AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 2000
REGISTRATION NO. __________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EVERCEL, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 06-1528142
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
Organization)
2 LEE MAC AVENUE
DANBURY, CONNECTICUT 06810
(203) 825-3900
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
ROBERT L. KANODE, PRESIDENT AND CHIEF EXECUTIVE OFFICER
EVERCEL, INC.
2 LEE MAC AVENUE
DANBURY, CONNECTICUT 06810
(203) 825-3900
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
<PAGE>
COPIES TO:
RICHARD A. KRANTZ, ESQ. CAMERON READ, ESQ.
ROBINSON & COLE LLP CHOATE, HALL & STEWART
FINANCIAL CENTRE EXCHANGE PLACE
695 EAST MAIN STREET 53 STATE STREET
Stamford, ct 06904-2305 BOSTON, MA 02109
(203) 462-7500 (617) 248-5000
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this registration statement.
--------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
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Title of each Class of Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Securities to be Registered (1) Offering Price per Aggregate Offering Fee
Registered Share (2) Price (2)
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Common Stock, par
value $0.01 per share 1,437,500 $22.41 $32,214,375 $8,505
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</TABLE>
(1) Includes 187,500 shares of common stock which the underwriters have the
option to purchase from Evercel, Inc. solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of
1933, as amended, on the basis of the average high and low sale prices
of the registrant's Common Stock on March 17, 2000, as reported by
Nasdaq, as adjusted for the registrant's 100% common stock dividend to
be paid on March 22, 2000 to holders of record on March 7, 2000.
------------------------------
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 this registration statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
-------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 23, 2000
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities, and we are not soliciting offers to buy these securities, in
any state where the offer or sale is not permitted.
1,250,000 Shares
Evercel, Inc. Logo
Common Stock
--------------------
We are offering 1,250,000 shares of our common stock as described in
the prospectus.
Our common stock trades on the Nasdaq Small Cap Market under the symbol
"EVRC" and on the Boston Stock Exchange under the symbol "EVL." We have applied
to list our common stock on the Nasdaq National Market under the symbol "EVRC."
On March 22, 2000, the last reported sale price of the common stock on the
Nasdaq Small Cap Market was $24.31 per share.
--------------------
Investing in our common stock involves a high degree of risk. Please
see the section entitled "Risk Factors" starting on page 9 to read about risks
that you should consider carefully before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------
Per Share Total
Public Offering Price $ $
Underwriting Discounts $ $
Proceeds, before expenses, to Evercel $ $
The underwriters have an option to purchase 187,500 additional shares
of the common stock from Evercel, Inc. at the public offering price less the
underwriting discounts to cover any over-allotments of shares.
ADAMS, HARKNESS & HILL, INC.
FAC/Equities
BURNHAM SECURITIES INC.
PROSPECTUS DATED _______ __, 2000
<PAGE>
[Inside Front Cover Page]
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.............................................................4
RISK FACTORS...................................................................9
FORWARD-LOOKING STATEMENTS....................................................19
USE OF PROCEEDS...............................................................20
DIVIDEND POLICY...............................................................20
PRICE RANGE OF COMMON STOCK...................................................21
CAPITALIZATION................................................................22
DILUTION......................................................................23
SELECTED FINANCIAL DATA.......................................................24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................25
BUSINESS......................................................................31
MANAGEMENT....................................................................45
RELATED PARTY TRANSACTIONS....................................................50
PRINCIPAL SHAREHOLDERS........................................................51
DESCRIPTION OF CAPITAL STOCK..................................................55
SHARES ELIGIBLE FOR FUTURE SALE...............................................59
UNDERWRITING..................................................................61
LEGAL MATTERS.................................................................63
EXPERTS.......................................................................63
WHERE YOU CAN FIND MORE INFORMATION...........................................63
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................64
INDEX TO FINANCIAL STATEMENTS................................................F-1
INDEPENDENT AUDITORS' REPORT.................................................F-2
We have applied for registration of the trademark "Evercel." This
prospectus also contains trademarks and tradenames of other companies.
<PAGE>
PROSPECTUS SUMMARY
This summary does not contain all the information that may be important
to you. You should read the following summary together with the more detailed
information and our financial statements, the notes to those statements and the
other information appearing elsewhere in the prospectus, especially "Risk
Factors" beginning on page 9.
EVERCEL, INC.
Overview
We have developed the first rechargeable nickel-zinc battery with
commercially acceptable cycle life. We believe that our patented, independently
tested and proven technology is superior to the competing battery technologies
in our target markets. We intend to manufacture and sell our batteries in two
premium markets. We benefit from a joint venture (the "Joint Venture") in the
Peoples Republic of China that produces batteries for the scooter market. We
will also produce batteries in a domestic manufacturing facility for the
electric trolling motor market, used in sportfishing boats. The Joint Venture
has received its first order to supply batteries for 1,500 scooters.
Our proprietary nickel-zinc battery is the result of over 30 years and
a substantial investment in research and development in advanced battery
technologies. We believe that our technology has created significant barriers of
entry into our targeted markets. Our manufacturing process and patented
technology allow us to produce batteries with a unique combination of
characteristics including high power, low weight, low maintenance, environmental
acceptance and low lifetime cost when compared to other technologies in our
markets.
Our goal is to commercially introduce our battery technology to the
motive power market. We intend to reach this goal by:
o Establishing Evercel as a premium brand name;
o Creating a manufacturing and distribution network with global reach;
o Selling scooter batteries directly to equipment manufacturers;
o Selling trolling motor batteries to the consumer and premium boat
manufacturers;
o Expanding our strategic alliances to access additional markets for our
batteries; and
o Maintaining our technical leadership through continued research
and development.
We operated as the battery business group of FuelCell Energy, Inc.
("FuelCell"), formerly known as Energy Research Corporation, between 1970 and
1999. During that time, FuelCell focused primarily on the development and
engineering of electricity production and storage by electrochemical means. On
February 22, 1999, we were spun-off from FuelCell. At that time, FuelCell
transferred to Evercel the intellectual property and principal assets related to
the battery business group and certain liabilities related to those assets.
We are a Delaware corporation incorporated on June 22, 1998. Our
principal executive offices are located at 2 Lee Mac Avenue, Danbury,
Connecticut 06810 and our telephone number is (203) 825- 3900.
We maintain a website on the Internet at www.evercel.com. Information
contained on our Internet Website does not constitute a part of this prospectus.
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by us........................ 1,250,000 shares
Shares of common stock to be outstanding
after the offering............................... 6,983,258 shares
Use of proceeds................................... To equip a U.S. production facility with an automated line, to
provide funds for a second automated line at the production
facility within the 12 months after completion of the first, to
increase the produciton capacity of the Joint Venture, to equip
our new production facilities and for working capital and general
corporate purposes, including acquiring additional businesses,
products and technologies or establishing joint ventures. See the
section entitled "Use of Proceeds."
Nasdaq Market symbol.............................. EVRC
</TABLE>
Except as otherwise noted, all information in this prospectus assumes
no exercise of the underwriters' over-allotment option. In addition, we have
adjusted all of the information in this prospectus, except as otherwise noted,
to reflect a 2-for-1 stock split, accomplished by means of a 100% stock
dividend, paid to shareholders on March 22, 2000.
The number of shares to be outstanding immediately after this offering does
not include:
o 760,430 shares of our common stock issuable upon stock options
outstanding at March 20, 2000, at a weighted average exercise
price of $6.83 per share;
o 601,268 shares of our common stock issuable upon warrants
outstanding at March 20, 2000, at a weighted average exercise
price of $8.40 per share; and
o 960,000 shares of our common stock issuable upon conversion of
our Series A Convertible Preferred Stock outstanding as of
March 20, 2000.
<PAGE>
Summary Financial Data
(dollars in thousands except per share amounts)
The following table summarizes statements of operations data for our
business. You should read this information together with our financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" presented elsewhere in this
prospectus. The pro forma as adjusted balance sheet data as of December 31, 1999
reflects the sale of the 1,250,000 shares of common stock in this offering,
assuming an offering price of $_____ per share and after underwriting discounts
and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
<S> <C> <C>
Two Months Ended Years Ended
------------------------------------ --------------------------------------------------
December 31, December 31, October 31, October 31, October 31,
1999 1998 1999 1998 1997
------------------------------------ --------------- ----------------- ----------------
(Unaudited)
Statement of Income Data:
Revenues.................... $ 13 $ - $ 196 $ 438 $ 436
Total operating costs and
expenses................. 1,361 607 5,568 3,769 1,303
Interest income, net, equity
in net loss of affiliates
and other expense........ 28 - 51 - -
Income tax benefit.......... - (249) (360) (1,006) (295)
----------- ----------- ----------- ----------- ----------
Net loss.................... $ (1,320) $ (358) $ (4,961) $ (2,325) $ (572)
----------- ------------ ------------ ------------ ----------
Preferred stock dividends... (22) - - - -
------------ ----------- ----------- ----------- ---------
Net loss - common
shareholders............ $ (1,342) $ (358) $ (4,961) $ (2,325) $ (572)
=========== =========== ============ =========== ==========
Basic and diluted loss per
share................... $ (0.23) $ (0.13)(b) $ (1.11) $ (0.84)(b) $ (0.21)(b)
=========== ========== ============ ========== =========
Basic and diluted shares
outstanding.............. 5,722,090(a) 2,778,000(b) 4,456,538 2,778,000(b) 2,778,000(b)
=========== =========== =========== =========== ==========
</TABLE>
(a) Due to losses we have incurred, dilutive instruments, consisting of
outstanding shares of Series A Preferred Stock, options and warrants, have been
excluded from diluted shares. At December 31, 1999, there were 264,000 shares of
Series A Preferred Stock convertible into 960,000 shares of common stock,
related warrants exercisable for 595,268 shares of common stock and options
exercisable for 627,098 shares of common stock.
(b) Represents the pro forma loss per share and shares assumed to be
outstanding based on the number of shares outstanding immediately after our
spin-off from FuelCell.
<PAGE>
As of
December 31, 1999
--------------------------------------
Pro forma
Actual as Adjusted
----------------- ----------------
Balance Sheet Data: (in thousands)
Cash and cash equivalents............... $ 6,117 $
Total assets............................ 8,810
Total current liabilities............... 742 742
Total shareholders' equity.............. 8,068
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described
below and the other information in this prospectus before purchasing our common
stock. The factors discussed below, as well as other factors not currently known
to us or that we currently deem immaterial, may harm our business, financial
condition and results of operations and could result in a complete loss of your
investment.
Risks Related To Our Business
We were a part of FuelCell until February 1999 and face significant risks
typical of new companies, which could harm our business, financial condition and
results of operations.
We were a part of FuelCell until February 1999 and have not begun a
large-scale commercial release of our initial products. Accordingly, we have
only a limited operating history from which you can evaluate our business and
prospects. Our limited operating history makes predicting the future results of
our operations or the risks we will face difficult. Our business model has not
been tested and, accordingly, we cannot be certain that our business strategy
will be successful.
We have a history of losses and may not become profitable in the future.
We are not profitable and have had limited revenues. No assurance can
be given that we will become profitable in the foreseeable future, if ever. For
the two-month period ended December 31, 1999, and the twelve months ended
October 31, 1999 and 1998, we had losses of $1.3 million, $5.0 million and $2.3
million. Even though we anticipate that the first commercial shipments of our
products will occur in 2000, we expect that we will continue to incur losses
through 2000. Even if we do achieve profitability, we may be unable to sustain
or increase our profitability in the future.
We are dependent on our nickel-zinc battery product line and are uncertain
whether our batteries will be widely accepted in the marketplace.
To date, we have received no revenues from sales of our nickel-zinc
battery other than for samples. We believe that we will depend on sales of our
nickel-zinc batteries for substantially all of our revenues for the foreseeable
future. Our success will depend upon the market acceptance of nickel-zinc
technology. Our nickel-zinc batteries have not achieved, and may never achieve,
market acceptance. Our introduction of new products may be delayed or
unsuccessful. Our batteries may be a more expensive initial purchase than
competing batteries and other technologies. We cannot assure you that we will be
successful in convincing customers of the value of our batteries over their life
cycles and their other advantages. Our batteries also require a specialized
charger, which is not yet commercially available. Our success will depend, in
large part, on our ability to meet customer requirements by developing and
introducing, on a timely basis, new products and enhanced and modified versions
of our current products. There can be no assurance that we will be able to do
so. Our competitors may introduce new technologies or refine existing
technologies that will be more appealing to customers than our products.
Our inability to enforce our patents and protect our intellectual property may
adversely affect our ability to compete.
Patents, trade secrets and other proprietary rights are important to
our success and competitive position. Our efforts to protect our proprietary
rights, including our patents, may be inadequate and may not prevent others from
claiming violations by us of their property rights. Because of the intense
competition in battery technology and the large number of patents filed, or
being filed, we may need to use another company's patent under a license
agreement. We are uncertain if we could reach an agreement to use those patents
and whether the terms of such an agreement would be acceptable to us. If any
court or competent authority concludes that our products or manufacturing
processes have infringed upon the product or process rights held by others, such
a conclusion could harm our business, financial condition and results of
operations. Additionally, a determination that we have infringed upon the
product or process rights held by others could result in the loss of our
proprietary rights, subject us to liability to third parties or prevent us from
manufacturing or selling our products, any of which could have a material
negative effect on our business and hinder our intentions to sell our
nickel-zinc battery technology. We cannot be sure any of our pending
applications will result in issued patents.
<PAGE>
Our policy is to also protect our proprietary rights in our products
and operations through contractual obligations including nondisclosure
agreements with certain employees, customers, consultants, licensees and
strategic partners. We cannot assure you as to the degree of protection these
contractual measures may afford. We cannot assure you that patents will not be
issued from any pending applications, that the claims allowed under any patents
will be sufficiently broad to protect our technology, that any patents issued to
us will not be challenged, invalidated or circumvented, or as to the degree or
adequacy of protection any patents or patent applications may afford.
We have not filed for patent protection in certain potential major
markets such as India and Southeast Asia. Any agreements that we reach with
partners in these areas would have to be based on trade secrets and know-how. In
the future, we may seek patent protection in those areas. In addition, some
foreign countries in which we may do business provide significantly less patent
and proprietary rights protection than the United States.
We also rely on know-how and trade secrets to establish our battery
technologies for commercial applications and there is no assurance we can
adequately protect this information in our dealings with other companies. If
other competitors or organizations develop similar or better battery
technologies through their own efforts, these developments could have an adverse
effect on our business. We could incur substantial costs in prosecuting and
defending patent and other proprietary rights suits.
Even if our products are a success, we may be unable to meet demand.
Rapid growth of our advanced rechargeable battery business or other
segments of our business may significantly strain our management, operations and
technical resources. If we are successful in obtaining rapid market penetration
of our rechargeable batteries, we will wish to either deliver large volumes of
quality products to our customers on a timely basis at a reasonable cost to
those customers or license our technology to others who can manufacture and
distribute our products. We currently have limited manufacturing capability and
no experience in large-scale manufacturing of our advanced rechargeable
batteries or in automated assembly and packaging technology. We currently intend
to equip a U.S. facility with two automated lines. The Joint Venture also
intends to expand its manufacturing capability. We cannot assure you that our
business will achieve rapid growth or that our efforts (or the efforts of those
companies which are granted licenses to our technology) to expand manufacturing
or the number of employees will be successful. In addition, we cannot assure you
that we will not have difficulties meeting necessary quality control standards
as we expand manufacturing. Our business, financial condition and results of
operations may be harmed if we encounter difficulties in effectively managing
the budgeting, forecasting, quality control and other process control issues
presented by rapid growth. Nor can we assure you that we or our licensees will
be able to satisfy commercial-scale production requirements on a timely and
cost-effective basis.
<PAGE>
Our ability to recognize the financial benefits of the Joint Venture and the Nan
Ya License Agreement may depend upon the assignment of these agreements to us
from FuelCell.
We expect that a substantial portion of our business will relate to the
Joint Venture (and related license agreement) and to the Nan Ya License
Agreement. Currently, we are not a party to these agreements. FuelCell has
sought the consent of Three Circles Co., Ltd. and the Joint Venture and the
approval of the appropriate Chinese authorities to transfer these agreements to
us. We are not certain that we or FuelCell will receive these consents and
approvals on a timely basis or at all. A failure or delay in obtaining these
consents and approvals could have a material adverse effect on our operations
and revenues because we will be able to enforce our rights under these
agreements only through FuelCell. In addition, FuelCell's partner could take
exception to the License Assistance Agreement and claim that, by entering into
the License Assistance Agreement, FuelCell is in default under the Nan Ya
License Agreement and the Joint Venture and related license agreement. In
addition, these agreements could be terminated based on other actions or
omissions by FuelCell that we cannot control. These events or the termination of
these agreements would have a material adverse effect on our revenues and
results of operations.
We will be relying upon FuelCell to realize the benefits of the Joint
Venture and the Three Circles License Agreement until all consents and approvals
to the transfer and assignment of these agreements are obtained. Conflicts of
interest between us and FuelCell could arise in connection with these
agreements. Should FuelCell undergo bankruptcy or insolvency, we could be
prevented from receiving funds due to us under the agreements, even if those
funds were paid to FuelCell.
Risks Related to the PRC
There are certain risks associated with doing business in the PRC and Taiwan.
Currently, the Nan Ya License Agreement and the Three Circles License
Agreement are with companies located in the PRC and Taiwan. The Joint Venture
was formed to establish a manufacturing plant in Xiamen, PRC that it intends to
use as its primary production facility. We intend to sell our products to
customers in the PRC and Taiwan. The following risk factors relating to
conducting business in the PRC could result in a material adverse effect on our
business, financial condition and results of operations.
Internal political changes in the PRC may affect our ability to conduct
operations through the Joint Venture and the Nan Ya License Agreement.
Our business operations in the PRC, interest in the Joint Venture and
our rights under the Nan Ya License Agreement may be adversely affected by the
political environment in the PRC. The People's Republic of China is a socialist
state which, since 1949, has been, and is expected to continue to be, controlled
by the Communist Party of China. Changes in the political leadership in the PRC
may have a significant adverse effect on policies related to the PRC's current
economic reform program, other policies affecting business and the general
political, economic and social environment in the PRC. The relationship between
the PRC and Taiwan has been marked with political and economic tension. In
addition, we have relationships with individuals in the PRC whose status could
be adversely affected as a result of political changes. Any such changes in the
political leadership or current economic reform policies or the imposition of
additional restrictions on foreign-owned enterprises could have a material
adverse effect on the business of the Joint Venture, our interest in the Joint
Venture and our rights and revenues under the Nan Ya License Agreement and the
Three Circles License Agreement.
<PAGE>
We may have difficulty protecting our intellectual property rights in the PRC.
We protect our intellectual property rights in the PRC through a
combination of patent applications, contractual arrangements and trade secrets.
Patent and other intellectual property rights receive substantially less
protection in the PRC than is available in the United States. There can be no
assurance that we will be able to protect our proprietary rights in the PRC. The
unauthorized use of our technology by others in the PRC could have a material
adverse effect on our business, financial condition and results of operations.
Restrictions on repatriation of foreign currency or foreign currency exchange
and volatility of exchange rates could adversely affect our ability to obtain
revenues from our agreements with our PRC partners.
We expect a substantial portion of our revenues to relate to activities
in the PRC. The People's Republic of China regulates the repatriation of foreign
currencies as payments to foreigners, including investors and licensors, and the
conversion of Renminbi (the currency of the PRC) into foreign currencies, such
as the U.S. Dollar. As a result, we may be prevented from receiving amounts from
the Joint Venture even if they are needed to meet obligations of our business or
would be better employed in our business outside of the PRC. In addition,
distributions from the Joint Venture may be subject to taxation by the PRC as
well as domestic tax authorities.
In addition, there has been significant volatility in the exchange rate
of Renminbi to U.S. Dollars. We expect that the Joint Venture and our other
licensee in the PRC will receive a substantial portion of their revenues in
Renminbi. A portion of such revenues will have to be converted to other
currencies to meet foreign currency obligations (such as payment obligations to
suppliers) or for purposes of remitting these funds to us as return of capital,
dividends or license payments. Under the Joint Venture and the Nan Ya License
Agreement, FuelCell is entitled to receive (and under the License Assistance
Agreement is required to remit to us) distributions and royalties based on sales
using our technology and other distributions from the Joint Venture. The Joint
Venture may be unable to convert sufficient Renminbi into foreign currency to
enable them to comply with their foreign currency payment obligations, including
royalty payments distributions to FuelCell. In the event of a depressed market
in Renminbi, the cost of foreign currency could be high enough to prevent the
Joint Venture and our other PRC partners from meeting any foreign financial
obligations incurred in the future or from paying distributions and license fees
to us. Moreover, fluctuations in the exchange rate of the Renminbi into U.S.
Dollars could have an adverse effect on the license fees owed to us.
Laws, regulations and policies in the PRC may negatively affect us due to
inconsistent application or adverse interpretation, enforcement or evolution.
The PRC does not have a well-developed, consolidated body of laws
governing foreign investment enterprises. As a result, the administration of
laws and regulations by government agencies may be subject to considerable
discretion and variation. As the legal system in the PRC develops, foreign
investors may be adversely affected by new laws, changes to existing laws (or
interpretations thereof) and preemption of provincial or local laws by national
laws. In circumstances where adequate laws exist, it may not be possible to
obtain timely and equitable enforcement thereof.
<PAGE>
The PRC's failure to obtain "Most Favored Nation" trading status could adversely
affect us.
A significant portion of the economic activity in the PRC is
export-driven and, therefore, is affected by developments in the economies of
the PRC's principal trading partners. The United States Congress annually
considers the renewal of "Most Favored Nation" trading status for the PRC, and
may attach conditions to such renewal. There can be no assurance that Congress
will renew such status or that future renewal will not be linked to human rights
issues or other requirements which the PRC may decline or be unable to meet.
Revocation or conditional extension by the United States of the PRC's "Most
Favored Nation" trading status could have a material adverse effect upon us.
Expropriation of Joint Venture property by the PRC government would adversely
affect us.
Following the formation of the PRC in 1949, the PRC government
renounced various debt obligations incurred by predecessor governments, which
obligations remain in default, and expropriated assets without compensation.
There can be no assurance that the PRC government will not in the future
expropriate or nationalize the assets of the Joint Venture or any of our assets
in the PRC. Such an expropriation would result in a total loss of our investment
in the PRC.
Additional Risks Related to Our Business
Our success depends upon the success of the manufacturers who may use our
products or license our technology.
A substantial portion of our business will depend upon the success of
products sold by manufacturers that may use our batteries or license our
technology. For example, one factor determining the quantity of purchase orders
we may receive from a scooter manufacturer in the future is the success of that
company's scooter. We are subject to many risks beyond our control that
influence the success or failure of such manufacturers' particular products
including, among others factors:
o Competition faced by those manufacturers in their particular
industry;
o Market acceptance of the manufacturers' products;
o The engineering, sales and marketing and management capabilities
of those manufacturers;
o Technical challenges unrelated to our technology or problems
faced by any of those manufacturers in developing their products;
and
o The financial and other resources of those other manufacturers.
<PAGE>
We may not be able to compete successfully if we fail to keep pace with rapidly
changing technologies.
The battery industry has experienced, and is expected to continue to
experience, rapid technological change. Our growth and future success will
depend, in part, on our ability to enhance and modify existing products and to
introduce new products in new markets. Our product development efforts require
and are expected to continue to require substantial investments by us for
research, refinement and testing, and we cannot assure you that we will have the
resources to do this.
Intense competition and the emergence of a competing technology could adversely
affect the sale of our products.
The disposable and rechargeable battery industry is characterized by
intense competition with a large number of companies offering or seeking to
develop technology and products similar to ours. We are subject to competition
from manufacturers of traditional rechargeable batteries, from manufacturers of
rechargeable batteries with advanced technologies, as well as from companies
engaged in the development of batteries incorporating new technologies. There
can be no assurance that we will be successful in competing with these
manufacturers, many of which have substantially greater financial, technical,
manufacturing, distribution, marketing, sales and other resources. A number of
companies with substantially greater resources than ours are pursuing the
development of a wide variety of battery technologies, including both liquid
electrolyte lithium and solid electrolyte lithium batteries, which are expected
to compete with our technology.
Other companies undertaking research and development activities of
solid-polymer batteries have already developed prototypes and are constructing
commercial scale production facilities. If other companies successfully market
their batteries prior to the introduction of our products, there may be a
material adverse effect on our business, financial condition and results of
operations. The market for our products, as well as the products that use our
batteries and technology, is characterized by changing technology and evolving
industry standards, often resulting in product obsolescence or short product
lifecycles. We cannot assure you that competitors will not develop technologies
or products that would render our technology and products obsolete or less
marketable.
Our ability to adequately license our technology may affect our success.
Our growth and success will be dependent to a substantial extent on our
reputation. Since we anticipate licensing our technology to others, our
reputation may be affected by the performance of those companies to which we
license our technology. Our licenses may grant exclusivity with respect to
certain uses or geographic areas. As a result, we will be wholly dependent on
the success of the licensee for success in any exclusive use or geography. We
cannot assure you that we will be successful in granting our licenses to those
who are likely to succeed. License agreements with foreign companies may be
subject to additional risks, such as exchange rate fluctuations, political
instability or weaknesses in the local economy. Certain provisions of the
license agreements which benefit us may be subject to restrictions in foreign
laws that limit our ability to enforce such contractual provisions. In addition,
it may be more difficult to register and protect our proprietary rights in
certain foreign countries. Our failure to obtain suitable licensees of our
technology or the failure of our licensees to achieve our manufacturing or
quality control standards or otherwise meet our expectations could have a
material adverse effect on our business, financial condition and results of
operations.
<PAGE>
Our ability to enter into joint ventures may affect our success.
We intend to enter into other joint venture arrangements in the future
to sell our battery technology. The Joint Venture is with a foreign partner and
we anticipate that future joint ventures may be with foreign partners or
entities. As a result, such future joint ventures may be subject to the
political climate and economies of the foreign countries where such partners
reside. There can be no assurance that our joint venture partners will provide
us with the support we anticipate, or that any of the joint ventures will be
successful in developing batteries for use with their intended products, or that
any of the joint ventures will be successful in manufacturing and marketing
their batteries for such products once developed. Any of our international
operations will also be subject to certain external business risks such as
exchange rate fluctuations, political instability and a significant weakening of
a local economy in which a foreign joint venture operates or is located. Certain
provisions of the joint venture agreements for our benefit may be subject to
restrictions in foreign laws that limit our ability to enforce such contractual
provisions. Failure of these joint ventures to be successful could have a
material adverse effect on our business and prospects.
Our success depends on the retention and hiring of certain key personnel.
Because of the specialized, technical nature of our business, we are
highly dependent on certain members of our management, marketing, engineering
and technical staff including Robert L. Kanode, President and Chief Executive
Officer, and Allen Charkey, Executive Vice President and Chief Operating
Officer, the loss of whose services could have a material adverse effect on our
business, financial condition and results of operations. Based on our
commercialization and expansion plans, we will require a significant increase in
the number of our employees and the employees of the Joint Venture. Our success
will depend upon, among other factors, attracting and retaining additional
highly skilled and experienced managerial, sales, marketing, engineering and
technical personnel. There can be no assurance that we will be able to recruit
or retain such personnel.
Certain agreements between FuelCell and us were not subject to arm's length
negotiations.
We entered into certain agreements with FuelCell, including a
distribution agreement, a tax sharing agreement, a services agreement and the
License Assistance Agreement for the purpose of defining our ongoing
relationship with FuelCell and to provide certain services during the
transition. The agreements between us and FuelCell, and us and the officers and
directors of FuelCell, were not the subject of arm's length negotiations and,
therefore, the terms of such agreements may contain terms that are not
comparable to those that would have been obtained from negotiations between
unaffiliated parties.
The addition or modification of environmental laws may adversely affect both our
future and past operations.
Foreign, federal, state and local regulations impose various
environmental controls on the manufacture, storage, use and disposal of
batteries and certain chemicals used in the manufacture of batteries. We cannot
assure you that conditions relating to our historical operations which require
expenditures for clean-up will not be discovered in the future or that changes
in environmental laws and regulations will not impose costly compliance
requirements on us or otherwise subject us to future liabilities. Our batteries
contain a limited amount of lead in the negative electrodes. We cannot assure
you that the EPA or other governmental agencies in U.S. or abroad will not
determine that such lead content or the nickel in our batteries makes them
unsuitable for landfill disposal. Although we believe we are presently in
compliance with all federal, state and local governmental regulations, we cannot
assure you that additional or modified regulations relating to the manufacture,
transportation, storage, use and disposal of materials used to manufacture our
batteries or restricting disposal of batteries will not be imposed or as to the
effect such regulations may have on us or our customers.
<PAGE>
We may be adversely affected by our dependence upon certain raw materials used
in the production of our batteries.
Our principal raw materials for the production of our battery products
are nickel and zinc. Prices for both nickel and zinc are subject to market
forces beyond our control. Our future profitability may be materially adversely
affected by increased nickel or zinc prices to the extent we are unable to pass
on higher raw material costs to our customers. To attempt to reduce such risks,
we may engage in forward purchases and hedging transactions to manage raw
material costs and inventory relative to anticipated production requirements. We
cannot assure you that such activities will be successful or will not result in
increased losses.
One of the materials we use in our batteries is only available from one
supplier.
Certain separator materials used in our batteries are only available
from one supplier. We cannot assure you that alternate materials would be
available to us at an acceptable price, or quickly enough so as not to disrupt
production.
We anticipate offering an extended warranty on some of our products, and we have
no experience as to our potential liability.
We intend to offer an extended warranty for our trolling motor
batteries. Our warranty would be substantially greater than the existing
warranties of most of our competitors. We have no experience to evaluate the
potential liability that could be created by that warranty. If the claims made
under that extended warranty exceed expected levels against which we have
reserved, our results of operations and financial condition could be adversely
affected.
Product liability claims could result in costs to us or impede demand for our
products.
The sale of our products may expose us to product liability claims from
consumers. We currently do not maintain product liability insurance and do not
intend to do so in the future. Certain materials we use in our batteries could,
if used improperly, cause injuries to others. In addition, because our batteries
are new products, any accident involving them or other battery products could
impede demand for our products.
Risks Related To Our Common Stock
We may be unable to meet our future capital requirements.
We cannot be certain that additional financing will be available to us
on favorable terms when required, or at all. If we raise additional funds
through the issuance of equity, equity-related or debt securities, such
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our shareholders may experience additional
dilution. In the past, we have experienced negative cash flow from operations.
We currently anticipate that the net proceeds of this offering, together with
our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least 2001. We may need to
raise additional funds prior to the expiration of this period if, for example,
we pursue business acquisitions or experience operational losses that exceed our
current expectations. We do not have any credit facilities in place and we
cannot assure you that we will be able to put in place any facilities that will
address our future capital needs, in whole or in part.
<PAGE>
Our common stock price may be volatile, which could result in substantial losses
for individual shareholders.
We expect that our quarterly operating results will fluctuate
significantly. As a result, the market price for our common stock is likely to
be highly volatile and subject to wide fluctuations. Factors, many of which are
beyond our control, that may affect our quarterly results include:
o Announcements of technological innovations or new products or
services or pricing changes by us or our competitors;
o Conditions or trends in the battery or electric vehicle
industries;
o Changes in the economic performance and/or market valuations of
other battery or electric power companies;
o Announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o Additions or departures of key personnel;
o Currency fluctuations;
o Release of lock-up or other transfer restrictions on our
outstanding shares of common stock or sales of additional shares
of common stock; or
o Potential litigation.
Many companies that have experienced volatility in the market price of
their stock have been the subject of securities class action litigation. We may
be involved in a securities class action lawsuit in the future. Such litigation
often results in substantial costs and a diversion of management's attention and
resources and could harm our business, financial condition and results of
operations.
Substantial sales of our common stock could cause our stock price to fall.
If our shareholders sell substantial amounts of our common stock,
including shares issued upon the exercise of outstanding options and warrants,
in the public market following this offering, the market price of our common
stock could fall. Such sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
<PAGE>
deem appropriate. Upon completion of this offering, we will have outstanding
6,983,258 shares of common stock, assuming no exercise of the underwriters'
over-allotment option, no conversion of our Series A Preferred Stock and no
exercise of outstanding options or warrants. Of these shares, 5,430,636 shares
are freely tradable. Of the remaining shares, 1,553,288 will be eligible for
sale in the public market beginning 180 days after the date of this prospectus,
subject to volume and other restrictions pursuant to Rule 144 under the
Securities Act. However, Adams, Harkness & Hill, Inc. may, in its sole
discretion and at any time or from time to time, without notice, release all or
any portion of the securities subject to lock-up agreements. An additional
2,321,698 shares of common stock may be issued upon conversion of the Series A
Preferred Stock and exercise of outstanding options and warrants.
You will suffer immediate and substantial dilution.
The public offering price per share will be substantially higher than
the net tangible book value per share immediately after the offering. If you
purchase common stock in this offering, you will incur immediate and substantial
dilution in the net tangible book value per share of the common stock from the
price you paid. We have a large number of preferred shares which are convertible
into our common stock at prices significantly below the public offering price of
our common stock. We also have a large number of outstanding stock options and
warrants to purchase our common stock with exercise prices significantly below
the public offering price of our common stock. To the extent that the holders of
these options or warrants convert or exercise them, you will experience further
dilution.
We do not intend to pay any cash dividends.
We have never declared or paid any cash dividends on our common stock.
We currently intend to retain our future earnings, if any, to finance the
expansion of our business and do not expect to pay any cash dividends in the
foreseeable future.
Provisions of Delaware and Connecticut law and of our charter and by-laws may
make a takeover more difficult.
