<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 30, 1996
Commission file number 0-19882
KOPIN CORPORATION
-----------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2833935
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
695 MYLES STANDISH BLVD.,TAUNTON, MA 02780-1042
- - ------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 824-6696
--------------
Not Applicable
--------------
Former name, former address, and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or l5(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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
--- ---
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1996
----- --------------------------------
Common Stock, par value $.01 10,918,682
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<PAGE>
KOPIN CORPORATION
INDEX
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Page No.
-------
[S] [C]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the
Three months ended March 30, 1996 and April 1, 1995 4
Consolidated Statements of Stockholders' Equity for the
Three months ended March 30, 1996 and April 1, 1995 5
Consolidated Statements of Cash Flows for the
Three months ended March 30, 1996 and April 1, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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<PAGE>
KOPIN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 30, 1996 December 31, 1995
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
- - ------
Current assets:
Cash and equivalents $22,292,085 $24,718,023
Marketable securities 16,346,147 17,278,954
Accounts receivable, net of allowance of $97,600 and $85,600:
Billed 4,010,920 3,147,846
Unbilled 3,986,438 3,438,766
Inventory 7,608,943 6,402,190
Prepaid expenses and other current assets 1,202,795 1,984,612
----------- -----------
Total current assets 55,447,328 56,970,391
Equipment and improvements:
Equipment 18,486,572 19,258,354
Leasehold improvements 835,900 835,900
Furniture and fixtures 420,349 414,707
Equipment under construction 1,099,755 964,446
----------- -----------
20,842,576 21,473,407
Accumulated depreciation and amortization 9,908,967 9,902,444
---------- -----------
10,933,609 11,570,963
Other assets 3,517,716 3,438,334
Intangible assets 3,004,798 4,179,877
----------- -----------
Total assets $72,903,451 $76,159,565
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Notes payable $ 3,500,000 $ 3,000,000
Accounts payable 9,006,001 7,712,508
Accrued payroll and expenses 2,049,867 808,826
Current portion of long-term obligations 965,369 629,643
Current portion of unearned revenue 92,004 92,004
----------- -----------
Total current liabilities 15,613,241 12,242,981
Deferred rent 397,333 388,833
Unearned revenue, less current portion 57,483 80,484
Long-term obligations, less current portion 2,385,895 1,605,050
Minority interest 1,242,754 -
Stockholders' equity:
Preferred stock, par value $.01 per share: Authorized, 3,000 shares;
none issued and outstanding
Common stock, par value $.01 per share: Authorized, 20,000,000
shares; issued 10,918,682 shares in 1996 and 10,915,019
shares in 1995 109,187 109,150
Additional paid-in capital 88,361,983 88,355,145
Deferred compensation (82,788) (94,482)
Marketable securities valuation 204,195 137,183
Accumulated deficit (35,385,832) (26,664,779)
----------- -----------
Total stockholders' equity 53,206,745 61,842,217
----------- -----------
Total liabilities and stockholders' equity $72,903,451 $76,159,565
----------- -----------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
March 30 April 1
1996 1995
------------- ------------
<S> <C> <C>
Revenue:
Product sales $ 3,043,766 $ 583,576
Research and development 1,729,472 1,975,146
Interest and other income 560,396 445,970
------------- ------------
5,333,634 3,004,692
------------- ------------
Costs and expenses:
Cost of sales 2,707,918 543,958
Research and development 4,710,969 4,111,672
General, administrative and selling 1,943,656 725,861
Interest 124,209 54,531
Other 134,769 68,553
Non-recurring charge 4,990,412 --
------------- ------------
14,611,933 5,504,575
------------- ------------
Loss before minority interest (9,278,299) (2,499,883)
Minority interest in loss of subsidiary 557,246 --
------------- ------------
Net loss ($ 8,721,053) ($2,499,883)
------------- ------------
Net loss per share ($.80) ($.27)
----- -----
Weighted average number of common shares
outstanding 10,915,858 9,298,958
------------- ------------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 30, 1996 AND APRIL 1, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Deferred Securities
Shares Amount Capital Compensation Valuation Deficit Total
---------- -------- ----------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 9,298,711 $ 92,987 $61,926,736 ($224,670) ($670,000) ($17,673,780) $43,451,273
Exercise of stock options 2,500 25 2,475 -- -- -- 2,500
Amortization of compensation
relating to grant of stock options -- -- -- 32,547 -- -- 32,547
Net unrealized gain on marketable
securities -- -- -- -- 190,000 -- 190,000
Net loss for the three month
period ended April 1, 1995 -- -- -- -- -- (2,499,883) (2,499,883)
---------- -------- ----------- ------------ ---------- ------------ -----------
Balance, April 1, 1995 9,301,211 $ 93,012 $61,929,211 ($192,123) ($480,000) ($20,173,663) $41,176,437
---------- -------- ----------- ------------ ---------- ------------ -----------
Balance, December 31, 1995 10,915,019 $109,150 $88,355,145 ($ 94,482) $137,183 ($26,664,779) $61,842,217
Exercise of stock options 3,663 37 6,838 -- -- -- 6,875
Amortization of compensation
relating to grant of stock options -- -- -- 11,694 -- -- 11,694
Net unrealized gain on marketable
securities -- -- -- -- 67,012 -- 67,012
Net loss for the three month
period ended March 30, 1996 -- -- -- -- -- (8,721,053) (8,721,053)
---------- -------- ----------- ------------ ---------- ------------ -----------
Balance, March 30, 1996 10,918,682 $109,187 $88,361,983 ($ 82,788) $204,195 ($35,385,832) $53,206,745
---------- -------- ----------- ------------ ---------- ------------ -----------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 30 April 1
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 8,721,053) ($ 2,499,883)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 902,809 711,153
Amortization of compensation
relating to grant
of stock options 11,694 32,547
Non-recurring charge 4,990,412 -
Decrease in unearned revenue (23,001) (23,001)
Increase in accrued rent 8,500 8,501
Minority interest in loss of subsidiary (557,246) -
Changes in assets and liabilities:
Accounts receivable (1,410,746) (779,920)
Inventory (1,206,753) (345,702)
Prepaid expenses and other
current assets (71,550) 189,007
Intangible assets (1,388,889) (68,909)
Accounts payable and accrued
expenses 1,634,534 1,017,391
----------- -----------
Net cash used in operating
activities (5,831,289) (1,758,816)
----------- -----------
Cash flows from investing activities:
Marketable securities 999,819 983,138
Other assets (79,382) (1,342,007)
Capital expenditures (938,532) (939,171)
----------- -----------
Net cash used in investing
activities (18,095) (1,298,040)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of
subsidiary common stock 1,800,000 -
Proceeds from notes payable 500,000 2,000,000
Proceeds from long-term obligations 1,285,862 -
Principal payment on long-term
obligations (169,291) (148,634)
Proceeds from exercise of stock
options 6,875 2,500
----------- -----------
Net cash provided by financing
activities 3,423,446 1,853,866
----------- -----------
Net decrease in cash and equivalents (2,425,938) (1,202,990)
Cash and equivalents, beginning of
period 24,718,023 1,887,271
----------- -----------
Cash and equivalents, end of period $22,292,085 $ 684,281
----------- -----------
Non-cash investing and financing
transactions:
Marketable securities valuation $ 67,012 $ 190,000
Supplementary information -Interest
paid in cash $ 103,401 $ 39,226
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The financial statements for the three month periods ended March 30, 1996 and
April 1, 1995 are unaudited and include all adjustments which, in the opinion of
management, are necessary to present fairly the results of operations for the
periods then ended. All such adjustments are of a normal recurring nature. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission (File No. 0-19882) for the year
ended December 31, 1995.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full fiscal year.
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. All intercompany transactions
and balances have been eliminated. In 1994, the Company made equity investments
in Forte Technologies, Inc. In May 1995, the Company obtained a controlling
interest in Forte and has consolidated the financial statements of Forte with
those of the Company since that date.
2. NET LOSS PER SHARE
------------------
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common share equivalents have not been
included because the effect would be anti-dilutive.
3. INVESTMENT IN FORTE TECHNOLOGIES, INC. AND MINORITY INTEREST
------------------------------------------------------------
In October 1994, Kopin acquired a 31% equity interest in Forte Technologies,
Inc., a developer and manufacturer of virtual reality head-mounted systems.
During 1995, Kopin made a series of additional equity investments in and loans
to Forte which resulted in an aggregate equity investment totaling $4,750,000
and loans outstanding of $1,750,000 at December 31, 1995.
In January 1996, Kopin converted a $1,000,000 loan outstanding to Forte as part
of a $2,800,000 private equity offering of Forte common stock. Net proceeds to
the Company totaled $1,800,000 from minority investors. Additionally, in
January 1996, Kopin guaranteed an aggregate of $1,000,000 of equipment and
working capital loans obtained by Forte from a senior lender and agreed to
subordinate its remaining $750,000 loan to Forte to the equipment and working
capital loans. At March 30, 1996, Kopin held a 59% equity ownership in Forte.
4. NOTE PAYABLE AND LONG-TERM OBLIGATIONS
--------------------------------------
In March 1995, the Company entered into a $2,000,000 demand note agreement with
a bank which bears interest at 1/2% above prime, or 8.75% at March 30, 1996.
During the three months ended March 30, 1996, the Company entered into two
separate equipment financing agreements totaling approximately $1,286,000 as
well as a $500,000 demand note agreement.
