an Option, means the amount for
--------------
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
18.10 "Fair Market Value" means the market price of Common Shares,
-----------------
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the Nasdaq system for such
date;
(b) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
Nasdaq system for such date;
(c) If the Common Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
---------------
Journal. Such determination shall be conclusive and binding on all persons.
- -------
-12-
<PAGE>
18.11 "ISO" means an incentive stock option described in section 422(b) of
---
the Code.
18.12 "Key Employee" means (a) a common-law employee of the Company, a
------------
Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or adviser
who provides services to the Company, a Parent or a Subsidiary as an independent
contractor.
18.13 "NSO" means a stock option not described in sections 422 or 423 of
---
the Code.
18.14 "Option" means an ISO or NSO granted under the Plan and entitling
------
the holder to purchase one Common Share.
18.15 "Optionee" means an individual or estate who holds an Option or SAR.
--------
18.16 "Outside Director" shall mean a member of the Board who is not a
----------------
common-law employee of the Company, a Parent or a Subsidiary.
18.17 "Parent" means any corporation (other than the Company) in an
------
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
18.18 "Participant" means an individual or estate who holds an Award.
-----------
18.19 "Plan" means the NewCom, Inc. 1997 Stock Incentive Plan, as amended
----
from time to time.
18.20 "Restricted Share" means a Common Share awarded under the Plan.
----------------
18.21 "SAR" means a stock appreciation right granted under the Plan.
---
18.22 "SAR Agreement" means the agreement between the Company and an
-------------
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
18.23 "Stock Award Agreement" means the agreement between the Company and
---------------------
the recipient of a Restricted Share or Stock Unit which contains the terms,
conditions and restrictions pertaining to such Restricted Share or Stock Unit.
18.24 "Stock Option Agreement" means the agreement between the Company and
----------------------
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her Option.
-13-
<PAGE>
18.25 "Stock Unit" means a bookkeeping entry representing the equivalent
----------
of one Common Share, as awarded under the Plan.
18.26 "Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
ARTICLE 19. EXECUTION.
---------- ---------
To record the adoption of the Plan by the Board, the Company has caused its
duly authorized officer to affix the corporate name and seal hereto.
NEWCOM, INC.
By ____________________________
Its ___________________________
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<PAGE>
NEWCOM, INC.
1997 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
NewCom, Inc., a Delaware corporation (the "Company"), hereby grants an
Option to purchase shares of its Common Stock to the Optionee named below. The
terms and conditions of the Option are set forth in this cover sheet, in the
attachment and in the Company's 1997 Stock Incentive Plan (the "Plan").
Date of Original Grant: _______________________________________________________
Name of Optionee: _____________________________________________________________
Optionee's Social Security Number: ____________________________________________
Number of Common Shares Covered by Option: ____________________________________
Exercise Price per Common Share: $____________________________________________
Vesting Start Date: ___________________________________________________________
BY SIGNING THIS COVER SHEET, YOU VOLUNTARILY AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY OF
WHICH IS ALSO ATTACHED. YOU FURTHER AGREE THAT ANY OTHER STOCK OPTIONS OR
PURCHASE RIGHTS PREVIOUSLY GRANTED TO YOU FOR COMMON STOCK OF THE COMPANY
ARE TERMINATED IN THEIR ENTIRETY AND SUBSTITUTED FOR BY THIS OPTION TO
PURCHASE COMMON STOCK PURSUANT TO THE TERMS HEREOF, AND THAT YOU HAVE NO
RIGHTS TO EXERCISE ANY OPTION TO PURCHASE ANY COMMON STOCK OF THE COMPANY
OR OF AURA SYSTEMS, INC.
Optionee: _____________________________________________________________________
(Signature)
Company: ______________________________________________________________________
(Signature)
Title: ______________________________________________________________
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<PAGE>
NEWCOM, INC.
1997 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
INCENTIVE STOCK This Option is intended to be an incentive stock option
OPTION under section 422 of the Internal Revenue Code and will
be interpreted accordingly.
VESTING Your right to exercise this Option vests annually over a
four year period beginning one year after the Vesting
Start Date as shown on the cover sheet. This Option vests
at a rate of 30%, 30%, 20% and 20%, respectively, of the
Common Shares covered by the Option at the end of the
first, second, third and fourth year, respectively, after
the Vesting Start Date. The number of Common Shares which
may be purchased under this Option by you at the Exercise
Price shall be rounded to the nearest whole number. No
additional Common Shares will vest after your service has
terminated for any reason.
TERM Your Option will expire in any event at the close of
business at Company headquarters on the day before the
fifth anniversary of the date of grant of the terminated
Option. (It will expire earlier if your service
terminates, as described below.)
REGULAR TERMINATION If your service terminates for any reason except death or
Disability, your Option will expire at the close of
business at Company headquarters on the 30th day after
your termination date. During that 30-day period, you may
exercise that portion of your Option that was vested on
your termination date.
DEATH If you die while in service with the Company, your Option
will expire at the close of business at Company
headquarters on the date 12 months after the date of
death. During that 12-month period, your beneficiary,
estate or heirs may exercise that portion of your Option
that was vested on your date death.
-2-
<PAGE>
DISABILITY If your service terminates because of your Disability,
your Option will expire at the close of business at
Company headquarters on the date 90 days after your
termination date. During such 90-day period, you may
exercise that portion of your Option that was vested on
the date of your Disability.
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment for an
extended period of time.
LEAVES OF ABSENCE For purposes of this Option, your service does not
terminate when you go on a bona fide leave of absence
that was approved by the Company in writing, if the terms
of the leave provide for continued service crediting, or
when continued service crediting is required by
applicable law. However, for purposes of this Option
being treated as an ISO, your service will be treated as
terminating 90 days after you went on leave, unless your
right to return to active work is guaranteed by law or by
a contract. Your service terminates in any event when the
approved leave ends unless you immediately return to
active work. The Committee determines which leaves count
for this purpose, and when your service terminates for
all purposes under the Plan and this Agreement. The
Committee shall also determine the extent to which you
may exercise the vested portion of your Option during a
leave of absence.
NOTICE OF EXERCISE When you wish to exercise this Option, you must notify
the Committee by filing the proper "Notice of Exercise"
form at the address given on the form. Your Notice must
specify how many Common Shares you wish to purchase. Your
Notice must also specify how your Common Shares should be
registered (in your name only, in your and your spouse's
names as community property or as joint tenants with
right of survivorship or in a trust for your benefit).
The Notice will be effective when it is received by the
Committee. If someone else wants to exercise this Option
after your death, that person must prove to the
Committee's satisfaction that he or she is entitled to do
so.
FORM OF PAYMENT When you submit your Notice of Exercise, you must include
payment of the Exercise Price for the Common Shares you
are purchasing. Payment may be made in one (or a
combination) of the following forms:
. Your personal check, a cashier's check or a money
order.
. Common Shares which have already been owned by you for
more than six months and which are surrendered to the
-3-
<PAGE>
Company. The value of the Common Shares, determined as of
the effective date of the option exercise, will be
applied to the Exercise Price.
. By delivery (on a form prescribed by the Committee) of
an irrevocable direction to a securities broker to sell
Common Shares and to deliver all or part of the sale
proceeds to the Company in payment of the aggregate
Exercise Price.
WITHHOLDING TAXES You will not be allowed to exercise this Option unless
you make acceptable arrangements to pay any withholding
or other taxes that may be due as a result of the Option
exercise or the sale of Common Shares acquired upon
exercise of this Option.
RESTRICTIONS ON By signing this Agreement, you agree not to sell any
EXERCISE AND RESALE Common Shares at a time when applicable laws, regulations
or Company or underwriter trading policies prohibit a
sale. For example, prior to an initial public offering,
the Company may, in its sole discretion, restrict the
transfer of shares for up to 6 months from the date of
exercise. In connection with any underwritten public
offering by the Company of its equity securities pursuant
to an effective registration statement filed under the
Securities Act, including the Company's initial public
offering, you agree not to sell, make any short sale of,
loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value
or agree to engage in any of the foregoing transactions
with respect to any shares without the prior written
consent of the Company or its underwriters, for such
period of time after the effective date of such
registration statement as may be requested by the Company
or such underwriters.
In order to enforce the provisions of this paragraph, the
Company may impose stop-transfer instructions with
respect to the shares.
You represent and agree that the Common Shares to be
acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or
distribution thereof.
In the event that the sale of Common Shares under the
Plan is not registered under the Securities Act but an
exemption is available which requires an investment
representation or other representation, you shall
represent and agree at the time of exercise that the
Shares being acquired upon exercising this option are
being acquired for investment, and not with a view to the
sale or distribution thereof, and shall make such other
representations as are deemed necessary or appropriate by
the Company and its counsel.
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<PAGE>
THE COMPANY'S In the event that you propose to sell, pledge or
RIGHT OF FIRST otherwise transfer to a third party any Common Shares
REFUSAL acquired under this Agreement, or any interest in such
Common Shares, the Company shall have the "Right of First
Refusal" with respect to all (and not less than all) of
such Common Shares. If you desire to transfer Common
Shares acquired under this Agreement, you must give a
written "Transfer Notice" to the Committee describing
fully the proposed transfer, including the number of
Shares proposed to be transferred, the proposed transfer
price and the name and address of the proposed
transferee. The Transfer Notice shall be signed both by
you and by the proposed transferee and must constitute a
binding commitment of both parties to the transfer of the
Common Shares. The Company shall have the right to
purchase all, and not less than all, of the Common Shares
on the terms described in the Transfer Notice (subject,
however, to any change in such terms permitted in the
next paragraph) by delivery of a Notice of Exercise of
the Right of First Refusal within 30 days after the date
when the Transfer Notice was received by the Committee.
The Company's rights under this Subsection shall be
freely assignable, in whole or in part.
If the Company fails to exercise its Right of First
Refusal within 30 days after the date when the Committee
received the Transfer Notice, you may, not later than 90
days following receipt of the Transfer Notice by the
Committee, conclude a transfer of the Common Shares
subject to the Transfer Notice on the terms and
conditions described in the Transfer Notice. Any proposed
transfer on terms and conditions different from those
described in the Transfer Notice, as well as any
subsequent proposed transfer by you, shall again be
subject to the Right of First Refusal and shall require
compliance with the procedure described in the paragraph
above. If the Company exercises its Right of First
Refusal, the parties shall consummate the sale of the
Shares on the terms set forth in the Transfer Notice
within 60 days after the date the Committee received the
Transfer Notice (or within such longer period as may have
been specified in the Transfer Notice); provided,
however, that in the event the Transfer Notice provided
that payment for the Common Shares was to be made in a
form other than lawful money paid at the time of
transfer, the Company shall have the option of paying for
the Common Shares with lawful money equal to the present
value of the consideration described in the Transfer
Notice.
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<PAGE>
The Company's Right of First Refusal shall inure to the
benefit of its successors and assigns and shall be
binding upon any transferee of the Common Shares.
The Company's Right of First Refusal shall terminate in
the event that Common Shares are listed or traded on an
established stock exchange.
RIGHT OF REPURCHASE Following termination of your service with the Company
for any reason, the Company shall have the right to
purchase all of those Common Shares that you have or will
acquire under this Option. If the Company fails to
provide you with written notice of its intention to
purchase such Common Shares before or within 30 days of
the date the Company receives written notice from you of
your termination of service, the Company's right to
purchase such Common Shares shall terminate. If the
Company exercises its right to purchase such Common
Shares, the Company will consummate the purchase of such
Common Shares within 60 days of the date of its written
notice to you. The purchase price for any Common Shares
repurchased shall be the Fair Market Value of such Common
Shares on the date of purchase and shall be paid in cash.
The Company's right of repurchase shall terminate in the
event that Common Shares are listed or traded on an
established stock exchange.
TRANSFER OF OPTION Prior to your death, only you may exercise this Option.
You cannot transfer or assign this Option. For instance,
you may not sell this Option or use it as security for a
loan. If you attempt to do any of these things, this
Option will immediately become invalid. You may, however,
dispose of this Option by beneficiary designation or in
your will.
Regardless of any marital property settlement agreement,
the Company is not obligated to honor a Notice of
Exercise from your spouse or former spouse, nor is the
Company obligated to recognize such individual's interest
in your Option in any other way.
RETENTION RIGHTS This Agreement does not give you the right to be retained
by the Company in any capacity. The Company reserves the
right to terminate your service at any time and for any
reason.
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<PAGE>
STOCKHOLDER RIGHTS You, or your beneficiary, estate or heirs, have no rights
as a stockholder of the Company until a certificate for
the Common Shares acquired upon exercise of this Option
has been issued. No adjustments are made for dividends or
other rights if the applicable record date occurs before
your stock certificate is issued, except as described in
the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or a
similar change in the Common Shares, the number of Common
Shares covered by this Option and the Exercise Price per
share may be adjusted pursuant to the Plan. Your Option
shall be subject to the terms of the agreement of merger,
liquidation or reorganization in the event the Company is
subject to such corporate activity.
LEGENDS All certificates representing the Shares issued upon
exercise of this Option shall, where applicable, have
endorsed thereon the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND OPTIONS TO
PURCHASE SUCH SHARES SET FORTH IN AN AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER
PREDECESSOR IN INTEREST. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
COMPANY BY THE HOLDER OF RECORD OF THE SHARES
REPRESENTED BY THIS CERTIFICATE.
APPLICABLE LAW This Agreement will be interpreted and enforced under the
laws of the State of Delaware (without regard to their
choice of law provisions).
THE PLAN AND OTHER The text of the Plan is incorporated in this Agreement by
AGREEMENTS reference. Certain capitalized terms used in this
Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and the Company regarding this
Option and the terminated Option. Any prior agreements,
commitments or negotiations concerning this Option and
the terminated Option are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS
AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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<PAGE>
NEWCOM, INC.
1997 STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
NewCom, Inc., a Delaware corporation (the "Company"), hereby grants an
Option to purchase shares of its Common Stock to the Optionee named below. The
terms and conditions of the Option are set forth in this cover sheet, in the
attachment and in the Company's 1997 Stock Incentive Plan (the "Plan").
Date of Original Grant: ____________________________________________________
Name of Optionee: __________________________________________________________
Optionee's Social Security Number: _________________________________________
Number of Common Shares Covered by Option: _________________________________
Exercise Price per Common Share: $ ________________________________________
Vesting Start Date: ________________________________________________________
BY SIGNING THIS COVER SHEET, YOU VOLUNTARILY AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY OF
WHICH IS ALSO ATTACHED. YOU FURTHER AGREE THAT ANY OTHER STOCK OPTIONS OR
PURCHASE RIGHTS PREVIOUSLY GRANTED TO YOU FOR COMMON STOCK OF THE COMPANY
ARE TERMINATED IN THEIR ENTIRETY AND SUBSTITUTED FOR BY THIS OPTION TO
PURCHASE COMMON STOCK PURSUANT TO THE TERMS HEREOF, AND THAT YOU HAVE NO
RIGHTS TO EXERCISE ANY OPTION TO PURCHASE ANY OTHER COMMON STOCK OF THE
COMPANY OR OF AURA SYSTEMS, INC.
Optionee: _______________________________________________________________
(Signature)
Company: _______________________________________________________________
(Signature)
Title: ________________________________________________________
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<PAGE>
NEWCOM, INC.
1997 STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
NONSTATUTORY STOCK OPTION This Option is not intended to be an
incentive stock option under section
422 of the Internal Revenue Code and
will be interpreted accordingly.
VESTING Your right to exercise this Option
vests annually over a four year
period beginning one year after the
Vesting Start Date as shown on the
cover sheet. This Option vests at a
rate of 25% of the Common Shares
covered by the Option at the end of
each of the first, second, third and
fourth year, respectively, after the
Vesting Start Date. The number of
Common Shares which may be purchased
under this Option by you at the
Exercise Price shall be rounded to
the nearest whole number. No
additional Common Shares will vest
after your service has terminated for
any reason.
TERM Your Option will expire in any event
at the close of business at Company
headquarters on the day before the
fifth anniversary of the date of
grant of the terminated Option. (It
will expire earlier if your service
terminates, as described below.)
REGULAR TERMINATION If your service terminates for any
reason except death or Disability,
your Option will expire at the close
of business at Company headquarters
on the 30th day after your
termination date. During such 30-day
period, you may exercise that portion
of your Option that was vested on
your termination date.
DEATH If you die while in service with the
Company, your Option will expire at
the close of business at Company
headquarters on the date 12 months
after the date of death. During that
12-month period, your beneficiary,
estate or heirs may exercise that
portion of your Option that was
vested on your date of death.
DISABILITY If your service terminates because of
your Disability, your Option will
expire at the close of business at
Company headquarters on the date 90
days after your termination date.
During such 90-day period, you may
exercise that portion of your Option
that was vested on your date of
Disability.
"Disability" means that you are
unable to engage in any substantial
gainful activity by reason of any
medically determinable physical or
mental impairment for an extended
period of time.
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<PAGE>
LEAVES OF ABSENCE For purposes of this Option, your
service does not terminate when you
go on a bona fide leave of absence
that was approved by the Company in
writing, if the terms of the leave
provide for continued service
crediting, or when continued service
crediting is required by applicable
law. The Committee determines which
leaves count for this purpose, and
when your service terminates for all
purposes under the Plan and this
Agreement. The Committee shall also
determine the extent to which you may
exercise the vested portion of your
Option during a leave of absence.
NOTICE OF EXERCISE When you wish to exercise this
Option, you must notify the Committee
by filing the proper "Notice of
Exercise" form at the address given
on the form. Your Notice must
specify how many Common Shares you
wish to purchase. Your Notice must
also specify how your Common Shares
should be registered (in your name
only, in your and your spouse's names
as community property or as joint
tenants with right of survivorship or
in a trust for your benefit). The
Notice will be effective when it is
received by the Committee. If
someone else wants to exercise this
Option after your death, that person
must prove to the Committee's
satisfaction that he or she is
entitled to do so.
FORM OF PAYMENT When you submit your Notice of
Exercise, you must include payment of
the Exercise Price for the Common
Shares you are purchasing. Payment
may be made in one (or a combination)
of the following forms:
. Your personal check, a cashier's
check or a money order.
. Common Shares which have already
been owned by you for more than six
months and which are surrendered to
the Company. The value of the Common
Shares, determined as of the
effective date of the Option
exercise, will be applied to the
Exercise Price.
. By delivery (on a form prescribed by
the Committee) of an irrevocable
direction to a securities broker to
sell Common Shares and to deliver
all or part of the sale proceeds to
the Company in payment of the
aggregate Exercise Price.
WITHHOLDING TAXES You will not be allowed to exercise
this Option unless you make
acceptable arrangements to pay any
withholding or other taxes that may
be due as a result of the option
exercise or the sale of Common Shares
acquired upon exercise of this Option.
RESTRICTIONS ON EXERCISE AND RESALE By signing this Agreement, you agree
not to sell any Common Shares at a
time when applicable laws,
regulations or Company or
-3-
<PAGE>
underwriter trading policies prohibit
a sale. For example, prior to an
initial public offering, the Company
may, in its sole discretion, restrict
the transfer of shares for up to 6
months from the date of exercise. In
connection with any underwritten
public offering by the Company of its
equity securities pursuant to an
effective registration statement
filed under the Securities Act,
including the Company's initial
public offering, you agree not to
sell, make any short sale of, loan,
hypothecate, pledge, grant any option
for the purchase of, or otherwise
dispose or transfer for value or
agree to engage in any of the
foregoing transactions with respect
to any shares without the prior
written consent of the Company or its
underwriters, for such period of time
after the effective date of such
registration statement as may be
requested by the Company or such
underwriters.
In order to enforce the provisions of
this paragraph, the Company may
impose stop-transfer instructions
with respect to the shares.
You represent and agree that the
Common Shares to be acquired upon
exercising this option will be
acquired for investment, and not with
a view to the sale or distribution
thereof.