Provisions in our certificate of incorporation and by-laws and in the
Delaware and Connecticut corporate law may make it difficult and expensive for a
third party to pursue a tender offer, change in control or takeover attempt that
is opposed by our management and Board of Directors. Public shareholders who
might desire to participate in such a transaction may not have an opportunity to
do so. These anti-takeover provisions could substantially impede the ability of
public shareholders to benefit from a change in control or change our management
and Board of Directors. See "Description of Capital Stock."
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference forward-looking
statements that are subject to a number of risks and uncertainties. All
statements, other than statements of historical facts, are forward-looking
statements. Such statements may include words such as "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe" and other words or terms of
similar meaning and are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words.
These forward-looking statements include statements relating to:
o Our strategy, future operations and financial plans;
o Competition;
o The development of our battery technology;
o The assignment by FuelCell of agreements to which it is currently
a party;
o Acquisition and expansion strategy;
o Development of products;
o Use of proceeds;
o Projected capital expenditures;
o Liquidity;
o Our intention to reinvest Joint Venture earnings back into the
Joint Venture;
o Development of additional revenue sources;
o Development and maintenance of strategic alliances;
o Market acceptance of our battery technology;
o Ability to develop brand identification; and
o Global expansion.
Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including
inaccurate assumptions we might make or known or unknown risks and
uncertainties, including all the risks discussed in Risk Factors and elsewhere
in this prospectus. We caution you not to place undue reliance on these
forward-looking statements.
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from our sale of 1,250,000
shares of our common stock in this offering will be approximately $_____
million, assuming a public offering price of $_____ per share and after
deducting the underwriting discounts and commissions and our estimated offering
expenses. We expect to receive approximately $_____ million in additional net
proceeds if the underwriters' over-allotment option is exercised in full.
We currently intend to use the net proceeds as follows:
o Approximately $8.0 million to build an automated manufacturing
line in our United States production facility, and an
additional $8.0 million to build a second manufacturing line
within approximately 12 months thereafter, both specifically
for the manufacture of nickel-zinc rechargeable batteries;
o Approximately $3.0 million to increase the production capacity
of the Joint Venture, which will produce our nickel-zinc
batteries for sale and distribution in China, Europe and
Southeast Asia;
o Approximately $1.0 million to equip our new production
facilities; and
o The balance for general corporate purposes and working
capital, which may include acquiring additional businesses,
products and technologies or establishing joint ventures. We
have no specific agreements or commitments to enter into any
acquisitions or joint ventures.
We will retain broad discretion in the allocation of the net proceeds
of this offering. Pending the uses described above, we intend to invest the net
proceeds of the offering in short-term and intermediate-term interest-bearing
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock
and we do not intend to pay any cash dividends in the near future. At this time,
we intend to retain our future earnings to fund the expansion of our business.
Our dividend policy may be reviewed by our Board of Directors from time to time,
based on our performance and our financial condition.
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth the range of high and low sales prices
of our common stock for the quarters indicated, as reported by Nasdaq.
Our common stock has been traded on the Nasdaq Small Cap Market since
April 5, 1999. We have applied to have our common stock listed on the Nasdaq
National Market System.
Calendar 2000 High Low
First Quarter (through March 22,
2000) $ 30.75 $12.00
Calendar 1999
Second Quarter $ 6.13 $ 2.41
Third Quarter $ 7.41 $ 4.25
Fourth Quarter $ 12.88 $ 5.19
On March 22, 2000, the last reported sale price for the common stock on
the Nasdaq Small Cap Market was $24.31 per share. As of March 7, 2000, there
were approximately 175 holders of record of common stock.
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1999:
o On an actual basis; and
o Pro forma as adjusted to give effect to the sale of 1,250,000
shares of common stock by us in this offering, after deducting
the underwriting discounts and offering expenses payable by
us, assuming an offering price of $_____ per share.
You should read the information in conjunction with our financial
statements and the related notes appearing elsewhere in this prospectus.
December 31, 1999
------------------------------
Actual Pro Forma
As Adjusted
------------- -----------
(in thousands)
Shareholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, 264,000
shares of Series A Stock issued and
outstanding with cumulative dividends
at 8%, actual $ 3 $ 3
Common stock, $.01 par value; 10,000,000
shares authorized; 5,722,090 shares issued
and outstanding, actual; 6,972,090
shares issued and outstanding as adjusted 57 70
Note receivable from shareholder (300) (300)
Additional paid-in capital 14,084
Accumulated deficit (5,776) (5,776)
----------- -----------
Total shareholders' equity 8,068
----------- -----------
Total capitalization $ 8,068 $
=========== ===========
The above table excludes:
o 960,000 shares of our common stock issuable upon the conversion
of our Series A Preferred Stock outstanding as of December 31,
1999;
o 595,268 shares of our common stock issuable upon exercise of
warrants outstanding as of December 31, 1999, at an exercise
price of $8.25 per share; and
o 627,098 shares of our common stock issuable upon exercise of
stock options outstanding as of December 31, 1999 at a weighted
average exercise price of $3.38 per share.
The table also assumes no exercise of the underwriters' over-allotment
option.
<PAGE>
DILUTION
As of December 31, 1999, our net tangible book value was $1.5 million,
or $0.26 per share of common stock. Net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of our total
liabilities and the liquidation preference of our preferred stock, divided by
the number of shares of our outstanding common stock, excluding the conversion
of all outstanding preferred stock into common stock and the exercise of all
outstanding warrants and options for common stock. As of December 31, 1999, our
net tangible book value, as adjusted for the sale of 1,250,000 shares of our
common stock based on the public offering price of $_____ per share, and after
deducting the underwriting discounts and commissions and our estimated offering
expenses, would have been approximately $____ per share. This represents an
immediate increase of $_____ per share to existing stockholders and an immediate
dilution of $____ per share to new investors. The following table illustrates
this per share dilution:
Assumed public offering price per share................................ $
Net tangible book value per common share
at December 31, 1999.....................................$ 0.26
Increase in net tangible book value per share
attributable to new investor............................. ----
Net tangible book value per share after this offering.............. ----
Dilution per share to new investors....................................$ ====
The computation above is based on the number of shares of our common
stock outstanding as of December 31, 1999, which does not include 960,000 shares
of common stock issuable upon the conversion of Series A Preferred Stock
outstanding as of December 31, 1999, 595,268 shares of our common stock issuable
upon exercise of the warrants outstanding as of December 31, 1999 or 627,098
shares of our common stock issuable upon exercise of outstanding stock options.
To the extent that shares are issued upon conversion of the Series A Preferred
Stock or exercise of warrants or options, there will be further dilution to new
investors.
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below is for the years ended October
31, 1999, 1998, 1997, 1996 and 1995 and the two months ended December 31, 1999
and 1998. You should read this information together with our financial
statements and the notes to those statements beginning on page F-7 of this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. The statement of
operations data for the years ended October 31, 1999, 1998 and 1997 and the
balance sheet data as of October 31, 1999 and 1998 and December 31, 1999 are
derived from our financial statements which have been audited by KPMG LLP,
independent accountants, and are included elsewhere in this prospectus.
Historical results are not necessarily indicative of the results to be expected
in the future, and results of interim periods are not necessarily indicative of
results for the entire year.
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
Two Months Ended
December 31, Fiscal Years Ended October 31,
--------------------------- --------------------------------------------------------------------
Statement of Income Data: 1999 1998 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited)
Revenues $ 13 $ - $ 196 $ 438 $ 436 $ 355 $ 164
Costs and expenses
Cost of revenues 220 - 694 87 98 246 101
Administrative and selling 636 208 2,244 1,805 268 199 149
Depreciation and amortization 54 8 181 45 40 34 31
Research and development 451 391 2,449 1,832 897 644 516
-------- -------- --------- --------- --------- --------- --------
Total operating costs and expenses 1,361 607 5,568 3,769 1,303 1,123 797
Loss from operations (1,348) (607) (5,372) (3,331) (867) (768) (633)
Interest income, net 28 - 90 - - - -
Equity in net loss of affiliate - - (36) - - - -
Other expenses - - (3) - - - -
-------- -------- --------- --------- --------- --------- -------
Loss before income tax benefit (1,320) (607) (5,321) (3,331) (867) (768) (633)
Income tax benefit - (249) (360) (1,006) (295) (261) (215)
-------- --------- --------- --------- --------- --------- --------
Net loss (1,320) (358) (4,961) (2,325) (572) (507) (418)
======== ========= ========= ========= ========= ========= ========
Preferred stock dividends (22) - - - - - -
-------- -------- --------- --------- --------- --------- -------
Net loss - common shareholders (1,342) (358) (4,961) (2,325) (572) (507) (418)
======== ======== ========= ========= ========= ========= ========
Basic and diluted loss per share (0.23) (0.13)(b) (1.11) (0.84)(b) (0.21)(b) (0.18)(b) (0.15)(b)
======== ======== ========= ========= ========= ========= ========
Basic and diluted shares
outstanding 5,722,090(a) 2,778,000(b) 4,456,538 2,778,000(b) 2,778,000(b) 2,778,000(b) 2,778,000(b)
========= ========= ========= ========= ========= ========= =========
Balance Sheet Data:
Cash and cash equivalents $ 6,117 $ 1 $ 1,820 $ 1 $ - $ - $ -
Total assets 8,810 1,531 4,290 1,176 289 163 166
Total current liabilities 742 1,044 1,011 753 78 52 33
Total shareholders' equity 8,068 487 3,279 423 211 111 133
</TABLE>
(a) Due to losses we have incurred, dilutive instruments, consisting of
shares of Series A Preferred Stock, options and warrants, have been excluded
from diluted shares. At December 31, 1999, there were 264,000 shares of Series A
Preferred Stock convertible into 960,000 shares of common stock, related
warrants exercisable for 595,268 shares of common stock and options exercisable
for 627,098 shares of common stock.
(b) Represents the pro forma loss per share and shares assumed to be
outstanding.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion does not contain all the information that may
be important to you. You should read the following discussion together with the
more detailed information contained in our financial statements, the notes to
those statements and the other information appearing elsewhere in this
prospectus, especially "Risk Factors" beginning on page 9.
We changed our fiscal year from October 31 to December 31 effective
December 31, 1999. As a result, portions of the following discussion cover the
two month period from November 1, 1999 to December 31, 1999.
Overview
We develop, design and have begun to manufacture high-performance
rechargeable batteries. Much of the following discussion relates to our
operations prior to manufacturing when we were primarily engaged in research and
development activities. We recognize revenue on the date our products are
shipped. To date, revenues have primarily resulted from shipment of materials to
the Joint Venture and sample products to potential customers.
FuelCell has licensed the rights to manufacture scooter batteries
through the Joint Venture. Under our license assistance agreement with FuelCell,
we have assumed the rights, benefits and obligations of Fuel Cell's 50.5%
ownership of the Joint Venture. We will account for our involvement in the Joint
Venture under the License Assistance Agreement using the equity method of
accounting, in which we record our share of earnings or losses from the Joint
Venture in our income statement.
On February 16, 1999, FuelCell transferred the principal assets,
intellectual property and liabilities related to its battery business group to
its subsidiary Evercel, Inc. On February 22, 1999, FuelCell distributed to its
shareholders shares of our common stock in a tax-free distribution. In April
1999, we received $7.8 million from the sale of shares of our common stock at
$3.00 per share pursuant to a rights offering. We continue to pay FuelCell for
certain administrative services in accordance with a services agreement. Results
shown before the period of the spin-off reflect our activity as the battery
business group of FuelCell.
Results of Operations
Two Months Ended December 31, 1999 Compared with Two Months Ended December 31,
1998
We had revenues of $13,000 for the two months ended December 31, 1999
compared to $0 for the two months ended December 31, 1998. The revenues in 1999
were due to consumer samples sold in our efforts to commercialize our
nickel-zinc batteries. Cost of revenues of $220,000 for the two months ending
December 31, 1999 were due to the cost of the samples shipped and the
revaluation of inventory items at December 31, 1999. The revaluation reflects
the value of materials and their components at what we believe to be their
market value in accordance with the lower of cost or market valuation method.
<PAGE>
Administrative and selling expenses increased 206% to $636,000 for the
two months ended December 31, 1999 from $208,000 for the two months ended
December 31, 1998. The increase is the result of the full staffing of
administrative functions during 1999, including the addition of a Chief
Executive Officer, Controller and other administrative personnel, the costs of
being an independent publicly traded company, and selling, marketing and
administrative activities to ready us for commercialization of our nickel-zinc
battery technology. Depreciation increased 575% to $54,000 for the two months
ended December 31, 1999 compared with $8,000 for the same period in 1998 due to
capital purchases in 1999 to outfit our Danbury, Connecticut manufacturing
facility.
Research and development expenses increased 15% to $451,000 for the two
months ended December 31, 1999 from $391,000 for the two months ended December
31, 1998 due to product development activity relating to the commercialization
of our battery technology.
Interest income of $28,000 for the two months ended December 31, 1999
increased from $0 for the two months ended December 31, 1998 due to interest
income on funds received from the 1999 offerings. We recognized a tax benefit of
$249,000 in the two months ended December 31, 1998 due to our inclusion in the
consolidated tax return of FuelCell. We have not recorded the tax benefit of
operating losses for the same period in 1999, pursuant to Financial Accounting
Standard No. 109, "Accounting for Income Taxes."
Year Ended October 31, 1999 Compared to Year Ended October 31, 1998
We had $196,000 in revenues for the year ended October 31, 1999, as
compared to $438,000 for the same period in 1998. Lower revenues resulting from
the termination of a license fee arrangement with Corning, Inc. in May 1998 were
partially offset by sales of materials of $195,000 to the Joint Venture during
the year ended October 31, 1999. We had cost of revenues of $694,000 for the
year ended October 31, 1999 as compared to $87,000 for the prior year. Higher
costs were due to the cost of the materials shipped and the revaluation of
inventory items at December 31, 1999 to adjust their costs to market value. The
revaluation reserve reflects the value of materials and their components to
reflect what we believe will be their market value when we are in high volume
production and are able to negotiate more favorable pricing. Administrative and
selling expenses increased 24% to $2.2 million for the year ended October 31,
1999 from $1.8 million in 1998. The increase was the result of increased
staffing to support the commercialization, production and distribution of sample
batteries and costs associated with the Joint Venture and Three Circles License
Agreement. Depreciation increased to $181,000 from $45,000 from the year ended
October 31, 1998 reflecting increased capital purchases to outfit our Danbury,
Connecticut manufacturing facility.
Research and development expense increased 34% to $2.4 million for the
year ended October 31, 1999 from $1.8 million in the prior year. The increase
reflects product development activity relating to the commercialization of our
battery technology.
Net interest income of $90,000 in 1999 reflects interest of $108,000
earned on funds raised from 1999 offerings offset by $18,000 of interest expense
due to borrowings from banks and FuelCell to finance operations prior to our
rights offering. Our share of the Joint Venture's losses amounted to $36,000 for
the year ended October 31, 1999. We recognized a tax benefit of $360,000 in the
quarter ended January 31, 1999 due to our inclusion in the consolidated tax
return of FuelCell. We have recorded no benefit for the losses incurred in the
second, third and fourth quarters of the year ended October 31, 1999, pursuant
to Financial Accounting Standard No. 109, "Accounting for Income Taxes."
<PAGE>
Market Risk
We held no derivative instruments as of December 31, 1999. We are
exposed to market fluctuations in foreign currency exchange and repatriation,
interest rates and commodity pricing. The nature of each is as follows:
Foreign Currency Exchange and Repatriation
We currently have international operations in the PRC through the Joint
Venture. The currency of exchange is U.S. dollars for all current international
transactions. Although the PRC controls the rate of exchange for the Renminbi, a
devaluation or free market valuation could impair the Joint Venture's ability to
make payments for products sold or services rendered. In the PRC, we expect to
continue to reinvest all monies earned as net income of the joint venture for
the foreseeable future. The PRC may restrict the payments under the Joint
Venture. As a result, we might not be able to receive distributions from the
Joint Venture in the future even if they are needed to meet obligations of our
business or would be better employed in uses of our business outside of the PRC.
Interest Rates
We have invested and expect to invest excess funds in money market
accounts in U.S. financial institutions. Currently, we have no outstanding
borrowings but expect to sign financing agreements during the second calendar
quarter of 2000. We expect that these loans will be in the form of a term loan
at a fixed interest rate and a short term loan which will fluctuate with the
LIBOR rate. We do not currently plan to hedge against the fluctuation in LIBOR.
Commodity Pricing
We do not hedge against price fluctuation in the commodities used in
the manufacturing of its product. We will reevaluate this policy as needed
commensurate with the risk inherent in the business.
Quarterly Results of Operations
The unaudited proforma quarterly results of operations for calendar
1999 are shown below. The information for each quarter has been prepared on
substantially the same basis as the audited statements included in other parts
of this prospectus and, in the opinion of management, include all adjustments,
consisting of only normal recurring adjustments necessary for a fair
presentation of the results of operations for such periods.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1999
Three months ended
--------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(dollars in thousands, except per share data)
Revenues $ - $ - $ - $ 209
Costs and expenses:
Cost of revenue - - - 743
Administrative and selling expenses 459 759 587 868
Depreciation and amortization 22 51 68 86
Research and development 496 677 644 863
------------ ------------ ------------ ------------
Total costs and expenses 977 1,487 1,299 2,560
------------ ------------ ------------ ------------
(Loss) from operations before
income tax benefit (977) (1,487) (1,299) (2,351)
Interest income (expense), net (15) 53 42 39
Equity in net loss of affiliate - - - (36)
Other income (expense) - (1) - (3)
------------ ------------ ------------ ------------
(Loss) before income tax benefit (992) (1,435) (1,257) (2,351)
Income tax benefit (111) - - -
------------ ------------ ------------ -----------
Net loss $ (881) $ (1,435) $ (1,257) $ (2,351)
============ ============ ============ ============
Basic and diluted loss per share $ (0.32)(a) $ (0.26) $ (0.22) $ (0.41)
============= =========== ============ ============
Basic and diluted shares outstanding 2,777,862(a) 5,527,955 5,722,090 5,722,090(b)
=============== ============ ============ ===============
</TABLE>
(a) Represents the pro forma shares and loss per share assumed to be
outstanding based on the number of shares outstanding immediately after our
spin-off from FuelCell.
(b) Due to losses we have incurred, dilutive instruments, consisting of
shares of Series A Preferred Stock, options and warrants, have been excluded
from diluted shares. At December 31, 1999, there were 264,000 shares of Series A
Preferred Stock convertible into 960,000 shares of common stock, related
warrants exercisable for 595,268 shares of common stock and options exercisable
for 627,098 shares of common stock.
Liquidity and Capital Resources
Working capital at December 31, 1999 was $5.8 million compared to a
working capital deficit of $905,000 at December 31, 1998 with cash of $6.1
million, compared to $1,000 at December 31, 1998. In 1998, we were a part of
FuelCell and the balance sheet was an allocation of the FuelCell consolidated
balance sheet. Receivables, inventories and current liabilities directly
associated with the battery business group were carried on the battery group's
balance sheet, but only a nominal cash balance of $1,000 was allocated to
assets.
<PAGE>
To continue to meet our operating and capital requirements, a private
placement offering was completed in December 1999, raising $6.1 million, net of
expenses. We believe the net proceeds from the private placement and the
proceeds to be received from this offering will be sufficient to support our
planned operations for at least the next 12 months.
We are currently negotiating with state agencies and private financial
institutions in order to secure up to approximately $8.0 million in borrowings
in order to provide adequate financing and capital for opportunities or
contingencies.
It is our intention to outfit a facility in the United States with one
automated line of production in 2000 that, in addition to our other corporate
capital needs, is expected to require capital expenditures of $8.0 million in
2000. We expect, but are not committed, to add a second automated production
line in 2001 at a cost of $8.0 million. We have also committed to investing
approximately $3.0 million into the Joint Venture in 2000 in order to support
our share of its expansion.
Our cash requirements will vary depending upon a number of factors,
many of which are beyond our control, including the demand for our products, the
efforts and success of our licensees and joint venture partners in developing
and marketing products incorporating our battery technology, the development of
battery markets, the level of competition that we face, our ability to develop,
market and license new products and our ability to effectively manage operating
expenses. Over time, we expect to continue to enter into license agreements and
to participate in joint manufacturing ventures.
Prior to having been spun off from FuelCell, we obtained all of our
funding from FuelCell. FuelCell provided funding for all battery research
activities under its research and development expense budget. On February 5,
1999, we entered into a loan agreement pursuant to which we borrowed $1.6
million from a bank and $300,000 from FuelCell for working capital and proposed
capital expenditures secured by all of our tangible and intangible personal
property. Repayment of the bank loan was guaranteed by FuelCell. We have entered
into a services agreement with FuelCell to provide us with certain management
and administrative services and office, research and development and
manufacturing support facilities and services. In April 1999, we received $7.8
million of net proceeds from the rights offering (after deducting underwriting
discounts and fees), including funds received from the sale of unsubscribed
shares pursuant to an agreement with the underwriters. A portion of the net
proceeds was used to pay in full the outstanding principal and interest under
the bank loan and the line of credit from FuelCell, and those agreements were
terminated.
The net fees which we paid to FuelCell pursuant to our services
agreement were $67,000 and $378,000 for the two months ended December 31, 1999
and the year ended October 31, 1999, respectively. These amounts exclude certain
services billed on the basis of usage, such as purchasing, analytical lab,
microscope analysis, machine shop and drafting. These amounts reflect FuelCell's
additional costs related to providing these services, and will decline as we
bring those functions in-house. We presently expect that these services will be
provided by FuelCell until the quarter ended September 30, 2000.
Year 2000
The "Year 2000" issue referred to the risk of disruptions of operations
caused by the failure of computer-controlled systems, including systems used by
third parties, to properly recognize date sensitive information when the year
changed from 1999 to 2000. During the year ended December 31, 1999, we installed
new software as a part of an ongoing project to upgrade our financial and
management information systems. The cost of upgrading the software occurred in
the normal course of business and was not material to the results of operations
or financial condition of the company.
<PAGE>
We have not experienced any significant business disruptions due to
year 2000 issues causing processing errors in our systems, or a third party's
systems, including the period of operation after January 1, 2000.
<PAGE>
BUSINESS
Overview
We have developed the first rechargeable nickel-zinc battery with
commercially acceptable cycle life. We are introducing this product to domestic
and international markets. We believe that our patented, independently tested
and proven technology is superior to the competing battery technologies in our
target markets. During 2000, we intend to manufacture and sell our rechargeable
batteries principally in two premium markets:
o The scooter market, with 1999 estimated worldwide sales of
6,000,000 new gas and electric powered scooters; and
o The electric trolling motor market, primarily focused on
sportfishing boats, with 1999 estimated sales of 3,000,000
batteries.
We are producing smaller batteries for the scooter market through the
Joint Venture in Xiamen, PRC. We intend to produce larger batteries in the
United States for use with trolling motors. The Joint Venture has received its
first commercial order from an unaffiliated scooter manufacturer to supply
batteries for 1,500 scooters. We expect the Joint Venture to begin shipping
these batteries during the second quarter of 2000.
We are focusing our marketing efforts on specialty applications where
our technology has significant competitive advantages and where the channels of
distribution are relatively narrow, such as the scooter and the trolling motor
market. During our initial product launch of our scooter batteries, we believe
that the Joint Venture will effectively and quickly generate high volume sales
to scooter manufacturers in geographically diverse markets.
We believe our batteries have a variety of other applications. We have
developed and are prepared to market batteries for lawn equipment. We are
currently developing batteries for neighborhood electric vehicles and electric
bicycles. In addition, we intend to develop batteries for additional
applications, such as uninterruptible power supplies, which use both nickel-zinc
and alternative chemistries.
Our Products
Our proprietary nickel-zinc rechargeable battery is the result of over
30 years of research and a substantial investment in the development of advanced
battery technologies. We believe that our technology resulting from this
investment has created significant barriers for competition to enter the market.
Our manufacturing process and patented technology allow us to produce batteries
with the following unique combination of characteristics:
o High specific energy and specific power content relative to the
weight of the battery;
o Sustained performance at high depths of discharge over the life
of the battery;
<PAGE>
o Low material costs;
o Maintenance free, sealed unit construction; and
o Recyclable and environmentally acceptable for landfill disposal.
These characteristics combine to result in a high-power, low-weight,
low-maintenance battery with a lower lifetime cost when compared to other
technologies in our target markets.
Verification of Our Technology
From June 1999 to February 2000, JBI Corporation, an internationally
recognized independent testing laboratory, conducted a discharge test on two of
our batteries under controlled conditions. JBI repeatedly discharged 80% of the
full energy of our batteries. At the conclusion of the test in February 2000,
our batteries had run for over 500 cycles and the batteries' capacity remained
at over 80% of the original strength. Each cycle is one discharge and one
charge. We believe that this independent test result is evidence of our success
in developing the first commercially viable nickel-zinc battery.
During 1999, the Nan Ya Plastics Division of Formosa Plastics
Corporation conducted an internal test program for our nickel-zinc battery. The
objective of its testing was to confirm our claims of performance and cycle
life. The testing was considered successful by Nan Ya in December 1999 with over
600 cycles completed at an 80% depth of discharge.
In late 1999, the Nan Ya Plastics Division submitted one of our
batteries to the Taiwan Government Laboratory for testing in accordance with the
Government of Taiwan Incentive Standard for Electric Scooters. This test
simulates a severe driving environment for a scooter. The results of this test,
completed in December 1999, showed that our battery in simulation exceeded
14,000 kilometers while the closest competitor traveled only 4,000 kilometers.
As a result, scooter manufacturers installing our battery will receive the
highest subsidy allowed under Taiwan government regulations for the year 2000.
Currently, additional testing of our batteries is being conducted by
potential customers and other independent sources.
Market Opportunity
In most deep discharge applications where the battery functions as the
primary power source, we believe our nickel-zinc batteries will offer superior
performance and lower lifetime cost than any other battery chemistries.
The Scooter Market
The scooter market consisted in 1999 of estimated worldwide sales of
6,000,000 new gas and electric-powered scooters. The scooter market primarily
exists in the PRC, Southeast Asia, Japan and Europe. Of these sales of new
scooters, we estimate that approximately 5% of these scooters were electric
powered. The scooters which will initially use our technology will require a
battery which will be priced at approximately $900. Within the scooter market,
we expect that the overwhelming majority of our sales will be direct sales to
scooter manufacturers, with a small aftermarket for battery sales directly to
consumers.
<PAGE>
The scooter market is a good fit for our technology because of the
particular characteristics of our batteries. Electric scooters require a power
source capable of providing adequate acceleration and load carrying through high
energy content at a low weight. Our technology enables scooter manufacturers to
incorporate a high energy power source relative to the weight of the battery.
The deep cycle capability of our technology provides significantly longer total
range than lower cost technologies. We believe the cost of ownership of our
battery over its entire life is less than other available technologies.
We believe that the electric scooter market is expanding due to global
pollution concerns, increasing gasoline prices and restrictions on noise
pollution. For example, the government of Taiwan has mandated that a minimum of
2% of all new scooters produced be electric. Additionally, the Italian
government has provided for subsidies at the local and national level and has
initiated inner city travel restrictions for gas powered engines.
The Trolling Motor Market
The electric trolling motor market exists almost exclusively in the
United States and specifically within the sportfishing industry. This market
included estimated sales in 1999 of 3,000,000 lead acid batteries priced at $100
to $300.
We expect that our trolling motor batteries will be priced at $600. Our
batteries will require a high-performance charger costing an additional $100 to
$300. In addition, we intend to offer a warranty which is superior to existing
warranties for trolling motor batteries.
Direct consumer sales make up 99% of the total trolling motor market
and therefore, we expect that our initial sales of trolling motor batteries will
be direct to the sportfisherman. In addition, we are working on building
relationships with premium boat manufacturers and expect that our market will
expand to include wholesale revenues. We believe, that due to the popularity of
sport fishing, consumers are willing to spend in excess of $600 for a premium
trolling motor battery which will facilitate longer fishing and lower
maintenance costs. Our technology provides a deep discharge cycle life which
extends the total hours of trolling. Other advanced technologies such as
lithium-ion and nickel-metal hydide are not practical in this market due to
their cost. Our maintenance-free design and fast-charge capability also increase
the value of our battery.
Future Markets
Our technology lends itself to many other applications. We believe the
electric bicycle market, the majority of which is in the PRC and Japan, will
benefit from our technology. The same strengths that make the scooter market
accessible to our battery apply also to the electric bicycle market. We believe
that over 40 million bicycles are produced annually in the PRC, and a small
percentage of those are expected to be electric. Other potential applications
include lawn equipment, low speed neighborhood vehicles and wheelchairs, the
general marine market (outside the trolling market) and uninterruptible power
supplies. Each of these markets varies in size from a few thousand units
annually for neighborhood electric vehicles to the $1.8 billion annual market
for uninterruptible power supplies. Our technology will be able to address
specialized segments of these markets well.
<PAGE>
We expect to develop our technology to expand into additional markets
as opportunities arise. Certain states, including Arizona and Colorado, are
strengthening environmental laws and granting consumer rebates for purchasing
electric vehicles, and we expect this trend to continue. As the market for mass
produced electric vehicles grows in the United States, we believe that we are
well positioned to be a major participant in this market.
Business Strategy
Our goal is to commercially introduce our battery technology to the
motive power market on a large scale. We intend to accomplish this by
penetrating the premium market segments particularly suited for our current
products and, in particular, the scooter and trolling motor markets. We intend
to reach this goal by leveraging our strengths to achieve the following specific
benchmarks:
o Establish Evercel as a premium brand name in the motive power and
rechargeable battery markets;
o Create a manufacturing and distribution network capable of
producing and shipping our products globally;
o Sell scooter batteries directly to equipment manufacturers;
o Sell trolling motor batteries initially to the consumer to build
brand awareness and then to premium boat manufacturers;
o Continue to form strategic alliances such as joint ventures and
licensing relationships;
o License our technology to third parties in applications which are
not part of our core businesses; and
o Maintain our technical leadership and our technological market
edge through continued research and development of nickel-zinc
batteries as well as alternative battery chemistries.
We believe that we can achieve these benchmarks by leveraging three
core strengths of Evercel: our technology, relationships and management.
Technology
Through our focus on technical innovation in battery chemistry, we
believe we have created proprietary products that are particularly well suited
for our target markets. By modifying the preexisting technology relating to
nickel-zinc batteries, we have developed and patented unique technologies that
will permit scalable, high volume manufacture of our rechargeable batteries
which. We believe our batteries have longer cycle life, are lighter in weight
and lower in cost than comparable batteries currently available in our target
markets. Despite the fact that the basic characteristics of nickel-zinc
technology have been known for many years, our patents and proprietary
production process create a significant barrier of entry for potential
competition in our chosen market. Our batteries also have the additional
advantage of lower environmental impact compared to lead-acid or nickel-cadmium
batteries.
Relationships
We believe that one of our greatest strengths lies in our relationships
and strategic alliances. To successfully commercialize our nickel-zinc
technology, we intend to pursue a range of battery markets whose performance
requirements match the attributes of our nickel-zinc batteries. However, since
these markets have diverse technical and manufacturing specifications driven by
differing applications, we will continue to rely on our relationships with our
industry partners.
<PAGE>
In addition to the Joint Venture, we have created ties and licensing
arrangements with Formosa Plastics, one of the largest manufacturing companies
in Southeast Asia. We have also signed endorsement contracts with five
well-known bass fishing professionals in the United States who regularly appear
on television, both in competition and in instructional sportfishing programs.
We expect that these endorsements will generate support for our products in the
trolling motor market. Finally, we intend to continue to enter into joint
venture agreements and license our technology to companies with established
manufacturing or distribution capabilities in specific markets.
Management
Collectively, our management has over 80 years of experience in the
battery, electrochemical and consumer electronics industries. This experience
includes decades of research and development in batteries and consumer
electronics and the successful rollout of both power source and consumer
products. Our management has a proven track record of designing and constructing
domestic and foreign manufacturing facilities capable of scalable production of
consumer and technical products and then successfully marketing those products
on a global basis.
History of Evercel and Our Technology
Our products are the culmination of decades of research in nickel-zinc
battery technology. The rechargeable nickel-zinc battery was first patented in
1923, but until now the technology has never been commercially viable. During
the early 1980's, extensive research and development efforts by other
researchers to develop a nickel-zinc battery were not successful due to
unacceptably short battery cycle life caused by dendrite formation and the
solubility of the zinc electrode.
We solved the short cycle life problem with our proprietary cell
consisting of layers of positive (nickel) electrodes and negative (zinc)
electrodes separated by both electrolyte absorptive layers and microporous
separator layers. By sealing the battery cell and reducing the solubility of the
zinc electrode, we have increased the cycle life of our batteries to
commercially viable levels. This is evidenced by independent tests that have
achieved more than 500 cycles per battery under deep discharge test standards.
We believe that the average user will realize superior cycle life performance
under normal operating conditions. Our patents reflect the methods we use to
reduce the solubility, as well as the construction features of our sealed cell
technology.
Evercel operated as the battery business group of FuelCell between 1970
and 1999. FuelCell's main business was the development of carbonate fuel cells,
which were designed for stationary power systems. In February 1999, FuelCell
made a tax-free distribution of our stock to its shareholders, which resulted in
our current structure as an independent, publicly held company.
<PAGE>
While we were part of Energy Research Corporation, we focused primarily
on the development and engineering of electricity production and storage by
electrochemical means. Prior to becoming independent, our product sales
emphasized high performance battery cells for the submarine, aerospace and
military markets where application needs and engineering excellence outweighed
the concerns of cost. We pursued several battery technologies, including
silver-zinc, nickel-cadmium, and nickel-zinc. During the mid-1970's to early
1980's, we manufactured high energy density silver-zinc batteries for submarines
and submersibles for both main propulsion and auxiliary power. During the
1980's, we were contracted by the United States Navy to develop nickel-cadmium
batteries for nuclear submarines as well as the U.S. Department of Energy to
develop nickel-zinc batteries for electric vehicles. Historically, we relied on
corporate and government contracts for our revenue and as the source of internal
research and development funds.
