SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1995.
Commission file number 0-8936.
DATAMARINE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2454559
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7030 220th S.W., Mountlake Terrace, Washington 98043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 771-2182
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, with par value of $.01
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of December 22, 1995 was approximately $10,039,000.
The number of shares of the Registrant's common stock outstanding as of
December 22, 1995 was 1,296,684 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Information from the Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A for the 1996 Annual Meeting of Stockholders is
incorporated by reference into Part III, Items 10, 11, 12 and 13.
Page 1 of __ , Exhibit index on page __
PART I
ITEM 1. BUSINESS
Introduction
Datamarine International, Inc. ("Datamarine") and its subsidiaries
(collectively the "Company") manufacture radio communications and
navigation instrumentation products. Presently, the Company operates in a
single industry segment, namely electronics.
Datamarine International, Inc. was incorporated in Massachusetts on
April 23, 1969. The Company has product development and manufacturing
facilities at its Mountlake Terrace, Washington location. It has sales
and service facilities on the East and West coasts of the United States
and in Sydney, Australia. Sales of marine products are made worldwide
through approximately 300 dealers in the United States and dealers in
approximately 20 foreign countries.
Sales of narrowband communications products for the land mobile radio
market are made through the Company's wholly-owned subsidiary, SEA, Inc.
("SEA"), to industrial users nationwide. SEA has developed and marketed
narrowband radio equipment since 1984 and began selling a new line of
narrowband equipment for use in the 220 MHz band in the fourth quarter of
FY1993. Sales to the land mobile radio market were 45% of consolidated
sales in FY1995 compared to 36% in 1994 and 1% in 1993.
On October 19,1992, the Federal Communications Commission ("FCC")
conducted a lottery which has led to the issuance of approximately 3,500
licenses for a new land mobile service in the 220-222 MHz band. The FCC
adopted challenging technical parameters for the equipment to be used in
the 220 MHz radio service. By establishing these parameters the FCC
intended to encourage the development of new spectrum-efficient
technologies for land mobile applications. This service is mandated to
use narrowband technologies which will result in a fivefold increase in
the number of communications channels as compared to conventional
technologies. SEA was the first manufacturer to receive FCC type
acceptance for 220 MHz radio equipment. SEA shipped its first 220 MHz
radios in July 1993.
During FY1995 Narrowband Network Systems, Inc. ("NNS") was incorporated in
the state of Washington as a subsidiary of SEA, and at September 30, 1995
SEA owned 97.5% of NNS's outstanding stock. NNS was formed to participate
in the business of providing specialized mobile radio ("SMR") services.
NNS has entered into both "Management Agreements" and "Operator
Agreements" with the holders of 220 MHz licenses granted by the FCC
related to SMR services in approximately 75 market areas across the
United States. SEA also has seven 220 MHz licenses of its own. Management
Agreements require NNS to construct, develop and operate SMR systems in
certain markets. Operator Agreements require NNS to provide licenses,
system facilities and "SMR Operators" in certain markets. The Management
Agreements typically allow NNS to acquire the license holder's interest in
exchange for a percentage of gross receipts from the system and a
percentage of any profit realized by NNS upon the system's ultimate
disposition. The Operator Agreements typically give NNS a contractual
percentage of system revenue based on the level of support provided to
each system. The rate at which 220 MHz SMR services are deployed is
highly dependent on the regulatory environment as determined by the FCC.
Until such time as the FCC issues final regulations related to 220 MHz
operations, the timing and amounts of revenues, costs and capital
requirements related to the licenses, Management Agreements and Operator
Agreements are uncertain. Because NNS commenced only limited operations
in the fourth fiscal quarter, revenues and associated expenses were
negligible during the year ended September 30, 1995.
Foreign sales accounted for approximately 8% of the Company's consolidated
sales in FY1995, 9% in FY1994 and 14% in FY1993.
Products and Marketing
The composition of the Company's sales by product line was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Land mobile communications $ 6,642,984 45% $ 4,272,085 36% $ 114,731 1%
Marine communications 5,296,945 36% 4,234,524 36% 4,153,197 53%
Marine instrumentation 2,846,729 19% 3,322,828 28% 3,680,912 46%
--------------------------------------------------------------
Total $14,786,658 100% $11,829,437 100% $ 7,948,840 100%
--------------------------------------------------------------
</TABLE>
Land Mobile Communications -- Marketed under the SEA trademark, the
Company's narrowband land mobile radio system products have been type
accepted by the FCC for use in the newly created service at 220 MHz.
These products consist of hand held, mobile and base station components,
utilizing the narrowband technology, an enhanced form of single sideband
that is ideal for the 5 KHz bandwidth used in the 220 MHz radio service,
and were developed for sale to industrial users of private land mobile
radio services. The narrowband technology helps solve the problem of
frequency congestion by allowing five narrowband channels to be allocated
within the same spectrum as would presently be allocated to one 25 KHz FM
channel.
Marine Communications -- The SEA marine communications products are high
performance radios used on commercial vessels, fishing vessels and ocean-
going yachts. The product line currently consists of 28 products with
suggested list prices of between $765 and $5,105. The SEA Products
include SSB/HF and VHF/FM radios, Satcom C, Weather fax, Emergency
distress radio beacons and Search and rescue transponders.
Marine Instrumentation -- Marine instrumentation products are sold
primarily to the recreational boating market under the trademark,
Datamarine. The products are well established in the marketplace with up-
to-date instruments for each type of pleasure craft: small boats and
yachts; sail and power; inshore and offshore. The Datamarine product line
currently consists of 32 products with suggested list prices of between
$40 and $2,995. The Datamarine products include depth sounders, knotmeters
and water temperature instruments, wind speed and direction instruments,
integrated instruments, and video chart displays.
Competition and Markets
Datamarine and its subsidiary, SEA, are generally considered to be leading
suppliers of marine instruments and radio communication products to the
marine markets. Approximately 40 electronics manufacturers have competing
models in their product lines and are considered competitors.
SEA has at this time one competitor supplying narrowband equipment for the
220 MHz radio service. Approximately 25 competitors offer alternative FM
land mobile products for use in other radio services and may become
competitive suppliers of equipment in the 220 MHz radio service market.
Several of the Company's competitors in the various markets have
substantially greater financial, technical and marketing resources.
The Company's business does not depend on any single customer, the loss of
whom would have a materially adverse impact on the Company's business. No
portion of the Company's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the
Government. The markets for the Company's products are generally not
considered to be seasonal.
Sales order backlogs stood at $9,794,000 at September 30, 1995, compared
to $6,927,000 at October 1, 1994. Of the total September 30, 1995
backlog, land mobile products represented $9,570,000. Land mobile orders
are subject to cancellation under certain conditions and the Company does
not consider the land mobile backlog to be firm.
Suppliers
Certain components in the Company's products, such as printed circuits and
injection molded plastic parts, are provided by local vendors using
tooling and designs owned by the Company. The Company believes that
adequate alternative sources of supply are available for these purchased
components along with other supplies and raw materials. The Company and
its subsidiaries maintain sufficient inventory to continue production for
a reasonable period if new material sources are required.
Warranty
Depending upon the product, they are sold with either a one-year or two-
year parts and labor limited warranty.
Research and Development
The Company is committed to a continuing program of designing new products
and improving the product designs presently in production. During FY
1995, FY1994 and FY1993 the Company spent approximately $1,420,000,
$1,414,000 and $1,370,000 respectively, on Company-sponsored research and
development for continuing operations and had approximately 16 full-time
employees engaged in such activities.
Patents
The Company has United States patents related to its products. The
Company views its patents as valuable assets, but believes that its
position in the market is not dependent upon the protection offered
thereby.
Employees
The Company had approximately 100 full-time employees on September 30,
1995. This compares to 135 on October 1, 1994 and 100 on October 2, 1993.
The Company has no collective bargaining agreements and believes relations
with its employees are good.
Environmental
The Company knows of no statutory requirements with respect to
environmental quality which can be expected to have a material effect upon
the Company's capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
The manufacturing and general administrative offices of the Company are
located in a 28,500 square-foot building in Mountlake Terrace, Washington,
pursuant to a lease which expires in June 1998. During FY1995 the Company
renegotiated its lease at the Pocasset, Massachusetts facility through
June 1997 where the service facility for the marine instrumentation
product line now occupies 5000 square-feet. The sales and warehousing
operation of a majority-owned subsidiary, Datamarine International
Australia, PTY, LTD., is located in a leased 2,500 square-foot masonry
steel building in Artarmon, New South Wales, Australia. A subsidiary,
Nautical Realty A/S, owns a 20,000 square-foot steel and concrete
industrial building, subject to mortgage, located in Sorup, Denmark, which
is leased under a twelve-year contract, including extensions, expiring in
1998 to an unaffiliated tenant. All of the above-mentioned facilities are
well maintained and suitable and adequate for the present activities
therein.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company or any of its
subsidiaries is a party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended September 30, 1995, no
matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded Over-The-Counter and is quoted on the
NASDAQ National Market System under the ticker symbol "DMAR". As of
September 30, 1995, there were approximately 1000 stockholders of record.
The accompanying table shows the range of trading prices for the past two
years by fiscal quarter:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
--- --- --- ---
<S> <C> <C> <C> <C> <C>
FY 1995: High 17 13 3/8 11 1/4 9 3/4
Low 9 1/4 7 3/4 8 1/4 7 1/2
FY 1994: High 6 1/4 6 1/4 5 1/2 11 1/2
Low 4 1/2 4 4 1/2 3 1/4
</TABLE>
No dividends have been declared or paid by the Company.
ITEM 6. SELECTED FINANCIAL DATA
All of the historical selected financial data set forth below has been
derived from audited financial statements of the Company. The selected
financial data for the years ended September 30, 1995, October 1, 1994,
and October 2, 1993 has been derived from financial statements audited by
Coopers & Lybrand L.L.P., which are included elsewhere in this Annual
Report on Form 10-K.
<TABLE>
<CAPTION>
September 30, October 1, October 2, October 3, September 28,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $14,786,658 $11,829,437 $ 7,948,840 $9,304,961 $11,722,090
Cost of products sold 9,128,693 7,049,898 5,252,053 5,626,136 6,787,862
Operating expenses, excluding restructuring
charge 5,584,954 5,159,848 4,697,510 4,591,994 5,682,607
Restructuring charge 686,458 - - - -
Operating expenses 6,271,412 5,159,848 4,697,510 4,591,994 5,682,607
Operating loss 613,447 380,309 2,000,723 913,169 748,379
Interest expense, net 193,037 62,258 13,174 61,171 121,117
Other (income) expense (39,719) (46,619) 19,008 (1,873) (45,483)
Benefit of income taxes (1,083,640) - (132,506) (243,000) (305,000)
Income (loss) from continuing operations 316,875 (395,948) (1,900,399) (729,467) (519,013)
Discontinued operations:
Net income - - 129,026 282,211 274,583
Net gain on sale - - 239,553 - -
Net income (loss) $ 316,875 $ (395,948) $(1,531,820) $ (447,256) $ (244,430)
Income (loss) Per Share:
Continuing operations $ .23 $ (0.33) $ (1.59) $ (0.62) $ (0.45)
Discontinued operation - - .31 .24 .24
Net income (loss) $ .23 $ (0.33) $ (1.28) $ (0.38) $ (0.21)
Balance Sheet Data:
Total assets $ 9,323,581 $ 7,862,611 $ 6,359,826 $8,717,397 $10,207,458
Notes payable to banks 1,468,750 795,353 400,000 700,000 700,000
Long-term debt 499,403 439,819 274,337 783,676 1,106,909
Stockholders' equity 5,198,391 4,331,293 4,624,006 6,026,633 6,399,545
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following tables set forth certain items (expressed as a percentage of
net sales) included in Selected Financial Data and should be read in
connection with the Consolidated Financial Statements of the Company
including the Notes to such Statements, presented elsewhere in this
report.
<TABLE>
<CAPTION>
Income and Expense Items
As a Percentage of Net Sales Percentage
Increase (Decrease) Increase (Decrease)
- ---------------------------- -------------------
1994 1993
to to
1995 1994
<C> <C> <C> <S> <C> <C>
1995 1994 1993
100% 100% 100% Net sales 25% 49%
62 60 66 Cost of products sold 29 34
38 40 34 Gross profit 18 77
10 12 18 Research and development - 3
16 19 24 Selling 10 16
12 13 17 General and administrative 13 9
4 - - Restructuring charge n.m. -
42 43 59 Operating expenses 22 10
(4) (3) (25) Operating loss n.m. (81)
1 1 - Interest expense, net 210 n.m.
- (1) - Other (income) expense, net (15) n.m.
(5) (3) (25) Loss before income taxes and discontinued
operations 93 (81)
7 - 2 Benefit of income taxes n.m. (100)
2 (3) (23) Income (loss) from continuing operations n.m. (79)
- - 1 Income from discontinued operations n.m. n.m.
- - 3 Gain on sale of discontinued operations n.m. n.m.
2% (3)% (19)% Net income (loss) n.m. (74)%
</TABLE>
Fiscal 1995 compared to 1994
Net sales increased by $2,957,221, or 25%, to $14,786,658 for 1995 from
$11,829,437 in 1994. In July 1993, the Company introduced a new line of
narrowband radios for use in the new land mobile service in the 220-222
MHz band. Net sales of the Company's new narrowband products increased by
$2,370,899 to $6,642,984 for 1995 from $4,272,085 in 1994. Net sales of
the Company's marine radio systems increased by $1,062,421, or 25%, to
$5,296,945 in 1995 from $4,234,524 in 1994. Net sales of the Company's
recreational marine instrumentation systems declined by $476,099, or 11%,
to $2,846,729 in 1995 from $3,322,828 in 1994.
Sales of narrowband products are greatly influenced by the regulatory
environment, principally license and operating rules issued by the FCC.
The Company cannot control, nor reliably predict which rules the FCC will
issue and the effective dates thereof, although management expects future
revenue growth from this product line. Sales of marine radio systems are
expected to be consistent with past performance. Sales of marine
instrumentation systems have declined over the last three years and are
expected to stabilize at 1995 levels.
Gross profit for 1995 was $5,657,965 (38% of net sales), as compared to
$4,779,539 (40% of net sales) in 1994, an increase of $878,426 or 18%.
The gross profit on narrowband products for 1995 was $3,003,527 (45% of
such sales), as compared to $2,280,948 (53% of such sales) in 1994.
Margins on narrowband products fluctuate based on product mix, and
generally are higher on base station products than on mobile radios. In
the coming years, narrowband sales will likely be comprised of a greater
proportion of mobile radios rather than base stations, and thus will
likely achieve a lower overall percentage margin than was achieved for
1995. The gross profit on marine radio systems for 1995 was $2,156,023
(41% of such sales), as compared to $1,427,286 (34% of such sales), an
increase of $728,737 or 51%. Margins on marine communications products
were higher in 1995 due to lower overall production costs rather than
higher selling prices. The gross profit on marine instrumentation systems
for 1995 was $498,415 (18% of such sales), as compared to $1,071,305 (32%
of such sales), a decrease of $342,568 or 32%. Margins on marine
instrumentation products were lower due to temporarily increased
production costs associated with the move of marine instrumentation
production to the Mountlake Terrace, Washington facility. Margins for
marine instrumentation are expected to improve in 1996.
Operating expenses including the restructuring charge of $686,458 were
$6,271,412 (42% of net sales) in 1995, as compared to $5,159,848 (44% of
net sales) in 1994, an increase of $1,111,564 or 22%. Operating expenses
excluding the restructuring charge increased $425,106 or 8%. Selling
expenses increased $217,031, due mainly to sales commissions on higher
sales volume. Administrative expenses increased $202,524 due to higher
professional fees, insurance, rent, and taxes other than income.
During the year the Company established a special charge of $686,458 in
connection with a restructuring program designed to improve productivity
and permanently reduce costs. The Company decided to move corporate
administrative functions and production of its Datamarine Instrumentation
product line to its facility in Mountlake Terrace, Washington. Costs
associated with the restructuring included the write down of leasehold
improvements, product tooling and equipment to net realizable values, the
phase out of certain products, employee termination benefits, and the
costs to settle the lease of the Massachusetts facility.
The restructuring was announced effective January 1995 and is expected to
be substantially completed by December 31, 1995. The program is expected
to result in the permanent reduction of approximately 30 employees and
35,000 square feet of manufacturing and office space. The Massachusetts
location will continue to be used as a service facility.
The restructuring charges were comprised of $346,524 in write downs of
production equipment and leasehold improvements, $94,630 in write downs of
inventory related to discontinued products, $147,748 in employee
termination benefits, and $97,556 in lease settlement costs. Of the total
amount $177,748 represents estimated cash spending.
The resulting elimination of redundant production and administrative costs
is expected to reduce future costs, improve cash flow and increase working
capital. No significant future uses of capital are expected to be
required as a result of the restructuring.
Interest expense for 1995 was $193,037, as compared to $62,258 for 1994.
Interest expense increased primarily as a result of increased prime based
rates and balances outstanding. Other income, net, was approximately the
same in 1995 and 1994.
The Company adopted FAS 109, "Accounting for Income Taxes", effective
October 3, 1993. Upon adoption and at October 1, 1994, full valuation
allowances were recorded with respect to the Company's deferred tax asset
balances due to uncertainty of future taxable income estimates. During
fiscal 1995, the valuation allowance was reduced by $702,000 to reflect
management's current assessment of the amount of deferred tax assets which
are more likely realizable than not. This assessment is based upon
management's current estimates of future taxable income and reflects the
substantial growth realized in sales of and order backlog for narrowband
land mobile products since their introduction in fiscal 1993, as well as
the administrative cost reductions and manufacturing efficiencies achieved
as a result of the 1995 restructuring activities. Based upon the current
assessment, the company recognized a deferred federal income tax benefit
of $1,083,640 in the year ended September 30, 1995.
Net income from continuing operations for 1995 was $316,875 compared to a
loss of $395,948 in 1994.
Fiscal 1994 compared to 1993
Net sales for 1993 increased by $3,880,597 or 49%, to $11,829,437 from
$7,948,840 in 1993. The increase in sales for 1994 was primarily due to
product volume in narrowband products.
Gross profit for 1994 was $4,779,539 (40% of net sales), as compared to
$2,696,787 (34% of net sales) in 1993, an increase of $2,082,752 or 77%.
Increased sales of higher margin narrowband products accounted for most of
the increase.
Operating expenses were $5,159,848 (43% of net sales) in 1994, as compared
to $4,697,510 (60% of net sales) in 1993, an increase of $462,338 or 10%.
The increase in operating expenses was related to selling expenses of
narrowband products.
Interest expense for 1994 was $62,258, as compared to $13,174 in 1993.
The increase was due to increased prime based lending rates and larger
balances.
Net loss from continuing operations for 1994 narrowed by $1,504,451 to
$395,948 from $1,900,399 in 1993. The decreased loss was primarily the
result of increased sales of higher margin narrowband products and flat
operating expenses, exclusive of selling costs.
Impact of Inflation
The Company's results are affected by the impact of inflation on
manufacturing and operating costs. Historically, the Company has used
selling price adjustments, cost containment programs and improved
operating efficiencies to offset the negative impact of inflation on its
operations.
Liquidity and Capital Resources
Net cash used in operating activities for 1995 increased by $33,359 to
$90,255 from net cash used in operating activities of $56,896 in 1994. At
the end of 1995, the sales order backlog for the Company's narrowband
products stood at $9,570,000 (although not considered firm) and the total
backlog was $9,794,000. New bank credit facilities were established
during 1995 providing for borrowings of up to $3,000,000. At September
30, 1995, $1,531,250 was available under the credit lines. Effective
December 1995, the line of credit was increased to $3,500,000.
On December 19, 1995 the Company announced the private placement issuance
of $2,000,000 in Convertible Debentures due in the year 2000, bearing
interest at increasing rates from 10-15% per annum. The Debentures are
convertible into Convertible Participating Preferred Stock and Redeemable
Preferred Stock. The Convertible Participating Preferred Stock is further
convertible into approximately 164,000 shares of the Company's common
stock. Management expects to use the proceeds for normal working capital
requirements, and to develop Narrowband Network Systems, Inc. as
appropriate based on FCC regulations.
The Company believes its cash flow from operations, available bank lines
of credit and other financing sources are sufficient to finance its
working capital and other capital requirements through at least the next
two fiscal years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 1995
INDEX
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets, September 30, 1995 and
October 1, 1994 F-2
Consolidated Statements of Operations for the years
ended September 30, 1995, October 1, 1994
and October 2, 1993 F-3
Consolidated Statements of Stockholders' Equity for
the years ended September 30, 1995, October 1, 1994
and October 2, 1993 F-4
Consolidated Statements of Cash Flows for the years
ended September 30, 1995, October 1, 1994 and
October 2, 1993 F-5
Notes to Consolidated Financial Statements F-6 to F-17
</TABLE>
Report of Independent Accountants
To the Stockholders and Board of Directors of
Datamarine International, Inc.
We have audited the accompanying consolidated balance sheets of Datamarine
International, Inc. and Subsidiaries as of September 30, 1995 and October
1, 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended September 30,
1995, October 1, 1994 and October 2, 1993. 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 consolidated financial position of
Datamarine International, Inc. and Subsidiaries at September 30, 1995 and
October 1, 1994, and the consolidated results of their operations and
their cash flows for the years ended September 30, 1995, October 1, 1994
and October 2, 1993 in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Seattle, Washington
December 20, 1995
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS September 30, October 1,
1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 252,843 $ 180,926
Accounts receivable, less allowance for doubtful accounts
of $158,193 and $142,292, respectively 2,337,607 2,318,365
Inventories 3,371,976 3,149,871
Prepaid expenses and other current assets 242,148 312,153
Deferred income taxes, current 340,000
--------------------------
Total current assets 6,544,574 5,961,315
Property, plant and equipment 4,210,085 5,586,960
Less accumulated depreciation 2,472,871 3,800,822
--------------------------
Property, plant and equipment, net 1,737,214 1,786,138
Deferred income taxes, noncurrent 785,992
Other assets 255,801 115,158
--------------------------
Total assets $9,323,581 $7,862,611
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $1,468,750 $ 795,353
Notes payable, other 30,000
Current maturities of long-term debt and capital lease
obligations 209,881 150,878
Accounts payable 814,437 1,174,830
Accrued expenses 1,312,600 1,121,316
--------------------------
Total current liabilities 3,835,668 3,242,377
Long-term debt and capital lease obligations, less
current maturities 289,522 288,941
--------------------------
Total liabilities 4,125,190 3,531,318
--------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value - authorized 3,000,000 shares;
1,296,684 and 1,219,893 shares issued and outstanding,
respectively 12,967 12,199
Capital in excess of par value 3,078,182 2,550,615
Unearned compensation (33,376) (55,264)
Retained earnings 2,140,618 1,823,743
--------------------------
Total stockholders' equity 5,198,391 4,331,293
--------------------------
Total liabilities and stockholders' equity $9,323,581 $7,862,611
==========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements Of Operations
for the years ended September 30, 1995, October 1, 1994 and October 2, 1993
<TABLE>
<CAPTION>
September 30, October 1, October 2,
1995 1994 1993
<S> <C> <C> <C>
Net sales $14,786,658 $11,829,437 $ 7,948,840
Cost of products sold 9,128,693 7,049,898 5,252,053
Gross profit 5,657,965 4,779,539 2,696,787
Operating expenses:
Research and development 1,419,904 1,414,353 1,369,855
Selling 2,419,086 2,202,055 1,906,958
General and administrative 1,745,964 1,543,440 1,420,697
Restructuring charge 686,458
-----------------------------------------
Operating expenses 6,271,412 5,159,848 4,697,510
-----------------------------------------
Operating loss (613,447) (380,309) (2,000,723)
Interest expense 193,037 62,258 13,174
Other (income) expense, net (39,719) (46,619) 19,008
-----------------------------------------
Loss before income taxes and discontinued
operations (766,765) (395,948) (2,032,905)
Benefit of income taxes 1,083,640 132,506
-----------------------------------------
Income (loss) from continuing operations 316,875 (395,948) (1,900,399)
Income from discontinued operations, net of
income taxes of $88,000 in 1993 129,026
Gain on sale of discontinued operations, net
of income taxes of $163,000 in 1993 239,553
-----------------------------------------
Net income (loss) $ 316,875 $ (395,948) $(1,531,820)
=========================================
Income (loss) per share:
Continuing operations $ 0.23 $ (0.33) $ (1.59)
Discontinued operations 0.31
-----------------------------------------
Net income (loss) per share $ 0.23 $ (0.33) $ (1.28)
=========================================
Weighted average number of common shares 1,358,099 1,212,953 1,195,286
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity
for the years ended September 30, 1995, October 1, 1994 and October 2, 1993
<TABLE>
<CAPTION>
Common Stock Capital in Total
------------------- Excess of Unearned Retained Stockholders'
Shares Amount Par Value Compensation Earnings Equity
------ ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 3, 1992 1,178,627 $ 11,786 $ 2,430,094 $ (166,758) $ 3,751,511 $ 6,026,633
Net loss for 1993 (1,531,820) (1,531,820)
Issuance of shares under Employee
Investment Plan and Employee
Stock Purchase Plan 21,557 215 73,442 73,657
Exercise of stock options 5,750 58 8,568 8,626
Forfeitures of stock options (19,356) 19,356
Amortization of unearned compensation 46,910 46,910
------------------------------------------------------------------------------
Balance at October 2, 1993 1,205,934 12,059 2,492,748 (100,492) 2,219,691 4,624,006
Net loss for 1994 (395,948) (395,948)
Issuance of shares under Employee
Investment Plan and Employee
Stock Purchase Plan 13,959 140 57,867 58,007
Amortization of unearned compensation 45,228 45,228
------------------------------------------------------------------------------
Balance at October 1, 1994 1,219,893 12,199 2,550,615 (55,264) 1,823,743 4,331,293
Net income for 1995 316,875 316,875
Issuance of shares under Employee
Investment Plan and Employee
Stock Purchase Plan 5,871 59 50,159 50,218
Issuance of shares under lease
settlement agreement 22,000 220 179,780 180,000
Exercise of stock options 48,920 489 235,776 236,265
Compensation element of stock
options granted 19,500 (19,500)
Tax benefit of options exercised 42,352 42,352
Amortization of unearned compensation 41,388 41,388
------------------------------------------------------------------------------
Balance at September 30, 1995 1,296,684 $ 12,967 $ 3,078,182 $ (33,376) $ 2,140,618 $ 5,198,391
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
for the years ended September 30, 1995, October 1, 1994 and October 2, 1993
<TABLE>
<CAPTION>
September 30, October 1, October 2,
1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 316,875 $ (395,948) $ (1,531,820)
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by
operating activities:
Depreciation and amortization 406,831 497,976 623,954
Gain on sale of discontinued operations, net (239,553)
Gain on asset dispositions (49,776)
Non-cash portion of loss from restructuring charge 441,154
Income from discontinued operations, net (129,026)
Provision for losses on accounts receivable 59,725 (42,048) 28,308
Employee investment plan expense 42,216 52,596 71,745
Amortization of unearned compensation 41,388 45,228 46,910
Provision for (benefit of) deferred income taxes (1,083,640) 76,000
Changes in operating assets and liabilities:
Accounts receivable (78,967) (1,455,322) 366,146
Inventories and prepaid expenses (246,730) 55,735 (768,368)
Accounts payable and accrued expenses 10,893 1,234,663 58,643
Income taxes, net 128,752
-------------------------------------------
Net cash used in operating activities of:
Continuing operations (90,255) (56,896) (1,268,309)
Discontinued operations (192,350)
-------------------------------------------
Net cash used in operating activities (90,255) (56,896) (1,460,659)
Investing activities:
Net proceeds from sale of discontinued operations 1,694,105
Net proceeds from asset dispositions 95,104
Purchases of property, plant and equipment,
including self-constructed equipment (699,125) (538,745) (179,794)
Other (145,951) (89,672) 52,111
-------------------------------------------
Net cash (used in) provided by investing activities (845,076) (533,313) 1,566,422
-------------------------------------------
Financing activities:
Proceeds from sale of common stock 244,267 5,411 10,538
Proceeds from bank and other borrowings 1,084,843 560,352 564,013
Principle payments on revolving line of credit and
long-term debt (321,862) (177,600) (1,373,352)
-------------------------------------------
Net cash provided by (used in) financing activities 1,007,248 388,163 (798,801)
-------------------------------------------
Increase (decrease) in cash and equivalents
during year 71,917 (202,046) (693,038)
Cash and equivalents at beginning of year 180,926 382,972 1,076,010
-------------------------------------------
Cash and equivalents at end of year $ 252,843 $ 180,926 $ 382,972
===========================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
1. Business Activities:
Datamarine International, Inc. and subsidiaries (the "Company")
manufactures and markets electronics including radio/telephone
systems for land and ocean applications and ocean depth sounders and
related instrumentation.
In July 1993, the Company launched a new product line (narrowband
land mobile products) which represents 45%, 36% and 1% of net sales
in fiscal 1995, 1994 and 1993, respectively. In addition, the
Company has entered into agreements for the construction and
operation of narrowband land mobile systems (see Note 10). As of
September 30, 1995, the Company had a significant backlog related to
these narrowband products, although such orders are not considered
firm, and management expects continued growth of the product line in
fiscal 1996. Based upon such growth and the cost benefits of the
Company's 1995 restructuring (see Note 13), management believes its
cash flow from operations and available bank lines of credit and
other financing sources (see Note 14) are sufficient to provide
necessary working capital, finance narrowband system construction
and meet other funding requirements for the near term.
2. Significant Accounting Policies:
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, SEA, INC. ("SEA"), Data
I.C., Inc., and Nautical Realty A/S; the Company's 97.5% owned
subsidiary, Narrowband Network Systems, Inc. ("NNS") and its 60%
owned subsidiary, Datamarine International Australia PTY, LTD. The
Company has recognized the losses attributable to the minority
owner's interest in Datamarine International Australia PTY, LTD. in
excess of the minority owner's investment. Upon consolidation, all
intercompany accounts, transactions and profits have been
eliminated.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest September 30.
Cash Equivalents
The Company considers all highly liquid investments, with a maturity
of three months or less when purchased, to be cash equivalents
Concentration of Credit Risk
The concentration of credit risk with respect to trade receivables
is, in management's opinion, considered minimal due to the Company's
diverse customer base. The customers for the marine products are
primarily distributors and dealers who resell to both recreational
and commercial boaters. The customers for the land mobile
communication products consist primarily of industrial users of
private land mobile radio services. The Company sells to customers
located throughout the United States as well as in Australia and
other countries. The Company had no significant foreign operations
but had export sales of approximately $1,161,000 in 1995, $1,068,000
in 1994, and $1,094,000 in 1993. Credit evaluations of its
customers' financial condition are performed periodically, and the
Company generally does not require collateral from its customers.
Inventories
Inventories are stated at the lower of cost based on the first-in,
first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
based on the straight-line method over the useful lives of the
assets (see Note 5). Upon disposition of property, plant and
equipment, the cost and related depreciation are removed from the
accounts, and any gain or loss is reflected in the statement of
operations.
Related Party Transactions
During 1995, the Company borrowed $30,000 from two directors of the
Company which was repaid in full subsequent to year-end.
Warranty Costs
The Company provides, by a current charge to income, an amount it
estimates will be needed to cover future warranty obligations for
products sold during the year.
Income Taxes
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," as of October 3, 1993 which had
no material effect on the Company's operating results, financial
position or cash flows.
Earnings Per Share
Net income (loss) per common share is based on the weighted average
number of common shares and common stock equivalents outstanding.
Primary and fully diluted earnings per share are the same for each
of the three years presented.
Reclassifications
Certain reclassifications have been made to the prior years'
financial statements in order to conform to the 1995 presentation.
Such reclassifications include $342,519 of inventory and other costs
related to the NNS business at October 1, 1994 which were
reclassified from prepaid expenses and other current assets to
property, plant and equipment and other assets. (See Note 10).