5. NON-RECURRING CHARGE
--------------------
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This
Statement establishes accounting standards for the carrying value of long-lived
and certain identifiable intangible assets. In January 1996, the Company
incurred a non-recurring charge of $4,990,412 which included a write-down
associated with the initial adoption of SFAS No. 121, the expensing of purchased
technology, and the write-off of certain previously deferred expenses.
6. RECENT PRONOUNCEMENTS
---------------------
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which was effective for the Company
beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-
based compensation arrangements with employees and encourages (but does not
require) compensation costs to be measured based upon the fair value of the
equity instrument awarded. Companies are permitted; however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB Opinion No. 25 to its stock based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings per share
in the Company's year ended December 31, 1996 financial statements.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Kopin Corporation and its subsidiaries ("the Company") are engaged in the
development, manufacture and sale of flat panel display devices and products,
and custom wafer-engineered electronic materials for commercial and consumer
markets. To date, the Company's revenue has been derived primarily from
development contracts with commercial companies and agencies of the federal
government, as well as from sales of its custom wafer-engineered materials and
flat panel display devices and products.
RESULTS OF OPERATIONS
The Company's research and development and product sale revenue was
$4,773,238 for the three months ended March 30, 1996, an increase of 86.5% from
$2,558,722 during the corresponding period in 1995. Research and development
revenue decreased to $1,729,472 for the three months ended March 30, 1996, from
$1,975,146 during the corresponding period in 1995, a decrease of 12.4%. The
change in 1996 research and development revenue was primarily attributable to a
decrease in contract revenue from agencies of the federal government. The
Company's product sales increased 421.6% to $3,043,766 for the three months
ended March 30, 1996, from $583,576 during the corresponding period in 1995. The
sales increase was primarily due to initial sales of the Company's head-mounted
display products as well as an increase in unit sales of the Company's wafer-
engineered materials. The increase in unit sales of the Company's wafer-
engineered materials is primarily due to the increase in use of these materials
in various wireless telecommunications products.
Interest and other income was $560,396 for the three months ended March 30,
1996 compared to $445,970 during the corresponding period in 1995. The increase
in 1996 was primarily due to higher cash balances during the period.
The Company's total operating expenses were $14,611,933 for the three
months ended March 30, 1996, an increase of 165.5% from $5,504,575 in 1995. Of
this increase, $4,990,412 was a non-recurring charge for the write-down of
certain intangible and long-lived assets in connection with the Company's
adoption of the provisions of Statement of Financial Accounting Standards No.
121, the expensing of purchased technology, and the write-off of certain
previously deferred expenses. In addition, research and development charges of
$500,000 for subcontractor development work were expensed. The remainder of the
increase was primarily due to increased costs incurred for internal development
programs, manufacture and sale of wafer-engineered materials and display
products, personnel increases and increased sales and marketing costs for the
Company's head-mounted display products. Cost of sales, which is comprised of
materials, labor and manufacturing overhead, was $2,707,918 for the three months
ended March 30, 1996, or 89.0% of product sales, compared to $543,958, or 93.2%
of product sales during the corresponding period in 1995. Reducing cost of sales
as a percentage of sales for the Company's products is dependent on achieving
manufacturing economies of scale in order to manufacture at a lower per unit
basis.
Research and development expenses include expenses incurred in support of
internal development programs and programs funded by agencies of the federal
government. Total research and development expenses for the three months ended
March 30, 1996, were $4,710,969 compared to $4,111,672 during the corresponding
period in 1995, an increase of 14.6%. The increase in research and development
expenses in 1996 was primarily due to increased activity in the Company's
internal development programs for electronic imaging devices and display
products, wafer-engineered materials and head-mounted display systems, including
increases in circuit design costs, staffing, purchases of materials and
laboratory supplies, and fabrication and packaging of the Company's SMART SLIDE
imaging devices, as well as an increase of approximately $400,000 related to
research and development charges for subcontractor work. These increases were
partially offset by a reduction in research and development expenses incurred in
support of programs funded by agencies of the federal government. Expense
related to the Company's internal development programs was $2,346,000 for the
three months ended March 30, 1996, compared to $1,971,000 during the
corresponding period in 1995.
General, administrative and selling expenses consist of the expenses
incurred by the Company's business development and sales personnel, marketing
expenses, and administrative and general corporate expenses. General,
administrative and selling expenses were $1,943,656 for the three months ended
March 30, 1996, an increase of 167.8% from $725,861 during the corresponding
period in 1995. The increase in general, administrative and selling expenses in
1996 was primarily due to increases in display product marketing costs,
advertising and trade show costs, as well as increased personnel and related
costs. In addition, general and administrative expenses include non-cash charges
for compensation expense of $11,694 for the three months ended March 30, 1996,
relating to the issuance of certain stock options. The
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<PAGE>
Company expects to incur additional increases in general, administrative and
selling expenses in the future as it commercializes its imaging devices and
display products.
During 1995, the Company adopted SFAS No. 107, "Disclosure About Fair Value
of Financial Instruments," effective January 1, 1995, as required. The effect of
this adoption had no material impact on the Company's financial statements.
On January 1, 1996 , the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This
Statement establishes accounting standards for the carrying value of long-lived
and certain identifiable intangible assets. In January 1996, the Company
incurred a non-recurring charge of $4,990,412 which included a write-down
associated with the initial adoption of SFAS No.121, the expensing of purchased
technology, and the write-off of certain previously deferred expenses.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which was effective for the
Company beginning January 1, 1996. SFAS No.123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages(but does not
require) compensation costs to be measured based upon the fair value of the
equity instrument awarded. Companies are permitted; however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB Opinion No. 25 to its stock based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings per share
in the Company's year ended December 31, 1996 financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily though private placements
of its equity securities, the initial public offering of its common stock in
April 1992, another public offering in March 1993, research and development
revenue, and sales of its custom wafer-engineered materials and flat panel
display devices and products. The Company has an unused line of credit of
$500,000 at March 30, 1996. The Company periodically enters into loan agreements
to finance equipment purchases and other activities. As of March 30, 1996, sales
of equity securities have raised approximately $92,500,000, including
$13,300,000 of net proceeds from the Company's initial public offering,
$26,500,000 of net proceeds from the Company's March 1993 public offering,
$3,300,000 from a private stock sale in November 1992, $4,375,000 from the
exercise of a 625,000 share stock warrant in December 1993, and $30,437,000 from
private stock sales to Telecom Holding Co., Ltd. and United Microelectronics
Corporation and its affiliate in the fourth quarter of 1995.
As of March 30, 1996, the Company had cash and equivalents and marketable
securities of $38,638,232 and working capital of $39,834,087 compared to
$41,996,977 and $44,727,410 as of December 31, 1995. The decrease in cash and
equivalents and marketable securities is primarily due to $5,831,289 of cash
used in operations and $938,532 for capital expenditures. These decreases were
partially offset by borrowings of $1,785,862 and $1,800,000 in equity financing
raised by one of the Company's subsidiaries from certain of its minority
stockholders. The Company also has approximately $2,300,000 of marketable
securities held in escrow as equipment financing collateral which is shown in
other assets.
Revenue from long-term contracts is recognized on the percentage-of-
completion method of accounting as work is performed, based upon the ratio that
incurred costs or hours bear to estimated total completion costs or hours.
Amounts received under long-term contracts are recognized as revenue is earned,
and amounts earned on contracts in progress in excess of billings are classified
as unbilled receivables. Unbilled receivables are billed based on dates
stipulated in the related agreement or in periodic installments based upon the
Company's invoicing cycle.
The Company periodically enters into various long-term debt arrangements in
connection with acquisition of certain capital equipment. During the three
months ended March 30, 1996, the Company entered into two separate equipment
financing agreements totaling $1,285,862. As of March 30, 1996, total long-term
debt obligations totaled $3,351,264, of which $965,369 is payable in 1996.
Additionally, in January 1996, the Company entered into a $500,000 demand note
agreement.
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<PAGE>
In October 1993, the Company entered into a five-year lease for a 74,000
square foot manufacturing facility. This facility, which includes 7,000 square
feet of environmentally controlled clean rooms, is being used for expansion of
the Company's manufacturing capabilities for production of wafer-engineered
materials and electronic imaging devices. The Company will make lease payments
of approximately $4.0 million over the five-year term.
The Company expects to expend approximately $8,000,000 over the next 36
months on equipment primarily related to development and manufacturing of
electronic imaging devices and display products and wafer-engineered electronic
materials. Of this amount, the Company expects to use approximately $3,000,000
in 1996, $3,000,000 in 1997, and $2,000,000 in 1998 for capital equipment and
expansion of the Company's manufacturing capabilities. Of these amounts,
approximately $6,000,000 is expected to be used for expansion of manufacturing
equipment required for development and manufacturing of electronic imaging
devices and display products, and wafer-engineered materials, and the balance is
expected to be used for the acquisition of laboratory and testing equipment and
general facility upgrades. The Company also expects to use approximately
$3,000,000 for development of advanced display circuit designs for its
electronic imaging devices.
The Company expects to incur significant additional research and
development and other costs, including costs related to the development and
commercialization of its electronic imaging devices and display products. The
Company's future capital requirements will depend on many factors, including the
establishment of collaborative arrangements, the cost of manufacturing
facilities, commercialization activities and arrangements, continued scientific
progress in its imaging device and display product development programs, the
magnitude of these programs, the costs involved in filing, prosecuting and
enforcing patent claims, and competing technological and market developments.