We expect to continue working on improving the characteristics of our
nickel-zinc batteries and are pursuing research and development of other
rechargeable zinc battery technologies beyond our current nickel-zinc battery
technology.
Competitive Battery Technologies
There are two types of batteries, disposable and rechargeable
batteries. Our nickel-zinc batteries are rechargeable. Rechargeable batteries
can often be used in battery applications where disposable batteries are most
commonly employed. Disposable batteries are, in most cases, too costly for
widespread use in applications currently utilizing rechargeable batteries.
No one rechargeable battery system is ideal for all applications. There
are numerous performance variables that vary in importance by application.
Important variables in our markets include:
o Specific energy (energy capacity per unit weight);
o Specific power (how rapidly energy can be drawn from the battery
relative to its weight);
o Cycle life (which varies with discharge rate and depth of
discharge, response to ambient temperatures, rate of
self-discharge, charged and discharged shelf life, size, shape and
design);
o Energy density (energy capacity per unit volume); and
o Cost of materials per kilowatt hour.
We believe nickel-zinc technology is suitable for our target markets
because of its potential to compete well in several rechargeable battery
applications. The following chart illustrates the primary performance
characteristics by which batteries are judged in our target markets and compares
nickel-zinc to certain other competitive battery technologies:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Battery Performance Characteristics
NICKEL-METAL
NICKEL-ZINC LEAD-ACID NICKEL-CADMIUM HYDRIDE LITHIUM-ION
Specific Energy (Wh/kg) 35-65(1) 20-30(1) 20-40(1) 40-65(1) 90(1)
53(2)
Specific Power (W/kg) 280(2) 200(4) 260(3) 190(3) Low(3)
Cycle Life (Number of deep 600(2) 250(1)-1,000(3) 300-2,000(1) 300-600(1) 60-300(3)
discharge cycles
Energy Density (Wh/l) 65-130(1) 40-80(1) 40-100(1) 105-185(1) 200(1)
85(2)
Cost of Materials ($/kWh)(4) <= 250 <= 50 <= 300 <= 500 <= 800
</TABLE>
-----------------------
(1) Handbook of Batteries, Edited by D. Linden (Second Edition) McGraw-Hill
Publisher (1995).
(2) Nan Ya Test Report, dated December 1999, for 12-volt module (7-cell
battery).
(3) Battery Report on Power Sources (DSMA Battery Committee) (1997).
(4) Evercel estimates.
Our technology is well suited to our target markets due to the
combination of the characteristics listed in the table above. Specific energy
provides extra range or run-time given a realistic weight limit in a scooter or
boat. Specific power provides the necessary acceleration for the vehicle to meet
the expectations of the user or, in a marine application that does not require
acceleration, the ability of the trolling motor to pull reliably in heavy wind
or current. Energy density provides extra range or run time given a realistic
size and configuration in a scooter or boat.
In the scooter and trolling markets, the costs must be seen to be
justified by cycle life. Cycle life directly affects the economics of paying
more for a premium battery. Longer cycle life correlates to more miles in total
range for a scooter or more total hours of trolling over the life of the
battery. We expect that our battery will perform for at least five years when
usage is measured by average fishermen. We believe that lead-acid trolling
batteries require replacement annually. In the scooter market, the Taiwan
government has tested our battery against lead-acid batteries. The results of
these tests reflected that a scooter powered by our batteries traveled 3.5 times
longer than scooters powered by lead-acid batteries.
<PAGE>
In addition to our nickel-zinc technology, the market for rechargeable
batteries consists of lead-acid, nickel-cadmium, nickel-metal hydride and
lithium-ion batteries.
o Lead-acid batteries are the most common rechargeable batteries and
are primarily used in automobile starting, uninterruptible power
supplies and motive power applications such as golf carts and fork
lifts. Although lead-acid is the lowest cost rechargeable
technology currently available, these batteries are characterized
by low cycle life and low energy density. In addition, these
batteries must be recycled and are harmful to the environment.
o Nickel-cadmium is the oldest commercialized rechargeable system in
the market, primarily used in power tools and uninterruptible
power supplies. Nickel-cadmium is considered the most powerful and
robust technology in the rechargeable battery marketplace. In the
last decade, nickel-cadmium has increasingly been the subject of
tightening environmental and workplace regulations and related
pressures for recycling and mandatory collection due to the
toxicity of cadmium as a principal component.
o Nickel-metal hydride technology, primarily used in portable
electronics, including mobile phones and computers, offers high
energy density relative to nickel-cadmium. Although the metal
hydride electrode is considered environmentally preferable to
cadmium, nickel-metal hydride cells and batteries typically carry
a cost premium that detracts from the appeal of this technology.
o Lithium-ion batteries, primarily used in portable electronics,
offer the highest energy density of all commercial rechargeable
technologies available today. On a weight basis, the technology
offers two to three times the energy content of nickel-cadmium and
offers higher voltage than nickel-metal hydride or nickel-cadmium
technologies. However, lithium-ion cells and batteries are
expected to continue to be more expensive than our nickel-zinc
technology.
Competition
Competition in our markets continues to be, and is expected to remain,
intense. Competitors range from development stage companies to major domestic
and international companies, many of which have resources significantly greater
than ours. Several of these companies are attempting to develop commercial
nickel-zinc batteries; however, we believe that their technology is less mature
than ours.
In our target scooter and trolling motor markets, we expect to compete
against suppliers of rechargeable lead-acid and, to a lesser extent,
nickel-cadmium and nickel-metal hydride batteries. We are competing on the basis
of battery performance and economics, as well as stability, safety and
environmental impact considerations.
The scooter market is dominated by gasoline powered, internal
combustion engines. However, electric, battery powered scooters are becoming
popular with regulators, manufacturers and consumers alike. Our largest
competitors in the battery market for scooters are Saft S.A. and Panasonic
Corporation.
The trolling motor battery market is supplied mainly by Delco Battery
and Johnson Controls, Inc., who are producing and distributing lead-acid
batteries. The major drawbacks of these batteries as compared to our nickel-zinc
batteries are power retention, cycle life and ability to charge quickly relative
to cycle life.
<PAGE>
We intend to compete only in the specialized markets, where we believe
consumers are willing to pay a price premium for superior performance. Major
suppliers of these batteries include Johnson Controls, Inc. and Exide
Corporation. Several other battery manufacturers are attempting to develop and
market higher performance versions of lead-acid batteries. We believe it is
unlikely that those developments will match the performance of nickel-zinc
batteries.
Environmental Impact
Nickel-zinc batteries are more environmentally acceptable than other
commonly available rechargeable battery systems. Nickel-zinc batteries are
recyclable. In addition, nickel-zinc batteries contain no cadmium or mercury,
which are difficult to dispose of under current environmental regulation.
Although our nickel-zinc battery does contain a limited amount of lead in the
negative electrode, it has passed Environmental Protection Agency testing and is
approved for disposal in public landfills. In addition, we anticipate little
waste generation and no wastewater effluents due to our simple manufacturing
process. We use electrode materials in dough form that can be reprocessed and
reutilized, thereby producing low levels of waste. We also use solvent in the
electrode production process that can be reclaimed, purified and reintroduced
into the manufacturing process with low levels of waste. Lead-acid batteries,
our principal competitors, are harmful to the environment and must be recycled.
Sales and Marketing
Our sales and marketing organization is composed at present of a
domestic, U.S. based marketing staff and an independent sales and marketing
organization in the Joint Venture. We expect to hire additional staff during
2000 to support our expanding production capabilities.
We are focusing our general sales and marketing efforts in the
following areas:
o Generating direct sales to equipment manufacturers and
distributors in selected applications and geographical territories
and launching the trolling battery through a multi-channel
approach directly to consumers;
o Developing joint venture partnerships for manufacturing and
distribution in applications and territories where we believe
strategic partners can improve our sales revenues; and
o Licensing our technology and know-how to strategic partners in
applications for businesses other than our core applications, such
as consumer electronics.
In the scooter market we are primarily focused on marketing directly to
equipment manufacturers. We have contacted and briefed most of the major scooter
companies in Italy and Taiwan as well as several smaller manufacturers on the
advantages of our nickel-zinc batteries. We have conducted demonstrations, tests
and evaluations for several key manufacturers, some of which are ongoing, that
already have or may in the future lead to orders for our products.
<PAGE>
With regard to the trolling motor market, we have engaged a team of
five top professional bass fishermen to endorse and represent our products in
this market. We expect to launch this product and commence sales in 2000. We
have purchased both print and television advertising, scheduled for distribution
in 2000, targeted specifically at the bass fishing market. We expect that this
effort will create a demand outside sportfishing in other marine related markets
based on word of mouth and cross-over advertising leakage. We expect that
telephone sales and sales through our web site will be the primary sales
channels in 2000. In 2001, we expect to approach a mass distribution partner to
further penetrate the equipment manufacturing market. We expect to distribute
our products through third party catalogs and outdoor and fishing stores in 2002
after we establish our volume production capability.
We expect to license our technology in situations where there is a
strong barrier to market entry, such as high capital cost, difficult political
environment, or unique market positioning. In these cases, we will ensure that
the licensee has sufficient motivation to aggressively pursue the implementation
and sale of our technology in their market or technical niche. We will use
quotas, compensation for results and up-front payments to motivate our licensees
to actively pursue high volume sales.
Partnerships, Joint Ventures and Licenses
We benefit from two primary strategic alliances:
o The Joint Venture; and
o The Nan Ya License Agreement.
In connection with our spin-off from FuelCell in 1999, we entered into
a license assistance agreement with FuelCell in which we agreed to fulfill
FuelCell's obligations under the Joint Venture and a related license agreement,
until FuelCell is able to transfer its rights under those agreements to us. In
return, FuelCell has agreed to transfer its rights to us and to pay us all sums
accruing to FuelCell. We and FuelCell have initiated a joint effort to obtain
the required transfer consents from the appropriate parties.
The Joint Venture
In July 1998, FuelCell entered into the Joint Venture Agreement with
Xiamen Three Circles Company, Ltd., a government-owned manufacturing company
located in Xiamen, PRC. The mission of the Xiamen Joint Venture is the
manufacture and sale of nickel-zinc batteries based on our technology and the
sublicensing of that technology to third parties. FuelCell received a 50.5%
ownership interest in the Joint Venture and Xiamen Three Circles received a
49.5% ownership interest. The Xiamen Joint Venture is managed by a seven member
board of directors, four of whom are elected by us and three of whom are elected
by Xiamen Three Circles.
Under the Three Circles License Agreement, the Joint Venture made an
initial payment to FuelCell of $3.0 million, which FuelCell immediately
reinvested in the Joint Venture. We expect that Xiamen Three Circles Company,
Ltd. will also make a pro rata investment in the Joint Venture. As a result, we
expect the current ownership interests in the Joint Venture will not change. The
Joint Venture has contracted to pay FuelCell, who is obligated to pay us, a
royalty of 2.67% of the net sales of nickel-zinc batteries in the exclusive
territory and 2.0% of the net sales in the non-exclusive territory.
<PAGE>
The Joint Venture Agreement provides for the distribution of revenue
after payment of all operating expenses and costs required by law. We do not
expect any distribution of revenues in the foreseeable future, as it is intended
that all excess revenues will be reinvested in the Joint Venture.
In July 1998, as part of the Joint Venture arrangement, FuelCell,
Xiamen Three Circles and the Joint Venture entered into the Three Circles
License Agreement in which FuelCell licensed certain intellectual property to
the Joint Venture for the development, manufacture and sale of nickel-zinc
batteries for two applications in the PRC and other countries in Southeast Asia.
In addition, the Joint Venture may sublicense our technology to third parties in
the PRC, Hong Kong, Taiwan and Macao on a non-exclusive basis. The Joint Venture
Agreement has a term of 20 years and contains a standard termination clause.
Our responsibilities to the Joint Venture include purchasing machinery,
equipment and materials outside the PRC, marketing, sales and distribution of
batteries outside the PRC and handling United States immigration and export
licensing matters. Xiamen Three Circles' responsibilities include handling all
legal and regulatory matters in the PRC, obtaining suitable land and facilities
in the PRC, and purchasing, marketing, sales and distribution in the PRC.
The Nan Ya License Agreement
In February 1998, FuelCell, Xiamen Three Circles and Nan Ya Plastics
Corporation of Taiwan, a subsidiary of Formosa Plastics Group, entered into a
technology transfer and license agreement, the Nan Ya License Agreement, in
which FuelCell licensed certain intellectual property to a separate joint
venture formed by Nan Ya and Xiamen Three Circles for manufacture and sale of
nickel-zinc batteries for electric vehicles and hybrid electric vehicles in the
PRC, Taiwan, Hong Kong and Macao on an exclusive basis and certain other
countries in Southeast Asia on a non-exclusive basis. After January 1, 2001,
either FuelCell or the Nan Ya joint venture may, at its election, cause the
license to become non-exclusive with respect to exclusive territory. The Nan Ya
License Agreement was transferred to us in the course of our spin off from
FuelCell.
Under the Nan Ya License Agreement, FuelCell received an initial
payment of $1.5 million in 1998, prior to our spin-off from FuelCell. We believe
that the principal milestone conditions to a second payment of $2.0 million have
been satisfied and we anticipate payment in the second quarter of 2000. In
addition, FuelCell is entitled to receive from the Nan Ya joint venture and
under the license assistance agreement is required to remit to us a 3% royalty
on the net sales of nickel-zinc batteries for a period of 10 years beginning
from the first commercial sales. If the license becomes non-exclusive, the
royalty shall be reduced to 1.5% of net sales.
Manufacturing and Raw Materials
Our manufacturing plan is to produce smaller batteries for use in
scooters and similar applications in Xiamen, PRC and larger batteries for use in
marine trolling motors, industrial utility vehicles and similar applications at
a facility in the United States. In the PRC, we are establishing a manual
production process due to the availability of relatively inexpensive labor. The
Joint Venture has recently installed production equipment in a 32,000 square
foot facility in Xiamen, PRC which we believe, when fully operational, will
enable annual battery production capacity of an estimated 30,000 kilowatt hours
("kWh"), or the equivalent of 20,000 scooter batteries. The Joint Venture also
plans to continue to acquire additional manufacturing space and equipment in
2000 to allow for capacity of 90,000 kWh annually by January 2001.
<PAGE>
Our primary facility in Danbury, Connecticut produces prototypes and
product samples as well as houses research and development and administrative
functions. We are negotiating to occupy manufacturing space in the United States
by the middle of calendar year 2000. The automated nature of the new facility
will enable us to reduce our reliance on relatively expensive domestic labor. We
expect the new facility will have the capability to produce 100,000 kWh, or the
equivalent of 100,000 trolling motor batteries, annually, per line of
automation. We expect to invest an estimated $8.0 million in each line of
automation and will require 20,000-30,000 square feet of manufacturing space per
line. Initially, we expect to install one line of automation in 2000. However,
we will construct the second line as needed and expect that our existing working
capital will be sufficient to complete both lines, assuming the success of this
offering.
The following chart reflects expected manufacturing capacity of both
Evercel and the Joint Venture:
Expected Production Capacity by December 31, 2000
Manufacturing Location Application Volume Number of Batteries
- ----------------------- ----------- ------ -------------------
United States Trolling 100,000 kWh 100,000
PRC Scooter 90,000 kWh 60,000
While we expect to achieve and fully utilize our manufacturing
capacity, no assurance can be given that we will be able to do so. Even if we
are able to fully utilize our capacity, no assurance can be given that there
will be adequate demand for our products.
The automated facility will be designed to be flexible enough to
produce batteries for our different target markets. We will produce different
size batteries by combining different numbers of a common cell design into
varying combinations of cells in series and parallel arrangements. This planned
flexibility precludes investment in a completely automated facility, which would
have the potential for the lowest direct labor cost per unit. As the markets for
higher volume batteries are proven, we intend to progressively automate
production to further reduce production costs.
The chemical materials required to manufacture our nickel-zinc battery
are readily available from multiple sources in North America and the PRC.
Certain separator materials are only available from one U.S. supplier, with
which we have a supply agreement with a term of one year. Prices for both nickel
and zinc, the primary raw materials which are commodities, are subject to market
forces beyond our control. We do not currently utilize financial instruments to
mitigate risk of component prices.
<PAGE>
Backlog
The Joint Venture has received an order from Taiwan EVT Technology Co.,
Ltd., an unaffiliated scooter manufacturer, to supply 1,500 scooters batteries
for a total price of $1.4 million. The Joint Venture expects to begin shipping
these batteries during the second quarter of 2000. Orders to the Joint Venture
are subject to cancellation and are not necessarily indicative of our future
revenues.
Patents and Trademarks
We have nine United States patents which, combined, have an average of
10 years remaining before expiration. Our patents expire at various times
through 2017. We do not believe that the expiration of any of our earlier
patents will have a material adverse effect on our business. We have applied to
use "Evercel" as a trademark. We seek to protect our technology through U.S.
patents and trade secrets and other agreements. Many of these patents are also
filed in Canada, Europe, Japan, and the PRC.
Research and Development
We continue to advance our advanced battery technologies by conducting
additional research and development. Research and development expenses were
$897,000 in the year ended October 31, 1997, $1.8 million in the year ended
October 31, 1998, $2.4 million in the year ended October 31, 1999 and $451,000
in the two months ended December 31, 1999.
Employees
At present, we employ a staff of approximately 30 people. Approximately
seven full-time employees and 10 temporary manufacturing workers operate our
Danbury, Connecticut manufacturing facility. This number is expected to increase
with planned automation and accelerated production. We consider relations with
our employees to be good.
The Xiamen Joint Venture employs approximately 50 people, most of whom
are engaged in the manufacturing process.
Facilities
We lease approximately 28,500 square feet of space in Danbury,
Connecticut, that is used as our corporate headquarters. The lease term is five
years with an option for us to extend the term for an additional five years. The
annual rent is $171,000 for the first three years and increases to $178,000 in
year four and $185,000 in year five.
We expect to move into a new facility in which we will install two
automated production lines. These lines will each have the capability to produce
100,000 kWh, or the equivalent of 100,000 trolling motor batteries, annually.
Initially, we expect to install one line of automation in 2000. We will
construct the second line as needed and expect that our existing working capital
will be sufficient to complete both lines.
<PAGE>
Legal Proceedings
We are not a party to any material legal proceedings.
<PAGE>
MANAGEMENT
The following table sets forth information with respect to our
executive officers, directors and certain key employees:
Executive Officers, Directors and Other Key Employees
Directors and Officers
NAME AGE POSITION
Robert L. Kanode 49 President, Chief Executive Officer and Director
Allen Charkey 58 Executive Vice President, Chief Operating Officer
and Director
Gregory W. Schulte 33 Chief Financial Officer, Treasurer and Secretary
Jerry D. Leitman 57 Chairman
Warren D. Bagatelle 61 Director
Robert Gable 69 Director
James D. Gerson 56 Director
John H. Gutfreund 70 Director
Thomas L. Kempner 72 Director
William A. Lawson 65 Director
Robert L. Kanode has been our President, Chief Executive Officer and a director
since April 1999. Prior to joining us, Mr. Kanode served as President of Varta
Batteries North America, a battery manufacturer, from 1995 to 1999. Mr. Kanode
also held numerous positions with IBM, including the IBM ThinkPad team and other
permanent and consulting positions focused on electronic manufacturing and
operations.
Allen Charkey has been a director since our formation and Executive Vice
President and Chief Operating Officer since October 1998. He joined FuelCell in
1970 and held various positions at FuelCell and was Vice President of the
Battery Group from January 1997 until October 1998. Prior to joining FuelCell,
Mr. Charkey was employed by Yardney Electric Corporation, a battery
manufacturer, from 1963 to 1970 as a battery scientist.
Gregory W. Schulte has been our Chief Financial Officer, Treasurer and Secretary
since February 2000 and was our Controller from September 1999 through January
2000. Mr. Schulte is a certified public accountant. Mr. Schulte was previously
Manager of Planning and Analysis for Quest Diagnostics Corporation, a clinical
laboratory, from 1998 to 1999. Prior to that, Mr. Schulte was a Senior Business
Analyst at Bic Corporation, a consumer products company, from 1997 to 1998. Mr.
Schulte was a senior accountant at GTE Corporation, a provider of telephone
communications services, from 1995 to 1997.
Jerry D. Leitman has been our Chairman since our formation. He has been
President, Chief Executive Officer and a Director of FuelCell since August 1997.
Mr. Leitman was previously President of ABB Asea Brown Boveri's global air
pollution control businesses from 1992 to 1995. Prior to joining ABB, Mr.
Leitman was Group Executive Vice President of FLAKT AB, a Swedish multinational,
responsible for FLAKT's worldwide industrial businesses from 1989 to 1992. Mr.
Leitman is also a director and a member of the Audit Committee of Esterline
Technologies Inc., a manufacturer serving the aerospace and defense markets.
<PAGE>
Warren D. Bagatelle has been a director since September 1998. He has been a
Managing Director of Loeb Partners Corporation, a financial services company,
and a general partner of Loeb Investors Co. LXXV, an affiliate of Loeb Partners
Corporation, an investment company, since 1988. Mr. Bagatelle is a director of
FuelCell.
Robert Gable has been a director of the Company since November 1999. He was
chairman of the board and chief executive officer of Unitrode Corporation, a
manufacturer of power source and battery control technology, between 1990 and
1998.
James D. Gerson has been a director of the Company since September 1998. He has
been a Vice President of Fahnestock & Co., Inc., a financial services company,
since March 1993. Mr. Gerson also serves as a director of FuelCell, Ag Services
of America, Inc., a company financing farm inputs, and American Power Conversion
Corp., a company producing uninterruptible power supplies.
John H. Gutfreund has been a director since January 2000. He is the former
Chairman and Chief Executive Officer of Salomon Brothers Inc. and former Vice
Chairman of the New York Stock Exchange. He is President of Gutfreund & Company,
Inc., an investment banking and consulting firm. He is also a director of AMBI,
Inc., a manufacturer of nutrition products; Ascent Assurance, Inc., an insurance
holding company; Baldwin Piano & Organ Company, Inc., a musical instruments
company; Foamex International, Inc., a manufacturer of plastic foam products;
LCA-Vision, Inc., a provider of services to outpatient eye surgery facilities;
and Universal Bond Fund.
Thomas L. Kempner has been a director since September 1998. He has been Chairman
and Chief Executive Officer of Loeb Partners Corporation since 1979 and a
general partner of Loeb Investors Co. LXXV, an affiliate of Loeb Partners
Corporation, an investment company. Mr. Kempner is a director of Alcide
Corporation, an agricultural products company, IGENE Biotechnology, Inc., a
microbiology products company, Intermagnetics General Corporation, CCC
Information Services Group, Inc., a claims management company, Insight
Communications Company, Inc., a cable television systems operation, and Roper
Starch Worldwide, Inc. and director emeritus of Northwest Airlines, Inc. Mr.
Kempner is a director of FuelCell and was the Chairman of the Board of Directors
of FuelCell from March 1992 to August 1997.
William A. Lawson has been a director since September 1998. He has been
President of W.A. Lawson Associates, an industrial and financial consulting
firm, since 1987. Mr. Lawson is Chairman of the Board of Directors of Newcor,
Inc., a manufacturer of motor vehicle parts, and Mr. Lawson was the Chairman and
Chief Executive Officer of Bernal International Inc. (formerly, Atlantic Eagle
Inc.) a manufacturer of industrial marketing and equipment, from 1997 to 1999.
Mr. Lawson is a director of FuelCell.
Key Employees
Glen V. Bowling has been our Vice President of Marketing and Sales since 1999
and our Director of Marketing and Sales since 1998. Prior to joining us, he was
Vice President of Sales for the Saft Lithium and Military Battery Division of
the Saft Group from 1997 to 1998, responsible for worldwide sales. From 1991 to
1997, he was Director of Sales and Marketing for the Lithium Battery Division in
Valdese, NC, where he was responsible for all commercial activities for the
facility.
<PAGE>
Dr. Chao Ming Huang has been our Vice President of Far East Operations since
July 1999 and has served as a director of Xiamen Three Circles Battery
Corporation since its formation in August 1998 and General Manager since January
1999. He joined FuelCell in 1994 where he held various positions, including
Director for Advanced Materials Research.
Classification of the Board and Board Committees
Our Board of Directors has recently been divided into three classes.
Each Board member will be elected for a term of three years. Currently, it is
intended that Messrs. Kempner and Lawson be elected at the annual meeting of
shareholders to be held May 2000 for terms expiring in 2003. The terms of
Messrs. Bagatelle, Gerson and Gable will expire in 2001 and the terms of Messrs.
Leitman, Charkey, Kanode and Gutfreund will expire in 2002.
Our Board has established an audit committee and a compensation
committee. Our audit committee consists of three independent Directors.
Currently, our audit committee consists of Messrs. Bagatelle (Chairman), Lawson
and Gerson. The audit committee selects the firm of independent accountants that
will audit our financial statements, reviews the scope and result of the audit
and other services provided by our independent auditors and reviews and
evaluates our internal control functions.
Our compensation committee consists of at least three disinterested
Directors who are non-employee directors. Currently, our compensation committee
consists of Messrs. Lawson (Chairman) and Gerson and the Board must appoint a
third Director. The compensation committee reviews, approves and recommends to
the Board of Directors the terms and conditions of incentive bonus plans
applicable to corporate officers and key management personnel, reviews and
approves the annual salary of our chief executive officer, and administers our
1998 Equity Incentive Plan.
Director Compensation
Prior to April 1, 2000, we paid an annual retainer of $12,000 to each
director who was not an employee of the Company. Effective April 1, we will pay
each non-employee director an annual retainer of $10,000 and an option to buy
4,000 shares of our common stock at the fair market value on the day the option
is granted. The options vest over four years. The Chairman and each committee
chair are paid an extra $4,000 and $2,000, respectively. We reimburse each
non-employee director for out-of-pocket expenses incurred in connection with
attending board meetings.
Pursuant to an Option Agreement entered into by FuelCell and Mr.
Leitman in 1997, FuelCell granted to Mr. Leitman options to acquire 375,000
shares of FuelCell common stock. In connection with our spin-off from FuelCell,
we have agreed to issue to Mr. Leitman one share of our common stock for every
2.25 shares of FuelCell common stock which he purchases pursuant to his exercise
of the FuelCell options. The FuelCell options began to vest in August 1998 in an
initial installment of 150,000 shares and annual installments of 75,000 shares
thereafter and will become fully vested in August 2001. FuelCell and we have
agreed to allocate the exercise price of the FuelCell options between us based
upon the relative fair market values of the FuelCell common stock and our common
stock at the time of exercise.
We have also granted Mr. Leitman in January 1999 an option to acquire
166,666 shares of our common stock exercisable at $3.00 per share. This option
is exercisable to acquire 66,666 vested shares of our common stock and 100,000
restricted shares. Of the restricted shares, 33,333 shares have vested as of the
date of this prospectus, an additional 33,333 shares will vest in August 2000,
and the balance will vest in August 2001. Mr. Leitman exercised this option in
March 1999 by issuing to us a nonrecourse note in the amount of $300,000, the
total exercise price of the shares. The note is payable in equal installments on
the remaining vesting dates. Until the applicable installment of the note is
paid, the shares will remain restricted. In the event the note is not fully paid
by August 4, 2001, the shares for which payment has not been made will be
forfeited to us for no consideration.
<PAGE>
We have also agreed to register, under the Securities Act, the shares
of common stock to be issued to Mr. Leitman pursuant to the exercise of these
options.
Executive Compensation
The table below sets forth information concerning the compensation we
paid to our chief executive officer and the other executive officer whose salary
and bonus exceeded $100,000 in 1999.
Summary Compensation Table
Long-Term
Compensation
Name and Year Salary ($) Bonus ($) Securities
Principal Underlying All Other
Position Options(#) Compensation
---- ---------- --------- ---------- ------------
Robert L. Kanode(1)
President and 1999 $ 187,512 $ 20,000 200,000 $ 1,154(3)
Chief Executive
Officer
Allen Charkey(2)
Executive Vice 1999 150,000 25,500 - 5,850(3)
President and 1998 122,512 18,000 66,666 14,500(3)
Chief Operating 1997 116,168 9,000 - 11,265(3)
Officer
- --------------------------
(1) Mr. Kanode joined us as President and Chief Executive Officer on April
5, 1999.
(2) Includes compensation received as an employee of FuelCell prior to
February 16, 1999.
(3) Represents employer contributions to qualified pension plans. In
November 1999 we adopted a Section 401(k) Plan. Prior to the spin-off,
Mr. Charkey received benefits from the FuelCell Defined Contribution
Pension Plan and employer contributions to the FuelCell Section 401(k)
Plan.
<PAGE>
Option Grants in Last Year
The following table sets forth information regarding options granted in
the year ended December 31, 1999 to the executive officers named in the Summary
Compensation Table above. Amounts represent the hypothetical gains that could be
achieved from the respective options if exercised at the end of the option term.
These gains are based on assumed rates of stock appreciation, mandated by the
rules of the Securities and Exchange Commission, of 5% and 10% compounded
annually from the date the respective options were granted to their expiration
date based upon the grant price.
<TABLE>
<CAPTION>
<S> <C>
Individual Grants
---------------------------------------------------------------
Number of
Shares Potential Realizable Value
Underlying Percentage of Exercise at Assumed Annual Rates of
Options Total Options Price Expiration Stock Price Appreciation
Name Grant (#) Granted ($/Share) Date for Option Term
---- --------- ------- --------- ---- -----------
5% ($) 10% ($)
------ -------
Robert L. Kanode 200,000(a) 43.8% $3.00 3/23/09 $337,337 $956,245
Allen Charkey - - - - - -
</TABLE>
- ---------------------
(a) Options vest equally over four years beginning on March 23, 2000.
<PAGE>
1999 Year-End Option Values
The following table contains information about the aggregate value of
the unexercised options for our common stock that were held at the end of 1999
by the executive officers named in the Summary Compensation Table above. No
options were exercised by these officers in 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at 12/31/99 12/31/99
---------------- ------------------- ------------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Robert L. Kanode - 200,000 $ - $1,875,000
Allen Charkey 33,333 33,333 312,470 312,470
</TABLE>
<PAGE>
Employment, Change of Control and Termination of Employment Arrangements
We have entered into an employment agreement with Robert L. Kanode, our
President and Chief Executive Officer. Pursuant to the agreement, Mr. Kanode
receives a minimum annual salary of $250,000 and a bonus of up to 40% of his
annual salary based on performance objectives established by the Compensation
Committee of the Board of Directors. Mr. Kanode will receive continued salary
and benefits for a period of one year if we terminate his employment without
cause. Mr. Kanode also holds options to purchase 200,000 shares of common stock
at $3.00 per share, of which 25% vest each year in four annual installments. If
we experience a change of control, all of the options will automatically vest.
We have also entered into an employment agreement with Allen Charkey,
our Executive Vice President and Chief Operating Officer. Pursuant to the
agreement, Mr. Charkey receives an annual salary of $150,000. Mr. Charkey will
receive continued salary and benefits for a period of one year if we terminate
his employment without cause. Mr. Charkey also holds options to purchase 66,666
shares of common stock at $3.00 per share. Of these options, 33,333 vest in 1999
and the balance vest over the subsequent two years. If we experience a change of
control, 100% of the options will automatically vest.
Stock Option Plan
Our Board of Directors has adopted the 1998 Stock Option Plan. The Plan
provides for the issuance of options to purchase up to 600,000 shares of common
stock, all of which have been granted to our officers, key employees and
Directors, of which options to purchase 177,334 shares have been exercised. An
additional 172,000 options have been awarded by the Board subject to shareholder
ratification of an increase in the number of options available under the Plan.
Our management intends to recommend to the Board of Directors, subject to
ratification by our shareholders, that the number of options under the Plan be
increased to 1,300,000. Under the terms of the Plan, the Board of Directors is
authorized to grant incentive stock options and nonqualified options and stock
appreciation rights to our officers and key employees and may grant nonqualified
options and stock appreciation rights to members of the Board of Directors and
consultants.
The transferability of stock options granted under the Plan is
restricted. The Plan states that the option exercise price shall be fixed by the
Board of Directors but, in the case of incentive stock options, shall not be
granted at an exercise price less than 100% of the fair market value of the
shares subject to the option on the date the option is granted. The Board
determines the vesting restrictions applicable to each grant under the Plan.
Except for Mr. Charkey, all stock options that have been granted under the Plan
to date are exercisable commencing one year after grant at the rate of 25% each
year.
RELATED PARTY TRANSACTIONS
A number of our directors are also directors of, and have a significant
investment in, FuelCell. Accordingly, these directors may be deemed to have an
indirect interest in certain transactions with us because of their relationship
with FuelCell.
We entered into certain agreements with FuelCell, including a
distribution agreement, a tax sharing agreement, a services agreement and the
License Assistance Agreement for the purpose of defining our ongoing
relationship with FuelCell and to provide certain services during the
transition. The Distribution Agreement provides for the transfer of the business
and principal assets of the battery business group to us and the assumption by
us of certain liabilities and obligations relating to that business.
<PAGE>
The tax sharing agreement defines the rights and obligations of
FuelCell and us with respect to filing of returns, payments, deficiencies and
refunds of federal, state and other income, franchise or certain other taxes
relating to our operations after the spin-off. The tax sharing agreement is
intended to allocate the tax liability of FuelCell between FuelCell and us as if
we were separate taxable companies.
The services agreement sets forth the terms under which FuelCell
provides to us certain management and administrative services, as well as the
use of certain office, research and development and manufacturing and support
facilities and services. We paid FuelCell $378,000 under this agreement in the
fiscal year ended October 31, 1999 and $67,000 for the two months ended December
31, 1999.