Future Effects of New Accounting Standards
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", which will be effective for the Company's
fiscal year ending September 27, 1997. The Company has not decided
which of the alternatives provided under that statement will be
applied and, therefore, its impact on the Company's future financial
statements cannot be currently determined.
3. Discontinued Operations:
During December 1992, the Company sold the assets of its Industrial
Flow Monitoring Devices Segment ("Industrial Segment") to a
management group for $2,200,000, less certain trade and other
liabilities that were assumed by the buyer. Subsequent to this
sale, the Company operates primarily in a single segment. Net sales
of discontinued operations were approximately $991,000 in fiscal
year 1993.
4. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Finished goods and subassemblies $ 1,319,509 $ 777,371
Purchased parts and materials 2,052,467 2,372,500
-------------------------
$ 3,371,976 $ 3,149,871
=========================
</TABLE>
5. Property, Plant and Equipment:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
1995 1994 Useful Lives
<S> <C> <C> <C>
Design, test and manufacturing equipment $ 2,528,204 $ 3,781,805 5 years
Narrowband equipment 615,013 247,202 10 years
Office furniture and general equipment 489,441 741,548 3 - 5 years
Buildings and improvements 468,849 444,050 10 - 25 years
Leasehold improvements 101,178 364,955 3 - 10 years
Delivery vehicles 7,400 7,400 5 years
-------------------------
$ 4,210,085 $ 5,586,960
=========================
</TABLE>
6. Accrued Expenses:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accrued payroll and related fringe benefits $ 628,746 $ 550,778
Accrued warranty costs 237,469 197,524
Accrued marketing costs 194,810 183,967
Other accrued expenses 251,575 189,047
-------------------------
$ 1,312,600 $ 1,121,316
=========================
</TABLE>
7. Notes Payable to Banks:
SEA has a bank line of credit of $2,000,000 with interest payable
monthly at .75% over prime (9.5% at September 30, 1995).
Outstanding balances on this line were $1,325,353 at September 30,
1995 and $795,353 at October 1, 1994. SEA has an additional line of
credit of $1,000,000 at the same bank with interest payable monthly
at 1.25% over prime (10.0% at September 30, 1995) and unpaid
principal and interest due April 30, 1998. The outstanding balance
on this line was $143,397 at September 30, 1995. These lines of
credit are collateralized by essentially all of the assets of
the Company. The lines of credit are also subject to debt
covenants which require the Company to be profitable, and to
maintain a tangible net worth of $4,400,000, a minimum current ratio
of 1.50, a maximum debt to net worth ratio of 1.25 and a minimum
debt service ratio of 1.50. Both lines of credit are guaranteed by
Datamarine and NNS.
The weighted-average interest rate on short-term borrowings was 9.8%
and 10.9% for fiscal years 1995 and 1994, respectively.
8. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Foreign denominated mortgage notes payable (DKK 1,061,064 and
DKK 1,114,280 at September 30, 1995 and October 1, 1994,
respectively) total monthly payments of $2,579 (DKK 14,247),
varying interest rates from 9% to 10.5%, due 2005 through 2011,
collateralized by the underlying building $ 192,053 $ 188,736
Mortgage note, monthly payments of $1,143, including interest
at 11.75% adjustable annually, due March 2008, collateralized
by the underlying building 88,954 92,187
Collateralized equipment loan, monthly payments of $4,168, plus
interest at prime plus 1.75%, due October 1997 104,167
----------------------
385,174 280,923
Less current maturities 149,452 100,155
----------------------
$ 235,722 $ 180,768
======================
</TABLE>
<TABLE>
<C> <C>
Maturities of long-term debt are as follows:
1996 $ 149,452
1997 61,960
1998 17,425
1999 14,700
2000 16,299
Thereafter 125,338
---------
$ 385,174
=========
</TABLE>
The Company made interest payments of approximately $207,000,
$42,500 and $26,000 in 1995, 1994 and 1993, respectively.
The fair value of notes payable to banks and long-term debt at
September 30, 1995 approximates the carrying value of such debt in
the financial statements.
9. Commitments and Contingencies:
The Company leases manufacturing, warehouse and office facilities
under various operating leases. Rental expense for these leases,
excluding real estate taxes paid by the Company for a leased
building, was $207,000 in 1995, $260,000 in 1994 and $261,200 in
1993. During the year, the Company renegotiated the terms of its
Pocasset, Massachusetts facility lease. The expenses of settlement
are included in the restructuring charge (see Note 13). The Company
leases certain computer equipment under capital leases with an
original cost of $178,000.
Approximate future minimum lease payments, by year and in the
aggregate, under capital and noncancelable operating leases, were as
follows at September 30, 1995:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
1996 $ 70,764 $ 187,286
1997 56,726 178,536
1998 114,210
----------------------
Total future minimum lease payments 127,490 $ 480,032
=========
Less amounts representing interest (13,261)
---------
Present value (interest rates ranging from 8.75% to
12.25%) of future minimum lease payments on capital
leases 114,229
Less current portion 60,429
---------
$ 53,800
=========
</TABLE>
The Company is subject to legal proceedings and claims which arise
in the ordinary course of its business. While the ultimate results
of such matters cannot be determined, management does not expect
that they will have a material adverse effect on the Company's
results of operations or financial position.
10. Narrowband Network Systems, Inc. ("NNS"):
On November 18, 1994, NNS was incorporated in the State of
Washington as a subsidiary of SEA to participate in the business of
providing specialized mobile radio ("SMR") services.
NNS has entered into management agreements ("Management Agreements")
with the holders of 220 MHz licenses granted by the Federal
Communications Commission ("FCC") in approximately 75 markets across
the United States (the "Managed Markets'). Under the Management
Agreements, NNS is required to construct and develop the SMR systems
in the Managed Markets. NNS retains the revenues generated by the
systems, after remitting a fixed percentage to the license holders.
Any cash shortfall must be funded by NNS.
Under each of the Management Agreements, NNS has an option after
construction to acquire the license holder's interest in their
respective SMR system in exchange for (i) a fixed percentage of the
gross receipts from the system for as long as it continues to be
operated by NNS and (ii) a fixed percentage of any profit realized
by NNS upon the system's ultimate disposition. In certain cases,
NNS has guaranteed a minimum dollar amount to be remitted to the
license holder upon system disposition.
In April 1995, NNS entered into an agreement with Incom
Communications Corporation ("Incom") for the operation of the SMR
systems in certain of the Managed Markets. Under the terms of this
agreement, NNS is obligated to provide the licenses and certain
backbone equipment for each system and Incom is required to provide
either all or partial operational support. Revenues from system
operations are split between NNS and Incom using contractual
percentages based upon the level of support provided by each.
In addition, the Company has contracted with other third parties
("SMR Operators") for operation of the systems in certain of the
Managed Markets. Under the terms of these agreements, NNS is to
provide the system facilities and the SMR Operators agree to provide
essentially all other operational support in exchange for a fixed
percentage of the gross revenues from each system and an equity
interest in the systems, including the related licenses.
At September 30, 1995 and October 1, 1994, fixed assets include
$615,014 and $247,202, respectively, of facilities related to the
SMR systems and other assets include $235,695 and $95,317,
respectively, of legal and other costs associated with the
acquisition of license interests in the Managed Markets. Because
only limited operations commenced in the fourth fiscal quarter,
revenues from NNS' operations were negligible during the year ended
September 30, 1995.
11. Stockholders' Equity:
1992 Stock Option Plan for Non-Employee Directors
The 1992 Stock Option Plan for Non-Employee Directors provides for
annual grants of nonqualified options to purchase 1,500 common
shares to each non-employee Director. The exercise price for options
granted is equal to the fair market value at the date of grant.
Options granted under this Plan are immediately vested and
exercisable for a period of ten years from the date of grant so long
as the holder remains a Director.
<TABLE>
<CAPTION>
Shares Price
<S> <C> <C>
Outstanding at October 3, 1992 $ -
Granted 4,500 4.00
Canceled (1,500) 4.00
Outstanding at October 2, 1993 3,000 4.00
Granted 3,000 5.12
Outstanding at October 1, 1994 6,000 4.00 - 5.12
Granted 3,000 8.62
Outstanding at September 30, 1995 9,000 $ 4.00 - $ 8.62
Exercisable at September 30, 1995 9,000 $ 4.00 - $ 8.62
</TABLE>
1991 Stock Option Plan
The 1991 Stock Option Plan authorized grants of incentive and
nonqualified stock options for 350,000 common shares, of which
200,000 shares are reserved for issuance of options at an exercise
price equal to the fair market value at the date of grant and vest
equally over time, generally four years (the "Qualified Options"),
100,000 shares are reserved for issuance of options which vest
equally over time but do not meet the requirements of the Qualified
Options (the "Nonqualified Options"), and 50,000 shares are reserved
for issuance of options which also do not meet such requirements,
but are subject to an accelerated vesting schedule (the "Piggy-Back
Options"). Qualified Options and Nonqualified Options expire not
more than ten years from the date of grant and Piggy-Back Options
expire twenty years and six months from the date of grant. The
Piggy-Back Options are to be granted in conjunction with the grant
of Nonqualified Options. The Piggy-Back Options shall not be
exercised prior to twenty years from the date of the grant, except
that if, within five years from the date of grant, the trading price
exceeds a specified price, such Piggy-Back Options shall become
subject to a five-year vesting schedule with respect to the number
of shares equal to 50% of the unexercised portion of Nonqualified
Options granted to the employee. All Piggy-Back Options outstanding
at September 30, 1995, commenced five year vesting on September 9,
1994.
1991 Stock Option Plan, Continued
Proceeds received from the exercise of options are credited to the
capital accounts. Compensation cost is recorded based upon the
difference between market prices and exercise prices at the date of
grant and amortized to expense over the vesting period.
<TABLE>
<CAPTION>
1991 Stock Option Plan
----------------------------------------------------------------------
Qualified Options Nonqualified Options Piggy-Back Options
----------------------- ---------------------- ------------------
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at October 3, 1992 118,373 $ 4.50 63,000 $ 1.50 31,500 $4.50
Exercised (5,750) 1.50
Granted 6,500 4.00
Canceled (31,365) 4.50 (5,750) 1.50 (5,750) 4.50
--------------------------------------------------------------------
Outstanding at October 2, 1993
and October 1, 1994 93,508 4 - 4.50 51,500 1.50 25,750 4.50
Exercised (20,670) 4 - 4.50 (7,500) 1.50 (750) 4.50
Granted 21,500 9.00 6,500 6.00
Canceled (3,000) 4.50
-------------------------------------------------------------------
Outstanding at September 30, 1995 94,338 $4.00 - $9.00 50,500 $1.50 -$6.00 22,000 $4.50
-------------------------------------------------------------------
Exercisable at September 30, 1995 72,838 $4.00 - $4.50 44,000 $ 1.50 8,800 $4.50
-------------------------------------------------------------------
Available for grant at
September 30, 1995 84,992 36,250 27,250
======== ======== ========
</TABLE>
Employee Stock Purchase Plan
The Company has an employee stock purchase plan for full-time
employees who have attained certain length-of-service requirements
and who do not own 5% or more of the Company's outstanding stock.
Under the terms of the plan, eligible employees are granted the
right on a semiannual basis to purchase shares of the Company's
common stock. The purchase price is equal to 90% of the fair market
value of the Company's Common Stock during certain predetermined
periods, and employees may purchase shares having an aggregate value
of up to 10% of basic compensation. The Company issued 1,272 shares
in 1995, 1,847 shares in 1994 and 630 shares in 1993 in connection
with the Employee Stock Purchase Plan.
Employee Investment Plan
The Company maintains the Datamarine Employee Investment Plan (a
401(k) Plan). All full-time employees who have reached age 21 and
have one year of service are eligible for participation. Employees
can contribute up to 12% of their base salary with the Company
matching 50% of the first 6% of base salary contributed. The
Company issued 4,599 shares in 1995, 12,112 in 1994 and 20,927
shares in 1993 to the plan.
Nonqualified Stock Options
During fiscal 1995, an option to purchase 15,000 of the Company's
common shares at $7.375 per shares, issued pursuant to a severance
arrangement, and an option to purchase 5,000 shares at $3.75 per
share, issued under a consulting arrangement, were exercised.
Shares Reserved for Future Issue
At September 30, 1995, the Company had reserved the following shares
of its common stock for future issue:
<TABLE>
<S> <C>
Employee Stock Purchase Plan 7,671
1991 Stock Option Plan:
Qualified Options 179,330
Nonqualified Options 86,750
Piggy-Back Options 49,250
1992 Stock Option Plan for Non-employee Directors 9,000
--------
332,001
========
</TABLE>
12. Income Taxes:
The Company adopted FAS 109, "Accounting for Income Taxes,"
effective October 3, 1993. Upon adoption, a valuation allowance was
recognized equal to the Company's net deferred tax asset resulting
from the tax benefits of net operating loss carryforwards and future
deductible temporary differences of $942,000.
The benefit of income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Currently (refundable) payable:
Federal $ $ $ (213,506)
State 5,000
-------------------------------------
(208,506)
Deferred (benefit) provision - Federal (1,083,640) 76,000
-------------------------------------
$ (1,083,640) $ (132,506)
=====================================
</TABLE>
The tax effects of temporary differences that give rise to deferred
tax assets are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net operating loss carryforwards $ 967,000 $ 836,000
Accrued expenses not currently deductible
for tax purposes 233,000 47,000
General business tax credit carryforwards 127,000 74,000
Property and equipment 47,000 66,000
Allowance for doubtful accounts 53,000 167,000
Inventory, principally due to valuation
differences and overhead application 138,000 (54,000)
Other, individually less than 5% of
deferred tax asset 992 6,000
---------------------------
1,565,992 1,142,000
Less valuation allowance (440,000) (1,142,000)
---------------------------
Net deferred tax assets $ 1,125,992 $
===========================
</TABLE>
At October 1, 1994, a valuation allowance was recorded equal to the
Company's deferred tax asset balance of $1,142,000 due to the
uncertainty of future taxable income estimates. During fiscal 1995,
the valuation allowance was reduced by $702,000 to reflect
management's current assessment of the amount of deferred federal
tax assets which are more likely realizable than not. This
assessment is based upon management's current estimates of future
consolidated taxable income and reflects the substantial growth
realized in sales of (and order backlog for) narrowband land mobile
radio system products since their introduction in fiscal 1993 (see
Note 1), as well as the administrative cost reductions and
manufacturing efficiencies achieved as a result of the 1995
restructuring activities (see Note 13). The remaining valuation
allowance balance at September 30, 1995 relates primarily to
deferred state tax benefits of net operating loss carryforwards and
future deductible temporary differences which are not expected to be
realized on a separate company return basis.
The reconciliation of taxes on income at the federal statutory rate
to the actual benefit of income taxes is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Tax at statutory rate $ (261,000) $ (135,000) $ (690,000)
State taxes, net of federal tax benefit (99,000) (67,520) 3,000
Unrecognized deferred income tax benefit 32,000
Unrecognized net operating loss benefit 392,000
Other (21,640) 2,520 130,494
Change in valuation allowance (702,000) 200,000
------------------------------------------
$ (1,083,640) $ $ (132,506)
==========================================
</TABLE>
As of September 30, 1995, the Company has net operating loss
carryforwards of $1,893,000 which are available to reduce future
federal taxable income ($1,153,000 of which expire in fiscal 2008,
$513,000 in fiscal 2009 and the remainder in 2010). The Company also
has general business tax credit carryforwards of $127,000. The
Company made tax payments of approximately $6,000 and $13,000 in
1994 and 1993, respectively, and received a tax refund of
approximately $98,000 in 1993.
13. Restructuring Charge:
During fiscal 1995, the Company recognized a special charge of
$686,458 in connection with a restructuring program designed to
improve productivity and permanently reduce costs. The Company
moved its corporate administrative functions and production of its
instrumentation product line from Pocasset, Massachusetts to its
facility in Mountlake Terrace, Washington. The restructuring was
announced effective January 1995 and is expected to be substantially
completed by December 31, 1995. The program is expected to result
in the permanent reduction of approximately 30 employees and 35,000
square feet of manufacturing and office space. The restructuring
charge was comprised of $346,524 in writedowns of production
equipment and leasehold improvements, $94,630 in writedowns of
inventory related to discontinued products, $147,748 in employee
termination benefits, and $97,556 in lease settlement costs. The
lease was settled for $210,000, including $112,444 related to past
due rental amounts, comprised of $30,000 in cash and the issuance of
22,000 shares of the Company's common stock having a fair market
value of $180,000.
14. Subsequent Event:
On December 19, 1995, the Company announced the private placement
issuance of $2,000,000 in Convertible Debentures due in the year
2000 bearing interest at increasing rates from 10-15% per annum.
The Debentures are convertible into Redeemable Preferred Stock and
Convertible Participating Preferred Stock. The Convertible
Participating Preferred Stock is further convertible into
approximately 164,000 shares of the Company's common stock.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and offices of all executive officers of the Registrant
are as follows:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <S>
Peter D. Brown 48 Chairman of the Board, President and Chief
Executive Officer of Registrant
David C. Thompson 66 Director and Principal Financial and Accounting
Officer of Registrant, President and Chief Executive
Officer of SEA, Inc., a subsidiary
</TABLE>
The term of office of the executive officers of the Registrant is as set
forth in the Registrant's bylaws, namely: "until the next annual election
to the office which he holds and until his successor is chosen and
qualified or until he sooner dies, resigns, is removed or becomes
disqualified." There is no family relationship between the executive
officers.
Mr. Brown was elected President of the Registrant in September 1991. Mr.
Brown is CEO of The South Beach Company, a management company, and Vice-
President and Treasurer of Gordon & Ferguson, a manufacturer of mens' and
boys' outerwear. From 1974 through 1990, Mr. Brown was CEO of Heather Hill
Sportswear Co., an apparel company.
Mr. Thompson served as Acting Chief Executive Officer of the Registrant,
from June 1990 until January 1991. Mr. Thompson served as Executive Vice
President and Chief Operating Officer of the Registrant from October 1989
until February 1992. Mr. Thompson has served as President and Chief
Executive Officer of SEA, Inc., a wholly-owned subsidiary of the
Registrant, since its acquisition by the Registrant in 1986. He had held
the same position with SEA before the merger since 1980. In 1995, he was
named Principal Financial and Accounting Officer of the Registrant. Mr.
Thompson was previously President, Chief Executive Officer and a Director
of SBE, Inc., a public corporation involved in the manufacture of CB
radios, land mobile and marine VHF communication products.
ITEMS 10, 11, 12 and 13.
The information called for by Items 10, 11, 12 and 13 is hereby
incorporated by reference from the Registrant's definitive proxy statement
to be filed pursuant to Regulation 14A for the 1996 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
The financial statements as set forth under Item 8 are filed as part
of this report.
Schedule II - Valuation and Qualifying Accounts
Report of Independent Accountants on above listed financial
statement schedule.
Schedules not listed above have been omitted since they are either
not required, not applicable, or the information is included in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K. None.
(c) List of Exhibits
Exhibit
Number Description
- ------- -----------
3.1 Articles of Organization, as amended
3.2 Bylaws, incorporated by reference to Registration Statement
0-8936 on Form10.
4 Debenture Purchase Agreement with exhibits
10.1 Datamarine International, Inc. 1991 Stock Option Plan,
incorporated by reference to Registration Statement 33-48532 on
Form S-8 and 33-11232 on Form S-3.
10.2 1992 Stock Option Plan for Non-employee Directors, incorporated by
reference to Annual Report on Form 10-K for the Fiscal Year Ended
October 1, 1994.
10.3 Debenture Purchase Agreement with exhibits, same as 4.1 above.
11 Computation of Earnings Per Share
21 Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DATAMARINE INTERNATIONAL, INC.
By: /s/ PETER D. BROWN
Peter D. Brown, President
Chief Executive Officer
By: /s/ DAVID C. THOMPSON
David C. Thompson
Principal Financial and Accounting Officer
Date: December 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ PETER D. BROWN By: /s/ DAVID M. BROWN
Peter D. Brown, Chairman of the Board David M. Brown, Director
December 29, 1995 December 29, 1995
By: /s/ GEOFFREY W. KREIGER By: /s/ DAVID C. THOMPSON
Geoffrey W. Kreiger, Director David C. Thompson, Director
December 29, 1995 December 29, 1995
By: /s/ DALE N. HATFIELD
Dale N. Hatfield, Director
December 29, 1995
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at ----------------------------- Balance at
Beginning of Charged to Charged to Deductions End of
DESCRIPTION Period Expenses Other (describe) Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 142,292 59,725 43,824 (1) $ 158,193
Allowance for slow moving inventory 183,502 104,417 14,295 (2) 273,624
Valuation allowance for deferred tax asset 1,142,000 702,000 (4) 440,000
---------------------------------------------------------------------------
Totals $ 1,467,794 164,142 760,119 $ 871,817
===========================================================================
Product liability warranty $ 197,524 120,819 80,874 (3) $ 237,469
===========================================================================
Year ended October 1, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $ 204,031 (42,048) 19,691 (1) $ 142,292
Allowance for slow moving inventory 461,491 56,482 334,471 (2) 183,502
Valuation allowance for deferred tax asset 1,142,000 (5) 1,142,000
---------------------------------------------------------------------------
Totals $ 665,522 1,156,434 354,162 $ 1,467,794
===========================================================================
Product liability warranty $ 160,293 112,965 75,734 (3) $ 197,524
===========================================================================
Year ended October 2, 1993
Deducted from asset accounts:
Allowance for doubtful accounts $ 254,488 28,308 78,765 (1) $ 204,031
Allowance for slow moving inventory 394,669 130,311 63,489 (2) 461,491
---------------------------------------------------------------------------
Totals $ 649,157 $ 158,619 $142,254 $ 665,522
===========================================================================
Product liability warranty $ 187,146 91,960 118,813 (3) $ 160,293
===========================================================================
<FN>
<F1> (1) Uncollectible accounts written off, net of recoveries
<F2> (2) Obsolete material written off
<F3> (3) Warranty claims honored during the year
<F4> (4) Reduction of deferred tax asset valuation account, credited to
benefit of income taxes
<F5> (5) Includes cumulative effect of FAS 109 "Accounting for Income Taxes"
adoption as of October 3, 1993.
</TABLE>
Report Of Independent Accountants
To the Stockholders and Board of Directors of
Datamarine International, Inc.:
Our report on the consolidated financial statements of Datamarine
International, Inc. and Subsidiaries as of September 30, 1995 and October
1, 1994 and for the years ended September 30, 1995, October 1, 1994 and
October 2, 1993 is included in this Annual Report on Form 10-K. In
connection with our audits of such financial statements, we have also
audited the related consolidated financial statement schedule for the
years ended September 30, 1995, October 1, 1994 and October 2, 1993,
listed in Item 14(a) of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information
required to be included therein.
/s/: COOPERS & LYBRAND L.L.P
Seattle, Washington
December 20, 1995
EXHIBIT 3.1
ARTICLES OF ORGANIZATION, AS AMENDED
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
(Under General Laws, Chapter 156B)
1. The name by which the corporation shall be known is:
DATAMARINE INTERNATIONAL INC.
2. The purposes for which the corporation is formed are as
follows:
To develop, manufacture, assemble, fabricate, import, lease,
purchase or otherwise acquire, invest in, hold, use license the use of,
install, handle, maintain, service or repair, sell, pledge, mortgage,
exchange, export, distribute, lease, assign, and otherwise dispose of, and
generally to trade and deal in and with, as principal or agent, at
wholesale, retail, on commission, or otherwise, electronic systems,
equipment and components, and electrical, mechanical, and electro-
mechanical apparatus and equipment of every kind and description,
electronic, telecommunication, communication, transmitting, receiving,
recording, reproducing, and similar equipment of every description,
microwave devices and equipment, radio, sonar, radar, television, and
related devices and equipment, and similar goods, wares, merchandise,
commodities, articles of commerce, and property of every kind and
description, and any and all products, machinery, equipment, and supplies
used or useful in connection therewith.
To acquire by purchase, exchange, or otherwise, all or any part of,
or any interest in, the properties, assets, business, and goodwill of any
one or more persons, firms, associations or corporations heretofore or
hereafter engaged in any business which a corporation may now or hereafter
be organized under the laws of this State; to pay for the same in cash,
property, or in its own or other securities; to hold, operate, reorganize,
liquidate, sell, or in any manner dispose of the whole or any part
thereof; and in connection therewith, to assume or guarantee performance
of any liabilities, obligations, or contracts of such persons, firms,
associations or corporations, and to conduct the whole or any part of any
business thus acquired.
3. The total number of shares and the par value, if any, of each
class of stock which the corporation is authorized is as follows:
<TABLE>
<CAPTION>
NO PAR VALUE PAR VALUE
KIND OF STOCK NO. OF SHARES NO. OF SHARES PAR VALUE
- ------------------------------------------------------------------
<S> <S> <C> <C>
COMMON NONE 3,000,000 $ .01
PREFERRED NONE 1,000,000 $ 1.00
</TABLE>
4. If more than one class is authorized, a description of each of
the different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
Preferred Stock
The Preferred Stock, par value $1.00 per share, may be issued from
time to time in one or more series as may from time to time be determined
by the Board of Directors. Each of said series shall be distinctly
designated. All shares of any one series of Preferred Stock shall be
alike in every particular, except that there may be different dates from
which dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers, if any, and the designations, preferences and relative,
participating, optional or other special rights or privileges of each
series, and the qualifications, limitations or restrictions thereof, if
any, may differ from those of any and all other series at any time
outstanding; and, there is hereby expressly vested in the Board of
Directors of the Corporation the authority to issue one or more series of
Preferred Stock and to fix in the resolution or resolutions providing for
the issue of such stock adopted by the Board of Directors of the
Corporation the voting powers, if any, and the designations, preferences
and relative, participation, optional or other special rights or
privileges, and the qualifications, limitations or restrictions of such
series, including, but not without limiting the generality of the
foregoing, the following:
1. The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series. The designation of a
series of preferred stock need not include the words "preferred" or
"preference" and may be designated "special" or other distinctive term.
Unless otherwise provided in he resolution issuing such series, the number
of shares of any series of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the Board
of Directors in the manner prescribed by law.
2. The rate and times at which, and the terms and conditions upon
which, dividends, if any, on Preferred Stock of such series shall be paid,
the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes of stock and whether such dividends shall be cumulative or
noncumulative and, if cumulative, the date from which such dividends shall
be cumulative.
3. Whether the series shall be convertible into, or exchangeable
for, at the option of the holders of Preferred Stock of such series of the
Corporation or upon the happening of a specified event, shares of any
other class or classes or any other series of the same or any other class
or classes of stock of the Corporation, and the terms and conditions of
such conversion or exchange, including provisions for the adjustment of
any such conversion rate in such events as the Board of Directors shall
determine.
4. Whether or not Preferred Stock of such series shall be subject
to redemption at the option of the Corporation or the holders of such
series or upon the happening of a specified event, and the redemption
price or prices and the time or times at which, and the terms and
conditions upon which, Preferred Stock at such series may be redeemed.
5. The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or winding-up
of the Corporation.
6. The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of such series.
7. Whether such series of Preferred Stock shall have full, limited
or no voting powers including, without limiting the generality of the
foregoing, whether such series shall have the right, voting as a series by
itself or together with other series of Preferred Stock or all series of
Preferred Stock as a class, to elect one or more directors of the
Corporation if there shall have been a default in the payment of dividends
on any one or more series of Preferred Stock or under such other
circumstances and on such conditions as the Board of Directors may
determine.
The relative powers, preferences and rights of each series of
Preferred Stock in relation to the powers, preferences and rights of each
other series of Preferred Stock shall, in each case, be fixed from time to
time by the Board of Directors in the resolution or resolutions adopted
pursuant to authority granted hereunder. The consent, by class or series
vote or otherwise, of the holders of such of the series of Preferred Stock
as are from time to time outstanding shall not be required for the
issuance by the Board of Directors of any other series of Preferred Stock
whether or not the powers, preferences and rights of such other series
shall be fixed by the Board of Directors as senior to, or on a parity
with, the powers, preferences and rights of such outstanding series, or
any of them; provided, however, that the Board of Directors may provide in
the resolution or resolutions as to any series of Preferred Stock adopted
pursuant hereto, the conditions, if any, under which the consent of the
holders of a majority (or such greater proportion as shall be fixed
therein) of the outstanding shares of such series shall be required for
the issuances of any or all other series of Preferred Stock. Shares of
any series of Preferred Stock designated herein may be issued from time to
time as the Board of Directors of the Corporation shall determine and on
such terms and for such consideration as shall be fixed by the Board of
Directors.
Series of Preferred Stock
TERMS FOR CONVERTIBLE PREFERRED STOCK
AND REDEEMABLE PREFERRED STOCK
A. Convertible Preferred Stock. This series of preferred stock
par value $1.00 per share ("Preferred Stock") of Datamarine International,
Inc. (the "Corporation") shall be comprised of 2,000 shares designated as
"Redeemable Convertible Participating Preferred Stock" (hereinafter
referred to as "Convertible Preferred Stock"). The relative rights,
preferences, restrictions and other matters relating to the Convertible
Preferred Stock are as follows:
1. Dividends. The holders of the Convertible Preferred Stock
shall be entitled to receive, out of funds legally available therefor,
dividends at the same rate as dividends are paid with respect to this
Corporation's common stock, par value $.01 per share (the "Common Stock")
(treating each share of Convertible Preferred Stock as being equal to the
number of shares of Common Stock into which each such share of Convertible
Preferred Stock could be converted pursuant to the provisions of Section
A.5 hereof with such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such
dividend).
2. Preference on Liquidation. In the event of any liquidation,
dissolution or winding up of the Corporation, the holders of the
Convertible Preferred Stock shall be entitled to share in any distribution
of any of the assets, capital, surplus or earnings of the Corporation
ratably with the holders of the Common Stock of the Corporation (after the
payment in full of the liquidation preference on the Redeemable Preferred
Stock), based upon the amount which such Convertible Preferred Stock would
have been entitled to receive in connection with such liquidation,
dissolution or winding up if such share had been converted into Common
Stock at the Conversion Price (as defined in Section A.5 below) in effect
on such date, together with an amount equal to all declared but unpaid
dividends on the Convertible Preferred Stock as provided in Section A.1
above, if any.
3. Redemption.
(a) At the election of the Corporation, subject to the holders' of
Convertible Preferred Stock rights of conversion pursuant to the terms of
Section 5 hereof, the Corporation may redeem all, but not less than all,
of the shares of Convertible Preferred Stock then outstanding on or after
December 31, 2000, so long as the Redeemable Preferred Stock shall have
been redeemed in full on or prior to such date. If the Corporation elects
to redeem the Convertible Preferred Stock, it shall give written notice of
such election at least 60 days prior to the date of redemption, together
with the date of redemption, and, if the Corporation's Common Stock is not
then publicly held, the Corporation's estimate of the Fair Market Value of
the Convertible Preferred Stock, to the holders of the Convertible
Preferred Stock and all shares of Convertible Preferred Stock will be
redeemed on the date specified for redemption in the Company's notice (the
"Redemption Date") for a per share cash purchase price equal to the Fair
Market Value (as determined in Section A.3(d) below) of the Convertible
Preferred Stock plus any accumulated and unpaid dividends (the "Redemption
Price"). On or after the Redemption Date, each holder of shares of
Convertible Preferred Stock called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price.
(b) Rights. From and after the Redemption Date, unless there
shall have been a default in payment or tender by the Corporation of the
Redemption Price, all rights of the holders with respect to such redeemed
shares of Convertible Preferred Stock (except the right to receive the
Redemption Price in accordance with the terms hereof upon surrender of
their certificate) shall cease and such shares shall not thereafter be
transferred on the books of this Corporation or be deemed to be
outstanding for any purpose whatsoever.