In October 1994, the Company made an equity investment of $1,000,000 in
Forte Technologies, Inc., a developer and manufacturer of virtual reality head-
mounted systems. Subsequently, the Company has made a series of additional
equity investments in Forte totaling $4,750,000, increasing its equity ownership
to 59% at March 30, 1996. From time to time, Kopin may make equity investments
in other companies, including Forte, engaged in certain aspects of the flat
panel display and electronics industries as part of its business strategy.
The Company believes that its present cash and equivalents and marketable
securities will be adequate to finance its anticipated operating and capital
requirements and to meet liquidity needs through at least fiscal 1997.
FUTURE OPERATING RESULTS
Certain of the statements contained in this Form 10-Q, including
Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements that involve risks and uncertainties.
In addition to the risks and uncertainties set forth in this Form 10-Q, other
factors that could cause actual results to differ materially include the
following: general economic and business conditions and growth in the flat panel
display industry, the impact of competitive products and pricing, availability
of third party components, availability of integrated circuit fabrication
facilities, cost and yields associated with production of the Company's
SMARTSLIDE imaging devices, and the risk factors listed from time to time in the
Company's periodic reports filed with the Securities and Exchange Commission,
including but not limited to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
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<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On February 15, 1996, the Company held a Special Meeting of Stockholders to
consider and vote upon the following proposal:
(1) A proposal to ratify the amendment to the Company's Certificate of
Incorporation to increase the authorized shares of common stock from 15,000,000
to 20,000,000 shares. The results with respect to the voting on the proposal
were:
7,073,384 votes for; 179,137 votes against; and 298,367 abstentions
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.50 Securities Purchase Agreement, by and between the Company and Unitek
Semiconductor, Inc. dated January 26, 1996.
10.51 Chattel Leasing Promissory Note, by and between the Company and
BancBoston Leasing dated January 29, 1996.
10.52 Securities Purchase Agreement, by and between the Company and Forte
Technologies, Inc. dated February 8,1996.
27 Financial Data Schedule
(b) Reports on Form 8-K
none
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<PAGE>
SIGNATURES
Pursuant to the requirements 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.
KOPIN CORPORATION
(Registrant)
Date: May 14, 1996 By: /s/ John C.C. Fan
________________________________________________
John C.C. Fan
President, Chief Executive Officer and Chairman
of the Board of Directors (Principal Executive
Officer)
Date: May 14, 1996 By: /s/ Paul J. Mitchell
________________________________________________
Paul J. Mitchell
Treasurer and Chief Financial Officer (Principal
Financial and Accounting Officer)
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<PAGE>
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
FORTE TECHNOLOGIES, INC.
THE COMPANY
-------
AND
THE SERIES C INVESTORS
------------------
LISTED ON SCHEDULE 1 HERETO
---------------------------
DATED AS OF FEBRUARY 8, 1996
<PAGE>
Forte Technologies, Inc.
SECURITIES PURCHASE AGREEMENT
February 8, 1996
To each of the Series C Investors
(as hereinafter defined)
Gentlemen:
The undersigned, Forte Technologies, Inc., a New York corporation (the
"Company"), hereby agrees with each of the persons listed on Schedule 1 hereto
(as the same may be amended from time to time as herein provided) (each a
"Series C Investor" and, collectively, the "Series C Investors") as follows:
1. DEFINITIONS. Certain terms are used in this Agreement as specifically
defined in Exhibit 1 hereto.
2. THE SERIES C CONVERTIBLE PREFERRED STOCK. The Company has, or will
have prior to the Closing Date(s), duly authorized the issuance and sale to the
Series C Investors on the Closing Date (at the price of $1.20 per share) of
2,333,333 of the Company's Series C Convertible Preferred Stock, par value $0.01
per share, and the reservation, free of preemptive rights and other preferential
rights, of a sufficient number of its authorized but unissued shares of its
voting common stock, $0.01 par value per share ("Voting Common Stock"), to
satisfy the rights of conversion of the holders of the Series C Preferred Stock.
Any shares of Voting Common Stock issuable upon conversion of the Series C
Convertible Preferred Stock, and such shares when issued, are sometimes herein
referred to as the "Conversion Shares."
3. SALE AND PURCHASE OF SERIES C PREFERRED STOCK.
3.1. AGREEMENT TO SELL AND PURCHASE THE SERIES C PREFERRED STOCK. The
Company is selling to each Series C Investor, and each Series C Investor is
purchasing from the Company, subject to the satisfaction of the conditions
precedent set forth in Section 6 hereof and subject to the terms and other
conditions hereinafter set forth, at the Closing(s), that number of shares of
Series C Preferred Stock set forth opposite the name of such Series C Investor
on Schedule 1 attached hereto for a purchase price of $1.20 per share (subject
to adjustment to reflect stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences prior to Closing), representing an
aggregate purchase price of $2,800,000.
<PAGE>
3.2. CLOSING(S).
(a) The closing(s) hereunder with respect to the transactions
contemplated by Sections 2 and 3.1 hereof (the "Closing(s)") will take place at
the offices of Chu, Ring & Associates, 253 Summer Street, Boston, Massachusetts,
at 9:00 a.m. local time, on February 8, 1996, or at such other place and time
and on such other date as may be mutually agreed upon in writing by the
respective Series C Investors and the Company (the "Closing Date(s)").
(b) At the Closing(s), the Company will, unless otherwise
requested, deliver to each Series C Investor a single certificate evidencing the
number of shares of Series C Preferred Stock to be purchased by such Series C
Investor, against payment of the purchase price in immediately available funds
or by cancellation of existing indebtedness, all as set forth on Exhibit 3.2.
(c) Schedule 1 attached hereto shall be amended from time to
time by adding thereto each of the Series C Investors who executes a counterpart
signature page hereto (to the extent not so named).
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Series C
Investors to enter into this Agreement and to purchase the Series C Convertible
Preferred Stock to be purchased by each Series C Investor hereunder, the Company
represents and warrants to each Series C Investor and agrees with each Series C
Investor as follows:
4.1. ORGANIZATION, STANDING, POWER, AUTHORITY, QUALIFICATION. The
Company is a duly organized and validly existing corporation in good standing
under the laws of the State of New York with corporate power and authority
adequate for (a) the execution and delivery of this Agreement and the
performance of its obligations hereunder and under the Related Agreements and
(b) the carrying on of the business conducted by it. The Company has taken all
corporate action necessary to authorize this Agreement and the transactions
contemplated hereby. The Company is duly qualified and in good standing as a
foreign corporation in each other jurisdiction in which such qualification is
required, and is duly authorized, qualified and licensed under all laws,
regulations ordinances or orders of public authorities, or otherwise, to carry
on its business in the places and in the manner conducted and to own its
properties and assets.
4.2. CAPITALIZATION. Immediately after the effective date of the
Restated Certificate of Incorporation (but before giving effect to the
Closing(s)), the authorized capital stock of the Company will consist of
15,000,000 shares of Common Stock, par value $.01 per share ("Voting Common
Stock"), 4,326,000 shares of which are issued and outstanding and 800,000
shares, 9,000 shares and 150,000 shares have been duly reserved for issuance
pursuant to the Company's stock option plan, Management Stock Bonus Plan and
Directors' Stock Option Plan, respectively, 2,500,000 shares of Non-Voting
Common Stock, par value $.01 per share ("Non-Voting Common Stock"), no shares of
which are issued and outstanding, 5,092,589 shares of Series A Convertible
Preferred Stock, par value $.01 per share, all of which are issued and
outstanding and held of record by Kopin Corporation ("Kopin"), 1,851,851 shares
of Series B Convertible Preferred Stock, par value $.01 per
<PAGE>
-3-
share, all of which are issued and outstanding and held of record by Kopin, and
2,333,333 shares of the Series C Preferred Stock, no shares of which will be
issued and outstanding. The Company has provided each Series C Investor with a
list of (i) all holders of capital stock of the Company, including the number of
shares of capital stock held by each such holder, and (ii) all outstanding
warrants, options, agreements, convertible securities or other commitments
pursuant to which the Company is or may become obligated to issue (or as to
which it has reserved for issuance) any shares of its capital stock or other
securities of the Company, which names all persons entitled to receive such
shares or other securities (and/or states their respective positions at the
Company) and the shares or other securities required to be issued thereunder.
All such holders are parties to the Shareholders Agreement. All of the issued
and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued in compliance with all applicable provisions of
the Securities Act of 1933, as amended (the "Securities Act") and applicable
state "blue sky" laws and regulations, and are fully paid, non-assessable, and
subject to no liens or restrictions on transfer of any kind except restrictions
on transfer imposed by applicable securities laws and as contemplated under the
Series A Preferred Stock Agreements and Series B Preferred Stock Agreements. The
Company does not have outstanding, except as contemplated by this Agreement and
the Related Agreements and disclosed herein or herewith, any rights (preemptive
or other) to subscribe for or to purchase, or any warrants or options for the
purchase of, or any agreements, understandings or arrangements providing for or
other obligations requiring the issuance (contingent or other) of, or any calls,
commitments or claims of any character relating to, any shares of any class of
its capital stock or any securities convertible into or exchangeable for any
such stock. The Company is not subject to any obligations (contingent or other)
to repurchase or otherwise acquire or rescind the sale of any shares of any
class of its stock or any securities, rights or options related thereto.