The License Assistance Agreement is intended to transfer to us
FuelCell's benefits and obligations to us under the Joint Venture contract and
the Three Circles License Agreement while together we seek formal approval for
that transfer. The License Assistance Agreement provides that we will provide
the services and assistance necessary to effectively fulfill, on behalf of
FuelCell, all of FuelCell's obligations under the Joint Venture contract and the
Three Circles License Agreement. In exchange for our assuming all of the
obligations and benefits of these arrangements, FuelCell has also agreed to act
according to our instructions in connection with matters of Joint Venture
governance and agreed not to permit the amendment of the related documents
without our consent.
In February 1999, we borrowed $300,000 from FuelCell for working
capital and capital expenditures. This loan was secured by all of our assets. We
borrowed an additional $1.6 million from a bank, which was guaranteed by
FuelCell. These loans were repaid in April 1999.
In March 1999, Jerry D. Leitman, our Chairman, exercised options for
100,000 shares of our common stock at $3.00 per share by issuing to us a
nonrecourse, non-interest-bearing note in the original principal amount of
$300,000 payable in equal installments through 2001. No principal payments have
yet been made on this note. If this note is not paid, Mr. Leitman's shares will
be forfeited.
In December 1999, James Gerson and John Gutfreund, each a director, and
a retirement plan for Robert Kanode, our President and a director, bought
20,000, 2,000 and 1,200 shares of Series A Preferred Stock and accompanying
warrants at $25.00 per share. For a description of the Series A Preferred Stock
and Warrants, see "Description of Capital Stock."
Loeb Partners Corporation, an affiliate of Thomas Kempner and Warren
Bagatelle, each a director, received $174,000 as standby underwriter in
connection with our 1999 rights offering.
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 13, 2000, and as adjusted to reflect
the sale of common stock offered by this prospectus by:
<PAGE>
o Each shareholder known by us to beneficially own more than 5% of
our outstanding common stock;
o Each of our executive officers;
o Each of our directors; and
o All directors and executive officers as a group.
A person has beneficial ownership of shares if the individual has the
power to vote or dispose of shares. This power can be exclusive or shared,
direct or indirect. In addition, a person beneficially owns shares underlying
options or warrants that are presently exercisable or will become exercisable
within 60 days of March 13, 2000, and shares to be acquired upon conversion of
our preferred stock. These shares are considered to be outstanding for the
purpose of calculating the percentage of outstanding shares of our common stock
owned by a particular shareholder but are not considered to be outstanding for
the purpose of calculating the ownership percentage of any other person.
Applicable percentage ownership in the following table is based on 5,733,258
shares of common stock outstanding as of March 13, 2000. Except as otherwise
noted, to our knowledge, the shareholders named in the table have sole voting
and investment power for all shares shown as beneficially owned by them.
<PAGE>
The table below assumes that the underwriters have not
exercised their over-allotment option.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage of Percentage of
Shares Prior to Shares after the
Name Number of Shares Offering Offering
- ---- ---------------- --------------- ----------------
Warren D. Bagatelle(1) 714,372 12.5% 10.2%
c/o Loeb Investors Co.
LXXV
61 Broadway
New York, NY 10006
James D. Gerson(2) 748,303 12.8% 10.5%
c/o Fahnestock and Co.
780 3rd Avenue
New York, NY 10017
Thomas L. Kempner(1) 528,216 9.2% 7.6%
c/o Loeb Investors Co.
LXXV
61 Broadway
New York, NY 10006
Loeb Investors Co. LXXV(1) 528,216 9.2% 7.6%
61 Broadway
New York, NY 10006
Jerry D. Leitman(3) 266,666 4.6% 3.8%
Robert L. Kanode(4) 58,764 1.0% *
William A. Lawson 51,220 * *
Allen Charkey(5) 33,333 * *
John H. Gutfreund(6) 11,273 * *
Robert Gable(7) 6,000 * *
Gregory W. Schulte - * *
All directors and executive 1,889,930 31.1% 25.8%
officers as a group
(10 Persons)
</TABLE>
* Less than one percent.
(1) Messrs. Bagatelle and Kempner, by virtue of being general partners of
Loeb Investors Co. LXXV, may each be deemed to beneficially own the
shares of Loeb Investors Co. LXXV. Each of Mr. Kempner and Mr.
Bagatelle is a member of a group, as that term is used in Section
13(d) of the Exchange Act, which group, in the aggregate, owns 528,216
shares of common stock.
(2) Mr. Gerson's shareholdings include 71,078 shares held by his wife as
custodian for two children (of which 22,545 shares are issuable upon
conversion of Series A Preferred Stock and exercise of related
warrants). Also includes 21,064 shares held by a private foundation,
of which Mr. Gerson is President and a Director. Mr. Gerson disclaims
beneficial ownership of the securities held by his wife and of the
private foundation. Mr. Gerson also holds 122,545 shares (of which
22,545 are issuable upon conversion of Series A Preferred Stock and
exercise of elated warrants) in a company in which he is Chairman. Mr.
Gerson's other holdings also include 90,182 shares issuable upon
conversion of Series A Preferred Stock and exercise of related
warrants.
(3) Includes 100,000 shares which may be acquired upon exercise of options
within 60 days.
(4) Includes 50,000 shares which may be issued upon exercise of options
and 6,764 shares which may be issued upon conversion of Series A
Preferred Stock and exercise of related warrants.
(5) Represents shares which may be issued upon exercise of options within
60 days.
(6) Represents 11,273 shares which may be issued upon conversion of Series
A Preferred Stock and related warrants.
(7) Represents shares held by his wife as to which he disclaims beneficial
interest.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 10,000,000 shares of common
stock, $.01 par value per share and 1,000,000 shares of preferred stock, $.01
par value per share. The Board of Directors has determined to increase the
number of authorized common shares to 30,000,000. This increase will be
submitted for ratification by the shareholders of the Company at their next
Annual Meeting, currently expected to be held in May, 2000.
As of March 20, 2000, there were 5,733,258 shares of common stock
outstanding and 264,000 shares of Series A Preferred Stock outstanding. After
giving effect to the sale of the 1,250,000 shares of our common stock in this
offering, there will be 6,983,258 shares of common stock outstanding.
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. The election of
directors is determined by a plurality of the votes cast and, except as
otherwise required by law, all other matters are determined by a majority of the
votes cast. Our shareholders do not have cumulative voting rights. Accordingly,
holders of a majority of the shares of common stock entitled to vote in any
election of directors may elect all of the directors. Holders of common stock
are entitled to receive any dividends declared by the Board of Directors out of
funds legally available for that purpose, subject to any preferential dividend
rights of outstanding shares of preferred stock. Upon the liquidation,
dissolution or winding up of Evercel, the holders of common stock are entitled
to receive pro-rated shares of our net assets after we have paid all debts and
other liabilities. Holders of the common stock have no preemptive, subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of common stock may be adversely affected by the rights of the holders
of shares of any class or series of preferred stock which we may designate and
issue in the future.
Preferred Stock
Under our certificate of incorporation, our Board of Directors, without
further action by our shareholders, is authorized to issue up to an aggregate of
1,000,000 shares of preferred stock in one or more classes or series. Our Board
of Directors may, without shareholder approval, issue any class or series of
preferred stock with dividend rights, dividend rates, conversion rights,
redemption rights, preferences on liquidation or dissolution, voting rights and
any other preferences, which could adversely affect the voting power of the
holders of common stock. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions or other corporate
purposes, could make it more difficult for a third party to acquire, or could
discourage or delay a third party from acquiring, a majority of our outstanding
stock.
We have created a class of Series A Preferred Stock. On December 16,
1999, we sold 264,000 shares of Series A Preferred Stock in a private placement.
Burnham Securities Inc., one of the underwriters of this offering, acted as
placement agent for this private placement. Each share of Series A Preferred
Stock is convertible into common stock at a conversion price of $6.88 per share.
Each share of Series A Preferred Stock is currently convertible into 3.64 shares
of common stock. Each share of Series A Preferred Stock accrues dividends at the
rate of $2.00 per year, payable either in cash or in shares of Series A
Preferred Stock at our option. Each share of Series A Preferred Stock bears a
liquidation preference of $25.00 per share and is entitled to one vote for each
share of common stock into which it is convertible on all matters submitted to
shareholders. We may redeem that Series A Preferred Stock for $25.00 per share
at any time after one year following the issue date if certain common stock
price levels are reached. Each owner of Series A Preferred Stock is subject to
our call to purchase additional shares of Preferred Stock in an amount equal to
50 percent of its investment in Series A Preferred Stock. Effective upon
consummation of this offering, we have agreed to forfeit our right to require
holders of Series A Preferred Stock to purchase shares of additional Convertible
Preferred Stock.
<PAGE>
Warrants
Each share of Series A Preferred Stock also carries a five-year
warrant, which is exercisable into two shares of common stock at $8.25 per
share. Burnham Securities, Inc., one of the underwriters for this offering,
acted as placement agent for the sale of the Series A Preferred Stock and
received 67,268 identical warrants. We may redeem the warrants at any time after
one year following the issue date if certain common stock price levels are
reached. We have also issued 6,000 five-year warrants to a consultant, which are
each exercisable for one share of common stock at $23.09 per share.
Registration Rights
The holders of Series A Preferred Stock and the warrants issued in
connection with the Series A Preferred Stock have demand and piggy-back rights
to cause us, with certain limitations, to register the common stock issuable
upon conversion of the Series A Preferred Stock and exercise of their warrants.
In addition, we have agreed to register the shares of common stock to be issued
to Mr. Leitman upon exercise of his warrants. We have agreed to pay many of the
expenses of those registrations. We have also agreed to indemnify those warrant
holders who exercise registration rights against certain claims arising from
untrue statements or omissions in connection with the sale of their shares. It
is our intent to register as soon as practicable the common stock issuable upon
conversion of the Series A Preferred Stock and exercise of the related warrants.
Certain Anti-Takeover Provisions
Provisions of our certificate of incorporation and bylaws could make
the acquisition of Evercel and the removal of incumbent officers and directors
more difficult. These provisions are expected to discourage coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of Evercel to negotiate with us first, but these provisions may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a shareholder might consider in its best
interests, including those attempts that might result in a premium over the
market price for shares held by shareholders.
Authorized But Unissued Shares
Our board of directors has the authority to issue and to establish the
rights of substantial amounts of preferred stock without shareholder approval,
upon such terms and conditions, and having such rights, privileges and
preferences, as our board of directors may determine. This authority may be used
to create voting impediments, hinder changes in control or to dilute the stock
ownership of holders of common stock seeking to obtain control of Evercel. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, the rights of any preferred stock that may be issued in the future.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions, financings and other corporate
transactions, may have the effect of discouraging, delaying or preventing a
change in control.
<PAGE>
Staggered Board
Our Board of Directors is divided into three classes. Each class is
elected for a three-year term. This provision makes more difficult any attempt
for a bidder to acquire control. The existence of a staggered Board of Directors
is considered a deterrent to a takeover attempt, even though it may be in the
best interest of our shareholders.
Delaware Anti-Takeover Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, or the anti-takeover law, which regulates corporate
acquisitions. The law generally prohibits business combinations between a
publicly held Delaware corporation and an interested shareholder.
o An interested shareholder is a person who, together with any
affiliates, beneficially owns, directly or indirectly, 15% or
more of the outstanding voting shares of a corporation.
o A business combination includes mergers, consolidations, sales
or other dispositions of assets having an aggregate value in
excess of 10% of the consolidated assets of the corporation.
Section 203 prohibits any business combination that results in a
financial benefit to an interested stockholder for three years following the
date the person became an interested shareholder.
Connecticut Anti-Takeover Provisions
The laws of the State of Connecticut, where our principal executive
offices are located, impose restrictions on certain transactions between certain
foreign corporations and significant shareholders. Section 33-840 of the
Connecticut Business Corporation Act prohibits certain publicly held foreign
corporations that are based in Connecticut from engaging in a "business
combination" (including the issuance of equity securities which have an
aggregate market value of 5% or more of the total market value of the
outstanding shares of the company) with an "interested shareholder" as defined
in the Connecticut Business Corporation Act for a period of five years from the
date of the shareholder's purchase of stock unless approved in a prescribed
manner. The application of this statute could prevent a change of control.
Generally, approval is required by our board of directors and by a majority of
our non-employee directors and by 80% of the outstanding voting shares and
two-thirds of the voting power of the outstanding shares of the voting stock
other than shares held by the interested shareholder. We can give no assurance
that these provisions would not prevent us from entering into a business
combination that otherwise would be beneficial to our shareholders.
<PAGE>
Limitation on Liability
Our certificate of incorporation and bylaws contain provisions relating
to the limitation of liability and indemnification of directors and officers.
Our certificate of incorporation specifies that none of our directors shall be
personally liable to us or our shareholders for monetary damages for a breach of
fiduciary duty, except for liability:
o For any breach of the duty of loyalty;
o For acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
o For the payment of unlawful dividends and other actions prohibited
by Delaware General Corporation Law; or
o For any transaction resulting in receipt of an improper personal
benefit by the director.
Our bylaws require us to indemnify our directors and officers, so long
as their actions are in good faith, are in the best interests of the
corporation, and are not unlawful. Our bylaws also permit us to purchase and
maintain insurance on behalf of our directors, officers and agents. We intend to
obtain directors' and officers' liability insurance to provide our directors and
officers with insurance coverage for losses arising from claims based on
breaches of duty, negligence, error and other wrongful acts.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Continental
Stock Transfer & Trust Company, New York, New York.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 6,983,258 shares of our
common stock outstanding, 7,170,758 shares if the underwriters' overallotment
option is exercised in full, assuming no exercise of options or warrants or
conversion of Series A Preferred Stock. All of the 1,250,000 shares sold in this
offering will be freely tradable without restriction under the Securities Act by
persons other than "affiliates" as that term is defined in Rule 144 under the
Securities Act (whose sales would be subject to certain limitations and
restrictions described below).
All of our executive officers and directors and certain other
shareholders have agreed to a "lock-up" at the request of the underwriters. In
the aggregate, this group holds 1,553,288 shares of our common stock, options to
purchase 537,332 shares of our common stock, warrants to purchase 595,268 shares
of our common stock, and Series A Preferred Stock convertible into 960,000
shares of our common stock. Under the lock-up, they agreed not to offer, sell,
contract to sell, or otherwise dispose of, directly or indirectly, any shares of
common stock or securities convertible into or exercisable for common stock for
a period of 180 days after the date of this prospectus without the prior written
consent of Adams, Harkness & Hill, Inc. When the lock-up expires, approximately
1,553,280 additional shares that are restricted securities will be eligible for
sale under Rule 144. Shares acquired in transactions exempt from registration
under the Securities Act are "restricted securities" as that term is defined
under Rule 144. Restricted shares may be vested only if they are registered
under the Securities Act or are sold under an exemption from registration, such
as the exemption in Rule 144. We soon intend to register the shares of our
common stock issuable upon conversion of the Series A Preferred Stock and
exercise of the related warrants for resale after the expiration of the lock-up
referred to above.
Under Rule 144, a person who has beneficially owned shares for at least
one year, including an affiliate, is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of:
o 1% of the then outstanding shares of our common stock
(approximately 69,832 shares immediately following the offering);
and
o The average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale.
As of the date of this prospectus, immediately after consummation of
the offering, 1,553,288 shares not eligible for resale under Rule 144(k) will be
eligible for resale in the public market subject to the volume, manner of sale
and other limitations of Rule 144.
We have filed a registration statement on Form S-8 with respect to
600,000 shares of common stock issuable under our Stock Option Plan. As the
number of shares available under the Plan is increased, we intend to register
those shares as well. Shares issued upon the exercise of stock options after the
effective date of the Form S-8 registration statement will be eligible for
resale in the public market without restriction, except that affiliates must
comply with Rule 144.
In addition, shares held by persons deemed not to have been affiliates
of ours at any time during the 90 days preceding a sale and who have
beneficially owned the shares for at least two years can be sold under Rule
144(k) without regard to the volume limitations, manner of sale provisions or
other limitations of Rule 144.
<PAGE>
UNDERWRITING
Evercel and the underwriters named below have entered into an
underwriting agreement covering the common stock to be offered in this offering.
Subject to certain conditions, each underwriter has severally agreed to purchase
from us the number of shares of common stock shown opposite its name below.
Adams, Harkness & Hill, Inc., FAC/Equities, a division of First Albany
Corporation, and Burnham Securities Inc. are the representatives of the
underwriters.
Underwriters Number of Shares
------------ ----------------
Adams, Harkness & Hill, Inc................................
FAC/Equities, a division of First Albany Corporation.......
Burnham Securities Inc.....................................
TOTAL
The underwriting agreement provides that the underwriters' obligation to
purchase shares of common stock depends on the satisfaction of certain
conditions. The conditions in the underwriting agreement include the requirement
that the representations and warranties made by us to the underwriters are true,
that there is no material change in the financial markets and that we deliver to
the underwriters customary closing documents. The underwriters have committed to
purchase all shares of common stock offered if any of the shares are purchased.
The representatives of the underwriters have advised us that the underwriters
propose to offer the shares of common stock directly to the public at the public
offering price set forth on the cover page of this prospectus, and to dealers,
who may include the underwriters, at the public offering price less a selling
concession not in excess of $_________ per share. The underwriters may also
allow, and dealers may reallow, a concession not in excess of $______ per share
to brokers and dealers. After the offering, the underwriters may change the
offering price and other selling terms.
We have granted to the underwriters an option to purchase up to 187,500
additional shares of common stock, exercisable solely to cover over-allotments,
if any, at the public offering price less the underwriting discount shown on the
cover page of this prospectus. The underwriters may exercise this option at any
time until 30 days after the date of the underwriting agreement. If this option
is exercised, each underwriter will be committed, so long as the conditions of
the underwriting agreement are satisfied, to purchase a number of additional
shares of common stock proportionate to the underwriters' initial commitment as
indicated in the preceding table and we will be obligated, under the
over-allotment option, to sell the shares of common stock to the underwriters.
The following table shows the per share and total underwriters compensation and
estimated expenses we will pay. This information is presented assuming both no
exercise and full exercise by the underwriters of their over-allotment option.
<PAGE>
Total
Per Share No Exercise Full Exercise
Underwriting discount and
commissions payable by us.........
Expenses payable by us..............
The total proceeds before expenses to be received by us from this
offering will be approximately $_________ million, assuming no exercise of the
over-allotment option. The expenses of this offering, exclusive of the
underwriting discount, are estimated at $500,000 and are payable by us.
We have agreed that, without the prior consent of Adams, Harkness &
Hill, Inc., we will not directly or indirectly, offer, sell or otherwise dispose
of any shares of common stock or any securities which may be converted into or
exchanged for any such shares of common stock for a period of 180 days from the
date of this prospectus. Our executive officers and directors and certain other
shareholders have agreed under lock-up agreements that, without the prior
written consent of Adams, Harkness & Hill, Inc., they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of common stock or
any securities that may be converted into or exercised for any such share for
the period ending 180 days after the date of this prospectus, except pursuant to
the exercise of options under the stock option plan.
We will indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
In connection with the offering, the underwriters may purchase and sell
shares of our common stock on the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or
otherwise affect the market price of our common stock. As a result, the price of
our common stock may be higher than the price that otherwise might exist in the
open market. These transactions may be effected on the Nasdaq National Market,
in the over-the-counter market or otherwise.
<PAGE>
Burnham Securities Inc., one of the underwriters in this offering,
acted as placement agent in connection with our private placement of Series A
Preferred Stock in 1999. In connection with that private placement, Burnham
Securities received $462,000 and warrants to purchase 33,600 shares of our
common stock. Burnham will also receive 4% of the exercise price of the warrants
issued to the investors in the private placement. See "Description of Capital
Stock-Warrants." Burnham Securities also acted as standby underwriter in
connection with our 1999 rights offering, and received consideration of
$174,000.
As permitted by Rule 103 under the Exchange Act, certain underwriters
and selling group members, if any, may act as "passive market makers" in the
common stock which means they may make bids for or purchases of common stock in
the Nasdaq National Market until a stabilizing bid has been made. Rule 103
generally provides:
o A passive market maker's net daily purchases of the common
stock may not exceed 30% of its average daily trading volume
in such stock for the two full consecutive calendar months, or
any 60 consecutive days ending within 10 days, immediately
preceding the filing date of the registration statement of
which this prospectus is a part;
o A passive market maker may not effect transactions or display
bids for the common stock at a price that exceeds the highest
independent bid for the common stock by persons who are not
passive market makers; and
o Bids made by passive market makers must be identified as such.
LEGAL MATTERS
Robinson & Cole LLP, Stamford, Connecticut will pass upon the validity
of the shares of common stock offered by this prospectus. Choate, Hall &
Stewart, Boston, Massachusetts, has acted as counsel for the underwriters in
connection with certain legal matters relating to the common shares offered by
this prospectus.
EXPERTS
The financial statements of Evercel, Inc. as of December 31, 1999 and
October 31, 1999 and 1998, and for the two-month period ended December 31, 1999
and for each of the years in the three-year period ended October 31, 1999, have
been included in this Prospectus and the Registration Statement in reliance upon
the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 with
respect to the common stock offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are part
of the registration statement. For further information with respect to Evercel
and the common stock, you should refer to the registration statement and the
related exhibits and schedules. You may read and copy any document we file at
the SEC's public reference rooms located at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its regional offices in Chicago, Illinois and New York, New
York. Copies of these materials can be obtained from the SEC at prescribed
rates. Please call the SEC at 1-800-SEC-0330 for further information about the
public reference rooms. Our SEC filings are also available to the public from
the SEC's website at www.sec.gov.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allow us to incorporate by reference the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we later file
with the Commission will automatically update and supersede the information
contained or incorporated by reference in this prospectus. Accordingly, we
incorporate by reference our annual report on Form 10-K for the year ended
October 31, 1999, as amended, and any future filings we make with the Commission
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
prior to the termination of this offering.
All documents which we subsequently file pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 prior to the termination of
this offering shall be deemed to be incorporated by reference into this
prospectus from the date of filing of such documents. These documents are or
will be available for inspection or copying at the locations identified above
under the caption "Where You Can Find More Information."
We will provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon written or oral request, a
copy of any and all of the documents that have been incorporated by reference in
this prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference but not delivered with this prospectus).
You should direct requests for documents to Robert L. Kanode, Evercel, Inc., 2
Lee Mac Avenue, Danbury, Connecticut 06810. The telephone number is (203)
825-3900.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-2
Balance Sheets - December 31, 1999 and October 31, 1999
and 1998 F-3
Statements of Income (Loss) for the Two Months ended
December 31, 1999 and 1998 and the Years ended October
31, 1999, 1998 and 1997 F-4
Statements of Changes in Shareholders' Equity for the Two
Months ended December 31, 1999 and the Years ended
October 31, 1999, 1998 and 1997 F-5
Statements of Cash Flows for the Two Months ended
December 31, 1999 and 1998 and the Years ended October
31, 1999, 1998 and 1997 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evercel, Inc.:
We have audited the accompanying balance sheets of Evercel, Inc. as of December
31, 1999 and October 31, 1999 and 1998, and the related statements of income
(loss), changes in shareholders' equity and cash flows for the two months ended
December 31, 1999 and for each of the years in the three-year period ended
October 31, 1999. 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 Evercel, Inc. as of December
31, 1999 and October 31, 1999 and 1998 and the results of their operations and
their cash flows for the two months ended December 31, 1999 and for each of the
years in the three-year period ended October 31, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
- -----------------
KPMG LLP
March 13, 2000
Stamford, CT
F-2
<PAGE>
EVERCEL, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, October 31, October 31,
ASSETS 1999 1999 1998
------ ------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 6,117 $ 1,820 $ 1
Accounts receivable 193 214 17
Inventories 159 192 --
Other current assets 35 56 --
-------- ------- ------
Total current assets 6,504 2,282 18
Property, plant and equipment, net 2,289 1,991 825
Other assets, net 17 17 333
-------- ------- ------
TOTAL ASSETS $ 8,810 $ 4,290 $1,176
======== ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable $ -- $ -- $ 603
Accounts payable 391 538 53
Accrued liabilities 351 473 97
-------- ------- ------
Total current liabilities 742 1,011 753
Shareholders' equity:
Preferred Stock ($0.01 par value); 1,000,000
shares authorized: 264,000 issued and
outstanding at December 31, 1999 (with
cumulative dividends at 8%) 3 -- --
Common Stock ($0.01 par value); 10,000,000
shares authorized: 5,722,090 issued and
outstanding at December 31, 1999 and
October 31, 1999 57 57 --
Additional paid-in-capital 14,084 7,978 --
Note receivable from shareholder (300) (300) --
Accumulated deficit (5,776) (4,456) --
Net assets of Battery Group -- -- 423
-------- ------- ------
Total shareholders' equity 8,068 3,279 423
-------- ------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,810 $ 4,290 $1,176
======== ======= ======
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
EVERCEL, INC
STATEMENTS OF INCOME (LOSS)
TWO MONTHS ENDED DECEMBER 31, 1999 AND 1998, AND
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Two Months Ended Years Ended
------------------------------ ----------------------------------------------
December 31, December 31, October 31, October 31, October 31,
1999 1998 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ 13 $ -- $ 196 $ 438 $ 436
Cost and expenses:
Cost of revenues 220 -- 694 87 98
Administrative and selling expenses 636 208 2,244 1,805 268
Depreciation & amortization 54 8 181 45 40
Research and development 451 391 2,449 1,832 897
----------- ----------- ----------- ----------- -----------
Total operating costs and expenses 1,361 607 5,568 3,769 1,303
----------- ----------- ----------- ----------- -----------
Loss from operations (1,348) (607) (5,372) (3,331) (867)
Interest income, net 28 -- 90 -- --
Equity in net loss of affiliate -- -- (36) -- --
Other expense -- -- (3) -- --
----------- ----------- ----------- ----------- -----------
Loss before income tax benefit (1,320) (607) (5,321) (3,331) (867)
Income tax benefit -- (249) (360) (1,006) (295)
----------- ----------- ----------- ----------- -----------
Net loss (1,320) (358) (4,961) (2,325) (572)
Preferred stock dividends (22) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss - common shareholders $ (1,342) $ (358) $ (4,961) $ (2,325) $ (572)
=========== =========== =========== =========== ===========
Basic and diluted loss per share $ (0.23) $ (0.13)(b) $ (1.11) $ (0.84)(b) $ (0.21)(b)
=========== =========== =========== =========== ===========
Basic and diluted shares outstanding 5,722,090(a) 2,778,000(b) 4,456,538 2,778,000(b) 2,778,000(b)
=========== =========== =========== =========== ===========
</TABLE>
(a) Due to losses we have incurred, dilutive instruments, consisting
of shares of Series A Preferred Stock, options and warrants, have been
excluded from diluted shares. At December 31, 1999, there were 264,000
shares of Series A Preferred Stock convertible into 960,000 shares of
common stock, related warrants exercisable for 595,268 shares of common
stock and options exercisable for 627,098 shares of common stock.
(b) Represents the pro forma loss per share and shares assumed to be
outstanding based on the number of shares outstanding immediately after our
spin-off from FuelCell.
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
EVERCEL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
TWO MONTHS ENDED DECEMBER 31, 1999, AND
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
Net
Note assets
Common Stock Preferred Stock Additional receivable of Total
--------------- --------------- paid-in Accumulated from Battery shareholders'
Shares Amount Shares Amount capital deficit shareholder Group equity
------ ------ ------ ------ ------- ------- ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October
31, 1996 -- $-- -- $-- $ -- $ -- $-- $ 111 $ 111
Net loss -- -- -- -- -- -- -- (572) (572)
Contribution from
FuelCell -- -- -- -- -- -- -- 672 672
--------- --- ------- --- -------- ------- ----- ------- -------
BALANCE AT OCTOBER
31, 1997 -- -- -- -- -- -- -- 211 211
Net loss -- -- -- -- -- -- -- (2,325) (2,325)
Contribution from
Fuel Cell -- -- -- -- -- -- -- 2,537 2,537
--------- --- ------- --- -------- ------- ----- ------- -------
BALANCE AT OCTOBER
31, 1998 -- -- -- -- -- -- -- 423 423
Net intercompany
activity -- -- -- -- -- -- -- 96 96
Net loss pre-spin -- -- -- -- -- -- -- (505) (505)
Common stock
issued 2,777,712 28 -- -- (14) -- -- (14) --
Stock issued under
rights offering 2,777,712 28 -- -- 7,493 -- -- -- 7,521
Stock options
exercised 166,666 1 -- -- 499 -- (300) -- 200
Net loss post
spin-off -- -- -- -- -- (4,456) -- -- (4,456)
--------- --- ------- --- -------- ------- ----- ------- -------
BALANCE AT OCTOBER
31, 1999 5,722,090 57 -- -- 7,978 (4,456) (300) -- 3,279
Preferred stock
issued -- -- 264,000 3 6,128 -- -- -- 6,131
Net loss -- -- -- -- -- (1,320) -- -- (1,320)
Preferred stock
dividends -- -- -- -- (22) -- -- -- (22)
--------- --- ------- --- -------- ------- ----- ------- -------
BALANCE AT
DECEMBER 31, 1999 5,722,090 $57 264,000 $ 3 $ 14,084 $(5,776) $(300) $ -- $ 8,068
========= === ======= === ======== ======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
EVERCEL, INC.
STATEMENTS OF CASH FLOWS
TWO MONTHS ENDED DECEMBER 31, 1999 AND 1998 AND
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
Two Months Ended Years Ended
-------------------------- ----------------------------------------
December 31, December 31, October 31, October 31, October 31,
1999 1998 1999 1998 1997
------------ ------------ ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,320) $(358) $(4,961) $(2,325) $(572)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 54 8 181 45 40
(Increase) decrease in operating
assets:
Accounts receivable 21 (19) (197) 16 9
Inventories 33 (102) (192) -- --
Other current assets -- -- (56) 42 (42)
Increase (decrease) in operating
liabilities:
Accounts payable (147) 61 485 36 12
Accrued liabilities (144) 12 376 32 1
Other, net 21 (65) 290 (332) --
------- ----- ------- ------- -----
Net cash used in operating activities (1,482) (463) (4,074) (2,486) (552)
------- ----- ------- ------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (352) (177) (1,321) (652) (120)
------- ----- ------- ------- -----
Net cash used in investing activities (352) (177) (1,321) (652) (120)
------- ----- ------- ------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from FuelCell -- 218 -- 603 --
Repayment to FuelCell -- -- (603) -- --
Proceeds from common stock issued -- -- 7,721 -- --
Proceeds from preferred stock issued 6,131 -- -- -- --
Contributions from FuelCell -- 422 96 2,536 672
------- ----- ------- ------- -----
Net cash provided by financing
activities 6,131 640 7,214 3,139 672
------- ----- ------- ------- -----
Net increase in cash and cash
equivalents 4,297 -- 1,819 1 --
Cash and cash equivalents - beginning
of period 1,820 1 1 -- --
------- ----- ------- ------- -----
Cash and cash equivalents - end of
period $ 6,117 $ 1 $ 1,820 $ 1 $ --
======= ===== ======= ======= =====
CASH PAID DURING THE PERIOD FOR:
Interest $ -- $ -- $ 18 $ -- $ --
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-6
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
(1) BASIS OF PRESENTATION
On October 6, 1999, the Board of Directors voted to change the fiscal year end
of Evercel, Inc. (the "Company") from October 31 to December 31. The
accompanying financial statements represent the financial position and results
of operations of the Company as of and for the two months ended December 31,
1999; the financial position of the Company at October 31, 1999 and the results
of operations of the Battery Group of FuelCell Energy, Inc. ("FuelCell") for the
period from November 1, 1998 through February 21, 1999 and the results of
operations of the Company from February 22, 1999 through October 31, 1999; the
financial position and the results of operations of FuelCell's Battery Group as
of and for the two months ended December 31, 1998 (unaudited); the financial
position and results of operations of FuelCell's Battery Group as of and for the
twelve months ended October 31, 1998; and the results of operations of Fuel
Cell's Battery Group for the twelve months ended October 31, 1997.
Comparative amounts for the two months ended December 31, 1998 are unaudited. In
the opinion of management, the information presented in the unaudited two month
statement reflects all adjustments necessary for a fair presentation of the
Company's results of operations for that period.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
- ------------------
The Company is engaged in the design and manufacture of innovative, patented
nickel-zinc rechargeable batteries, as well as the research and design of other
advanced battery technologies. The Company believes the nickel-zinc battery has
commercial applications in markets requiring long cycle life, light weight and
relative cost efficiency.
Spin-off from FuelCell Energy, Joint Ventures and License Agreements
- --------------------------------------------------------------------
On February 22, 1999, FuelCell effected a spin-off of the Company by
deconsolidating the financial statements of the Company and a Joint Venture from
its consolidated financial statements. As part of the spin-off of the Company,
FuelCell transferred capital assets (net), prepaid spin-off costs, accounts
receivable and short-term liabilities amounting to $1,228,000, $501,000, $36,000
and $1,096,000, respectively. FuelCell distributed to its shareholders in a
tax-free distribution one share of Evercel common stock for every three shares
of common stock of FuelCell held on the record date of February 22, 1999. On
April 5, 1999, the Company completed a rights offering of its shares at $3.00
per share and began trading on the Nasdaq Small Cap market and the Boston Stock
Exchange.