(c) Insufficient Funds. If the funds of the Corporation legally
available for redemption of shares of Convertible Preferred Stock on the
Redemption Date are insufficient to redeem the total number of shares of
Convertible Preferred Stock, the Corporation shall use those funds which
are legally available to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed. At any time
thereafter when additional funds of the Corporation are legally available
for the redemption of shares of Convertible Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on the Redemption Date but
which it has not redeemed at the Redemption Price together with any
accrued interest thereon as provided below. If any shares of Convertible
Preferred Stock are not redeemed because the Corporation failed to pay or
tender to pay the aggregate Redemption Price on all outstanding shares of
Convertible Preferred Stock, all shares which have not been redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein, and the Corporation shall pay interest on the unpaid portion of
the Redemption Price for the unredeemed portion at a per annum rate equal
to twenty percent (20%) or the maximum rate of interest permitted under
applicable law, whichever is less.
(d) Fair Market Value Determination. If the Corporation's Common
Stock is publicly traded at the Redemption Date, the Fair Market Value of
each share of Convertible Preferred Stock shall equal the product of the
number of shares of Common Stock into which each share of the Convertible
Preferred Stock may then be converted multiplied by the average closing
price for the Corporation's Common Stock for the thirty (30) trading days
immediately preceding the Redemption Date. If the Corporation's Common
Stock is not publicly traded on the Redemption Date, the Fair Market Value
shall be determined in accordance with the following provisions. If the
holders of a majority in interest of the Convertible Preferred Stock do
not object in writing to the Corporation's estimate of the Fair Market
Value of the Convertible Preferred Stock within fifteen (15) days after
receipt of the Corporation's written notice of redemption, such estimate
shall be the Fair Market Value for purposes of determining the Redemption
Price of the Convertible Preferred Stock. If the holders of a majority in
interest of the Convertible Preferred Stock do timely object to the
Corporation's estimate of Fair Market Value, the Corporation and such
holders shall seek for a ten (10) day period thereafter to negotiate the
Fair Market Value in good faith. If the Corporation and the holders of a
majority in interest of the Convertible Preferred Stock are unable to
agree upon such Fair Market Value by the end of such period, each of the
Corporation and the holders (acting by a majority in interest) shall,
within ten (10) days thereafter, select an unaffiliated investment banking
firm of nationally recognized standing in the telecommunications equipment
industry to appraise the Fair Market Value of the Convertible Preferred
Stock. Each such firm will deliver its appraisal of the Fair Market Value
within fifteen (15) days thereafter, and if the lower appraisal is at
least 90% of the higher appraisal, the arithmetic mean of the two shall be
the Fair Market Value. If the two appraisals vary by more than 10%, the
two firms shall promptly select a third investment banking firm of
nationally recognized standing in the telecommunications equipment
industry. Such third firm shall, within ten (10) days thereafter, deliver
its appraisal of the Fair Market Value of the Convertible Preferred Stock,
the two appraisals which are closest together in value shall be averaged
and such amount shall be the Fair Market Value for purposes of determining
the Redemption Price. The Fair Market Value of the Convertible Preferred
Stock shall be determined: (i) without regard to the illiquid nature of
such stock or for any discount attributable to the minority interest
represented by such stock; (ii) with the Corporation valued as a going
concern (including all net working capital); and (iii) on the basis of
what a willing buyer would pay to a seller under no compunction to sell.
All costs of the appraisals hereunder shall be borne by the Corporation.
4. Voting. Except as otherwise provided herein or as required by
law, the shares of the Convertible Preferred Stock shall be voted together
with the Corporation's Common Stock as a single voting group at any annual
or special meeting of the stockholders of the Corporation, or may act by
written consent as a single voting group with the Corporation's Common
Stock, and shall otherwise have the same voting rights of the Common
Stock. Each share of Convertible Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the number of
shares of Common Stock into which such share of Convertible Preferred
Stock is then convertible.
5. Conversion Rights. The holders of Convertible Preferred Stock
shall have conversion rights as follows:
(a) Conversion at Holder's Election. Each share of Convertible
Preferred Stock shall be converted promptly upon the written election to
so convert by holders of a majority in interest of the Convertible
Preferred Stock into shares of Common Stock, initially at a conversion
price equal to $9.00 per share of Common Stock, which price shall be
adjusted as hereinafter provided (and, as so adjusted, is hereinafter
sometimes referred to as the "Conversion Price"), with each share of
Convertible Preferred Stock being valued for such purpose at $737.85.
(b) Conversion at the Company's Election. At any time on or after
December 19, 2000, the Company may, in its sole discretion, elect to
convert each share of Convertible Preferred Stock into shares of Common
Stock, at the Conversion Price, with each share of Convertible Preferred
Stock being valued for such purpose at $737.85, by providing written
notice of the Company's election to each holder of Convertible Preferred
Stock specifying a date not earlier than sixty (60) days from the mailing
date of such notice as the date for surrender of certificates of
Convertible Preferred Stock in connection with such conversion (the
"Initial Surrender Date") and provided that the Company shall redeem all
outstanding shares of Redeemable Preferred Stock (defined below) at or
prior to the Initial Surrender Date.
(c) Dividends. If Convertible Preferred Stock is converted
pursuant to Section A.5(a) or Section A.5(b) and at such time there are
declared and unpaid dividends or other amounts due on such shares, such
dividends shall be paid in full by the Corporation in connection with such
conversion.
(d) Conversion Procedures. Any holder of Convertible Preferred
Stock whose shares are converted into shares of Common Stock shall
promptly, in the case of conversion pursuant to Section A.5(a), or at or
within five (5) days after the Initial Surrender Date, in the case of
conversion pursuant to Section A.5(b), surrender the certificate or
certificates representing the Convertible Preferred Stock being converted,
duly assigned or endorsed for transfer to the Corporation (or accompanied
by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent
for the Convertible Preferred Stock or such office or offices in the
continental United States of an agent for conversion as may from time to
time be designated by notice to the holders of the Convertible Preferred
Stock by the Corporation, accompanied, in the case of a voluntary
conversion pursuant to Section A.5(a), by written notice of conversion.
Such notice of conversion shall specify (i) the number of shares of
Convertible Preferred Stock to be converted, (ii) the name or names in
which such holder wishes the certificate or certificates for Common Stock
to be issued, and (iii) the address to which such holder wishes delivery
to be made of such new certificates to be issued upon such conversion.
Upon surrender of a certificate representing Convertible Preferred Stock
for conversion, the Corporation shall issue and send by hand delivery, by
courier or by overnight courier to the holder thereof or to such holder's
designee, at the address designated by such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled upon conversion.
(e) Effective Date of Conversion. The issuance by the Corporation
of shares of Common Stock upon a conversion of Convertible Preferred Stock
into shares of Common Stock pursuant to Section A.5(a) or Section A.5(b)
hereof shall be effective as of the date of the surrender of the
certificate or certificates for the Convertible Preferred Stock to be
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto); provided,
however, that in the event of conversion pursuant to Section A.5(b), any
shares of Convertible Preferred Stock in respect of which certificates
have not been surrendered in accordance with Section A.5(d) by the
Corporation's close of business on the fifth day after the Initial
Surrender Date (such day, the "Final Surrender Date") shall be
automatically converted into shares of Common Stock in accordance with
Section A.5(b), without any further action on the part of the holder of
such shares, effective as of the Final Surrender Date. On and after the
effective date of conversion, the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock.
(f) Fractional Shares. The Corporation shall not be obligated to
deliver to holders of Convertible Preferred Stock any fractional share of
Common Stock issuable upon any conversion of such Convertible Preferred
Stock, but in lieu thereof may make a cash payment in respect thereof in
any manner permitted by law.
(g) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Convertible Preferred
Stock as herein provided, free from any preemptive rights or other
obligations, such number of shares of Common Stock as shall from time to
time be issuable upon the conversion of all the Convertible Preferred
Stock then outstanding. The Corporation shall prepare and shall use its
best efforts to obtain and keep in force such governmental or regulatory
permits or other authorizations as may be required by law, excluding
permits or authorizations relating to registration under Federal or state
securities laws, in order to enable the Corporation lawfully to issue and
deliver to each holder of record of Convertible Preferred Stock such
number of shares of its Common Stock as shall from time to time be
sufficient to effect the conversion of all Convertible Preferred Stock
then outstanding and convertible into shares of Common Stock.
(h) Adjustments to Conversion Price. The Conversion Price in
effect from time to time shall be subject to adjustment from and after
December 19, 1995 and through the effective date of the conversion of all
of the then outstanding Convertible Preferred Stock and regardless of
whether any shares of Convertible Preferred Stock are then issued and
outstanding as follows:
(I) Stock Dividends, Subdivisions and Combinations. Upon
the issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
the combination of outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Price shall,
simultaneously with the happening of such dividend, subdivision or split
be adjusted by multiplying the then effective Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this Section
A.5(g)(I) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of stockholders
entitled to receive such dividend or distribution (on a retroactive basis)
and in the case of a subdivision or combination shall become effective
immediately as of the effective date thereof.
(II) Sale of Common Stock. In the event the Corporation
shall at any time, or from time to time, issue, sell or exchange any
shares of Common Stock (including shares held in the Corporation's
treasury but excluding any shares of Common Stock issued (i) to employees
or officers of the Corporation under the Corporation's Datamarine Employee
Investment Plan (401(k) Plan) and/or the 1980 Employee Stock Purchase
Plan, each as in effect as of November 1, 1995 or (ii) to officers,
directors, employees, consultants, advisors or agents of the Corporation
upon the exercise of Excluded Options (as defined in Section 5(g)(III)
below)), for a consideration per share less than the Conversion Price in
effect immediately prior to the issuance, sale or exchange of such shares,
then, and thereafter successively upon each such issuance, sale or
exchange, the Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares shall forthwith be reduced to an
amount determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all classes outstanding immediately prior to the
issuance of such additional shares of Common Stock (excluding treasury
shares but including all shares of Common Stock issuable upon conversion,
exercise or exchange of any outstanding Preferred Stock, options,
warrants, rights or convertible or exchangeable securities (including the
convertible debentures due December 19, 2000 issued by this Corporation
(the "Convertible Debentures") pursuant to that certain Debenture Purchase
Agreement dated as of December 19, 1995 among the Company and the parties
named on the signature pages and Exhibit A thereto (the "Debenture
Purchase Agreement.)), plus (ii) the number of shares of Common Stock
which the net aggregate consideration received by the Corporation for the
total number of such additional shares of Common Stock so issued would
purchase at the Conversion Price (prior to adjustment), and
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately prior to
the issuance of such additional shares of Common Stock (excluding treasury
shares but including all shares of Common Stock issuable upon conversion,
exercise or exchange of any outstanding Preferred Stock, options,
warrants, rights or convertible or exchangeable securities (including the
Convertible Debentures)), plus (ii) the number of such additional shares
of Common Stock so issued.
(III) Sale of Options, Rights or Convertible Securities. In
the event the Corporation shall at any time or from time to time, issue
options, warrants or rights to subscribe for shares of Common Stock (other
than any options or warrants for shares of Common Stock granted to
officers, directors, employees, consultants, advisors or agents of the
Corporation pursuant to either (a) the Corporation's 1991 Stock Option
Plan at an exercise price equal to at least 80% of the then current fair
market value of the Common Stock, or (b) the Corporation's 1992 Stock
Option Plan for Non-Employee Directors at exercise prices equal to the
then current fair market value of the Common Stock (the "Excluded
Options")), or issue any securities convertible into or exchangeable for
shares of Common Stock, for a consideration per share (determined by
dividing the Net Aggregate Consideration (as determined below) by the
aggregate number of shares of Common Stock that would be issued if all
such options, warrants, rights or convertible or exchangeable securities
were exercised, converted or exchanged to the fullest extent permitted by
their terms) less than the Conversion Price in effect immediately prior to
the issuance of such options, warrants, rights or convertible or
exchangeable securities, the Conversion Price in effect immediately prior
to the issuance of such options, warrants, rights or convertible or
exchangeable securities shall forthwith be reduced to an amount determined
by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all classes outstanding immediately prior to the
issuance of such options, rights or convertible or exchangeable securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion, exercise or exchange of any outstanding
Preferred Stock, options, warrants, rights or convertible securities
(including the Convertible Debentures)), plus (ii) the number of shares of
Common Stock which the total amount of consideration received by the
Corporation for the issuance of such options, warrants, rights or
convertible or exchangeable securities plus the minimum amount set forth
in the terms of such security as payable to the Corporation upon the
exercise, conversion or exchange thereof (the "Net Aggregate
Consideration") would purchase at the Conversion Price prior to
adjustment, and
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately prior to
the issuance of such options, warrants, rights or convertible or
exchangeable securities (excluding treasury shares but including all
shares of Common Stock issuable upon conversion, exercise or exchange of
any outstanding Preferred Stock, options, warrants, rights or convertible
or exchangeable securities (including the Convertible Debentures)), plus
(ii) the aggregate number of shares of Common Stock that would be issued
if all such options, warrants, rights or convertible or exchangeable
securities were exercised, converted or exchanged.
(IV) Expiration or Change in Price. If the consideration
per share provided for in any options, warrants or rights to subscribe for
shares of Common Stock or any securities exchangeable for or convertible
into shares of Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be readjusted to the Conversion
Price which would have been in effect at such time had such options,
warrants rights or convertible or exchangeable securities provided for
such changed consideration per share (determined as provided in Section
A.5(g)(III) hereof), at the time initially granted, issued or sold;
provided, that such adjustment of the Conversion Price will be made only
as and to the extent that the Conversion Price effective upon such
adjustment remains less than or equal to the Conversion Price that would
be in effect if such options, warrants, rights or convertible or
exchangeable securities had not been issued. No adjustment of the
Conversion Price shall be made under this Section A.5 upon the issuance of
any shares of Common Stock which are issued pursuant to the exercise of
any options, warrants or other subscription or purchase rights or pursuant
to the exercise of any conversion or exchange rights in any convertible or
exchangeable securities if an adjustment shall previously have been made
upon the issuance of such options, warrants, rights or convertible or
exchangeable securities. Any adjustment of the Conversion Price shall be
disregarded if, as, and when the rights to acquire shares of Common Stock
upon exercise or conversion of the options, warrants, rights or
convertible or exchangeable securities which gave rise to such adjustment
expire or are canceled without having been exercised, so that the
Conversion Price effective immediately upon such cancellation or
expiration shall be equal to the Conversion Price in effect at the time of
the issuance of the expired or canceled warrants, options, rights or
convertible securities, with such additional adjustments as would have
been made to that Conversion Price had the expired or canceled warrants,
options, rights or convertible securities not been issued.
(i) Other Adjustments. In the event the Corporation shall make or
issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a non-cash dividend or other distribution
payable in securities of the Corporation other than shares of Common
Stock, then and in each such event lawful and adequate provision shall be
made so that the holders of Convertible Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities of the Corporation which
they would have received had their Convertible Preferred Stock been
converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including
the Conversion Date (as that term is hereafter defined), retained such
securities receivable by them as aforesaid during such period.
If the Common Stock issuable upon the conversion of the Convertible
Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section
A.5), then and in each such event the holder of each share of Convertible
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
Convertible Preferred Stock might have been converted immediately prior to
such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(j) Mergers and Other Reorganizations. If at any time or from
time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section A.5) or a merger or
consolidation of the Corporation with or into another corporation or the
sale of all or substantially all of the Corporation's properties and
assets to any other person, then, as a part of and as a condition to the
effectiveness of such reorganization, merger, consolidation or sale,
lawful and adequate provision shall be made so that the holders of the
Convertible Preferred Stock shall thereafter be entitled to receive upon
conversion of the Convertible Preferred Stock the number of shares of
stock or other securities or property of the Corporation or of the
successor corporation resulting from such merger or consolidation or sale,
to which such holders would have been entitled upon such capital
reorganization, merger, consolidation or sale had such holders converted
their shares of Convertible Preferred Stock into Common Stock immediately
prior to such capital reorganization, merger, consolidation, or sale. In
any such case, appropriate provisions shall be made with respect to the
rights of the holders of the Convertible Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the
provisions of this Section A.5 (including without limitation provisions
for adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Convertible Preferred Stock) shall
thereafter be applicable, as nearly as may be, with respect to any shares
of stock, securities or assets to be deliverable thereafter upon the
conversion of the Convertible Preferred Stock.
(k) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Corporation will furnish each holder of Convertible
Preferred Stock or any Convertible Debentures with a certificate, prepared
by the chief financial officer of the Corporation, showing such adjustment
or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based; provided, however, that the
Corporation shall be entitled to deliver any such notices to the
representative of the holders as set forth in Section 12.6 of the
Debenture Purchase Agreement.
6. Restrictions and Limitations. So long as the Convertible
Preferred Stock remains outstanding, the Corporation shall not without the
affirmative vote or written consent of the holders of a majority in
interest of the then outstanding shares of the Convertible Preferred Stock
(adjusted appropriately for stock splits, stock dividends and the like):
(i) Redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), any share or
shares of stock other than redemption of the Redeemable Preferred Stock in
accordance with the terms thereof or pursuant to Section A.2 or Section
A.3 hereof; provided, however, that this restriction shall not apply to
the repurchase or redemption of shares of Common Stock issued pursuant to
stock repurchase or similar agreements under which the Company has the
option to repurchase such shares upon the occurrence of certain events,
including the termination of employment and involuntary transfers by
operation of law, provided that (unless the purchase is approved by
unanimous vote of the Board of Directors of the Corporation) the
repurchase price paid by the Corporation does not exceed the purchase
price paid to the Corporation for such shares;
(ii) Authorize or issue, or obligate itself to issue, any
other equity security senior to the Convertible Preferred Stock as to
liquidation preferences, redemptions, or dividend rights or with any
special voting rights (other than the Redeemable Preferred Stock);
(iii) Increase or decrease (other than by conversion as
permitted hereby) the total number of authorized shares of Convertible
Preferred Stock or Redeemable Preferred Stock;
(iv) Pay any dividends on any of its capital stock or
otherwise make any payments to any holders of its Common Stock, except as
otherwise expressly permitted in the Debenture Purchase Agreement;
(v) Authorize any merger or consolidation of the Corporation
or SEA, Inc. with or into any other corporation, partnership or entity
(other than a wholly-owned subsidiary of the Corporation or in connection
with an acquisition which is permitted under the terms of a certain
Debenture Purchase Agreement dated December 19, 1995 by and among the
holders of the Corporation's Convertible Debentures issued thereunder and
the Corporation (the "Debenture Purchase Agreement"), authorize or permit
the liquidation, dissolution or winding up of the Corporation, SEA, Inc.
of Delaware or Narrowband Network Systems, Inc. or authorize or permit the
sale of all or any substantial portion of the capital stock or assets of
the Corporation, SEA, Inc. of Delaware or Narrowband Network Systems, Inc.
(except as permitted pursuant to Sections 5.11 and 5.12 of the Debenture
Purchase Agreement); or
(vi) Amend the Amended and Restated Articles of
Incorporation or By-Laws of the Corporation in a manner which, or take any
other action or enter into any other agreements which, could prohibit or
conflict with the Corporation's obligations hereunder with respect to the
holders of the Convertible Preferred Stock.
7. No Reissuance of Convertible Preferred Stock. No share or
shares of the Convertible Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired, and eliminated from the
shares which the Corporation shall be authorized to issue. The
Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce the authorized number of shares of the
Convertible Preferred Stock accordingly.
8. Notices of Record Date. In the event (i) the Corporation
establishes a record date to determine the holders of any class of
securities who are entitled to receive any dividend or other distribution,
or (ii) there occurs any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to
any other Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to the representative of the holders of Convertible
Preferred Stock as set forth in Section 12.6 of the Debenture Purchase
Agreement at least twenty (20) days prior to the record date specified
therein, a notice specifying (a) the date of such record date for the
purpose of such dividend or distribution and a description of such
dividend or distribution, (b) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (c) the
time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up.
B. Redeemable Preferred Stock. This series of Preferred Stock of
the Corporation shall be comprised of 2,000 shares designated as
"Redeemable Preferred Stock" (hereinafter referred to as "Redeemable
Preferred Stock"). The relative rights, preferences, restrictions and
other matters relating to the Redeemable Preferred Stock are as follows:
1. Dividends. The holders of the Redeemable Preferred Stock shall
be entitled to receive, and the Corporation shall be bound to pay on the
earlier of the RPF Redemption Date or the Optional Redemption Date (unless
sooner paid at the election of the Company), cumulative dividends in an
amount per share determined by (i) accruing dividends for each calendar
year or portion thereof that any shares of the Redeemable Preferred Stock
are outstanding (A) through December 31, 1996 at the per annum rate of
$100.00, (B) during calendar year 1997 at the per annum rate of $110.00,
(C) during calendar year 1998 at the per annum rate of $120.000, (D)
during calendar year 1999 at the per annum rate of $140.00, and (E) during
calendar year 2000 and thereafter at the per annum rate of $150.00, and
(ii) compounding such dividends on each calendar year end until paid (or
through any date on which such dividends are to be paid) at the per annum
dividend rate for such year.
2. Preference on Liquidation.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, the holders of the Redeemable Preferred Stock shall be
entitled to receive in cash and prior and in preference to any
distribution of any assets, capital, surplus or earnings of the
Corporation to the holders of any other capital stock of the Corporation
(including the Convertible Preferred Stock and the Common Stock), the
amount of $1,000.00 per share for each share of Redeemable Preferred Stock
then held by them (adjusted for any stock split, combination,
consolidation, or stock distributions or stock dividends with respect to
such shares) together with all accrued but unpaid cumulative dividends on
the Redeemable Preferred Stock (the "Liquidation Preference Amount"). If
the assets and funds thus distributed among the holders of the Redeemable
Preferred Stock shall be insufficient to permit the payment to such
holders of the full Liquidation Preference Amount then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Redeemable Preferred Stock.
(b) The following shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section B.2 (with each such event
being referred to herein as a "Corporate Disposition"): (i) a
consolidation or merger of this Corporation with or into any other
corporation or corporations (other than a wholly-owned subsidiary or in
connection with an acquisition permitted under the Debenture Purchase
Agreement); (ii) the sale, transfer or other disposition of all or
substantially all of the assets of this Corporation; or (iii) the
effectuation by the Corporation or its shareholders of a transaction or
series of related transactions in which more than 50% of the voting power
of the Corporation is disposed of (other than as permitted under the
Debenture Purchase Agreement).
3. Redemption.
(a) Mandatory Redemption. The Corporation shall redeem all of the
shares of Redeemable Preferred Stock then outstanding on December 19,
2000. On or prior to June 30, 1999, the Corporation shall give written
notice by mail, postage prepaid, to the holders of the then outstanding
Redeemable Preferred Stock at the address of each such holder appearing on
the books of the Corporation or given by such holder to the Corporation
for the purpose of notice. Such notice shall set forth the date specified
for redemption (December 19, 2000) and the Redemption Price (which shall
be the Liquidation Preference Amount). The notice shall further call upon
such holders to surrender to the Corporation on or before the applicable
redemption date at the place designated in the notice such holder's
certificate or certificates representing the shares to be redeemed on
December 19, 2000 (the "RPF Redemption Date") or an indemnification and
loss certificate. On or before the applicable RPF Redemption Date, each
holder of shares of Redeemable Preferred Stock called for redemption shall
surrender the certificate evidencing such shares, or such indemnification
and loss certificate, to the Corporation. At such time, the Corporation
shall pay to each of the holders of Redeemable Preferred Stock a per share
cash price equal to the Redemption Price.
(b) Optional Redemption. The Corporation may, in its sole
discretion, at any time after December 19, 1997, redeem all of the shares
of Redeemable Preferred Stock then outstanding. The Corporation shall
give the holders of the then outstanding Redeemable Preferred Stock not
less than sixty (60) days prior written notice by mail, postage prepaid,
at the address of each such holder appearing on the books of the
Corporation or given by such holder to the Corporation for the purpose of
such notice. Such notice shall set forth the date specified for
redemption (the "Optional Redemption Date") and the Redemption Price
(which shall be the Liquidation Preference Amount). The notice shall
further call upon such holders to surrender to the Corporation on or
before the Optional Redemption Date at the place designated in the notice
such holder's certificate or certificates representing the shares to be
redeemed on the Optional Redemption Date or an indemnification and loss
certificate. On or before the applicable Optional Redemption Date, each
holder of shares of Redeemable Preferred Stock called for redemption shall
surrender the certificate evidencing such shares, or such indemnification
and loss certificate, to the Corporation. At such time, the Corporation
shall pay to each of the holders of Redeemable Preferred Stock a per share
cash price equal to the Redemption Price.
(c) Termination of Rights. From and after any applicable RPF
Redemption Date or Optional Redemption Date, unless there shall have been
a default in payment or tender by the Corporation of the Redemption Price,
all rights of the holders with respect to such redeemed shares of
Redeemable Preferred Stock (except the right to receive the Redemption
Price upon surrender of their certificate) shall cease and such shares
shall not thereafter be transferred on the books of this Corporation or be
deemed to be outstanding for any purpose whatsoever.
(d) Insufficient Funds. If the funds of the Corporation legally
available for redemption of shares of Redeemable Preferred Stock on the
applicable RPF Redemption Date or Optional Redemption Date are
insufficient to redeem the total number of shares of Redeemable Preferred
Stock on such redemption date, the Corporation shall use those funds which
are legally available to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed. At any time
thereafter when additional funds of the Corporation are legally available
for the redemption of shares of Redeemable Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on the applicable RPF
Redemption Date or Optional Redemption Date, but which it has not
redeemed, at the Redemption Price together with any accrued interest
thereon as provided below. If any shares of Redeemable Preferred Stock
are not redeemed for the foregoing reason or because the Corporation
otherwise failed to pay or tender to pay the aggregate Redemption Price on
all outstanding shares of Redeemable Preferred Stock, all shares which
have not been redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein, and the Corporation shall pay
interest on the unpaid portion of the Redemption Price for the unredeemed
portion at an aggregate per annum rate equal to twenty percent (20%) or
the maximum rate permitted by applicable law, whichever is less.
4. Voting. Except as required by law, the shares of the
Redeemable Preferred Stock shall not have any voting rights or powers.
5. No Reissuance of Redeemable Preferred Stock. No share or
shares of the Redeemable Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired, and eliminated from the
shares which the Corporation shall be authorized to issue. The
Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce the authorized number of shares of the
Redeemable Preferred Stock accordingly.
5. The restrictions, if any, imposed by the Articles of
Organization upon the transfer of shares of stock of any class are as
follows:
NONE
6. Other lawful provisions, if any, for the conduct and regulation
of the business affairs of the corporation, for its voluntary dissolution,
or for limiting, defining, or regulating the powers of the corporation, or
of its directors or stockholders, or of any class of stockholders:
Any amendment of the Articles of Organization of this corporation,
other than amendments which would have been governed by Section 70 of
Chapter 156B of the General Laws, as the same exists on the date of
adoption of this amendment of the Articles, shall require the affirmative
vote of two-thirds of the shares of each class of stock of this
corporation outstanding and entitled to vote thereon.
Any sale, lease, or exchange of all or substantially all of the
property and assets, including good will, of this corporation shall
require the affirmative vote of two-thirds of the shares of each class of
stock of this corporation outstanding and entitled to vote thereon;
provided, however, that the mortgage or pledge of, or granting a security
interest in, all or substantially all the property and assets of the
corporation, including good will, shall not require the authorization or
consent of stockholders.
Any agreement of merger or consolidation to which this corporation
is a party which would have been governed by Section 78 or 79 of said
Chapter 156B, as they exist on the date of the adoption of this amendment,
shall require the affirmative vote of two-thirds of the shares of each
class of stock of this corporation outstanding and entitled to vote
thereon; provided, however, that no stockholder approval by this
corporation shall be required of any agreement of merger under which this
corporation is the surviving corporation if the conditions set forth in
Section 78(c)(2) of said Chapter 156B, as it exists on the date of
adoption of this amendment, are satisfied.
The foregoing Sections 70, 78 and 79 of said Chapter 156B, as they
exist on the date of adoption of this amendment, are attached as exhibits
A, B and C, respectively.
Vote Required for Certain Business Combinations
A. In addition to any affirmative vote required by law or these
Articles of Organization, and except as otherwise expressly provided in
Paragraph B of this Provision:
(i) any merger or consolidation of the corporation or any
subsidiary (as hereinafter defined) with (a) an Interested Stockholder (as
hereinafter defined) or (b) any other corporation (whether or not itself
an Interested Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as such term is hereinafter defined) of an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, grant of a
security interest, transfer or other disposition (in one transaction or a
series of transactions) to or with (a) an Interested Stockholder or (b) or
any other person (whether or not itself an Interested Stockholder) which
is, or after such sale, lease, exchange, mortgage, pledge, grant of
security interest, transfer or other disposition would be, an Affiliate of
an Interested Stockholder, directly or indirectly, of substantially all of
the assets of the corporation (including, without limitation, any voting
securities of a Subsidiary) or any Subsidiary; or
(iii) the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the corporation or any Subsidiary, or both, to (a) an
Interested Stockholder or (b) any other person (whether or not itself an
Interested Stockholder) which is, or after such issuance or transfer would
be, an Affiliate of an Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof); or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of an Interested Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the corporation or any Subsidiary
directly or indirectly beneficially owned by (a) an Interested Stockholder
or (b) any other person (whether or not itself an Interested Stockholder)
which is, or after such reclassification, recapitalization, merger or
consolidation or other transaction would be, an Affiliate of an Interested
Stockholder; shall not be consummated unless such consummation shall have
been approved by the affirmative vote of the holders of at least eighty
(80%) percent of the combined voting power of the then outstanding shares
of Voting Stock (as hereinafter defined), voting together as a single
class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be
specified, by law, in these Articles of Organization or in any agreement
with any national securities exchange or otherwise.
B. The provisions of Paragraph A of this Provision shall not be
applicable to any particular Business Combination (as hereinafter defined)
and such Business Combination shall require only such affirmative vote as
is required by law and any other provision of these Articles of
Organization, if the Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined) or all of
the following conditions shall have been met:
(i) The transaction constituting the Business Combination shall
provide for a consideration to be received by all holders of Common Stock
in exchange for all their shares of Common Stock, and the aggregate amount
of the cash and the Fair Market Value as of the date of the consummation
of the Business Combination of consideration other than cash to be
received per share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
(a) (if applicable) the highest per-share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid
in order to acquire any shares of Common Stock beneficially owned by an
Interested Stockholder (I) within the two-year period immediately prior to
the Announcement Date (as hereinafter defined), (II) within the two-year
period immediately prior to the Determination Date (as hereinafter
defined) or (III) in the transaction in which it became an Interested
Stockholder, whichever is highest; or
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher;
(ii) If the transaction constituting the Business Combination
shall provide for a consideration to be received by holders of any class
or series of outstanding Voting Stock other than Common Stock, the
aggregate amount of the cash and the Fair Market Value as of the date of
the consummation of the Business Combination of consideration other than
cash to be received per share by holders of shares of such class or series
of Voting Stock shall be at least equal to the highest of the following
(it being intended that the requirements of this subparagraph 2 shall be
required to be met with respect to every class or series of outstanding
Voting Stock, whether or not an Interested Stockholder has previously
acquired any shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid
in order to acquire any shares of such class or series of Voting Stock
beneficially owned by an Interested Stockholder (I) within the two-year
period immediately prior to the Announcement Date, (II) within the two-
year period immediately prior to the Determination Date, or (III) in the
transaction in which it became an Interested Stockholder, whichever is
highest; or
(b) the Fair Market Value per share of such class or series of
Voting Stock on the Announcement Date or the Determination Date, whichever
is higher; or
(c) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation;
(iii) The consideration to be received by holders of a particular
class or series of outstanding Voting Stock (including Common Stock) shall
be in cash or in the same form as was previously paid in order to acquire
shares of such class or series of Voting Stock which are beneficially
owned by an Interested Stockholder and, if an Interested Stockholder
beneficially owns shares of any class or series of Voting Stock which were
acquired with varying forms of consideration, the form of consideration
for such class or series of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such class or series of
Voting Stock beneficially owned by it. The price determination in
accordance with subparagraph 1 and 2 of this paragraph shall be subject to
appropriate adjustment in the event of any recapitalization, stock
dividend, stock split, combination of shares or similar event;
(iv) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(a) except as approved by a majority of the Continuing Directors,
there shall have been no failure to declare and pay at the regular date
therefor the full amount of any dividends (whether or not cumulative)
payable on any outstanding preferred stock;
(b) there shall have been (I) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) other than as approved by a majority of
the Continuing Directors and (II) an increase in such annual rate of
dividends as necessary to prevent any such reduction in the event of any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing
the number of outstanding shares of the Common Stock, unless the failure
so to increase such annual rate is approved by a majority of the
Continuing Directors; or
(c) such Interested Stockholder shall not have become the
beneficial owner of any additional shares of Voting Stock at a price lower
than that paid in the transaction in which it became an Interested
Stockholder.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other financial assistance
of any tax credits or other tax advantages provided the corporation,
whether in anticipation of or in connection with such Business Combination
or otherwise; and
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(or any subsequent provisions replacing such act, rules or regulations)
shall be mailed to the stockholders of the corporation, no later than the
earlier of (a) (30) days prior to any vote on the proposed Business
Combination or (b) if no vote on such Business Combination is required,
(60) days prior to the consummation of such Business Combination (whether
or not such proxy or information statement is required to be mailed
pursuant to such Act or subsequent provisions). Such proxy statement
shall contain at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors, or any of them, may have
furnished in writing and, if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable investment banking firm as
to the fairness (or lack of fairness) of the terms of such Business
Combination, from the point of view of the holder of Voting Stock other
than an Interested Stockholder (such investment banking firm to be
selected by a majority of the Continuing Directors, to be furnished with
all information it reasonably requests and to be paid a reasonable fee for
its services upon receipt by the corporation of such opinion).