In the event that the sale of Common
Shares under the Plan is not
registered under the Securities Act
but an exemption is available which
requires an investment representation
or other representation, you shall
represent and agree at the time of
exercise that the Shares being
acquired upon exercising this option
are being acquired for investment,
and not with a view to the sale or
distribution thereof, and shall make
such other representations as are
deemed necessary or appropriate by
the Company and its counsel.
THE COMPANY'S RIGHT OF FIRST REFUSAL In the event that you propose to
sell, pledge or otherwise transfer to
a third party any Common Shares
acquired under this Agreement, or any
interest in such Common Shares, the
Company shall have the "Right of
First Refusal" with respect to all
(and not less than all) of such
Common Shares. If you desire to
transfer Common Shares acquired under
this Agreement, you must give a
written "Transfer Notice" to the
Committee describing fully the
proposed transfer, including the
number of Common Shares proposed to
be transferred, the proposed transfer
price and the name and address of the
proposed transferee. The Transfer
Notice shall be signed both by you
and by the proposed transferee and
must constitute a binding commitment
of both parties to the transfer of
the Common Shares. The Company shall
have the right to purchase all, and
not less than all, of the Common
Shares on the terms described in the
Transfer Notice (subject, however,
to
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<PAGE>
any change in such terms permitted in
the next paragraph) by delivery of a
notice of exercise of the Right of
First Refusal within 30 days after
the date when the Transfer Notice was
received by the Committee. The
Company's rights under this
Subsection shall be freely
assignable, in whole or in part.
If the Company fails to exercise its
Right of First Refusal within 30 days
after the date when the Committee
received the Transfer Notice, you
may, not later than 90 days following
receipt of the Transfer Notice by the
Company, conclude a transfer of the
Common Shares subject to the Transfer
Notice on the terms and conditions
described in the Transfer Notice.
Any proposed transfer on terms and
conditions different from those
described in the Transfer Notice, as
well as any subsequent proposed
transfer by you, shall again be
subject to the Right of First Refusal
and shall require compliance with the
procedure described in the paragraph
above. If the Company exercises its
Right of First Refusal, the parties
shall consummate the sale of the
Common Shares on the terms set forth
in the Transfer Notice within 60 days
after the date when the Committee
received the Transfer Notice (or
within such longer period as may have
been specified in the Transfer
Notice); provided, however, that in
the event the Transfer Notice
provided that payment for the Common
Shares was to be made in a form other
than lawful money paid at the time of
transfer, the Company shall have the
option of paying for the Common
Shares with lawful money equal to the
present value of the consideration
described in the Transfer Notice.
The Company's Right of First Refusal
shall inure to the benefit of its
successors and assigns and shall be
binding upon any transferee of the
Common Shares.
The Company's Right of First Refusal
shall terminate in the event that
Common Shares are listed or traded on
an established stock exchange.
RIGHT OF REPURCHASE Following termination of your service
for any reason, the Company shall
have the right to purchase all of
those Common Shares that you have or
will acquire under this Option. If
the Company fails to provide you with
written notice of its intention to
purchase such Common Shares before or
within 30 days of the date the
Company receives written notice from
you of your termination of service,
the Company's right to purchase such
Common Shares shall terminate. If
the Company exercises its right to
purchase such Common Shares, the
Company will consummate the purchase
of such Common Shares within 60 days
of the date of its written notice to
you. The purchase price for
any
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<PAGE>
Common Shares repurchased shall be
the Fair Market Value of such Common
Shares on the date of purchase and
shall be paid in cash. The Company's
right of repurchase shall terminate
in the event that Common Shares are
issued or traded on an established
stock exchange.
TRANSFER OF OPTION Prior to your death, only you may
exercise this Option. You cannot
transfer or assign this Option. For
instance, you may not sell this
Option or use it as security for a
loan. If you attempt to do any of
these things, this Option will
immediately become invalid. You may,
however, dispose of this Option by
beneficiary designation or in your
will.
Regardless of any marital property
settlement agreement, the Company is
not obligated to honor a Notice of
Exercise from your spouse or former
spouse, nor is the Company obligated
to recognize such individual's
interest in your Option in any other
way.
RETENTION RIGHTS This Agreement does not give you the
right to be retained by the Company
in any capacity. The Company
reserves the right to terminate your
service at any time and for any
reason.
STOCKHOLDERS RIGHTS You, or your estate or heirs, have no
rights as a stockholder of the
Company until a certificate for the
Common Shares acquired upon exercise
of this Option has been issued. No
adjustments are made for dividends or
other rights if the applicable record
date occurs before your stock
certificate is issued, except as
described in the Plan.
ADJUSTMENTS In the event of a stock split, a
stock dividend or a similar change in
the Common Shares, the number of
Common Shares covered by this Option
and the Exercise Price per share may
be adjusted pursuant to the Plan.
Your Option shall be subject to the
terms of the agreement of merger,
liquidation or reorganization in the
event the Company is subject to such
corporate activity.
LEGENDS All certificates representing the
Common Shares issued upon exercise of
this Option shall, where applicable,
have endorsed thereon the following
legends:
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND OPTIONS
TO PURCHASE SUCH SHARES SET FORTH IN
AN AGREEMENT BETWEEN THE COMPANY AND
THE REGISTERED HOLDER, OR HIS OR HER
PREDECESSOR IN INTEREST. A COPY OF
SUCH AGREEMENT IS ON
-6-
<PAGE>
FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED UPON
WRITTEN REQUEST TO THE SECRETARY OF
THE COMPANY BY THE HOLDER OF RECORD
OF THE SHARES REPRESENTED BY THIS
CERTIFICATE.
APPLICABLE LAW This Agreement will be interpreted
and enforced under the laws of the
State of Delaware (without regard to
their choice of law provisions).
THE PLAN AND OTHER AGREEMENTS The text of the Plan is incorporated
in this Agreement by reference.
Certain capitalized terms used in
this Agreement are defined in the
Plan.
This Agreement and the Plan
constitute the entire understanding
between you and the Company regarding
this Option and the terminated
Option. Any prior agreements,
commitments or negotiations
concerning this Option and the
terminated Option are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS
AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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<PAGE>
NEWCOM, INC.
1997 STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
NewCom, Inc., a Delaware corporation (the "Company"), hereby grants an
option to purchase __________ Shares of its common stock (the "Common Shares")
to the optionee named below. The terms and conditions of the option are set
forth in this Nonstatutory Stock Option Agreement and in the Company's 1997
Stock Incentive Plan (the "Plan").
Date of Grant: _____________________________________________________________
Name of Optionee: __________________________________________________________
Optionee's Social Security Number: _________________________________________
Exercise Price per Share (100% of fair market value): $ ___________________
Vesting Start Date: ________________________________________________________
* * * * *
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS
DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN.
Optionee: ________________________________________________________________
(Signature)
Company: ________________________________________________________________
(Signature)
Title: ______________________________________________________________
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<PAGE>
NEWCOM, INC.
1997 STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
NONSTATUTORY STOCK This Option is not intended to be an incentive stock
OPTION option under section 422 of the Internal Revenue
Code and will be interpreted accordingly.
VESTING/ Your right to exercise this Option vests annually
EXERCISABILITY over a four year period beginning one year after the
Vesting Start Date as shown on the cover sheet. This
Option vests at a rate of 25% of the Common Shares
covered by the Option at the end of each of the
first, second, third and fourth year, respectively,
after the Vesting Start Date. The number of Common
Shares which may be purchased under this Option by
you at the Exercise Price shall be rounded to the
nearest whole number. No additional Common Shares
will vest after your service has terminated for any
reason. In addition, your right to exercise this
Option shall vest in full if there is a Change in
Control of the Company. However, no Common Shares
will vest after your service as an Outside Director
has terminated for any other reason.
TERM Your Option will expire in any event at the close of
business at Company headquarters on the 10th
anniversary of the Date of Grant, as shown on the
cover sheet. (It will expire earlier if your service
as an Outside Director terminates, as described
below.)
TERMINATION If your service as an Outside Director of the
Company terminates for any reason except death or
Disability, then your Option will expire at the
close of business at Company headquarters on the
30th day after your service as an Outside Director
terminates. During such 30-day period, you may
exercise that portion of your Option that was vested
on your termination date.
DEATH If you die while an Outside Director of the Company,
then your Option will expire at the close of
business at Company headquarters on the date 12
months after the date of death. During that 12-month
period, your beneficiary, estate or heirs may
exercise that portion of your Option that was vested
on your date of death.
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<PAGE>
DISABILITY If your service as an Outside Director of the Company
terminates because of your Disability, then your Option
will expire at the close of business at Company
headquarters on the date 90 days after your service as
an Outside Director terminates. During such 90-day
period, you may exercise that portion of your Option
that was vested on your date of Disability.
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment for an
extended period of time.
NOTICE OF EXERCISE When you wish to exercise this Option, you must notify
the Committee by filing the proper "Notice of Exercise"
form at the address given on the form. Your Notice must
specify how many Common Shares you wish to purchase.
Your Notice must also specify how your Common Shares
should be registered (in your name only, in your and
your spouse's names as community property or as joint
tenants with right of survivorship or in a trust for
your benefit). The Notice will be effective when it is
received by the Committee. If someone else wants to
exercise this Option after your death, that person must
prove to the Committee's satisfaction that he or she is
entitled to do so.
FORM OF PAYMENT When you submit your Notice of Exercise, you must
include payment of the Exercise Price for the Common
Shares you are purchasing. Payment may be made in one
(or a combination) of the following forms:
. Your personal check, a cashier's check or a money
order.
. Common Shares which have already been owned by you for
more than six months and which are surrendered to the
Company. The value of the Common Shares, determined as
of the effective date of the Option exercise, will be
applied to the Exercise Price.
. By delivery (on a form prescribed by the Committee) of
an irrevocable direction to a securities broker to
sell Common Shares and to deliver all or part of the
sale proceeds to the Company in payment of the
aggregate Exercise Price.
RESTRICTIONS ON By signing this Agreement, you agree not to sell any
EXERCISE AND RESALE Common Shares at a time when applicable laws,
regulations or Company or underwriter trading policies
prohibit a sale. For example, prior to an initial public
offering, the Company may, in its sole discretion,
restrict the transfer of shares for up to 6 months from
-3-
<PAGE>
the date of exercise. In connection with any underwritten
public offering by the Company of its equity securities
pursuant to an effective registration statement filed
under the Securities Act, including the Company's initial
public offering, you agree not to sell, make any short
sale of, loan, hypothecate, pledge, grant any option for
the purchase of, or otherwise dispose or transfer for
value or agree to engage in any of the foregoing
transactions with respect to any shares without the prior
written consent of the Company or its underwriters, for
such period of time after the effective date of such
registration statement as may be requested by the Company
or such underwriters.
In order to enforce the provisions of this paragraph, the
Company may impose stop-transfer instructions with respect
to the shares.
You represent and agree that the Common Shares to be
acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or
distribution thereof.
In the event that the sale of Common Shares under the Plan
is not registered under the Securities Act but an
exemption is available which requires an investment
representation or other representation, you shall
represent and agree at the time of exercise that the
Shares being acquired upon exercising this option are
being acquired for investment, and not with a view to the
sale or distribution thereof, and shall make such other
representations as are deemed necessary or appropriate by
the Company and its counsel.
THE COMPANY'S In the event that you propose to sell, pledge or otherwise
RIGHT OF FIRST transfer to a third party any Common Shares acquired under
REFUSAL this Agreement, or any interest in such Common Shares, the
Company shall have the "Right of First Refusal" with
respect to all (and not less than all) of such Common
Shares. If you desire to transfer Common Shares acquired
under this Agreement, you must give a written "Transfer
Notice" to the Committee describing fully the proposed
transfer, including the number of Common Shares proposed
to be transferred, the proposed transfer price and the
name and address of the proposed transferee. The Transfer
Notice shall be signed both by you and by the proposed
transferee and must constitute a binding commitment of
both parties to the transfer of the Common Shares. The
Company shall have the right to purchase all, and not less
than all, of the Common Shares on the terms described in
the Transfer Notice (subject, however, to any change in
such terms permitted in the next paragraph) by delivery of
a notice of exercise of the Right of First Refusal within
30 days after the date when the Transfer
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<PAGE>
Notice was received by the Committee. The Company's
rights under this Subsection shall be freely assignable,
in whole or in part.
If the Company fails to exercise its Right of First
Refusal within 30 days after the date when the Committee
received the Transfer Notice, you may, not later than 90
days following receipt of the Transfer Notice by the
Company, conclude a transfer of the Common Shares subject
to the Transfer Notice on the terms and conditions
described in the Transfer Notice. Any proposed transfer
on terms and conditions different from those described in
the Transfer Notice, as well as any subsequent proposed
transfer by you, shall again be subject to the Right of
First Refusal and shall require compliance with the
procedure described in the paragraph above. If the
Company exercises its Right of First Refusal, the parties
shall consummate the sale of the Common Shares on the
terms set forth in the Transfer Notice within 60 days
after the date when the Committee received the Transfer
Notice (or within such longer period as may have been
specified in the Transfer Notice); provided, however,
that in the event the Transfer Notice provided that
payment for the Common Shares was to be made in a form
other than lawful money paid at the time of transfer, the
Company shall have the option of paying for the Common
Shares with lawful money equal to the present value of
the consideration described in the Transfer Notice.
The Company's Right of First Refusal shall inure to the
benefit of its successors and assigns and shall be
binding upon any transferee of the Common Shares.
The Company's Right of First Refusal shall terminate in
the event that Common Shares are listed or traded on an
established stock exchange.
RIGHT OF REPURCHASE Following termination of your service for any reason, the
Company shall have the right to purchase all of those
Common Shares that you have or will acquire under this
Option. If the Company fails to provide you with written
notice of its intention to purchase such Common Shares
before or within 30 days of the date the Company receives
written notice from you of your termination of service,
the Company's right to purchase such Common Shares shall
terminate. If the Company exercises its right to purchase
such Common Shares, the Company will consummate the
purchase of such Common Shares within 60 days of the date
of its written notice to you. The purchase price for any
Common Shares repurchased shall be the Fair Market Value
of such Common Shares on the date of purchase and shall
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<PAGE>
be paid in cash. The Company's right of repurchase shall
terminate in the event that Common Shares are issued or
traded on an established stock exchange.
TRANSFER OF OPTION Prior to your death, only you may exercise this Option.
You cannot transfer or assign this Option. For instance,
you may not sell this Option or use it as security for a
loan. If you attempt to do any of these things, this
Option will immediately become invalid. You may, however,
dispose of this Option by beneficiary designation or in
your will.
Regardless of any marital property settlement agreement,
the Company is not obligated to honor a Notice of
Exercise from your spouse or former spouse, nor is the
Company obligated to recognize such individual's interest
in your Option in any other way.
RETENTION RIGHTS This Agreement does not give you the right to be retained
by the Company in any capacity. The Company reserves the
right to terminate your service at any time and for any
reason.
STOCKHOLDER RIGHTS You or your estate or heirs, have no rights as a
stockholder of the Company until a certificate for the
Common Shares acquired upon exercise of your Option has
been issued. No adjustments are made for dividends or
other rights if the applicable record date occurs before
your stock certificate is issued, except as described in
the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or a
similar change in the Common Shares, the number of Common
Shares covered by this Option and the Exercise Price per
share may be adjusted pursuant to the Plan. Your Option
shall be subject to the terms of the agreement of merger,
liquidation or reorganization in the event the Company is
subject to such corporate activity. Any fractional number
of shares available under the Option shall be rounded to
the nearest whole number.
LEGENDS All certificates representing the Common Shares issued
upon exercise of this Option shall, where applicable,
have endorsed thereon the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
OPTIONS TO PURCHASE SUCH SHARES SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST. A COPY
OF
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<PAGE>
SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY AND WILL BE FURNISHED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE COMPANY BY THE HOLDER
OF RECORD OF THE SHARES REPRESENTED BY THIS
CERTIFICATE.
APPLICABLE LAW This Option will be interpreted and enforced under the
laws of the State of Delaware (without regard to their
choice of law provisions).
THE PLAN AND OTHER The text of the Plan is incorporated in this Agreement by
AGREEMENTS reference. Certain capitalized terms used in this
Agreement are defined in the Plan.
This Nonstatutory Stock Option Agreement and the Plan
constitute the entire understanding between you and the
Company regarding this Option. Any prior agreements,
commitments or negotiations concerning this Option are
superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS
AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
$__________ September __, 1997
FOR VALUE RECEIVED, NewCom, Inc., a Delaware Corporation ("Maker") promises
to pay to Aura Systems, Inc., a Delaware Corporation ("Payee"), or order, the
principal sum of ____________________ ($__________), and to pay interest on the
unpaid principal balance from this date at the annual rate of nine percent (9%).
Principal and all accrued interest shall be payable in full on September
__, 1997.
Interest shall be computed on the basis of a year of 365 days for the
actual number of days elapsed. Interest not paid when due shall thereafter bear
like interest as the principal.
This Note may be prepayed at any time in full or in part without penalty.
All payments under this Note shall be made in lawful currency of the United
States of America at the principal offices of Payee at 2335 Alaska Avenue, El
Segundo, California 90245.
If Maker defaults in any payment due under this Note, the entire unpaid
principal and accrued but unpaid interest shall, at the option of the holder,
become immediately due and payable.
Maker waives diligence, presentment, protest, demand and notice of protest,
demand, dishonor and nonpayment of this Note, and expressly agrees that this
Note, or any payment under it, may be extended by the holder from time to time
without in any way affecting the liability of Maker.
Maker agrees to reimburse the holder of this Note for all costs of
collection or enforcement of this Note, whether or not suit is filed (including,
but not limited to, reasonable attorneys' fees), incurred by the holder.
It is the intention of Maker and Payee that the provisions of this Note
shall be enforced to the maximum extent possible. Accordingly, if any of the
provisions of this Note shall be determined by a court of competent jurisdiction
to be invalid or unenforceable, such provisions shall be reformed by the court
and enforced to the maximum extent possible. The invalidity or unenforceability
of any particular provision of the Note shall not affect the validity or
enforceability of any other provisions of this Note.
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF THIS NOTE OR THE
INTERPRETATION OR PERFORMANCE OF, OR DEFAULT UNDER, THIS NOTE MAY BE INSTITUTED
AND LITIGATED IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF
LOS ANGELES OR IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF
CALIFORNIA.
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<PAGE>
MAKER IRREVOCABLY SUBMITS TO THE JURISDICTION OF THOSE COURTS AND WAIVES ANY AND
ALL OBJECTIONS TO JURISDICTION OR VENUE THAT IT MAY HAVE UNDER THE LAWS OF THE
STATE OF CALIFORNIA OR OTHERWISE IN THOSE COURTS IN ANY SUIT, ACTION OR
PROCEEDING. ANY FINAL JUDGMENT RENDERED AGAINST MAKER IN ANY SUIT, ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AS TO THE SUBJECT MATTER OF SUCH FINAL JUDGMENT
AND MAY BE ENFORCED IN OTHER JURISDICTIONS IN ANY MANNER PROVIDED BY LAW.
This Note shall be governed by and construed in accordance with the laws of
the State of California.
Executed at ____________________, California.
NewCom, Inc., a Delaware Corporation
By _______________________________________
Title ____________________________________
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<PAGE>
EXHIBIT 10.10
WARRANT AGREEMENT
-----------------
THIS WARRANT AGREEMENT, dated as of __________, 1997, between NEWCOM, INC.,
------------
a Delaware corporation (the "Company"), and INTERWEST TRANSFER COMPANY, INC.