In February 1998, FuelCell entered into a the Nan Ya License Agreement with a
joint venture between Nan Ya Plastics Corporation of Taiwan, a Formosa Plastics
Group company, and Xiamen Three Circles Co., Ltd. of Xiamen, China for the use
of the Company's nickel-zinc batteries in electric and hybrid electric vehicles
in China, Taiwan, Hong Kong and Macao on an exclusive basis and for certain
other Southeast Asian countries on a non-exclusive basis. The license agreement
calls for the payment of $5.0 million in three stages and a royalty for the
exclusive and non-exclusive territories. The payments include $1.5 million
received by FuelCell in 1998, of which $1.3 million and $0.2 million,
respectively were
F-7
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
recorded on FuelCell's financial statements in 1999 and 1998. A further $2.0
million is to be paid to the Company based on completion of cycle life testing
that was substantially achieved in December, 1999 and a final payment of $1.5
million to be paid to the Company upon completion of duplication of the battery
at its facilities in China. The Nan Ya License Agreement provides that the
Company has the right to invest the final payment in equity in the joint venture
manufacturing and sales organization formed between Nan Ya Plastics and Xiamen
Three Circles Co., Ltd.
In July 1998, FuelCell also entered into a Technology Transfer and License
Contract (the "Three Circles License Agreement") with Xiamen Three Circles-ERC
Battery Corp., Ltd. for the use of the Company's nickel-zinc batteries in
electric bicycles, scooters, three-wheel vehicles, off-road vehicles, and
miner's safety lamps in China on an exclusive basis and Southeast Asia on a
non-exclusive basis. The license included an initial payment to FuelCell of $3
million. In connection with the Three Circles License Agreement, FuelCell also
entered into a joint venture agreement with Xiamen Three Circles Co., Ltd., used
this $3.0 million as its initial investment in the joint venture and
subsequently contributed an additional $80,500 to receive a 50.5% share of the
joint venture called Xiamen Three Circle-ERC Battery Corp. (the "Joint
Venture"). Through December 31, 1999, the results of operations of the Joint
Venture are immaterial. Pursuant to the Three Circles License Agreement, the
Joint Venture must also pay the Company certain royalties based upon the net
sales of nickel-zinc batteries sold, leased or transferred in the applicable
territories. In addition the Joint Venture may sub-license the Company's
technology to third parties in China, Hong Kong, Taiwan and Macao on a
non-exclusive basis.
In accordance with a License Assistance Agreement entered into between the
Company and FuelCell, the Company has agreed to provide all services and
assistance necessary for it to effectively fulfill, on behalf of FuelCell, all
of the FuelCell's obligations under the Joint Venture and the related license
agreement until such time as FuelCell's obtains the approval from the Chinese
partner and appropriate Chinese governmental authority for the assignment of
such agreements to the Company. In return for such assistance, FuelCell will pay
to the Company and the Company will pay to FuelCell an amount equal to the sum
of all money, dividends, profits, reimbursements, distributions and payments
actually paid to FuelCell or paid by FuelCell in cash or in kind or otherwise
accruing to FuelCell pursuant to the Joint Venture contract and related license
agreement. All expenses and costs incurred by the Company in meeting the
obligations under the License Assistance Agreement shall be solely those of the
Company, and FuelCell shall not be liable for their payment. The Company
accounts for its involvement in the Joint Venture under the License Assistance
Agreement in a manner similar to the equity method of accounting as a result of
the fact that it does not have significant control over the Joint Venture.
Cash and Cash Equivalents
- -------------------------
Cash equivalents consist primarily of money market deposits with financial
institutions.
Inventories
- -----------
Inventories consist principally of raw materials and are stated at the lower of
cost or market.
F-8
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost, less accumulated depreciation
provided on the straight-line method over the estimated useful lives of the
respective assets. Leasehold improvements are amortized on the straight-line
method over the shorter of the estimated useful lives of the assets or the term
of the lease. When property is sold or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in operations for the period.
Revenue Recognition
- -------------------
Revenue on product sales is recognized at the time of shipment.
Intellectual Property
- ---------------------
Intellectual property including patents and know-how is carried at no value.
Stock Option Plan
- -----------------
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," encourages entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employees stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
applies the recognition provisions of APB Opinion No. 25 and provides the pro
forma disclosure provisions of SFAS No. 123.
Earnings Per Share (EPS)
- ------------------------
Basic earnings per share are based upon the weighted average common shares
outstanding during the period. The Company has computed dilutive EPS without
consideration to potentially dilutive instruments due to the losses incurred by
the Company. If the Company had computed dilutive shares considering dilutive
instruments, the fully diluted shares outstanding would have been 7,940,456 at
December 31 and 6,353,188 at October 31, 1999.
Use of Estimates
- ----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-9
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
Income Taxes
- ------------
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Prior to the spin-off by FuelCell, the Battery Business Group was included in
the consolidated tax filings of FuelCell. The provision for income taxes of the
Company represents an allocation of a portion of the FuelCell consolidated U.S.
federal income tax provision to the battery group for the period during which
the Company was a part of FuelCell. The allocated tax provision is determined
based upon the income or loss of each group as if a separate tax return was
filed. If FuelCell is unable to recognize the tax benefit of an operating loss
generated by a group through offset of the loss against income of other members
of the consolidated group, or carryback of the loss to reduce prior year's
consolidated taxable income, such benefit is not allocated to the group. To the
extent that FuelCell is subsequently able to recognize previously unrecorded tax
benefits relating to losses of a group, the benefit is allocated to that group,
as the group generates future taxable income up to the amount of prior losses
giving rise to the unrecognized tax benefit.
Accounting Changes
- ------------------
Pursuant to Financial Accounting Standards Board ("FASB") Statement No. 130, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income". The statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. For the
Company, comprehensive income (loss) is the same as net income (loss).
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
requires that an entity recognize all derivative instruments as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. As amended, this statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company does not expect the
adoption of this statement to have a material impact on its financial position
or results of operations because it does not currently purchase derivative
instruments or enter into hedging activities.
During 1998, the American Institute of Certified Public Accountants ("AICPA")
released its Statement of Position No. 98-1 ("SOP 98-1") "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" and Statement
of Position No. 98-5 ("SOP 98-5") "Reporting on the Costs of Start-Up
Activities," both of which are effective for fiscal years beginning after
December 15, 1998. SOP 98-1 requires that certain costs related to the
development or purchase of internal-use software be capitalized and amortized
over the estimated useful life of the software. SOP 98-1 also requires that the
costs related to the preliminary project stage and the post-implementation stage
of an internal-use computer software development project be expensed as
incurred. SOP 98-5 requires that the costs of start-up activities be expensed as
incurred. SOP 98-5 requires companies to report the initial application of the
standard as a
F-10
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
cumulative effect of an accounting change. The Company is not required to adopt
these standards until fiscal 2000. Management believes that the adoption of
these standards will not have a material effect on the Company's results.
(3) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
December 31, October 31, October 31,
1999 1999 1998
---- ---- ----
Joint Venture $ 174 $ 195 $--
U.S. Government 19 19 12
Commercial customers (samples) 5 5 5
Allowance for uncollectible amounts (5) (5) --
----- ----- ---
Net Total $ 193 $ 214 $17
===== ===== ===
(4) INVENTORY
Inventories at December 31, 1999 and October 31, 1999 and 1998 consisted of the
following:
December 31, October 31, October 31,
1999 1999 1998
---- ---- ----
Raw Materials $ 123 $ 146 $--
Work in Progress 23 69 --
Finished Goods 13 2 --
----- ----- ---
Gross Inventories 159 217 --
Reserve for obsolescence -- (25) --
----- ----- ---
Net inventory balance $ 159 $ 192 $--
===== ===== ===
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and October 31, 1999 and 1998
consisted of the following:
F-11
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
December 31, October 31, October 31, Estimated
1999 1999 1998 Useful Life
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Machinery and equipment $ 2,073 $ 1,944 $ 1,068 3-8 Years
Furniture and fixtures 204 204 9 10 Years
Leasehold improvements 148 148 -- 5 Years
Construction-in-progress 928 705 603
------- ------- -------
3,353 3,001 1,680
Less, accumulated depreciation
and amortization (1,064) (1,010) (855)
------- ------- -------
Total property, plant and equipment $ 2,289 $ 1,991 $ 825
======= ======= =======
</TABLE>
(6) OTHER ASSETS
Other assets at December 31, 1999, October 31, 1999 and October 31, 1998
consisted of the following:
December 31, October 31, October 31,
1999 1999 1998
---- ---- ----
Rights offering costs $ -- $ -- $307
Security Deposits 17 17 14
Organizational Costs -- -- 12
---- ---- ----
$ 17 $ 17 $333
==== ==== ====
(7) COMMITMENTS AND CONTINGENCIES
On January 15, 1999, the Company entered into a lease for five years with an
option to extend for an additional five years. Minimum lease payments are
$171,000 for the first three years (1999, 2000 and 2001) with increases to
$178,000 in year four (2002) and $185,000 in year five (2003).
(8) STOCK OPTION PLAN
The Board had adopted the 1998 Stock Option Plan in anticipation of the spin-off
of the Company from Fuel Cell as a separate publicly-held company. Under the
terms of the Plan, options to purchase up to 600,000 (177,334 shares have been
exercised) shares of common stock may be granted to officers, key employees and
directors of the Company. The Board of Directors has recommended to the
stockholders that the common shares issuable under the Plan be increased to
1,300,000. Pursuant to the Plan, the Board is authorized to grant incentive
stock options or nonqualified options and stock appreciation rights to officers
and key employees of the Company and may grant nonqualified options and stock
appreciation rights to directors of the Company.
F-12
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
Stock options have restrictions as to transferability. The option exercise price
shall be fixed by the Board but, in the case of incentive stock options, shall
not be granted at an exercise price less than 100% of the fair market value of
the shares subject to the option on the date the option is granted. Stock
appreciation rights may be granted in conjunction with options granted under the
Plans. Stock options that have been granted are exercisable commencing one year
after grant at the rate of 25% of such shares in each succeeding year, unless
otherwise agreed.
In connection with the hiring of the Company's Chairman of the Board and Chief
Executive Officer, options were granted to purchase 166,666 and 200,000 shares
of the Company's common stock at the purchase price of $3.00 per share (the
market value at the date of the grant). In addition, the Company and FuelCell
agreed to issue the Chairman of the Board one share of the Company's Common
Stock for every 2.25 shares of FuelCell Common Stock which he purchases pursuant
to his exercise of FuelCell Options. Under this agreement, an option has been
granted to acquire a total of 166,666 shares of Common Stock at an exercise
price based proportionally upon the relative fair market value of FuelCell
Common Stock and the Company's Common Stock.
Risk Free
Interest
Dividend Rate Expected Volatility
rate range life factor
---- ----- ---- ------
Two Months Ended December 31, 1999 0% 4.70-6.35% 10 years .5971-.6225
Year Ended October 31, 1999 0% 4.31-6.35% 10 years .5495-.6225
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have be reduced to the pro forma amounts indicated
below.
Two Months ended Year ended
December 31, October 31,
1999 1999
---- ----
Net loss:
As reported $(1,320) $(4,961)
Pro forma (1,350) (6,128)
Loss per share:
As reported - Basic $ (0.23) $ (1.11)
Pro forma - Basic (0.24) (1.38)
Pro forma net income reflects only options granted in 1999.
F-13
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
The following table summarizes the plan activity:
<TABLE>
<CAPTION>
Number Range of Weighted average
of options option prices option price
---------- ------------- ------------
<S> <C> <C> <C>
Outstanding at October 31, 1998 -- $ --
Granted 649,764 $3.00 - $6.28 3.48
Exercised (166,666) 3.00 - 3.00 3.00
Cancelled (18,666) 5.72 - 5.72 5.72
------- ------
Outstanding at October 31, 1999 464,432 3.00 - 6.28 $ 3.52
Granted 2,000 10.00 - 10.00 10.00
Cancelled (6,000) 5.72 - 5.72 5.72
------- ------
Outstanding at December 31, 1999 460,432 3.00 - 10.00 $ 3.52
======= ======
</TABLE>
Options outstanding and exercisable at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$3.00 to $ 4.75 389,998 8.90 $3.09 98,498 $3.00
5.72 to 10.00 70,434 9.47 5.89 -- --
- --------------- ------- ---- ----- ------ -----
$3.00 to $10.00 460,432 8.99 $3.52 98,498 $3.00
=============== ======= ==== ===== ====== =====
</TABLE>
(9) PRIVATE PLACEMENT OF EQUITY SECURITIES
On December 16, 1999 the Company raised $6.6 million in capital through the
private placement of equity securities and a commitment from these investors for
an additional $3.3 million, at Evercel's option (the "Private Placement"), for
manufacturing expansion in the United States, working capital and general
corporate purposes. Investors in the Private Placement received 264,000 Shares
of Series A Convertible Preferred Stock at an issue price of $25 per share, with
a dividend of 8 percent payable in additional Preferred Shares or in cash, which
are convertible to common shares at a conversion price of $6.88. The Preferred
Shares are callable by the Company three years following the issue date, or at
any time one year following the issue date if certain Common stock price levels
are reached. Each Preferred Share also carries a five-year warrant, which is
exercisable into two shares of common stock at $8.25 per Share. The warrants are
callable at any time after one year following the issue date if certain common
stock price levels are reached during the warrant's five-year period. Each owner
of Series A Shares is
F-14
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
subject to a call by the Company to purchase additional Convertible Preferred
Shares in an amount equal to 50 percent of its investment in Series A Shares.
The call right by the Company expires August 31, 2000.
(10) EMPLOYEE BENEFITS
Subsequent to October 31, 1999, the Company started a defined contribution
401(K) plan ("The Safe Harbor Plan"). The plan provides for the Company to match
employee contributions to The Safe Harbor Plan up to a maximum of 3% of the
employees' gross W-2 earnings. For the years ended October 31, 1999 and 1998,
the company participated in the FuelCell Capital Accumulation Plan. The Company
contributed $2 and $28 to this plan for those periods, respectively. For the two
months ended December 31, 1998, the Company contributed $8 to the Safe Harbor
Plan. The Company also participated in the FuelCell Pension Plan for the year
ended October 31, 1998, to which the Company contributed $33.
(11) INCOME TAXES
The components of income tax expense (benefit) were as follows for the two
months ended December 31, 1999 and the years ended October 31, 1999 and 1998:
December 31, October 31, October 31,
1999 1999 1998
---- ---- ----
Current:
Federal -- $ (315) $(1,006)
State -- (45) --
------- ------- -------
-- (360) (1,006)
------- ------- -------
Deferred:
Federal -- -- --
State -- -- --
------- ------- -------
Total income tax benefit $ -- $ (360) $(1,006)
======= ======= =======
F-15
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
The reconciliation of the statutory income tax rate to the Company's effective
income tax rate for the two months ended December 31, 1999 and the years ended
October 31, 1999 and 1998 was as follows:
December 31, October 31, October 31,
1999 1999 1998
---- ---- ----
Statutory federal income tax rate (34.0%) (34.0%) (34.0%)
Nondeductible expenditures 1.1% (0.4%) 3.8%
State tax, net of federal benefit -- (0.9%) --
Valuation Allowance 32.9% 28.5% --
---- ---- -----
Effective income tax rate 0.0% (6.8%) (30.2%)
==== ==== =====
The Company's deferred tax assets and liabilities consisted of the following at
December 31, 1999 and October 31, 1999:
December 31, October 31,
1999 1999
---- ----
Deferred tax assets:
Incentive bonuses $ -- $ 6
Vacation accrual 46 15
Allowance for doubtful accounts 2 --
Net operating loss carryforwards 2,451 1,929
------- -------
Gross deferred tax assets 2,499 1,950
Valuation allowance (2,445) (1,937)
------- -------
Deferred tax assets after Valuation allowance 54 13
Deferred liability -
Accumulated depreciation (40) (30)
Incentive bonuses (30) --
Other (1) --
------- -------
Gross deferred tax liability (71) (30)
Net deferred tax assets/(liability) $ (17) $ (17)
======= =======
The Company has a federal net operating loss carryforward of approximately $5.8
million, of which $4.4 million will expire in 2018 and $1.4 million will expire
in 2019.
F-16
<PAGE>
EVERCEL, INC.
Notes to Financial Statements
December 31, 1999, October 31, 1999 and October 31, 1998
(dollars in thousands except per share amounts)
(12) SUBSEQUENT EVENT
The Company declared a 100% stock dividend having the effect of 2 for 1 stock
split payable on March 22, 2000 to shareholders of record on March 7, 2000. All
share and per share data have been adjusted retroactively to give effect to the
stock dividend.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):
NATURE OF EXPENSE AMOUNT
- ----------------- ------
SEC Registration Fee .................................. $ 8,505
NASD Filing Fee ....................................... $ 3,721
Nasdaq National Market Listing Fee .................... $*
Accounting Fees and Expenses .......................... $*
Legal Fees and Expenses ............................... $*
Printing Expenses ..................................... $*
Blue Sky Qualification Fees and Expenses .............. $*
Transfer Agent's Fee .................................. $*
Miscellaneous ......................................... $*
TOTAL ............................................ $500,000
========
*To be completed by amendment.
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq National
Market fees, are in each case estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the Delaware General Corporation Law, our
certificate of incorporation provides that no director of Evercel shall be
personally liable to Evercel or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to Evercel or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) in respect of unlawful dividend payments or stock
redemptions or purchases, or (4) for any transaction from which the director
derived an improper personal benefit.
Our by-laws provide for indemnification by Evercel of its officers,
directors and from time-to-time its employees and agents, under certain
circumstances against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with prosecuting,
defending, investigating or being a witness in any threatened, pending or
completed legal proceeding in which any such person is involved by reason of the
fact that such person is or was an officer, director, employee or agent of the
registrant if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Evercel,
and, with respect to criminal actions or proceedings, if such person had no
reasonable cause to believe his or her conduct was unlawful.
Prior to the offering, we will have entered into indemnification agreements
with each of our directors. The form of indemnification agreement provides that
we will indemnify our directors for expenses incurred because of their status as
a director to the fullest extent permitted by Delaware law, our certificate of
incorporation and our by-laws.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) EXHIBITS. The following is a complete list of exhibits filed or
incorporated by reference as part of this Registration Statement.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to exhibit of the same number
contained in the Company's SB-2/A Amendment 2 dated February 9,
1999).
3.2 Certificate of the Designation, Powers, Preference and Rights of
the Series A Cumulative Convertible Preferred Stock, the Series
A-1 Cumulative Convertible Preferred Stock and the Series B
Cumulative Convertible Preferred Stock.
3.3 Form of Warrant issued to holders of Series A Preferred Stock and
placement agent, dated December 16, 1999.
3.4 Form of Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 contained in the Company's SB-2/A
Amendment 2 dated February 9, 1999).
4.1 Form of Specimen Stock Certificate (incorporated by reference to
exhibit of the same number contained in the Company's SB-2/A
Amendment 2 dated February 9, 1999).
4.2 Registration Rights Agreement dated December 16, 1999.
5.1 Opinion of Robinson & Cole LLP.*
10.1 Sales Agency Agreement, dated December 16, 1999, between Burnham
Securities Inc. and the Company.
23.1 Consent of KPMG LLP
23.2 Consent of Robinson & Cole LLP (included in Exhibit 5.1)
24 Power of Attorney (contained in the signature page to this
Registration Statement).
* To be filed by amendment.
II-2
<PAGE>
(b) FINANCIALS STATEMENT SCHEDULES
All schedules have been omitted because they are not required or
because the required information is given in the consolidated financial
statements or notes to those statements.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Danbury, state of Connecticut, on March 22, 2000.
EVERCEL, INC.
(Registrant)
By: /s/ Robert L. Kanode
--------------------------------------------
Name: Robert L. Kanode
Title: President and Chief Executive Officer
We, the undersigned directors and officers of Evercel, Inc., do hereby
constitute and appoint each of Mr. Robert L. Kanode and Mr. Gregory Schulte,
each with full power of substitution, our true and lawful attorney-in-fact and
agent, to do any and all acts and things in our names and on our behalf in our
capacities stated below, which acts and things either of them may deem necessary
or advisable to enable Evercel, Inc. to comply with the Securities Act of 1933,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this registration statement, including
specifically, but not limited to, power and authority to sign for any and all of
us in our names, in the capacities stated below, any and all amendments
(including post-effective amendments) hereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission; and we do hereby ratify
and confirm all that they shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Robert L. Kanode
--------------------------------------------
Name: Robert L. Kanode Date: 3/22/2000
Title: President, Chief Executive Officer
and Director
/s/ Allen Charkey
--------------------------------------------
Name: Allen Charkey Date: 3/22/2000
Title: Executive Vice President and Chief
Operating Officer and Director
/s/ Gregory Schulte
--------------------------------------------
Name: Gregory Schulte Date: 3/22/2000
Title: Chief Financial and Accounting
Officer
II-4
<PAGE>
/s/ Jerry D. Leitman
--------------------------------------------
Name: Jerry D. Leitman Date: 3/22/2000
Title: Chairman of the Board of Directors
--------------------------------------------
Name: Thomas L. Kempner Date
Title: Director
/s/ William A. Lawson
--------------------------------------------
Name: William A. Lawson Date: 3/22/2000
Title: Director
/s/ Warren D. Bagatelle
--------------------------------------------
Name: Warren D. Bagatelle Date: 3/22/2000
Title: Director
/s/ James D. Gerson
--------------------------------------------
Name: James D. Gerson Date: 3/22/2000
Title: Director
--------------------------------------------
Name: Robert Gable Date
Title: Director
/s/ John H. Gutfreund
--------------------------------------------
Name: John H. Gutfreund Date: 3/22/2000
Title: Director
II-5
CERTIFICATE OF THE DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS
OF THE
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Par Value $0.01 Per Share)
and
CERTIFICATE OF THE DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS
OF THE
SERIES A-1 CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Par Value $0.01 Per Share)
and
CERTIFICATE OF THE DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS
OF THE
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Par Value $0.01 Per Share)
OF
EVERCEL, INC.
--------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------
Evercel, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), by its President
and Secretary, DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority expressly vested in the
Board of Directors of said corporation by the provisions of its Certificate of
Incorporation, the said Board of Directors duly adopted the following resolution
providing for the designation of four hundred thousand (400,000) shares of the
Corporation's Series A Cumulative Convertible Preferred Stock, $.01 par value,
for the designation of four hundred thousand (400,000) shares of the
Corporation's Series A-1 Cumulative Convertible Preferred Stock, $.01 par value
and for the designation of two hundred thousand (200,000) shares of the
Corporation's Series B Cumulative Convertible Preferred Stock, $.01 par value:
<PAGE>
RESOLVED, that this Board of Directors, pursuant to authority
expressly vested in it by the provisions of the Certificate of Incorporation of
the Corporation, hereby authorizes the issue from time to time of one series of
Preferred Stock of the Corporation and the designations, preferences and the
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, in addition to those set forth in said
Certificate of Incorporation, to be in their entirety as follows:
Section 1. Number of Shares and Designation. Four hundred
thousand (400,000) shares of the preferred stock, $.01 par value, of the
Corporation are hereby constituted as a series of preferred stock of the
Corporation designated as "Series A Cumulative Convertible Preferred Stock" (the
"Series A Preferred Stock"), four hundred thousand (400,000) shares of the
preferred stock, $.01 par value, of the Corporation are hereby constituted as a
series of preferred stock of the Corporation designated as "Series A-1
Cumulative Convertible Preferred Stock" (the "Series A-1 Preferred Stock") and
two hundred thousand (200,000) shares of the preferred stock, $.01 par value, of
the Corporation are hereby constituted as a series of preferred stock of the
Corporation designated as "Series B Cumulative Convertible Preferred Stock" (the
"Series B Preferred Stock"). The Series A Preferred Stock, the Series A-1
Preferred Stock and the Series B Preferred Stock are sometimes collectively
referred to in this Certificate as the "Preferred Stock."
Liquidation Amount. The Liquidation Amount of the
Preferred Stock shall be $25.00 per share.
Conversion. Holders of Preferred Stock shall have
conversion rights as specified in Section 4. ---------- The Conversion Price per
share of the Series A Preferred Stock shall be $13.75, subject to adjustment as
hereinafter provided. The Conversion Price per share of the Series A-1 Preferred
Stock shall be $27.50, subject to adjustment as hereinafter provided. The
Conversion Price per share of the Series B Preferred Stock shall be the lower of
(i) $13.75 or (ii) the average closing price of the Company's Common Stock on
the principal national securities exchange (or Nasdaq Stock Market) on which the
shares of Common Stock are listed or admitted to trading for the twenty business
days preceding the issuance of the Series B Preferred Stock, subject to
adjustment as hereinafter provided.
Section 2. Liquidation Rights. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of each share of Preferred Stock outstanding on the
date of such liquidation, dissolution or winding up of the affairs of the
Corporation shall be entitled to receive, prior to and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock, or any other class of capital stock of the
Corporation, by reason of their ownership thereof, an amount equal to the
Liquidation Amount applicable to such shares, plus any accrued but unpaid
dividends on the Preferred Stock.
<PAGE>
All of the preferential amounts to be paid to the holders of
the Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to the holders of the Common Stock
or any other class of capital stock in connection with such liquidation,
dissolution or winding up. After the payment or the setting apart for payment to
the holders of the Preferred Stock of the preferential amounts so payable to
them and the preferential amounts payable to any other classes of capital stock,
the holders of the Preferred Stock shall be entitled to receive, pro rata with
the Common Stock, as if the Preferred Stock is converted into the number of
shares of Common Stock into which the Preferred Stock is then convertible
pursuant to Section 4(a), all remaining assets of the Corporation.
Section 3. Merger, Consolidation, Sale of Assets. Any (i)
merger or consolidation of the Corporation with or into another entity in which
the Corporation shall not survive (other than a mere reincorporation
transaction), or (ii) any acquisition of the Corporation by another person(s) or
entity(ies) in one transaction or a series of related transactions the result of
which is that the holders of the outstanding capital stock of the Corporation
prior to such transaction or series of transactions own less than a majority of
the voting securities of the Corporation immediately following such transaction
or series of transactions, or (iii) the sale or transfer of all or substantially
all of the assets (which assets shall include the outstanding stock of the
Corporation's subsidiaries) of the Corporation to another entity or (iv) a
merger or consolidation in which the Corporation is the survivor but its Common
Stock is exchanged for stock, securities or property of another entity shall be
treated as a liquidation, dissolution or winding up of the Corporation and shall
entitle the holder of Preferred Stock to receive at the closing, in cash or
securities, amounts as specified in Section 2.
Section 4. Conversion into Common Stock. The holder of any
shares of the Preferred Stock shall have conversion rights as follows:
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Preferred Stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the Liquidation Amount for the
Preferred Stock by the Conversion Price with respect to such shares, adjusted as
provided in this Section 4, in effect at the time of conversion. In addition to
the foregoing, at the option of the holder of shares of Preferred Stock,
simultaneously with the conversion of any shares of Preferred Stock, any or all
accrued but unpaid dividends through the conversion date on such shares may be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the aggregate amount of accrued but unpaid
dividends through the conversion date to be converted by the Conversion Price
for such shares, determined as provided in this Section 4, in effect at the time
of conversion. The Conversion Price at which shares of Common Stock shall be
deliverable upon conversion of Preferred Stock without the payment of any
additional consideration by the holder thereof shall be subject to adjustment,
in order to adjust the number of shares of Common Stock into which the Preferred
Stock (and, at the option of holders of shares of Preferred Stock, the accrued
but unpaid dividends thereon) is convertible, as provided in this Section 4.
Notwithstanding the foregoing, shares of Series A Preferred Stock and Series A-1
Preferred Stock shall not be convertible into shares of Common Stock until the
earlier of (i) August 31, 2000 or (ii) in conjunction with a registered public
offering of the Corporation's Common Stock, other than on any form which does
not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of shares of Common Stock by stockholders of the Corporation.
<PAGE>
(b) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of the Common Stock as determined by the Board of Directors in good
faith. Before any holder of Preferred Stock shall be entitled to receive
certificates representing shares of Common Stock issuable upon conversion of the
Preferred Stock, he shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to the Corporation at such office
that he elects to convert the same and whether or not he elects to have any or
all accrued but unpaid dividends on such shares converted into shares of Common
Stock, and shall state therein his name or the name or names of his nominees in
which he wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable after receipt of the
certificate(s) representing Preferred Stock, issue and deliver at such office to
such holder of Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid, together with cash in lieu of any fraction of a share
and, to the extent the holder shall not have elected to have accrued but unpaid
dividends converted into shares of Common Stock, cash in payment of accrued
dividends on the shares of Preferred Stock converted through the date of
conversion, and a certificate or certificates for such shares of Preferred Stock
as were represented by the certificates surrendered and not converted.
Conversions shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
(c) Adjustment to Conversion Price for Stock Splits and
Combinations.
<PAGE>
Stock Splits and Combinations. In the event the
Corporation shall at any time or from time to time effect a
subdivision of the outstanding Common Stock, the Conversion
Price then in effect immediately before that subdivision shall
be proportionately decreased, and, conversely, in the event
the Corporation shall at any time or from time to time combine
the outstanding shares of Common Stock, the Conversion Price
then in effect immediately before the combination shall be
proportionately increased. Any adjustment pursuant to this
Section 4(c)(i) shall become effective at the close of
business on the date the subdivision or combination becomes
effective.
(d) Adjustment for Reclassification, Exchange or Substitution.
If the Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for in
Section 4(c), or a reorganization, merger, consolidation or sale of assets
provided for in Section 3), then and in each such event the holder of each share
of Preferred Stock shall have the right thereafter to convert such share into
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which such shares of
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided in this Section 4.
(e) Outstanding Common Stock. The number of shares of Common
Stock at any time outstanding shall (a) not include any shares thereof then
directly or indirectly owned or held by or for the account of the Corporation or
any of its subsidiaries, and (b) shall be deemed to include all shares of Common
Stock then issuable upon conversion, exercise or exchange of any then
outstanding convertible securities or any other evidences of indebtedness,
shares of capital stock (including without limitation any preferred stock) or
other securities which are or may be at any time convertible into or
exchangeable or exercisable for shares of Common Stock.
(f) Other Action Affecting Common Stock. In case after the
date hereof the Corporation shall take any action affecting its capital stock,
other than an action described in any of the foregoing subsections (c) through
(e) of this Section 4, inclusive, and the failure to make any adjustment would
not fairly protect the purchase rights represented by the Preferred Stock in
accordance with the essential intent and principle of this Section 4, then the
Conversion Price shall be adjusted in such manner and at such time as the Board
may in good faith determine to be equitable in the circumstances.
(g) No Impairment. The Corporation shall not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed under this Section 4 by the
Corporation but shall at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Preferred Stock that by its terms is convertible against
impairment.
<PAGE>
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Preferred Stock
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of the Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of such Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of the
Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, the Corporation shall mail to each holder of
Preferred Stock, at least fifteen (15) days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
(j) Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Preferred Stock. If the Conversion Price of the Preferred
Stock is at any time less than the par value of the Common Stock, the
Corporation shall cause to be taken such action (whether by lowering the par
value of the Common Stock, by converting the Common Stock from par value to no
par value, or otherwise) as will permit the conversion of the Preferred Stock
without any additional payment by the holder thereof and the issuance of the
Common Stock, which Common Stock, upon issuance, will be fully paid and
nonassessable.
(k) Non-participation in Overcall Right. In the event that a
holder of Series A Preferred Stock chooses not to participate in the Overcall
Right, as defined in that certain Subscription Agreement, dated December 13,
1999, by and among the Corporation and the Purchasers named therein (the
"Subscription Agreement"), then each such share of Series A Preferred Stock
shall be automatically converted immediately prior to the Overcall Closing into
one (1) share of Series A-1 Preferred Stock. Upon the conversion of such Series
A Preferred Stock, such shares shall no longer be outstanding on the books of
the Corporation and the holder of such Series A Preferred Stock shall be treated
as the record holder of such shares of Series A-1 Preferred Stock.
Section 5. Right to Purchase Additional Shares.
<PAGE>
(a) Right to Purchase Additional Shares. If the Corporation,
at any time while shares of Preferred Stock are outstanding, should decide to
issue and sell additional shares of Common Stock or other securities convertible
for or exercisable into Common Stock (the "Additional Shares") at a price per
share less than the Conversion Price then in effect or without consideration,
excluding (a) shares of Common Stock sold to the public pursuant to a
registration statement filed under the Securities Act; (b) stock options and
shares of Common Stock issuable upon the exercise of such options granted to
employees and directors of the Corporation pursuant to the terms of the
Corporation's stock option plans; (c) Common Stock issuable upon the conversion
of the Preferred Stock; (d) shares of Common Stock, issuable upon the exercise
or conversion of any warrants issued by the Corporation, the Corporation shall
first offer to sell to the holders of Preferred Stock, upon the same terms and
conditions as the Corporation is proposing to issue and sell the Additional
Shares to others, such holder's pro rata share (as defined below) of such
Additional Shares.
Such offer to holders of Preferred Stock shall be made by
written notice given to such holder (the "Offer Notice") specifying the amount
of the Additional Shares being offered, the purchase price for the Additional
Shares and any other terms of the offer. The holders of Preferred Stock shall
have a period of thirty (30) days from and after the date such Offer Notice was
received by such holders within which to accept such offer (the "Acceptance
Period"). The holders of Preferred Stock shall accept an offer to purchase all
or any portion of the Additional Shares specified in the Offer Notice by written
notice to the Corporation and tender of the purchase price for the Additional
Shares within the Acceptance Period. If a holder of Preferred Stock fails to
accept such offer within the Acceptance Period, any Additional Shares not
purchased by such holders may be offered for sale to others by the Corporation
for a period of one hundred eighty (180) days from the last day of the
Acceptance Period, but only on the same terms and conditions as set forth in the
Offer Notice delivered to the holders of Preferred Stock, free and clear of the
restrictions imposed by this Section 5.
(b) Pro Rata Share. For purposes of Section 5(a), a
holder of Preferred Stock's "pro rata share" shall be determined by the
following formula:
P = N/O x A
Where,
"P" equals the holder's pro rata share of Additional Shares (rounded to the
nearest whole share);
"N" equals the number of shares of Common Stock owned by the holder, issuable
upon the conversion of the Preferred Stock and the exercise of the warrant
issued in connection with the Preferred Stock, immediately prior to the issuance
of the Additional Shares being offered;
<PAGE>
"O" equals the total number of shares of the Corporation's Common Stock, on a
fully-diluted basis, outstanding immediately prior to the issuance of the
Additional Shares; and
"A" equals the total number of Additional Shares being offered.