C. For the purposes of this Provision:
(i) "Business Combination" shall mean any transaction which is
referred to in any one or more of subparagraphs (i) through (v) of
Paragraph A of this Provision.
(ii) "Voting Stock" shall mean stock of all classes and series of
the corporation entitled to vote generally in the election of directors.
(iii) "Person" shall mean any individual, firm, trust,
partnership, association, corporation or other entity.
(iv) "Interested Stockholder" shall mean any person (other than
the corporation or any subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more than
twenty-five percent (25%) of the combined voting power of the then
outstanding Voting Stock; or
(b) is an Affiliate of the corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of more than twenty-five percent
(25%) of the combined voting power of the then outstanding Voting Stock;
or
(c) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by an Interested Stockholder, unless such assignment or succession
shall have occurred pursuant to a Public Transaction (as hereinafter
defined) or any series of transactions involving a Public Transaction.
For the purposes of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of subparagraph 6
below but shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or option, or otherwise.
(v) "Public Transaction" shall mean any (a) purchase of shares
offered pursuant to an effective registration statement under the
Securities Act of 1933 or (b) open-market purchase of shares on a national
securities exchange if, in either such case, the price and other terms of
sale are not negotiated by the purchaser and the seller of the beneficial
interest in the shares.
(vi) A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates beneficially owns,
directly or indirectly; or
(b) which such person or any of its Affiliates has (I) the right
to acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise or (II) the right to vote or to direct
the voting thereof pursuant to any agreement, arrangement or
understanding; or
(c) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(vii) "Affiliate" shall have the meaning ascribed to such term in
Rule 12B-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on December 12, 1986.
(viii) "Subsidiary" shall mean any corporation of which a majority
of any class of equity security (as defined in the Rule 3a11.1 of the
General Rules and Regulations under the Securities Exchange Act of 1934,
as in effect on December 12, 1986) is owned, directly or indirectly, by
the corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in subparagraph 4, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
corporation.
(ix) "Continuing Director" shall mean any member of the Board of
Directors of the corporation who is unaffiliated with, and not a nominee
of, an Interested Stockholder and was a member of the Board prior to the
time that such Interested Stockholder became an Interested Stockholder,
and any successor of a Continuing Director who is unaffiliated with, and
not a nominee of, an Interested Stockholder and is recommended to succeed
a Continuing director by a majority of Continuing Directors then on the
Board.
(x) "Announcement Date" shall mean the date of the first public
announcement of the proposed Business Combination.
(xi) "Determination Date" shall mean the date on which an
Interested Stockholder became an Interested Stockholder.
(xii) "Fair Market Value" shall mean: (a) in the case of stock,
the highest closing sale price during the (30)-day period immediately
preceding the date in question of a share of such stock on the National
Market System of the National Association of Securities Dealers Automated
Quotation System or any system then in use on any national securities
exchange or automated quotation system, or if no such quotations are
available, the fair market value on the date in question of a share of
such stock as determined by a majority of the Continuing Directors in good
faith; and (b) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by a
majority of the Continuing Directors in good faith.
D. A majority of the Continuing Directors shall have the power and
duty to determine for the purposes of this Provision, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Provision, including, without limitation,
(a) whether a person is an Interested Stockholder, (b) the number of
shares of Voting Stock beneficially owned by any person, (c) whether a
person is an Affiliate of another, (d) whether the requirements of
Paragraph B of this Provision have been met and (e) such other matters
with respect to which a determination is required under this Provision.
The good faith determination of a majority of the Continuing Directors on
such matters shall be conclusive and binding for all purposes of this
Provision.
E. Nothing contained in this Provision shall be construed to
relieve an Interested Stockholder of any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of these Articles of
Organization or the By-laws of the corporation or the fact that a lesser
percentage may be specified by law, these Articles of Organization or the
By-laws of the corporation, the affirmative vote of the holders of at
least eighty (80%) percent of the combined voting power of the then
outstanding Voting Stock, voting together as a single class, shall be
required to amend, alter, adopt any provision inconsistent with or repeal
this Provision.
Classified Board of Directors
A. The Directors of the corporation shall be divided into three
classes: Class I, Class II and Class III. Each class shall consist, as
nearly as may be possible, of one-third of the whole number of the Board
of Directors. If the number of Directors is not evenly divisible by
three, the Board of Directors shall determine the number of Directors to
be elected initially into each class. In the election of Directors at the
1987 Annual Meeting of the Stockholders, the Class I Directors shall be
elected to hold office for a term to expire at the first annual meeting of
the stockholders thereafter; the Class II Directors shall be elected to
hold office for a term to expire with the second annual meeting of the
stockholders thereafter; and the Class III Directors shall be elected to
hold office for a term to expire at the third annual meeting of the
stockholders thereafter, and in the case of each class, until their
respective successors are duly elected and qualified. At each annual
election held after the 1987 Annual Meeting of the Stockholders, the
Directors elected to succeed those whose terms expire shall be identified
as being of the same class as the Directors they succeed and shall be
elected to hold office for a term to expire at the third annual meeting of
the stockholders after their election, and until their respective
successors are duly elected and qualified. If the number of Directors
changes, any increase or decrease in Directors shall be apportioned among
the classes so as to maintain all classes as equal in number as possible,
and any additional Director elected to any class shall hold office for a
term which shall coincide with the terms of the other Directors in such
class and until his successor is duly elected and qualified.
B. Notwithstanding any other provisions of these Articles of
Organization or the by-laws of the corporation or the fact that a lesser
percentage may be specified by law, these Articles of Organization or the
by-laws of the corporation, the affirmative vote of the holders of at
least eighty percent (80%) of the combined voting power of the outstanding
Voting Stock (as defined in Article VI of these Articles of Organization),
voting together as a single class, shall be required to amend, alter,
adopt any provision inconsistent with or to repeal this provision.
No director of the corporation shall be liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director notwithstanding any statutory provision or other law imposing
such liability, except for liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section sixty-one or
sixty-two of Chapter 156B of the Massachusetts General Laws, or (iv) for
any transaction from which the director derived an improper personal
benefit.
7. The first meeting of the incorporators was duly held on the
20th day of March, 1969 at which by-laws of the corporation were duly
adopted and at which the initial directors, president, treasurer and
clerk, whose names are set out below, were duly elected.
8. The following information shall not for any purpose be treated
as a permanent part of the Articles of Organization of the corporation.
a. The post office address of the initial principal office of the
corporation in Massachusetts is Suite 440, Two Center Plaza, Boston,
Massachusetts 02108
b. The name, residence, and post office address of each of the
initial directors and the following officers of the corporation elected at
the first meeting are as follows:
<TABLE>
<CAPTION>
POST OFFICE
NAME RESIDENCE ADDRESS
<S> <S> <S> <S>
President: Walter Weeton 42 Newbury Park 42 Newbury Park
Needham, Mass. Needham, Mass.
Treasurer: Theodore Sapino 21 Hiram Road 21 Hiram Road
Framingham, Mass. Framingham, Mass.
Clerk: Barry M. Levin 89 Loker Street 89 Loker Street
Wayland, Mass. Wayland, Mass.
Directors: Walter Weeton 42 Newbury Park 42 Newbury Park
Needham, Mass. Needham, Mass.
David Shansky Moccasin Hill Moccasin Hill
Lincoln, Mass. Lincoln, Mass.
Theodore Sapino 21 Hiram Road 21 Hiram Road
Framingham, Mass. Framingham, Mass.
Albert Eng 51 Cutler Lane 51 Cutler Lane
Brookline, Mass. Brookline, Mass.
</TABLE>
c. The date initially adopted on which the corporation's fiscal
year ends is as follows: December 31st
d. The date initially fixed in the by-laws for the annual meeting
of stockholders of the corporation is the third Wednesday of March
e. The name and business address of the resident agent, if any, of
the corporation is: NONE
EXHIBIT A
[SECTION] 70. Amendments Requiring Majority Vote
A corporation may authorize, at a meeting duly called for the
purpose, an amendment of its articles of organization, by vote of a
majority of each class of stock outstanding and entitled to vote thereon
effecting any one or more of the following:
(a) an increase or a reduction of its capital stock of any class
then authorized;
(b) a change of the par value of its authorized shares with par
value or any class thereof;
(c) a change of its authorized shares with par value or any class
thereof into any number of shares without par value, or the exchange
thereof pro rata for any member of shares without par value;
(d) a change of its authorized shares without par value or any
class thereof into a greater or lesser number of shares without par value,
or the exchange thereof pro rata for a greater or lesser number of shares
without par value;
(e) a change of its authorized shares with par value or any class
thereof into a greater or lesser number of shares with par value, or the
exchange thereof pro rata for a greater or lesser number of shares with
par value;
(f) a change of its authorized shares without par value or any
class thereof into any number of shares with par value, or the exchange
thereof pro rata for any number of shares with par value;
(g) a change of its corporate name.
Any reference in this section to any change with respect to
authorized shares shall be deemed to refer to and include both the
unissued and the outstanding shares; provided, however, that any change
which impairs or diminishes the preferences, voting powers, restrictions
(including restrictions on transfer), qualifications, special or relative
rights or privileges of any outstanding shares may be authorized only in
accordance with the provisions of section seventy-one. The aggregate par
value of shares becoming outstanding by virtue of any change or exchange
effected pursuant to the provisions of this section or of section seventy-
one shall not exceed the amount of capital shown on the balance sheet of
the corporation with respect to the outstanding shares so changed or
exchanged, plus the amount of any surplus which shall be appropriated to
capital in connection with such change or exchange. (1964, 723, [SECTION] 1.)
[SECTION] 78. Consolidation or Merger
(a) Any two or more corporations may consolidate to form a new
corporation, or may merge into a single corporation, which may be any one
of the constituent corporations, in the manner specified in this section.
(b) Such corporation as desire to consolidate or merge shall enter
into an agreement of consolidation or merger signed by the president or a
vice president and the treasurer or an assistant treasurer under the
corporate seals of the respective corporations, which shall set forth:
(1) The names of the corporations proposing to consolidate or
merge and the name of the resulting or surviving corporation;
(2) The purposes of the resulting or surviving corporation;
(3) The total number of shares and the par value, if any, of each
class of stock which the resulting or surviving corporation is authorized
to issue;
(4) If more than one class of stock is to be authorized at the
effective date of the agreement, a description of each class, with the
preferences, voting powers, qualifications, special or relative rights or
privileges as to each class and any series thereof then established;
(5) The terms and conditions of the consolidation or merger;
(6) The manner of converting the shares of each of the constituent
corporations into shares or securities of the resulting or surviving
corporations, or the cash or other consideration to be paid or delivered
in exchange for shares of each constituent corporation; provided, however,
that the aggregate par value of the shares with a par value of the
resulting or surviving corporation plus the aggregate principal amount of
any securities representing indebtedness of the surviving or resulting
corporation substituted upon conversion for previously issued and
outstanding shares of the constituent corporation shall not exceed the
aggregate value of the assets less the aggregate amount of the liabilities
of the constituent corporations; and
(7) The manner of fixing the effective date of the consolidation
or merger, which may be the date of filing the articles of consolidation
or articles of merger with the state secretary pursuant to subsection (d),
or any specified date not more than thirty days after such filing.
The agreement of consolidation or merger may contain such other
provisions as are permitted by section thirteen of this chapter to be
included in the articles of organization of a corporation, together with
any provisions deemed necessary or desirable in connection with the
consolidation or merger, including without limitation a provision
permitting the abandonment thereof, which are not inconsistent with the
provisions of this chapter.
(c)(1) Except as provided in paragraph (2) of this subsection:
(i) The agreement of consolidation of merger shall be
submitted to the stockholders of each constituent corporation at a meeting
thereof called for the purpose of considering and acting upon the same.
(ii) Notice of the time, place and purposes of such meeting
shall be given to each stockholder of record, whether or not entitled to
vote thereat, of each such corporation in the manner provided in section
thirty-six but at least thirty days prior to the date of such meeting.
(iii) Subject to the provisions of section eight, the vote
of two-thirds of the shares of each class of stock of each constituent
corporation outstanding and entitled to vote on the question, or, if the
articles of organization so provide, the vote of a lesser proportion but
not less than a majority of each class of stock of each constituent
corporation outstanding and entitled to vote on the question, shall be
necessary for the approval of such agreement. For this purpose, if any
such agreement would adversely affect the rights of any class of stock of
either constituent corporation, the vote in the proportion provided for in
this section of the shares of such class then outstanding, voting
separately, shall also be necessary to authorize such agreement. Any
series of a class which is adversely affected in a manner different from
other series of the same class shall, together with any other series of
the same class adversely affected in the same manner, be treated as a
separate class.
(2) Unless required by its articles of organization, the agreement
of merger need not be submitted to the stockholders of a constituent
corporation surviving the merger but may be approved by vote of its
directors if:
(i) The agreement of merger does not change the name, the
amount of shares authorized of any class of stock or other provisions of
the articles of organization of such corporation;
(ii) The authorized unissued shares or shares held in the
treasury of such corporation of any class of stock of such corporation to
be issued or delivered pursuant to the agreement of merger do not exceed
fifteen per centum of the shares of such corporation of the same class
outstanding immediately prior to the effective date of the merger; and
(iii) The issue by vote of the directors of any unissued
stock to be issued pursuant to the agreement of merger has been authorized
in accordance with section twenty-one.
(d) Unless such agreement to consolidate or merge is abandoned
pursuant to provisions contained therein: (1) an original or attested
copy thereof shall be kept in the commonwealth by the resulting or
surviving corporation in one of the offices specified in section thirty-
two for inspection by any of its stockholders or by any person who was a
stockholder of any constituent corporation; (2) the resulting or surviving
corporation shall furnish a copy of the agreement of consolidation or
merger to any such stockholder or person upon written request and without
charge; (3) articles of consolidation or merger shall be submitted to the
state secretary which shall set forth the due adoption of an agreement of
consolidation or merger in accordance with subsection (b) and (c) and
shall state: (i) the names of the constituent corporations and the name
of the resulting or surviving corporation, (ii) the effective date of the
consolidation or merger determined pursuant to the agreement of
consolidation or merger, (iii) any amendment to the articles of
organization of the surviving corporation to be effected pursuant to the
agreement or merger or the following information in respect of the
resulting corporation:
(a) the purposes of the resulting corporation;
(b) the total number of shares and the par value, if any, of each
class of stock which the resulting corporation is authorized to issue;
(c) if more than one class of stock is to be authorized, a
description of each class, with the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
and any series thereof then established; and
(d) such other provisions as are permitted by section thirteen to
be included in the articles of organization of a corporation and are
contained in the agreement of consolidation; and (iv) that the resulting
or surviving corporation will furnish a copy of the agreement of
consolidation or merger to any of its stockholders or to any person who
was a stockholder of any constituent corporation upon written request and
without charge. Such articles of consolidation or merger shall be signed
by the president or a vice president and the clerk or an assistant clerk
of each constituent corporation, who shall state under the penalties of
perjury that the agreement of consolidation or merger has been duly
executed on behalf of such corporation and has been approved in the manner
required by this section by the stockholders of such corporation or, if
permitted under subsection (c), by the directors of such corporation.
(Amended by 1980, 363, [SECTION] 1, approved July 3, 1980, effective 90
days thereafter.)
The form on which articles of consolidation or merger are filed
shall also contain the following information which shall not for any
purpose be treated as a permanent part of the articles of organization of
the resulting or surviving corporation:
(1) The post office address of the initial principal office of the
resulting or surviving corporation in the commonwealth;
(2) the name, residence and post office address of each of the
initial directors and president, treasurer and clerk of the resulting or
surviving corporation;
(3) the fiscal year of the resulting or surviving corporation
initially adopted;
(4) the date initially fixed in the by-laws for the annual meeting
of shareholders of the resulting or surviving corporation.
The consolidation or merger shall become effective when the articles
of consolidation or merger are filed in accordance with section six,
unless said articles specify a later effective date not more than thirty
days after such filing, in which event the consolidation or merger shall
become effective on such later date.
(e) The resulting or surviving corporation shall file a copy of
the articles of consolidation or merger certified by the state secretary
in the registry of deeds in each district within the commonwealth in which
real property of any constituent corporation is situated, or in lieu of
such certified copy a certificate issued pursuant to section eighty-four,
except that no filing need be made with respect to real property of a
constituent corporation which is the surviving corporation of a merger.
(Amended by 1980, 245, [SECTION] 1, approved June 6, 1980, effective 90
days thereafter.)
[SECTION] 79. Consolidation or Merger With Foreign Corporation
(a) Any one or more corporations may consolidate or merge with one
or more other corporations organized under the laws of any other state or
states of the United States, if the laws of such other state or states
permit. The constituent corporations may consolidate to form a new
corporation, which may be a corporation of the state under the laws of
which any one of the constituent corporations is organized, or they may
merge into a single corporation, which may be any one of the constituent
corporations.
(b) Such corporations as desire to consolidate or merge shall
enter in an agreement of consolidation or merger which shall specify the
state under the laws of which the resulting or surviving corporation is
organized. If the resulting or surviving corporation is to be a
Massachusetts corporation such agreement of consolidation or merger shall
comply with the provisions of section seventy-eight, and if the resulting
or surviving corporation is to be governed by the laws of another state
the agreement of consolidation or merger shall comply with the applicable
provisions of the laws of such other state. If the resulting or surviving
corporation is to be governed by the laws of another state, the resulting
or surviving corporation shall agree that it may be sued in this
commonwealth for any prior obligation of any constituent domestic
corporation, any prior obligation of any constituent foreign corporation
qualified under chapter one hundred and eighty-one, and any obligation
thereafter incurred by the resulting or surviving corporation, including
the obligation created by section eighty-five, so long as any liability
remains outstanding against the corporation in this commonwealth, and it
shall irrevocably appoint the state secretary as its agent to accept
service of process in any action for the enforcement of any such
obligation, including taxes in the same manner as provided in chapter one
hundred and eighty-one.
(c) The agreement of consolidation or merger shall be adopted by
each of the constituent corporations in accordance with the laws of the
state under which it is organized, and in the case of a Massachusetts
corporation in the manner provided in section seventy-eight. Unless such
agreement is abandoned pursuant to provisions contained therein: (1) an
original or attested copy thereof shall be kept in the commonwealth by the
resulting or surviving corporation in one of the offices specified in
section thirty-two if the resulting or surviving corporation is to be a
Massachusetts corporation, or if said corporation is to be governed by the
laws of another state, wherever the records of meetings of its
stockholders are required or permitted by such laws to be kept, and shall
be made available at said location for inspection by any stockholder of
the resulting or surviving corporation or any person who was a stockholder
of any constituent corporation; (2) the resulting or surviving corporation
shall furnish a copy of the agreement of consolidation or merger to any
such stockholder or person upon written request and without charge; (3)
articles of consolidation or merger shall be submitted to the state
secretary, which shall set forth the information required by clauses (i)
to (iv), inclusive, of paragraph 3 of subsection (d) of section seventy-
eight, and shall be signed by the president or a vice president and the
clerk or an assistant clerk of each constituent corporation, or, in the
case of a corporation organized under the laws of another state, by
officers having corresponding powers and duties, who shall make affidavit
or state under the penalties of perjury (i) in the case of each
constituent corporation not organized under the laws of Massachusetts,
that the agreement has been duly adopted under the laws of the state under
which such constituent corporation is organized, and (ii) in the case of
each constituent corporation organized under the laws of Massachusetts,
that the agreement has been duly executed by the officers and has been
approved in the manner required by section seventy-eight by the
stockholders of such corporation or, if permitted under subsection (c) of
section seventy-eight, by the directors of such corporation. If the
resulting or surviving corporation is to be governed by the laws of
Massachusetts, the form on which articles of consolidation or merger are
filed shall contain the further information required by subsection (d) of
section seventy-eight in the case of articles of consolidation or merger
filed thereunder, which as set forth in said subsection (d) shall not for
any purpose be treated as a permanent part of the articles of organization
of the resulting or surviving corporation. The consolidation or merger
shall become effective when the articles of consolidation or merger are
filed in accordance with section six, unless said articles specify a later
effective date not more than thirty days after such filing, in which event
the consolidation or merger shall become effective on such later date.
(Amended by 1980, 365, [SECTION] 2, approved July 3, 1980, effective 90
days thereafter.)
(d) The resulting or surviving corporation shall file a copy of
the articles of consolidation or merger certified by the state secretary
in the registry of deeds in each district within the commonwealth in which
real property of any constituent corporation is situated, or in lieu of
such certified copy a certificate issued pursuant to section eighty-four,
except that no filing need be made with respect to real property of a
constituent corporation which is the surviving corporation of a merger.
(Amended by 1980, 245, [SECTION] 2, approved June 6, 1980, effective 90
days thereafter.)
EXHIBIT 4
DEBENTURE PURCHASE AGREEMENT W/ EXHIBITS
DATAMARINE INTERNATIONAL, INC.
$2,000,000 Convertible Subordinated Debentures
due December __, 2000
DEBENTURE PURCHASE AGREEMENT
As of December ___, 1995
Datamarine International, Inc.
Debenture Purchase Agreement
As of December ___, 1995
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. TERMS OF PURCHASE; PAYMENT TERMS 1
1.1 Sale and Purchase 1
1.2 Terms of the Debentures 1
1.3 Closing 3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, SEA AND
NARROWBAND 3
2.1 Organization, Existence and Authority 3
2.2 Authorization 4
2.3 Non-Contravention 4
2.4 Capitalization 4
2.5 Subsidiaries; Investments 5
2.6 SEC Reports and Financial Statements 5
2.7 Absence of Undisclosed Liabilities 6
2.8 Absence of Certain Developments 6
2.9 Accounts Receivable 7
2.10 Title to Properties 7
2.11 Tax Matters 7
2.12 Contracts and Commitments 8
2.13 Proprietary Rights; Employee Restrictions 8
2.14 Litigation and Compliance with Laws 9
2.15 Permits; FCC Approvals; Customer and Supplier Relations 10
2.16 Employee Benefit Programs 12
2.17 Labor Laws 12
2.18 Solvency 13
2.19 Environmental Matters 13
2.20 Inventory 14
2.21 Product and Service Claims. 14
2.22 Backlog. 14
2.23 Information Supplied to Lenders 14
2.24 Broker's Fee 15
SECTION 3. CLOSING CONDITIONS OF LENDERS 15
3.1 Opinion of Company Counsel 15
3.2 Authorization 15
3.3 Irrevocable Proxy 16
3.4 Delivery of Documents 16
3.5 Use of Proceeds 16
3.6 No Violation or Injunction 16
3.7 No Litigation 16
3.8 No Adverse Change 16
3.9 All Proceedings Satisfactory 17
SECTION 4. FINANCIAL COVENANTS 17
4.1 Indebtedness 17
4.2 Liens 18
4.3 Distributions or Redemptions 19
SECTION 5. OPERATING AND REPORTING COVENANTS 19
5.1 Financial Statements; Minutes 19
5.2 Budget and Strategic Plan 20
5.3 Conduct of Business 20
5.4 Payment of Taxes, Compliance with Laws, Etc. 20
5.5 Adverse Changes 20
5.6 Insurance 20
5.7 Maintenance of Properties 21
5.8 Affiliated Transactions 21
5.9 Management Compensation 21
5.10 Board of Directors; Inspection 21
5.11 Issuance of Capital Stock, Convertible Securities, Options,
Warrants or Rights 23
5.12 Merger, Consolidation, Reorganization, Sale of Assets,
Acquisition 23
5.13 No Amendments to Charter Documents 23
5.14 Restrictions on Other Agreements 24
5.15 Stay, Extension and Usury Laws 24
5.16 Right of Participation in Financings 24
5.17 [Intentionally Omitted] 25
5.18 Dissolution of Data I.C., Inc. 25
5.19 Transactions with Foreign Subsidiaries 25
SECTION 6. CONVERSION 25
SECTION 7. EVENTS OF DEFAULT; REMEDIES 26
7.1 Events of Default 26
7.2 Remedies on Default, Etc. 28
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE LENDERS 28
8.1 Representation of Lenders 28
SECTION 9. INTERCREDITOR MATTERS 29
9.1 Subordination to Payment 29
9.2 Bankruptcy or Liquidation 29
9.3 Payment Default on Senior Debt 30
9.4 Non-Payment Default on Senior Debt 30
9.5 Limitation on the Exercise of Certain Rights 30
9.6 Subrogation 31
9.7 Absolute Obligation 31
9.8 Conversion 31
SECTION 10. INDEMNIFICATION 31
SECTION 11. DEFINITIONS 33
SECTION 12. GENERAL 36
12.1 Amendments, Waivers and Consents 36
12.2 Survival of Covenants; Assignability of Rights 37
12.3 Governing Law; Jurisdiction; Venue 37
12.4 Section Headings 38
12.5 Counterparts 38
12.6 Notices and Demands 38
12.7 Severability 39
12.8 Expenses 39
12.9 Integration 39
</TABLE>
EXHIBITS
Exhibit A - List of Lenders
Exhibit B - Form of Debenture
Exhibit C - Preferred Stock Terms
Exhibit D - Company Counsel Opinion
Exhibit E - Form of Irrevocable Proxy
Exhibit F - Form of SEA Management Agreement
Exhibit G - Form of SMR Operator Letter of Intent
Exhibit H - Form of Employee Invention and Non-Disclosure Agreement
SCHEDULES
Schedule 2.1(a) - Locations of Real Property and Employees
Schedule 2.1(b) - Locations of Real Property and Employees
Schedule 2.4 - Capitalization of Company
Schedule 2.5 - Subsidiaries; Investments
Schedule 2.6 - Financial Statements
Schedule 2.7 - Undisclosed Liabilities
Schedule 2.8 - Absence of Certain Developments
Schedule 2.10 - Title of Properties
Schedule 2.12 - Contracts and Commitments
Schedule 2.13 - Proprietary Rights
Schedule 2.14 - Litigation and Compliance with Laws
Schedule 2.15(a) - Customer and Supplier Relations
Schedule 2.15(b) - FCC Licenses
Schedule 2.15(c) - Management Agreement
Schedule 2.16 - Employee Benefit Programs
Schedule 2.17 - Labor Laws
Schedule 2.21 - Product and Service Claims
Schedule 2.22 - Backlog
Schedule 4.1(b) - Indebtedness
DEBENTURE PURCHASE AGREEMENT
AGREEMENT made as of the ____ day of December, 1995 by and among
Datamarine International, Inc., a Massachusetts corporation (the
"Company"), SEA Inc. of Delaware, a Delaware corporation ("SEA") and
Narrowband Network Systems, Inc., a Washington corporation ("Narrowband")
and the persons named in Exhibit A hereto (collectively the "Lenders," and
each individually a "Lender"). Unless otherwise expressly stated herein
or unless the context otherwise requires, all references to the Company
shall include all Subsidiaries on a consolidated basis.
WHEREAS, the Company, SEA and Narrowband have agreed to sell and the
Lenders have agreed to purchase convertible debentures due December __,
2000 of the Company, SEA and Narrowband in an aggregate principal amount
of $2,000,000.
WHEREAS, the proceeds from the purchase and sale of such convertible
debentures shall be used by the Company and its Subsidiaries for the
production of FCC approved 220MHz radio equipment and for general working
capital purposes.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. TERMS OF PURCHASE; PAYMENT TERMS
1.1 Sale and Purchase. Subject to the terms and conditions herein
set forth, the Company, SEA and Narrowband shall issue and sell to each of
the Lenders, and each Lender shall purchase from the Company, SEA and
Narrowband, a convertible debenture due December __, 2000 in substantially
the form attached hereto as Exhibit B (a "Debenture" and collectively, the
"Debentures") in the principal amount set forth opposite the name of such
Lender in Exhibit A hereto for a purchase price equal to 100% of the
principal amount thereof (the "Purchase Price"). The Debentures, which
will aggregate to $2,000,000 in principal amount, will be dated the date
of issuance thereof, mature on December __, 2000 (the "Maturity Date"),
bear interest and be payable as set forth in Section 1.2 hereof and be
convertible as set forth in Section 6 hereof.
1.2 Terms of the Debentures.
(a) Interest. The Debentures shall bear interest on the
unpaid principal amount thereof: (i) from the date of issuance thereof
through and until December 31, 1996 at the rate of ten (10%) per annum;
(ii) from and after January 1, 1997 through and until December 31, 1997 at
a rate of eleven percent (11%) per annum; (iii) from and after January 1,
1998 through and until December 31, 1998 at a rate equal to twelve percent
(12%) per annum; (iv) from and after January 1, 1999 through and until
December 31, 1999 at a rate of fourteen percent (14%) per annum, and (v)
from and after January 1, 2000 at a rate of fifteen percent (15%) per
annum (the "Interest"). The Interest shall be computed on the basis of a
365-day year and the actual number of days elapsed, and be payable on each
March 31, June 30, September 30 and December 31 for the respective three-
month periods ending on each such date, commencing on March 31, 1997, and
upon any other payment or conversion of any principal amount of the
Debentures.
(b) Default Interest. In the event that any amount payable
in respect of the Debentures is not paid within fifteen (15) days of when
due and payable (whether at stated maturity, by acceleration or
otherwise), the Interest on that portion of such amount which has not been
so paid shall, notwithstanding anything herein to the contrary and until
that portion of such payment on the Debentures has been brought current,
thereafter bear interest at a rate of twenty percent (20%) per annum.
(c) Principal Payments. Subject to prior conversion
pursuant to the terms of this Agreement and prepayments authorized under
Section 1.2(f), the Company shall pay the principal balance of the
Debentures, without set-off, deduction or counterclaim, together in each
case with all accrued interest thereon on December __, 2000.
(d) Conversion. The Debentures shall be convertible at the
option of a majority in interest of the Lenders into shares of Redeemable
Convertible Participating Preferred Stock, $1.00 par value per share
("Convertible Preferred Stock"), and Redeemable Preferred Stock, $1.00 par
value per share ("Redeemable Preferred Stock"), of the Company, all in
accordance with, on the terms and during the periods set forth in Section
6 hereof. No conversion of the Debentures shall be permitted except as
provided in Section 6 hereof.
(e) Payments on the Debentures. All payments of principal
and interest on the Debentures shall be made by the Company in lawful
money of the United States of America in immediately available funds not
later than 12:00 p.m., Boston time, on the date such payment is due, or,
if such date is not a Business Day, then on the next succeeding Business
Day, at the address of the Lenders stated in Exhibit A hereto or, if not
so stated, at such other addresses of which the Company shall have
received written notice or, at the Company's or the Lender's election, by
crediting the Lender's account at a bank designated by the Lender in
writing to the Company.