--------------------------------
(the "Warrant Agent"),
W I T N E S S E T H:
WHEREAS, in connection with an initial public offering (the "Public
Offering"), the Company has issued or will issue Units, consisting of one share
of Common Stock of the Company, $0.001 par value (the "Common Stock"), and one
Redeemable Common Stock Purchase Warrant (a "Warrant"), entitling the Registered
Owner of the Warrant to purchase one share of Common Stock; and
WHEREAS, the Company also has granted or will grant the several
underwriters (the "Underwriters") of the Company's Public Offering the option to
purchase additional Units containing Warrants to cover over-allotments (the
"Over-Allotment Warrants"); and
WHEREAS, the Company also has granted the representative of the several
Underwriters, Joseph Charles & Associates, Inc. (the "Representative"), purchase
options (the "Purchase Options") to purchase Units containing Warrants (the
"Representative's Warrants"); and
WHEREAS, the Company desires to provide for the issuance, registration,
transfer, exchange and exercise of certificates representing the Warrants (the
"Warrant Certificates"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer and exchange of Warrant Certificates and
exercise of the Warrants:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrant Certificates and the Warrants, and the respective rights and
obligations thereunder of the Company, the registered holders of the Warrant
Certificates and the Warrant Agent, the parties hereto agree as follows:
1. Definitions. As used herein:
-----------
(a) "Common Stock" shall mean Common Stock, $0.001 par value per share, of
the Company, whether now or hereafter authorized.
(b) "Corporate Office" shall mean the place of business of the Warrant
Agent (or its successor) located in Salt Lake City, Utah, which office is
presently located at __________________.
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<PAGE>
(c) "Effective Date" shall mean __________, 1997, the date on which the
Company's Registration Statement is or will be declared effective by the
Securities and Exchange Commission.
(d) "Exercise Date" shall mean the date of surrender for exercise of any
Warrant Certificate to the Warrant Agent at its Corporate Office, provided the
exercise form on the back of the Warrant Certificate or a form substantially
similar thereto has been properly completed in full by the Registered Owner or a
duly appointed attorney and the Warrant Certificate is accompanied by payment in
full of the Exercise Price.
(e) "Exercise Period" shall mean the period commencing on the Effective
Date and extending to and including the Expiration Date.
(f) "Exercise Price" shall mean a purchase price of $_____ per share of
Common Stock (150% of the $_____ offering price of the Units in the Public
Offering); provided, however, that in the event the Company reduces the Exercise
Price, the Exercise Price shall be as established by the Company.
(g) "Expiration Date" shall mean 5:00 p.m. Pacific Standard Time on the
last day of the five (5) year period commencing on the Effective Date, subject
to the terms provided in Section 5 herein for redemption and subject to
extension by the Board of Directors of the Company; provided, however, if such
date shall be a holiday or a day on which banks are authorized to remain closed,
then Expiration Date shall mean 5:00 p.m. Pacific Standard Time on the next
following day which in the State of California is not a holiday or a day on
which banks are authorized to remain closed. The Expiration Date may be
extended from time to time, by resolution of the Board of Directors of the
Company, to a later date upon giving notice to the Warrant Agent and the
Registered Owners; provided, however, that notice to the Registered Owners of an
extension of the Expiration Date may be made by publication or by release to Dow
Jones, P.R. Newswire or other means of general distribution. If the Company
redeems the Warrants as provided in Section 5 of this agreement, the Expiration
Date shall be the date fixed for redemption.
(h) "Firm Warrants" shall mean 1,700,000 Warrants to purchase 1,700,000
shares of Common Stock, all purchased by the several Underwriters from the
Company and sold in the Public Offering in accordance with the Underwriting
Agreement.
(i) "Over-Allotment Warrants" shall mean 255,000 Warrants to purchase
255,000 shares of Common Stock, any or all of which may be purchased by the
Representative for the several Underwriters from the Company in accordance with
the Underwriting Agreement. The Over-Allotment Warrants shall have identical
terms and conditions to those established for the Firm Warrants, subject to
their issuance in accordance with Section 2 hereof.
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<PAGE>
(j) "Registered Owner" shall mean the person in whose name any Warrant
Certificate shall be registered on the books maintained by the Warrant Agent
pursuant to Section 6 of this Agreement.
(k) "Registration Statement" shall mean the Company's Registration
Statement on Form S-1 (SEC File No. 333-31431), as amended.
(l) "Representative's Warrants" shall mean 170,000 Warrants to purchase
170,000 shares of Common Stock, issuable upon exercise of the Representative's
Purchase Option and all of which were or will be registered on the Registration
Statement. The Representative's Warrants shall have identical terms and
conditions to those established for the Firm Warrants (except for the Exercise
Price, which shall be equal to $________ per share of Common Stock (110% of the
$________ offering price of the Units in the Public Offering)), subject to their
issuance in accordance with Section 2 hereof.
(m) "Subsidiary" shall mean any corporation of which shares having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (regardless of whether the shares of any other class or classes of
such corporation shall have or may have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the Company
or one or more subsidiaries of the Company.
(n) "Transfer Agent" shall mean Interwest Transfer Company, Inc., or its
successor, as the transfer agent and registrar of the Common Stock.
(o) "Underwriting Agreement" shall mean the Underwriting Agreement, dated
__________, 1997, between the Company and the Representative.
(p) "Warrant" or the "Warrants" shall mean and include up to 2,125,000
Warrants to purchase 2,125,000 authorized and unissued shares of Common Stock of
the Company and, unless otherwise noted, shall include 1,700,000 Firm Warrants,
255,000 Over-Allotment Warrants and 170,000 Representative's Warrants, each of
such Warrants evidencing the right to purchase one share of Common Stock.
(q) "Warrant Agent" shall mean Interwest Transfer Company, Inc., or its
successor, as the transfer agent and registrar of the Warrants.
(r) "Warrant Shares" shall mean and include up to 2,125,000 authorized and
unissued shares of Common Stock reserved for issuance on exercise of the
Warrants, and unless otherwise noted, shall include 1,700,000 shares of Common
Stock issuable upon exercise of the Firm Warrants, 255,000 shares of Common
Stock issuable upon exercise of the Over-Allotment
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<PAGE>
Warrants, 170,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants and any additional shares of Common Stock or other
property which may hereafter be issuable or deliverable on exercise of the
Warrants pursuant to Section 9 of this Agreement.
Any capitalized terms used herein not otherwise defined herein shall have
the meaning assigned to them in the Underwriting Agreement.
2. Warrants and Issuance of Warrant Certificates. Each Warrant shall
---------------------------------------------
initially entitle the Registered Owner of the Warrant Certificate representing
such Warrant to purchase one share of Common Stock on exercise thereof, subject
to modification and adjustment as hereinafter provided in Section 9. Warrant
Certificates representing the Firm Warrants shall be executed by the proper
officers of the Company and delivered to the Warrant Agent for countersignature
on the Effective Date. Certificates representing the Firm Warrants to be
delivered to the Warrant Agent shall be in direct relation to the number of
Units sold in the Company's Public Offering and shall be attached to
certificates representing an equal number of shares of Common Stock. The
Warrant Certificates will be issued and delivered on written order of the
Company signed by an authorized officer. The Warrant Agent shall deliver
Warrant Certificates in required whole number denominations to the persons
entitled thereto in connection with any transfer or exchange permitted under
this Agreement.
The Over-Allotment Warrants shall carry identical terms and conditions to
those established for the Firm Warrants and outlined herein. Any Over-Allotment
Warrants to be issued will be executed by the proper officers of the Company and
delivered to the Warrant Agent for countersignature on exercise of the option to
purchase Units containing the Over-Allotment Warrants by the several
Underwriters in accordance with the Underwriting Agreement.
The Representative's Warrants shall carry identical terms and conditions to
those established for the Firm Warrants and outlined herein (except for the
Exercise Price of such Representative's Warrants, as set forth in Section 1(l)).
Any Representative's Warrants to be issued will be executed by the proper
officers of the Company and delivered to the Warrant Agent for countersignature
on exercise of the Representative's Purchase Options to purchase Units
containing the Representative's Warrants, which Purchase Options may not be
exercised prior to one (1) year from the Effective Date, and may not be
exercised after the Expiration Date.
Except as provided in Section 8 hereof, share certificates representing the
Warrant Shares shall be issued only on or after the Exercise Date on exercise of
the Warrants or on transfer or exchange of the Warrants. The Warrant Agent, if
other than the
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<PAGE>
Company's Transfer Agent, shall arrange with the Transfer Agent for the issuance
and registration of all Warrant Shares.
3. Form and Execution of Warrant Certificates. The Warrant Certificates
------------------------------------------
shall be substantially in the form attached hereto as Exhibit A and may have
---------
such letters, numbers or other marks of identification and such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement. The Warrant Certificates shall be dated as of the date of
issuance, whether on initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates.
Each Warrant Certificate shall be initially issued only when attached to a
certificate representing the same number of shares of Common Stock as Warrants
and shall be separately transferable from the certificate representing shares of
Common Stock immediately upon issuance.
The Warrant Certificates shall be executed on behalf of the Company by its
President and Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal, if
any. The Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. In the
event any officer of the Company who executed the Warrant Certificates shall
cease to be an officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature and delivery by the Warrant Agent, such
Warrant Certificates may be countersigned, issued and delivered by the Warrant
Agent with the same force and effect as though the person who signed such
Warrant Certificates had not ceased to be an officer of the Company.
4. Exercise. The Warrants will become exercisable on the Effective Date.
--------
The exercise of Warrants in accordance with this Agreement shall only be
permitted during the Exercise Period.
Warrants shall be deemed to have been exercised immediately prior to the
close of business on the Exercise Date. The exercise form shall be executed by
the Registered Owner thereof or his attorney duly authorized in writing and
shall be delivered together with payment to the Warrant Agent, in cash or by
official bank or certified check, of an amount in lawful money of the United
States of America. Such payment shall be in an amount equal to the Exercise
Price.
The person entitled to receive the number of Warrant Shares deliverable on
such exercise shall be treated for all purposes as the Registered Owner of such
Warrant Shares as of the close of business on the Exercise Date. The Company
shall not be obligated to issue any fractional share interests in Warrant
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<PAGE>
Shares. If Warrants represented by more than one Warrant Certificate shall be
exercised at one time by the same Registered Owner, the number of full Warrant
Shares which shall be issuable on exercise of such Warrant Certificates shall be
computed on the basis of the aggregate number of full Warrant Shares issuable on
such exercise.
As soon as practicable on or after the Exercise Date and in any event
within thirty (30) days after such date, the Warrant Agent shall cause to be
issued and delivered by the Transfer Agent to the person or persons entitled to
receive the same, a certificate or certificates for the number of Warrant Shares
deliverable on such exercise. No adjustment shall be made in respect of cash
dividends on Warrant Shares deliverable on exercise of any Warrant. The Warrant
Agent shall promptly notify the Company in writing of any exercise and of the
number of Warrant Shares caused to be delivered and shall cause payment of an
amount in cash equal to the Exercise Price to be made promptly to the order of
the Company. The parties contemplate such payments will be made by the Warrant
Agent to the Company on a weekly basis and will consist of collected funds only.
The Warrant Agent shall hold any proceeds collected and not yet paid to the
Company in a Federally-insured escrow account at a commercial bank selected by
agreement of the Company and the Warrant Agent, at all times relevant hereto.
Following a determination by the Warrant Agent that collected funds have been
received, the Warrant Agent shall cause the Transfer Agent to issue share
certificates representing the number of Warrant Shares purchased by the
Registered Owner.
Expenses incurred by the Warrant Agent, including administrative costs,
costs of maintaining records and other expenses, shall be paid by the Company
according to the standard fees imposed by the Warrant Agent for such services.
All expenses incurred by the Warrant Agent and to be paid by the Company shall
be deducted from the escrow account prior to distribution of funds to the
Company.
A detailed accounting statement setting forth the number of Warrants
exercised, the number of Warrant Shares issued and the names and addresses of
the holders of such Warrant Shares, the net amount of funds from the exercise of
Warrants and all expenses incurred by the Warrant Agent shall be transmitted to
the Company on payment of each exercise amount. Such accounting statement shall
serve as an interim accounting issued, for the Company during the Exercise
Period. The Warrant Agent shall render to the Company, at the completion of the
Exercise Period, a complete accounting setting forth the number of Warrants
exercised, the identity of persons exercising such Warrants, the number of
Warrant Shares issued and the names and addresses of the holders of such Warrant
Shares, the amounts distributed to the Company, and all expenses incurred by the
Warrant Agent.
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<PAGE>
Under certain circumstances, the Company may be required to deliver a
prospectus that satisfies the requirements of section 10 of the Securities Act
of 1933, as amended (the "1933 Act") with delivery of the Warrant Shares and
must have a registration statement (or a post-effective amendment to an existing
registration statement) effective under the 1933 Act in order for the Company to
comply with any such prospectus delivery requirements. The Company will advise
the Warrant Agent of the status of any such registration statement under the
1933 Act and of the effectiveness of the Company's registration statement or
lapse of effectiveness.
No issuance of Warrant Shares shall be made unless there is an effective
registration statement under the 1933 Act (or an exemption therefrom), and
registration or qualification of the Warrant Shares (or an exemption therefrom)
has been obtained from state or other regulatory authorities in the jurisdiction
in which such Warrant Shares are sold. The Company will provide to the Warrant
Agent written confirmation of all such registration or qualification, or an
exemption therefrom, when requested by the Warrant Agent.
Upon thirty (30) days' prior written notice to all Registered Owners of
Warrants, the Company shall have the right to reduce the Exercise Price and/or
extend the term of the Warrants beyond the Expiration Date to a new Expiration
Date.
5. Redemption. At any time one year after the Effective Date, or such
----------
earlier date as may be determined by the Representative, the Company may, at its
option, redeem the Warrants in whole, but not in part, for a redemption price of
$.05 per Warrant, on thirty (30) days' prior written notice to the Registered
Owners. The right to redeem the Warrants may be exercised by the Company only
in the event (a) the closing price for the Company's shares of Common Stock has
exceeded two hundred percent (200%) of the initial Public Offering price of the
Units during a period of at least twenty (20) consecutive trading days within
the thirty (30) day period immediately preceding any notice of the call for
redemption, (b) the Company has a registration statement (or a post-effective
amendment to an existing registration statement) pertaining to the Warrant
Shares effective under federal law, which registration statement would enable a
Registered Owner to exercise the Warrants provided the Registered Owner resides
in a jurisdiction in which exercise is permitted, and (c) the expiration of the
thirty (30) day notice period is within the Exercise Period. In the event the
Company exercises its right to redeem the Warrants, the Expiration Date will be
deemed to be, and the Warrants will be exercisable until the close of business
on, the date fixed for redemption in such notice. If any Warrant called for
redemption is not exercised by such time, it will cease to be exercisable and
the Registered Owner thereof will be entitled only to the redemption price of
$0.05 per Warrant.
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<PAGE>
6. Reservation of Shares and Payment of Taxes. The Company covenants that
------------------------------------------
it will at all times reserve and have available from its authorized shares of
Common Stock such number of shares of Common Stock as shall then be issuable on
exercise of all outstanding Warrants. The Company covenants that all Warrant
Shares issuable shall be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Registered Owner shall pay all documentary, stamp or similar taxes and
other government charges that may be imposed with respect to the issuance of the
Warrants, or the issuance, transfer or delivery of any Warrant Shares on
exercise of the Warrants. In the event the Warrant Shares are to be delivered
in a name other than the name of the Registered Owner of the Warrant
Certificates, no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent or Transfer Agent the amount of any such
taxes or charges incident thereto.
The Company will supply the Warrant Agent with blank Warrant Certificates,
so as to maintain an inventory satisfactory to the Warrant Agent. The Company
will file with the Warrant Agent a statement setting forth the name and address
of its Transfer Agent for Warrant Shares and of each successor Transfer Agent,
if any.
7. Registration of Transfer. The Warrant Certificates may be transferred
------------------------
in whole or in part and may be separately transferred from the Common Stock
share certificate to which such Warrant Certificate is attached upon initial
issuance. Warrant Certificates to be exchanged shall be surrendered to the
Warrant Agent at its Corporate Office. The Company shall execute and the
Warrant Agent shall countersign, issue and deliver in exchange for such
surrendered Warrant Certificates, the Warrant Certificate or Certificates which
the holder making the transfer shall be entitled to receive.
The Warrant Agent shall keep transfer books at its Corporate Office on
which Warrant Certificates and the transfer thereof shall be registered. On due
presentment for registration of transfer of any Warrant Certificate at such
Corporate Office, the Company shall execute and the Warrant Agent shall issue
and deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
All Warrant Certificates presented for registration of transfer or exercise
shall be duly endorsed or be accompanied by a written instrument or instruments
of transfer in form satisfactory to the Company and the Warrant Agent.
Prior to due presentment for registration of transfer thereof, the Company
and the Warrant Agent may treat the Regis-
-8-
<PAGE>
tered Owner of any Warrant Certificate as the absolute owner thereof
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company or the Warrant Agent) and the parties hereto shall not be
affected by any notice to the contrary.
8. Loss or Mutilation. On receipt by the Company and the Warrant Agent of
------------------
evidence satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of any Warrant Certificate, the Company shall execute and the Warrant
Agent shall countersign and deliver in lieu thereof, a new Warrant Certificate
representing an equal aggregate number of Warrants. In the case of loss, theft
or destruction of any Warrant Certificate, the Registered Owner requesting
issuance of a new Warrant Certificate shall be required to secure an indemnity
bond in favor of the Company and Warrant Agent in an amount satisfactory to each
of them. In the event a Warrant Certificate is mutilated, such Certificate
shall be surrendered and canceled by the Warrant Agent prior to delivery of a
new Warrant Certificate. Applicants for a substitute Warrant Certificate shall
also comply with such other regulations and pay such other reasonable charges as
the Company may prescribe.
9. Adjustment of Exercise Price and Shares.
---------------------------------------
(a) If at any time prior to the redemption of the Warrants by the Company
or the expiration of the Warrants by their terms or by exercise, the Company
increases or decreases the number of its issued and outstanding shares of Common
Stock, or changes in any way the rights and privileges of such shares of Common
Stock, by means of (i) the payment of a share dividend or the making of any
other distribution on such shares of Common Stock payable in its shares of
Common Stock, (ii) a split or subdivision of shares of Common Stock, or (iii) a
consolidation or combination of shares of Common Stock, then the Exercise Price
in effect at the time of such action and the number of Warrants required to
purchase each Warrant Share at that time shall be proportionately adjusted so
that the numbers, rights and privileges relating to the Warrant Shares then
purchasable upon the exercise of the Warrants shall be increased, decreased or
changed in like manner, for the same aggregate purchase price set forth in the
Warrants, as if the Warrant Shares purchasable upon the exercise of the Warrants
immediately prior to the event had been issued and outstanding at the time of
that event. Any dividend paid or distributed on the shares of Common Stock in
shares of any other class of shares of the Company or securities convertible
into shares of Common Stock shall be treated as a dividend paid in shares of
Common Stock to the extent shares of Common Stock are issuable on the payment or
conversion thereof.
(b) In the event that, prior to the redemption of the Warrants by the
Company or the expiration of the Warrants by exercise or by their terms, the
Company shall be recapitalized by reclassifying its outstanding shares of Common
Stock into
-9-
<PAGE>
shares with a different par value, or by changing its outstanding shares of
Common Stock to shares without par value or in the event of any other material
change of the capital structure of the Company or of any successor corporation
by reason of any reclassification, recapitalization or conveyance, prompt,
proportionate, equitable, lawful and adequate provision shall be made whereby
any Registered Owner of the Warrants shall thereafter have the right to
purchase, on the basis and the terms and conditions specified in this Agreement,
in lieu of the Warrant Shares theretofore purchasable on the exercise of any
Warrant, such securities or assets as may be issued or payable with respect to
or in exchange for the number of Warrant Shares theretofore purchasable on
exercise of the Warrants had such reclassification, recapitalization or
conveyance not taken place, and in any such event, the rights of any Registered
Owner of a Warrant to any adjustment in the number of Warrant Shares purchasable
on exercise of such Warrant, as set forth above, shall continue and be preserved
in respect of any stock, securities or assets which the Registered Owner
becomes entitled to purchase.