4.3. GOVERNING DOCUMENTS. The copies of the Restated Certificate of
Incorporation and By-Laws of the Company as currently in effect which have
heretofore been delivered to each of the Series C Investors are true, complete
and correct.
4.4. FINANCIAL INFORMATION. The Company's balance sheet as at October
31, 1995 and statement for operations for the ten months then ended (unaudited),
previously delivered to each of the Series C Investors, fairly present the
Company's financial condition as at such date and the Company's results of
operations for the period then ended. There has been no material adverse change
since October 31, 1995, in the business, operations, assets, prospects or
condition (financial or otherwise) of the Company or its Business other than in
the ordinary course of business.
4.5. ENFORCEABILITY OF AGREEMENTS. The Company has duly taken all
corporate action necessary to authorize the execution and delivery of this
Agreement and the performance of this Agreement and each of the Related
Agreements. This Agreement and each of the Related Agreements constitutes the
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent enforcement thereof may be
limited by insolvency, bankruptcy and similar laws affecting generally the
enforcement of contractual rights and by the discretionary nature of equitable
remedies.
<PAGE>
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4.6. NO VIOLATION; NO DEFAULTS. Neither the execution nor delivery of
this Agreement, nor the consummation of any transaction contemplated hereby or
by any of the Related Agreements, including without limitation the issuance and
sale of the Series C Convertible Preferred Stock as provided herein, has
constituted or resulted in or will constitute or result in a breach of the
provisions of any mortgage, lease, license or other instrument, contract or
agreement to which the Company is a party or by which it is bound, or the
charter or by-laws of the Company or the violation of any judgment, decree, law
or governmental or administrative order, rule or regulation which, singly or in
the aggregate, may have any material adverse effect on the business, operations,
assets, prospects or condition (financial or otherwise) of the Company. The
Company is not in default under any provision of its charter, by-laws, or under
any provision of any mortgage, lease, license or other instrument, contract or
agreement to which it is a party or by which it is bound or of any law,
ordinance, approval, rule or regulation or any terms of any applicable order,
judgment or decree of any court, arbitrator or governmental or administrative
authority which, singly or in the aggregate, may have any material adverse
effect on the business, operation, assets, prospects or condition (financial or
otherwise) of the Company.
4.7. BROKERS' FEES. There are no brokers', finders', or similar fees
due from the Company in respect of the transactions contemplated by this
Agreement or any of the Related Agreements.
4.8. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 4.8 or in the financial statements referred to in Section 4.4 hereof,
or arising in the ordinary course of business and for obligations created
pursuant to this Agreement and the Related Agreements, as of the Closing Date,
the Company will have no material liabilities (fixed or contingent, including
without limitation any liabilities for money borrowed or any tax liabilities due
or to become due) and will be subject to no material obligations under any
contract or commitment of any kind.
4.9. LITIGATION. Except as disclosed on Schedule 4.9, there is
neither pending nor, to the Company's knowledge and belief, threatened any
action, suit, proceeding or claim, or any basis therefor, to which the Company
is or may be named as a party or its property is or may be subject or which
calls into question any of the transactions contemplated by this Agreement.
4.10. CONSENTS. No consent, approval or authorization of, or filing
with, any governmental authority is required in connection with the Company's
valid execution, delivery or performance of this Agreement and the Related
Agreements, or the consummation of any other transaction to be consummated at
the Closing.
4.11. TRADEMARKS, LICENSES, ETC. Except as disclosed on Schedule 4.11
and to the extent of the collateral security interest of Kopin therein, the
Company has or has the right to use all patents, patent applications,
trademarks, trademark rights, trade names, trade name rights, copyrights,
licenses, trade secrets, permits, authorizations and other rights, as are
necessary for the conduct of its business, all of which are in full force and
effect, and the Company is in substantial compliance with the foregoing without
any
<PAGE>
-5-
infringement of, adverse claim in respect of or known conflict with the valid
rights of others which could affect or impair in a material manner the business
or assets or financial condition of the Company. The Company has previously
delivered to each of the Series C Investors a schedule listing all material
patents, patent applications, licenses, copyrights and similar intellectual
property rights of the Company. All material items of intellectual property used
by the Company's business are or will be made subject to patent, copyright,
trade secret or other appropriate legal protection and the Company is under no
obligation to compensate any other Person for the use thereof. The Company has
complied with all of its obligations of confidentiality in respect of the
claimed trade secrets or proprietary information of others and knows of no
violation of such obligations of confidentiality as are owed to the Company. No
employee, agent or consultant of the Company is subject to confidentiality
restrictions in favor of any third person the breach of which could subject the
Company to any material liability. Each of the Company's employees has executed
and delivered an Employee Proprietary Rights and Nondisclosure Agreement in
substantially the form previously delivered to the Series C Investor in
connection with the Series A Preferred Stock Agreements.
4.12. FOUNDER. Travers is of sound mind and body and mentally and
physically capable of fulfilling his obligations under the Employment Agreement.
4.13. PROCEEDS. All cash proceeds from the sale of the Series C
Preferred Stock will be used for working capital purposes.
4.14. REGISTRATION RIGHTS. Except as provided for in the Series A
Securities Purchase Agreement, the Series B Securities Purchase Agreement and
the Registration Rights Agreement and as contemplated hereby, the Company is
under no obligation to register under the Securities Act any of its currently
outstanding securities or any of its securities which may hereafter be issued.
4.15. SUBSIDIARIES; TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES;
INSURANCE. Except as set forth on Schedule 4.15 hereto, the Company has no
subsidiary and owns no security issued by or interest in any other corporation,
partnership or other organization. Except for and to the extent of the
collateral security interest of Kopin therein, the Company has valid title to
and ownership of all the properties and assets purported to be owned by it, free
from all mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges, except such as are described on Schedule
4.15 hereto. The Company enjoys peaceful and undisturbed possession under all
leases under which it is operating and all such leases are valid and subsisting
and in full force and effect. The Company maintains those insurances (including
product liability insurance) and in the amounts set forth on Schedule 4.15
hereto.
4.16. ENVIRONMENTAL COMPLIANCE. The Company has taken all necessary
steps to investigate its usage of its properties and its operations conducted
thereon and, based upon such diligent investigation, has determined that:
(a) none of the Company or, to the best of its knowledge,
any operator of its properties is in violation, or alleged violation, of any
judgment, decree, order, law,
<PAGE>
-6-
license, rule or regulation pertaining to environmental matters, including
without limitation those arising under the Resource Conservation and Recovery
Act ("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal
Clean Air Act, the Toxic Substances Control Act, or any state or local statute,
regulation, ordinance, order or decree relating to health, safety or the
environment (hereinafter "Environmental Laws"), which violation would have a
material adverse effect on the environment or the business, assets or financial
condition of the Company;
(b) the Company has not received notice from any third party including
without limitation any federal, state or local governmental authority, (i) that
the Company or any predecessor in interest has been identified by the United
States Environmental Protection Agency ("EPA") as a potentially responsible
party under CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous waste as
defined by 42 U.S.C. (S)6903(5), any hazardous substances as defined by 42
U.S.C. (S)9601(14), any pollutant or contaminant as defined by 42 U.S.C.
(S)9601(33) and any toxic substance, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws ("Hazardous
Substances") which any one of them has generated, transported or disposed of has
been found at any site at which a federal, state or local agency or other third
party has conducted or has ordered that the Company or any predecessor in
interest conduct a remedial investigation, removal or other response action
pursuant to any Environmental Law; or (iii) that any of them is or shall be a
named party to any claim, action, cause of action, complaint (contingent or
otherwise) legal or administrative proceeding arising out of any third party's
incurrence of costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances;
(c) except as set forth in Schedule 4.16 to each of the Series A
Securities Purchase Agreement and the Series B Securities Purchase Agreement, to
the best of the Company's knowledge: (i) no portion of the Company's properties
has been used for the handling, manufacturing, processing, storage or disposal
of Hazardous Substances except in accordance with applicable Environmental Laws;
and no underground tank or other underground storage receptacle for Hazardous
Substances is located on such properties; (ii) in the course of any activities
conducted by the Company or operators of its properties, no Hazardous Substances
have been generated or are being used on such properties except in accordance
with applicable Environmental Laws; (iii) there have been no releases (i.e. any
past or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or threatened
releases of Hazardous Substances on, upon, into or from the properties of the
Company, which releases would have a material adverse effect on the value of
such properties or adjacent properties or the environment; (iv) to the best of
the Company's knowledge, there have been no releases on, upon, from or into any
real property in the vicinity of the real properties of the Company which,
through soil or ground water contamination, may have come to be located on, and
which would have a material adverse effect on the value of, the properties of
the Company; and (v) in addition, any Hazardous Substances that have been
generated on the properties of the Company, have
<PAGE>
-7-
been transported offsite only by carriers having an identification number issued
by the EPA and treated or disposed of only by treatment or disposal facilities
maintaining valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the Company's
knowledge, operating in compliance with such permits and applicable
Environmental Laws; and
(d) to the best of the Company's knowledge, none of the properties of
the Company are or shall be subject to any applicable environmental cleanup
responsibility law or environmental restrictive transfer law or regulation by
virtue of the transactions set forth herein and contemplated hereby.