(f) Prepayment. Subject to the Lender's rights of
conversion pursuant to the terms of Section 6 hereof, the outstanding
principal amount of the Debentures may be prepaid, in whole but not in
part, by the Company at any time upon sixty (60) days prior written
notice. The Debentures shall be subject to mandatory prepayment upon the
consummation of: (i) the sale of all or substantially all of the assets of
the Company or SEA; (ii) the sale or transfer of all or a majority of the
outstanding common stock of the Company or SEA in any one transaction or
series of related transactions; or (iii) the merger or consolidation of
the Company or SEA with or into another corporation or entity (other than
a wholly-owned subsidiary or in connection with an acquisition permitted
under the terms of Section 5.12 hereof) (each of the foregoing, a
"Liquidating Event").
1.3 Closing. A closing (the "Closing") of the sale and purchase
of the Debentures shall take place at such location, date and time and in
such manner as shall be mutually agreed upon by the Company and the
Lenders (the "Closing Date"). At the Closing, the Company will deliver
the Debentures being acquired by each Lender against payment of the full
Purchase Price therefor by or on behalf of each Lender to the Company by
certified or bank cashier's check or wire transfer of immediately
available funds.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, SEA AND
NARROWBAND
In order to induce the Lenders to enter into the Agreement, the
Company, SEA and Narrowband hereby jointly and severally agrees with the
Lenders and represents and warrants to the Lenders that, as of the date
hereof:
2.1 Organization, Existence and Authority.
(a) The Company has been duly formed and is validly existing
as a corporation in good standing under the laws of the Commonwealth of
Massachusetts. Except as set forth on Schedule 2.1(a), the Company does
not own or lease any real property outside The Commonwealth of
Massachusetts, and has no employees residing outside The Commonwealth of
Massachusetts. The Company has all requisite corporate power and
authority, and all material and necessary authorization, approvals,
orders, licenses, certificates and permits, to conduct its business as
presently conducted and to enter into, execute, deliver and perform all of
its duties and obligations under this Agreement and all related
instruments and agreements executed in connection herewith. A true and
complete copy of the Company's Articles of Organization as amended to
date, certified by The Commonwealth of Massachusetts, and of the Company's
by-laws, as amended to date, certified by the Company's Secretary have
previously been delivered to the Lenders, are complete and correct, and,
with the exception of the amendment creating the Preferred Shares (as
defined below), no amendments thereto are pending. The Company is not in
violation of any term of its charter or by-laws, or, in any material
respect, of any term of any agreement, instrument, judgment, decree,
order, statute, rule or government regulation applicable to the Company or
to which the Company is a party, which would, in any individual instance,
or in any series of related instances, have a material adverse effect on
the Company.
(b) Each of SEA and Narrowband has been duly formed and is
validly existing as a corporation in good standing under the laws of its
state of incorporation. Except as set forth on Schedule 2.1(b), neither
SEA nor Narrowband owns or leases any real property outside its state of
incorporation and has no employees residing outside its state of
incorporation. Each of SEA and Narrowband has all requisite corporate
power and authority, and all material and necessary authorization,
approvals, orders, licenses, certificates and permits, to conduct its
business as presently conducted and to enter into, execute, deliver and
perform all of its duties and obligations under this Agreement and all
related instruments and agreements executed in connection herewith. A
true and complete copy of each Subsidiary's charter documents, except for
those of Data I.C., Inc., have previously been delivered to the Lenders,
are complete and correct, and no amendments thereto are pending. Neither
SEA nor Narrowband is in violation of any term of its charter or by-laws,
or, in any material respect, of any term of any agreement, instrument,
judgment, decree, order, statute, rule or government regulation applicable
to it or to which it is a party, which would, in any individual instance,
or in any series of related instances, have a material adverse effect on
the Company on a consolidated basis.
2.2 Authorization. This Agreement and all documents and
instruments executed by the Company, SEA and Narrowband pursuant hereto
are valid and binding obligations of the Company, SEA and Narrowband,
enforceable in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy and other laws of general application
relating to creditor's rights or general principles of equity. The
execution, delivery and performance of this Agreement and all documents
and instruments contemplated hereby, the issuance of the Debentures and,
if converted, the Convertible Preferred Stock and the Redeemable Preferred
Stock (collectively, the "Preferred Shares") issuable upon such conversion
and, if the Convertible Preferred Stock is converted into Common Stock,
the Common Stock issuable upon such conversion (the "Conversion Shares"),
have been duly authorized by all necessary corporate action of the
Company. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority is required to be
obtained by the Company in connection with the execution and delivery of
this Agreement or the issuance, delivery, payment, redemption or
conversion of the Debentures in accordance with the terms of this
Agreement or, if the Debentures are converted, the Preferred Shares, or,
if the Convertible Preferred Stock is converted, the Conversion Shares, or
the performance or consummation of any other transaction contemplated
hereby or thereby.
2.3 Non-Contravention. The execution, delivery and performance by
each of the Company, SEA and Narrowband of this Agreement and the other
agreements executed pursuant hereto to which they are a party and the
consummation of the transactions contemplated hereby does not and will
not: (a) conflict with or result in any default under any material
contract, obligation or commitment of the Company or any of the
Subsidiaries or any charter provision, by-law or corporate restriction
applicable to any of them; (b) result in the creation of any lien, charge
or encumbrance of any nature upon any of the properties or assets of the
Company or any of the Subsidiaries; or (c) violate any instrument,
agreement, judgment, decree or order, or any statute, rule or regulation
of any federal, state or local government or agency, applicable to the
Company or any of the Subsidiaries or to which the Company or any of the
Subsidiaries is a party.
2.4 Capitalization. The authorized capital stock of the Company
consists of (a) 3,000,000 shares of common stock, $.01 par value per share
(the "Common Stock"), of which 1,296,865 shares are, as of November 6,
1995, duly and validly issued, outstanding, fully paid and non-assessable,
and (b) 1,000,000 shares of preferred stock, $1.00 par value per share (i)
of which 2,000 shares are, or as of the Closing Date will be, (upon the
filing of the Amended Charter), designated as Convertible Preferred Stock,
$1.00 par value per share and are duly and validly authorized and are
reserved for issuance upon conversion of the Debentures, and (ii) of which
2,000 shares are, or as of the Closing Date will be (upon the filing of
the Amended Charter) designated as Redeemable Preferred Stock, $1.00 par
value per share and are duly and validly authorized and are reserved for
issuance upon conversion of the Debentures. Except for the Debentures to
be issued hereunder and outstanding options to purchase 178,838 shares of
Common Stock which have been issued under the Company's 1991 Stock Option
Plan and 1992 Stock Option Plan for Non-Employee Directors (the "Option
Plans"), there are no outstanding warrants, options, rights, commitments,
pre-emptive rights or agreements of any kind for the issuance or sale of,
or outstanding securities convertible into, any additional shares of
capital stock of any class of the Company. The Company has duly and
validly authorized and reserved 2,000 shares of Convertible Preferred
Stock and 2,000 shares of Redeemable Preferred Stock for issuance upon
conversion of the Debentures and 163,967 Conversion Shares for issuance
upon conversion of the Convertible Preferred Stock; and the shares of
Convertible Preferred Stock, Redeemable Preferred Stock and Common Stock
so issued will, upon such conversion, be validly issued, fully paid and
non-assessable. The relative rights, preferences, restrictions and other
provisions relating to the Convertible Preferred Stock and Redeemable
Preferred Stock are as set forth in Exhibit C attached hereto (the
"Preferred Stock Terms"). Except as disclosed in Schedule 2.4 hereof or
as set forth in the Company's charter documents, there are no restrictions
on the transfer of the shares of capital stock of the Company other than
those arising under federal and state securities laws or under this
Agreement. There are no rights to have the Company's capital stock
registered for sale to the public in connection with the laws of any
jurisdiction, other than rights set forth in the Registration Rights
Agreement.
2.5 Subsidiaries; Investments. Except as disclosed in Schedule
2.5, the Company does not own or have, nor has it previously owned or had,
any direct or indirect interest in, control over or loan or advance to,
any person, corporation, partnership, joint venture or other entity of any
kind. Schedule 2.5 accurately sets forth (i) the correct legal name of
each Subsidiary owned, directly or indirectly, by the Company, (ii) the
number of authorized, issued, and outstanding shares of capital stock of
each such Subsidiary, (iii) the ownership of such shares of capital stock,
and (iv) whether such shares are fully paid and nonassessable. There are
no outstanding warrants, options, rights, commitments, preemptive rights
or agreements of any kind for the issuance or sale of, or outstanding
securities convertible into, any additional shares of capital stock of any
class of any Subsidiary. The aggregate net worth of the Foreign
Subsidiaries is not greater than $175,000.
2.6 SEC Reports and Financial Statements. The Company has
previously furnished to the Lenders complete and correct copies, including
exhibits of: (i) its Annual Report on Form 10-K for the fiscal year ended
October 1, 1994; (ii) its Quarterly Reports on Form 10-Q for the three-
month period ended December 31, 1994, April 1, 1995 and July 1, 1995;
(iii) its proxy statement relating to its February 7, 1995 meeting of
shareholders; and (iv) all reports on forms other than 10-K or 10-Q filed
by the Company with the Securities and Exchange Commission (the "SEC") or
the NASDAQ since October 2, 1993. The Company has heretofore made timely
all filings, reports and registrations required under the Securities Act
of 1993, as amended, and the rules and regulations thereunder (the
"Securities Act") and the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (the "Exchange Act") and all such
filings conformed in all material respects to the requirements of the
Securities Act and the Exchange Act, and did not at the time of filing
contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading.
Except as set forth on Schedule 2.6, the audited financial
statements and unaudited interim financial statements included in the
reports or other filings referred to in this Section 2.6 were prepared in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes
thereto and except that the notes to the unaudited interim financial
statements have been condensed pursuant to the rules and regulations of
the SEC) and fairly present the consolidated financial position of the
Company as of the dates thereof and the results of operations and cash
flows of the Company for the periods shown therein, subject, in the case
of unaudited interim financial statements, to normal year-end audit
adjustments which will not, in any event, be material. Nothing has come
to the attention of the senior management of the Company since such dates
which would indicate that such financial statements were not true,
accurate and complete in all material respects as of the dates thereof.
2.7 Absence of Undisclosed Liabilities. Except as and to the
extent disclosed in Schedule 2.7 or to the extent reflected or reserved
against in the Base Balance Sheet included in Schedule 2.6, the Company
does not have any material liability or liabilities arising out of any
transaction or state of facts existing prior to the date hereof and
required to be disclosed in a balance sheet prepared in accordance with
general accepted accounting principals ("GAAP") and the Company has no
other material contingent liability or liabilities arising out of any
transaction or state of facts existing prior to the date hereof which are
not specifically disclosed elsewhere in this Agreement or the Schedules
hereto (other than contractual obligations to customers and vendors
arising out of transactions entered into in the ordinary course of the
Company's business).
2.8 Absence of Certain Developments. Except as disclosed on
Schedule 2.8 or elsewhere in this Agreement (including the Schedules
hereto), since the date of the Base Balance Sheet, there has been: (a) no
material adverse change in the condition, financial or otherwise, of the
Company, SEA, or the other Subsidiaries (on a consolidated basis with the
Company and SEA) or in the assets, liabilities, properties or business of
the Company, SEA, or the other Subsidiaries (on a consolidated basis with
the Company and SEA); (b) no declaration, setting aside or payment of any
dividend or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any capital stock in the Company or any
Subsidiary; (c) no waiver of any valuable right of the Company or any
Subsidiary or cancellation of any material debt or claim held by the
Company or any Subsidiary; (d) no material loan by the Company or any
Subsidiary to any officer, director, employee or shareholder of the
Company or any Subsidiary, or any agreement or commitment therefor; (e) no
increase, direct or indirect, in the compensation paid or payable to any
officer, director, employee, agent or shareholder of the Company or any
Subsidiary (other than salary increases in the ordinary course of business
consistent with past practice); (f) no material loss, destruction or
damage to any property of the Company or any Subsidiary, whether or not
insured; (g) no labor trouble involving the Company or any Subsidiary and
no material change in the senior management or other key personnel of the
Company or any Subsidiary, or the terms and conditions of their
employment; and (h) no acquisition or disposition of any assets (or any
contract or arrangement therefor) nor any other material transaction by
the Company or any Subsidiary otherwise than for fair value in the
ordinary course of business.
2.9 Accounts Receivable. Except to the extent reserved against in
the Base Balance Sheet or disclosed elsewhere in this Agreement (including
the Schedules hereto), all of the accounts receivable of the Company
represent bona fide completed sales made in the ordinary course of
business, are valid and enforceable claims and are, to the best knowledge
of the Company, subject to no set-off or counterclaim and collectible in
the ordinary course. The Company has no accounts receivable from any
person, firm or corporation which is affiliated with it or from any of its
directors, officers, employees or, to its knowledge, shareholders.
2.10 Title to Properties. Except as disclosed in Schedule 2.10 or
in the Base Balance Sheet, the Company and each Subsidiary has good and
marketable title to all of its respective properties and assets, free and
clear of any liens, restrictions or encumbrances which could materially
and adversely affect the value of such properties or interfere with the
Company's or such Subsidiary's use thereof. All machinery and equipment
included in such properties which is necessary to the business of the
Company, SEA or Narrowband is in good condition and repair, reasonable
wear and tear excepted, and none of the Company, SEA or Narrowband is in
default under any material leases of real or personal property to which it
is a party. Neither the Company nor SEA is in violation, in any material
respect, of any zoning, building or safety ordinance, regulation or
requirement or other law or regulation applicable to the operation of its
owned or leased properties, nor has it received any notice of violation
with which it has not complied, which would, in any individual instance,
or any series of related instances, have a material adverse effect on the
Company or SEA, as applicable.
2.11 Tax Matters. The Company and each of the Subsidiaries have
timely and properly filed or received timely and proper extensions for the
filing of all Tax Returns required to be filed by them, and all such Tax
Returns were correct and complete in all material respects. The Company
and each of the Subsidiaries has paid all Taxes owed by them (whether or
not shown on any Tax Return), except Taxes which have not yet accrued or
otherwise become due. All Taxes and other assessments and levies which
the Company and each of the Subsidiaries was or is required to withhold or
collect from customers or employees have been withheld and collected and
have been paid over or will be paid over when due to the proper
governmental authorities. Neither the Company nor any Subsidiary has ever
received notice of any audit or of any proposed deficiencies from the
Internal Revenue Service ("IRS") or any other taxing authority (other than
routine audits undertaken in the ordinary course and which have been
resolved on or prior to the date hereof without material adverse effect on
the Company or any of the Subsidiaries or their respective financial
condition). There are in effect no waivers of applicable statutes of
limitations with respect to any Taxes owed by the Company or any of the
Subsidiaries for any year. Neither the IRS nor any other taxing authority
is now asserting or, to the best knowledge of the Company and each of the
Subsidiaries, threatening to assert against the Company or any of the
Subsidiaries any deficiency or claim for additional Taxes or interest
thereon or penalties in connection therewith in respect of the income or
sales of the Company. None of the Company or any of the Subsidiaries is a
party to any Tax allocation or sharing arrangement.
2.12 Contracts and Commitments. Except as set forth in this
Agreement (including the Schedules hereto), none of the Company, SEA or
Narrowband is a party to any contract, obligation or commitment: (a) which
involves a potential commitment or payment in excess of $50,000 or which
is otherwise material and not entered into in the ordinary course of
business; (b) with any of its officers or key employees or persons or
organizations related to or affiliated with any such persons; (c) which
relate to the purchase, redemption, transfer or voting of its capital
stock; or (d) relating to the licensing, distribution, development,
purchase, manufacturing, sale or servicing of telecommunications
equipment; except in each case as are described in Schedule 2.12, and
copies of all such agreements have been delivered or made available to the
Lenders, (all such contracts and commitments described on Schedule 2.12
are collectively referred to as the "Material Agreements"). Other than
termination or expiration in the ordinary course of business, none of the
Company, SEA or Narrowband knows of any basis for the termination,
expiration or modification of any of the Material Agreements within one
year from the date hereof nor has it received any notice thereof, which
termination, expiration or modification would not be at the Company's,
SEA's or Narrowband's option, as the case may be, and would have a
material adverse effect on the Company. Except as set forth on Schedule
2.7, none of the Company, SEA or Narrowband is in default in any material
respect under any Material Agreement, and to the best knowledge of the
Company, SEA and Narrowband there is no state of facts which upon notice
or lapse of time or both would constitute such a default.
2.13 Proprietary Rights; Employee Restrictions. Set forth in
Schedule 2.13 is a list and brief description of all patents, patent
rights, patent applications, trademarks, trademark applications, service
marks, service mark applications, trade names and copyrights, and all
applications for such which are in the process of being prepared, owned by
or registered in the name of the Company, SEA or Narrowband, or of which
the Company, SEA or Narrowband is a licensor or licensee or in which the
Company, SEA or Narrowband has any right, and in each case a brief
description of the nature of such right. Each of the Company, SEA and
Narrowband owns or possesses adequate licenses or other rights to use its
respective patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, programming processes, formulae,
trade secrets and know how (collectively "Intellectual Property")
necessary to the conduct of its business as presently conducted and as
proposed to be conducted. None of the Company, SEA or Narrowband is aware
of any infringement by any other person of any of their respective rights
under any Intellectual Property. No claim is pending or, to the best
knowledge each of the Company, SEA or Narrowband, threatened against the
Company, SEA or Narrowband, respectively, to the effect that any
Intellectual Property owned or licensed by the Company, SEA or Narrowband,
respectively, or which the Company, SEA or Narrowband, respectively,
otherwise has the right to use, or the operation or products or services
of the Company, SEA or Narrowband, respectively, infringe upon or conflict
with the asserted rights of any other person under any Intellectual
Property, and, to the knowledge of the Company, SEA and Narrowband there
is no basis for any such claim (whether or not pending or threatened).
None of the Company, SEA or Narrowband has received any notice from any
other person asserting that any of the Intellectual Property owned or
licensed by the Company, SEA or Narrowband, respectively, or which the
Company, SEA or Narrowband, respectively, otherwise has the right to use,
or the operation or products or services of the Company, SEA or
Narrowband, respectively, (a) infringe upon or conflict with the asserted
rights of such person under any Intellectual Property, or (b) is invalid
or unenforceable by the Company, SEA or Narrowband, respectively. Except
as set forth on Schedule 2.13, each of the Company, SEA and Narrowband has
taken commercially reasonable actions to ensure the confidentiality of all
non-patented technical information developed by or belonging to the
Company, SEA or Narrowband, respectively, that is material to its
business. Except as disclosed in Schedule 2.13, none of the Company, SEA,
Narrowband or any other Subsidiary, nor, to the best of the Company's and
SEA's knowledge, any of the Company's or SEA's employees, has any
agreements or arrangements with former employers of any past or present
employees relating to any Intellectual Property of such employers, which
interfere or conflict with the performance of such employee's duties for
the Company or SEA or results in such employers having any rights in, or
claims on, the Company's or SEA's Intellectual Property.
2.14 Litigation and Compliance with Laws.
(a) Except as set forth in Schedule 2.14, there is no
investigation, action, suit or proceeding at law or in equity or by or
before any governmental instrumentality or other agency now pending or, to
the best knowledge of the Company, threatened against the Company or key
employee of the Company, which calls or has a possibility of calling into
question the validity, or hindering the enforceability or performance, of
this Agreement or any action taken or to be taken pursuant hereto or by
any of the other agreements and transactions contemplated hereby; nor to
the best knowledge of the Company, has there occurred any event or does
there exist any condition on the basis of which any such litigation,
proceeding or investigation should reasonably be anticipated to be
instituted and have a material adverse effect on the Company or the
business prospects of the Company.
(b) Except as to subject matter more specifically addressed
elsewhere in this Agreement and except as set forth in Schedule 2.14, the
Company is, and at all times during its existence has been, in material
compliance with all laws and governmental rules and regulations, domestic
or foreign and all export control or similar laws or regulations, except
where non-compliance therewith, in any individual instance or any series
of related instances, would not have a material adverse effect on the
Company. Except as set forth in Schedule 2.14, the Company is not in
default in any material respect with respect to any judgment, order, writ,
injunction, decree, demand or assessment, that the Company or its assets
are subject to or by which the Company is bound and which has been issued
by any court or any federal, state, municipal or other governmental or
self-regulatory agency, organization, board, commission, bureau,
instrumentality or department, domestic or foreign, relating to any aspect
of the business, affairs, properties or assets of the Company. Except as
set forth in Schedule 2.14, the Company has not been charged or, to the
best knowledge of the Company, threatened with, or under investigation
with respect to, any material violation of material federal, foreign,
state, municipal or other law or any administrative rule or regulation,
domestic or foreign in any matter directly relating to or affecting the
business, affairs, properties or assets of the Company.
2.15 Permits; FCC Approvals; Customer and Supplier Relations.
(a) Each of the Company, SEA and Narrowband, respectively,
has all necessary franchises, permits, licenses, authorizations and other
rights and privileges (including without limitation all FCC approvals) to
own its property and to conduct its business as it is presently or
proposed to be conducted, except for those the absence of which could not
have a material adverse effect on the Company. SEA's line of land mobile
radio products for the 220MHz narrowband spectrum has all necessary or
appropriate approvals and endorsements from the FCC and all other
governmental agencies with jurisdiction over such products, and, to the
Company's best knowledge, only Uniden, E.F. Johnson and Securicore have
received similar approvals and endorsements. No prior FCC consent is
required in connection with the execution, delivery and performance of
this Agreement (including, without limitation, the conversion of the
Debentures). Each of the Company, SEA and Narrowband, respectively,
believes that its major customers and its suppliers are good commercial
working relationships, and, except as set forth on Schedule 2.15(a), no
major customer has terminated such relationship and none of the Company,
SEA or Narrowband has received any notice within the last two years from
any major customers or suppliers of their intention to terminate, or
otherwise modify such relationships in a manner which could have a
material adverse effect on the Company.
(b) Schedule 2.15(b) correctly sets forth all approvals,
permits and licenses required to be issued by the FCC in connection with
SEA's line of mobile radio products for the 220MHz narrowband spectrum
(collectively, the "Company FCC Licenses") which are held by the Company,
SEA and/or Narrowband and correctly sets forth the issuer and termination
date of each Company FCC License.
(c) Schedule 2.15(c) correctly sets forth each management
agreement entered into by each of the Company, SEA and/or Narrowband
relating to voice and data mobile radio systems operating on channel 220-
222MHz narrowband spectrum (collectively, the "Management Agreements") and
each letter of intent of the Company, SEA and/or Narrowband relating to
the management of a 220MHz system and the construction of such system by a
third party (collectively, "SMR Operator Letters"), and correctly sets
forth the identity of the party that entered into such Management
Agreement with SEA or Narrowband, as the case may be, and that entered
into such SMR Operator Letter with Narrowband, and the material economic
terms thereof. Each Management Agreement was executed in 1992, 1993 or
1994 and has a term of ten years which term may be extended in accordance
with the terms thereof. Each Management Agreement entered into by either
SEA or Narrowband is in substantially the form of Exhibit F hereto and
each SMR Operator Letter entered into by Narrowband is in the form of
Exhibit G hereto. None of the Company, SEA or Narrowband is in default in
any material respect under any Management Agreement or SMR Operator
Letter, and to the best knowledge of the Company, SEA and Narrowband,
there is no state of facts which upon notice or lapse of time or both
would constitute such a default.
(d) To the best knowledge of each of the Company, SEA and
Narrowband, each Company FCC License and each FCC license referred to in
the Management Agreements (collectively with the Company FCC Licenses, the
"FCC Licenses") was duly and validly issued by the issuer thereof pursuant
to procedures which complied with all requirements of applicable law. The
Company, SEA and/or Narrowband, as the case may be, is the licensee of
the FCC Company Licenses, free and clear of all liens and encumbrances and
is in compliance with the terms thereof in all material respects with no
known conflict with the valid rights of others which could affect or
impair materially in any manner the business, assets or condition,
financial or otherwise, of the Company, SEA and/or Narrowband. No event
has occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any FCC License or other right so
as to adversely affect in any material respect the business or assets or
condition, financial or otherwise, of the Company, SEA and/or Narrowband.
To the extent necessary, the Company has timely filed all applications for
renewal or extension of all FCC Licenses, and, except as otherwise
indicated in Schedule 2.15(b), all such applications have been granted
without conditions. Except as indicated on Schedule 2.15(b), and except
for actions or proceedings affecting its industry generally, no petition,
action, investigation, notice of violation or apparent liability, notice
of forfeiture, orders to show cause, complaint or proceeding is pending
or, to the best knowledge of the Company, threatened before the FCC or any
other forum or agency with respect to the Company, SEA or Narrowband or
seeking to revoke, cancel, suspend or modify any of the FCC Licenses.
None of the Company, SEA or Narrowband knows of any fact (other than facts
relating to pending or future FCC rule changes which are applicable to the
220MHz SMR industry generally) that is likely to result in the denial of
an application for renewal, or the revocation, modification, nonrenewal or
suspension of any of the FCC Licenses, or the issuance of a cease-and-
desist order, or the imposition of any administrative or judicial sanction
with respect to any of the Company, SEA or Narrowband, which may
materially adversely affect the rights under any of the FCC Licenses or
which may have a materially adverse effect on any of the Company, SEA or
Narrowband. The Company, SEA and/or Narrowband, as applicable, is in
compliance with the terms of the FCC Licenses and all applicable filing
and operating requirements related thereto and all other applicable
regulations and policies of the FCC and the Communications Act of 1934, 47
U.S.C. [SECTION]151, et seq. (the "Communications Act") and any other
governmental entity.
2.16 Employee Benefit Programs. Except as set forth on Schedule
2.16 hereto, neither the Company nor SEA maintains and has not in the past
maintained any Employee Program (as defined herein). For purposes of this
Section 2.16, "Employee Program" means (a) all employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA
Section 3(4)), plans to which more than one unaffiliated employer
contributes and employee benefit plans (such as foreign or excess benefit
plans) which are not subject to ERISA; and (b) all stock option plans,
bonus or incentive award plans, severance pay policies or plans, deferred
compensation plans, supplemental income arrangements, vacation plans, and
all other employee benefit plans, agreements, and arrangements not
described in (a) above. An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides benefits under such Employee
Program, or has any obligation (by agreement or under applicable law) to
contribute to or provide benefits under such Employee Program, or if such
Employee Program provides benefits to or otherwise covers employees of
such entity (or their spouses, dependents, or beneficiaries). Neither the
Company nor SEA has maintained any employee benefit plan to which more
than one employer contributes pursuant to one or more collective
bargaining agreements. Schedule 2.16 sets forth a list of every Pension
Plan (as hereinafter defined) that has been maintained by the Company at
any time during the twelve-month period ending on the Closing Date.
Neither the Company nor SEA has incurred (a) any material accumulated
funding deficiency within the meaning of ERISA, or (b) any material
liability to the Pension Benefit Guaranty Corporation established under
ERISA (or any successor thereto under ERISA) in connection with any
Pension Plan established or maintained by it. Neither the Company nor SEA
has had any tax assessed against it by the IRS for any alleged violation
under Section 4975 of the Internal Revenue Code. Neither the Company nor
SEA has any unfunded liability under a Pension Plan or a contingent
liability for withdrawal from a multi-employer Pension Plan except as
disclosed in the financial statements. "Pension Plan" shall mean an
employee benefit plan or other plan maintained for the employees of the
Company as described in Section 4021(a) of ERISA.
2.17 Labor Laws. The Company and the Subsidiaries employ
collectively approximately 100 individual employees. Each employee of the
Company and SEA has, in connection with his/her employment, entered into
an invention and non-disclosure agreement in the form of Exhibit H hereto.
Narrowband has no employees. Neither the Company nor SEA is subject to
any collective bargaining agreement or other labor agreement. Neither the
Company nor SEA is delinquent in payments to any of its employees for any
wages, salaries, commissions, bonuses or other direct compensation for any
services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth on Schedule 2.17, upon
termination of the employment of any of said employees, neither the
Company nor SEA will by reason of anything done prior to the Closing be
liable to any of said employees for so-called "severance pay." Each of
the Company and SEA is in material compliance with all applicable laws and
regulations respecting labor, employment, fair employment practices, terms
and conditions of employment, and wages and hours. There are no charges
of employment discrimination or unfair labor practices or strikes,
slowdowns, stoppages of work, or any other concerted interference with
normal operations existing, pending or, to the best knowledge of the
Company and SEA, threatened against or involving the Company, or SEA and
no union has demanded or requested to represent or, to the best knowledge
of the Company and SEA, is currently attempting to represent, any of the
Company's or SEA's employees.
2.18 Solvency. None of the Company, SEA or Narrowband has: (a)
made a general assignment for the benefit of creditors; (b) filed any
voluntary petition in bankruptcy or suffered the filing of any involuntary
petition by its creditors; (c) suffered the appointment of a receiver to
take possession of all, or substantially all, of its assets; (d) suffered
the attachment or other judicial seizure of all, or substantially all, of
its assets; (e) admitted in writing its inability to pay its debts as they
come due; or (f) made an offer of settlement, extension or composition to
its creditors generally. After giving effect to the transactions provided
for or contemplated herein, to the best knowledge of each of the Company,
SEA and Narrowband: (a) it will be able to pay its debts as they come due
in the usual course of business and will have adequate capital to conduct
its business; and (b) its total assets will be greater than its total
liabilities (total assets for this purpose being determined on the basis
of the "fair saleable value" thereof). For purposes of this Section 2.18,
the "fair saleable value" of assets means the gross amount (without
deduction for costs of sale, taxes or other payments) of money that might
be expected to be realized, as of the valuation date, from an interested
purchaser in a not theoretical market aware of all relevant information
and a seller, equally informed, who is interested in disposing of the
entire operation as a going-concern, neither party being under a
compulsion to act.
2.19 Environmental Matters.
(a) Except for individual instances or any series of related
instances which would not have a material adverse effect on the assets,
business or financial condition of the Company: (i) to the best knowledge
of the Company, the Company has never generated, transported, used,
stored, treated, disposed of, or managed any Hazardous Waste (as defined
in Section 2.19(b) below), nor has the Company contracted with any party
for the generation, transportation, use, storage, treatment, disposal or
management of any Hazardous Waste; (ii) to the best knowledge of the
Company, the Company does not presently own, operate, lease, or use, nor
has it previously owned, operated, leased, or used any site on which
underground storage tanks are or were located or which contain or
contained any asbestos or asbestos-containing material, any
polychlorinated byphenyls ("PCBs") or equipment containing PCBs, or any
urea formaldehyde foam insulation; (iii) to the best knowledge of the
Company, the Company has never violated any Environmental Law (as defined
in Section 2.19(b)(iii) below); and (iv) the Company, the operations of
its businesses, and any real property owned, operated, leased, or used by
the Company, and any facilities and operations of the Company thereon, to
the best of the Company's knowledge, are presently in compliance in all
material respects with all applicable Environmental Laws and any and all
orders or directives of any governmental authorities having jurisdiction
under such Environmental Laws, including, without limitation, any orders
or directives with respect to any clean-up or remediation of any release
or threat of release of any Hazardous Material.
(b) For purposes of this Section 2.19, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, asbestos, polychlorinated
byphenyls, urea formaldehyde, toxic substance, pollutant, contaminant, or
other substance which may pose a threat to the environment or to human
health or safety, as defined or regulated under any Environmental Law;
(ii) "Hazardous Waste" shall mean and include any hazardous waste as
defined or regulated under any Environmental Law; (iii) "Environmental
Law" shall mean any environmental or health and safety-related law,
regulation, rule, ordinance, or by-law at the federal, state, or local
level existing as of the date hereof or previously enforced; and (iv) the
"Company" shall mean and include the Company and all other entities for
whose conduct the Company is or may be held responsible under any
Environmental Law including, but not limited to, lessees.
2.20 Inventory. The Company's and each Subsidiary's inventory is
of a quality and quantity which is salable in the ordinary course of
conduct of its business and the Company maintains adequate reserves
against the cost basis of its inventory based on the Company's historical
and projected performance. None of the Company's or any Subsidiary's net
inventory is obsolete or unsalable in a material amount.