(c) Termination. The rights under this Section 5 shall
terminate in their entirety twenty four months from the date hereof.
Section 6. Redemption.
(a) Redemption at the Option of the Corporation. After the
earlier of (i) the third anniversary of the date hereof or (ii) the first
anniversary of the date hereof if the closing price of the Common Stock on the
principal national securities exchange (or Nasdaq Stock Market) on which the
shares of Common Stock are listed or admitted to trading has been at least 200%
of the then effective Conversion Price for twenty consecutive trading days,
ending not more than ten days prior to the date of the notice described below,
the Corporation, at the option of the Board of Directors, may, at any time and
from time to time upon written notice to the holders of the Preferred Stock
(which notice shall specify the date and place of redemption and the number of
shares and the certificate numbers thereof which are to be redeemed) given not
less than ten days prior to the date fixed for redemption, redeem all or any
part of the outstanding shares of Preferred Stock by paying therefor the
Liquidation Amount for each share plus accrued and unpaid dividends on the
Preferred Stock.
(b) Redemption at the Option of the Holder. In the event that
the Corporation breaches or fails to comply with its obligations under this
Certificate of Designations, which breach or failure is material or has a
material adverse effect on the business or prospects of the Corporation, and
such breach or failure of compliance continues for a period of thirty (30) days
after notice thereof has been given to the Corporation, then each holder of
shares of the Preferred Stock shall be entitled to compel the Corporation to
redeem any or all of such holder's shares of the Preferred Stock; provided that
such redeeming holder shall have given written notice thereof to the Corporation
at least forty-five (45) days prior to the requested date of redemption. Such
notice shall state the number of shares of the Preferred Stock to be redeemed.
On or after the redemption date, as specified in such notice, the holder
requesting redemption shall surrender such holder's certificate for the number
of shares to be redeemed as stated in the notice to the Corporation. On such
redemption date, to the extent the Corporation shall have funds legally
available therefor, the Corporation shall redeem the shares of the Preferred
Stock requested to be redeemed at the Liquidation Amount plus accrued and unpaid
dividends on the Preferred Stock. To the extent there are insufficient funds
legally available for redemption of all shares of Preferred Stock requested to
be redeemed, legally available funds shall be applied to each requesting
holder's shares of Preferred Stock pro rata in accordance with the number of
shares requested to be redeemed by each holder of shares of Preferred Stock, and
each requesting holder's shares shall be redeemed in accordance with the
instructions received from such holder. As soon as practicable, the Corporation
shall give written notice to each holder of shares of Preferred Stock redeemed
or to be redeemed indicating the number of shares redeemed or to be redeemed and
the certificate numbers thereof. If less than all of the shares of Preferred
Stock requested to be redeemed are redeemed, all unredeemed shares shall remain
outstanding and shall be entitled to all the rights and preferences of
outstanding shares of Preferred Stock hereunder. In such event, the Corporation
shall use its best efforts to effect the required redemption and the
Corporation's redemption obligation shall be discharged as soon as the
Corporation is able to discharge such obligation. In case less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares without cost to the holder thereof.
<PAGE>
(c) Legally Available Funds. For the purpose of determining
whether funds are legally available for redemption of shares of Preferred Stock
as provided herein, the Corporation shall value its assets at the highest amount
permissible under applicable law.
Section 7. Voting Rights. In addition to the voting rights
required by the laws of the State of Delaware and provided by Section 9, the
holders of shares of Preferred Stock shall vote with all other stockholders of
the Corporation, on all matters voted on by the stockholders of the Corporation,
with each such holder of Preferred Stock entitled to the number of votes equal
to the number of shares of Common Stock into which such holder's shares would
then be convertible. Except as set forth herein, or as otherwise provided by
law, holders of Preferred Stock shall have no special voting rights and their
consent shall not be required (except as provided by Section 9 and to the extent
they are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 8. Dividend Rights.
(a) The holders shall be entitled to receive any dividend or
distribution declared or paid on the Common Stock based upon the number of
shares of Common Stock into which the Preferred Stock may be converted on the
appropriate record date of such dividend or distribution.
(b) In addition, the holders of the Preferred Stock shall be
entitled to receive, out of the funds of the Corporation legally available
therefor, cumulative dividends at the annual rate of eight percent (8%) of the
aggregate Liquidation Amount, compounded annually, payable quarterly in cash or
in shares of Preferred Stock, at the option of the Corporation. Such dividends
shall begin to accrue with respect to any shares of Preferred Stock on the date
of issuance of such shares. Dividends shall be payable to holders of record, as
they appear on the stock books of the Corporation.
(c) Notwithstanding anything in this Section 8 to the
contrary, for so long as shares of Preferred Stock remain outstanding, the
Corporation shall not distribute to the holders of the Common Stock or other
securities any securities of the Corporation (including debt securities) ranking
as to dividends or distributions of assets on liquidation, dissolution or
winding up of the Corporation senior to, or on a parity with, the Preferred
Stock.
<PAGE>
Section 9. Status of Converted or Reacquired Stock. Any shares
of Preferred Stock purchased, redeemed or otherwise acquired by the Corporation
in any manner whatsoever, and any shares of Preferred Stock converted pursuant
to Section 4 hereof, shall be retired and cancelled promptly after the
acquisition or conversion thereof. All such shares shall upon their cancellation
become authorized but unissued shares of preferred stock and may be reissued as
part of a new series of preferred stock subject to the conditions and
restrictions on issuance set forth herein, in the Certificate of Incorporation,
or in any other Certificate of Designations creating a series of preferred stock
or any similar stock or as otherwise required by law.
SECOND: That said determination of the designation,
preferences and the relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, relating to said Series A
Cumulative Convertible Preferred Stock, said Series A-1 Cumulative Convertible
Preferred Stock and said Series B Cumulative Convertible Preferred Stock, was
duly made by the Board of Directors pursuant to the provisions of the
Certificate of Incorporation of the Corporation, as amended, and in accordance
with the provisions of Section 151 of the General Corporation Law of the State
of Delaware, as amended.
IN WITNESS WHEREOF, Evercel, Inc. has caused this Certificate
to be executed this 16th day of December, 1999.
EVERCEL, INC.
/s/ Joseph Mahler
------------------------------------
By: Joseph Mahler
Title: Chief Financial Officer
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
STATE SECURITIES LAWS.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
EVERCEL, INC.
Expires December 16, 2004
No. W-1 Danbury, Connecticut
December 16, 1999
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth,
the undersigned, EVERCEL, INC., a Delaware corporation (together with its
successors and assigns, the "Issuer"), hereby certifies that
BURNHAM SECURITIES, INC.
or its registered assigns is entitled to subscribe for and purchase, during the
period specified in this Warrant, 18,480 (subject to adjustment as hereinafter
provided) of the duly authorized, validly-issued, fully paid and non-assessable
shares of Common Stock of the Issuer, at the Warrant Price, subject, however, to
the provisions and upon the terms and conditions hereinafter set forth.
Capitalized terms used in this Warrant and not otherwise defined herein shall
have the respective meanings specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of
Warrant Stock represented hereby shall commence on the date of issuance of this
Warrant and shall expire at 5:00 P.M., Eastern Time, on December 16, 2004 (such
period being the "Term").
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer
and Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant
may be exercised in whole or in part at any time and from time to time during
the Term.
<PAGE>
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by surrender of this Warrant (with the exercise form attached
hereto duly executed) at the principal office of the Issuer, and by the payment
to the Issuer of an amount of consideration therefor equal to the Warrant Price
in effect on the date of such exercise multiplied by the number of shares of
Warrant Stock with respect to which this Warrant is then being exercised,
payable at such Holder's election (i) by certified or official bank check or
(ii) by surrender to the Issuer for cancellation of a portion of this Warrant
representing that number of unissued shares of Warrant Stock which is equal to
the quotient obtained by dividing (A) the product obtained by multiplying the
Warrant Price by the number of shares of Warrant Stock being purchased upon such
exercise by (B) the difference obtained by subtracting the Warrant Price from
the Current Market Price per share of Warrant Stock as of the date of such
exercise, or (iii) by a combination of the foregoing methods of payment selected
by the Holder of this Warrant. In any case where the consideration payable upon
such exercise is being paid in whole or in part pursuant to the provisions of
clause (ii) or of this Section 2(b), such exercise shall be accompanied by
written notice from the Holder of this Warrant specifying the manner of payment
thereof, and containing a calculation showing the number of shares of Warrant
Stock with respect to which rights are being surrendered thereunder and the net
number of shares to be issued after giving effect to such surrender.
In lieu of the payment methods set forth in clause (i) above, when
permitted by law and applicable regulations (including Nasdaq and NASD rules),
the Holder may pay the Warrant Price through a "same day sale" commitment from
the Holder (and if applicable a broker-dealer that is a member of the National
Association of Securities Dealers (a "NASD Dealer")), whereby the Holder elects
to exercise this Warrant to sell a portion of the Warrant Stock so purchased to
pay for the Warrant Price and the Holder (or, of applicable, the NASD Dealer)
commits upon sale (or, in the case of the NASD Dealer, upon receipt) of such
Warrant Stock to forward the Warrant Price directly to the Company.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding five Business Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof within such
time.
(d) Transferability of Warrant. Subject to the provisions of Section
2(e) hereof, and provided that the Company has consented thereto (which consent
shall not be unreasonably withheld) this Warrant may be transferred on the books
of the Issuer by the Holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant at the principal office of the Issuer, properly
endorsed (by the Holder executing an assignment in the form attached hereto) and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. This Warrant is exchangeable at the principal office of the
Issuer for Warrants for the purchase of the same aggregate number of shares of
Warrant Stock, each new Warrant to represent the right to purchase such number
of shares of Warrant Stock as the Holder hereof shall designate at the time of
such exchange. All Warrants issued on transfers or exchanges shall be dated the
Closing Date and shall be identical with this Warrant except as to the number of
shares of Warrant Stock issuable pursuant hereto.
<PAGE>
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Warrant Stock to be
issued upon exercise hereof are being acquired solely for the Holder's
own account and not as a nominee for any other party, and for
investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Warrant Stock to be issued
upon exercise hereof.
(ii) This Warrant and all certificates representing shares of
Warrant Stock issued upon exercise hereof shall be stamped or imprinted
with a legend in substantially the following form until such securities
have ceased to be restricted securities:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
STATE SECURITIES LAWS.
(f) Continuing Rights of Holder. The Issuer will, at the time of
or at any time after each exercise of this Warrant, upon the request of the
Holder hereof or of any shares of Warrant Stock issued upon such exercise,
acknowledge in writing the extent, if any, of its continuing obligation to
afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant,
provided that if any such Holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Issuer to afford such
rights to such Holder.
3. Stock Fully Paid; Reservation and Listing of Shares; Covenants. (a)
The Issuer represents, warrants, covenants and agrees that all shares of Warrant
Stock which may be issued upon the exercise of this Warrant will, upon issuance,
be duly authorized, validly issued, fully paid and non-assessable and free from
all taxes, liens and charges created by or through the Issuer with respect to
issuance. The Issuer further covenants and agrees that during the period within
which this Warrant may be exercised, the Issuer will at all times have
authorized and reserved for the purpose of the issue upon exercise of this
Warrant a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.
<PAGE>
(b) If any shares of Common Stock required to be reserved for issuance
upon exercise of this Warrant or as otherwise provided hereunder require
registration or qualification with any governmental authority under any federal
or state law before such shares may be so issued, the Issuer will in good faith
use its best efforts as expeditiously as possible at its expense to cause such
shares to be duly registered or qualified. If the Issuer shall list any shares
of Common Stock on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of, all shares of
Warrant Stock from time to time issued upon exercise of this Warrant or as
otherwise provided hereunder, and, to the extent permissible under the
applicable securities exchange rules, all unissued shares of Warrant Stock which
are at any time issuable hereunder, so long as any shares of Common Stock shall
be so listed. The Issuer will also so list on each securities exchange, and will
maintain such listing of, any other securities which the Holder of this Warrant
shall be entitled to receive upon the exercise of this Warrant or conversion of
the Common Stock if at the time any securities of the same class shall be listed
on such securities exchange by the Issuer.
(c) The Issuer shall not by any action including, without limitation,
amending the Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of the Holder
hereof against impairment. Without limiting the generality of the foregoing, the
Issuer will (i) not amend or modify any provision of the Certificate of
Incorporation or by-laws of the Issuer in any manner that would adversely affect
the rights of the Holders of the Warrants, (ii) take all such action as may be
reasonably necessary in order that the Issuer may validly and legally issue
fully paid and nonassessable shares of Common Stock, free and clear of any
liens, claims, encumbrances and restrictions (other than as provided herein and
restrictions under federal and state securities laws) created by or through
Issuer with respect to such issuance upon the exercise of this Warrant and (iii)
use its reasonable best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Issuer to perform its obligations under this Warrant.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale. (i) In case the Issuer after the Closing Date shall do any of
the following (each a "Triggering Event") (a) consolidate with or merge into any
other Person and the Issuer shall not be the continuing or surviving corporation
of such consolidation or merger, (b) permit any other Person to consolidate with
or merge into the Issuer and the Issuer shall be the continuing or surviving
Person but, in connection with such consolidation or merger, any Capital Stock
of the Issuer shall be changed into or exchanged for securities of any other
Person or cash or any other property, (c) transfer all or substantially all of
its properties or assets to any other Person or (d) effect a capital
reorganization or reclassification of its Capital Stock, then, and in the case
of each such Triggering Event, proper provision shall be made so that, upon the
basis and the terms and in the manner provided in this Warrant, the Holder of
this Warrant shall be entitled (x) upon the exercise hereof at any time after
the consummation of such Triggering Event, to the extent this Warrant is not
exercised prior to such Triggering Event, to receive at the Warrant Price in
effect at the time immediately prior to the consummation of such Triggering
Event in lieu of the Common Stock issuable upon such exercise of this Warrant
prior to such Triggering Event, the securities, cash and property to which such
Holder would have been entitled upon the consummation of such Triggering Event
if such Holder had exercised the rights represented by this Warrant immediately
prior thereto, subject to adjustments (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in Section 4
hereof or (y) to sell this Warrant (or, at such Holder's election, a portion
hereof) to the Person continuing after or surviving such Triggering Event, or to
the Issuer (if Issuer is the continuing or surviving Person) at a sales price
equal to the amount of cash, property and/or securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
<PAGE>
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (a) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (b) the obligation to deliver to such Holder such shares of securities, cash
or property as, in accordance with the foregoing provisions of this paragraph
(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder an opinion of counsel for such Person (which
may be in-house counsel), which counsel shall be reasonably satisfactory to such
Holder, stating that this Warrant shall thereafter continue in full force and
effect and the terms hereof (including, without limitation, all of the
provisions of this paragraph (a)) shall be applicable to the securities, cash or
property which such Person may be required to deliver upon any exercise of this
Warrant or the exercise of any rights pursuant hereto.
(iii) In case any Triggering Event shall be proposed to be effected,
the Holder of this Warrant may, and the Issuer agrees that as a condition to the
consummation of any such Triggering Event the Issuer shall secure the right of
such Holder to, sell this Warrant (or, at such Holder's election, a portion
thereof) to the Person continuing after or surviving such Triggering Event, or
the Issuer (if the Issuer is the continuing or surviving Person), simultaneously
with the effective date or closing of such Triggering Event, as provided in
clause (y) of subparagraph (i) of this Section 4(a). The obligation of the
Issuer to secure such right of the Holder to sell this Warrant shall be subject
to such Holder's cooperation with the Issuer, including, without limitation, the
giving of customary representations and warranties to the purchaser in
connection with any such sale. In the event that the Holder of this Warrant
exercises its rights under subparagraph (i) of this Section 4(a) to sell this
Warrant (or a portion thereof) simultaneously with the effective date or closing
of any such Triggering Event, the Issuer shall not effect any such Triggering
Event unless upon or prior to the consummation thereof such amounts of cash,
property and/or securities are delivered to the Holder of this Warrant. Prior
notice of any Triggering Event shall be given to the Holder of this Warrant in
accordance with Section 11 hereof.
<PAGE>
(b) Subdivision or Combination of Shares. If the Issuer, at any time
while this Warrant is outstanding, shall subdivide or combine any shares of
Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of Holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of Holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time
while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of,
shares of Common Stock, the Warrant Price shall be adjusted, as at the
date the Issuer shall take a record of the Holders of the Issuer's
Common Stock for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying
the Warrant Price in effect immediately prior to such record date (or
if no such record is taken, then immediately prior to such payment or
other distribution), by a fraction (1) the numerator of which shall be
the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (2) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend or distribution (plus in the event that
the Issuer paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Issuer issued
fractional shares in connection with said dividends); or
(ii) Liquidating Dividends, etc. Make a distribution of its
property to the Holders of its Common Stock as a dividend in
liquidation or partial liquidation or by way of return of capital other
than as a dividend payable out of funds legally available for dividends
under the laws of the State of Delaware or as provided in the foregoing
subparagraph (i) of this Section 4(c), the Holder of this Warrant
shall, upon exercise (including without limitation payment of the
Warrant Price), be entitled to receive, in addition to the number of
shares of Warrant Stock receivable thereupon, and without payment of
any additional consideration therefor, a sum equal to the amount of
such property as would have been payable to such Holder had such Holder
been the Holder of record of such Warrant Stock on the record date for
such distribution or if no such record is taken, on the date of such
distribution; and appropriate provision therefor shall be made a part
of any such distribution.
<PAGE>
(d) Outstanding Common Stock. The number of shares of Common Stock at
any time outstanding shall (a) not include any shares thereof then directly or
indirectly owned or held by or for the account of the Issuer or any of its
Subsidiaries, and (b) shall be deemed to include all shares of Common Stock then
issuable upon conversion, exercise or exchange of any then outstanding
convertible securities or shares of Capital Stock (including without limitation
any preferred stock) or other Securities which are or may be at any time
convertible into or exchangeable for shares of Common Stock.
(e) Other Action Affecting Common Stock. In case after the Closing Date
the Issuer shall take any action affecting its Capital Stock, other than an
action described in any of the foregoing subsections (a) through (d) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(f) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to any of the foregoing provisions of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately before giving effect
to such adjustment and the denominator of which shall be the Warrant Price
immediately after giving effect to such adjustment. If the Issuer shall be in
default under any provision contained in Section 3 of this Warrant so that
shares issued at the Warrant Price adjusted in accordance with this Section 4
would not be validly issued, the adjustment of the Warrant Share Number provided
for in the foregoing sentence shall nonetheless be made and the Holder of this
Warrant shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable
law. Such exercise shall not constitute a waiver of any claim arising against
the Issuer by reason of its default under Section 3 of this Warrant.
5. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Warrant Price pursuant to Section 4, the
Issuer at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of a Warrant a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Issuer shall,
upon the written request at any time of any holder of such Warrant, furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Warrant Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the exercise of the Warrant.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Current Market Price then
in effect.
<PAGE>
7. Definitions. For the purposes of this Warrant, the following
term have the following meanings:
"Board" shall mean the Board of Directors of the Issuer.
"Business Day" means any day except a Saturday, a Sunday or a
legal holiday in New York City.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in
(however designated) corporate stock, including, without limitation,
shares of preferred or preference stock, (ii) all partnership interests
(whether general or limited) in any Person which is a partnership,
(iii) all membership interests or limited liability company interests
in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Issuer as in effect on the Closing Date, and as
hereafter from time to time amended, modified, supplemented or restated
in accordance with its terms and pursuant to applicable law.
"Closing Date" means December 16, 1999.
"Common Stock" means the Common Stock, $.01 par value, of the
Issuer and any other Capital Stock into which such stock may hereafter
be changed.
"Current Market Price" of a share of Common Stock means the
average closing price of a share of Common Stock for the 15 consecutive
trading days preceding such day on the principal national securities
exchange (or Nasdaq Stock Market) on which the shares of Common Stock
are listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange (or Nasdaq Stock Market),
the average of the reported bid and asked prices during such 15 trading
day period in the over-the-counter market as furnished by the National
Quotation Bureau, Inc., or if such firm is not then engaged in the
business of reporting such prices, as furnished by any similar firm
then engaged in such business selected by the Issuer, or, if there is
no such firm, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Issuer.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute at the time in effect.
"Holders" mean the Persons who shall from time to time own any
Warrant. The term "Holder" means one of the Holders.
"Issuer" means Evercel, Inc., a Delaware corporation, and its
successors.
<PAGE>
"Majority Holders" means at any time the Holders of Warrants
(other than the Issuer or any Subsidiary thereof) exercisable for a
majority of the shares of Warrant Stock issuable under the Warrants at
the time outstanding.
"Person" means an individual, a corporation, a partnership, a
trust, an unincorporated organization or a government organization or
an agency or political subdivision thereof.
"Securities" means any debt or equity securities of the
Issuer, whether now or hereafter authorized, any instrument convertible
into or exchangeable for Securities or a Security, and any option,
warrant or other right to purchase or acquire any Security. "Security"
means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose
outstanding Voting Stock shall at the time be owned directly or
indirectly by the Issuer or by one or more of its Subsidiaries, or by
the Issuer and one or more of its Subsidiaries.
"Voting Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) having ordinary voting power for the election of a majority
of the members of the Board of Directors (or other governing body) of
such corporation, other than Capital Stock having such power only by
reason of the happening of a contingency.
"Warrants" means the Warrants issued and sold on the date
hereof, including, without limitation, this Warrant, and any other
warrants of like tenor issued in substitution or exchange for any
thereof pursuant to the provisions of Section 2(c) or 2(d) hereof or of
any of such other Warrants.
"Warrant Price" means the price per share of Common Stock
equal to 120% of the Conversion Price of the Issuer's Series A
Cumulative Convertible Preferred Stock or the Issuer's Series B
Cumulative Convertible Preferred Stock, as the case may be, issued in
connection with the issuance of this Warrant, as may be adjusted from
time to time pursuant to Section 4 hereof. The Conversion Price is
defined in the Certificate of the Designations, Powers, Preferences and
Rights of the Series A Cumulative Convertible Preferred Stock, of the
Series A-1 Cumulative Convertible Preferred Stock and of the Series B
Cumulative Convertible Preferred Stock.
"Warrant Share Number" means at any time the aggregate number
of shares of Warrant Stock which may at such time be purchased upon
exercise of this Warrant, after giving effect to all prior adjustments
to such number made or required to be made under the terms hereof.
<PAGE>
"Warrant Stock" means the Common Stock issuable upon exercise
of any Warrant or Warrants or otherwise issuable pursuant to any
Warrant or Warrants.
8. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 8 without the consent of the Holder of this Warrant.
9. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
10. Notices. All notices and other communications provided for
hereunder shall be in writing and delivered by hand or sent by first class mail
or sent by telecopy (with such telecopy to be confirmed promptly in writing sent
by first class mail), and if to the Holder of this Warrant or of Warrant Stock
issued pursuant hereto, addressed to such Holder at its last known address or
telecopy number appearing on the books of the Issuer maintained for such
purposes, and if to the Issuer, addressed to:
Evercel, Inc.
2 Lee Mac Avenue
Danbury, CT 06810
Attention: President
Telephone No.: (877) 383-7325
with a copy to:
Robinson & Cole LLP
Financial Centre
695 East Main Street
Stamford, CT 06904
Attention: Richard A. Krantz, Esq.
Telephone No.: (203) 462-7500
or to such other address or addresses or telecopy number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. All such communications shall be deemed to have been given or
made when so delivered by hand or sent by telecopy, or three business days after
being so mailed.
<PAGE>
11. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
12. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Issuer, the Holder hereof and (to the extent provided herein) the
Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any
such Holder(s) of Warrant Stock.
13. Modification and Severability. If, in any action before any court
or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
14. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
15. Redemption. The outstanding Warrants may be redeemed, at the option
of the Issuer, in whole or in part and from time to time after the first
anniversary of the date hereof, at the principal office of the Issuer at the
price of $.01 per Warrant ("Redemption Price"), provided that (a) at least 30
days notice is given in accordance with this Section 15, and (b) the closing
price of the Common Stock on the principal national securities exchange (or
Nasdaq Stock Market) on which the shares of Common Stock are listed or admitted
to trading has been at least two hundred percent (200%) of the then effective
Warrant Price on each of the twenty (20) consecutive trading days prior to the
date on which notice of redemption is given. In the event the Issuer shall elect
to redeem all or any part of the outstanding Warrants, the Issuer shall fix a
date for the redemption. Notice of redemption shall be mailed by first class
mail, postage prepaid, by the Issuer or the Issuer's agent at its direction not
less than 30 days from the date fixed for redemption to the registered holders
of the outstanding Warrants to be redeemed at their last address as they shall
appear on the registration books. Any notice mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether or not
the registered holder received such notice. The outstanding Warrants may be
<PAGE>
exercised in accordance with Section 2 of this Warrant at any time after notice
of redemption shall have been given by the Issuer and prior to the date fixed
for redemption. On and after the redemption date, the record holder of the
outstanding Warrants shall have no further rights except to receive, upon
surrender of the outstanding Warrants, the Redemption Price.
EVERCEL, INC.
By:
--------------------------
Its: President
<PAGE>
EXERCISE FORM
EVERCEL, INC.
The undersigned _______________________, pursuant to the provisions of the
within Warrant, hereby elects to purchase ________ shares of Common Stock of
EVERCEL, INC. covered by the within Warrant.
Dated: Signature
Address
ASSIGNMENT
FOR VALUE RECEIVED, ___________________hereby sells, assigns and transfers unto
___________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint ___________________, attorney, to transfer
the said Warrant on the books of the within named corporation.
Dated: Signature
Address
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, ___________________________ hereby sells, assigns and
transfers unto ___________________ the right to purchase shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: Signature
Address
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-____ canceled (or transferred or exchanged) this ____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_____________________, Warrant No. W-____ issued for shares of Common
Stock in the name of __________________.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of December 16, 1999,
by and among Evercel, Inc., a Delaware corporation (the "Company"), and the
persons listed on Schedule 1 to this Agreement (the "Purchasers").
RECITALS:
WHEREAS, Purchasers are acquiring shares of the Company's
Preferred Stock and the Warrants to purchase shares of the Company's Common
Stock; and
WHEREAS, the Purchasers wish to acquire, and the Company is
willing to grant, certain registration rights with respect to the shares of the
Company's Common Stock which such Purchasers now or may hereafter own, which
rights are set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements of the parties as set forth herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
Section 1. Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, $.01 par
value per share.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, and shall include any
successor statute.
"Holder" shall mean any holder of outstanding Registrable
Securities.
"Initiating Holders" shall mean, with respect to the request
for registration pursuant to Section 2 hereof, any Holder or group of Holders
who in the aggregate are Holders of a majority of the shares of Common Stock
then owned by the Holders. For purposes of this definition, shares of Common
Stock issuable upon conversion of the Preferred Stock and/or upon exercise of
the Warrants shall be deemed shares of Common Stock owned by such Purchaser.
"Other Stockholders" has the meaning given such term in
Section 2(a).
"Preferred Stock" shall mean the Series A Cumulative
Convertible Preferred Stock of the Company, $.01 par value and the Series B
Cumulative Convertible Preferred Stock of the Company, $.01 par value.
<PAGE>
"Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registered Securities" shall mean Registrable Securities
which have been registered under the Securities Act pursuant to a registration
statement filed with and declared effective by the Commission.
"Registrable Securities" shall mean issued shares of Common
Stock or shares of Common Stock then issuable (i) upon conversion of the
Preferred Stock, (ii) upon exercise of the Warrants and (iii) with respect to
shares of Common Stock issued by way of any stock split, stock dividend,
recapitalization, pre-emptive rights or similar event with respect to the
Preferred Stock or Warrants. For purposes of this Agreement, a Person shall be
deemed to be a holder of Registrable Securities, and the Registrable Securities
shall be deemed to be in existence, whenever such Person has the right to
acquire directly or indirectly such Registrable Securities (upon conversion or
exercise, in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected, and such Person
shall be entitled to exercise the rights of a holder of Registrable Securities
hereunder. As to any particular Registrable Securities, such securities will
cease to be Registrable Securities when they have ceased to be Restricted
Securities; provided, however, that any securities which cease to be Restricted
Securities solely because they have become eligible for transfer pursuant to
Rule 144 will not cease to be Registrable Securities until they have actually
been sold in compliance with Rule 144 or become subject to Rule 144(k).
"Registration Expenses" shall mean all expenses incurred by
the Company in compliance with Sections 2, 3, 5 and 6 hereof, including, without
limitation, all registration, filing and National Association of Securities
Dealers fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger,
telecommunications, mailing and delivery expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, the fees and disbursements incurred by the
holders of Registrable Securities to be registered (including the fees and
disbursements of one law firm retained by such Holders in accordance with
Sections 2 or 3 hereof), premiums and other costs of policies of insurance
against liabilities arising out of the public offering of the Registrable
Securities being registered and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding Selling
Expenses, if any, provided that, in any case where Registration Expenses are not
to be borne by the Company, such expenses shall not include salaries of Company
personnel or general overhead expenses of the Company, auditing fees, premiums
or other expenses relating to liability insurance required by underwriters of
the Company or other expenses for the preparation of financial statements or
other data normally prepared by the Company in the ordinary course of its
business or which the Company would have incurred in any event.
"Restricted Securities" shall mean the securities of the
Company required to bear or bearing the legend set forth in Section 6(a)(ix) of
the Subscription Agreement of even date herewith by and among the Company and
the other parties named therein.
<PAGE>
"Rule 144" shall mean Rule 144 promulgated under the
Securities Act, or any successor rule then in force.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder, and shall include any
successor statute.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities.
"Warrants" shall mean the warrants to purchase shares of
Common Stock issued pursuant to the Subscription Agreement dated the date
herewith and the warrants to purchase shares of Common Stock issued to Burnham
Securities Inc., as placement agent.
Section 2. Requested Registration.
----------------------
(a) Request for Registration. If, on or after six months after
the date hereof, the Company shall receive from any Initiating Holder entitled
to make such request a written request that the Company effect any registration
with respect to all or part of the Registrable Securities, the Company will:
(1) promptly give written notice of the proposed
registration to all other Purchasers other than the Initiating Holders;
and
(2) as soon as practicable, use its diligent best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with the Securities Act) as
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request given within twenty-five (25)
days after receipt of such written notice from the Company pursuant to
Sections 2 or 3 hereof; provided, however, that the Company shall not
be obligated to effect, or to take any action to effect, any such
registration pursuant to this Section 2 after the Company has effected
a total of two registrations pursuant to this Section 2, and all such
registrations have been declared or ordered effective, maintained
effective for at least nine months (or less if all the Registrable
Securities included therein are sooner sold).
Subject to the foregoing subsection (2), the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Initiating
Holders. For purposes of a registration under this Section 2, a
majority-in-interest of the Initiating Holders requesting any registration
pursuant to this Section 2 shall have the right to select the counsel for all of
the selling Holders.
<PAGE>
Notwithstanding the foregoing, the Company may delay the
filing of any registration statement requested pursuant to this Section 2 for a
reasonable period of time (not to exceed 60 days) if within five days of the
decision of the board of directors of the Company to delay such filing, the
Company provides the Initiating Holders with a certificate signed by the
Chairman of the Board of Directors of the Company stating that, in the good
faith judgment of the board of directors of the Company, the filing of the
registration statement would require disclosure of information not otherwise
then required to be disclosed and that such disclosure would adversely affect
any material business opportunity, transaction or negotiation then contemplated
by the Company. The Company shall give prompt notice to the Initiating Holders
of the end of any delay period under this subsection.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2(b) below,
include Registrable Securities for which inclusion in the registration statement
is requested pursuant to Section 3, securities (other than Registrable
Securities) of the Company which are held by officers or directors of the
Company or which are held by persons who, by virtue of agreements with the
Company, are entitled to include their securities in any such registration (the
"Other Stockholders"), or securities of the Company for its own account.
Notwithstanding the foregoing, the Company shall not be
required to effect registration under this Section 2 if counsel for the Company,
reasonably acceptable to the Holders requesting registration, shall deliver an
opinion reasonably acceptable to the Holders requesting registration that,
pursuant to Rule 144 under the Securities Act or otherwise, such Holders can
publicly sell the Registrable Securities as to which registration has been
requested without registration under the Securities Act and without any
limitation with respect to offerees, manner of offering or the size of the
transaction.
(b) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 2 and the Company shall include such information in the
written notice referred to in Section 2(a)(1) above. A majority-in-interest of
the Initiating Holders included in any registration pursuant to this Section 2
shall have the right to select the lead investment banker and manager, and any
co-managers, to administer the offering, subject to the Company's approval which
will not be unreasonably withheld. The right of any Holder to registration
pursuant to this Section 2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority-in-interest
of the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein.
<PAGE>
If officers or directors of the Company or Other Stockholders
holding securities of the Company shall request inclusion in any registration to
be effected pursuant to Section 2, the Initiating Holders shall offer to include
the securities of such officers, directors and Other Stockholders in the
underwriting and may condition such offer on their acceptance of the further
applicable provisions of this Agreement. The Company shall (together with all
officers, directors and Other Stockholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 2, if the
managing underwriter advises the Initiating Holders that marketing factors
require a limitation on the number of shares to be underwritten, the securities
of the Company (other than Registrable Securities) held by officers or directors
of the Company shall be excluded from such registration to the extent so
required by such limitation (pro rata based upon the number of securities
requested to be included in such registration by each such person), and if a
further limitation of the number of shares is required, the securities of the
Company (other than Registrable Securities) held by Other Stockholders shall be
excluded from such registration to the extent so required by such limitation
(pro rata based upon the number of securities requested to be included in such
registration by each such person) and if a further limitation of the number of
shares is required, the Initiating Holders shall so advise all Holders of
Registrable Securities requesting registration pursuant to this Section 2, and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities which they had requested to be included in such registration at the
time of filing the registration statement. No Registrable Securities or any
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder of
Registrable Securities, officer, director or Other Stockholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The securities
so withdrawn shall also be withdrawn from registration. If the managing
underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration if the managing underwriter so agrees and if
the number of Registrable Securities and other securities which would otherwise
have been included in such registration and underwriting will not thereby be
limited unless the inclusion of Company securities in such registration will, in
the reasonable judgment of the managing underwriter, have a material adverse
affect on the anticipated offering price.