(c) In the event the Company, at any time while the Warrants shall remain
unreedemed, unexpired and unexercised, shall sell all or substantially all of
its assets, or dissolves, liquidates or winds up its affairs, prompt,
proportionate, equitable, lawful and adequate provision shall be made as part of
the terms of such sale, dissolution, liquidation or winding up such that the
Registered Owner of a Warrant may thereafter receive, on exercise thereof, in
lieu of each Warrant Share which he would have been entitled to receive, the
same kind and amount of any stock, securities or assets as may be issuable,
distributable or payable on any such sale, dissolution, liquidation or winding
up with respect to each share of Common Stock of the Company; provided, however,
that in the event of any such sale, dissolution, liquidation or winding up, the
right to exercise the Warrants shall terminate on a date fixed by the Company,
such date to be not earlier than 5:00 p.m. Pacific Standard Time on the
thirtieth (30th) day next succeeding the date on which notice of such
termination of the right to exercise the Warrants has been given by mail to the
Registered Owners thereof at such addresses as may appear on the books of the
Company.
(d) On exercise of the Warrants by the Registered Owners, the Company
shall not be required to deliver fractions of Warrant Shares; provided, however,
that the Company shall make prompt, proportionate, equitable, lawful and
adequate provisions in respect of any such fraction of one Warrant Share either
on the basis of adjustment in the then applicable Exercise Price or a purchase
of the fractional interest at the price of the Company's shares of Common Stock
on the Exercise Date or such other reasonable basis as the Company may
determine.
-10-
<PAGE>
(e) In the event, prior to the redemption of the Warrants by the Company
or the expiration of the Warrants by exercise or by their terms, the Company
shall determine to take a record of the holders of its shares of Common Stock
for the purpose of determining shareholders entitled to receive any stock
dividend, distribution or other right which will cause any change or adjustment
in the number, amount, price or nature of the shares of Common Stock or other
stock, securities or assets deliverable on exercise of the Warrants pursuant to
the foregoing provisions, the Company shall give to the Registered Owners of the
Warrants at the addresses as may appear on the books of the Company at least
thirty (30) days' prior written notice to the effect that it intends to take
such a record. Such notice shall specify the date as of which such record is to
be taken; the purpose for which such record is to be taken; and the number,
amount, price and nature of the shares of Common Stock or other stock,
securities or assets that will be deliverable on exercise of the Warrants after
the action for which such record will be taken has been completed. Without
limiting the obligation of the Company to provide notice to the Registered
Owners of the Warrants of any corporate action hereunder, the failure of the
Company to give notice shall not invalidate such corporate action of the
Company.
(f) The Warrants shall not entitle the Registered Owner thereof to any of
the rights of shareholders or to any dividend declared on the shares of Common
Stock unless the Exercise Date for the relevant Warrant Shares purchased is
prior to the record date fixed by the Board of Directors of the Company for the
determination of holders of shares of Common Stock entitled to such dividend or
other right.
(g) No adjustment of the Exercise Price shall be made as a result of or in
connection with (i) the issuance of shares of Common Stock of the Company
pursuant to options, warrants, employee stock ownership plans and share purchase
agreements outstanding or in effect on the date hereof, (ii) the establishment
of additional option plans of the Company, the modification, renewal or
extension of any plan now in effect or hereafter created, or the issuance of
shares of Common Stock on exercise of any options pursuant to such plans, and
(iii) the issuance of shares of Common Stock in connection with compensation
arrangements for officers, employees or agents of the Company or any subsidiary,
and the like.
10. Duties, Compensation and Termination of Warrant Agent. The Warrant
-----------------------------------------------------
Agent shall act hereunder as agent and in a ministerial capacity for the
Company, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not, by issuing and delivering Warrant Certificates or
by any other act hereunder, be deemed to make any representations as to the
validity, value or authorization of the Warrant Certificate or the Warrants
represented thereby or of the Warrant Shares or other property delivered on
exercise of any
-11-
<PAGE>
Warrant. The Warrant Agent shall not be under any duty or responsibility to any
holder of the Warrant Certificates to make or cause to be made any adjustment of
the Exercise Price or to determine whether any fact exists which may require any
such adjustments. The Warrant Agent shall not (i) be liable for any recital or
statement of fact contained herein or for any action taken or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed by
it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in the Warrant Certificates, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
willful misconduct. The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken or omitted by it in good faith
in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by its
President and attested by its Secretary or Assistant Secretary. The Warrant
Agent shall not be liable for any action taken or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or demand.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse the Warrant Agent for its reasonable
expenses. The Company further agrees to indemnify the Warrant Agent against any
and all losses, expenses and liabilities, including judgments, costs and
counsel fees, for any action taken or omitted by the Warrant Agent in the
execution of its duties and powers hereunder, excepting losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or willful
misconduct. The Warrant Agent may resign its duties or the Company may
terminate the Warrant Agent and the Warrant Agent shall be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct) on thirty (30)
days' prior written notice to the other party. At least thirty (30) days prior
to the date such resignation or termination is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation or termination to be
mailed to the Registered Owner of each Warrant Certificate, the cost of such
mailing to be borne solely by the Warrant Agent, without a right to
reimbursement by the Company, if the Warrant Agent has resigned. On such
resignation or termination, the Company shall appoint a new Warrant Agent. If
the Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of the resignation by the Warrant
Agent, then the Registered Owner of any Warrant Certificate may apply to any
court of competent jurisdiction for the appointment of a new Warrant Agent. Any
new Warrant Agent, whether
-12-
<PAGE>
appointed by the Company or by such court, shall be a bank or trust company
having a capital and surplus, as shown by its last published report to its
shareholders, of not less than $1,000,000, and having its principal office in
the United States.
After acceptance in writing of an appointment of a new Warrant Agent is
received by the Company, such new Warrant Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; provided, however, if it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed. The
Company shall file a notice of appointment of a new Warrant Agent with the
resigning Warrant Agent and shall forthwith cause a copy of such notice to be
mailed to the Registered Owner of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new Warrant Agent may
be converted or merged, or any corporation resulting from any consolidation to
which the Warrant Agent or any new Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent
shall be a successor Warrant Agent under this Agreement, provided that such
corporation is eligible for appointment as a successor to the Warrant Agent.
Any such successor Warrant Agent shall promptly cause notice of its succession
as Warrant Agent to be mailed to the Company and to the Registered Owner of each
Warrant Certificate, the cost of such mailing to be borne solely by such
successor Warrant Agent, without a right to reimbursement by the Company. No
further action shall be required for establishment and authorization of such
successor Warrant Agent.
The Warrant Agent, its officers or directors and it subsidiaries or
affiliates may buy, hold or sell Warrants or other securities of the Company and
otherwise deal with the Company in the same manner and to the same extent and
with like effect as though it were not Warrant Agent. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company.
11. Modification of Agreement. The Warrant Agent and the Company may by
-------------------------
supplemental agreement make any changes or corrections in this Agreement they
shall deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or mistake or error herein contained. Additionally, the
parties may make any changes or corrections deemed necessary which shall not
adversely affect the interests of the Registered Owners of Warrant Certificates;
provided, however, this Agreement shall not otherwise be modified, supplemented
or altered in any respect except with the consent in writing of the Registered
Owners of Warrant Certificates representing not less than a
-13-
<PAGE>
majority of the Warrants outstanding. Additionally, no change in the number or
nature of the Warrant Shares purchasable on exercise of a Warrant or the
Exercise Price therefor shall be made without the consent in writing of the
Registered Owner of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed by this Agreement.
12. Notices. All notices, demands, elections, opinions or requests
-------
(however characterized or described) required or authorized hereunder shall be
deemed given sufficiently in writing and sent by registered or certified mail,
return receipt requested and postage prepaid, or by tested telex, telegram or
cable to, in the case of the Company:
NewCom, Inc.
31166 Via Colinas
Westlake Village, CA 91362
Attn: __________________
and in the case of the Warrant Agent:
Interwest Transfer Company, Inc.
_________________________
_________________________
Attn: __________________
and if to the Registered Owner of a Warrant Certificate, at the address of such
Registered Owner as set forth on the books maintained by the Warrant Agent.
13. Persons Benefiting. This Agreement shall be binding upon and inure to
------------------
the benefit of the Company, the Warrant Agent and their respective successors
and assigns, and the Registered Owners and beneficial owners from time to time
of the Warrant Certificates. Nothing in this Agreement is intended or shall be
construed to confer on any other person any right, remedy or claim or to impose
on any other person any duty, liability or obligation.
14. Further Instruments. The parties shall execute and deliver any and
-------------------
all such other instruments and shall take any and all such other actions as may
be reasonable or necessary to carry out the intention of this Agreement.
15. Severability. If any provision of this Agreement shall be held,
------------
declared or pronounced void, voidable, invalid, unenforceable or inoperative for
any reason by any court of competent jurisdiction, government authority or
otherwise, such holding, declaration or pronouncement shall not affect adversely
any other provision of this Agreement, which shall otherwise remain in full
force and effect and be enforced in accordance with its terms, and the effect of
such holding, declaration or
-14-
<PAGE>
pronouncement shall be limited to the territory or jurisdiction in which made.
16. Waiver. All the rights and remedies of either party under this
------
Agreement are cumulative and not exclusive of any other rights and remedies as
provided by law. No delay or failure on the part of either party in the
exercise of any right or remedy arising from a breach of this Agreement shall
operate as a waiver of any subsequent right or remedy arising from a subsequent
breach of this Agreement. The consent of any party where required hereunder to
any act or occurrence shall not be deemed to be a consent to any other action or
occurrence.
17. Assignability. This Agreement may not be assigned by either party
-------------
except by the express written consent of the other party, which consent shall be
obtained in compliance with the other provisions of this Agreement.
18. General Provisions. This Agreement shall be construed and enforced in
------------------
accordance with, and governed by, the laws of the State of California. Except
as otherwise expressly stated herein, time is of the essence in performing
hereunder. This Agreement embodies the entire agreement and understanding
between the parties and supersedes all prior agreements and understandings
relating to the subject matter hereof, and this Agreement may not be modified or
amended or any term or provision hereof waived or discharged except in writing
signed by the party against whom such amendment, modification, waiver or
discharge is sought to be enforced. The headings of this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning thereof. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above mentioned.
COMPANY
-------
NEWCOM, INC.
By ___________________________
Title ________________________
-15-
<PAGE>
WARRANT AGENT
-------------
INTERWEST TRANSFER COMPANY, INC.
By ______________________________
Title ___________________________
-16-
<PAGE>
Exhibit 10.11
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
THIS COMMON STOCK PURCHASE AGREEMENT is made as of this 1st day of
September, 1994, by and between NewCom, Inc., a Delaware corporation (the
"Company"), and Aura Systems, Inc. (the "Purchaser").
1. Purchase of Shares.
------------------
1.1 Purchase. Purchaser hereby purchases, and the Company hereby sells to
--------
Purchaser, 935.35 shares of the Company's Common Stock (the "Shares") at a
purchase price of $1.00 per share (the "Purchase Price").
1.2 Payment. Concurrently with the execution of this Agreement, Purchaser
-------
shall pay the Purchase Price for the Shares either in cash or cash equivalent,
or in other consideration acceptable to the Company. Purchaser shall also
deliver to the Company any additional documents required by the Company as a
condition for the purchase.
1.3 Delivery of Certificates. The certificates representing the Shares
------------------------
purchased hereunder shall be delivered to Purchaser concurrently with the
execution of this Agreement.
2. Securities Law Compliance.
-------------------------
2.1 Exemption From Registration. The Shares have not been registered
---------------------------
under the Securities Act of 1933, as amended (the "1933 Act") and are being
issued to Purchaser in reliance upon the exemption from such registration
provided by Rule 701 of the Securities and Exchange Commission (the
"Commission") for stock issuances under compensatory benefit arrangements such
as this Agreement. Purchaser hereby acknowledges receipt of a copy of this
Agreement.
2.2 Restricted Securities.
---------------------
(a) Purchaser hereby confirms that Purchaser has been informed that the
Shares are restricted securities under the 1933 Act and may not be resold or
transferred unless the Shares are first registered under the federal securities
laws or unless an exemption from such registration is available. Accordingly,
Purchaser hereby acknowledges that Purchaser is prepared to hold the Shares for
an indefinite period and that Purchaser is aware that Rule 144 of the Commission
issued under the 1933 Act is not presently available to exempt the sale of the
Shares from the registration requirements of the 1933 Act.
(b) Purchaser is aware of the adoption of Rule 144 by the Commission,
promulgated under the 1933 Act, which permits limited public resales of
securities acquired in a nonpublic offering, subject to the satisfaction of
certain conditions.
-1-
<PAGE>
Purchaser understands that under Rule 144, the conditions include, among other
things: the availability of certain current public information about the
issuer, the resale occurring not fewer than two years after the party has
purchased and paid for the securities to be sold, the sale being through a
broker in an unsolicited "broker's transaction" and the amount of securities
being sold during any three-month period not exceeding specified limitations.
Purchaser acknowledges and understands that the Company may not be satisfying
the current public information requirement of Rule 144 at the time Purchaser
wishes to sell the Shares or other conditions under Rule 144 which are required
of the Company. If so, Purchaser understands that he will be precluded from
selling the securities under Rule 144 even if the two-year holding period of
said Rule has been satisfied. Prior to acquisition of the Shares, Purchaser
acquired sufficient information about the Company to reach an informed
knowledgeable decision to acquire the Shares. Purchaser has such knowledge and
experience in financial and business matters as to make him capable of
evaluating the risks of the prospective investment and to make an informed
investment decision. Purchaser is able to bear the economic risk of his or her
investment in the Shares. Purchaser agrees not to make, without the prior
written consent of the Company, any public offering or sale of the Shares
although permitted to do so pursuant to Rule 144(k) promulgated under the 1933
Act, until the earlier of the date on which the Company effects its initial
registered public offering pursuant to the 1933 Act or the date on which it
becomes a registered company pursuant to section 12(g) of the Securities and
Exchange Act of 1934.
2.3 Disposition of Shares. Purchaser hereby agrees that Purchaser shall
---------------------
make no disposition of the Shares (other than a permitted transfer under Section
4.1) unless and until Purchaser shall have complied with all requirements of
this Agreement applicable to the disposition of the Shares.
The Company shall not be required (i) to transfer on its books any Shares
that have been sold or transferred in violation of the provisions of this
Article 2 nor (ii) to treat as the owner of the Shares, or otherwise to accord
voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of this Agreement.
2.4 Restrictive Legends. In order to reflect the restrictions on the
-------------------
disposition of the Shares, the stock certificates for the Shares will be
endorsed with restrictive legends, including one or both of the following
legends:
(a) "The securities represented by this certificate have not been
registered or qualified under the Securities Act of 1933 or the securities
laws of any state, and may be offered and sold only if registered and
qualified pursuant to federal and state securities laws or if the Company
is provided an opinion of coun-
-2-
<PAGE>
sel satisfactory to the Company that registration and qualification under
federal and state securities laws is not required."
(b) If required by the authorities of any state in connection with
the issuance of the Shares, the legend or legends required by such state
authorities shall also be endorsed on all such certificates.
3. Miscellaneous Provisions.
------------------------
3.1 Purchaser Undertaking. Purchaser hereby agrees to take whatever
---------------------
additional action and execute whatever additional documents the Company may in
its judgment deem necessary or advisable in order to carry out the obligations
or restrictions imposed on Purchaser under this Agreement.
3.2 Agreement Is Entire Contract. This Agreement constitutes the entire
----------------------------
contract between the parties hereto with regard to the subject matter hereof.
3.3 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
3.4 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.5 Successors and Assigns. The provisions of this Agreement shall inure
----------------------
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
NEWCOM, INC.
By _________________________________
Address 2488 Townsgate Road, Unit C
---------------------------
Westlake Village
---------------------------
California 91361
---------------------------
AURA SYSTEMS, INC.
------------------------------------
Signature
------------------------------------
Print Name
------------------------------------
Title
Address 31166 Via Colinas
---------------------------
Westlake Village
---------------------------
California 91362
---------------------------
-4-
<PAGE>
EXHIBIT 10.12
NEWCOM, INC.
EMPLOYEE STOCK PURCHASE AGREEMENT
---------------------------------
THIS EMPLOYEE STOCK PURCHASE AGREEMENT is made as of this 1st day of
September, 1994, by and between NewCom, Inc., a Delaware corporation (the
"Company"), and ________________ (the "Purchaser").
1. Purchase of Shares.
------------------
1.1 Purchase. Purchaser hereby purchases, and the Company hereby sells to
--------
Purchaser, _____ shares of the Company's Common Stock (the "Shares") at a
purchase price of $_____ or $1.00 per share (the "Purchase Price").
1.2 Payment. Concurrently with the execution of this Agreement, Purchaser
-------
shall pay the Purchase Price for the Shares either in cash or cash equivalent,
or in other consideration acceptable to the Company. Purchaser shall also
deliver to the Secretary of the Company a duly executed blank Assignment
Separate from Certificate (in the form attached hereto as Exhibit A) and any
additional documents required by the Company as a condition for the purchase.
1.3 Delivery of Certificates. The certificates representing the Shares
------------------------
purchased hereunder and subject to the Company's Repurchase Right under Article
5 hereof shall be held in escrow by the Secretary of the Company as provided in
Article 5 hereof.
2. Securities Law Compliance.
-------------------------
2.1 Exemption From Registration. The Shares have not been registered
---------------------------
under the Securities Act of 1933, as amended (the "1933 Act") and are being
issued to Purchaser in reliance upon the exemption from such registration
provided by Rule 701 of the Securities and Exchange Commission (the
"Commission") for stock issuances under compensatory benefit arrangements such
as this Agreement. Purchaser hereby acknowledges receipt of a copy of this
Agreement.
2.2 Restricted Securities.
---------------------
(a) Purchaser hereby confirms that Purchaser has been informed that the
Shares are "restricted securities" under the 1933 Act and may not be resold or
transferred unless the Shares are first registered under the federal securities
laws or unless an exemption from such registration is available. Accordingly,
Purchaser hereby acknowledges that Purchaser is prepared to hold the Shares for
an indefinite period.
(b) Purchaser is aware of the adoption of Rule 144 by the Commission,
promulgated under the 1933 Act, which permits
-1-
<PAGE>
limited public resales of securities acquired in a nonpublic offering, subject
to the satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the issuer, the sale
being through a broker in an unsolicited "broker's transaction" and the amount
of securities being sold during any three (3) month period not exceeding
specified limitations. Purchaser is aware that Rule 144 of the Commission under
the 1933 Act is not presently available to exempt the sale of the Shares from
the registration requirements of the 1933 Act. Purchaser further represents
that he understands that at the time he wishes to sell the Shares there may be
no public market upon which to make such a sale, and that, even if such a public
market exists for the Company's Common Stock, the Company may not be satisfying
the current public information requirement of Rule 144 or other conditions under
Rule 144 which are required of the Company. If so, Purchaser understands that
he will be precluded from selling the securities under Rule 144.
(c) Purchaser represents that prior to acquisition of the Shares,
Purchaser acquired sufficient information about the Company to reach an informed
knowledgeable decision to acquire the Shares. Purchaser has such knowledge and
experience in financial and business matters as to make him capable of
evaluating the risks of the prospective investment and to make an informed
investment decision. Purchaser is able to bear the economic risk of his
investment in the Shares. Purchaser agrees not to make, without the prior
written consent of the Company, any public offering or sale of the Shares
although permitted to do so pursuant to Rule 144(k) promulgated under the 1933
Act, until the earlier of the date on which the Company effects its initial
registered public offering pursuant to the 1933 Act or the date on which it
becomes a registered company pursuant to section 12(g) of the Securities and
Exchange Act of 1934.