2.21 Product and Service Claims. Except as set forth on Schedule
2.21, other than warranty claims substantially consistent with the
Company's past experience and which are not, in the aggregate, material to
the Company, there are no pending or, to the best of the Company's
knowledge, threatened product or service claims with respect to any
products manufactured or services provided by the Company prior to the
Closing Date nor are there any facts upon which a claim of such nature
should reasonably be anticipated to be based. Except for on-going price
renegotiation with customers in the ordinary course of business, no claim
has been made against the Company for renegotiation or price
redetermination of any business transaction resulting from or relating to
defective products or services, and, to the best of the Company's
knowledge, there are no facts upon which any such claim should reasonably
be anticipated to be based.
2.22 Backlog. As of September 30, 1995, the Company and the
Subsidiaries had a backlog of firm orders for the sale of products as set
forth in Schedule 2.22. All of the Company's and each Subsidiary's
backlog represents and will, as of the Closing Date, represent orders for
products with specifications that can be met in accordance with the terms
of such orders and in the ordinary course of conduct of its business
without undue delay or extraordinary expense.
2.23 Information Supplied to Lenders. Neither this Agreement, nor
the Schedules referenced herein, nor any certificate or statement
furnished to the Lenders by or on behalf of the Company or any Subsidiary
pursuant to the terms hereof, when taken together, contains any untrue
statement of a material fact, and none of this Agreement, the Schedules or
such other documents, omits to state a material fact necessary in order to
make the statements contained therein not misleading, in light of the
circumstances in which they were made. To the best of the Company's,
SEA's and Narrowband's knowledge, respectively, there is no material fact
directly relating to its business, operations or condition (other than
facts which relate to general economic conditions) that materially
adversely affects the same that has not been set forth in this Agreement
or in the Schedules hereto.
2.24 Broker's Fee. The Company agrees to indemnify the Lenders
against any claims against the Lenders for brokerage fees or commissions
payable to any broker or finder retained by or on behalf of the Company or
the Subsidiaries in connection with the financing contemplated by this
Agreement and to pay all expenses incurred by the Lenders in connection
with the defense of any action brought to collect any brokerage fees or
commissions by any such broker or finder.
SECTION 3. CLOSING CONDITIONS OF LENDERS
The Lenders' obligation to purchase and pay for the Debentures shall
be subject to compliance by the Company with the following conditions:
3.1 Opinion of Company Counsel. The Lenders shall have received
from Perkins Coie, counsel for the Company, SEA and Narrowband, their
favorable opinion, dated the Closing Date, substantially in the form
attached hereto as Exhibit D.
3.2 Authorization.
(a) Each of the Company, SEA and Narrowband shall have duly
adopted resolutions in form reasonably satisfactory to the Lenders
authorizing each of them to consummate the transactions contemplated
hereby in accordance with the terms hereof, including, without limitation,
the issuance of the Debentures, the issuance of the Preferred Shares upon
conversion of the Debentures and, upon conversion of the Convertible
Preferred Stock, the issuance of the Conversion Shares, and the Lenders
shall have received duly executed certificate(s) of an authorized officer
of each of the Company, SEA and Narrowband setting forth a copy of such
resolutions and such other matters as may be requested by the Lenders.
(b) The Company shall have amended its Articles of
Organization to include the provisions set forth in Exhibit C (such
Articles of Organization as so amended, the "Amended Charter") and except
as so amended and restated, such Amended Charter shall not have been
further amended or modified.
3.3 Irrevocable Proxy. Each of David C. Thompson, Peter D. Brown,
and David M. Brown shall have executed and delivered to the Lenders an
irrevocable proxy in substantially the form attached hereto as Exhibit E
(the "Irrevocable Proxy").
3.4 Delivery of Documents. Concurrently with the Closing of the
transactions contemplated hereby, the Company shall have executed and
delivered to the Lenders (or shall have caused to be executed and
delivered to the Lenders, by the appropriate Persons), the following:
(a) The Debentures;
(b) Certified copies of resolutions of the Company, SEA and
Narrowband authorizing the execution and delivery of this Agreement and
the Debentures;
(c) A copy of the Company's Amended Charter, certified as of
a recent date by the Secretary of State of the Commonwealth of
Massachusetts and a copy of the Company's by-laws certified by an officer
of the Company, as amended;
(d) The Registration Rights Agreement; and
(e) Such other supporting documents and certificates as the
Lenders may reasonably request and as may be required pursuant to this
Agreement.
3.5 Use of Proceeds. All proceeds from the sale of the Debentures
by the Company to the Lenders may be used for the production of 220MHz
radio equipment and general working capital purposes.
3.6 No Violation or Injunction. The consummation of the
transactions contemplated by this Agreement shall not be in violation of
any law or regulation applicable to the Company or the Subsidiaries, shall
not be subject to any injunction, stay or restraining order and shall not
require any filings, approvals or consents which shall not have previously
been made or obtained. Without limiting the generality of the foregoing,
(a) the Company shall have timely and properly filed any required Report
on Form 10-C and shall have publicly disclosed the consummation of the
transactions contemplated hereby, and (b) the Lenders shall not be subject
to any restrictions or limitations under Chapter 110F of the Massachusetts
General Laws or any other similar statute.
3.7 No Litigation. No litigation, suit, action, claim or
investigation shall be pending, or threatened, which might impair or
prevent the performance of the Company, SEA and Narrowband hereunder or
the transactions contemplated herein.
3.8 No Adverse Change. Between the date of the Base Balance Sheet
and the Closing Date, there shall have been no material adverse change in
the financial conditions, prospects, properties, assets, liabilities,
business or operations of the Company, whether or not in the ordinary
course of business.
3.9 All Proceedings Satisfactory. All corporate and other
proceedings taken by each of the Company, SEA and Narrowband prior to or
at the Closing in connection with the transactions contemplated by this
Agreement, and all documents and instruments related thereto, shall be
reasonably satisfactory in form and substance to the Lenders, and the
Lenders shall receive such copies thereof and other materials (certified,
if requested) as they may reasonably request in connection therewith. The
issuance and sale of the Debentures to the Lenders shall be made in
conformity with all applicable state and federal securities laws.
SECTION 4. FINANCIAL COVENANTS
The Company (which term includes the Subsidiaries and shall be
deemed to include, for purposes of this Section 4, any subsidiary or
subsidiaries of the Company formed after the date of this Agreement) shall
comply with the following covenants, from the date hereof and for so long
as any of the Debentures remains outstanding.
4.1 Indebtedness. The Company will not directly or indirectly,
incur, create, assume, become or be liable in any manner with respect to,
or permit to exist, any Indebtedness or liability, except:
(a) Indebtedness under the Debentures and any other
Indebtedness owed by the Company to the Lenders;
(b) Indebtedness as described in Schedule 4.1(b);
(c) Indebtedness with respect to trade obligations
(including trade payables) and other normal accruals, including Taxes,
assessments and other governmental charges, arising in the ordinary course
of business and not yet due and payable, or which are being contested in
good faith by appropriate proceedings, and then only to the extent the
amount thereof has been set aside on the Company's books;
(d) Indebtedness incurred for purchase money obligations and
Capital Leases, so long as: (i) the pertinent assets are acquired for use
in the ordinary course of the Company's business; and (ii) either the
Indebtedness secured thereby does not exceed the fair market value of such
assets or the purchase price thereof if such assets are acquired directly
from the manufacturer or an authorized dealer thereof;
(e) Indebtedness owed to a commercial bank on commercially
reasonable terms and conditions and approved by a majority of the
directors of the Company's Board of Directors; and
(f) Indebtedness in respect of guarantees by the Company to
a third party, to the extent that any such guarantee secures Indebtedness
of the Company which is specifically permitted to be incurred or to remain
outstanding under the provisions of this Section 4.1.
4.2 Liens. The Company will not, directly or indirectly, create,
incur, assume or suffer to exist any Lien (as defined below) of any nature
whatsoever on any of its assets (including any leasehold interests in
property used by the Company) or ownership interests now or hereafter
owned, other than:
(a) Liens securing the payment of taxes and other government
charges, either not yet due or the validity of which is being contested in
good faith by appropriate proceedings, and as to which the Company shall
have set aside on its books adequate reserves to the extent required by
generally accepted accounting principles and provided that, in any event,
payment of any such tax, assessment, charge, levy or claim shall be made
before any of the Company's property shall be seized and sold in
satisfaction thereof;
(b) Liens securing Indebtedness permitted under Sections
4.1(b) and 4.1(d) above;
(c) Deposits under worker's compensation, unemployment
insurance and social security laws;
(d) Restrictions, easements, and minor irregularities in
title which do not and will not materially interfere with the occupation,
use and enjoyment of the properties of the Company in the normal course of
business as presently conducted or materially impair the value of such
assets for the purpose of such business;
(e) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established;
(f) Liens, deposits or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of
indebtedness), leases (to the extent permitted under the terms of this
Agreement), public or statutory obligations, surety, stay, appeal,
indemnity, performance or other similar bonds, or other similar
obligations arising in the ordinary course of business;
(g) Judgment and other similar Liens arising in connection
with court proceedings, provided that the execution or other enforcement
of such Liens is effectively stayed and the claims secured thereby are
being actively contested in good faith and by appropriate proceedings; and
(h) Liens against the fee interest in real property leased
by the Company which are securing obligations of the owner of such
property.
4.3 Distributions or Redemptions. Except as otherwise expressly
authorized or permitted by this Agreement, the Company will not: (i) make
any distributions of cash, property or securities of the Company with
respect to any of its capital stock; or (ii) directly or indirectly
redeem, purchase, or otherwise acquire for consideration any shares of its
capital stock; provided, however, that any Subsidiary may make
distributions of cash, property or securities to the Company.
SECTION 5. OPERATING AND REPORTING COVENANTS
Without the prior written consent of the Lenders representing a
majority in interest of the Debentures, the Redeemable Preferred Stock, or
the Convertible Preferred Stock, as the case may be, the Company (which
term shall include the Subsidiaries and shall be deemed to include, for
purposes of this Section 6, any subsidiary or subsidiaries of the Company
formed after the date of this Agreement) shall: (a) comply with the
covenants set forth in Sections 5.1 through 5.19, for so long as any of
the Debentures or any shares of Redeemable Preferred Stock remain
outstanding; and (b) comply with the covenants set forth in Sections 5.10,
5.11 and 5.16 for so long as any shares of the Convertible Preferred
Stock remain outstanding.
5.1 Financial Statements; Minutes. The Company shall maintain a
system of accounts from which financial statements prepared in accordance
with generally accepted accounting principles consistently applied can be
derived, keep full and complete financial records and furnish to each of
the Lenders the following reports: (a) within 90 days after the end of
each fiscal year, a copy of the consolidated balance sheet of the Company
as at the end of such year, together with statements of operations and
cash flow of the Company for such year, audited by independent public
accountants of recognized national standing reasonably satisfactory to the
Lenders, prepared in accordance with generally accepted accounting
principles consistently applied, and including in comparative form the
corresponding figures for the prior fiscal period; (b) within 45 days
after the end of each calendar quarter, an unaudited consolidated balance
sheet of the Company as at the end of such quarter, and unaudited
statements of operations and cash flow for the Company for such quarter
and for the year to date, and including in comparative form the
corresponding figures for the prior fiscal period; (c) commencing January
1, 1996, within 30 days after the end of each month, an unaudited
consolidated balance sheet of the Company as at the end of such month and
unaudited statements of operations for the Company for such month and for
the year to date; (d) promptly after the same are available, copies of any
proxy statements, financial statements and reports that the Company shall
send or make available generally to any of its securityholders or file
with the Security and Exchange Commission or other regulatory authority;
(e) as soon as reasonably practicable after any meetings of the Board of
Directors of the Company, copies of the minutes of such meeting; (f) in
connection with the annual and quarterly financial statements delivered
pursuant to clauses (a) and (b) above, a certification from the Chief
Financial Officer of the Company if there exists any default or Event of
Default under this Agreement, or any set of facts or circumstances which,
with the giving of notice and/or the passage of time, could constitute
such a default or Event of Default and stating the relevant facts and the
related consequences and what actions the Company proposes to remedy them;
and (g) such other financial information as the Lenders may reasonably
request. The Lenders or their authorized representatives shall have the
right to meet with the Company's independent auditors not less than once
each year to discuss the financial condition and results of operation of
the Company, its financial controls and the accounting principles applied
in the preparation of its financial statements.
5.2 Budget and Strategic Plan. The Company shall prepare and
submit to the Lenders a budget and strategic plan for the Company for each
fiscal year of the Company at least 15 days prior to commencement of each
fiscal year thereafter, commencing fiscal year 1996. The Company shall
review the budget and strategic plan periodically with the Lenders and
shall promptly advise the Lenders of all material changes therein and all
material deviations therefrom.
5.3 Conduct of Business. The Company will continue to engage
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith. The
Company will use its best efforts, in its reasonable business judgment, to
keep in full force and effect its corporate existence and all intellectual
property rights owned by it and useful in its business (except such rights
as the Company has reasonably determined are not material to the Company's
continuing operations).
5.4 Payment of Taxes, Compliance with Laws, Etc. The Company
shall pay and discharge all lawful taxes, assessments and governmental
charges or levies imposed upon it or its property before the same shall
become in default, as well as all lawful claims for labor, materials and
supplies which, if not paid when due, might become a lien or charge upon
its property or any part thereof; provided, however, that the Company
shall not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof is being contested
by it in good faith by appropriate proceedings and an adequate reserve
therefor has been established.
5.5 Adverse Changes. To the extent not disclosed in the financial
statements to be provided under Section 5.1, the Company will promptly
advise the Lenders of any event which represents a material adverse change
in the condition or business, financial or otherwise, of the Company, and
of each suit or proceeding commenced or threatened against the Company
which, if adversely determined, could result in such a material adverse
change.
5.6 Insurance. The Company will keep its insurable properties
insured, upon reasonable business terms, against liability, errors and
omissions, and the perils of casualty, fire, business interruption, and
extended coverage in amounts of coverage substantially similar to those
customarily maintained by companies in the same or similar business, and
of similar size, as the Company. The Company will also maintain with such
insurers insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for
companies engaged in the same or similar business, and of similar size.
The Company will maintain directors' and officers' liability insurance
providing coverage of at least $2,000,000 per annum and subject to
commercially reasonable deductions and exclusions, and shall not limit,
amend, alter, modify or waive any director indemnification or exculpation
provisions in its Articles of Organization or By-Laws or fail to renew the
foregoing directors and officers' liability insurance, without providing
the Lenders with at least 30 days prior written notice of such action;
provided, however, in the event that the Lenders shall at any time have a
Designated Director serving on the Board of Directors of the Company, the
Company shall use its best efforts to increase its directors' and
officers' liability insurance coverage to at least $5,000,000.
5.7 Maintenance of Properties. The Company, in its reasonable
discretion, will maintain all properties used or useful in the conduct of
its business in good repair, working order and condition, ordinary wear
and tear excepted.
5.8 Affiliated Transactions. Except as otherwise permitted under
this Agreement, the Company will not engage in any transactions with, or
make any payments or distributions (excluding management compensation
permitted by Section 5.9) to or for the benefit of, any officer or key
employee of the Company or persons or entities controlling, controlled by,
under common control with or otherwise affiliated with the Company unless
such transaction shall be conducted on an arm's-length basis, shall be on
terms and conditions no less favorable to the Company than could be
obtained from nonrelated persons and shall be approved by the independent
directors of the Board of Directors after full disclosure of the terms
thereof.
5.9 Management Compensation. Compensation paid by the Company to
its management and other employees will be: (i) both reasonably comparable
to compensation paid to similarly-situated employees in companies in the
same or similar businesses of similar size and maturity and with
comparable financial performance and reasonable in relation to the
Company's overall compensation structure; or (ii) reasonably consistent
with the past practice of the Company.
5.10 Board of Directors; Inspection.
(a) At the request of the Lenders, the Company shall use its
reasonable best efforts to cause one person designated by the Lenders to
be nominated, elected and continued in office as a Director of Datamarine
International, Inc. after the Closing Date and the Board of Directors of
the Company shall, at that time, be expanded correspondingly. The Lenders'
Director designee shall be entitled to reimbursement of all reasonable
travel expenses incurred in connection with his/her attendance at all
Board meetings and the Lenders' Director designee shall be entitled to
receive the same board fees and other compensation, if any, paid to any
outside Directors.
(b) At the request of the Lenders, the Company shall cause
one person designated by the Lenders to be, nominated, elected and
continued in office as a Director of SEA after the Closing Date and the
Board of Directors of SEA shall, at that time, be expanded
correspondingly. The Lenders' Director designee shall be entitled to
reimbursement of all reasonable travel expenses incurred in connection
with his/her attendance at all Board meetings and the Lenders' Director
designee shall be entitled to receive the same board fees and other
compensation, if any, paid to any outside Directors.
(c) At the request of the Lenders, the Company shall cause
one person designated by the Lenders to be, nominated, elected and
continued in office as a Director of Narrowband after the Closing Date and
the Board of Directors of Narrowband shall, at that time, be expanded
correspondingly. The Lenders' Director designee shall be entitled to
reimbursement of all reasonable travel expenses incurred in connection
with his/her attendance at all Board meetings and the Lenders' Director
designee shall be entitled to receive the same board fees and other
compensation, if any, paid to any outside Directors.
(d) If at any time the Lenders do not have a designee
serving on the Board of Directors ("Designated Director") of each of the
Company, SEA and Narrowband, the Lenders shall be entitled to send a
representative (the "Lender Representative") to attend all meetings of the
Board of Directors of such companies not having a Designated Director
serving on its Board of Directors, but such Lender Representative shall
not be considered an elected member of the Board of Directors of any such
company. Each of the Company, SEA and Narrowband will ensure that meetings
of its Board of Directors are held at least once each calendar quarter and
provide the Lender Representative with at least twenty (20) days prior
written notice of all Board of Director meetings as well as copies of all
materials provided to the Directors. The Company, SEA and Narrowband, as
appropriate, will reimburse the Lender Representative for reasonable
travel expenses, including the cost of air fare and any necessary meals
and lodging, incurred in connection with attending such meetings or
performing such other business on its behalf as may be approved by it in
advance. The Company, SEA and Narrowband, as appropriate, will notify the
Lenders in writing three (3) business days prior to the effectiveness of
any action to be taken by written consent of directors or stockholders,
except with respect to ministerial matters, and will provide reasonable
opportunity for consultation with the Lenders with regard to the matters
covered thereby during such three-day period prior to the effectiveness of
such consents.
(e) At such time, if any, that the Lenders shall have
nominated a Designated Director to serve on the Board of Directors of any
of the Company, SEA and/or Narrowband, the Company, SEA and/or Narrowband,
as applicable, shall enter into an indemnification agreement with such
Designated Director on terms and conditions comparable to indemnification
agreements offered to directors of companies of similar size and maturity
and with comparable financial performance.
(f) The Company will, upon reasonable prior notice to the
Company, permit authorized representatives of the Lenders to visit and
inspect any of the properties of the Company, including its books of
account, and to discuss its affairs, finances and accounts with its
agents, officers and independent accountants, all at such reasonable times
and as often as may be reasonably requested, in all cases so as not to
interfere with the Company's operations or personnel.
(g) From and after the time that no Debenture and/or
Convertible Preferred Stock is outstanding, the Lenders shall, at the
request of the Company, cooperate to cause the resignation or removal of
the Designated Director(s), if any, from the Board of Directors of each of
the Company, SEA and/or Narrowband, as applicable.
5.11 Issuance of Capital Stock, Convertible Securities, Options,
Warrants or Rights. The Company covenants and agrees that it will not
sell or issue any shares of capital stock or bonds, certificates of
indebtedness, debentures or other securities convertible into or
exchangeable for shares of capital stock, or options, warrants or rights
carrying any rights to purchase shares of capital stock or convertible or
exchangeable securities of the Company, other than pursuant to or as
referenced in this Agreement (including with respect to stock option plans
referenced in this Agreement), for more than 10% of the common equity in
the Company or $3,000,000 in proceeds, whichever is less.
The Lenders may, in their sole discretion, condition any waiver of
the provisions of this Section 5.11 upon the Company offering each of the
Lenders (on a pro rata basis with an overallotment option as to any
amounts thereof not taken up by any other Lender) the right to participate
in all or any portion of such proposed financing, on the most favorable
terms and conditions proposed to be extended by the Company.
5.12 Merger, Consolidation, Reorganization, Sale of Assets,
Acquisition. Each of the Company, SEA and Narrowband will not without the
prior written consent of the Lenders (which consent will not be
unreasonably withheld): (a) sell, lease or otherwise dispose of (whether
in one transaction or a series of related transactions) all or any
substantial portion of its assets, other than sales of inventory in the
ordinary course of business, sales of obsolete assets and sales of other
assets in any one fiscal year which have a book value of less than
$150,000; (b) merge with or into or consolidate with another corporation,
partnership or other entity (other than a wholly-owned subsidiary or in
connection with an acquisition permitted under clause (c) below); or (c)
acquire any other corporation or business concern, whether by acquisition
of assets, capital stock or otherwise, and whether in consideration of the
payment of cash, the issuance of shares of capital stock or otherwise
where the consideration of any individual acquisition exceeds $500,000 or
the consideration for all such acquisitions in the aggregate exceeds
$1,000,000 and subject to the other limitations contained herein.
5.13 No Amendments to Charter Documents. The Company will not make
any material amendment or modification to, or waiver of any of the terms
of, the Company's Amended and Restated Articles of Organization, including
any amendment, modification or waiver which would conflict with or impair
any of the rights or privileges granted to the Lenders.
5.14 Restrictions on Other Agreements. Other than as provided in
or contemplated by Section 11 of this Agreement, the Company will not
enter into any agreement with any party which by its express terms: (a)
restricts the payments due the holders of the Debentures; or (b) otherwise
conflicts with or impairs any of the express rights or privileges granted
to the Lenders hereunder.
5.15 Stay, Extension and Usury Laws. For so long as any of the
Debentures remain outstanding, the Company covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any
stay, extension or usury law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of
this Agreement; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Lenders, but will
suffer and permit the execution of every such power as though no such law
has been enacted.
Notwithstanding anything herein or in the Debentures which may be to
the contrary, in no event, contingency, or circumstances whatsoever shall
the interest or any amount deemed to be interest payable by the Company
hereunder with respect to the Debentures exceed the maximum amount
permitted by applicable law and, to the extent that any payments in excess
of such permitted amount are finally determined to have been received by
the Lenders, such excess shall be considered payments in respect of the
principal of the Debentures, and, if the principal of the Debentures has
been paid in full, shall be refunded to the Company. All sums paid or
agreed to be paid to any Lender for the use, forbearance, or detention of
the Debentures shall, to the extent permitted by law, be amortized,
prorated, allocated, and spread throughout the entire term of the
Debentures.
5.16 Right of Participation in Financings. The Company and SEA
each covenants and agrees that it will not sell or issue any shares of its
capital stock, or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for its capital stock, or
options, warrants or rights carrying any rights to purchase its capital
stock or convertible or exchangeable securities (other than pursuant to
(a) bona fide registered public offerings which are generally available to
any investors on non-negotiated terms, (b) stock or option grants to
directors, officers, employees, consultants or agents of the Company
pursuant to bona fide issuances under the Company's employee, director,
consultant and agent stock purchase, stock option or other employee
benefit plans, or (c) any transactions involving the acquisition by the
Company of other corporations, businesses or products in which the holders
of the Common Stock of the Company immediately prior to any such
transaction shall continue to hold a majority of the outstanding Common
Stock of the Company (after giving effect to the exercise of any options,
warrants or other rights to acquire Common Stock or the conversion or
exercise of any securities convertible into or exchangeable for Common
Stock which are issued in such transaction) immediately after such
transaction) unless a written offer is first submitted to the Lenders
identifying the terms of the proposed sale, and offering to each of the
Lenders the opportunity to purchase their proportionate share of such
securities (subject to increase for overallotment if some Lenders do not
fully exercise their rights) on terms and conditions, including price, not
less favorable to the Lenders than those on which the Company or SEA
proposes to sell such securities to a third party. Each Lender's
"proportionate share" of such securities shall be based on the ratio which
the shares of the Common Stock of the Company owned or obtainable by such
Lender upon conversion of any Debentures or Convertible Preferred Shares
owned by it bears to all the issued and outstanding shares of the Common
Stock of the Company, calculated in each case on a fully-diluted basis to
include shares of the Common Stock issuable upon the exercise of any stock
options or warrants then outstanding and upon conversion or exchange of
any convertible or exchangeable securities then outstanding. Any offer to
the Lenders herewith shall remain open and irrevocable for a period of 30
days. Any securities so offered to the Lenders which are not purchased
pursuant to such offer may be sold to a third party on terms and
conditions, including price, not more favorable to the third party than
those set forth in such offer at any time within 90 days following the
date of such offer, but may not be sold to any other person or after such
90-day period without renewed compliance with this Section 5.16. In the
event that subsequent to any offer to the Lenders hereunder, the Company
or SEA proposes to amend the terms and conditions offered to any third
parties during such 90-day period, it may do so provided that it first
provides the Lenders with the opportunity to purchase their proportionate
share of the offered securities on such amended terms and conditions on at
least fifteen (15) business days written notice prior to the date on which
the securities are to be offered on such amended terms and conditions to
such third parties.
5.17 [Intentionally Omitted]
5.18 Dissolution of Data I.C., Inc. The Company shall, on or
before January 1, 1996, take, or cause to be taken, all such actions
necessary to effect the dissolution and liquidation of Data I.C., Inc. and
shall not at any time after the Closing Date permit Data I.C., Inc. to
have or hold any assets or to engage in any transaction except to the
extent necessary to carry out the dissolution and liquidation of Data,
I.C., Inc.
5.19 Transactions with Foreign Subsidiaries. The Company will not
engage in any transaction with, or transfer any assets, make any loans,
advances, capital contributions, payments or distributions to, any Foreign
Subsidiary.
SECTION 6. CONVERSION
At any time on or after the earliest to occur of (i) receipt of
notice from the Company of its intention to prepay the Debentures in
accordance with Section 1.2(f) hereof, (ii) a Liquidity Event, (iii) an
Event of Default, or (iv) December ___, 1998, Lenders holding a majority
in interest of the Debentures may, upon 30 days prior written notice to
the Company, require that all of the Debentures be converted into 2,000
shares of Convertible Preferred Stock and 2,000 shares of Redeemable
Preferred Stock. The Company and the Lenders agree that if for any reason
any principal of the Debentures shall have been prepaid prior to
conversion, such prepayment shall only reduce the amount of Redeemable
Preferred Stock received upon conversion by one (1) share of Redeemable
Preferred Stock for each $1,000 in principal amount of the Debentures that
have been prepaid and shall not reduce the amount of Convertible Preferred
Stock received upon such conversion.
In connection with the conversion of Debentures under this Section
6, the Company shall pay to the Lenders, in cash, all accrued but unpaid
Interest on the Debentures through the date of such conversion and each
Lender shall surrender all of its Debentures, marked canceled, and
acknowledged by the Lenders to be paid-in-full, to the Company at the
Company's principal office in exchange for the shares of Convertible
Preferred Stock and Redeemable Preferred Stock and interest payments
described above. Upon delivery of the Debentures to the Company, marked
canceled, the Lenders shall be deemed to be shareholders in the Company
holding their respective shares of Convertible Preferred Stock and
Redeemable Preferred Stock. The Company shall make such filings as are
required and obtain all necessary consents and approvals necessary to
consummate such conversion, including, if applicable, all necessary
filings and approvals under Title II of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. The Company shall take all other
action that the Lenders may reasonably request to evidence and effectuate
the Lenders becoming shareholders holding shares of Convertible Preferred
Stock and Redeemable Preferred Stock in the Company. The Company will
comply with all applicable state "blue sky" or securities laws in
connection with the issuance and sale of the Debentures, any of the
securities into which the Debentures may be converted and the other
securities issued by the Company.
SECTION 7. EVENTS OF DEFAULT; REMEDIES
7.1 Events of Default.
In each case of the happening of the following events while any of
the Debentures are outstanding (each of which is herein sometimes referred
to as an "Event of Default"):
(a) if a default occurs in the payment of any premium,
installment of the principal of, interest on, or other obligation with
respect to, the Debentures, whether at the due date thereof or upon
acceleration thereof, and, solely in the case of any such default in the
payment of interest, charges, fees or expenses, such default continues for
more than five (5) days after the due date thereof;
(b) if any material representation or warranty made herein
or in any agreement executed in connection with, or in any schedule,
certificate, financial statement or other instrument furnished in
connection with, this Agreement shall prove to have been false or
misleading when made in any material respect;
(c) if a default occurs in the due observance or performance
of any covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the provisions of Sections 4, 5.8, 5.11,
5.12 or 5.19 of this Agreement and such default remains uncured for thirty
(30) days after the occurrence thereof, or for such longer period if the
default cannot reasonably be cured within such 30-day period and the
Company is diligently pursuing cure of the default, but in no event for a
period greater than 90 days after written notice thereof has been
delivered by the Lenders to the Company, provided, however, that if such
default cannot be remedied, then such default shall be deemed to be an
Event of Default as of the date of the occurrence thereof;
(d) if a default occurs in the due observance or performance
of any covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to any of the provisions of this Agreement
not referenced in subsections (a), (b) or (c) above and such default
remains uncured for forty-five (45) days after written notice thereof has
been delivered by the Lenders to the Company, or for such longer period if
the default cannot reasonably be cured within such 45-day period and the
Company is diligently pursuing cure of the default, but in no event for a
period greater than 90 days after written notice thereof has been
delivered by the Lenders to the Company, provided, however, that if such
default cannot be remedied, then such default shall be deemed to be an
Event of Default as of the date of the occurrence thereof;
(e) if a default occurs with respect to any other
Indebtedness of the Company for borrowed money in an aggregate amount in
excess of $100,000 and such default is not remedied or waived within
thirty (30) days of the date thereof;
(f) if the Company shall (i) discontinue its business, (ii)
apply for or consent to the appointment of a receiver, trustee, custodian
or liquidator of it or any of its property, (iii) admit in writing its
inability to pay its debts as they mature, (iv) make a general assignment
for the benefit of creditors, or (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors, or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation laws or statutes, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any
such law, or if corporate action shall be taken for the purpose of
effecting any of the foregoing;
(g) there shall be filed against the Company an involuntary
petition seeking reorganization of the Company or the appointment of a
receiver, trustee, custodian or liquidator of the Company or a substantial
part of its assets, or an involuntary petition under any bankruptcy,
reorganization or insolvency law of any jurisdiction, whether now or
hereafter in effect (any of the foregoing petitions being hereinafter
referred to as an "Involuntary Petition");
(h) if final judgment(s) from a court of competent
jurisdiction for the payment of money in excess of an aggregate of
$100,000 shall be rendered against the Company and the same shall remain
unstayed or undischarged for a period of thirty (30) consecutive days,
during which time execution shall not be effectively stayed; or
(i) if there occurs any attachment of any property of the
Company in an amount exceeding $100,000, which shall not be discharged or
bonded within thirty (30) days of the date of such attachment; then, and
upon each and every such Event of Default thereafter, and during the
continuance of any Event of Default, at the election of the Lenders, the
Debentures shall immediately become due and payable, both as to principal
and interest, without presentment, demand, or protest, all of which are
hereby expressly waived, anything contained herein or in the Debentures to
the contrary notwithstanding (except in the case of an Event of Default
under subsections (f) or (g) of this Section, in which event such
Debentures shall automatically become due and payable). In the event of
an acceleration of the Debentures as a result of the filing of an
Involuntary Petition as specified in subsection (g) of this Section, such
acceleration shall be rescinded, and the Company's rights hereunder
reinstated, if, within sixty (60) days following the filing of such
Involuntary Petition, such Involuntary Petition shall have been dismissed
or stayed, and there shall exist no other Event of Default under this
Agreement.