Section 3. Piggyback Registration.
----------------------
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, including any
rights granted pursuant to Section 2 hereof, other than a registration on any
form which does not permit secondary sales or does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests made by
any Holder within twenty-five (25) days after receipt of the
written notice from the Company described in clause (i) above,
except as set forth in Section 3(b) below. Such written
request may specify all or a part of a Holder's Registrable
Securities.
<PAGE>
For purposes of any registration pursuant to this Section 3 the Holders of a
majority-in-interest of the Registrable Securities to be registered shall choose
the counsel for all of the selling Holders.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3(a)(i). All Holders proposing to distribute their
securities through such underwriting shall (together with the Company and the
Other Stockholders distributing their securities through such underwriting)
enter into an underwriting agreement mutually agreeable to the underwriter or
underwriters selected by the Company and each selling Holder, it being
understood that the Company shall have no liability to any selling Holder which
cannot reach agreeable terms with the underwriter(s) and the sole remedy
available to any selling Holder which does not agree with the terms of the
underwriting agreement is to not participate in such underwriting.
Notwithstanding any other provision of this Section 3, if the managing
underwriter advises the Company that marketing factors require a limitation on
the number of shares to be underwritten, the Company shall so advise all holders
of securities requesting registration, and the number of shares of securities
that are entitled to be included in the registration and underwriting shall be
allocated in the following manner: the securities of the Company (other than
Registrable Securities) held by officers and directors of the Company shall be
excluded from such registration and underwriting to the extent required by such
limitation (pro rata based upon the number of securities requested to be
included in such registration by each such person), and, if a further limitation
on the number of shares is required, the securities of the Company (other than
Registrable Securities) held by Other Stockholders shall be excluded from such
registration to the extent required by such limitation (pro rata based upon the
number of securities requested to be included in such registration by each such
person), and if a further limitation on the number of shares is required, the
number of shares that may be included in the registration and underwriting shall
be allocated among all such Holders requesting inclusion in the registration
pursuant to this Section 3 in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities which they had requested to be
included in such registration at the time of filing the registration statement.
If any Holder of Registrable Securities or any officer or director of the
Company or Other Stockholder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. Any
registration solely pursuant to this Section 3 shall not constitute a demand
registration under Section 2(a)(2) hereof.
Section 4. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered; provided, however,
that the Company shall not be required to pay any Registration Expenses if, as a
result of the withdrawal of a request for registration by a majority-in-interest
of the Initiating Holders (other than as a result of a material adverse change
in the Company's business, financial condition or operating results or the
market for the Company's stock or as a result of an event which materially and
adversely affects the Holders' ability to sell their shares in compliance with
the Federal securities laws), the registration statement does not become
effective, in which case the Initiating Holders (other than Holders requesting
inclusion in such registration pursuant to Section 3) and Other Stockholders
requesting registration shall bear such Registration Expenses pro rata on the
basis of the number of their shares so included in the registration request, and
provided, further, that such registration shall not be counted as a registration
pursuant to Section 2(a)(2). Notwithstanding the proviso in the preceding
sentence, the Initiating Holders may elect to have such withdrawn registration
count as a registration pursuant to Section 2(a)(2), in which event the Company
shall bear all Registration Expenses relating to such withdrawn registration.
<PAGE>
Section 5. Registration on Form S-3. After the Company has
qualified and for so long as the Company continues to be qualified for the use
of Form S-3 or any successor form, in addition to the rights contained in the
foregoing provisions of this Agreement, the Holders of Registrable Securities
shall have the right to request registrations on Form S-3 (such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended methods of disposition of such shares by such
Holder or Holders); provided, however, that the Company shall not be obligated
to file more than one Form S-3 in any six-month period. Any such registration
shall not be counted as a registration pursuant to Section 2(a)(2).
Notwithstanding the foregoing, the Company shall not be
required to effect registration under this Section 5 if counsel for the Company,
reasonably acceptable to the Holders requesting registration, shall deliver an
opinion reasonably acceptable to the Holders requesting registration that,
pursuant to Rule 144 under the Securities Act or otherwise, such Holders can
publicly sell the Registrable Securities as to which registration has been
requested without registration under the Securities Act and without any
limitation with respect to offerees, manner of offering or the size of the
transaction.
Section 6. Registration Procedures. In the case of each
registration effected by the Company pursuant to this Agreement, the Company
will keep each Holder advised in writing as to the initiation of each
registration and as to the completion thereof. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and pursuant thereto
the Company will at its expense and as expeditiously as possible:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective; provided that before
filing a registration statement or prospectus or any amendment or supplement
thereto, including documents incorporated by reference after the initial filing
of any registration statement, the Company shall furnish to the Holders of the
Registrable Securities covered by such registration statement and the
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holders and underwriters;
<PAGE>
(b) Prepare and file with the Commission such amendments and
post-effective amendments to a registration statement as may be necessary to
keep such registration effective for a period of nine (9) months or until the
Holder or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs; provided, however, that the
Company, in good faith, may delay the filing of any amendment or supplement to
the Registration Statement for a reasonable period of time, not to exceed 120
days, in order to permit the Company (A) to effect disclosure or disposition or
consummation of any transaction requiring confidential treatment which is being
actively pursued at such time and which would require disclosure in the
Registration Statement or (B) to negotiate, effect or complete any transaction
which the Company reasonably believes might be jeopardized, delayed or made more
costly to the Company by disclosure in the Registration Statement; and provided
further, however, that (i) such 9 month period shall be extended for a period of
time equal to the period the Holder refrains from selling any securities
included in such registration in accordance with the provisions of Section 12
hereof; (ii) such 9 month period shall be extended by the number of days during
the period from and including the date of the giving of notice pursuant to
Section 6(e) hereof to and including the date when each Holder of Registrable
Securities covered by such registration statement shall have received the copies
of the supplemented or amended prospectus contemplated by Section 6(e) hereof;
and (iii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, such 9 month
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that Rule
415, or any successor rule under the Securities Act, permits an offering on a
continuous or delayed basis, and provided further that applicable rules under
the Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (y) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (z) reflects
facts or events representing a material or fundamental change in the information
set forth in the registration statement, the incorporation by reference in the
registration statement of periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act that contain the information required to be included in (y)
and (z) above;
(c) Cause the related prospectus to be supplemented by any
required prospectus supplement, and, as so supplemented, to be filed pursuant to
Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement or supplement to such prospectus;
(d) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus as
a Holder from time to time may reasonably request;
(e) Notify each seller of Registered Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such seller, prepare and furnish
to such seller a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(f) Cause all such Registered Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed or, if not then listed, cause such Registered Securities to be included
on whatever exchange or national automated quotation system the Board of
Directors determines is appropriate;
<PAGE>
(g) Provide a transfer agent and registrar for all Registered
Securities and a CUSIP number for all such Registered Securities, in each case
not later than the effective date of such registration;
(h) Make available for inspection during regular business
hours by any seller of Registrable Securities, any underwriter participating in
any disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively the "Records")
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably requested by such
seller, underwriter, attorney or accountant in connection with such registration
statement. Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (A) the disclosure of such Records is, in the
opinion of counsel for the selling Holders, reasonably necessary to avoid or
correct any misstatement or omission in the registration statement, (B) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction, or (C) the disclosure of such Records is
required by any governmental regulatory body with jurisdiction over any seller
of Registrable Securities. Such seller, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, shall notify the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;
(i) Cooperate with the sellers of Registered Securities and
the managing underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing the Registered Securities to be sold,
without any restrictive legends, in such denominations and registered in such
names as the managing underwriter(s) may request at least two business days
prior to any sale thereof to the underwriters, if applicable;
(j) Obtain from its accountants "cold-comfort" letters, dated
the effective date of the registration statement and the date of the closing of
the sale of the Registered Securities, and addressed to the Company and the
selling Holders, in form and substance as are customarily issued in connection
with underwritten public offerings and otherwise reasonably satisfactory to the
Company and a majority-in-interest of (i) the Initiating Holders if the
registration is pursuant to Section 2 or (ii) the selling Holders in all other
cases;
(k) Obtain from its counsel an opinion, addressed to the
selling Holders, with respect to the offering in form and substance reasonably
satisfactory to a majority-in-interest of (i) the Initiating Holders if the
registration is pursuant to Section 2 or (ii) the selling Holders in all other
cases;
(l) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
<PAGE>
(m) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting, indemnification and contribution provisions, which
indemnification and contribution provisions shall be in all material respects
similar to the provisions of Section 7 hereof; provided, however, that no Holder
will be liable for indemnification or contribution in excess of the net proceeds
such Holder received in the offering;
(n) Use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(o) Use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;
and
(p) Take all such other actions as the underwriters, if any,
and a majority-in-interest of (i) the Initiating Holders if the registration is
pursuant to Section 2 or (ii) the selling Holders in all other cases reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities (including, without limitation, effecting a stock split or
combination of shares).
<PAGE>
Section 7. Indemnification; Contribution.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers, directors, members and partners, and each
person controlling such Holder, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, each
director and controlling person of the Company and each officer of the Company
who signed the registration statement, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages and
liabilities (or actions, proceedings or settlements, if such settlements are
effected with the written consent of the Company, in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or the Exchange Act or any rule
or regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors, members and partners, and each person controlling such
Holder, each such director, controlling person and officer, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, action or
proceeding; provided, however, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers and controlling persons,
and each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Securities Act or the Exchange Act or the rules and
regulations thereunder, each other such Holder and Other Stockholder (if and to
the extent such Other Stockholder has agreed to indemnify the Holders as set
forth in this clause (b)) including Registrable Securities and other securities
in the securities as to which such registration, qualification or compliance is
being effected, and each of their officers, directors, members and partners, and
each person controlling such Holder or Other Stockholder, against all claims,
losses, damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Other Stockholders, directors, officers, members,
partners, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, action or proceeding, in each
case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein; provided,
however, that the obligations of each such Holder hereunder shall be limited to
an amount equal to the net proceeds to each such Holder of securities sold as
contemplated herein.
<PAGE>
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
to notify materially adversely affects the Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 7
shall for any reason be unenforceable by an Indemnified Party, although
otherwise available in accordance with its terms, then each Indemnifying Party
shall, in lieu of indemnifying such Indemnified Party, contribute to the amount
paid or payable by such Indemnified Party as a result of the losses, claims,
damages, liabilities or expenses with respect to which such Indemnified Party
has claimed indemnification, in such proportion as is appropriate to reflect the
relative fault of the Indemnified Party on the one hand and the Indemnifying
Party on the other in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault, in the case of an untrue
statement, alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Indemnifying
Party or the Indemnified Party, and such parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement,
alleged statement, omission or alleged omission. The Company and each Holder
agree that it would not be just and equitable if contribution pursuant hereto
were to be determined by pro rata allocation or by any other method of
allocation which does not take into account such equitable considerations. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages, liabilities or expenses referred to herein shall be deemed to
include any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending against any action or claim
which is the subject hereof. In no case, however, shall a Holder be responsible
for a portion of the contribution obligation in excess of the net proceeds to
such Holder of securities sold as contemplated herein. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
<PAGE>
(e) Anything to the contrary contained in this Section 7
notwithstanding, no Holder shall be liable for any indemnification or
contribution in excess of the net proceeds received by it from any sale of
Registrable Securities which has been registered hereunder.
Section 8. Obligations of Holder.
(a) Each Holder of Registrable Securities included in any
registration shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
(b) Each Holder of the Registrable Securities agrees by
acquisition of such Registrable Securities that upon receipt of any notice from
the Company pursuant to Section 6(e), such Holder will forthwith discontinue
such Holder's disposition of Registered Securities pursuant to the registration
statement relating to such Registered Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
6(e) and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession of the prospectus relating to such Registered Securities at
the time of receipt of such notice.
Section 9. Limitations on Registration of Issues of
Securities. Any right given by the Company to any holder or prospective holder
of the Company's securities in connection with the registration of securities
shall be conditioned such that it shall be consistent with the rights of the
Holders provided in this Agreement.
Section 10. Rule 144 Reporting. With a view to making
available to the Holders the benefits of certain rules and regulations of the
Commission which may permit a Holder to sell securities of the Company to the
public without registration, the Company agrees to:
(a) Make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities Act;
(b) Use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act at any time following registration of
any of its securities under the Securities Act or Exchange Act; and
(c) So long as a Holder owns any Registrable
Securities, furnish to such Holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of Rule 144,
and of the Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so
filed as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
<PAGE>
Section 11. Transfer or Assignment of Registration Rights. The
rights to cause the Company to register the securities granted to the Purchasers
by the Company under Sections 2, 3 and 5 may be transferred or assigned by an
Purchaser to a transferee or assignee of any of such Purchaser's Registrable
Securities; provided, however, that the Company is given written notice by such
Purchaser at the time of or within a reasonable time after said transfer or
assignment, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned; and provided, further, that the transferee or
assignee of such rights assumes the obligations of such Purchaser under this
Agreement.
Section 12. "Market Stand-off" Agreement. (a) Each Holder
agrees, if requested by the Company and an underwriter of Common Stock (or other
securities) of the Company, not to sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Holder during the
period required by such underwriter (up to a maximum of 180 days) following the
effective date of a registration statement of the Company filed under the
Securities Act without the prior consent of such underwriter, provided, however,
that all Holders, Other Stockholders and officers and directors of the Company
enter into similar agreements on substantially similar terms.
(b) In the event of an underwritten public offering of
Registrable Securities pursuant to Section 2 hereof, the Company agrees, if
requested by the underwriter(s) of such offering, not to sell in the public
market any Common Stock (or other securities convertible into or exchangeable
for Common Stock) of the Company during the period required by such underwriter
following the effective date of the registration statement relating to such
offering filed under the Securities Act without the prior consent of such
underwriter, provided, however, that such period shall not exceed 90 days or, if
reasonably requested by such underwriter, such longer period as is then
customary.
(c) Such agreement shall be in writing in a form reasonably
satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said period.
Section 13. Adjustments Affecting Registrable Securities. The
Company will not take any action, or permit any change to occur, with respect to
the Registrable Securities which would adversely affect the ability of the
Holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would adversely
affect the marketability of such Registrable Securities in any such
registration.
Section 14. Governing Law. This Agreement shall be
governed in all respects by the laws of the State of New York, without
application of the conflicts of laws principles thereof.
Section 15. Successors and Assigns. This Agreement
shall be binding upon, and inure to the benefit of, the successors, assigns,
heirs, executors and administrators of the parties hereto.
<PAGE>
Section 16. Entire Agreement; Amendment. This Agreement
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof and supersedes any prior understandings,
agreements or representations by or between the parties, written or oral, which
conflicts with, or may have related to, the subject matter hereof in any way.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by a written instrument signed by the Company and the Holders
of not less than a majority-in-interest of the Registrable Securities.
Notwithstanding the foregoing, (a) this Agreement may not be amended to reduce
the number of demand registrations and "piggy-back" registrations granted
pursuant to Sections 2, 3 and 5, except by a written instrument signed by the
Company and a majority-in-interest of the Purchasers and (b) no amendment,
modification, supplement or waiver of, or departure from, Section 7 or this
sentence of this Section 17 shall be effective without the written consent of
all Purchasers then holding Registrable Securities.
Section 17. Attorney's Fees. In any action or proceeding
brought to enforce any provision of this Agreement, or where any provision
hereof or thereof is validly asserted as a defense, the successful party shall
be entitled to recover reasonable attorney's fees in addition to any other
available remedy.
Section 18. Notices, etc. All notices or other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or sent by telex, telefax or telegraphic communication, by
recognized overnight courier marked for overnight delivery, or by registered or
certified mail, postage prepaid, addressed as follows: (a) if to an Purchaser,
as indicated on Schedule 1 attached hereto, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any shares of Common Stock at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder thereof
who has so furnished an address to the Company, or (c) if to the Company, 2 Lee
Mac Avenue, Danbury, CT 06810, Attention: President, or such other addresses as
shall be furnished by like notice by such party. All such notices and
communications shall, when telexed (provided the correct answerback has been
received) or telefaxed (immediately thereafter confirmed by telephone) or
telegraphed, be effective when telexed, telefaxed or delivered to the telegraph
company, respectively, or if sent by nationally recognized overnight courier
service, be effective one Business Day after the same has been delivered to such
courier service marked for overnight delivery, or, if mailed, be effective when
received.
Section 19. Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner so as to be effective and
valid under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision of this Agreement. If any provision contained in
this Agreement is determined to be invalid, illegal or unenforceable as written,
a court of competent jurisdiction shall, at any party's request, reform the
terms of this Agreement to the extent necessary to cause such otherwise invalid
provisions to be enforceable under applicable law.
Section 20. No Inconsistent Agreements. The Company will not
on or after the date of this Agreement enter into any agreement, and as of the
date of this Agreement the Company is not a party to any agreement, with respect
to its securities which is inconsistent with the rights granted to the holders
of Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof or impairs the rights granted hereunder. The Company has not
previously entered into any agreement with respect to its securities granting
any registration rights to any Person which has not been terminate on or prior
to the date hereof.
Section 21. Titles and Subtitles. The titles of the
sections, paragraphs and subparagraphs of this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.
Section 22. Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day, month and year first written above.
EVERCEL, INC.
By:
------------------------------
Name:
Title:
PURCHASER
----------------------------------
Name:
<PAGE>
Schedule I
ANB Associates
Delaware Charter Guarantee & TR CO
C/F James W. Armour Jr. IRA
Andrew Blum
Josette A. Bordiga
Willow Creek Offshore Fund
Willow Creek Capital Partners, LP
David M. & Andrea Brewer
Burnham Asset Management Corporation
Vivian Cavalieri
John W. Fisher IRA Rollover #2
Delaware Charter GTY & TR CO TTEE
Paul H. Fitzgerald
Forum Capital Offshore Fund Ltd.
Forum Capital 2, Ltd.
Richard Freedman
Margo Fuld
Bruce Galloway
Delaware Charter Guarantee & TR CO
C/F Bruce Galloway IRA Rollover
Gelfenbein Family LP
Michael E. Gellert
James D. Gerson
Barbara Gerson c/f Fred Gerson
Barbara Gerson c/f Simon Gerson
Goren Brothers LTD.
John Gutfreund
Haff Partners LP
Graham Humes
Van Eck Emerging Market Opportunity Portfolio
Jacombs Trading
Ruth Joffe
Stanley & Eileen Kaplan
Carl Kempner
Robert L. Kanode IRA Rollover
Delaware Charter GTY & TR TTEE
LAMBDA IV, LLC
Aaron M. Lamport
Sarah W. Laurence
Ellen V. Langner
Jay B. Langner
Lewis Family Limited Partnership
<PAGE>
Daniel Lewis IRA
Delaware Charter GTY & TR TTEE
Michael Lewis
Richard Lewisohn III IRA R/O #2
Delaware Charter GTY & TR TTEE
Joan R. Linclau
Laurence W. Lytton
Albert G. Lowenthal
Fahnestock & Co., Inc.
Lisa Ann Pruzan
Daryl E. Lowenthal
Robert S. Lowenthal
Mangin Family Limited Partnership
Dimitri A. Manthos
Clinton O. Mayer, III
Robert Mittleman
Mogen Investment
Jeff & Audrey Nagelberg
NTS Financial Services
Jerry W. O'Connell
Ann Oliver
Martin Oppenheimer
Sheila Pakula
Leonard & Gillis Plaine
Richard Pollak
Jacqueline Rosenthal
John P. Rosenthal
John P. Rosenthal
Sidney Singer
Sontek Industries Inc.
Ralph J. Sorrentino
Peter Strauss
Richard M.H. Thompson
Jack & Jane Weiselberg
Andrew & Allyson Wiener
Howard L. & Freya D. Wiener
EVERCEL, INC.
Shares of Preferred Stock
and Common Stock Purchase Warrants
SALES AGENCY AGREEMENT
December 16, 1999
Burnham Securities Inc.
1325 Avenue of the Americas, 17th Floor
New York, New York 10019
Ladies and Gentlemen:
Evercel, Inc., a Delaware corporation (the "Company"), proposes to
offer for sale in a private offering (the "Offering") pursuant to Rule 506 of
Regulation D ("Regulation D") under the Securities Act of 1933, as amended (the
"Act"), up to (i) 264,000 shares (each a "Primary Share") of Series A Cumulative
Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred
Stock") and (ii) up to 132,000 shares (each an "Overcall Share" and together
with a Primary Share, a "Share") of the Company's Series B Cumulative
Convertible Preferred Stock, par value $0.01 per share (the "Series B Preferred
Stock" and, together with the Series A Preferred Stock, the "Preferred Stock")
pursuant to Section 2(b) hereof, together with warrants (the "Warrants,"
together with the Preferred Stock are hereinafter sometimes referred to as the
"Securities") to purchase shares of the Company's common stock, $.01 par value
per share (the "Common Stock"). The Preferred Stock is convertible into shares
of Common Stock (the "Conversion Shares.") The Offering will be made solely to
"accredited investors" as defined in Regulation D. This is to confirm our
agreement concerning your acting as our exclusive placement agent (the
"Placement Agent") in connection with the Offering.
1. Appointment of Placement Agent.
------------------------------
<PAGE>
On the basis of the representations and warranties contained
herein, and subject to the terms and conditions set forth herein, the Company
hereby appoints you as its Placement Agent and grants to you the exclusive right
to offer, as its agent, the Securities pursuant to the terms of this Agreement.
On the basis of such representations and warranties, and subject to such
conditions, you hereby accept such appointment and agree to use your best
efforts to secure subscriptions to purchase up to 264,000 Shares pursuant to the
terms of this Agreement. The agency created hereby is not terminable by the
Company except upon termination of the Offering contemplated hereby or upon
expiration of the Offering Period (as defined below) in accordance with the
terms of this Agreement.
2. Terms of the Offering.
---------------------
(a) The Primary Shares shall be offered for sale to
prospective investors in this Offering (the "Prospective Investors") at a
purchase price of $25.00 per share (the "Offering Price"). The minimum
investment by a Prospective Investor shall be $12,5000 (500 Shares), unless
otherwise agreed to by the Company and the Placement Agent. Officers, directors
and employees of the Company, and the Placement Agent and its officers,
directors and employees may purchase Shares on the same terms and conditions as
other investors. All references herein to subscriptions from Prospective
Investors shall be deemed to include such Shares.
(b) In addition, upon the basis of the warranties and
representations and other terms and conditions herein set forth, at the purchase
price per share set forth in paragraph (a) of this Section 2, the Company has an
option to sell the Overcall Shares to the Prospective Investors who purchased
securities at the Closing or at any Additional Closing. The option hereby
granted will expire on August 31, 2000 and may be exercised once, in whole or in
part, upon notice by the Company to the Placement Agent setting forth the number
of Overcall Shares as to which the Company is then calling and the time and date
of payment and delivery for such Overcall Shares.
(c) The Offering with respect to the Primary Shares shall
commence on the date hereof (the "Commencement Date") and shall expire at 5:00
P.M., New York time, on December 20, 1999, unless extended from time to time for
up to an aggregate of 90 days by mutual agreement of the Company and the
Placement Agent. Such period, as the same may be so extended, shall hereinafter
be referred to as the "Offering Period."
(d) Each Prospective Investor who desires to purchase
Securities shall be required to deliver to the Placement Agent one copy of a
subscription agreement, including the investor questionnaire and the other
written materials required by the subscription instructions attached to such
subscription agreement (collectively, a "Subscription Agreement"), and payment
in the amount necessary to purchase the number of Shares such Prospective
Investor desires to purchase. The Placement Agent shall not have any obligation
to independently verify the accuracy or completeness of any information
contained in any Subscription Agreement or the authenticity, sufficiency or
validity of any check or other form of payment delivered by any Prospective
Investor in payment for the Securities.
<PAGE>
(e) The Company has established a Special Account entitled
"Evercel, Inc. - Escrow Account" (the "Special Account"). The Placement Agent
shall deliver each check received from a Prospective Investor for deposit in the
Special Account and shall deliver the executed copy of the Subscription
Agreement received from such Prospective Investor to the Company. The Company
shall notify the Placement Agent promptly of the acceptance or rejection of any
subscription. The Company shall have the right, in its sole discretion, to
reject any subscription; provided, however, that in the event the Company shall
reject a subscription by a Prospective Investor meeting the investor suitability
requirements specified in the Subscription Agreement and who has delivered
payment and completed and executed a Subscription Agreement and whose ownership
interest in the Company will not be detrimental to the Company's business
interest in the reasonable judgment of the Company (a "Qualified Subscription"),
the Company shall pay you a fee and issue you warrants in respect thereof in an
amount equal to the sales commissions and Placement Agent's Warrants (as
hereinafter defined) you would have otherwise received pursuant to Sections 4(a)
and 4(b) from the sale of such Shares to such Prospective Investor.
(f) If Subscriptions to purchase a minimum of 200,000 Primary
Shares are not received from Prospective Investors prior to the expiration of
the Offering Period and accepted by the Company, unless otherwise mutually
agreed by the Placement Agent and the Company, the Offering shall be canceled,
all funds received by the Company shall be refunded in full, without interest
and this Agreement and the agency created hereby shall be terminated without any
further obligation on the part of either party, except as provided in Sections 7
and 10 hereof.
(g) You may engage other persons that are members of the
National Association of Securities Dealers, Inc. ("NASD") or registered
representatives of such members to assist you in the Offering (each such person
being hereinafter referred to as a "Selected Dealer") and you may allow such
persons such part of the compensation and payment of expenses payable to you
hereunder as you shall determine. Each Selected Dealer shall be required to
agree in writing to comply with the provisions of, and to make the
representations, warranties and covenants contained in, Sections 5(b) and 6(b)
by executing the form of Selected Dealer Agreement attached hereto as Exhibit
III. On or prior to the Closing (as defined below), the Placement Agent shall
deliver a copy of each executed Selected Dealer Agreement to the Company. By
executing this Agreement, the Company hereby agrees to make, and is deemed to
make, the representations and warranties to, and covenants and agreements with,
each Selected Dealer (including an agreement to indemnify under Section 9
hereof) who has executed the Selected Dealer Agreement as is contained in this
Agreement.
<PAGE>
3. Closing.
-------
(a) Subject to the conditions set forth in Section 8 hereof,
if Qualified Subscriptions to purchase a minimum of 200,000 Primary Shares have
been received and cleared prior to the expiration of the Offering Period and
accepted by the Company, the closing under this Agreement (the "Closing") shall
be held at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New
York, New York, at 10:00 A.M., New York time, on the third business day
following the date upon which the Placement Agent receives notice from the
Company that subscriptions to purchase a minimum 200,000 Primary Shares have
been so accepted or at such other place, time, and/or date as the Company and
the Placement Agent shall agree upon (the "Closing Time"). The Company shall
provide the notice required by the preceding sentence as promptly as
practicable. The date upon which the initial Closing is held shall hereinafter
be referred to as the "Initial Closing Date."
(b) Subject to the conditions set forth in Section 8 hereof
and with the consent of both the Company and the Placement Agent, if, subsequent
to the Initial Closing Date and prior to the expiration of the Offering Period,
additional subscriptions to purchase Primary Shares are received from
Prospective Investors, which subscriptions are accepted by the Company, one or
more additional closings under this Agreement (each, an "Additional Closing")
shall be held at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue,
New York, New York, at 10:00 A.M., New York time, on the fifth business day
following the date upon which the Placement Agent receives notice from the
Company that additional subscriptions have been so accepted, or at such other
place, time or date as the Company and the Placement Agent shall agree upon. The
Company shall notify the Placement Agent as promptly as practicable whether any
additional subscriptions so received have been accepted. The date upon which any
Additional Closing is held shall hereinafter be referred to as an "Additional
Closing Date."
(c) If the Company elects to exercise its option pursuant to
Section 2(b) hereof, the closing (the "Overcall Closing") of all or part of the
Overcall Shares shall be held at the offices of Fulbright & Jaworski L.L.P., 666
Fifth Avenue, New York, New York, at 10:00 A.M., New York time, on the fifteenth
business day following the date upon which the Placement Agent receives notice
from the Company of such exercise, or at such other place, time or date as the
Company and the Placement Agent shall agree upon. The date upon which the
Overcall Closing is held shall hereinafter be referred to as the "Overcall
Closing Date." The latest Closing Date is sometimes referred to herein as the
"Final Closing Date."
(d) At the Closing, Additional Closing or Overcall Closing, as
the case may be, the Company shall pay to the Placement Agent from the funds
deposited in the Special Account in payment for Securities, the amount payable
to the Placement Agent pursuant to Section 4(a) of this Agreement.
Notwithstanding the foregoing, if any portion of the proceeds raised in the
Offering are not paid to the Company at the Closing, Additional Closing or
Overcall Closing, as the case may be, then the placement fee relating to such
deferred proceeds shall only be paid by the Company upon receipt of such
deferred proceeds. Promptly after the Initial Closing Date, Additional Closing
Date or Overcall Closing Date, as the case may be, the Company shall deliver to
the purchasers of Securities certificates representing the Shares and Warrants
to which they are entitled, in the forms attached hereto as Exhibit I and
Exhibit II, respectively.
4. Compensation.
------------
<PAGE>
(a) You shall be entitled, as compensation for your services
as Placement Agent under this Agreement, to an amount equal to 7% of the
aggregate gross proceeds received by the Company from the sale of Securities to
Prospective Investors, payable by the Company on the Initial Closing Date,
Additional Closing Date or Overcall Closing Date, as the case may be, with
respect to the Securities sold on such date to investors; provided, however,
that any subscription meeting the requirements set forth in Section 2(d) shall
be deemed to have been accepted for purposes of determining whether the
Placement Agent is entitled to its compensation pursuant to this Section 4(a).
In addition, the Company shall pay the Placement Agent an amount equal to 4% of
the aggregate gross proceeds to the Company upon the exercise of any of the
Warrants.
(b) As additional compensation for your services as Placement
Agent under this Agreement, you and/or your designees shall become entitled to
receive, on each of the Initial Closing Date, and each Additional Closing Date
and Overcall Closing Date, if any, warrants (collectively, the "Placement Agent
Warrants") to purchase shares of the Company's Common Stock, in an amount equal
to 7% of the number of shares of Common Stock issuable upon the conversion of
the Shares sold by the Company in the Offering on such Closing Date. Each
Placement Agent Warrant will entitle the holder thereof, until the date which is
five (5) years after the Initial Closing Date, Additional Closing Date or
Overcall Closing Date, as the case may be, to purchase one share of Common Stock
(such shares of Common Stock issuable upon the exercise of the Placement Agent
Warrants are hereinafter referred to as the "Placement Agent Warrant Shares")
and shall contain the same terms and conditions as the Warrants. The Company
shall be obligated, under certain circumstances set forth in the Registration
Rights Agreement made by the Company for the benefit of the purchasers of the
Securities and the Placement Agent and its designees (the "Registration Rights
Agreement"), to file a registration statement under the Act to permit the sale
in the public trading market of the Placement Agent Warrant Shares and the
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares") by the holders thereof. The Placement Agent Warrants and the Warrants
shall be substantially in the form attached hereto as Exhibit II.
5. Representations and Warranties.
------------------------------
(a) Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with,
the Placement Agent that:
(i) Organization, Etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as it is now being conducted and to own, operate or lease the
properties and assets it currently owns, operates or holds under lease. The
Company is duly qualified or licensed to do business and is in good standing as
a foreign corporation in each jurisdiction where the character of its business
or the nature of its properties makes such qualification or licensing necessary,
except where the failure to so qualify or be licensed would not have a material
adverse effect
<PAGE>
(ii) Capitalization. The SEC Reports (as defined
below) set forth the capitalization of the Company. There are no shares of
Common Stock held as treasury shares. The designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of each class
and series of authorized capital stock of the Company are as set forth in the
Company's Certificate of Incorporation, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. All
outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable. All of the outstanding
securities of the Company were issued in compliance with all applicable Federal
and state securities laws. None of such outstanding securities has been issued
in violation of any preemptive rights, rights of first refusal or similar
rights. Except as set forth in the SEC Reports, there are no outstanding
options, warrants, convertible securities, calls, rights, commitments,
preemptive rights or agreements or instruments or understandings of any
character to which the Company is a party or by which the Company is bound,
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, contingently or otherwise, additional shares of its capital
stock or any securities or obligations convertible into or exchangeable for such
shares or to grant, extend or enter into any such option, warrant, convertible
security, call, right, commitment, preemptive right or agreement. There are no
outstanding obligations, contingent or other, of the Company to purchase, redeem
or otherwise acquire any shares of its capital stock. There are no voting trust
agreements or other contracts, agreements, arrangements, commitments, plans or
understandings restricting or otherwise relating to voting, dividend or other
rights with respect to the capital stock of the Company.
(iii) No Prior Sales. The Company has not,
directly or indirectly, solicited any offer to buy or offered to sell any shares
of Series A Preferred Stock or any other securities of the Company during the
six-month period ending on the date hereof except for the securities as may be
described in the SEC Reports, and has no present intention to solicit any offer
to buy or to offer to sell any Series A Preferred Stock or any other securities
of the Company other than pursuant to this Agreement or as described in the SEC
Reports.