2.3 Disposition of Shares. Purchaser hereby agrees that Purchaser shall
---------------------
make no disposition of the Shares (other than a permitted transfer under Section
4.1) unless and until:
(a) Purchaser shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of
the proposed disposition;
(b) Purchaser shall have complied with all requirements of this
Agreement applicable to the disposition of the Shares; and
(c) Purchaser shall have provided the Company an opinion of counsel
in form and substance satisfactory to the Company, that (i) the proposed
disposition does not require registration of the Shares under the 1933 Act
or (ii) all appropriate action necessary for compliance with the
registration requirements of the
-2-
<PAGE>
1933 Act or of any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.
The Company shall not be required (i) to transfer on its books any Shares
that have been sold or transferred in violation of the provisions of this
Article 2 nor (ii) to treat as the owner of the Shares, or otherwise to accord
voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of this Agreement.
2.4 Restrictive Legends. In order to reflect the restrictions on the
-------------------
disposition of the Shares, the stock certificates for the Shares will be
endorsed with restrictive legends, including one or both of the following
legends:
(a) "The securities represented by this certificate have not been
registered or qualified under the Securities Act of 1933 or the securities
laws of any state, and may be offered and sold only if registered and
qualified pursuant to federal and state securities laws or if the Company
is provided an opinion of counsel satisfactory to the Company that
registration and qualification under federal and state securities laws is
not required."
(b) If required by the authorities of any state in connection with
the issuance of the Shares, the legend or legends required by such state
authorities shall also be endorsed on all such certificates.
3. Special Provisions.
------------------
3.1 Stockholder Rights. Until such time as the Company actually exercises
------------------
its repurchase rights under this Agreement, Purchaser (or any successor in
interest) shall have all the rights of a stockholder (including voting and
dividend rights) with respect to the Shares, including the Shares held in escrow
under Article 7, subject, however, to the transfer restrictions of Article 4.
3.2 Section 83(b) Election. Purchaser understands that under section 83
----------------------
of the Internal Revenue Code of 1986, as amended (the "Code"), the difference
between the Purchase Price paid for the Shares and their fair market value on
the date any forfeiture restrictions applicable to such shares lapse will be
reportable as ordinary income at that time. For this purpose, the term
"forfeiture restrictions" includes the right of the Company to repurchase the
Shares under Article 5 of this Agreement. Purchaser understands that he may
elect to be taxed at the time the Shares are acquired hereunder to the extent
the fair market value of the Shares differs from the Purchase Price rather than
when such Shares cease to be subject to such forfeiture restrictions, by filing
an election under section 83(b)
-3-
<PAGE>
of the Code with the I.R.S. within thirty (30) days after the date of purchase
hereunder. The form for making this election is attached as Exhibit B hereto.
Purchaser understands that failure to make this filing within the thirty (30)
day period will result in the recognition of ordinary income by Purchaser (in
the event the fair market value of the Shares increases after the date of
purchase) as the forfeiture restrictions lapse. PURCHASER ACKNOWLEDGES THAT IT
IS PURCHASER'S SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY
ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON HIS/HER BEHALF. PURCHASER IS RELYING
SOLELY ON HIS OR HER ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT
- ------
TO FILE AN 83(b) ELECTION.
3.3 Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the Company of
its equity securities pursuant to an effective registration statement filed
under the 1933 Act, including the Company's initial public offering, Purchaser
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or agree
to engage in any of the foregoing transactions with respect to any Shares
without the prior written consent of the Company or its underwriters, for such
period of time after the effective date of such registration statement as may be
requested by the Company or such underwriters (not to exceed one hundred eighty
(180) days). This Section 3.3 shall only remain in effect for the two-year
period following the effective date of the Company's initial public offering.
(b) Purchaser shall be subject to the market stand-off provisions of this
Section 3.3 only if the officers and directors of the Company are also subject
to similar arrangements.
(c) In the event of any stock dividend, stock split, recapitalization, or
other change affecting the Company's outstanding Common Stock effected without
receipt of consideration, then any new, substituted, or additional securities
distributed with respect to the Shares shall be immediately subject to the
provisions of this Section 3.3, to the same extent the Shares are at such time
covered by such provisions.
3.4 Stop Transfer. In order to enforce the provisions of Section 3.3, the
-------------
Company may impose stop-transfer instructions with respect to the Shares until
the end of the applicable stand-off period.
4. Transfer Restrictions.
---------------------
4.1 Restriction on Transfer. Purchaser shall not transfer, assign,
-----------------------
encumber, or otherwise dispose of any of the Shares that are subject to the
Company's Repurchase Right under
-4-
<PAGE>
Article 5. In addition, Shares that are released from the Repurchase Right
shall not be transferred, assigned, encumbered, or otherwise made the subject of
disposition in contravention of the Company's First Refusal Right under Article
6. Such restrictions on transfer, however, shall not be applicable if Purchaser
receives prior written consent from the Company to (a) a gratuitous transfer of
the Shares made to Purchaser's spouse or issue, including adopted children, or
to a trust for the exclusive benefit of Purchaser or Purchaser's spouse or
issue, (b) a transfer of title to the Shares effected pursuant to Purchaser's
will or the laws of intestate succession, or (c) a transfer to the Company in
pledge as security for any purchase-money indebtedness incurred by Purchaser in
connection with the acquisition of the Shares.
4.2 Transferee Obligations. Each person (other than the Company) to whom
----------------------
the Shares are transferred by means of one of the permitted transfers specified
in Section 4.1 must, as a condition precedent to such transfer, acknowledge in
writing to the Company that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (a) both the Company's
Repurchase Right and the Company's First Refusal Right granted hereunder and (b)
the market stand-off provisions of Section 3.3, to the same extent such shares
would be so subject if retained by Purchaser.
4.3 Definition of Owner. For purposes of Articles 5, 6 and 7 of this
-------------------
Agreement, the term "Owner" shall include Purchaser and all subsequent holders
of the Shares who derive their chain of ownership through a permitted transfer
from Purchaser in accordance with Section 4.1.
5. Repurchase Right.
----------------
5.1 Grant. The Company is hereby granted the right (the "Repurchase
-----
Right"), exercisable at any time during the sixty (60) day period following the
date Purchaser ceases for any reason to be a Service Provider to the Company, to
repurchase at the Purchase Price all or (at the discretion of the Company and
with the consent of Purchaser) any portion of the Shares in which Purchaser has
not acquired a vested interest in accordance with Section 5.3 (the "Unvested
Shares"). For purposes of this Agreement, Purchaser shall be deemed to be a
Service Provider to the Company for so long as Purchaser renders periodic
services to the Company or one or more of its parent or subsidiary corporations
as an employee, director or consultant.
5.2 Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the sixty (60) day period specified in Section 5.1.
The notice shall indicate the number of Unvested Shares to be repurchased and
the date on which the repurchase is to be effected, such date to be not more
than thirty (30) days after the date of
-5-
<PAGE>
notice. To the extent one or more certificates representing Unvested Shares may
have been previously delivered out of escrow to the Owner, then the Owner shall,
prior to the close of business on the date specified for the repurchase, deliver
to the Secretary of the Company the certificates representing the Unvested
Shares to be repurchased, properly endorsed for transfer. The Company shall,
concurrently with the receipt of such stock certificates, pay to the Owner in
cash or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares that are to be repurchased.
5.3 Termination of the Repurchase Right.
-----------------------------------
(a) The Repurchase Right shall terminate with respect to any Unvested
Shares for which it is not timely exercised under Section 5.2. In addition, the
Repurchase Right shall terminate with respect to any and all Shares in which
Purchaser vests in accordance with the schedule below. Accordingly, provided
Purchaser continues to be a Service Provider to the Company, Purchaser shall
acquire a vested interest in, and the Repurchase Right shall lapse with respect
to, the Shares in accordance with the following vesting schedule:
(i) Purchaser shall not acquire any vested interest in, nor shall the
Repurchase Right lapse with respect to, any Shares during the initial six
(6) month period measured from the date hereof (the "Vesting Measurement
Date").
(ii) Upon the expiration of the initial six (6) month period measured
from the Vesting Measurement Date, Purchaser shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, that
number of Shares equal to six forty-eighths (6/48) of the Shares.
(iii) After the expiration of the initial six (6) month period
measured from the Vesting Measurement Date, Purchaser shall acquire a
vested interest in, and the Repurchase Right shall lapse with respect to,
the remaining Shares in a series of forty-two (42) successive monthly
installments each equal to one forty-eighth (1/48) of the Shares.
All Shares as to which the Repurchase Right lapses shall, however, continue
to be subject to (i) the First Refusal Right under Article 6, and (ii) the
market stand-off provisions of Section 3.3.
5.4 Fractional Shares. No fractional shares shall be repurchased by the
-----------------
Company. Accordingly, should the Repurchase Right extend to a fractional share
at the time Purchaser ceases
-6-
<PAGE>
to be a Service Provider, then such fractional share shall be added to any
fractional share in which Purchaser is at such time vested in order to make one
whole vested share no longer subject to the Repurchase Right.
5.5 Additional Shares or Substituted Securities. In the event of any
-------------------------------------------
stock dividend, stock split, recapitalization or other change affecting the
Company's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Shares shall
be immediately subject to the Repurchase Right, but only to the extent the
Shares are at the time covered by such right. Appropriate adjustments to
reflect the distribution of such securities or property shall be made to the
number of Shares hereunder and to the price per share to be paid upon the
exercise of the Repurchase Right in order to reflect the effect of any such
transaction upon the Company's capital structure, provided that the aggregate
Purchase Price shall remain the same.
5.6 Corporate Transaction.
---------------------
(a) In the event of any of the following transactions (a "Corporate
Transaction"):
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State in which the Company is incorporated,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company, or
(iii) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred to holders different from those who held the
stock immediately prior to such merger,
then the Repurchase Right shall automatically lapse in its entirety, and
Purchaser shall acquire a vested interest in all of the Shares, upon the
consummation of such Corporate Transaction. However, no such lapse of the
Repurchase Right shall occur if and to the extent the Repurchase Right is to be
assigned to the successor corporation (or its parent company) in connection with
such Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect following such
Corporate Transaction in accordance with subparagraph (a) above, it shall apply
to the new capital stock or
-7-
<PAGE>
other property received in exchange for the Shares in consummation of the
Corporate Transaction, but only to the extent the Shares are at the time covered
by such right. Appropriate adjustments shall be made to the price per share
payable upon exercise of the Repurchase Right to reflect the effect of the
Corporate Transaction upon the Company's capital structure, provided that the
aggregate Purchase Price shall remain the same.
5.7 Initial Public Offering.
-----------------------
In the event the Company effects its initial registered public offering
pursuant to the 1933 Act or the date on which it becomes a registered company
pursuant to section 12(g) of the Securities and Exchange Act of 1934, then the
Repurchase Right shall automatically lapse in its entirety and Purchaser shall
acquire a vested interest in all of the Shares.
6. Right of First Refusal.
----------------------
6.1 Grant. The Company is hereby granted the right of first refusal (the
-----
"First Refusal Right"), exercisable in connection with any proposed sale or
other transfer of the Shares in which Purchaser has vested in accordance with
Article 5. For purposes of this Article 6, the term "transfer" shall include
any assignment, pledge, encumbrance or other disposition for value of the Shares
intended to be made by the Owner, but shall not include any of the permitted
transfers under Section 4.1.
6.2 Notice of Intended Disposition. In the event the Owner desires to
------------------------------
accept a bona fide third-party offer for any or all of the Shares (the shares
subject to such offer to be hereinafter called, for purposes of this Article 6,
the "Target Shares"), the Owner shall promptly (a) deliver to the Secretary of
the Company written notice (the "Disposition Notice") of the offer and the basic
terms and conditions thereof, including the proposed purchase price, and (b)
provide satisfactory proof that the disposition of the Target Shares to the
third-party offer or would not contravene the provisions of Articles 2 and 3 of
this Agreement.
6.3 Exercise of Right. The Company (or its assignees) shall, for a period
-----------------
of thirty (30) days following receipt of the Disposition Notice, have the right
to repurchase any or all of the Target Shares specified in the Disposition
Notice upon substantially the same terms and conditions specified therein. Such
right shall be exercisable by written notice (the "Exercise Notice") delivered
to the Owner prior to the expiration of the thirty (30) day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Company (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than five (5) business days after
-8-
<PAGE>
delivery of the Exercise Notice; and at such time the Owner shall deliver to the
Company the certificates representing the Target Shares to be repurchased,
properly endorsed for transfer. If any of the Target Shares are at the time
held in escrow under Article 7, the certificates for such shares shall
automatically be released from escrow and surrendered to the Company for
cancellation. The Target Shares so purchased shall thereupon be cancelled and
cease to be issued and outstanding shares of the Company's Common Stock.
Should the purchase price specified in the Disposition Notice be payable in
property other than cash or evidences of indebtedness, the Company (or its
assignees) shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If the Owner and the Company (or
its assignees) cannot agree on such cash value within ten (10) days after the
Company's receipt of the Disposition Notice, the valuation shall be made by an
appraiser of recognized standing selected by the Owner and the Company (or its
assignees), or, if they cannot agree on an appraiser within twenty (20) days
after the Company's receipt of the Disposition Notice, each shall select an
appraiser of recognized standing and the two appraisers shall designate a third
appraiser of recognized standing, whose appraisal shall be determinative of such
value. The cost of such appraisal shall be shared equally by the Owner and the
Company. The closing shall then be held on the latter of (a) the fifth business
day following delivery of the Exercise Notice or (b) the 15th day after such
cash valuation shall have been made.
6.4 Non-Exercise of Right. In the event the Exercise Notice is not given
---------------------
to the Owner within thirty (30) days following the date of the Company's
receipt of the Disposition Notice, the Owner shall have a period of thirty (30)
days thereafter, in which to sell or otherwise dispose of the Target Shares upon
terms and conditions (including the purchase price) no more favorable to the
third-party purchaser than those specified in the Disposition Notice; provided
that any such sale or disposition must not contravene the provisions of Article
2 of this Agreement. If any of the Target Shares are at the time held in escrow
under Article 7, the certificates for such shares shall automatically be
released from escrow and surrendered to the Owner. The third-party purchaser
shall acquire the Target Shares free and clear of all the terms and provisions
of this Agreement (including the Company's Repurchase Right under Article 5 and
the First Refusal Right hereunder). If the Owner does not sell or otherwise
dispose of the Target Shares within the specified thirty (30) day period, the
Company's First Refusal Right shall continue to apply to any subsequent
disposition of the Target Shares by the Owner until such right lapses in
accordance with Section 6.7.
6.5 Partial Exercise of Right. In the event the Company (or its
-------------------------
assignees) makes a timely exercise of the First Refusal
-9-
<PAGE>
Right with respect to a portion, but not all, of the Target Shares specified in
the Disposition Notice, the Owner shall have the option, exercisable by written
notice to the Company delivered within thirty (30) days after the date of the
Disposition Notice, to effect the sale of the Target Shares pursuant to one of
the following alternatives:
(a) sale or other disposition of all the Target Shares to a third-
party purchaser in compliance with the requirements of Section 6.4, as if
the Company did not exercise the First Refusal Right hereunder; or
(b) sale to the Company (or its assignees) of the portion of the
Target Shares which the Company (or its assignees) has elected to purchase,
such sale to be effected in substantial conformity with the provisions of
Section 6.3.
Failure of the Owner to deliver timely notification to the Company under
this Section 6.5 shall be deemed to be an election by the Owner to sell the
Target Shares pursuant to alternative (a) above.
6.6 Recapitalization.
----------------
(a) In the event of any stock dividend, stock split, recapitalization or
other transaction affecting the Company's outstanding Common Stock as a class
effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the Shares shall be immediately subject to the
Company's First Refusal Right hereunder, but only to the extent the Shares are
at the time covered by such right.
(b) In the event of a Corporate Transaction (as defined in Section 5.6),
the Company's First Refusal Right shall remain in full force and effect and
shall apply to the new capital stock or other property received in exchange for
the Shares in consummation of the Corporate Transaction, but only to the extent
the Shares are at the time covered by such right.
6.7 Lapse. The First Refusal Right under this Article 6 shall lapse and
-----
cease to have effect upon the earliest to occur of (a) the first date on which
shares of the Company's Common Stock are held of record by more than five
hundred (500) persons, (b) the determination by the Company's Board of
Directors that a public market exists for the outstanding shares of the
Company's Common Stock, or (c) the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the 1933
Act, covering the offer and sale of the Company's Common Stock in the aggregate
amount of at least $7,500,000.
-10-
<PAGE>
6.8 Legend. In addition to the legends required by Section 2.4, all
------
certificates representing Shares subject to the Company's Right of Repurchase
and the Right of First Refusal shall be endorsed with the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE
WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL
HOLDER HEREOF. SUCH AGREEMENT PROVIDES FOR CERTAIN RESTRICTIONS ON
TRANSFER OF THE SECURITIES, INCLUDING RIGHTS OF FIRST REFUSAL UPON AN
ATTEMPTED TRANSFER OF THE SECURITIES AND CERTAIN REPURCHASE RIGHTS IN FAVOR
OF THE COMPANY UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY
OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT
TO THE HOLDER HEREOF WITHOUT CHARGE."
7. Escrow.
------
7.1 Deposit. Upon issuance, the certificates for the Shares shall be
-------
deposited in escrow with the Secretary of the Company to be held in accordance
with the provisions of this Article 7. Each deposited certificate shall be
accompanied by a duly executed Assignment Separate from Certificate in the form
of Exhibit A. The deposited certificates, together with any other assets or
securities from time to time deposited with the Company pursuant to the
requirements of this Agreement, shall remain in escrow until such time or times
as the certificates (or other assets and securities) are to be released or
otherwise surrendered for cancellation in accordance with Section 7.3. Upon
delivery of the certificates (or other assets and securities) to the Company,
the Owner shall be issued an instrument of deposit acknowledging the number of
Shares (or other assets and securities) delivered in escrow to the Secretary of
the Company.
7.2 Recapitalization. All regular cash dividends on the Shares (or other
----------------
securities at the time held in escrow) shall be paid directly to the Owner and
shall not be held in escrow. However, in the event of any stock dividend, stock
split, recapitalization or other change affecting the Company's outstanding
Common Stock as a class effected without receipt of consideration or in the
event of a Corporate Transaction, any new, substituted or additional securities
or other property which is by reason of such transaction distributed with
respect to the Shares shall be immediately delivered to the Secretary of the
Company to be held in escrow under this Article 7, but only to the extent the
Shares are at the time subject to the escrow requirements of Section 7.1.
7.3 Release/Surrender. The Shares, together with any other assets or
-----------------
securities held in escrow hereunder, shall be subject to the following terms and
conditions relating to their
-11-
<PAGE>
release from escrow or their surrender to the Company for repurchase and
cancellation:
(a) Should the Company exercise the Repurchase Right under Article 5
with respect to any Unvested Shares, then the escrowed certificates for
such Unvested Shares (together with any other assets or securities issued
with respect thereto) shall be delivered to the Company for cancellation,
concurrently with the payment to the Owner, in cash or cash equivalent
(including the cancellation of any purchase-money indebtedness), of an
amount equal to the aggregate Purchase Price for such Unvested Shares, and
the Owner shall have no further rights with respect to such Unvested Shares
(or other assets or securities).
(b) Should the Company exercise its First Refusal Right under Article
6 with respect to any Target Shares held at the time in escrow hereunder,
then the escrowed certificates for such Target Shares (together with any
other assets or securities issued with respect thereto) shall, concurrently
with the payment of the Section 6.3 purchase price for such Target Shares
to the Owner, be surrendered to the Company for cancellation, and the Owner
shall have no further rights with respect to such Target Shares (or other
assets or securities).
(c) Should the Company elect not to exercise its First Refusal Right
under Article 6 with respect to any Target Shares held at the time in
escrow hereunder, then the escrowed certificates for such Target Shares
(together with any other assets or securities issued with respect thereto)
shall be surrendered to the Owner for disposition according to the
provisions of Section 6.4.