4.17. TAXES. The Company and its Predecessor have, to the best of
the Company's knowledge, accurately prepared and timely filed all federal, state
and other tax returns required by law to be filed by each of them, and all taxes
shown to be due and all additional assessments have been paid or provision made
therefore. There are no transfer, issuance or similar taxes imposed by law in
connection with the issuance, sale or delivery of the Series C Preferred Stock.
4.18. OFFERING. Subject to the truth and accuracy of the
representations of each of the Series C Investors set forth in Section 5 hereof,
the offer, sale and issuance of the Series C Convertible Preferred Stock as
contemplated by this Agreement are exempt from the registration requirements of
the Securities Act, and neither the Company nor any one acting on its behalf
will take any action hereafter that would cause the loss of such exemption. The
Company has complied and will comply with all applicable state "blue sky" or
securities laws in connection with the offer, sale and issuance of the Series C
Convertible Preferred Stock as contemplated by this Agreement.
4.19. DISCLOSURE. Neither this Agreement nor any of the Related
Agreements contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein misleading in the light of the circumstances under which they were made.
There is no fact known to the Company which materially adversely affects, or in
the future is likely to materially adversely affect, the business, operations,
affairs, prospects, condition, properties or assets of the Company which has not
been set forth in this Agreement (including the exhibits and schedules hereto),
in the other documents, certificates, instruments or statements furnished to
each of the Series C Investors by or on behalf of the Company or in reports to
the Board of Directors.
5. SERIES C INVESTOR REPRESENTATIONS. Each of the Series C
Investors represents and warrants to the Company that:
5.1. That he or it has received and carefully reviewed descriptive
memoranda relating to the Company and any other materials relating thereto that
he has requested.
5.2. That no person or entity, other than the Company or its
authorized representatives, has offered Series C Preferred Stock to the
undersigned.
<PAGE>
-8-
5.3. That he or it has such knowledge and experience in financial and
business matters that he or it is capable of evaluating the merits and risks of
an investment in the Company, or he and his or its financial and investment
advisors together have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of an
investment in the Company.
5.4. That (i) it has been called to his or its attention in
connection with his or its investment in the Company that such investment is
speculative in nature and involves a high degree of risk, and (ii) he or it is
aware that the Company is in the start-up stage and thus has a limited operating
history.
5.5. INVESTMENT REPRESENTATION. It is acquiring the Series C
Preferred Stock for investment, and not with a view to selling or otherwise
distributing any thereof in violation of the Securities Act; provided, however,
that nothing contained herein shall prevent any Series C Investor from
requesting that the Series C Preferred Stock be registered in the name of its
nominee or transferring the Series C Preferred Stock in compliance with
applicable laws.
5.6. FULL ACCESS. He or it and his or its representatives have been
permitted full and complete access to the books and records and other documents
of the Company which he or his or it and its representatives have desired or
requested to review and that he and his or it and its representatives have had a
full opportunity to meet with the officers of the Company to discuss such
matters as such Investor has elected to review, and that any questions regarding
the Company and its business have been answered to the full satisfaction of the
undersigned.
5.7. ACCREDITED INVESTOR. He or it is an "accredited investor" as
defined in Regulation D under the Securities Act.
5.8. That he or it understands that no federal or state agency has
passed upon or made any recommendation or endorsement of an investment in the
Series C Preferred Stock.
5.9. That he or it will notify the Company immediately, and in any
event prior to the date this agreement is accepted by the Company, if any event
occurs which would materially and adversely affect any of the above
representations or warranties.
5.10. AUTHORIZATION; ENFORCEABILITY. It has taken all necessary
action to authorize its execution, delivery and performance of this Agreement
and the other Related Agreements to which it is or may become a party. This
Agreement constitutes, and each of the Related Agreements to which it is a party
will constitute, upon execution and delivery thereof at the Closing, its legal,
valid and binding agreement.
5.11. BROKERS. It has not retained, utilized or been represented by
any broker or finder in connection with the transactions contemplated by this
Agreement.
<PAGE>
-9-
6. CONDITIONS PRECEDENT. The obligation of each of the Series C Investors to
purchase the Series C Preferred Stock at the Closing(s) is subject to the
Company's compliance with its agreements herein and to the satisfaction, on or
prior to the Closing Date(s), of the following conditions precedent:
6.1. LEGALITY; GOVERNMENTAL AUTHORIZATIONS. The purchase of and
payment for the Series C Preferred Stock to be purchased by each of the Series C
Investors shall not be prohibited by any law or governmental order or
regulation, and shall not subject the Series C Investor to any penalty, tax,
liability or other onerous condition. All necessary consents, approvals,
licenses, permits, orders and authorizations of, or registrations, declarations
and filings with, any governmental or administrative agency or of any other
Person with respect to any of the transactions contemplated hereby or by the
Related Agreements shall have been duly obtained or made and shall be in full
force and effect. True and complete copies of each of the foregoing as in effect
shall have been furnished to each Series C Investor.
6.2. NO CHANGE IN LAW, ETC. No legislation, order, rule, ruling or
regulation shall have been enacted or made by or on behalf of any governmental
body, department or agency, nor shall any investigation by any governmental
authority or administrative body have been commenced, nor shall any decision of
any court of competent jurisdiction have been rendered which in the judgment of
the Series C Investor would materially and adversely affect, restrain, prevent
or change the transactions contemplated by this Agreement or the Related
Agreements or materially and adversely affect the business, operations, assets,
prospects or condition (financial or otherwise) of the Company.
6.3. PROPER PROCEEDINGS. All necessary and proper proceedings shall
have been taken by the Company to authorize the execution, delivery and
performance of each of this Agreement and the Related Agreements and of each of
the transactions contemplated hereby and thereby.
6.4. GENERAL. All instruments and legal, governmental,
administrative and corporate proceedings in connection with the transactions
contemplated by this Agreement and the Related Agreements shall be satisfactory
in form and substance to the Series C Investor, and each Series C Investor shall
have received counterpart originals, or certified or other copies of all
documents, including without limitation records of corporate or other
proceedings and opinions of counsel, which it may have reasonably requested in
connection therewith.
6.5. RESTATED CERTIFICATE OF INCORPORATION. The Restated Certificate
of Incorporation shall have been approved by resolutions duly adopted by the
Company's shareholders and its board of directors and shall have been filed by
the office of the Secretary of State of the State of New York.
6.6. SERIES A PREFERRED STOCK AGREEMENTS AND SERIES B PREFERRED
STOCK AGREEMENTS. Each of the Series A Preferred Stock Agreements and the
Series B Preferred Stock Agreements shall be in full force and effect.
<PAGE>
-10-
6.7. LEGAL OPINION. Each Series C Investor shall have received a
favorable legal opinion from Underberg & Kessler substantially in the form of
Exhibit 6.7 hereto.
6.8. REPRESENTATIONS AND WARRANTIES; OFFICERS' CERTIFICATES. The
representations and warranties contained or incorporated by reference herein
shall be true and correct in all material respects on and as of the Closing
Date(s) with the same force and effect as though made on and as of the Closing
Date(s), both before and after giving effect to the sale of the Series C
Convertible Preferred Stock; and each Series C Investor shall have received on
the Closing Date(s) a certificate to these effects signed by the President of
the Company and a certificate as to the matters represented and warranted in
Section 4.12 signed by Travers.
6.9. CONVERSION OF TRAVERS' SHARES. Paul Travers shall have
exchanged such number of his shares of Voting Common Stock into Non-Voting
Common Stock as shall be required under Section 9 hereto.
7. COVENANTS. The covenants of the Company set forth in Section 7 of the Series
A Securities Purchase Agreement with the Investor therein are incorporated
herein by reference with the same force and effect with respect to the
obligations of the Company and the rights of the Series C Investors.
8. ELECTION OF ADDITIONAL DIRECTORS. On and from time to time after the date
of this Agreement, so long as Travers owns any shares of Non-Voting Common Stock
of the Company, Kopin and Travers shall vote (or cause to be voted) all
securities of the Company owned by them at such times and entitled to vote on
any matter mentioned below in this Section 8, and will cause each of their
respective Affiliates to vote all such securities of the Company owned by such
Affiliates at such time and entitled to vote on any such matter, in each case as
follows:
(a) So as to fix the number of directors of the Company at nine (9).
(b) To elect three persons to the Board of Directors from a written list
provided to Kopin by management of the Company which shall include the names of
not less than fifteen (15) persons who are not affiliated with the Company and
meeting such other business and industry criteria set forth on Schedule 8
attached hereto Within forty-five (45) days of receipt of such list, Kopin will
select for consideration and further discussion with management its tentative
selection for election to the Board of Directors three (3) persons from such
list, and Kopin shall thereafter diligently proceed to make its selections and
elect as Directors three (3) persons from such list. Within seventy-five days
from the receipt of such list (or such longer period, if any, as may be required
in order for the persons selected by Kopin to qualify and agree to serve) Kopin
shall cause such three (3) persons to be elected as Directors. The Chief
Executive Officer is hereby granted a proxy to vote all of the shares of the
capital stock of the Company owned by Kopin for the purpose of electing three
(3) persons selected by management, in its sole discretion, from such list, if
Kopin
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does not make its tentative selections or cause the election of Directors within
the time periods set forth above.