7.2 Remedies on Default, Etc. In case any one or more Events of
Default shall occur and be continuing, the Lenders may proceed to protect
and enforce their rights by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any
agreement contained in this Agreement or the Debentures, or for an
injunction against a violation of any of the terms hereof or thereof or in
and of the exercise of any power granted hereby or thereby or by law. No
right conferred upon the Lenders hereby or the Debentures shall be
exclusive of any other right referred to herein or therein or now or
hereafter available at law, in equity, by statute or otherwise.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE LENDERS
8.1 Representation of Lenders. In order to induce the Company and
the Subsidiaries to enter into this Agreement, each Lender hereby
severally represents and warrants to and agrees with the Company and each
of the Subsidiaries with respect to such Lender's purchase of Debentures
hereunder that as of the date hereof:
(a) The execution of the Agreement has been duly authorized
by all necessary action on the part of the Lender, and this Agreement has
been duly executed and delivered, and constitutes a valid, legal and
binding agreement of the Lender enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy and other
laws of general application relating to creditor's rights or general
principles of equity.
(b) The Lender is acquiring the Debentures for its own
account, for investment, and not with a view to any "distribution" thereof
within the meaning of the Securities Act. The Lender has not been formed
for the specific purpose of making the investment contemplated by this
Agreement, the information concerning the state of residence of each
Lender supplied to counsel for the Company is true and correct as of the
date hereof and, the Lender is an "accredited investor" as defined under
the Securities Act and the regulations promulgated thereunder.
(c) The Lender understands that because the Debentures (and
the securities into which they are convertible) have not been registered
under the Securities Act, it cannot dispose of any or all of the
Debentures (or the securities into which they are convertible) unless such
Debentures (or such securities, as the case may be) are subsequently
registered under the Securities Act or exemptions from such registration
are available. The Lender acknowledges and understands that, except as
provided in the Registration Rights Agreement, it has no independent right
to require the Company to register the Debentures (or the securities into
which they are convertible), that the Company has no intention to register
the Debentures (or the securities into which they are convertible), and
that the Company may not accomplish a public offering of the Debentures or
the securities into which they are convertible.
(d) The Lender is knowledgeable and experienced in the
making of investments in private enterprises, is able to bear the economic
risk of loss of its investment in the Company, has been granted the
opportunity to investigate the affairs of the Company, and has availed
itself of such opportunity either directly or through its authorized
representative.
(e) The Lender has been advised that the Debentures (and the
securities into which they are convertible) have not been and are not
being registered under the Securities Act or under the securities or "blue
sky" laws of any jurisdiction and that the Company in issuing the
Debentures is relying upon, among other things, the representations and
warranties of each Lender contained in this Section 10 in concluding that
each such issuance is a "private offering" and does not require compliance
with the registration provisions of the Securities Act.
(f) The Lender has had access to or been supplied with all
material information regarding the Company, its financial condition and
historical results of operations, and all questions concerning the Company
have been answered to its satisfaction.
SECTION 9. INTERCREDITOR MATTERS
9.1 Subordination to Payment. Notwithstanding anything in this
Agreement, in the Debentures or in any of the other documents and
instruments executed and, or, delivered pursuant thereto or in connection
therewith to the contrary, the Debentures shall be subordinate and junior
in right of payment to the Senior Debt of the Company to the extent and in
the manner set forth in this Section 9. Except as specifically provided
for otherwise in this Section 9, payments on account of the Debentures may
be made by the Company and such payments may be received and retained by
the Lenders as and when due.
9.2 Bankruptcy or Liquidation. Upon the event of: (a) any
insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization or other similar proceedings with respect to the Company;
(b) any proceedings for voluntary liquidation, dissolution or other
winding up of the Company (whether or not involving insolvency or
bankruptcy proceedings); or (c) any distribution, division or application,
partial or complete, voluntary or involuntary, by operation of law or
otherwise, of all or substantially all of the property, assets or business
of the Company or the proceeds thereof to or for any creditor or creditors
other than in the ordinary course of business (including without
limitation any marshalling of assets), all Senior Debt shall be paid in
full in cash (or other property acceptable to the holders of Senior Debt
in their sole determination) before any payment or distribution, direct or
indirect, whether in cash, securities, property or otherwise, shall
thereafter be made on the Debentures; provided, however, that this
provision shall not preclude the Lenders from (i) exercising their
conversion rights under Section 6 hereof and receiving the Preferred
Shares issuable upon such conversion, or (ii) exchanging the Debentures
for other securities which are subordinated in right of payment to the
Senior Debt on terms which are no more favorable to the Lenders than the
terms of this Section 9.
9.3 Payment Default on Senior Debt. Except as specifically
provided otherwise in Section 9.8 hereof, during the continuance of any
default (without regard to any applicable grace or cure periods) in the
payment of any sums (principal, interest or otherwise) due and payable on
any Senior Debt (whether as a result of a periodic payment, maturity,
acceleration or a mandatory prepayment), no payment on the Debentures,
direct or indirect, whether in cash, securities, property or otherwise,
shall be made after written notice of the foregoing default is given to
the Company and the Lenders, unless and until the default under such
Senior Debt shall have been cured in full or arrangements for such cure,
which are accepted in writing by the holder of such Senior Debt, shall
have been made.
9.4 Non-Payment Default on Senior Debt. Except as specifically
provided otherwise in Section 9.8 hereof, upon the occurrence of a default
on any Senior Debt (without regard to any applicable grace or cure
periods), other than a default described in Section 9.2 or 9.3 above, no
payment on Debentures, direct or indirect, whether in cash, property,
securities or otherwise shall be made from the date that written notice of
the foregoing default is given to the Company and the Lenders and for a
period of 90 days thereafter, unless and until the default under such
Senior Debt shall have been cured in full or arrangements for such cure,
which are accepted in writing by the holder of such Senior Debt, shall
have been made provided; however, that: (i) no more than two (2) payment
blockage periods may be declared hereunder in any 365-day period; and (ii)
no default may be cited as the basis for two (2) separate payment
blockages in any 365-day period.
9.5 Limitation on the Exercise of Certain Rights. The Lenders
agree that, upon written notice to it from any holder of Senior Debt
specifying such holder's name and address, they will not thereafter,
without at least one day's prior written notice to the holder of such
Senior Debt, make any request or demand for, accelerate or bring any
action with respect to, the payment of the Debentures.
9.6 Subrogation. Upon the payment in full of all Senior Debt, the
Lenders shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of assets of the Company made on the
Senior Debt until all of the obligations or the Debentures shall be paid
in full. Except as may be otherwise ordered by a court with respect to
the payments contemplated under Section 9.2 hereof, no payments or
distributions to the holders of the Senior Debt of cash, property,
securities or otherwise (including any amounts paid on account of the
Debentures which are subsequently paid over to or held in trust for the
benefit of the holders of any Senior Debt) shall, as between the Company,
the Lenders and the Company's other creditors, be deemed to be a payment
by the Company on account of the Debentures. The provisions of this
Section 9 are intended solely to define the relative rights of the
Lenders, on the one hand, and the holders of Senior Debt, on the other
hand, vis a vis the Company.
9.7 Absolute Obligation. Nothing contained in this Section 9 is
intended to or shall impair, as among the Company, its creditors other
than holders of Senior Debt and the Lenders, the obligation of the
Company, which is absolute and unconditional, to pay to the Lenders any
and all sums outstanding under the Debentures as and when the same shall
become due and payable in accordance with the terms thereof. Nor is
anything contained in this Section 9 intended to: (a) affect the relative
rights of the Lenders and creditors of the Company other than the holders
of Senior Debt; or (b) prevent the Lenders from exercising all remedies
otherwise permitted by applicable law upon default, subject to the
limitations set forth in Section 9.5 hereof and to the rights under this
Section 9 of the holders of Senior Debt with respect to cash, property or
securities of the Company received upon the exercise of any such remedy.
The failure of the Company to make any payment on the Debentures by reason
of any provision of this Section 9 shall not be construed as preventing
the occurrence of an Event of Default under Section 7.
9.8 Conversion. Nothing contained in this Section 9 shall be
deemed to prohibit the rights of the Lenders to convert the Debentures
pursuant to Section 6 hereof and to receive the Preferred Shares issuable
upon such conversion.
SECTION 10. INDEMNIFICATION
(a) The Company shall, to the full extent permitted by law, and in
addition to any such rights which any Indemnified Party (as defined
herein) may have pursuant to statute, the Company's charter, the Company's
by-laws, or otherwise, indemnify and hold harmless each Lender (including
its respective directors, officers, partners, employees and agents, an
"Indemnified Investor") and each person (a "Controlling Person" and
collectively with Indemnified Investors, the "Indemnified Parties") who
controls any of them within the meaning of Section 15 of the Securities
Act of 1933, as amended (the "Securities Act"), or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages, expenses and liabilities,
joint or several, including any investigation, legal and other expenses
incurred in connection with the investigation, defense, settlement or
appeal of, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted ("Losses" or "Loss"), to which they, or
any of them, may become subject solely by reason of their status as, and
not directly or indirectly by reason of their actions as, a securityholder
or controlling person of the Company, (including, without limitation, any
and all Losses under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, which
relates directly or indirectly to the registration, purchase, sale or
ownership of any securities from the Company, other than the Debentures,
the Redeemable Preferred Stock, the Convertible Preferred Stock and the
Conversion Shares (collectively, the "Lender Securities"), or to any
fiduciary obligation owed by the Company with respect to securities of the
Company (other than the Lender Securities); provided, however, that the
Company will not be liable to the extent that such Loss arises from and is
based on an untrue statement or omission or alleged untrue statement or
omission in a registration statement or prospectus which is made in
reliance on and in conformity with written information furnished to the
Company in an instrument duly executed by or on behalf of such Indemnified
Party specifically stating that it is for use in the preparation thereof.
The indemnification and contribution provided for in this Section 10 will
remain in full force and effect regardless of any investigation made by or
on behalf of the Indemnified Parties or any officer, director, employee,
agent or Controlling Person of the Indemnified Parties.
(b) If the indemnification provided for in Section 10(a) above for
any reason is held by a court of competent jurisdiction to be unavailable
to an Indemnified Party in respect of any Losses referred to therein, then
the Company, in lieu of indemnifying such Indemnified Party thereunder,
shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Lenders, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Lenders in connection with the
action or inaction which resulted in such Losses, as well as any other
relevant equitable considerations. In connection with the registration of
the Company's securities, the relative benefits received by the Company
and the Lenders shall be deemed to be in the same respective proportions
that the net proceeds from the offering (before deducting expenses)
received by the Company and the Lenders, in each case as set forth in the
table on the cover page of the applicable prospectus, bear to the
aggregate public offering price of the securities so offered. The
relative fault of the Company and the Lenders shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Lenders and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Lenders agree that it would not be just and
equitable if contribution pursuant to this Section 10(b) were determined
by pro rata or per capita allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
the immediately preceding paragraph. In connection with the registration
of the Company's securities, in no event shall any Lender be required to
contribute any amount under this Section 10(b) in excess of the lesser of
(i) that proportion of the total of such Losses indemnified against equal
to the proportion of the total securities sold under such registration
statement which is being sold by such Lender or (ii) the proceeds received
by such Lender from its sale of securities under such registration
statement. No person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(c) Any Indemnified Party that proposes to assert the right to be
indemnified under this Section 10 will, promptly after receipt of notice
of commencement of any claim or action against such party in respect of
which a claim is to be made against the Company under this Section 10,
notify the Company of the commencement of such action, enclosing a copy of
all papers served, but the omission so to notify the Company will not
relieve the Company from any liability that the Company may have to any
Indemnified Party under the foregoing provisions of this Section 10
unless, and only to the extent that, such omission results in the
forfeiture of substantive rights or defenses by the Company or is
materially prejudicial to the Company's ability to defend such claim or
action. The Company shall have the right to participate in, and, to the
extent the Company so desires, to assume the defense of any such claim or
action with counsel mutually satisfactory to the parties; provided,
however, that an Indemnified Party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Company, if in the
reasonable opinion of the Company, representation of such Indemnified
Party by the counsel retained by the Company would be inappropriate due to
the actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. If
the Indemnified Party retains its own counsel in accordance with the
foregoing sentence, all fees, disbursements and other charges incurred in
the investigation, defense and/or settlement of such action shall be
advanced and reimbursed by the Company promptly as they are incurred;
provided, however, that the Indemnified Party shall agree to repay any
expenses so advanced hereunder if it is ultimately determined by a court
of competent jurisdiction that the Indemnified Party to whom such expenses
are advanced is not entitled to be indemnified as a matter of law. The
Company shall not settle any action or claim for which indemnification is
sought under this Section 10 without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld. The
Company shall not be liable for any amounts paid in any settlement of any
proceeding effected without its consent, which consent shall not be
unreasonably withheld.
SECTION 11. DEFINITIONS
Unless the context specifically requires otherwise, capitalized
terms used in this Agreement shall have the meaning specified below:
"Base Balance Sheet" shall mean the unaudited consolidated balance sheet
of the Company dated July 1, 1995 which was filed with the SEC as a part
of the Company's Quarterly Report on 10-Q for its fiscal quarter then-
ended.
"Capital Lease" means any lease of property (real, personal or mixed)
which in accordance with generally accepted accounting principles
consistently applied, would be capitalized on the lessee's balance sheet
or for which the amount of the asset and liability thereunder should be
disclosed in a note to such balance sheet as if so capitalized.
"FCC" means the Federal Communications Commission and any successor
governmental agency performing functions similar to those performed by the
Federal Communications Commission on the date hereof.
"Foreign Subsidiaries" shall mean Nautical Realty ApS, a Danish
corporation, and Datamarine International Australia PTY, Limited, a
corporation organized under the laws of New South Wales.
"Indebtedness" means with respect to any Person, (i) any liability,
contingent or otherwise, of such Person (A) for borrowed money (whether or
not recourse of the lender is to the whole of the assets of such Person or
only to a portion thereof), (B) evidenced by a note, debenture or similar
instrument (including a purchase money obligation) given in connection
with the acquisition of any property or assets, (C) for any letter of
credit or performance bond in favor of such Person, (D) for the payment of
money relating to a capitalized lease obligation, or (E) any liability,
contingent or otherwise, of such Person to any other Person for any
purchase price associated with any acquisition of assets, business or
otherwise (including any deferred purchase price, assumption of
Indebtedness, noncompetition payments or other forms of consideration);
(ii) any liability of others of the kind described in the preceding clause
(i), which the Person has guaranteed or which is otherwise its legal
liability, contingent or otherwise; (iii) any obligation secured by a Lien
to which the property or assets of such Person are subject, whether or not
the obligations secured thereby shall have been assumed by or shall
otherwise be such Person's legal liability; (iv) all other items (except
items of capital stock, capital or paid-in surplus or of retaining
earnings) which in accordance with generally accepted accounting
principles, would be included as a liability on the balance sheet of such
Person on the date of determination; and (v) any and all deferrals,
renewals, extensions or refinancing of, or amendments, modifications of
supplements to, any liability of the kind described in any of the
preceding clauses (i), (ii), (iii) or (iv).
"Lien" means any interest in, or claim against, property relating to an
obligation owed to, or claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute or
contract, and including but not limited to any security interest lien
arising from a mortgage, encumbrance, pledge, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes, any
rights of first refusal, charges, claims, liabilities, limitations,
conditions, restrictions or other adverse claims; provided, however, that
"Lien" shall not include the interest retained by the lessor under a lease
which is not a Capital Lease. For the purposes of this Agreement, the
Company shall be deemed to be the owner of any property which it has
acquired or holds subject to a conditional sale agreement, financing lease
or other arrangement pursuant to which title to the property has been
retained by or vested in some other person or entity for security purposes
and such retention or vesting shall be deemed to be a Lien.
"Person" means any individual, corporation, partnership, joint venture,
trust or unincorporated organization or any government or any agency or
political subdivision thereof.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, by and among the Company and the Lenders, as
amended, supplemented or modified from time to time.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, each as amended from time to time.
"Senior Debt" means the aggregate principal amount of any indebtedness for
money borrowed in accordance with the provisions of Section 4.1(b) and
Section 4.1(e) hereof from a bank, insurance company or other financial
institution unaffiliated with the Company.
"Subsidiary" of any Person means (a) a corporation, a majority of whose
capital stock with voting power, under ordinary circumstances, to elect
directors is at a time, directly or indirectly owned by such Person, by
one or more subsidiaries of such Person or by such Person in one or more
subsidiaries of such Person, or (b) any other Person (other than a
corporation) in which such Person, a subsidiary of such Person, or such
Person and one or more subsidiaries of such Person, directly or
indirectly, individually or with another Person, at the date of
determination thereof, has (i) at least a majority ownership interest, or
(ii) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
"Tax" means any federal, state, local, or foreign income, gross receipts,
capital stock, franchise, profits, windfall profits, withholding, payroll,
social security (or similar), unemployment, disability, real property,
personal property, excise, occupation, sales, use, transfer, value added,
alternative minimum, environmental, customs, duties, estimated or other
tax, including any interest, penalty or addition thereto, whether disputed
or not.
"Tax Returns" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule
or attachment thereto and including any amendment thereof.
The following terms shall have the meanings assigned to them in the
provisions of this Agreement referred to below:
Amended Charter - Section 3.2(b)
Closing - Section 1.3
Closing Date - Section 1.3
Common Stock - Section 2.4
Communications Act - Section 2.15
Company - preamble
Company FCC Licenses - Section 2.15(b)
Conversion Shares - Section 2.2
Convertible Preferred Stock - Section 1.2(d)
Debentures - Section 1.1
Designated Director - Section 5.10(d)
Employee Program - Section 2.16
Environmental Law - Section 2.19(b)
ERISA - Section 2.16
Event of Default - Section 7.1
FCC Licenses - Section 2.15(d)
GAAP - Section 2.7
Hazardous Material - Section 2.19(b)
Hazardous Waste - Section 2.19(b)
Intellectual Property - Section 2.12
Interest - Section 1.2(a)
Involuntary Petition - Section 7.1(g)
IRS - Section 2.11
Lender Representative - Section 5.10(c)
Lender Securities - Section 10(a)
Lenders - preamble
Liquidity Event - Section 1.2(f)
Management Agreements - Section 2.15(c)
Material Agreements - Section 2.12
Maturity Date - Section 1.1
Option Plan - Section 2.4
PCBs - Section 2.19(a)
Pension Plan - Section 2.16
Preferred Shares - Section 2.2
Preferred Stock Terms - Section 2.4
Purchase Price - Section 1.1
Redeemable Preferred Stock - Section 1.2(d)
SEC - Section 2.6
SMR Operator Letter - Section 2.15(c)
SECTION 12. GENERAL
12.1 Amendments, Waivers and Consents. For the purposes of this
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no
course of dealing between the Company and any Lender and no delay on the
part of any party hereto in exercising any rights hereunder or thereunder
shall operate as a waiver of the rights hereof and thereof. No covenant
or other provision hereof or thereof may be waived otherwise than by a
written instrument signed by the party so waiving such covenant or other
provision; provided, however, that except as otherwise provided herein or
therein, changes in or additions to, and any consents required by, or
requests or demands made pursuant to, this Agreement may be made, and
compliance with any term, covenant, condition or provision set forth
herein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively) by a written
instrument or instruments signed by a majority in interest of the Lenders
and the Company. Any amendment or waiver effected in accordance with this
Section 12.1 shall be binding upon each holder of any Debentures purchased
under this Agreement at the time outstanding (including securities into
which such Debentures have been converted), each future holder of all such
securities and the Company.
12.2 Survival of Covenants; Assignability of Rights. All
covenants, agreements, representations and warranties of the Company made
herein and to be performed prior to or at the Closing and in the
certificates, lists, exhibits, schedules or other written information
delivered or furnished to any Lender pursuant to the terms of this
Agreement shall be presumed to have been material and to have been relied
upon by such Lender, and, except as otherwise provided in this Agreement,
shall survive the delivery of the Debentures and shall bind the Company's
successors and assigns, whether so expressed or not, and, except as
otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Lenders'
successors and assigns and to transferees of the Debentures or any
securities received upon conversion thereof, whether so expressed or not.
Notwithstanding the foregoing or anything to the contrary contained in
this Agreement: (a) the Lenders may not transfer or assign their rights
hereunder unless (i) the Lenders have provided to the Company at least
five (5) days prior written notice of such transfer or assignment, and
(ii) the successor or assignee, as a condition to such transfer or
assignment, agrees in writing with the Company and the Subsidiaries to be
bound by all of the provisions hereof; (b) all representations and
warranties of the Company or the Subsidiaries contained or referenced in
Section 2 hereof shall survive only for a period of two (2) years from the
date of this Agreement, and any claim based upon any misrepresentations or
breach of warranty by the Company or the Subsidiaries under Section 2 must
be made within such period.
12.3 Governing Law; Jurisdiction; Venue. THIS AGREEMENT SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Company and each
Subsidiary hereby agree that the state and federal court of The
Commonwealth of Massachusetts shall have non-exclusive jurisdiction to
hear and determine any claims or disputes between the Lenders and the
Company and the Subsidiaries pertaining directly or indirectly to this
Agreement and all documents, instruments and agreements executed pursuant
hereto, or to any matter arising therefrom (unless otherwise expressly
provided for therein). To the extent permitted by law, the Company and
each of the Subsidiaries hereby expressly submit and consent in advance to
such jurisdiction in any action or proceeding commenced by the Lenders in
any of such courts, and agrees that service of such summons and complaint
or other process or papers may be made by registered or certified mail
addressed to the Company and to each of the Subsidiaries at the address to
which notices are to be sent pursuant to this Agreement. The Company and
each of the Subsidiaries waive any claim that Boston, Massachusetts is an
inconvenient forum or an improper forum based on lack of venue. The
choice of forum set forth in this section 12.3 shall not be deemed to
preclude the enforcement of any judgment obtained in such forum or the
taking of any action to enforce the same in any other appropriate
jurisdiction.
12.4 Section Headings. The descriptive headings in this Agreement
have been inserted for convenience only and shall not be deemed to limit
or otherwise affect the construction of any provision thereof or hereof.
12.5 Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which when so executed and
delivered shall be taken to be an original; but such counterparts shall
together constitute but one and the same document.
12.6 Notices and Demands. Any notice or demand which, by any
provision of this Agreement or any agreement, document or instrument
executed pursuant hereto or thereto, except as otherwise provided therein,
is required or provided to be given shall be deemed to have been
sufficiently given or served and received for all purposes when delivered
in hand, by facsimile transmission with receipt acknowledged or by express
delivery providing receipt of delivery, to the following addresses and
numbers:
if to the Company, SEA or Narrowband:
c/o SEA Inc. of Delaware
7030 220th Street
Mountlake Terrace, WA 98043
Attn: President
Tel: (206) 771-2182
Fax: (206) 771-2650
with a copy to:
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: Stewart M. Landefeld, Esq.
Tel: (206) 583-8888
Fax: (206) 583-8500
or at such other address designated by the Company, SEA or Narrowband, as
the case may be, to the Lenders in writing; if to a Lender, at its mailing
address and facsimile number, if applicable, as shown on Exhibit A hereto,
or at any other address or facsimile number designated by such Lender to
the Company and the other Lenders in writing; and if to an assignee of a
Lender, at its address or facsimile number as designated to the Company
and the other Lenders in writing.
12.7 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall
be deemed prohibited or invalid under such applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, and
such prohibition or invalidity shall not invalidate the remainder of such
provision or the other provisions of this Agreement.
12.8 Expenses. The Company shall pay the reasonable legal fees
and disbursements for professional services of Goodwin, Procter & Hoar,
special counsel to the Lenders, incurred in connection with the
negotiation, execution, delivery and performance of this Agreement and the
agreements, documents and instruments contemplated hereby or executed
pursuant hereto.
12.9 Integration. This Agreement, including the exhibits,
documents and instruments referred to herein or therein and executed in
connection herewith or therewith, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
[END OF TEXT]
IN WITNESS WHEREOF, the undersigned have executed this Debenture
Purchase Agreement as of the day and year first above written.
DATAMARINE INTERNATIONAL, INC.
By:
Name:
Title:
SEA INC. OF DELAWARE
By:
Name:
Title:
NARROWBAND NETWORK SYSTEMS, INC.
By:
Name:
Title:
LENDERS:
ALTA SUBORDINATED DEBT PARTNERS III, L.P.
By: Alta Subordinated Debt Management III, L.P., its General Partner
By:
Robert F. Benbow
General Partner
EXHIBIT A
List of Lenders
Aggregate Amount
Name of Debentures Purchased
----------------------------------------------------------------------
Alta Subordinated Debt Partners III, L.P. $2,000,000
THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(THE "ACT") OR ANY APPLICABLE STATE LAW, AND MAY NOT BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR (b) SUCH TRANSACTION IS
EXEMPT FROM REGISTRATION.
THIS SECURITY IS SUBJECT TO THE TERMS OF THE SUBORDINATION AGREEMENT DATED
AS OF DECEMBER 19, 1995 BETWEEN SILICON VALLEY BANK AND ALTA SUBORDINATED
DEBT PARTNERS III, L.P.
CONVERTIBLE DEBENTURE
DUE DECEMBER 19, 2000
$2,000,000 December 19, 1995
Boston, Massachusetts
FOR VALUE RECEIVED, DATAMARINE INTERNATIONAL, INC., a Massachusetts
corporation, SEA INC. OF DELAWARE, a Delaware corporation, and NARROWBAND
NETWORK SYSTEMS, INC., a Washington corporation, (collectively, the
"Maker"), jointly and severally promise to pay to ALTA SUBORDINATED DEBT
PARTNERS III, L.P. (hereinafter called the "Payee"), or to its order, at
its address c/o Burr, Egan, Deleage & Co., One Embarcadero Center, Suite
4050, San Francisco, CA 94111, the principal sum of Two Million Dollars
($2,000,000), together with interest in arrears on the unpaid principal
balance from time to time outstanding from the date hereof until the
entire principal amount due hereunder is paid in full at the rates
provided in that certain Debenture Purchase Agreement of even date
herewith by and between the Payee, certain other entities and the Maker
(the "Agreement"). Principal shall be paid, and interest shall accrue and
be paid, as provided in the Agreement.
This Convertible Debenture due December 19, 2000 ("Debenture") is
one of the Debentures (as defined in the Agreement) referred to in and
issued pursuant to the Agreement, and is entitled to the benefits of, and
subject to, the terms and provisions of the Agreement, including, without
limitation, the terms and provisions relating to payment and conversion of
the Debentures. The outstanding principal amount of this Debenture shall
be paid in full as provided in the Agreement and may only be prepaid in
accordance with the provisions of the Agreement.
Upon the occurrence of an Event of Default as defined in the
Agreement, the Lenders (as such parties are defined in the Agreement) may
declare the entire unpaid principal balance hereunder and any accrued and
unpaid interest thereon immediately due and payable without notice,
demand, presentment or protest (except as and to the extent required under
the Agreement) and may exercise any of their rights under the Agreement.
In the event that the Payee or any subsequent holder of this Debenture
shall exercise or endeavor to exercise any of its remedies hereunder or
under the Agreement, the Maker shall pay on demand all reasonable costs
and expenses incurred in connection therewith including, without
limitation, reasonable attorneys' fees, and the Payee may take judgment
for all such amounts in addition to all other sums due hereunder.
Except as otherwise specifically provided in the Agreement, the
Maker, to the extent permitted by applicable law, waives presentment for
payment, protest and demand, and notice of protest, demand and/or dishonor
and nonpayment of this Debenture, notice of any Event of Default under the
Agreement by Maker, and all other notices or demands otherwise required by
law that the Maker may lawfully waive. No unilateral consent or waiver by
the Payee with respect to any action or failure to act which, without
consent, would constitute a breach by Maker of any provision of this
Debenture or the Agreement shall be valid and binding unless in writing
and signed by a majority in interest of the Lenders as provided in
accordance with Section 12.1 of the Agreement.
Upon receipt of evidence satisfactory to the Maker of the loss,
theft, destruction or mutilation of this Debenture and, in the case of any
such loss, theft or destruction, upon delivery of indemnity satisfactory
to the Maker, or in case of such mutilation, upon surrender and
cancellation of this Debenture, the Maker will issue a new debenture, of
like tenor, in lieu, and dated the date, of such lost, stolen, destroyed
or mutilated Debenture.
The rights and obligations of the Maker and all provisions hereof
shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts.
All agreements between the Maker and the Payee are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason
of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to the Payee for the
use, forbearance or detention of the indebtedness evidenced hereby exceed
the maximum permissible under applicable law. As used herein, the term
"applicable law" shall mean the law in effect as of the date hereof,
provided, however, that in the event there is a change in the law which
results in a higher permissible rate of interest than the highest
permissible rate under applicable law in effect as of the date hereof,
then this Debenture shall be governed by such new law as of its effective
date. If, from any circumstance whatsoever, fulfillment of any provision
hereof or the Agreement at the time performance of such provision shall be
due, shall involve transcending the limit of validity prescribed by law,
then the obligation to be fulfilled shall automatically be reduced to the
limit of such validity, and if from any circumstances the Payee should
ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to
the reduction of the principal balance evidenced hereby and not to the
payment of interest, and if the principal amount of this Debenture has
been paid in full, shall be refunded to the Maker. This provision shall
control every other provision of all agreements between the Maker and the
Payee.
IN WITNESS WHEREOF, the Maker has caused this Debenture to be
executed by its duly authorized representative as of the day and year
first above written.
WITNESS: DATAMARINE INTERNATIONAL, INC.
By:
Name:
Title:
WITNESS: SEA INC. OF DELAWARE
By:
Name:
Title:
WITNESS: NARROWBAND NETWORK SYSTEMS, INC.
By:
Name:
Title:
EXHIBIT C
TERMS FOR CONVERTIBLE PREFERRED STOCK
AND REDEEMABLE PREFERRED STOCK
A. Convertible Preferred Stock. This series of preferred stock
par value $1.00 per share ("Preferred Stock") of Datamarine International,
Inc. (the "Corporation") shall be comprised of 2,000 shares designated as
"Redeemable Convertible Participating Preferred Stock" (hereinafter
referred to as "Convertible Preferred Stock"). The relative rights,
preferences, restrictions and other matters relating to the Convertible
Preferred Stock are as follows:
1. Dividends. The holders of the Convertible Preferred Stock
shall be entitled to receive, out of funds legally available therefor,
dividends at the same rate as dividends are paid with respect to this
Corporation's common stock, par value $.01 per share (the "Common Stock")
(treating each share of Convertible Preferred Stock as being equal to the
number of shares of Common Stock into which each such share of Convertible
Preferred Stock could be converted pursuant to the provisions of Section
A.5 hereof with such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such
dividend).
2. Preference on Liquidation. In the event of any liquidation,
dissolution or winding up of the Corporation, the holders of the
Convertible Preferred Stock shall be entitled to share in any distribution
of any of the assets, capital, surplus or earnings of the Corporation
ratably with the holders of the Common Stock of the Corporation (after the
payment in full of the liquidation preference on the Redeemable Preferred
Stock), based upon the amount which such Convertible Preferred Stock would
have been entitled to receive in connection with such liquidation,
dissolution or winding up if such share had been converted into Common
Stock at the Conversion Price (as defined in Section A.5 below) in effect
on such date, together with an amount equal to all declared but unpaid
dividends on the Convertible Preferred Stock as provided in Section A.1
above, if any.
3. Redemption.
(a) At the election of the Corporation, subject to the
holders' of Convertible Preferred Stock rights of conversion pursuant to
the terms of Section 5 hereof, the Corporation may redeem all, but not
less than all, of the shares of Convertible Preferred Stock then
outstanding on or after December 31, 2000, so long as the Redeemable
Preferred Stock shall have been redeemed in full on or prior to such date.
If the Corporation elects to redeem the Convertible Preferred Stock, it
shall give written notice of such election at least 60 days prior to the
date of redemption, together with the date of redemption, and, if the
Corporation's Common Stock is not then publicly held, the Corporation's
estimate of the Fair Market Value of the Convertible Preferred Stock, to
the holders of the Convertible Preferred Stock and all shares of
Convertible Preferred Stock will be redeemed on the date specified for
redemption in the Company's notice (the "Redemption Date") for a per share
cash purchase price equal to the Fair Market Value (as determined in
Section A.3(d) below) of the Convertible Preferred Stock plus any
accumulated and unpaid dividends (the "Redemption Price"). On or after
the Redemption Date, each holder of shares of Convertible Preferred Stock
called for redemption shall surrender the certificate evidencing such
shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the Redemption Price.