(d) As the interest of Purchaser in the Shares (or any other assets
or securities issued with respect thereto) vests in accordance with the
provisions of Article 5, the certificates for such vested shares (as well
as all other vested assets and securities) shall be released from escrow
and delivered to the Owner, if requested by the Owner, in accordance with
the following schedule:
(i) The initial release of vested shares (or other vested assets
and securities) from escrow shall be effected within thirty (30) days
following the expiration of the initial six (6) month period measured
from the Vesting Measurement Date.
-12-
<PAGE>
(ii) Subsequent releases of vested shares (or other vested
assets and securities) from escrow shall be effected at annual
intervals thereafter, with the first such annual release to occur
eighteen (18) months after the Vesting Measurement Date.
(iii) Upon Purchaser's cessation of Service Provider status, any
escrowed Shares (or other assets or securities) in which Purchaser is
at the time vested shall be promptly released from escrow.
(iv) Upon any earlier termination of the Company's Repurchase
Right in accordance with the applicable provisions of Article 5, the
Shares (or other assets or securities) at the time held in escrow
hereunder shall promptly be released to the Owner as fully vested
shares or other property.
(e) All Shares (or other assets or securities) released from escrow
in accordance with the provisions of subparagraph (iv) above shall
nevertheless remain subject to the First Refusal Right under Article 6 and
the market stand-off provisions of Section 3.3 until such provisions
terminate in accordance herewith.
8. General Provisions.
------------------
8.1 Assignment. The Company may assign its Repurchase Rights under
----------
Article 5 and/or its First Refusal Right under Article 6 to any person or entity
selected by the Company's Board of Directors, including one or more stockholders
of the Company.
If the assignee of the Repurchase Right is other than a parent or
subsidiary corporation of the Company, then such assignee must make a cash
payment to the Company, upon the assignment of the Repurchase Right, in an
amount equal to the excess (if any) of the fair market value of the Unvested
Shares at the time subject to the Repurchase Right (as determined by the
Company's Board of Directors) and the aggregate Repurchase Price payable for
such Unvested Shares.
8.2 Definitions. For purposes of this Agreement, the following provisions
-----------
shall be applicable in determining the parent and subsidiary corporations of the
Company:
(a) Any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company shall be considered to be a parent
corporation of the Company, provided each such corporation in the unbroken
chain (other than the Company) owns, at the
-13-
<PAGE>
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
(b) Each corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company shall be considered to be a
subsidiary of the Company, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
8.3 No Employment or Service Contract. Nothing in this Agreement shall
---------------------------------
confer upon Purchaser any right to continue in the service of the Company (or
any parent or subsidiary corporation of the Company) for any period of time or
restrict in any way the rights of the Company (or any parent or subsidiary
corporation of the Company) or Purchaser, to terminate the Service Provider
status of Purchaser at any time for any reason whatsoever, with or without
cause.
8.4 Notices. Any notice required in connection with (a) the Repurchase
-------
Right or the First Refusal Right or (b) the disposition of any Shares covered
thereby shall be given in writing and shall be deemed effective upon personal
delivery, upon deposit with a nationally recognized courier service, or upon
deposit in the United States mail, registered or certified, postage prepaid and
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this Section
8.4 to all other parties to this Agreement.
8.5 No Waiver. The failure of the Company (or its assignees) in any
---------
instance to exercise the Repurchase Rights granted under Article 5, or the
failure of the Company (or its assignees) in any instance to exercise the First
Refusal Right granted under Article 6, shall not constitute a waiver of any
other repurchase rights and/or rights of first refusal that may subsequently
arise under the provisions of this Agreement or any other agreement between the
Company and Purchaser. No waiver of any breach or condition of this Agreement
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
8.6 Cancellation of Shares. If the Company (or its assignees) shall make
----------------------
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be repurchased in accordance
with the provisions of this Agreement, then from and after such time, the person
from whom such shares are to be repurchased shall no
-14-
<PAGE>
longer have any rights as a holder of such shares (other than the right to
receive payment of such consideration in accordance with this Agreement), and
such shares shall be deemed purchased in accordance with the applicable
provisions hereof and the Company (or its assignees) shall be deemed the owner
and holder of such shares, whether or not the certificates therefor have been
delivered as required by this Agreement.
9. Miscellaneous Provisions.
------------------------
9.1 Purchaser Undertaking. Purchaser hereby agrees to take whatever
---------------------
additional action and execute whatever additional documents the Company may in
its judgment deem necessary or advisable in order to carry out the obligations
or restrictions imposed on Purchaser under this Agreement.
9.2 Agreement Is Entire Contract. This Agreement constitutes the entire
----------------------------
contract between the parties hereto with regard to the subject matter hereof.
9.3 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
9.4 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
9.5 Successors and Assigns. The provisions of this Agreement shall inure
----------------------
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement
-15-
<PAGE>
and have agreed in writing to join herein and be bound by the terms and
conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
NEWCOM, INC.
By
---------------------------------
Address 2488 Townsgate Road, Unit C
---------------------------
Westlake Village,
---------------------------
California 91361
---------------------------
---------------
------------------------------------
Signature
Address
----------------------------
----------------------------
----------------------------
Spousal Consent
---------------
________________ (Purchaser's spouse) indicates by the execution of this
Agreement his or her consent to be bound by the terms herein as to his or her
interests, whether as community property or otherwise, if any, in the Shares.
------------------------------------
Signature
-16-
<PAGE>
EXHIBIT A
---------
Assignment Separate From Certificate
------------------------------------
FOR VALUE RECEIVED ___________________ ("Stockholder") hereby sells,
assigns and transfers unto NewCom, Inc., a Delaware corporation (the "Company"),
____________ (___) shares of Common Stock of the Company represented by
Certificate No. _____ herewith and does hereby irrevocably constitute and
appoint ________________ Attorney to transfer the said stock on the books of the
Company with full power of substitution in the premises.
Dated: ____________, 19__.
------------------------------------
Signature
Spousal Consent
---------------
________________ (Purchaser's spouse) indicates by the execution of this
Assignment his or her consent to be bound by the terms herein as to his or her
interests, whether as community property or otherwise, if any, in the Shares.
------------------------------------
Signature
INSTRUCTIONS: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE.
THE PURPOSE OF THIS ASSIGNMENT IS TO ENABLE THE COMPANY TO EXERCISE ITS
"REPURCHASE OPTION" SET FORTH IN THE AGREEMENT WITHOUT REQUIRING ADDITIONAL
SIGNATURES ON THE PART OF PURCHASER.
-17-
<PAGE>
EXHIBIT B
---------
ELECTION UNDER SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned hereby makes an election pursuant to Section 83(b) of the
Internal Revenue Code with respect to the property described below and supplies
the following information in accordance with the regulations promulgated
thereunder:
(i) The name, address and social security number of the undersigned:
----------------------------------------------
----------------------------------------------
----------------------------------------------
Social Security No.:__________________________
(ii) Description of property with respect to which the election is being
made:
__________ shares of common stock of NewCom, Inc. (the "Company").
(iii) The date on which the property was transferred is __________, 19__.
(iv) The taxable year to which this election relates is calendar year
199__.
(v) Nature of restrictions to which the property is subject:
The shares of stock transferred to the undersigned taxpayer are
subject to the provisions of an Employee Stock Purchase Agreement between
the undersigned and the Company. Under the provisions of the Agreement,
the Company will have the right to repurchase the stock at a price which
may be less than the fair market value of the shares in the event of the
undersigned's termination of employment with the Company.
(vi) The fair market value of the property at the time of transfer
(determined without regard to any lapse restriction) was $1.00 per share, for a
total of $__________.
(vii) The amount paid by taxpayer for the property was $__________.
-18-
<PAGE>
(viii) A copy of this statement has been furnished to the Company.
Dated: __________, 19__
------------------------------------
-19-
<PAGE>
EXHIBIT 10.13
BUSINESS FINANCING AGREEMENT
This Business Financing Agreement ("Agreement") is made as of DECEMBER 23, 1996
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between Deutsche Financial Services Corporation ("DFS") and NEWCOM, INC., a
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[_] SOLE PROPRIETORSHIP, [_] PARTNERSHIP, [X] CORPORATION, [_] LIMITED LIABILITY
COMPANY (check applicable term) ("Dealer"), having a principal place of business
located at 31166 VIA COLINAS, WESTLAKE VILLAGE, CA. 91362.
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1. DEFINITIONS
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1.1 SPECIAL DEFINITIONS. The following terms will have the following
meanings in this Agreement, Agreement for Wholesale Financing and in
the other Agreements:
(a) "Accounts": all accounts, leases, contract rights, chattel paper,
choses in action and instruments, including any lien or other
security interest that secures or may secure any of the foregoing,
plus all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing, now owned or
hereafter acquired by Dealer.
(b) "Accounts Receivable Facility": a credit facility extended
pursuant to this Agreement.
(c) "Agreement for Wholesale Financing": any Agreement for Wholesale
Financing, as amended from time to time, which Dealer has executed
in conjunction with inventory financing extended by DFS.
(d) "Average Contract Balance": the amount determined by dividing: (a)
the sum of the Daily contract Balances (as defined in
Section 2.1.1) for a billing period; by, (b) the actual number of
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days in such billing period.
(e) "Default": the events or occurrences enumerated in Section 6.
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(f) "Entity": any individual, association, firm, corporation,
partnership, limited liability company, trust, governmental body,
agency or instrumentality whatsoever.
(g) "Guarantee": a guarantor of any of the Obligations.
(h) "Inventory": all of Dealer's presently owned and hereafter
acquired goods which are held for sale or lease.
(i) "Obligations": all liabilities and indebtedness now or hereafter
arising, owing, due or payable from Dealer to DFS (and any of its
subsidiaries and affiliates), including any third party claims
against Dealer satisfied or acquired by DFS, whether primary or
secondary, joint or several, direct, contingent, fixed or
otherwise, and whether or not evidenced by instruments or
evidences of indebtedness, and all covenants, agreements
(including consent to binding arbitration), warranties, duties and
representations, whether such Obligations arise under this
Agreement, the other Agreements or any other agreements
previously, now or hereafter executed by Dealer and delivered to
DFS or by operation of law.
(j) "Other Agreements": all security agreements (including the
Agreement for Wholesale Financing), mortgages, leases,
instruments, documents, guarantees, schedules, certificates,
contracts and similar agreements heretofore, now or hereafter
executed by Dealer and delivered to DFS or delivered by or on
behalf of Dealer to a third party and assigned to DFS by operation
of law or otherwise.
(k) "Prime Rate": the rate of interest which Chase Manhattan Bank
publicly announces from time to time as its prime rate or
reference rate; provided, however, that for purposes of this
Agreement, the interest rate charged to Dealer will at no time be
computed on a Prime Rate of less than SIX percent (6.0%) per
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annum. The Prime Rate will change and take effect for purposes of
this Agreement on the day that Chase Manhattan Bank announces any
change in its Prime Rate or reference rate.
2. CREDIT FACILITY/INTEREST RATES/FEES
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2.1 ACCOUNTS RECEIVABLE FACILITY. Subject to the terms of this Agreement,
DFS agrees to provide to Dealer an Accounts Receivable Facility of
SEVEN MILLION DOLLARS ($7,000,000.00). DFS' decision to advance funds
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will not be binding until the funds are actually advanced.
2.1.1 INTEREST. Dealer agrees to pay interest to DFS on the Daily
Contract Balance at a rate equal to the Prime Rate plus
ONE AND ONE QUARTER percent (1.25%) per annum. Such interest
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will: (i) be computed based on a 360 day year; (ii) be
calculated each day by multiplying the Daily Rate (as defined
below) by the Daily Contract Balance (as defined below); and
(iii) accrue from the date that DFS makes an advance under the
Accounts Receivable Facility until DFS receives the full and
final payment of the principal debt which Dealer owes to DFS.
The "Daily Rate" is the quotient of the applicable annual rate
provided herein divided by 360. The "Daily Contract Balance" is
the amount of the outstanding principal debt which Dealer owes
to DFS on the Accounts Receivable Facility at the end of each
day after DFS has credited the payments which it has received on
the Accounts Receivable Facility, subject to the terms of
Section 3.8 herein.
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2.1.2 FEES. Dealer agrees to pay to DFS an advance fee equal to ZERO
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percent (-0-%) on each advance to Dealer under the Accounts
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Receivable Facility.
2.1.3 MAXIMUM INTEREST. Dealer acknowledges that DFS intends to
strictly conform to the applicable usury laws governing this
Agreement. Regardless of any provision contained herein or in
any other document executed or delivered in connection herewith
or therewith, DFS shall never be deemed to have contracted for,
charged or be entitled to receive, collect or apply as interest
on this Agreement (whether termed interest herein or deemed to
be interest by judicial determination or operation of law), any
amount in excess of the maximum amount allowed by applicable
law, and, if DFS ever receives, collects or applies as interest
any such excess, such amount which would be excessive interest
will be applied first to the reduction of the unpaid principal
balances of advances under this Agreement, and, second, any
remaining excess will be paid to Dealer. In determining whether
or not the interest paid or payable under any specific
contingency exceeds the highest lawful rate, Dealer and DFS
shall, to the maximum extent permitted under applicable law: (a)
characterize any non-principal payment (other than payments
which are expressly designated as interest payments hereunder)
as an expense or fee rather than as interest; (b) exclude
voluntary pre-payments and the effect thereof; and (c) spread
the total amount of interest throughout the entire term of this
Agreement so that the interest rate is uniform throughout such
term.
2.2 PAYMENTS. DFS will send Dealer a monthly billing statement(s)
identifying all charges due on Dealer's account with DFS. The interest
and fee charges specified on each billing statement will be: (a) due
and payable in full immediately on receipt, and (b) an account stated,
unless DFS receives Dealer's written objection thereto within fifteen
(15) days after it is mailed to Dealer. If DFS does not receive, by the
25th day of any given month, payment of all charges accrued to Dealer's
account with DFS during the immediately preceding month, Dealer will
(to the extent allowed by law) pay DFS a late fee ("Late Fee") equal to
the greater of $5 or 5% of the amount of such finance charges (payment
of the Late Fee does not waive the default caused by the late payment).
Dealer will also pay DFS $100 for each of Dealer's checks returned
unpaid for insufficient funds (an "NSF check") (such default caused by
the NSF check). DFS may adjust the billing statement at any time to
conform to applicable law and this Agreement. Dealer waives the right
to direct the application of any payments hereafter received by DFS on
account of the Obligations. DFS will have the continuing exclusive
right to apply and reapply any and all such payments in such manner as
DFS may deem advisable notwithstanding any entry by DFS upon its books
and records.
2.3 ONE LOAN. DFS may combine all of DFS' advances to Dealer or on
Dealer's behalf, whether under this Agreement or any Other Agreements,
and whether provided by one or more of DFS' branch offices, together
with all finance charges, fees and expenses related thereto, to make
one debt owed by Dealer.
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3. ACCOUNTS RECEIVABLE FACILITY -- ADDITIONAL PROVISIONS
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3.1 SCHEDULES. Dealer will, no less than weekly or as otherwise agreed to,
furnish DFS with a schedule of Accounts ("Schedule") which will: (a)
describe all Accounts created or acquired by Dealer since the last
Schedule furnished DFS; (b) inform DFS of any rejection of goods by any
obligor, delays in delivery of goods, non-performance of contracts and
of any assertion of any claim, offset or counterclaim by any obligor;
and (c) inform DFS of any adverse information relating to the financial
condition of any obligor.
3.2 AVAILABLE CREDIT. On receipt of each Schedule, DFS will credit Dealer
with such amount as DFS may deem advisable up to SEVENTY percent (70%)
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of the net amount of the eligible Accounts listed in such Schedule. DFS
will loan Dealer such amounts so credited or a part thereof as
requested provided that at no time will such outstanding loans exceed
Dealer's maximum Accounts Receivable Facility from time to time
established by DFS. No loans need be made by DFS if the Dealer is in
Default.
3.3 INELIGIBLE ACCOUNTS. DFS will have the sole right to determine
eligibility of Accounts and, without limiting DFS' discretion in that
regard, the following Accounts will be deemed ineligible: (a) Accounts
created from the sale of goods and services on non-standard terms
and/or that allow for payment to be made more than thirty (30) days
from the date of sale; (b) Accounts unpaid more than ninety (90) days
from the date of invoice; (c) all Accounts of any obligor with fifty
percent (50%) or more of the outstanding balance unpaid for more than
ninety (90) days from the date of invoice; (d) Accounts for which the
obligor is an officer, director, shareholder, partner, member, owner,
employee, agent, parent, subsidiary, affiliate of, or is related to
Dealer or has common shareholders, officers, directors, owners,
partners or members; (e) consignment sales; (f) Accounts for which the
payment is or may be conditional; (g) Accounts for which the obligor is
not a commercial or institutional entity or is not a resident of the
United States or Canada; (h) Accounts with respect to which any
warranty or representation provided in Subsection 3.4 is not true and
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correct; (i) Accounts which represent goods or services purchased for a
personal, family or household purpose; (j) Accounts which represent
goods used for demonstration purposes or loaned by the Dealer to
another party; (k) Accounts which are progress payment, barter, or
contra accounts; and (l) any and all other Accounts which DFS deems to
be ineligible. If DFS determines that any Account is or becomes an
ineligible Account, immediately upon notice thereof from DFS, Dealer
will pay to DFS an amount equal to the monies loaned by DFS for such
ineligible Account.
3.4 WARRANTIES AND REPRESENTATIONS. For each Account which Dealer lists on
any Schedule, Dealer warrants and represents to DFS that at all times:
(a) such Account is genuine; (b) such Account is not evidenced by a
judgment or promissory note or similar instrument or agreement; (c) it
represents an undisputed bona fide transaction completed in accordance
with the terms of the invoices and purchase orders relating thereto;
(d) the goods sold or services rendered which resulted in the creation
of such Account have been delivered or rendered to and accepted by the
obligor; (e) the amounts shown on the Schedules, Dealer's books and
records and all invoices and statements delivered to DFS with respect
thereto are owing to Dealer and are not contingent; (f) no payments
have been or will be made thereon except payments turned over to DFS;
(g) there are no offsets, counterclaims or disputes existing or
asserted with respect thereto and Dealer has not made any agreement
with any obligor for any deduction or discount of the sum payable
thereunder except regular discounts allowed by Dealer in the ordinary
course of its business for prompt payment; (h) there are no facts or
events which in any way impair the validity or enforceability thereof
or reduce the amount payable thereunder from the amount shown on the
Schedules, Dealer's books and records and the invoices and statements
delivered to DFS with respect thereto; (i) all persons acting on behalf
of obligors thereon have the authority to bind the obligor; (j) the
goods sold or transferred giving rise thereto are not subject to any
lien, claim, encumbrance or security interest which is superior to that
of DFS; and (k) there are no proceedings or actions known to Dealer
which are threatened or pending against any obligor thereon which might
result in any material adverse change in such obligor's financial
condition.
3.5 NOTES. Loans made pursuant to this Agreement need not be evidenced by
promissory notes unless otherwise required by DFS in DFS' sole
discretion.
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3.6 REIMBURSEMENT FOR CHARGES. Dealer will reimburse DFS for all charges
made by banks for collection of checks and other items of payment and
for transfer of funds to or from the Dealer.
3.7 COLLECTIONS. Dealer is authorized to collect Accounts as agent for DFS
and trustee of an express trust for DFS' benefit. Dealer will receive
all payments on Accounts as agent and in trust for DFS and will, as
DFS directs, either transmit to DFS or deposit into an account or
accounts designated by DFS, on the day of receipt thereof, all
original checks, drafts, acceptances, and other evidences of payment
of Accounts, including all cash. Until delivery to DFS, Dealer will
keep such remittances separate and apart from Dealer's own funds so
that they are capable of identification as the property of DFS and
will be held in trust for DFS. DFS may terminate such authorization
upon Default and DFS may notify any obligor of the assignment of
Accounts and collect the same. All proceeds received or collected by
DFS with respect to Accounts, and reserves and other property of
Dealer in possession of DFS at any time or times hereafter, may be
held by DFS without interest to Dealer until all Obligations are paid
in full or applied by DFS on account of the Obligations. DFS may
release to Dealer such portions of such reserves and proceeds as DFS
may determine.