(c) To remove as a member of the Board, with or without cause, any person
previously designated for election by Kopin, and elected to the Board pursuant
to this Section 8, upon written request for such removal, with or without cause,
by Kopin. To fill a vacancy on the Board of Directors caused by the termination
of service as a Director of a person elected pursuant to subsection (b), such
vacancy to be filled in accordance with the provisions contained in subsection
(b), except that the list to be provided by management shall include the names
of not less than five (5) or more persons for each such vacancy.
The provisions of this Section 8 shall be in addition to and not in
limitation of the provisions of Section 4 of the Shareholders Agreement. The
provisions of this Section 8 shall terminate upon the earliest to occur of the
events set forth in Section 2.02(a) of the Restated Certificate of
Incorporation.
9. CONVERSION OF TRAVERS' SHARES. Travers agrees that, on or prior to the
Initial Closing Date, and from time to time thereafter until the earliest to
occur of the events set forth in Section 2.02(a) of the Restated Certificate of
Incorporation, he will convert that number of the shares of Voting Common Stock
owned by him into Non-Voting Common Stock which is required in order for Kopin
at all times to own more than 50% of the outstanding shares of the Voting Common
Stock, including as Voting Common Stock for these purposes the number of shares
of Voting Common Stock into which the outstanding shares of Preferred Stock are,
at such time, convertible.
10. AMENDMENTS TO SERIES PREFERRED STOCK AGREEMENTS. The Company, Travers,
Travers Family Limited Liability Company and the Series C Investors hereby agree
to amend the Series A Preferred Stock Agreements and Series B Preferred Stock
Agreements as follows:
10.1. DEFINITION OF "PREFERRED STOCK." The Series C Convertible Preferred
Stock shall, as of and from the initial date so issued and sold by the Company
to the Series C Investors, be deemed to be included within the definition of
"Preferred Stock" as that term is defined in the Series A Preferred Stock
Agreements, and such Series C Convertible Preferred Stock shall be entitled to
all of the rights and benefits and subject to all of the obligations inuring to
the Preferred Stock under the Series A Preferred Stock Agreements. By executing
and delivering this Agreement, the Company and each Series C Investor
acknowledges and agrees that each such Series C Investor is being made a party
to, and is bound by, the respective provisions of the Shareholders Agreement,
First Refusal Agreement and the Registration Rights Agreement as if it were an
Investor party thereto.
11. REMEDIES.
11.1. REMEDIES. If either party shall fail to perform or observe any of the
covenants, agreements or provisions set forth or incorporated by reference in
this Agreement or in any of the Related Agreements, then and in each and every
such case the other party may proceed to enforce performance of such obligations
in such manner as it
<PAGE>
-12-
may elect and may proceed to protect and enforce its rights by suit in equity,
action at law and/or other appropriate proceeding for performance of such
obligations.
11.2. COURSE OF DEALING. No course of dealing between the Company on the one
hand, and any Series C Investor or any holder of Series C Convertible Preferred
Stock, on the other hand, shall operate as a waiver of any rights under this
Agreement or any Related Agreement. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any other occasion.
No waiver or statement of satisfactory cure or consent shall be binding upon one
party or any holder of any Series C Convertible Preferred Stock unless it is in
writing and signed by the party to be changed.
11.3. WAIVERS. Each party hereby waives, to the extent not prohibited by
applicable law, (a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions hereof) and (b)
any requirement of diligence or promptness on the part of any other party or any
Series C Convertible Preferred Stock in the enforcement of its rights under the
provisions of this Agreement.
11.4. EQUITABLE REMEDIES. The parties to this Agreement hereby acknowledges
that monetary damages are an inadequate remedy for breach of the covenants and
provisions contained in this Agreement or in any Related Agreement; therefore,
it is agreed that each of such covenants of one party and provisions shall be
enforceable by specific performance, including all forms of injunctive relief.
Each party hereby waives any defense based on the adequacy of any remedies at
law.
12. PAYMENT ON SERIES C PREFERRED STOCK; TRANSFER; LEGENDS
12.1. PAYMENT. All payments made by the Company in respect of any Series C
Preferred Stock shall be made in immediately available funds in lawful money of
the United States for credit, not later than 12:00 noon, Boston time, to the
account of the respective Series C Investor and shall be accompanied by
sufficient information to identify the source and application thereof, or in any
event by such other reasonable method or at such other address, as the
respective Series C Investor shall have from time to time notified the Company
thereof.
12.2. TRANSFER OF SERIES C PREFERRED STOCK. If, at any time of any
conversion, transfer (other than a conversion or transfer not involving a change
in the beneficial ownership of such securities) or surrender for exchange of any
share of Series C Preferred Stock or any securities issued upon exchange or
conversion, or in replacement thereof (or in respect of such securities), such
securities shall not be registered under the Securities Act or qualified under
any applicable state securities law, the Company may require, as a condition of
allowing such conversion, transfer or exchange, that the holder or transferee of
such securities, as the case may be, furnish to the Company such information as,
in the reasonable opinion of counsel for the Company, is necessary in order to
establish that such exercise, transfer or exchange may be made without
registration under the Securities Act or qualification under such state
securities law; provided, however, that nothing contained in this Section 12.2
shall relieve the Company from complying with the provisions
<PAGE>
-13-
of Section 8 of the Series A Securities Purchase Agreement, as amended hereby,
or any provision of the Restated Certificate of Incorporation.
12.3. LEGENDS. To the extent applicable, each certificate or other document
evidencing any of the Series C Preferred Stock to be purchased and sold pursuant
to this Agreement or any Common Stock issued upon conversion of the Series C
Preferred Stock shall be endorsed with the legends set forth below, and each
Series C Investor covenants that, except to the extent such restrictions are
waived by the Company, it shall not transfer the shares represented by any such
certificate without complying with the restrictions on transfer described in the
legends endorsed on such certificate:
(a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY ACCEPTABLE
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) If required by the authorities of any state in connection with the
issuance or sale of the Series C Preferred Stock or the Common Stock issued upon
conversion of the Series C Preferred Stock, the legend required by such state
authority.
12.4. REMOVAL OF LEGENDS.
(a) Any legend endorsed on a certificate pursuant to Section 12.3(a)
hereof shall be removed (i) if the Series C Preferred Stock to be purchased and
sold pursuant to this Agreement or Common Stock issued upon conversion of Series
C Preferred Stock represented by such certificate shall have been effectively
registered under the Securities Act, (ii) if such shares are being transferred
in compliance with Rule 144 promulgated under the Securities Act, or (iii) if
the holder of such shares shall have provided the Company with an opinion of
counsel, in form and substance reasonably acceptable to the Company and its
counsel and from attorneys reasonably acceptable to the Company and its counsel,
stating that the proposed sale, transfer or assignment of such shares may be
made without registration.
(b) Any legend endorsed on a certificate pursuant to Section 12.3(b)
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of Series C Preferred
Stock to be purchased and sold pursuant to this Agreement or Common Stock issued
upon conversion of the Series C Preferred Stock provides the Company with an
opinion of counsel, in form and substance reasonably acceptable to the Company
and its counsel and from attorneys
<PAGE>
-14-
reasonably acceptable to the Company and its counsel, stating that such legend
may be removed.
13. EXPENSES, ETC. Whether or not the transactions contemplated by this
Agreement and the Related Agreements shall be consummated, each party agrees to
pay and be responsible for the respective expenses incurred by it in connection
herewith.
14. NOTICES. All notices and other communications pursuant to this Agreement
shall be in writing, either delivered in hand or sent by first-class mail,
postage prepaid, or sent by telex, telecopier, facsimile machine or telegraph,
addressed as follows:
(a) if to the Company, at the address thereof set forth on the first
page hereof, or at such other address as shall have been furnished to the
Series C Investor in writing by the Company with a copy to Underberg &
Kessler, 1800 Chase Square, Rochester, New York 14604, Attention: Robert
F. Mechur, Esq.;
(b) if to the Series C Investors, at the address thereof set forth
next to the respective Series C Investor's name on Schedule 1 hereto or at
such other address as shall have been furnished to the Company in writing
by the Series C Investor with a copy to John H. Chu, Esq., c/o Chu, Ring &
Associates, 253 Summer Street, Boston, MA 02210.
Any notice or other communication pursuant to this Agreement shall be
deemed to have been duly given or made and to have become effective (i) when
delivered in hand to the party to which it was directed, (ii) if sent by telex,
telecopier, facsimile machine or telegraph and properly addressed in accordance
with the foregoing provisions of this Section 14, when received by the
addressee, or (iii) if sent by first-class mail, postage prepaid, and properly
addressed in accordance with the foregoing provisions of this Section 14, (A)
when received by the addressee, or (B) on the third business day following the
day of dispatch thereof, whichever of (A) or (B) shall be the earlier.
15. SURVIVAL AND TERMINATION OF COVENANTS. All covenants, agreements,
representations and warranties made herein or in any other document referred to
herein or delivered to the Series C Investors pursuant hereto shall be deemed to
have been material and relied on by each of the Series C Investors,
notwithstanding any investigation made by the Series C Investors, and shall
survive the execution and delivery to the Series C Investors hereof and of the
Series C Preferred Stock and shall terminate only as follows: (a) upon the
Company's Qualified Initial Public Offering, except as to the covenants of the
Company contained in Sections 7, 8, and 9 hereof, the provisions of Section 8 of
the Series A Securities Purchase Agreement and Sections 13 and 15 hereof; or (b)
as to any Series C Investor, if such Series C Investor no longer hold any Series
C Preferred Stock or any Common Stock, this Agreement shall terminate in its
entirety except for the provisions of Sections 13 and 15 hereof.