(iv) Authorization. The Company has all requisite
corporate power and authority to enter into this Agreement, the Subscription
Agreement and the Registration Rights Agreement (collectively, the "Transaction
Documents"), to carry out its obligations under each of the Transaction
Documents and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, the performance by the Company of its
obligations hereunder and thereunder (other than its obligations to register
shares of Common Stock under the Securities Act pursuant to the Registration
Rights Agreement) and the authorization, designation, reservation, sale,
issuance and delivery of the Shares, the Conversion Shares, the Warrants, the
Placement Agent Warrants, the Warrant Shares and the Placement Agent Warrant
Shares have been duly authorized by all necessary corporate action on the part
of the Company. This Agreement has been, and each of the other agreements
contemplated hereby, when executed and delivered by the Company, will have been,
duly executed and delivered by the Company and constitute the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms (except as the enforceability thereof may be limited by any
applicable bankruptcy, insolvency or other laws affecting creditors' rights
generally or by general principles of equity, regardless of whether such
enforceability is considered in equity or at law). The Shares, the Conversion
Shares, the Warrants, the Placement Agent Warrants, the Warrant Shares and the
Placement Agent Warrant Shares have been duly authorized and, when issued in
accordance with this Agreement, the Shares, the Warrants and the Placement Agent
Warrants will be validly issued, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof. The Conversion Shares, the Warrant
Shares and the Placement Agent Warrant Shares have been duly reserved for
issuance. Neither the issuance, sale nor delivery of the Shares, the Conversion
Shares, the Warrants, the Placement Agent Warrants, the Warrant Shares or the
Placement Agent Warrant Shares is subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other right in
favor of any person which has not been waived in writing.
<PAGE>
(v) No Violation. The execution and delivery of
this Agreement and each other Transaction Document by the Company do not, and
the consummation by the Company of the transactions contemplated hereby and
thereby and compliance with the terms hereof and thereof will not, (a) conflict
with, or result in any violation of or default or loss of any benefit under, any
provision of the Company's Certificate of Incorporation or By-laws; (b) conflict
with, or result in any violation of or default or loss of any benefit under, any
permit, concession, grant, franchise, law, rule or regulation, or any judgment,
decree or order of any court or other governmental agency or instrumentality to
which the Company is a party or to which any of its property is subject; (c)
conflict with, or result in a breach or violation of or default or loss of any
benefit under, or accelerate the performance required by, the terms of any
agreement, contract, indenture or other instrument to which the Company is a
party or to which any of its property is subject, or constitute a default or
loss of any right thereunder or an event which, with the lapse of time or notice
or both, might result in a default or loss of any right thereunder or the
creation of any Security Interest upon any of the assets or properties of the
Company; or (d) result in any suspension, revocation, impairment, forfeiture or
nonrenewal of any license.
(vi) Financial Statements and Other Information.
(a) The Company has previously furnished to the Placement Agent the Company's
Quarterly Reports on Form 10-QSB for the quarters ended January 31, 1999, April
30, 1999 and July 31, 1999, which contain the audited and unaudited financial
statements of the Company (the "Financial Statements"). These statements fairly
present the financial condition of the Company as of the respective dates
thereof and the results of the operations of the Company for such periods and
have been prepared in accordance with generally accepted accounting principles
consistently applied, except that any such unaudited statements may omit notes
and may be subject to year-end adjustment.
<PAGE>
(b) Since July 31, 1999, (i) the business of the Company has
been conducted in the ordinary course of business and (ii) there has been no
material adverse change. As of the date hereof, there are no material
liabilities of the Company which would be required to be provided for in a
balance sheet of the Company as of July 31, 1999 prepared in accordance with
generally accepted accounting principles consistently applied, other than
liabilities provided for in the financial statements referred to in subparagraph
(a) above and liabilities incurred after July 31, 1999 in the ordinary course of
business.
(c) There are no material liabilities, contingent or
otherwise, of the Company that have not been disclosed in the financial
statements referred to in subparagraph (a) above or otherwise disclosed in the
Company's public filings with the Securities and Exchange Commission.
(vii) SEC Reports. The Company has filed all proxy
statements, reports and other documents required to be filed by it under the
Securities Exchange Act. The Company has furnished the Placement Agent with
copies of its (i) Quarterly Reports on Form 10-QSB for the quarters ended
January 31, 1999, April 30, 1999 and July 31, 1999, (ii) Form 8-K filed on
October 13, 1999 and (iii) press releases dated August 10, August 12, September
9 and November 1, 1999 (collectively, the "SEC Reports"). Each SEC Report was in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(viii) Litigation. There is no action, suit,
investigation, arbitration or proceeding pending or, to the best knowledge of
the Company, threatened against or affecting the Company, or any of its
properties or rights (including without limitation no charge of patent and/or
trademark infringement), by or before any governmental entity, or any basis in
fact therefor known to the Company, against or involving the Company or any of
its officers, directors or employees (in their capacity as such), assets,
business or products, whether at law or in equity. The Company is not subject to
any outstanding injunction, judgment, order, decree, ruling or charge which
could reasonably be expected to have a material adverse effect.
(ix) Compliance with Laws. The Company has
complied in all material respects with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and
charges thereunder) of any governmental entity relating to or affecting the
operation, conduct or ownership of its property or business, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand or
notice has been filed or commenced or, to the best knowledge of the Company,
threatened against it alleging any failure so to comply. Neither the Company
nor, to the best knowledge of the Company, any of its directors, officers,
consultants or employees (in their capacity as such), is in default in any
material respect with respect to any order, writ, injunction or decree known to
or served upon the Company of any governmental entity.
(x) Environmental Compliance. The Company has not
generated, used, transported, treated, stored, released or disposed of, and has
not suffered or permitted anyone else to generate, use, transport, treat, store,
release or dispose of any hazardous substance in violation of any environmental
laws; (ii) there has not been any generation, use, transportation, treatment,
storage, release or disposal of any hazardous substance resulting from the
conduct of the Company or the use of any property or facility by the Company or,
to the best of the Company's knowledge, any nearby or adjacent properties or
facilities, which has created or could reasonably be expected to create any
material liability on the part of the Company under the environmental laws or
that would require reporting to or notification by the Company to any
governmental entity; and (iii) any hazardous substance handled or dealt with in
any way in connection with the business of the Company, whether before or during
the ownership of the Company, has been and is being handled or dealt with in all
respects in compliance with the environmental laws in effect at the time such
activities were being conducted, except where such violation, liability, failure
to report or failure to comply would not have a material adverse effect.
<PAGE>
(xi) Registration Rights. Except as provided
for in the Registration Rights Agreement or the SEC Reports, upon consummation
of the transactions contemplated hereby the Company is not under any obligation
to register under the Securities Act any of its currently outstanding securities
or any of its securities which may hereafter be issued.
(xii) Private Offering. No form of general
solicitation or general advertising was used by the Company or its
representatives in connection with the offer or sale of the Securities. Based in
part on the representations of the Placement Agent contained herein, no
registration of the Securities pursuant to the provisions of the Securities Act
or any state securities or "blue sky" laws will be required by the offer, sale
or issuance of the Securities pursuant to this Agreement. The transactions
contemplated hereunder, including the issuance and sale of the Securities, are
exempt from registration under the provisions of the Securities Act and any
state "blue sky" laws.
(b) Representations and Warranties of the Placement Agent.
The Placement Agent hereby represents and warrants to, and agrees with, the
Company as follows:
(i) This Agreement have been duly authorized,
executed and delivered by the Placement Agent, are the legal, valid and binding
obligations of the Placement Agent and are enforceable as to the Placement Agent
in accordance with their respective terms (subject to applicable bankruptcy,
insolvency and other laws affecting the enforceability of creditors' rights
generally and to general equitable principles).
(ii) The Placement Agent will not offer or sell
the Securities to any investor which the Placement Agent did not have reasonable
grounds to believe and did not believe, was an "accredited investor."
(iii) The Placement Agent will not offer or
sell the Securities by means of any form of general solicitation or general
advertising, including, without limitation, the following:
(1) any advertisement, article, notice
or other communication published in any newspaper, magazine or similar medium
or broadcast over television or radio; and
<PAGE>
(2) any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
(iv) The Placement Agent is a member in good
standing of the NASD or is a registered representative thereof, is licensed
under the Exchange Act, and, if required, under the laws of all jurisdictions in
which it will offer the Securities.
(v) Neither the Placement Agent nor any partner,
officer or director of the Placement Agent:
(1) Is currently subject to any
administrative order or judgment in any state which prohibits the use of any
exemption from registration in connection with the purchase or sale of
securities;
(2) Is subject to any order, judgment
or decree of any court or regulatory authority of competent jurisdiction
temporarily or preliminarily restraining or enjoining, or is subject to any
order, judgment or decree of any court or regulatory authority of competent
jurisdiction, entered within the last five years permanently restraining or
enjoining, such person from engaging in or continuing any conduct or practice
(including making use of any exemption) in connection with the purchase or sale
of any security or commodity or involving the making of any false filing with
any state relating to any security or offering or arising out of the conduct of
the business of an underwriter, broker, dealer, municipal securities dealer, or
investment adviser; or which restrains or enjoins such person from activities
subject to federal or state statutes designed to protect consumers against
unlawful or deceptive practices involving insurance, commodities or commodity
futures, real estate, franchise, business opportunities, consumer goods, or
other goods and services;
(3) Has been convicted of, or has pleaded
nolo contendere to, within the past ten years, any felony or misdemeanor in
connection with the purchase or sale of any security or commodity, involving the
making of a false filing relating to any security or offering; arising out of
the conduct of the business of an underwriter, broker, dealer, municipal
securities dealer, or investment adviser; or involving fraud, deceit,
racketeering, or intentional wrongdoing, including, without limitation, forgery,
embezzlement, obtaining money under false pretenses, larceny, or conspiracy to
defraud;
(4) Is currently subject to any state
administrative enforcement order or judgment entered by that state's securities
administrator within the past five years or is subject to any state's
administrative enforcement order or judgment, entered within the past five
years, in which fraud or deceit, including, without limitation, making untrue
statements of material facts and omitting to state material facts, was found;
or, if such an order or judgment was entered, the person subject to such order
or judgment is licensed or registered to conduct securities-related business in
the state in which the administrative order or judgment was entered against such
person;
<PAGE>
(5) Is suspended or expelled from
membership in, or suspended or barred from association with a member of an
exchange registered as a national securities exchange pursuant to Section 6 of
the Exchange Act, an association registered as a national securities association
under Section 15A of the Exchange Act, or a Canadian securities exchange or
association for any act or omission to act constituting conduct inconsistent
with just and equitable principles of trade;
(6) Is subject to a United States
Postal Service false representation order entered under section 3005 of title
39, United States Code, within the past five years; or is subject to a
restraining order or preliminary injunction entered under section 3007 of title
39, United States Code, with respect to conduct alleged to have violated section
3005 of title 39, United States Code; or
(7) Has been the underwriter or named
as the underwriter of any securities covered by any registration statement or
offering circular which is the subject of any pending proceeding or examination
under the Act or is the subject of any refusal order or stop order entered
thereunder or under any state's laws within the past five years.
6. Covenants.
(a) Covenants of the Company. The Company covenants to
the Placement Agent that it will:
(i) Notify you immediately, and confirm such
notice promptly in writing, (A) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the expiration
of the Offering Period and the Final Closing Date, as a result of which the SEC
Reports would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading, all
in light of the circumstances under which they were made and (B) of the receipt
of any notification with respect to the modification, rescission, withdrawal or
suspension of an exemption from the registration or qualification of the
Securities in any jurisdiction. The Company will use commercially reasonable
efforts to prevent the issuance of any such modification, rescission, withdrawal
or suspension and, if any such modification, rescission, withdrawal or
suspension is issued and you so request, will use commercially reasonable
efforts to obtain the lifting thereof as promptly as possible.
(ii) Not, directly or indirectly, solicit
any offer to buy from, or offer to sell to any person any Securities except
through the Placement Agent.
(iii) Not solicit any offer to buy or offer to
sell the Securities by any form of general solicitation or advertising,
including, without limitation, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium or
broadcast over television or radio or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising.
<PAGE>
(iv) Use commercially reasonable efforts to
qualify or register the Securities for offering and sale under, or establish an
exemption from such qualification or registration under, the securities or "blue
sky" laws of such jurisdictions as you may reasonably request. The Company will
not consummate any sale of Securities in any jurisdiction or in any manner in
which such sale may not be lawfully made.
(v) At all times during the period commencing
on the date hereof and ending on the later of the expiration of the Offering
Period and the Final Closing Date, provide to each Prospective Investor or his
or her purchaser representative, if any, on request, such reasonable information
(in addition to that contained in the SEC Reports) concerning the Offering, the
Company and any other relevant matters as it possesses or can acquire without
unreasonable effort or expense and extend to each Prospective Investor or his or
her purchaser representative, if any, the opportunity to ask questions of, and
receive answers from, the Company concerning the terms and conditions of the
Offering and the business of the Company and to obtain any other additional
information, to the extent it possesses the same or can acquire it without
unreasonable effort or expense, as such Prospective Investor or purchaser
representative may consider reasonably necessary in making an informed
investment decision or in order to verify the accuracy of the information
furnished to such Prospective Investor or purchaser representative, as the case
may be, subject to receipt of a confidentiality agreement if the Company deems
it appropriate; provided, however, that the Company shall not accept any
subscription to purchase Securities from a Prospective Investor who has not been
provided with all information requested by such Prospective Investor or who has
not received answers to all questions asked by such Prospective Investor. Any
additional written information provided to a Prospective Investor by the Company
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading. Copies of
any such written information will promptly be given to the Placement Agent.
(vi) Before accepting any subscription to
purchase Securities from, or making any sale to, any Prospective Investor, have
reasonable grounds to believe and does believe that (A) such Prospective
Investor is an "accredited investor" and meets all other suitability
requirements for investing in the Securities set forth in the Subscription
Agreement, and (B) all representations made and furnished by such Prospective
Investor in the Subscription Agreement and related documents are true and
correct in all material respects.
(vii) Notify you promptly of the acceptance or
rejection of any subscription.
(viii) File five copies of a Notice of Sales of
Securities on Form D with the Securities and Exchange Commission (the
"Commission") within the time required by such Rule and file a final notice on
Form D with the Commission within the time required by such Rule. The Company
shall file promptly such amendments to such Notices on Form D as shall become
necessary and shall also comply with any filing requirement imposed by the laws
of any state or jurisdiction in which offers and sales are made. The Company
shall furnish you and your counsel with copies of all such filings promptly
after any such filing is made.
<PAGE>
(ix) Place the following legend on all
certificates representing the Shares sold pursuant to this Offering, as well as,
to the extent applicable, the Conversion Shares, Warrants, the Placement Agent
Warrants, the Warrant Shares and the Placement Agent Warrant Shares:
"The securities represented hereby have not
been registered under the Securities Act of 1933, as
amended, or any state securities laws and neither the
securities nor any interest therein may be offered,
sold, transferred, pledged or otherwise disposed of
except pursuant to an effective registration
statement under such act or such laws or an exemption
from registration under said act and such laws,
which, in the opinion of counsel for the holder,
which counsel and opinion are reasonably satisfactory
to counsel for the company, is available";
(x) Not, directly or indirectly, engage in any
act or activity which may jeopardize the status of the Offering and sale of the
Securities as exempt transactions under the Act or under the securities or "blue
sky" laws of any jurisdiction in which the Offering may be made. Without
limiting the generality of the foregoing, and notwithstanding anything contained
herein to the contrary, the Company shall not, during the six months following
completion of the Offering, (A) directly or indirectly, engage in any offering
of securities which would result in integration with the Offering in the manner
prescribed by Rule 502(a) of Regulation D and applicable releases of the
Commission and thereby jeopardize the status of the Offering and sale of the
Securities as exempt transactions under Regulation D or (B) engage in any
offering of securities, without the opinion of counsel reasonably satisfactory
to the Placement Agent, to the effect that such offering would not result in
integration with this Offering, or if integration would so result, that such
integration would not jeopardize the status of this Offering as an exempt
transaction under Regulation D. The Company agrees to indemnify the Placement
Agent and/or any controlling person, director, officer, employee, affiliate or
agent of the Placement Agent and hold them harmless against any losses, claims,
damages, expenses or liabilities to which the Placement Agent and/or such other
indemnified parties may become subject, which are related to or arise out of the
breach of the covenant contained in this Section 6(a)(x).
(xi) Apply, in all material respects, the net
proceeds from the sale of the Securities for the purposes of automating the
Danbury, CT manufacturing facility, working capital and general corporate
purposes.
<PAGE>
(xii) Not, during the period commencing on the
date hereof and ending on the later of the expiration of the Offering Period and
the Final Closing Date, unless otherwise legally obligated, issue any press
release or other communication or hold any press conference with respect to the
Company, its financial condition, results of operations, business, properties,
assets or liabilities, or the Offering, without your prior written consent,
which consent shall not be unreasonably withheld.
(xiii) Comply in all respects with its obligations
under the Transaction Documents.
(b) Covenants of the Placement Agent. The Placement Agent
hereby covenants and agrees as follows:
(i) The Placement Agent will not accept the
subscription of any person unless immediately before accepting such subscription
the Placement Agent has reasonable grounds to believe and does believe that (A)
such person is an "accredited investor" and (B) all representations made and
information furnished by such person in the Subscription Agreement and related
documents are true and correct in all material respects. The Placement Agent
agrees to notify the Company promptly if the Placement Agent shall, at any time
during the period after delivery of the documents furnished by such person to
the Company in connection with a subscription for Securities and immediately
before the sale of Securities to such person, no longer reasonably believes one
or more of the foregoing matters with respect to such person.
(ii) The Placement Agent will solicit purchasers
of Securities in the United States only in the jurisdictions in which such
solicitation may, upon the advice of counsel, be made under applicable
securities or "blue sky" laws and in which the Placement Agent is qualified so
to act.
(iii) The Placement Agent will render its services
in connection with the Offering in accordance with Regulation D and all
applicable state and federal manner of sale and anti-fraud securities laws.
7 Payment of Expenses.
(a) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will pay
all fees, charges and expenses incident to the performance by the Company of its
obligations hereunder, including, without limitation, all fees, charges, and
expenses in connection with (i) the preparation, printing, reproduction, filing,
distribution and mailing of the Subscription Agreement, Transaction Documents
and all other documents relating to the offering, purchase, sale and delivery of
the Securities, and any supplements or amendments thereto, including the fees
and expenses of counsel to the Company, and the cost of all copies thereof, (ii)
the issuance, sale, transfer and delivery of the Shares, the Conversion Shares,
the Warrants, the Placement Agent Warrants, the Warrant Shares and the Placement
Agent Warrant Shares, including any transfer or other taxes payable thereon (not
including income related taxes of the recipient of such securities) and the fees
of any Transfer Agent or Registrar, (iii) the registration or qualification of
the Securities or the securing of an exemption therefrom under state or "blue
sky" or securities laws, including, without limitation, filing fees payable in
the jurisdictions in which such registration or qualification or exemption
therefrom is sought and the costs of preparing preliminary, supplemental and
final "Blue Sky Surveys" relating to the offer and sale of the Securities; and
(iv) the filing fees, if any, payable to the Commission; (v) travel and roadshow
expenses, all of which shall be paid at each Closing of the Offering, as
applicable.
(b) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will from
time to time promptly upon request therefor reimburse the Placement Agent for
the cost of printing and mailing the offering materials, travel and roadshow
expenses and all other out-of-pocket expenses incurred by the Placement Agent in
connection with this Offering (including, without limitation and disbursements
as set forth below). Such expenses in excess of $25,000 shall be billed monthly,
as incurred.
(c) The Company shall pay to or as directed by the Placement
Agent on the Initial Closing Date (and, to the extent of any additional legal
fees and expenses, on each Additional Closing Date or the Overcall Closing Date)
the fees and disbursements of counsel to the Placement Agent of up to an
aggregate of $25,000.
8 Conditions of Placement Agent's Obligations. The obligations of the
Placement Agent pursuant to this Agreement (other than pursuant to Section 1
hereof) and the right of the Company to obtain on the Initial Closing Date and,
if applicable, each Additional Closing Date and the Overcall Closing Date, the
funds representing Securities purchased at such Closing, as the case may be,
shall be subject to the performance by the Company of its obligations hereunder,
and to the satisfaction of the following additional conditions:
(a) On or prior to the Initial Closing Date, each Additional
Closing Date and the Overcall Closing Date, as the case may be, the Placement
Agent shall have been furnished such information, documents and certificates as
it may reasonably require for the purpose of enabling it to review the matters
referred to in this Section 8 and in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties,
covenants, agreements or conditions herein contained, or as it may otherwise
reasonably request.
(b) The representations and warranties of the Company
contained in this Agreement that are qualified with respect to materiality shall
be true and correct in all material respects, and such representations and
warranties that are not so qualified shall be true and correct in all respects
on each Closing Date, as the case may be, with the same effect as if made on
such Closing Date, and all covenants and agreements contained in this Agreement
to be performed on the part of the Company and all conditions contained in this
Agreement to be fulfilled or complied with by the Company at or prior to the
Initial Closing Date, Additional Closing Date or Overcall Closing Date, as the
case may be, shall have been duly performed, fulfilled or complied with and the
Placement Agent shall have received a certificate to such effect, dated the such
Closing Date, as the case may be, from the chief executive officer and chief
financial officer of the Company.
(c) At the Initial Closing Date, the Company shall accept
subscriptions representing no less than 200,000 Primary Shares. At the Closing,
Additional Closing and Overcall Closing, if any, the Company shall have
satisfied its obligations under Sections 4(a) and 7.
<PAGE>
(d) At the Closing and each Additional Closing and Overcall
Closing, if any, the Placement Agent shall have received the favorable opinions
of Robinson & Cole, LLP, counsel for the Company, dated the date of delivery,
addressed to the Placement Agent, in form satisfactory to the Placement Agent
and its counsel.
(e) On the Initial Closing Date and each Additional Closing
Date and Overcall Closing Date, if any, all corporate and other proceedings
taken or to be taken by the Company in connection with the issuance, sale and
delivery of the Securities and the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in form and substance to you
and your counsel.
(f) On the Initial Closing Date and each Additional Closing
Date and Overcall Closing Date, if any, the Registration Rights Agreement shall
have been duly executed and delivered by the Company, by the purchasers of
Securities, and by the other parties thereto and shall be in full force and
effect.
(g) There shall not have occurred, at any time prior to the
Initial Closing or, if applicable, an Additional Closing or Overcall Closing, as
the case may be, (i) any domestic or international event, act or occurrence
which has materially disrupted, or in your opinion will in the immediate future
materially disrupt, the securities markets; (ii) a general suspension of, or a
general limitation on prices for, trading in securities on a national securities
exchange or stock market, or in the over-the-counter market; (iii) any outbreak
of major hostilities or other national or international calamity; (iv) any
banking moratorium declared by a state or federal authority; (v) any moratorium
declared in foreign exchange trading by major international banks or other
persons; (vi) any material interruption in the mail service or other means of
communication within the United States; (vii) any material adverse change in the
business, properties, assets, results of operations or financial condition of
the Company; or (viii) any material change in the market for securities in
general or in political, financial or economic conditions which, in your
reasonable business judgment, makes it inadvisable to proceed with the offering,
sale and delivery of the Securities.
(h) On the Initial Closing Date and each Additional Closing
Date and Overcall Closing Date, if any, the Placement Agent shall have received
certificates, each dated the such Closing Date, as the case may be, signed by
the chief executive officer and the chief financial officer of the Company, in
form and substance satisfactory to the Placement Agent, to the effect that each
signer (solely in his capacity as an officer of, and on behalf of, the Company)
of such certificate has carefully examined the SEC Reports and since the date of
the latest SEC Report, no event has occurred as a result of which it is
necessary to amend or supplement such documents in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading in any material respect.
(i) On the Initial Closing Date and each Additional Closing
Date and Overcall Closing Date, if any, the Placement Agent shall have received
a certificate, dated such Closing Date, as the case may be, signed by the
Secretary of the Company, in form and substance satisfactory to the Placement
Agent, certifying as to (i) the incumbency and the signatures of those officers
of the Company executing the Transaction Documents and certificates or other
documents to be executed pursuant to the terms of such agreements, (ii) the
certificate of incorporation and by-laws of the Company and (iii) the
resolutions of the Board of Directors of the Company (or duly appointed
committee thereof) authorizing the execution and delivery of the Transaction
Documents and the transactions contemplated hereby and thereby.
<PAGE>
Any certificate or other document signed by any officer of the
Company and delivered to you or to your counsel shall be deemed a representation
and warranty by the Company hereunder as to the statements made therein. If any
condition to your obligations hereunder has not been fulfilled as and when
required to be so fulfilled, you may terminate this Agreement or, if you so
elect, in writing waive any such conditions which have not been fulfilled or
extend the time for their fulfillment. In the event that you elect to terminate
this Agreement, you shall notify the Company of such election in writing. Upon
such termination, neither party shall have any further liability or obligation
to the other except as provided in Section 10 hereof.
9 Indemnification and Contribution.
(a) The Company agrees to indemnify the Placement Agent and/or
any controlling person, director, officer, employee, affiliate or agent of the
Placement Agent and hold them harmless against any losses, claims, damages,
expenses or liabilities to which the Placement Agent and/or such other
indemnified parties may become subject, which are related to or arise out of (i)
actions taken or omitted to be taken (including any untrue written statements of
a material fact made or alleged to have been made or any statements of material
fact omitted or alleged to have been omitted in connection with any written
statement by the Company) by the Company, its affiliates, directors, employees
or agent, or (ii) actions taken or omitted to be taken by the Placement Agent
and/or any controlling person, director, officer, employee, affiliate or agent
of the Placement Agent with the Company's written consent or in conformity with
its written instructions except to the extent that such losses, claims, damages,
expenses (including reasonable fees and expenses of counsel), liabilities,
actions, proceedings, investigations (formal and informal) or inquiries are
caused by gross negligence or willful misconduct or bad faith of the Placement
Agent and/or any controlling person, director, officer, employee, affiliate or
agent of the Placement Agent; and in case any action shall be brought against
the Placement Agent and/or any other party indemnified hereunder with respect to
which indemnity is available against the Company, the Placement Agent shall
promptly notify the Company in writing and the Company shall assume the defense
thereof, including the employment of counsel selected by the Company reasonably
satisfactory to the Placement Agent and payment of all fees and expenses. The
Placement Agent and/or any party indemnified hereunder shall have the right to
retain separate counsel, but the fees and expenses of such counsel shall be at
the expense of the Placement Agent or such other indemnified party, as the case
may be, unless (i) the expenses of such counsel have been expressly assumed in
writing by the Company, (ii) the Company has failed to assume the defense or the
employ of counsel satisfactory to the Placement Agent, or (iii) the named
parties to any such action (including any impleaded parties) include both (a)
the Placement Agent or any such other indemnified party and (b) the Company or
any controlling person, director, officer, employee, affiliate or agent of the
Company, and the Placement Agent or such other indemnified party shall have been
advised by legal counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Company
or the Company's agents (in which case the Company shall not have the right to
assume the defense of such action on behalf of the Placement Agent and/or such
other indemnified party); it being understood that if the Placement Agent elects
not to have the Company defend any claim pursuant to this clause (iii), the
Placement Agent shall give the Company the opportunity to be defended by the
legal counsel selected by the Placement Agent; and, it being understood,
further, that the Company shall not, in connection with any one such action or
separate, substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
Placement Agent and all such other indemnified parties, which firm shall be
designated in writing by the Placement Agent. For actions brought against the
Placement Agent or such other indemnified party for which the Company has
assumed the defense, the Company agrees that it will not, without the prior
consent of the Placement Agent, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action or proceeding relating
to the matters contemplated by the Placement Agent's engagement unless such
settlement, compromise or consent includes an unconditional release of the
Placement Agent and such indemnified parties from all liability arising or that
may arise out of such claim. In addition, the Company agrees to reimburse such
indemnified person for all expenses (including fees and expenses of counsel) as
they are incurred by such indemnified person (upon receipt by the Company from
such indemnified person of an undertaking by such indemnified person promptly to
repay to the Company and such reimbursement upon a final judicial determination
that such indemnified person is not entitled to indemnification pursuant to the
preceding paragraphs) in connection with investigating, preparing or defending
any such action or claim, whether or not in connection with litigation in which
any indemnified person is a named party. The Company will reimburse the
Placement Agent for all out-of-pocket expenses incurred by the Placement Agent
by reason of any of its personnel being involved in any such action against the
Placement Agent, the Company or the Company's directors.
(b) The Placement Agent agrees to indemnify and hold harmless
the Company and/or any controlling person, director, officer, employee,
affiliate or agent of the Company to the same extent as the indemnity from the
Company to the Placement Agent set forth in paragraph (a) hereof, but only with
respect to statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by the Placement Agent expressly
for use in the Subscription Agreement; provided, however, that any
indemnification or contribution by the Placement Agent hereunder shall not
exceed the amount of compensation received by the Placement Agent pursuant to
Section 4 hereof. If any action shall be brought against the Company and/or any
other party indemnified hereunder with respect to which indemnity is available
against the Placement Agent pursuant to this paragraph (b), the Placement Agent
shall have the rights and duties given to the Company by paragraph (a) above,
and the Company and/or any other indemnified party shall have the rights and
duties given to the Placement Agent by paragraph (a) above.
<PAGE>
(c) The Company and the Placement Agent agree that if any
indemnification or reimbursement sought pursuant to the preceding paragraph is
finally judicially determined to be unavailable (except by reason of the gross
negligence or willful misconduct or bad faith of the party seeking
indemnification or its controlling persons, directors, officers, employees,
affiliates or agents, as the case may be), then the Company and the Placement
Agent shall contribute to the liabilities for which such indemnification or
reimbursement is held unavailable in such proportion as is appropriate to
reflect (a) the relative benefits to the Company on the one hand, and the
Placement Agent on the other hand, in connection with the transaction to which
such indemnification or reimbursement relates, (b) the relative fault of the
parties, and (c) other equitable considerations (provided, however, that in no
event shall the amount to be contributed by the Placement Agent exceed the
amount of the fees actually received by the Placement Agent hereunder).
(d) The reimbursement, indemnity and contribution obligations
of the Company and the Placement Agent under the preceding paragraphs shall be
in lieu of any right that the Placement Agent or the Company and/or any of their
respective controlling persons, directors, officers, employees, affiliates or
agents may otherwise have, and shall be binding upon and inure to the benefit of
any successors, assigns, heirs, and personal representatives of the Company, the
Placement Agent or such other persons.
10 Representations and Agreements to Survive Delivery. All
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements at the Initial Closing Date and, if applicable, each Additional
Closing Date and Overcall Closing Date, and such representations, warranties,
covenants and agreements, including the indemnity and contribution agreements
contained in Section 9, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Placement Agent or
any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 9, and shall survive
termination of this Agreement or the issuance, sale and delivery of the
Securities. In addition, notwithstanding any election hereunder or any
termination of this Agreement, and whether or not the terms of this Agreement
are otherwise carried out, the provisions of Sections 7, 9, 10 and 12 shall
survive termination of this Agreement and shall not be affected in any way by
such election or termination or failure to carry out the terms of this Agreement
or any part thereof.
11 Notices. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to the
Placement Agent, shall be mailed, or faxed and confirmed by letter, to its
address set forth above, with a copy to Merrill M. Kraines, Esq., Fulbright &
Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103, or if sent to the
Company, shall be mailed, or faxed and confirmed by letter, to Evercel, Inc., 2
Lee Mac Avenue, Danbury, CT 06810, Attention: President, with a copy to Richard
A. Krantz, Esq., Robinson & Cole, LLP, 695 East Main Street, Stamford,
Connecticut 06904. All notices hereunder shall be effective upon receipt by the
party to which it is addressed.
<PAGE>
12 Assignment. This Agreement shall not be assigned by any party
hereto without the prior written consent of the other parties hereto.
13 Parties. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Placement Agent and the Company and the persons
and entities referred to in Section 9 who are entitled to indemnification or
contribution, and their respective successors, legal representatives and assigns
(which shall not include any purchaser, as such, of Securities), and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
14 Construction. This Agreement shall be construed in accordance with
the laws of the State of New York, without giving effect to its principles of
conflict of laws.
15 Entire Agreement. This Agreement and the letter agreement dated
October 20, 1999 between the Company and the Placement Agent (the "Engagement
Letter") constitute and contain the entire agreement between the parties hereto
and supersede any and all prior agreements, arrangements and understandings
between such parties relating to the subject matter hereof. To the extent any
provision of this Agreement directly conflicts with a provision of the
Engagement Letter, the provisions of this Agreement shall control.
16 Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which, when taken together,
shall constitute one agreement.
<PAGE>
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement between us.
Very truly yours,
EVERCEL, INC.
By:__________________________________
Name:
Title:
Accepted as of the date first above written.
New York, New York
BURNHAM SECURITIES INC.
By:____________________________________
Name:
Title:
<PAGE>
EXHIBITS
I. - Form of Certificate of Designations
II. - Form of Warrant
III. - Form of Selected Dealer Agreement
Exhibit 23.1
Consent of Independent Accountants
The Board of Directors
Evercel, Inc.:
We consent to the inclusion in the registration statement on Form S-3 of
Evercel, Inc. of our report dated March 13, 2000 relating to the balance sheets
of Evercel, Inc. as of December 31, 1999 and October 31, 1999 and 1998 and the
related statements of income (loss), changes in shareholders' equity and cash
flows for the two months ended December 31, 1999, and for each of the years in
the three-year period ended October 31, 1999, and to the reference to our firm
under the headings "Selected Financial Data" and "Experts" in the Prospectus.
/s/ KPMG LLP
KPMG LLP
Stamford, CT
March 22, 2000
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