3.8 COLLECTION DAYS. All payments and all amounts received on any Account
will be credited by DFS to Dealer's account (subject to final
collection thereof) after allowing three (3) business days for
collection of checks or other instruments.
3.9 POWER OF ATTORNEY. Dealer irrevocably appoints DFS (and any person
designated by it) as Dealer's true and lawful Attorney with full power
to at any time, in the discretion of DFS (whether or not Default has
occurred) to: (a) endorse the name of Dealer upon any of the items of
payment or proceeds and deposit the same in the account of DFS for
application to the Obligations; (b) sign the name of Dealer to verify
the accuracy of the Accounts; (c) sign the name of Dealer on any
document or instrument that DFS shall deem necessary or appropriate to
perfect and maintain perfected the security interests in the
Collateral under this Agreement and the Other Agreements; and (d)
initiate and settle any insurance claim and endorse Dealer's name on
any check, instrument or other item of payment. In the event of a
Default, Dealer irrevocably appoints DFS (and any person designated by
it) as Dealer's true and lawful Attorney with full power to at any
time, in the discretion of DFS to: (i) demand payment, enforce payment
and otherwise exercise all of Dealer's rights, and remedies with
respect to the collection of any Accounts; (ii) settle, adjust,
compromise, extend or renew any Accounts; (iii) settle, adjust or
compromise any legal proceedings brought to collect any Accounts; (iv)
sell or assign any Accounts upon such terms, for such amounts and at
such time or times as DFS may deem advisable; (v) discharge and
release any Accounts; (vi) prepare, file and sign Dealer's name on any
Proof of claim in Bankruptcy or similar document against any obligor;
(vii) endorse the name of Dealer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to any Account or goods pertaining thereto;
(viii) take control in any manner of any item of payments or proceeds
and for such purpose to notify the Postal Authorities to change the
address for delivery of mail addressed to Dealer to such address as
DFS may designate. The power of attorney is for value and coupled with
an interest and is irrevocable so long as any Obligations remain
outstanding and by DFS exercising such right, DFS shall not waive any
right against Dealer until the Obligations are paid in full.
3.10 CONTINUING REQUIREMENTS. Dealer will: (a) if from time to time
required by DFS, immediately upon their creation, deliver to DFS
copies of all invoices, delivery evidences and other such documents
relating to each Account; (b) not permit or agree to any extension,
compromise or settlement or make any change to any Account; (c) affix
appropriate endorsements or assignments upon all such items of payment
and proceeds so that the same may be properly deposited by DFS to DFS'
account; (d) immediately notify DFS in writing which Accounts may be
deemed ineligible as defined in Subsection 3.3; (e) mark all chattel
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paper and instruments now owned or hereafter acquired by it to show
that the same are subject to DFS' security interest and immediately
thereafter deliver such chattel paper and instruments to DFS with
appropriate endorsements and assignments to DFS; (f) within ten (10)
days after the end of each month,
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provide DFS with a detailed aging of its Accounts for each month,
together with the names and addresses of all obligors.
3.11 RELEASE. Dealer releases DFS from all claims and causes of action
which Dealer may now or hereafter have for any loss or damage to it
claimed to be caused by or arising from: (a) any failure of DFS to
protect, enforce or collect, in whole or in part, any Account; (b)
DFS' notification to any obligors thereon of DFS' security interest in
any of the Accounts; (c) DFS' directing any obligor to pay any sum
owing to Dealer directly to DFS; and (d) any other act or omission to
act on the part of DFS, its officers, agents or employees, except for
willful misconduct. DFS will have no obligation to preserve rights to
Accounts against prior parties. Dealer waives all rights of offset and
counterclaims Dealer may have against DFS.
3.12 REVIEW. Dealer grants DFS an irrevocable license to enter Dealer's
business locations during normal business hours without notice to
Dealer to: (a) account for and inspect all Collateral; (b) verify
Dealer's compliance with this Agreement; and (c) review, examine, and
make copies of Dealer's books, records, files and business procedures
and practices. Dealer further agrees to pay DFS a review fee of
SEVEN HUNDRED FIFTY (PER PERSON PER DAY DOLLARS ($750.00) for any such
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review, inspection or examination made by DFS. DFS may, without notice
to Dealer and at any time or times hereafter, verify the validity,
amount or any other matter relating to any Account by mail, telephone,
or other means, in the name of Dealer or DFS.
4. SECURITY -- COLLATERAL
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4.1 GRANT OF SECURITY INTEREST. To secure payment of all of Dealer's
current and future Obligations and to secure Dealer's performance of
all of the provisions under this Agreement and the other Agreements,
Dealer grants DFS a security interest in all of Dealer's inventory,
equipment, fixtures, accounts, contract rights, chattel paper,
security agreements, instruments, deposit accounts, reserves,
documents, and general intangibles; and all judgments, claims,
insurance policies, and payments owed or made to Dealer thereon; all
whether now owned or hereafter acquired, all attachments, accessories,
accessions, returns, repossessions, exchanges, substitutions and
replacements thereto, and all proceeds thereof. All such assets are
collectively referred to herein as the "Collateral." All of such terms
for which meanings are provided in the uniform Commercial Code of the
applicable state are used herein with such meanings. Dealer covenants
with DFS that DFS may realize upon all or part of any Collateral in
any order it desires and any realization by any means upon any
Collateral will not bar realization upon any other collateral.
Dealer's liability under this Agreement is direct and unconditional
and will not be affected by the release or nonperfection of any
security interest granted hereunder. All Collateral financed by DFS,
and all proceeds thereof, will be held in trust by Dealer for DFS,
with such proceeds being payable in accordance with this Agreement.
5. WARRANTIES AND REPRESENTATIONS
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5.1 AFFIRMATIVE WARRANTIES AND REPRESENTATIONS. Except as otherwise
specifically provided in the other Agreements, Dealer warrants and
represents to DFS that: (a) Dealer has good title to all Collateral;
(b) DFS' security interest in the Accounts will at all times
constitute a perfected, first security interest in such Accounts and
will not become subordinate to the security interest, lien,
encumbrance or claim of any Entity; (c) Dealer will execute all
documents DFS requests to perfect and maintain DFS' security interest
in the Collateral and to fully consummate the transactions
contemplated under this Agreement and the other Agreements; (d) Dealer
will at all times be duly organized, existing, in good standing,
qualified and licensed to do business in each state, county, or
parish, in which the nature of its business or property so requires;
(e) Dealer has the right and is duly authorized to enter into this
Agreement; (f) Dealer's execution of this Agreement does not
constitute a breach of any agreement to which Dealer is now or
hereafter becomes bound; (g) there are and will be no actions or
proceedings pending or threatened against Dealer which might result in
any material adverse change in Dealer's financial or business
condition or which might in any way adversely affect any of Dealer's
assets; (h) Dealer will maintain the Collateral in good condition and
repair; (i) Dealer has duly filed and will duly file all tax returns
required by law; (j) Dealer has paid and will pay when due all taxes,
levies, assessments and
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governmental charges of any nature; (k) Dealer will maintain a system
of accounting in accordance with generally accepted accounting
principles and account records which contain such information in a
format as may be requested by DFS; (1) Dealer will keep and maintain
all of its books and records pertaining to the Accounts at its
principal place of business designated in this Agreement; (m) Dealer
will promptly supply DFS with such information concerning it or any
Guarantor as DFS hereafter may reasonably request; (n) Dealer will
give DFS thirty (30) days prior written notice of any change in
Dealer's identity, name, form of business organization, ownership,
management, principal place of business, Collateral locations or other
business locations; and before moving any books and records to any
other location; (o) Dealer will observe and perform all matters
required by any lease, license, concession or franchise forming part
of the Collateral in order to maintain all the rights of DFS
thereunder; (p) Dealer will advise DFS of the commencement of material
legal proceedings against Dealer or any Guarantor; (q) Dealer will
comply with all applicable laws and will conduct its business in a
manner which preserves and protects the Collateral and the earnings
and incomes thereof; and (r) Dealer will keep the Collateral insured
for its full insurable value under an "all risk" property insurance
policy with a company acceptable to DFS, naming DFS as a lender loss-
payee or mortgagee and containing standard lender's loss payable and
termination provisions. Dealer will provide DFS with written evidence
of such property insurance coverage and lender's loss-payee or
mortgagee endorsement.
5.2 NEGATIVE COVENANTS. Dealer will not at any time (without DFS' prior
written consent): (a) grant to or in favor of any Entity a security
interest in or permit to exist a lien, claim or encumbrance in the
Accounts which is superior to the interest of DFS; (b) other than in
the ordinary course of its business, sell, lease or otherwise dispose
of or transfer any of its assets; (c) merge or consolidate with
another Entity; (d) acquire the assets or ownership interest of any
other Entity; (e) enter into any transaction not in the ordinary
course of business; (f) guarantee or indemnify or otherwise become in
any way liable with respect to the obligations of any Entity, except
by endorsement of instruments or items of payment for deposit to the
general account of Dealer or which are transmitted or turned over to
DFS on account of the Obligations; (g) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Dealer's capital
stock; (h) make any change in Dealer's capital structure or in any of
its business objectives or operations which might in any way adversely
affect the ability of Dealer to repay the Obligations; (i) make any
distribution of Dealer's assets not in the ordinary course of
business; (j) incur any debts outside of the ordinary course of
business except renewals or extensions of existing debts and interest
thereon; and (k) make any loans, advances, contributions or payments
of money or in goods to any affiliated entity or to any officer,
director, stockholder, member or partner of Dealer or of any such
entity (except for compensation for personal services actually
rendered).
5.3 FINANCIAL STATEMENTS. Dealer will deliver to DFS: (a) within ninety
(90) days after the end of each of Dealer's fiscal years, a reasonably
detailed balance sheet as of the last day of such fiscal year and a
reasonably detailed balance sheet as of the last day of such fiscal
year and a reasonably detailed income statement covering Dealer's
operations for such fiscal year, in a form satisfactory to DFS; (b)
within forty-five (45) days after the end of each of Dealer's fiscal
quarters, a reasonably detailed balance sheet as of the last day of
such quarter and an income statement covering Dealer's operations for
such quarter in a form satisfactory to DFS; (c) within ten (10) days
after request therefor by DFS, any other report requested by DFS
relating to the Collateral or the financial condition of Dealer.
Dealer warrants and represents to DFS that all financial statements
and information relating to Dealer or any Guarantor which have been or
may hereafter be delivered by Dealer or any Guarantor to DFS are true
and correct and have been and will be prepared in accordance with
generally accepted accounting principles consistently applied and,
with respect to such previously delivered statements or information,
there has been no material adverse change in the financial or business
condition of Dealer or any Guarantor since the submission to DFS,
either as of the date of delivery, or, if different, the date
specified therein, and Dealer acknowledges DFS' reliance thereon.
6. Default
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6.1 DEFINITION. Dealer will be in default under this Agreement if: (a) Dealer
breaches any terms, warranties or representations contained herein or in
any Other Agreements; (b) any Guarantor of Dealer's debts to DFS breaches
any terms, warranties or representations contained in any guaranty or Other
Agreements; (c) any representation, statement, report, or certificate made
or delivered by Dealer or any Guarantor to DFS is not accurate when made;
(d) Dealer fails to pay any of the Obligations when due and payable; (e)
Dealer abandons any Collateral, (f) Dealer or any Guarantor is or becomes
in default in the payment of any debt owed to any third party; (g) a money
judgment issues against Dealer or any Guarantor; (h) an attachment, sale or
seizure issues or is executed against any assets of Dealer or of any
Guarantor; (i) the undersigned dies while Dealer's business is operated as
a sole proprietorship, any general partner dies while Dealer's business is
operated as a general or limited partnership, or any member dies while
Dealer's business is operated as a limited liability company, as
applicable; (j) any Guarantor dies; (k) Dealer or any Guarantor shall cease
existence as a corporation, partnership, limited liability company or
trust, as applicable; (l) Dealer or any Guarantor ceases or suspends
business; (m) Dealer, any Guarantor or any member while Dealer's business
is operated as a limited liability company, as applicable, makes a general
assignment for the benefit of creditors; (n) Dealer, any Guarantor or any
member while Dealer's business is operated as a limited liability company,
as applicable, becomes insolvent or voluntarily or involuntarily becomes
subject to the Federal Bankruptcy Code, any state insolvency law or any
similar law; (o) any receiver is appointed for any assets of Dealer, any
Guarantor or any member while Dealer's business is operated as a limited
liability company, as applicable; (p) any guaranty of Dealer's debt to DFS
is terminated; (q) Dealer loses any franchise, permission, license or right
to sell or deal in any Collateral which DFS finances; (r) Dealer or any
Guarantor misrepresents Dealer's or such Gurarantor's financial condition
or organizational structure; or (s) DFS determines in good faith that it is
insecure with respect to any of the Collateral or the payment of any part
of Dealer's Obligations.
6.2 RIGHTS OF DFS. in the even of a Default:
(a) DFS may at any time at DFS' election, without notice or demand to
Dealer, do any one or more of the following: declare all or any
of the Obligation immediately due and payable, together with all
costs and expenses of DFS' collection activity, including,
without limitation, all reasonable attorneys' fees; exercise any
or all rights under applicable law (including, without
limitation, the right to possess, transfer and dispose of the
Collateral); and/or cease extending any additional credit to
Dealer (DFS' right to cease extending credit shall not be
construed to limit the discretionary nature of this credit
facility).
(b) Dealer will segregate and keep the Collateral in trust for DFS,
and in good order and repair, and will not sell, rent, lease,
consign, otherwise dispose of or use any Collateral, nor further
encumber any Collateral.
(c) Upon DFS' oral or written demand, Dealer will immediately deliver
the Collateral to DFS, in good order and repair, at a place
specified by DFS, together with all related documents; or DFS
may, in DFS' sole discretion and without notice or demand to
Dealer, take immediate possession of the Collateral together with
all related documents.
(d) DFS may, without notice, apply a default finance charge to
Dealer's outstanding principal indebtedness equal to the default
rate specified in Dealer's financing program with DFS, if any, or
if there is none so specified, at the lesser of 3% per annum
above the rate in effect immediately prior to the Default, or the
highest lawful contract rate of interest permitted under
applicable law.
(e) DFS may, without notice to Dealer and at any time or times
enforce payment and collect, by legal proceedings or otherwise,
Accounts in the name of Dealer or DFS; and take control of any
cash or non-cash items of payment or proceeds of Accounts and of
any rejected, returned, repossessed or stopped in transit goods
relating to Accounts. DFS may at its sole election and without
demand enter, with or without process of law, any premises where
Collateral might be and, without charge or liability to DFS
therefor do one or more of the following: (i) take
7
<PAGE>
possession of the Collateral and use or store it in said premises
or remove it to such other place or places as DFS may deem
convenient; (ii) take possession of all or part of such premises
and the Collateral and place a custodian in the exclusive control
thereof until completion of enforcement of DFS' security interest
in the Collateral or until DFS' removal of the Collateral and,
(iii) remain on such premises and use the same, together with
Dealer's materials, supplies, books and records, for the purpose
of performing all acts necessary and incidental to the collection
or liquidation of such Collateral.
All of DFS' rights and remedies are cumulative. DFS' failure to
exercise any of DFS' rights or remedies hereunder will not waive
any of DFS' rights or remedies as to any past, current or future
Default.
6.3 SALE OF COLLATERAL. Dealer agrees that if DFS conducts a private sale
of any Collateral by requesting bids from 10 or more dealers or
distributors in that type of Collateral, any sale by DFS of such
Collateral in bulk or in parcels within 120 days of: (a) DFS' taking
possession and control of such Collateral; or (b) when DFS is
otherwise authorized to sell such Collateral; whichever occurs last,
to the bidder submitting the highest cash bid therefor, is a
commercially reasonable sale of such Collateral under the Uniform
Commercial Code. Dealer agrees that the purchase of any Collateral by
a vendor, as provided in any agreement between DFS and the vendor, is
a commercially reasonable disposition and private sale of such
Collateral under the Uniform Commercial Code, and no request for bids
shall be required. Dealer further agrees that 7 or more days prior
written notice will be commercially reasonable notice any public or
private sale (including any sale to a vendor). Dealer irrevocably
waives any requirement that DFS retain possession and not dispose of
any Collateral until after an arbitration hearin, arbitration award,
confirmation, trial or final judgment. If DFS disposes of any such
Collateral other than as herein contemplated, the commercial
reasonableness of such disposition will be determined in accordance
with the laws of the state governing this Agreement.
7. MISCELLANEOUS
-------------
7.1 TERMINATION. This Agreement will continue in full force and effect and
be non-cancellable by Dealer (except that it may be terminated by DFS
upon thirty (30) days written notice to Dealer or in the exercise of
its rights and remedies upon Default by Dealer) for a period of one
(1) year from the first day of the first month following the date
hereof and for successive one (1) year periods thereafter, subject to
termination as to future transactions at the end of any such period on
at least ninety (90) days prior written notice by Dealer to DFS. If
such notice of termination is given by Dealer to DFS, such notice will
be ineffective unless Dealer pays to DFS all Obligations on or before
the termination date. Any termination of this Agreement by Dealer or
DFS will have the effect of accelerating the maturity of all
Obligations not then otherwise due.
7.1.1 TERMINATION PRIVILEGE. Despite anything to the contrary in
Section 7.1 of this Agreement, this Agreement may be terminated
by Dealer at any time upon ninety (90) days prior written notice
and payment to DFS of the following sum(in addition to payment
of all Obligations, whether or not by their terms then due)
which sum represents liquidated damages for the loss of the
bargain and not as a penalty, and the same is hereby
acknowledged by Dealer: (1) the product of (a) one half percent
(.50%) multiplied by (b) the highest Average Contract Balance
for the last 12 months (or entire term of this Agreement if less
than 12 months) prior to the effective date of termination,
multiplied by (2) the number of months remaining in the original
or renewal term. This sum will also be paid by Dealer if the
Agreement is terminated on account of Dealers Default.
7.1.2 EFFECT OF TERMINATION. Dealer will not be relieved from any
Obligations to DFS arising out of DFS' advances or commitments
made before the effective termination date of this Agreement DFS
will retain all of its rights, interests and remedies hereunder
until Dealer has paid all of Dealer's Obligations to DFS. All
waivers set forth within this Agreement will survive any
termination of this Agreement.
8
<PAGE>
7.2 COLLECTION. Checks and other instruments delivered to DFS on account of
the Obligations will constitute conditional payment until such items are
actually paid to DFS.
7.3 DEMAND, ETC. Dealer irrevocably waives notice of: DFS' acceptance of this
Agreement, presentment, demand, protest, nonpayment, nonperformance, and
dishonor. Dealer and DFS irrevocably waive all rights to claim any punitive
and/or exemplary damages. Dealer waives all notices of default and
non-payment at maturity of any or all of the Accounts.
7.4 REIMBURSEMENT. Dealer will assume and reimburse DFS upon demand for all
expenses incurred by DFS in connection with the preparation of this
Agreement and the Other Agreements (including fees and costs of outside
counsel) and all filing and recording fees and taxes payable in connection
with the filing or recording of all documents under this Agreement and the
Other Agreements; provided, however, that such reimbursement by Dealer
hereunder will not exceed the sum of ONE THOUSAND DOLLARS ($1,000.00).
7.5 ADDITIONAL OBLIGATIONS. DFS, without waiving or releasing any Obligation
or Default, may perform any Obligations that Dealer fails or refuses to
perform. All sums paid by DFS on account of the foregoing and any expenses,
including reasonable attorneys' fees, will be a part of the Obligations,
payable on demand and secured by the Collateral.