16. AMENDMENTS AND WAIVERS. Except as otherwise expressly required by any
other provisions of this Agreement, none of the terms or provisions contained in
this Agreement, and none of the agreements, obligations or covenants of the
Company
<PAGE>
-15-
contained in this Agreement or in any Related Agreement or in any of the Series
Preferred Stock Agreements to the extent that, as amended hereby, they may
affect, govern, or apply to the Series C Convertible Preferred Stock, may be
amended, modified, supplemented, waived or terminated unless the Company and
Series C Investors holding not less than sixty percent (60%) of the Series C
Convertible Preferred Stock and shares issued upon conversion thereof shall
execute an instrument in writing agreeing or consenting to such amendment,
modification, supplement, waiver or termination.
17. MISCELLANEOUS. This Agreement and the Related Agreements set forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. The invalidity or unenforceability of any term or
provision hereof shall not affect the validity or enforceability of any other
term or provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. This
Agreement is intended to take effect as a sealed instrument and may be executed
in any number of counterparts which together shall constitute one instrument and
shall be governed by and construed in accordance with the domestic substantive
laws of the State of New York without giving effect to any choice or conflict of
law provision or rule that would cause the application of the domestic
substantive laws of any other state, and shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns.
[remainder of page intentionally left blank]
<PAGE>
-16-
If the foregoing corresponds with your understanding of our agreement,
kindly sign this signature page and the accompanying copies thereof (which have
already been signed by the Company) in the appropriate space below and return
one counterpart of the same to the Company. This letter shall thereupon become
a binding agreement between you and the Company.
Very truly yours,
FORTE TECHNOLOGIES, INC.
By:___________________________________
Title
FOR PURPOSES OF SECTIONS 8, 9 AND 10:
_______________________________
Paul J. Travers
FOR PURPOSES OF SECTIONS 8 AND 10 ONLY:
TRAVERS FAMILY LIMITED LIABILITY COMPANY
By:_______________________________
Title
<PAGE>
-17-
FOR PURPOSES OF THIS AGREEMENT AND THE
SHAREHOLDERS AGREEMENT, FIRST REFUSAL
AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT:
ACCEPTED and AGREED TO:
KOPIN CORPORATION
By:_______________________________
Title
<PAGE>
-18-
FOR PURPOSES OF THIS AGREEMENT AND THE
SHAREHOLDERS AGREEMENT, FIRST REFUSAL
AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT:
ACCEPTED and AGREED TO:
BALDWIN AND LYONS INC.
By:_______________________________
Title
<PAGE>
-19-
FOR PURPOSES OF THIS AGREEMENT AND THE
SHAREHOLDERS AGREEMENT, FIRST REFUSAL
AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT:
ACCEPTED and AGREED TO:
SF PARTNERS I LIMITED PARTNERSHIP
By:_______________________________
Title
<PAGE>
-20-
FOR PURPOSES OF THIS AGREEMENT AND THE
SHAREHOLDERS AGREEMENT, FIRST REFUSAL
AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT:
ACCEPTED and AGREED TO:
NS ASSOCIATES INC.
By:_______________________________
Title
<PAGE>
-21-
FOR PURPOSES OF THIS AGREEMENT AND THE
SHAREHOLDERS AGREEMENT, FIRST REFUSAL
AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT:
ACCEPTED and AGREED TO:
JOHN D. WEIL, TRUSTEE, U/I/T 6-28-91
JOHN D. WEIL TRUST
By:_______________________________
Title
<PAGE>
-22-
FOR PURPOSES OF THIS AGREEMENT AND THE
SHAREHOLDERS AGREEMENT, FIRST REFUSAL
AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT:
ACCEPTED and AGREED TO:
By:_______________________________
Title
<PAGE>
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
UNITEK SEMICONDUCTOR INC.
THE COMPANY
-------
AND
KOPIN CORPORATION
AND
CLAYBRIDGE ENTERPRISES LTD.
THE INVESTORS
---------
DATED AS OF JANUARY 26, 1996
<PAGE>
AGREEMENT dated as of this 26th day of January, 1996 between Unitek
Semiconductor Inc., a Delaware corporation with its principal address at 1550
South Bascom Avenue, Campbell, California (the "Company"), and Kopin
Corporation, a Delaware corporation, with its principal address at 695 Myles
Standish Boulevard, Myles Standish Industrial Park, Taunton, Massachusetts 02780
("Kopin"), and Claybridge Enterprises Ltd., a British Virgin Islands corporation
(together with its affiliates, "Claybridge") (Kopin and Claybridge being
sometimes referred to hereinafter singly as an "Investor" and collectively as
the "Investors, together with any other Co-Investor of the Stage III Securities
or Stage IV Securities (as defined below) who is hereafter designated as such by
Kopin and/or Claybridge or recommended by the Chief Executive Officer of the
Company and approved by Kopin and Claybridge pursuant to Section 15 and listed
on Exhibit A (as amended from time to time hereafter)).
The Company intends to develop circuit designs and advanced processing
technologies relating to integrated circuits ("ICs"), especially memory circuits
such as DRAMS, SRAMS and non-volatile memories, and to design, make or have made
IC products using these designs and technologies.
Kopin is engaged in the business of designing and processing active
matrix flat panel displays, based on active matrix IC circuits and using
advanced interface electronics and IC chipsets, which are intended to be
incorporated in various portable systems.
Claybridge is seeking opportunities in the IC industry suitable for
its investment and strategic objectives.
The Company is seeking investment partners with significant financial
resources and objectives consistent with the Company's goals.
Kopin is seeking circuit designs, processing and chipset assistance
for its display businesses and is seeking opportunities to engage IC designers
and/or IC design companies to provide such assistance, and Claybridge is seeking
assistance in gaining entry into the IC business.
The Company and the Investors desire to enter into a business
relationship whereby the Investors will provide capital to the Company and the
Company, in addition to developing and making its own products, will render
assistance to Kopin in display circuit design, processing and IC chipset designs
and to Claybridge and other interested Investors with regard to the
establishment of IC foundries and related matters such as training, processing
and procurement.
Accordingly, the parties hereby agree as follows:
1. DEFINITIONS. Certain terms are used in this Agreement as
specifically defined in Exhibit 1 hereto.
2. THE SECURITIES. The Company has, or will have prior to the Stage I
Closing Date, duly authorized the following:
2.1. The issuance and sale to the Investors on the Stage I Closing
Date of the Company's Convertible Notes in the aggregate principal
amount of $500,000 (convertible into 1,625,000 shares of its Series A
Convertible Preferred Stock, par value $.001 per share ("Series A Preferred
Stock") at the price of $.3077 per share) (the "Stage I Securities"), and the
reservation, free of preemptive rights and other preferential rights, of a
sufficient number of its authorized but unissued shares of (a) its Series A
Preferred Stock to satisfy the rights of conversion of the Stage I Securities,
and (b) its only class of common stock, $0.001 par value per share ("Common
Stock"), to satisfy the rights of conversion of the Series A Preferred Stock
issuable upon conversion of the Stage I Securities.
<PAGE>
2
2.2. The issuance and sale to the Investors on the Stage II Closing
Date of the Company's Convertible Notes in the aggregate principal amount of
$1,500,000 (convertible into 4,875,000 shares of its Series A Preferred Stock at
the price of $.3077 per share) (the "Stage II Securities"), and the reservation,
free of preemptive rights and other preferential rights, of a sufficient number
of its authorized but unissued shares of (a) its Series A Preferred Stock, to
satisfy the rights of conversion of the Stage II Securities, and (b) its only
class of common stock, $0.001 par value per share ("Common Stock"), to satisfy
the rights of conversion of the Series A Preferred Stock issuable upon
conversion of the Stage II Securities.
2.3. The issuance and sale to the Investors on the Stage III Closing
Date (at the price of $0.50 per share) of 4,000,000 shares of the Company's
Series B Convertible Preferred Stock, par value $.001 per share ("Series B
Preferred Stock") (the "Stage III Securities"), and the reservation, free of
preemptive rights and other preferential rights, of a sufficient number of its
authorized but unissued shares of its Common Stock to satisfy the rights of
conversion of the holders of the Stage III Securities.
2.4. The issuance and sale to the Investors on the Stage IV Closing
Date (at the price of $1.00 per share) of 2,500,000 shares of the Company's
Series C Convertible Preferred Stock, par value $.001 per share ("Series C
Preferred Stock") (the "Stage IV Securities"), and the reservation, free of
preemptive rights and other preferential rights, of a sufficient number of its
authorized but unissued shares of its Common Stock to satisfy the rights of
conversion of the holders of the Stage IV Securities.