(b) Rights. From and after the Redemption Date, unless
there shall have been a default in payment or tender by the Corporation of
the Redemption Price, all rights of the holders with respect to such
redeemed shares of Convertible Preferred Stock (except the right to
receive the Redemption Price in accordance with the terms hereof upon
surrender of their certificate) shall cease and such shares shall not
thereafter be transferred on the books of this Corporation or be deemed to
be outstanding for any purpose whatsoever.
(c) Insufficient Funds. If the funds of the Corporation
legally available for redemption of shares of Convertible Preferred Stock
on the Redemption Date are insufficient to redeem the total number of
shares of Convertible Preferred Stock, the Corporation shall use those
funds which are legally available to redeem the maximum possible number of
such shares ratably among the holders of such shares to be redeemed. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Convertible Preferred Stock,
such funds will immediately be used to redeem the balance of the shares
which the Corporation has become obligated to redeem on the Redemption
Date but which it has not redeemed at the Redemption Price together with
any accrued interest thereon as provided below. If any shares of
Convertible Preferred Stock are not redeemed because the Corporation
failed to pay or tender to pay the aggregate Redemption Price on all
outstanding shares of Convertible Preferred Stock, all shares which have
not been redeemed shall remain outstanding and entitled to all the rights
and preferences provided herein, and the Corporation shall pay interest on
the unpaid portion of the Redemption Price for the unredeemed portion at a
per annum rate equal to twenty percent (20%) or the maximum rate of
interest permitted under applicable law, whichever is less.
(d) Fair Market Value Determination. If the Corporation's
Common Stock is publicly traded at the Redemption Date, the Fair Market
Value of each share of Convertible Preferred Stock shall equal the product
of the number of shares of Common Stock into which each share of the
Convertible Preferred Stock may then be converted multiplied by the
average closing price for the Corporation's Common Stock for the thirty
(30) trading days immediately preceding the Redemption Date. If the
Corporation's Common Stock is not publicly traded on the Redemption Date,
the Fair Market Value shall be determined in accordance with the following
provisions. If the holders of a majority in interest of the Convertible
Preferred Stock do not object in writing to the Corporation's estimate of
the Fair Market Value of the Convertible Preferred Stock within fifteen
(15) days after receipt of the Corporation's written notice of redemption,
such estimate shall be the Fair Market Value for purposes of determining
the Redemption Price of the Convertible Preferred Stock. If the holders
of a majority in interest of the Convertible Preferred Stock do timely
object to the Corporation's estimate of Fair Market Value, the Corporation
and such holders shall seek for a ten (10) day period thereafter to
negotiate the Fair Market Value in good faith. If the Corporation and the
holders of a majority in interest of the Convertible Preferred Stock are
unable to agree upon such Fair Market Value by the end of such period,
each of the Corporation and the holders (acting by a majority in interest)
shall, within ten (10) days thereafter, select an unaffiliated investment
banking firm of nationally recognized standing in the telecommunications
equipment industry to appraise the Fair Market Value of the Convertible
Preferred Stock. Each such firm will deliver its appraisal of the Fair
Market Value within fifteen (15) days thereafter, and if the lower
appraisal is at least 90% of the higher appraisal, the arithmetic mean of
the two shall be the Fair Market Value. If the two appraisals vary by
more than 10%, the two firms shall promptly select a third investment
banking firm of nationally recognized standing in the telecommunications
equipment industry. Such third firm shall, within ten (10) days
thereafter, deliver its appraisal of the Fair Market Value of the
Convertible Preferred Stock, the two appraisals which are closest together
in value shall be averaged and such amount shall be the Fair Market Value
for purposes of determining the Redemption Price. The Fair Market Value
of the Convertible Preferred Stock shall be determined: (i) without regard
to the illiquid nature of such stock or for any discount attributable to
the minority interest represented by such stock; (ii) with the Corporation
valued as a going concern (including all net working capital); and (iii)
on the basis of what a willing buyer would pay to a seller under no
compunction to sell. All costs of the appraisals hereunder shall be borne
by the Corporation.
4. Voting. Except as otherwise provided herein or as required by
law, the shares of the Convertible Preferred Stock shall be voted together
with the Corporation's Common Stock as a single voting group at any annual
or special meeting of the stockholders of the Corporation, or may act by
written consent as a single voting group with the Corporation's Common
Stock, and shall otherwise have the same voting rights of the Common
Stock. Each share of Convertible Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the number of
shares of Common Stock into which such share of Convertible Preferred
Stock is then convertible.
5. Conversion Rights. The holders of Convertible Preferred Stock
shall have conversion rights as follows:
(a) Conversion at Holder's Election. Each share of
Convertible Preferred Stock shall be converted promptly upon the written
election to so convert by holders of a majority in interest of the
Convertible Preferred Stock into shares of Common Stock, initially at a
conversion price equal to $9.00 per share of Common Stock, which price
shall be adjusted as hereinafter provided (and, as so adjusted, is
hereinafter sometimes referred to as the "Conversion Price"), with each
share of Convertible Preferred Stock being valued for such purpose at
$737.85.
(b) Conversion at the Company's Election. At any time on or
after December 19, 2000, the Company may, in its sole discretion, elect to
convert each share of Convertible Preferred Stock into shares of Common
Stock, at the Conversion Price, with each share of Convertible Preferred
Stock being valued for such purpose at $737.85, by providing written
notice of the Company's election to each holder of Convertible Preferred
Stock specifying a date not earlier than sixty (60) days from the mailing
date of such notice as the date for surrender of certificates of
Convertible Preferred Stock in connection with such conversion (the
"Initial Surrender Date") and provided that the Company shall redeem all
outstanding shares of Redeemable Preferred Stock (defined below) at or
prior to the Initial Surrender Date.
(c) Dividends. If Convertible Preferred Stock is converted
pursuant to Section A.5(a) or Section A.5(b) and at such time there are
declared and unpaid dividends or other amounts due on such shares, such
dividends shall be paid in full by the Corporation in connection with such
conversion.
(d) Conversion Procedures. Any holder of Convertible
Preferred Stock whose shares are converted into shares of Common Stock
shall promptly, in the case of conversion pursuant to Section A.5(a), or
at or within five (5) days after the Initial Surrender Date, in the case
of conversion pursuant to Section A.5(b), surrender the certificate or
certificates representing the Convertible Preferred Stock being converted,
duly assigned or endorsed for transfer to the Corporation (or accompanied
by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent
for the Convertible Preferred Stock or such office or offices in the
continental United States of an agent for conversion as may from time to
time be designated by notice to the holders of the Convertible Preferred
Stock by the Corporation, accompanied, in the case of a voluntary
conversion pursuant to Section A.5(a), by written notice of conversion.
Such notice of conversion shall specify (i) the number of shares of
Convertible Preferred Stock to be converted, (ii) the name or names in
which such holder wishes the certificate or certificates for Common Stock
to be issued, and (iii) the address to which such holder wishes delivery
to be made of such new certificates to be issued upon such conversion.
Upon surrender of a certificate representing Convertible Preferred Stock
for conversion, the Corporation shall issue and send by hand delivery, by
courier or by overnight courier to the holder thereof or to such holder's
designee, at the address designated by such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled upon conversion.
(e) Effective Date of Conversion. The issuance by the
Corporation of shares of Common Stock upon a conversion of Convertible
Preferred Stock into shares of Common Stock pursuant to Section A.5(a) or
Section A.5(b) hereof shall be effective as of the date of the surrender
of the certificate or certificates for the Convertible Preferred Stock to
be converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto); provided,
however, that in the event of conversion pursuant to Section A.5(b), any
shares of Convertible Preferred Stock in respect of which certificates
have not been surrendered in accordance with Section A.5(d) by the
Corporation's close of business on the fifth day after the Initial
Surrender Date (such day, the "Final Surrender Date") shall be
automatically converted into shares of Common Stock in accordance with
Section A.5(b), without any further action on the part of the holder of
such shares, effective as of the Final Surrender Date. On and after the
effective date of conversion, the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock.
(f) Fractional Shares. The Corporation shall not be
obligated to deliver to holders of Convertible Preferred Stock any
fractional share of Common Stock issuable upon any conversion of such
Convertible Preferred Stock, but in lieu thereof may make a cash payment
in respect thereof in any manner permitted by law.
(g) Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized and unissued
Common Stock, solely for issuance upon the conversion of Convertible
Preferred Stock as herein provided, free from any preemptive rights or
other obligations, such number of shares of Common Stock as shall from
time to time be issuable upon the conversion of all the Convertible
Preferred Stock then outstanding. The Corporation shall prepare and shall
use its best efforts to obtain and keep in force such governmental or
regulatory permits or other authorizations as may be required by law,
excluding permits or authorizations relating to registration under Federal
or state securities laws, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Convertible Preferred Stock
such number of shares of its Common Stock as shall from time to time be
sufficient to effect the conversion of all Convertible Preferred Stock
then outstanding and convertible into shares of Common Stock.
(h) Adjustments to Conversion Price. The Conversion Price
in effect from time to time shall be subject to adjustment from and after
December 19, 1995 and through the effective date of the conversion of all
of the then outstanding Convertible Preferred Stock and regardless of
whether any shares of Convertible Preferred Stock are then issued and
outstanding as follows:
(I) Stock Dividends, Subdivisions and Combinations.
Upon the issuance of additional shares of Common Stock as a dividend or
other distribution on outstanding Common Stock, the subdivision of
outstanding shares of Common Stock into a greater number of shares of
Common Stock, or the combination of outstanding shares of Common Stock
into a smaller number of shares of Common Stock, the Conversion Price
shall, simultaneously with the happening of such dividend, subdivision or
split be adjusted by multiplying the then effective Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this Section
A.5(g)(I) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of stockholders
entitled to receive such dividend or distribution (on a retroactive basis)
and in the case of a subdivision or combination shall become effective
immediately as of the effective date thereof.
(II) Sale of Common Stock. In the event the
Corporation shall at any time, or from time to time, issue, sell or
exchange any shares of Common Stock (including shares held in the
Corporation's treasury but excluding any shares of Common Stock issued (i)
to employees or officers of the Corporation under the Corporation's
Datamarine Employee Investment Plan (401(k) Plan) and/or the 1980 Employee
Stock Purchase Plan, each as in effect as of November 1, 1995 or (ii) to
officers, directors, employees, consultants, advisors or agents of the
Corporation upon the exercise of Excluded Options (as defined in Section
5(g)(III) below)), for a consideration per share less than the Conversion
Price in effect immediately prior to the issuance, sale or exchange of
such shares, then, and thereafter successively upon each such issuance,
sale or exchange, the Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares shall forthwith be reduced to an
amount determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (i) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion, exercise or
exchange of any outstanding Preferred Stock, options, warrants, rights or
convertible or exchangeable securities (including the convertible
debentures due December 19, 2000 issued by this Corporation (the
"Convertible Debentures") pursuant to that certain Debenture Purchase
Agreement dated as of December 19, 1995 among the Company and the parties
named on the signature pages and Exhibit A thereto (the "Debenture
Purchase Agreement.)), plus (ii) the number of shares of Common Stock
which the net aggregate consideration received by the Corporation for the
total number of such additional shares of Common Stock so issued would
purchase at the Conversion Price (prior to adjustment), and
(B) the denominator of which shall be (i) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion, exercise or
exchange of any outstanding Preferred Stock, options, warrants, rights or
convertible or exchangeable securities (including the Convertible
Debentures)), plus (ii) the number of such additional shares of Common
Stock so issued.
(III) Sale of Options, Rights or Convertible
Securities. In the event the Corporation shall at any time or from time
to time, issue options, warrants or rights to subscribe for shares of
Common Stock (other than any options or warrants for shares of Common
Stock granted to officers, directors, employees, consultants, advisors or
agents of the Corporation pursuant to either (a) the Corporation's 1991
Stock Option Plan at an exercise price equal to at least 80% of the then
current fair market value of the Common Stock, or (b) the Corporation's
1992 Stock Option Plan for Non-Employee Directors at exercise prices equal
to the then current fair market value of the Common Stock (the "Excluded
Options")), or issue any securities convertible into or exchangeable for
shares of Common Stock, for a consideration per share (determined by
dividing the Net Aggregate Consideration (as determined below) by the
aggregate number of shares of Common Stock that would be issued if all
such options, warrants, rights or convertible or exchangeable securities
were exercised, converted or exchanged to the fullest extent permitted by
their terms) less than the Conversion Price in effect immediately prior to
the issuance of such options, warrants, rights or convertible or
exchangeable securities, the Conversion Price in effect immediately prior
to the issuance of such options, warrants, rights or convertible or
exchangeable securities shall forthwith be reduced to an amount determined
by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (i) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such options, rights or convertible or exchangeable securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion, exercise or exchange of any outstanding
Preferred Stock, options, warrants, rights or convertible securities
(including the Convertible Debentures)), plus (ii) the number of shares of
Common Stock which the total amount of consideration received by the
Corporation for the issuance of such options, warrants, rights or
convertible or exchangeable securities plus the minimum amount set forth
in the terms of such security as payable to the Corporation upon the
exercise, conversion or exchange thereof (the "Net Aggregate
Consideration") would purchase at the Conversion Price prior to
adjustment, and
(B) the denominator of which shall be (i) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance
of such options, warrants, rights or convertible or exchangeable
securities (excluding treasury shares but including all shares of Common
Stock issuable upon conversion, exercise or exchange of any outstanding
Preferred Stock, options, warrants, rights or convertible or exchangeable
securities (including the Convertible Debentures)), plus (ii) the
aggregate number of shares of Common Stock that would be issued if all
such options, warrants, rights or convertible or exchangeable securities
were exercised, converted or exchanged.
(IV) Expiration or Change in Price. If the
consideration per share provided for in any options, warrants or rights to
subscribe for shares of Common Stock or any securities exchangeable for or
convertible into shares of Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be readjusted
to the Conversion Price which would have been in effect at such time had
such options, warrants rights or convertible or exchangeable securities
provided for such changed consideration per share (determined as provided
in Section A.5(g)(III) hereof), at the time initially granted, issued or
sold; provided, that such adjustment of the Conversion Price will be made
only as and to the extent that the Conversion Price effective upon such
adjustment remains less than or equal to the Conversion Price that would
be in effect if such options, warrants, rights or convertible or
exchangeable securities had not been issued. No adjustment of the
Conversion Price shall be made under this Section A.5 upon the issuance of
any shares of Common Stock which are issued pursuant to the exercise of
any options, warrants or other subscription or purchase rights or pursuant
to the exercise of any conversion or exchange rights in any convertible or
exchangeable securities if an adjustment shall previously have been made
upon the issuance of such options, warrants, rights or convertible or
exchangeable securities. Any adjustment of the Conversion Price shall be
disregarded if, as, and when the rights to acquire shares of Common Stock
upon exercise or conversion of the options, warrants, rights or
convertible or exchangeable securities which gave rise to such adjustment
expire or are canceled without having been exercised, so that the
Conversion Price effective immediately upon such cancellation or
expiration shall be equal to the Conversion Price in effect at the time of
the issuance of the expired or cancelled warrants, options, rights or
convertible securities, with such additional adjustments as would have
been made to that Conversion Price had the expired or cancelled warrants,
options, rights or convertible securities not been issued.
(i) Other Adjustments. In the event the Corporation shall make or
issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a non-cash dividend or other distribution
payable in securities of the Corporation other than shares of Common
Stock, then and in each such event lawful and adequate provision shall be
made so that the holders of Convertible Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities of the Corporation which
they would have received had their Convertible Preferred Stock been
converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including
the Conversion Date (as that term is hereafter defined), retained such
securities receivable by them as aforesaid during such period.
If the Common Stock issuable upon the conversion of the Convertible
Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section
A.5), then and in each such event the holder of each share of Convertible
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
Convertible Preferred Stock might have been converted immediately prior to
such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(j) Mergers and Other Reorganizations. If at any time or from
time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section A.5) or a merger or
consolidation of the Corporation with or into another corporation or the
sale of all or substantially all of the Corporation's properties and
assets to any other person, then, as a part of and as a condition to the
effectiveness of such reorganization, merger, consolidation or sale,
lawful and adequate provision shall be made so that the holders of the
Convertible Preferred Stock shall thereafter be entitled to receive upon
conversion of the Convertible Preferred Stock the number of shares of
stock or other securities or property of the Corporation or of the
successor corporation resulting from such merger or consolidation or sale,
to which such holders would have been entitled upon such capital
reorganization, merger, consolidation or sale had such holders converted
their shares of Convertible Preferred Stock into Common Stock immediately
prior to such capital reorganization, merger, consolidation, or sale. In
any such case, appropriate provisions shall be made with respect to the
rights of the holders of the Convertible Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the
provisions of this Section A.5 (including without limitation provisions
for adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Convertible Preferred Stock) shall
thereafter be applicable, as nearly as may be, with respect to any shares
of stock, securities or assets to be deliverable thereafter upon the
conversion of the Convertible Preferred Stock.
(k) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Corporation will furnish each holder of Convertible
Preferred Stock or any Convertible Debentures with a certificate, prepared
by the chief financial officer of the Corporation, showing such adjustment
or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based; provided, however, that the
Corporation shall be entitled to deliver any such notices to the
representative of the holders as set forth in Section 12.6 of the
Debenture Purchase Agreement.
6. Restrictions and Limitations. So long as the Convertible
Preferred Stock remains outstanding, the Corporation shall not without the
affirmative vote or written consent of the holders of a majority in
interest of the then outstanding shares of the Convertible Preferred Stock
(adjusted appropriately for stock splits, stock dividends and the like):
(i) Redeem, purchase or otherwise acquire for value (or pay into
or set aside for a sinking fund for such purpose), any share or shares of
stock other than redemption of the Redeemable Preferred Stock in
accordance with the terms thereof or pursuant to Section A.2 or Section
A.3 hereof; provided, however, that this restriction shall not apply to
the repurchase or redemption of shares of Common Stock issued pursuant to
stock repurchase or similar agreements under which the Company has the
option to repurchase such shares upon the occurrence of certain events,
including the termination of employment and involuntary transfers by
operation of law, provided that (unless the purchase is approved by
unanimous vote of the Board of Directors of the Corporation) the
repurchase price paid by the Corporation does not exceed the purchase
price paid to the Corporation for such shares;
(ii) Authorize or issue, or obligate itself to issue, any other
equity security senior to the Convertible Preferred Stock as to
liquidation preferences, redemptions, or dividend rights or with any
special voting rights (other than the Redeemable Preferred Stock);
(iii) Increase or decrease (other than by conversion as permitted
hereby) the total number of authorized shares of Convertible Preferred
Stock or Redeemable Preferred Stock;
(iv) Pay any dividends on any of its capital stock or otherwise
make any payments to any holders of its Common Stock, except as otherwise
expressly permitted in the Debenture Purchase Agreement;
(v) Authorize any merger or consolidation of the Corporation or
SEA, Inc. with or into any other corporation, partnership or entity (other
than a wholly-owned subsidiary of the Corporation or in connection with an
acquisition which is permitted under the terms of a certain Debenture
Purchase Agreement dated December 19, 1995 by and among the holders of the
Corporation's Convertible Debentures issued thereunder and the Corporation
(the "Debenture Purchase Agreement"), authorize or permit the liquidation,
dissolution or winding up of the Corporation, SEA, Inc. of Delaware or
Narrowband Network Systems, Inc. or authorize or permit the sale of all or
any substantial portion of the capital stock or assets of the Corporation,
SEA, Inc. of Delaware or Narrowband Network Systems, Inc. (except as
permitted pursuant to Sections 5.11 and 5.12 of the Debenture Purchase
Agreement); or
(vi) Amend the Amended and Restated Articles of Incorporation or
By-Laws of the Corporation in a manner which, or take any other action or
enter into any other agreements which, could prohibit or conflict with the
Corporation's obligations hereunder with respect to the holders of the
Convertible Preferred Stock.
7. No Reissuance of Convertible Preferred Stock. No share or
shares of the Convertible Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired, and eliminated from the
shares which the Corporation shall be authorized to issue. The
Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce the authorized number of shares of the
Convertible Preferred Stock accordingly.
8. Notices of Record Date. In the event (i) the Corporation
establishes a record date to determine the holders of any class of
securities who are entitled to receive any dividend or other distribution,
or (ii) there occurs any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to
any other Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to the representative of the holders of Convertible
Preferred Stock as set forth in Section 12.6 of the Debenture Purchase
Agreement at least twenty (20) days prior to the record date specified
therein, a notice specifying (a) the date of such record date for the
purpose of such dividend or distribution and a description of such
dividend or distribution, (b) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (c) the
time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up.
B. Redeemable Preferred Stock. This series of Preferred Stock of
the Corporation shall be comprised of 2,000 shares designated as
"Redeemable Preferred Stock" (hereinafter referred to as "Redeemable
Preferred Stock"). The relative rights, preferences, restrictions and
other matters relating to the Redeemable Preferred Stock are as follows:
1. Dividends. The holders of the Redeemable Preferred Stock shall
be entitled to receive, and the Corporation shall be bound to pay on the
earlier of the RPF Redemption Date or the Optional Redemption Date (unless
sooner paid at the election of the Company), cumulative dividends in an
amount per share determined by (i) accruing dividends for each calendar
year or portion thereof that any shares of the Redeemable Preferred Stock
are outstanding (A) through December 31, 1996 at the per annum rate of
$100.00, (B) during calendar year 1997 at the per annum rate of $110.00,
(C) during calendar year 1998 at the per annum rate of $120.000, (D)
during calendar year 1999 at the per annum rate of $140.00, and (E) during
calendar year 2000 and thereafter at the per annum rate of $150.00, and
(ii) compounding such dividends on each calendar year end until paid (or
through any date on which such dividends are to be paid) at the per annum
dividend rate for such year.
2. Preference on Liquidation.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, the holders of the Redeemable Preferred Stock shall be
entitled to receive in cash and prior and in preference to any
distribution of any assets, capital, surplus or earnings of the
Corporation to the holders of any other capital stock of the Corporation
(including the Convertible Preferred Stock and the Common Stock), the
amount of $1,000.00 per share for each share of Redeemable Preferred Stock
then held by them (adjusted for any stock split, combination,
consolidation, or stock distributions or stock dividends with respect to
such shares) together with all accrued but unpaid cumulative dividends on
the Redeemable Preferred Stock (the "Liquidation Preference Amount"). If
the assets and funds thus distributed among the holders of the Redeemable
Preferred Stock shall be insufficient to permit the payment to such
holders of the full Liquidation Preference Amount then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Redeemable Preferred Stock.
(b) The following shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section B.2 (with each such event
being referred to herein as a "Corporate Disposition"): (i) a
consolidation or merger of this Corporation with or into any other
corporation or corporations (other than a wholly-owned subsidiary or in
connection with an acquisition permitted under the Debenture Purchase
Agreement); (ii) the sale, transfer or other disposition of all or
substantially all of the assets of this Corporation; or (iii) the
effectuation by the Corporation or its shareholders of a transaction or
series of related transactions in which more than 50% of the voting power
of the Corporation is disposed of (other than as permitted under the
Debenture Purchase Agreement).
3. Redemption.
(a) Mandatory Redemption. The Corporation shall redeem all of the
shares of Redeemable Preferred Stock then outstanding on December 19,
2000. On or prior to June 30, 1999, the Corporation shall give written
notice by mail, postage prepaid, to the holders of the then outstanding
Redeemable Preferred Stock at the address of each such holder appearing on
the books of the Corporation or given by such holder to the Corporation
for the purpose of notice. Such notice shall set forth the date specified
for redemption (December 19, 2000) and the Redemption Price (which shall
be the Liquidation Preference Amount). The notice shall further call upon
such holders to surrender to the Corporation on or before the applicable
redemption date at the place designated in the notice such holder's
certificate or certificates representing the shares to be redeemed on
December 19, 2000 (the "RPF Redemption Date") or an indemnification and
loss certificate. On or before the applicable RPF Redemption Date, each
holder of shares of Redeemable Preferred Stock called for redemption shall
surrender the certificate evidencing such shares, or such indemnification
and loss certificate, to the Corporation. At such time, the Corporation
shall pay to each of the holders of Redeemable Preferred Stock a per share
cash price equal to the Redemption Price.
(b) Optional Redemption. The Corporation may, in its sole
discretion, at any time after December 19, 1997, redeem all of the shares
of Redeemable Preferred Stock then outstanding. The Corporation shall
give the holders of the then outstanding Redeemable Preferred Stock not
less than sixty (60) days prior written notice by mail, postage prepaid,
at the address of each such holder appearing on the books of the
Corporation or given by such holder to the Corporation for the purpose of
such notice. Such notice shall set forth the date specified for
redemption (the "Optional Redemption Date") and the Redemption Price
(which shall be the Liquidation Preference Amount). The notice shall
further call upon such holders to surrender to the Corporation on or
before the Optional Redemption Date at the place designated in the notice
such holder's certificate or certificates representing the shares to be
redeemed on the Optional Redemption Date or an indemnification and loss
certificate. On or before the applicable Optional Redemption Date, each
holder of shares of Redeemable Preferred Stock called for redemption shall
surrender the certificate evidencing such shares, or such indemnification
and loss certificate, to the Corporation. At such time, the Corporation
shall pay to each of the holders of Redeemable Preferred Stock a per share
cash price equal to the Redemption Price.
(c) Termination of Rights. From and after any applicable RPF
Redemption Date or Optional Redemption Date, unless there shall have been
a default in payment or tender by the Corporation of the Redemption Price,
all rights of the holders with respect to such redeemed shares of
Redeemable Preferred Stock (except the right to receive the Redemption
Price upon surrender of their certificate) shall cease and such shares
shall not thereafter be transferred on the books of this Corporation or be
deemed to be outstanding for any purpose whatsoever.
(d) Insufficient Funds. If the funds of the Corporation legally
available for redemption of shares of Redeemable Preferred Stock on the
applicable RPF Redemption Date or Optional Redemption Date are
insufficient to redeem the total number of shares of Redeemable Preferred
Stock on such redemption date, the Corporation shall use those funds which
are legally available to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed. At any time
thereafter when additional funds of the Corporation are legally available
for the redemption of shares of Redeemable Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on the applicable RPF
Redemption Date or Optional Redemption Date, but which it has not
redeemed, at the Redemption Price together with any accrued interest
thereon as provided below. If any shares of Redeemable Preferred Stock
are not redeemed for the foregoing reason or because the Corporation
otherwise failed to pay or tender to pay the aggregate Redemption Price on
all outstanding shares of Redeemable Preferred Stock, all shares which
have not been redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein, and the Corporation shall pay
interest on the unpaid portion of the Redemption Price for the unredeemed
portion at an aggregate per annum rate equal to twenty percent (20%) or
the maximum rate permitted by applicable law, whichever is less.
4. Voting. Except as required by law, the shares of the
Redeemable Preferred Stock shall not have any voting rights or powers.
5. No Reissuance of Redeemable Preferred Stock. No share or
shares of the Redeemable Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired, and eliminated from the
shares which the Corporation shall be authorized to issue. The
Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce the authorized number of shares of the
Redeemable Preferred Stock accordingly.
IRREVOCABLE PROXY
Each of the undersigned agrees to, and hereby grants to Alta
Subordinated Debt Partners III, L.P. ("ASDP III"), an irrevocable proxy to
vote, or to execute and deliver written consents or otherwise act with
respect to, all shares of common stock, par value $.01 per share (the
"Stock"), of Datamarine International, Inc. (the "Company") now owned or
hereafter acquired by the undersigned as fully, to the same extent and
with the same effect as the undersigned might or could do under any
applicable laws or regulations governing the rights and powers of
stockholders of a Massachusetts corporation, in connection with the
election of one director (an "ASDP Designee") of the Company, designated
for such directorship by ASDP III as provided in Section 5.10 of that
certain Debenture Purchase Agreement (the "Agreement"), dated as of
December __, 1995, among the Company, SEA Inc. of Delaware, Narrowband
Network Systems, Inc., and ASDP III.
With respect to each of the foregoing proxies, each of the
undersigned further agrees to vote his shares of Stock for the removal of
any ASDP Designee upon the request of ASDP III and for the election of a
substitute ASDP Designee nominated by ASDP III. Each of the undersigned
further agrees to vote his shares of Stock in such manner as shall be
necessary or appropriate so as to ensure that any vacancy occurring for
any reason in a position on the board of directors of the Company held by
an ASDP Designee shall be filled only by an individual who is nominated
directly or indirectly by ASDP III.
The undersigned hereby affirms that these proxies are given as a
condition of the Agreement, and as such are coupled with an interest and
are irrevocable. It is understood by the undersigned and ASDP III that
each proxy may be exercised during only the period beginning the date
hereof and ending on the earliest date that ASDP III (or its permitted
successors, assigns or transferees under Section 12.2 of the Agreement) do
not hold any Debentures and/or Preferred Shares obtained under the
Agreement, unless sooner terminated by mutual agreement of ASDP III (or
its permitted successors, assigns or transferees under Section 12.2 of the
Agreement) and each of the undersigned. Notwithstanding the foregoing,
this irrevocable proxy will terminate immediately upon such time as none
of Debentures, Redeemable Preferred Stock or Convertible Preferred Stock
remains outstanding.
Any defined terms used herein and not otherwise defined shall have
the meaning ascribed to them in the Agreement.
This irrevocable proxy may be executed simultaneously in any number
of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute
but one and the same document.
David C. Thompson
Peter D. Brown
David M. Brown
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Primary and Fully Diluted: 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted Average Shares Outstanding 1,252,983 1,212,953 1,195,286
Dilutive Effect of Stock Options 105,116 - -
Weighted Average Common and Equivalent
Shares Outstanding 1,358,099 1,212,953 1,195,286
</TABLE>
EXHIBIT 21
SUBSIDIARIES
The Registrant has three wholly-owned subsidiaries: Data I. C., Inc. - A
Massachusetts Corporation; SEA, Inc. - A Delaware Corporation, and
Nautical Realty A/S - A Danish Corporation.
The Registrant has a 97.5% owned subsidiary - Narrowband Network Systems,
Inc. - A Washington Corporation, and a 60% owned subsidiary - Datamarine
International Australia PTY, LTD. - A New South Wales, Australia
Corporation.
Report Of Independent Accountants
To the Stockholders and Board of Directors of
Datamarine International, Inc.:
Our report on the consolidated financial statements of Datamarine
International, Inc. and Subsidiaries as of September 30, 1995 and October
1, 1994 and for the years ended September 30, 1995, October 1, 1994 and
October 2, 1993 is included in this Annual Report on Form 10-K. In
connection with our audits of such financial statements, we have also
audited the related consolidated financial statement schedule for the
years ended September 30, 1995, October 1, 1994 and October 2, 1993,
listed in Item 14(a) of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information
required to be included therein.
/s/: COOPERS & LYBRAND L.L.P
Seattle, Washington
December 20, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 252,843
<SECURITIES> 0
<RECEIVABLES> 2,495,800
<ALLOWANCES> 158,193
<INVENTORY> 3,371,976
<CURRENT-ASSETS> 6,544,574
<PP&E> 4,210,085
<DEPRECIATION> 2,472,871
<TOTAL-ASSETS> 9,323,581
<CURRENT-LIABILITIES> 3,835,668
<BONDS> 0
0
0
<COMMON> 12,967
<OTHER-SE> 5,185,424
<TOTAL-LIABILITY-AND-EQUITY> 9,323,581
<SALES> 14,786,658
<TOTAL-REVENUES> 14,786,658
<CGS> 9,128,693
<TOTAL-COSTS> 9,128,693
<OTHER-EXPENSES> 6,271,412
<LOSS-PROVISION> 59,725
<INTEREST-EXPENSE> 193,037
<INCOME-PRETAX> (766,765)
<INCOME-TAX> (1,083,640)
<INCOME-CONTINUING> 316,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,875
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