7.6 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES
TO EXTEND OR RENEW SUCH DEBTS ARE NOT ENFORCEABLE. TO PROTECT DEALER AND
DFS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING AND THE OTHER AGREEMENTS, WHICH IS
THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
EXCEPT AS SPECIFICALLY PROVIDED HEREIN OR AS THE PARTIES MAY LATER AGREE IN
WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES. Time is of the essence regarding Dealer's performance of its
obligations to DFS notwithstanding any course of dealing or custom on DFS'
part to grant extensions of time. DFS will have the right to refrain from
or postpone enforcement of this Agreement or any Other Agreements between
DFS and Dealer without prejudice and the failure to strictly enforce these
agreements will not be construed as having created a course of dealing
between DFS and Dealer contrary to the specific terms of the agreements or
as having modified, released or waived the same. The express terms of this
Agreement will not be modified by any course of dealing, usage of trade, or
custom of trade which may deviate from the terms hereof.
7.7 SEVERABILITY. If any provision of this Agreement or the Other Agreements
or the application thereof is held invalid or unenforceable, the remainder
of this Agreement and the Other Agreements will not be impaired or affected
and will remain binding and enforceable.
7.8 SUPPLEMENT. If Dealer and DFS have heretofore executed Other Agreements in
connection with all or any part of the Collateral, this Agreement shall
supplement each and every Other Agreement previously executed by and
between Dealer and DFS, and in that event this Agreement shall neither be
deemed a novation nor a termination of any such previously executed Other
Agreement nor shall execution of this Agreement be deemed a satisfaction of
any obligation secured by such previously executed Other Agreement. In the
event of any conflict between the terms of this Agreement and any
previously executed Business Financing Agreement between DFS and Dealer,
the terms of this Agreement shall control.
7.9 SECTION TITLES. The Section titles used in this Agreement are for
convenience only and do not define or limit the contents of any Section.
7.10 BINDING EFFECT. Dealer cannot assign its interest in this Agreement or any
Other Agreements without DFS' prior written consent, although DFS may
assign or participate DFS' interest, in whole or in part, without Dealer's
consent. This Agreement and the Other Agreements will protect and bind DFS'
and Dealer's respective heirs, representatives, successors and assigns.
7.11 NOTICES. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or
served if mailed or delivered: (a) to Dealer at Dealer's principal place of
business specified above; and (b) to DFS at 655 Maryville Centre Drive, St.
Louis,
9
<PAGE>
Missouri 63141-5832, Attention: General Counsel, or such other address
as the parties may hereafter specify in writing.
7.12 RECEIPT OF AGREEMENT. Dealer acknowledges that it has received a true
and complete copy of this agreement. Dealer acknowledges that it has
read and understood this Agreement. Notwithstanding anything herein to
the contrary: (a) DFS may rely on any facsimile copy, electronic data
transmission or electronic data storage of any Schedule, statement,
financial statements or other reports, and (b) such facsimile copy,
electronic data transmission or electronic data storage will be deemed
an original, and the best evidence thereof for all purposes, including,
without limitation, under this Agreement or any Other Agreements, and
for all evidentiary purposes before any arbitrator, court or other
adjudicatory authority.
8. BINDING ARBITRATION
-------------------
8.1 ARBITRABLE CLAIMS. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in
equity of any type or nature whatsoever (including, without limitation,
all torts, whether regarding negligence, breach of fiduciary duty,
restraint of trade, fraud, conversion, duress, interference, wrongful
replevin, wrongful sequestration, fraud in the inducement, usury or any
other tort, all contract actions, whether regarding express or implied
terms, such as implied covenants of good faith, fair dealing, and the
commercial reasonableness of any Collateral disposition, or any other
contract claim, all claims of deceptive trade practices or lender
liability, and all claims questioning the reasonableness or lawfulness
of any act), whether arising before or after the date of this Agreement,
and whether directly or indirectly relating to: (a) this Agreement or
any Other Agreements and/or any amendments and addenda hereto or
thereto, or the breach, invalidity or termination hereof or thereof; (b)
any previous or subsequent agreement between DFS and Dealer; (c) any act
committed by DFS or by any parent company, subsidiary or affiliated
company of DFS (the "DFS Companies"), or by any employee, agent, officer
or director of an DFS Company whether or not arising within the scope
and course of employment or other contractual representation of the DFS
Companies provided that such act arises under a relationship,
transaction or dealing between DFS and Dealer; and/or (d) any other
relationship, transaction or dealing between DFS and Dealer
(collectively the "Disputes"), will be subject to and resolved by
binding arbitration.
8.2 ADMINISTRATIVE BODY. All arbitration hereunder will be conducted in
accordance with the Commercial Arbitration Rules of The American
Arbitration Association ("AAA"). If the AAA is dissolved, disbanded or
becomes subject to any state or federal bankruptcy or insolvency
proceeding, the parties will remain subject to binding arbitration which
will be conducted by a mutually agreeable arbitral forum. The parties
agree that all arbitrator(s) selected will be attorneys with at least
five (5) years secured transactions experience. The arbitrator(s) will
decide if any inconsistency exists between the rules of any applicable
arbitral forum and the arbitration provisions contained herein. If such
inconsistency exists, the arbitration provisions contained herein will
control and supersede such rules. The site of all arbitration
proceedings will be in the Division of the Federal Judicial District in
which AAA maintains a regional office that is closest to Dealer.
8.3 DISCOVERY. Discovery permitted in any arbitration proceeding commenced
hereunder is limited as follows. No later than thirty (30) days after
the filing of a claim for arbitration, the parties will exchange
detailed statements setting forth the facts supporting the claim(s) and
all defenses to be raised during the arbitration, and a list of all
exhibits and witnesses. No later than twenty-one (21) days prior to the
arbitration hearing, the parties will exchange a final list of all
exhibits and all witnesses, including any designation of any expert
witness(es) together with a summary of their testimony; a copy of all
documents and a detailed description of any property to be introduced at
the hearing. Under no circumstances will the use of interrogatories,
requests for admission, requests for the production of documents or the
taking of depositions be permitted. However, in the event of the
designation of any expert witness(es), the following will occur: (a) all
information and documents relied upon by the expert witness(es) will be
delivered to the opposing party, (b) the opposing party will be
permitted to depose the expert witness(es), (c) the opposing party will
be permitted to
10
<PAGE>
designate rebuttal expert witness(es), and (d) the arbitration hearing
will be continued to the earliest possible date that enables the
foregoing limited discovery to be accomplished.
8.4 EXEMPLARY OR PUNITIVE DAMAGES. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages.
8.5 CONFIDENTIALITY OF AWARDS. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, although
any award or order rendered by the arbitrator(s) pursuant to the terms
of this Agreement may be entered as a judgment or order in any state
or federal court and may be confirmed within the federal judicial
district which includes the residence of the party against whom such
award or order was entered. This Agreement concerns transactions
involving commerce among the several states. The Federal Arbitration
Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA") will govern
all arbitration(s) and confirmation proceedings hereunder.
8.6 PREJUDGMENT AND PROVISIONAL REMEDIES. Nothing herein will be construed
to prevent DFS' or Dealer's use of bankruptcy, receivership,
injunction, repossession, replevin, claim and delivery, sequestration,
seizure, attachment, foreclosure, dation and/or any other prejudgment
or provisional action or remedy relating to any Collateral for any
current or future debt owed by either party to the other. Any such
action or remedy will not waive DFS' or Dealer's right to compel
arbitration of any Dispute.
8.7 ATTORNEYS' FEES. If either Dealer or DFS brings any other action for
judicial relief with respect to any Dispute (other than those set
forth in Section 8.6), the party bringing such action will be liable
-----------
for and immediately pay all of the other party's costs and expenses
(including attorneys' fees) incurred to stay or dismiss such action
and remove or refer such Dispute to arbitration. If either Dealer or
DFS brings or appeals an action to vacate or modify an arbitration
award and such party does not prevail, such party will pay all costs
and expenses, including attorneys' fees, incurred by the other party
in defending such action. Additionally, if Dealer sues DFS or
institutes any arbitration claim or counterclaim against DFS in which
DFS is the prevailing party, Dealer will pay all costs and expenses
(including attorneys' fees) incurred by DFS in the course of defending
such action or proceeding.
8.8 LIMITATIONS. Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either
party to the other, within two (2) years after the date the last
payment was received by the instituting party; and (b) with respect to
any other Dispute, within two (2) years after the date the incident
giving rise thereto occurred, whether or not any damage was sustained
or capable of ascertainment or either party knew of such incident.
Failure to institute an arbitration proceeding within such period will
constitute an absolute bar and waiver to the institution of any
proceeding, whether arbitration or a court proceeding, with respect to
such Dispute.
8.9 SURVIVAL AFTER TERMINATION. The agreement to arbitrate will survive
the termination of this Agreement.
9. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS
FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT
TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE WITHOUT A JURY. DEALER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY
SUCH PROCEEDING.
10. GOVERNING LAW. Dealer acknowledges and agrees that this and all Other
Agreements between Dealer and DFS have been substantially negotiated, and
will be substantially performed, in the state of CALIFORNIA. Accordingly,
----------
Dealer agrees that all Disputes will be governed by, and construed in
accordance with, the laws of such state, except to the extent inconsistent
with the provisions of the FAA which shall control and govern all
arbitration proceedings hereunder.
IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement as of the
date first set forth hereinabove.
11
<PAGE>
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.
DEUTSCHE FINANCIAL SERVICES CORPORATION NEWCOM, INC.
----------------------------------
Dealer's Name
By: Duetche Bank By: Duetche Bank
--------------------------------- ------------------------------
Print Name: Print Name:
------------------------- -----------------------
Title: Title:
------------------------------- ----------------------------
By:
-------------------------------
Print Name:
-----------------------
Title:
----------------------------
ATTEST:
/s/ Michael I. Froch
----------------------------------
Acting Secretary
Print Name: Michael I. Froch
-----------------------
12
<PAGE>
SECRETARY'S CERTIFICATE OF RESOLUTION
I certify that I am the Secretary or Assistant Secretary of the corporation
named below, and that the following completely and accurately sets forth certain
resolutions of the Board of Directors of the corporation adopted at a special
meeting thereof held on due notice (and with shareholder approval, if required
by law), at which meeting there was present a quorum authorized to transact the
business described below, and that the proceedings of the meeting were in
accordance with the certificate of incorporation, charter and by-laws of the
corporation, and that they have not been revoked, annulled or amended in any
manner whatsoever.
Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion:
"RESOLVED, That the several officers, directors, and agents of this
corporation, or any one or more of them, are hereby authorized and empowered on
behalf of this corporation: to obtain financing from Deutsche Financial Services
Corporation ("DFS") in such amounts and on such terms as such officers,
directors or agents deem proper; to enter into financing, security, pledge and
other agreements with DFS relating to the terms upon which such financing may be
obtained and security and/or other credit support is to be furnished by this
corporation therefore; from time to time to supplement or amend any such
agreements; execute and deliver any and all assignments and schedules; and from
time to time to pledge, assign, mortgage, grant security interests, and
otherwise transfer, to DFS as collateral security for any obligations of this
corporation to DFS, whenever and however arising, any assets of this
corporation, whether now owned or hereafter acquired; the Board of Directors
hereby ratifying, approving and confirming all that any of said officers,
directors or agents have done or may do with respect to the foregoing."
I do further certify that the following are the names and specimen
signatures of the officers and agents of said corporation so empowered and
authorized, namely:
President: /s/ Duetsche Bank /s/ Duetsche Bank
------------------------- --------------------------
(Print Name) (Signature)
Vice-President: /s/ Duetsche Bank /s/ Duetsche Bank
------------------------- --------------------------
(Print Name) (Signature)
Acting
Secretary: /s/ Duetsche Bank /s/ Duetsche Bank
------------------------- --------------------------
(Print Name) (Signature)
CFO
Treasurer: /s/ Duetsche Bank /s/ Duetsche Bank
------------------------- --------------------------
(Print Name) (Signature)
Acting Agent /s/ Duetsche Bank /s/ Duetsche Bank
------------------------- --------------------------
(Print Name) (Signature)
IN WITNESS WHEREOF, I have executed and affixed the seal of the corporation
on the date stated below.
Dated: DECEMBER 23, 1996 /s/ Michael I. Froch
----------- -- --------------------------
Acting Secretary
NEWCOM, INC.
--------------------------
(SEAL) Corporate Name
13
<PAGE>
ADDENDUM TO BUSINESS FINANCING AGREEMENT
This Addendum is made to that certain Business Financing Agreement entered
into by and between Newcom, Inc. ("Dealer") and Deutsche Financial Services
Corporation ("DFS") on ______________, 1997 as amended ("Agreement").
FOR VALUE RECEIVED. DFS and Dealer agree as follows (all capitalized terms
shall have the meanings assigned to them in the Agreement unless otherwise
defined herein).
1. Notwithstanding anything in Section 3.2 of the Agreement to the
contrary. Dealer agreed that DFS will not make any advance to Dealer in excess
of One Million Dollars ($1,000,000.00) with respect to any particular obligor's
eligible Accounts; provided, however, that DFS will advance up to Three Million
Dollars ($3,000,000.00) with respect to the eligible Accounts of any of the
obligors listed on Exhibit A attached hereto.
2. Section 3.3 of the Agreement is hereby amended in its entirety to read
as follows:
"3.3 Ineligible Accounts. DFS will have the sole right to determine
eligibility of Accounts and, without limiting DFS' discretion in that
regard, the following Accounts will be deemed ineligible: (a) Accounts
created from the sale of goods and services on non-standard terms
and/or that allow for payment to be made more than thirty (30) days
from the date of sale: (b) Accounts unpaid more than ninety (90) days
from date of invoice: (c) all Accounts of any obligor with fifty
percent (50%) or more of the outstanding balance unpaid for more than
ninety (90) days from the date of invoice: (d) Accounts for which the
obligor is an officer, director, shareholder, partner, member, owner,
employee, agent, parent, subsidiary, affiliate of, or is related to
Dealer or has common shareholders, officers, directors, owners,
partners or members; (e) consignment sales, (f) Accounts for which the
payment is or may be conditional; (g) Accounts for which the obligor
is not a commercial or institutional entity or is not a resident of
the United States or Canada; (h) Accounts with respect to which any
warranty or representation provided in Subsection 3.4 is not true and
--------------
correct; (i) Account which represent goods or services purchased for a
personal, family or household purpose; (j) Accounts which represent
goods used for demonstration purposes or loaned by the Dealer to
another party; (k) Accounts which are progress payment, barter, or
contra accounts; and (l) any and all other Accounts which DFS deems to
be ineligible. If DFS determines that any Account is or becomes an
ineligible Account, immediately upon notice thereof from DFS, Dealer
will pay to DFS an amount equal to the monies loaned by DFS for such
ineligible Account."
Dealer waives notice of DFS' acceptance of this Addendum.
All other terms and provisions of the Agreement, to the extent not
inconsistent with the foregoing, are ratified and remain unchanged and in full
force and effect.
1
<PAGE>
IN WITNESS WHEREOF, Dealer and DFS have executed this Addendum on this __
day of _______________, 19__.
ATTEST: NEWCOM, INC.
By:
- -------------------------------- --------------------------------------
(Assistant) Secretary Title:
-----------------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
------------------------------------
Title:
----------------------------------
2
<PAGE>
EXHIBIT A
Best Buy Co., Inc.
Circuit City Stores, Inc.
Tandy Corporation (D/B/A Computer City)
CompUSA, Inc.
Office Depot, Inc.
Staples, Inc.
<PAGE>
Exhibit 10.14
FINANCIAL CONSULTING AGREEMENT
This Financial Consulting Agreement (the "Agreement") is made as of
, 1997 by and between, NewCom, Inc., a Delaware corporation having its
- ---------
business address at 31166 Via Colinas, Westlake Village, CA 91362 (hereinafter
the "Company") and Joseph Charles & Associates, Inc., a Florida corporation
having its principal place of business at 9701 Wilshire Boulevard, Ninth Floor,
Beverly Hills, California 90212 (hereinafter "Consultant").
In consideration of the mutual promises contained herein and on the terms
and conditions hereinafter set forth, the Company and Consultant agree as
follows:
1. Provision of Services.
---------------------
(a) Consultant agrees, to the extent reasonably requested by the
President of the Company and reasonably required in the conduct of the business
of the Company, as determined by the Consultant, to place at the disposal of the
Company its judgment and experience and to provide business development services
to the Company including the following:
(i) assist the Company in its public equity marketing efforts;
(ii) provide access to the Consultant's retail sales force
through roadshow stops and conference calls;
(iii) provide research coverage from the Consultant's
Research Department; and
(iv) advise with regard to stockholder relations and public
relations matters.
All such services shall at all times be at the request of the Company.
(b) Consultant agrees to use its best efforts at all times in the
furnishing of advice and recommendations, and for this purpose Consultant shall
at all times maintain or keep available for the Company an adequate organization
of personnel or a network of outside professionals for the performance of its
obligations under this Agreement.
2. Compensation. In consideration for services to be rendered under this
------------
Agreement, the Company and Consultant hereby agree that hereby agree that the
Company shall pay a non-refundable fee equal to $3,000 per month for twenty-four
(24) months, payable monthly.
1
<PAGE>
The Company agrees to reimburse Consultant for its expenses incurred by the
Consultant in connection with its services hereunder. All expenses shall be
approved in advance by the Company in writing.
3. Expenses Payment Schedule. Consultant will invoice the Company for
-------------------------
its actual expenses for each month within fifteen (15) days of the end of the
month. Payment of invoices will be due upon receipt.
4. Liability of Consultant. In furnishing the Company with management
-----------------------
advice and other services as herein provided, neither Consultant nor any
officer, director or agent thereof shall be liable to the Company or its
creditors for errors of judgment or for anything except willful malfeasance, bad
faith or gross negligence in the performance of its duties or reckless disregard
or its obligations and duties under the terms of this Agreement.
It is further understood and agreed that Consultant may rely upon
information furnished to is reasonably believed to be accurate and reliable and
that, except as herein provided, Consultant shall not be accountable for any
loss suffered by the Company by reason of the Company's action or non-action on
the basis of any advice, recommendation or approval of Consultant, its partners,
employees or agents.
5. Status of Consultant. Consultant shall be deemed to be an independent
--------------------
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act for or represent the Company.
6. Other Activities of Consultant. The Company recognizes that
------------------------------
Consultant now renders and may continue to render management and other services
to other companies which may or may not have policies and conduct activities
similar to those of the Company. Consultant shall be free to render such advice
and other services and the Company hereby consents thereto. Consultant shall not
be required to devotes its full time and attention to the performance of its
duties under this Agreement, but shall devote only so much of its time and
attention as it deems reasonable or necessary for such purposes.
7. Control. Nothing contained herein shall be deemed to require the
-------
Company to take any action contrary to its Certificate of Incorporation or By-
Laws, or any applicable statute or regulation, or to deprive its Board of
Directors of their responsibility for any control of the conduct or the affairs
of the Company.
8. Term. Consultant's retention hereunder shall be for a term of two
----
years commencing upon the execution of this Agreement.
2
<PAGE>
9. Miscellaneous. This Agreement sets forth the entire agreement and
-------------
understanding between the parties and supersedes all prior discussions,
agreements and understandings of every and any nature between them. This
Agreement shall be construed and interpreted according to the laws of the State
of California.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers or representatives duly authorized the day and year
first above written.
NEWCOM, INC.
By:
-------------------------------
Name:
Title:
JOSEPH CHARLES & ASSOCIATES, INC.
By:
------------------------------
Name:
Title:
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in Amendment No. 2 to the Registration
Statement on Form S-1 of NewCom, Inc. of our reports, dated June 11, 1997, on
our audits of the balance sheets of NewCom, Inc. as of February 28, 1997,
February 29, 1996 and February 28, 1995, and the related statements of
operations, stockholder's equity (deficit) and cash flows for each of the two
years in the period ended February 28, 1997, and for the nine months ended
February 28, 1995. We also hereby consent to the reference to our firm under
the captions "Selected Financial Data" and "Experts" in the Registration
Statement.
Pannell Kerr Forster
Certificate Public Accountants
A Professional Corporation
Los Angeles, California
August 26, 1997