3. SALE AND PURCHASE OF SECURITIES.
3.1. AGREEMENT TO SELL AND PURCHASE THE SECURITIES. Subject to the
terms and conditions hereof, the Company is selling to the Investors, and the
Investors are purchasing from the Company, the following:
(a) Subject to the satisfaction of the conditions precedent set forth
in Sections 6.1 and 6.2 hereof and subject to the terms and other conditions
hereinafter set forth, at the Stage I Closing, the respective amount of Stage I
Securities set forth on Exhibit A, convertible into 1,625,000 shares of Series A
Preferred Stock at a conversion price of $.3077 per share (subject to
proportionate adjustment to reflect stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences occurring after the date of
this Agreement), for an aggregate purchase price of $500,000 for the Stage I
Closing;
(b) Subject to the satisfaction of the conditions precedent set forth
in Sections 6.1 and 6.3 hereof and subject to the terms and other conditions
hereinafter set forth, at the Stage II Closing, the respective amount of Stage
II Securities set forth on Exhibit A, convertible into 4,875,000 shares of
Series A Preferred Stock at a conversion price of $.3077 per share (subject to
proportionate adjustment to reflect stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences occurring after the date of
this Agreement), for an aggregate purchase price of $1,500,000 for the Stage II
Closing;
(c) Subject to the satisfaction of the conditions precedent set forth
in Sections 6.1 and 6.4 hereof and subject to the terms and other conditions
hereinafter set forth, at the Stage III Closing, the respective number of Stage
III Securities set forth on Exhibit A for a purchase price of $0.50 per share
(subject to proportionate adjustment to reflect stock splits, stock dividends,
stock combinations, recapitalizations and like occurrences occurring after the
date of this Agreement), representing an aggregate purchase price of $2,000,000
for the Stage III Closing;
(d) Subject to the satisfaction of the conditions precedent set forth
in Sections 6.1 and 6.5 hereof and subject to the terms and other conditions
hereinafter set forth, at the Stage IV Closing, the respective number of Stage
IV Securities set forth on Exhibit A for
<PAGE>
3
a purchase price of $1.00 per share (subject to proportionate adjustment to
reflect stock splits, stock dividends, stock combinations, recapitalizations and
like occurrences occurring after the date of this Agreement), representing an
aggregate purchase price of $2,500,000 for the Stage IV Closing;
(e) Notwithstanding anything to the contrary set forth herein,
including, but not limited to Section 6.3(a), the Company hereby grants to the
Investors the option to purchase the Stage II Securities in accordance with the
terms set forth in Sections 3.1(b) and 3.2(b) (the "Stage II Option"). The
Stage II Option shall be exercisable (unless the Investors have breached their
obligations to purchase the Stage I Securities at the Stage I Closing) in whole
(but not in part) from and after the Stage I Closing, by written notice (the
Stage II Option Notice") from the Investors to the Company. The Stage II Option
Notice shall be deemed, for purposes of compliance with Section 3.2(b) hereof,
to be a "Stage II Notice," as such term is defined in Section 6.3.
(f) Notwithstanding anything to the contrary set forth herein,
including, but not limited to Section 6.4(b), the Company hereby grants to the
Investors the option to purchase the Stage III Securities in accordance with the
terms set forth in Sections 3.1(c) and 3.2(c) (the "Stage III Option"). The
Stage III Option shall be exercisable (unless the Investors have breached their
obligations to purchase the Stage II Securities or Stage III Securities at the
Stage II Closing or Stage III Closing, respectively) in whole (but not in part)
from and after the Stage I Closing, by written notice (the Stage III Option
Notice") from the Investors to the Company. The Stage III Option Notice shall
be deemed, for purposes of compliance with Section 3.2(c) hereof, to be a "Stage
III Notice," as such term is defined in Section 6.4.
(g) Notwithstanding anything to the contrary set forth herein,
including, but not limited to Section 6.5(b), the Company hereby grants to the
Investors the option to purchase the Stage IV Securities in accordance with the
terms set forth in Sections 3.1(d) and 3.2(d) (the "Stage IV Option"). The
Stage IV Option shall be exercisable (unless the Investors have breached their
obligations to purchase the Stage II Securities, Stage III Securities or Stage
IV Securities at the Stage II Closing, Stage III Closing or Stage IV Closing,
respectively) in whole (but not in part) from and after the Stage I Closing, by
written notice (the Stage IV Option Notice") from the Investors to the Company.
The Stage IV Option Notice shall be deemed, for purposes of compliance with
Section 3.2(d) hereof, to be a "Stage IV Notice," as such term is defined in
Section 6.5.
3.2. CLOSINGS.
(a) The closing hereunder with respect to the transactions
contemplated by Sections 2.1 and 3.1(a) hereof (the "Stage I Closing") will take
place at the offices of Chu, Ring & Associates, 253 Summer Street, Boston,
Massachusetts, at 9:00 a.m. local time, on January 26, 1996, or a such other
place and time and on such other date as may be mutually agreed upon in writing
by the Investors and the Company (the "Stage I Closing Date").
(b) The closing hereunder with respect to the transactions
contemplated by Sections 2.2 and 3.1(b) or 3.1(e) hereof (the "Stage II
Closing") will take place at the offices of Chu, Ring & Associates, 253 Summer
Street, Boston, Massachusetts or at such other place as may be mutually agreed
upon in writing by the Investors and the Company, on a mutually acceptable
business day within 15 days after the Stage II Notice has been delivered in
accordance with Section 6.3 and the other conditions set forth in Sections 6.1
and 6.3 have been satisfied or waived in writing by the Investors (the "Stage II
Closing Date"). Notwithstanding anything express or implied in this Agreement
to the contrary, the Stage II Closing shall be deemed to have occurred for all
purposes hereunder upon the exercise by the Investors of the option granted to
the Investors in Section 3.1(e) above and payment by the Investors of the
aggregate purchase price for the Stage II Securities.
<PAGE>
4
(c) The closing (the "Stage III Closing") hereunder with respect to
the transactions contemplated by Sections 2.3 and 3.1(c) or 3.1(f) hereof will
take place at the offices of Chu, Ring & Associates, 253 Summer Street, Boston,
Massachusetts or at such other place as may be mutually agreed upon in writing
by the Investors and the Company, on a mutually acceptable business day within
15 days after the Stage III Notice has been delivered in accordance with Section
6.4 and the other conditions set forth in Sections 6.1 and 6.4 have been
satisfied or waived in writing by the Investors (the "Stage III Closing Date").
Notwithstanding anything express or implied in this Agreement to the contrary,
the Stage III Closing shall be deemed to have occurred for all purposes
hereunder upon the exercise by the Investors of the option granted to the
Investors in Section 3.1(f) above and payment by the Investors of the aggregate
purchase price for the Stage III Securities.
(d) The closing (the "Stage IV Closing") hereunder with respect to the
transactions contemplated by Sections 2.3 and 3.1(d) or 3.1(g) hereof will take
place at the offices of Chu, Ring & Associates, 253 Summer Street, Boston,
Massachusetts or at such other place as may be mutually agreed upon in writing
by the Investors and the Company, on a mutually acceptable business day within
15 days after the Stage IV Notice has been delivered in accordance with Section
6.5 and the other conditions set forth in Sections 6.1 and 6.5 have been
satisfied or waived in writing by the Investors (the "Stage IV Closing Date").
Notwithstanding anything express or implied in this Agreement to the contrary,
the Stage IV Closing shall be deemed to have occurred for all purposes hereunder
upon the exercise by the Investors of the option granted to the Investors in
Section 3.1(g) above and payment by the Investors of the aggregate purchase
price for the Stage IV Securities.
(e) At each Closing, the Company will, unless otherwise requested,
deliver to the Investors convertible promissory notes or certificates evidencing
the respective aggregate principal amount or number of shares of Securities to
be purchased by the Investors, as the case may be, against payment of the
purchase price in immediately available funds or by cancellation of existing
indebtedness, all as set forth on Exhibit A.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Investors to
enter into this Agreement and to purchase the Securities to be purchased by them
hereunder, the Company represents and warrants to the Investors and agrees
severally with each Investor as follows:
4.1. ORGANIZATION, STANDING, POWER, AUTHORITY, QUALIFICATION. The
Company is a duly organized and validly existing corporation in good standing
under the laws of the State of Delaware with corporate power and authority
adequate for (a) the execution and delivery of this Agreement, the Related
Agreements and the performance of its obligations hereunder and thereunder and
(b) the carrying on of the business conducted by it. The Company has taken (or,
in the case of the Related Agreements, will have taken prior to the Stage I
Closing Date) all corporate action necessary to authorize this Agreement and the
Related Agreements. The Company is duly qualified and in good standing as a
foreign corporation in each other jurisdiction in which such qualification is
required, and is duly authorized, qualified and licensed under all laws,
regulations ordinances or orders of public authorities, or otherwise, to carry
on its business in the places and in the manner conducted and to own its
properties and assets.
4.2. CAPITALIZATION. Immediately after the effective date of the
Certificate of Incorporation (but before giving effect to the Stage I Closing),
the authorized capital stock of the Company consists of 20,000,000 shares of a
single class of Common Stock, par value $.001 per share, 4,000,000 shares of
which are issued and outstanding or have been duly reserved for issuance to key
employees and 3,000,000 shares have been duly reserved for issuance to
employees, consultants, directors and advisers pursuant to the Company's stock
option plan, and 13,000,000 shares of a single class of Preferred Stock, par
value $.001 per share. The Certificate of Designation will authorize the
issuance of the following series of Preferred Stock, as the sole authorized
series of the Company's Preferred Stock: 6,500,000 shares of Series A Preferred
Stock, 4,000,000 shares of Series B Preferred Stock and 2,500,000 shares of
Series C Preferred Stock. Schedule 4.2 hereto
<PAGE>
5
contains a list of (i) all holders of capital stock of the Company, including
the number of shares of capital stock held by each such holder, and (ii) all
outstanding warrants, options, agreements, convertible securities or other
commitments pursuant to which the Company is or may become obligated to issue
(or as to which it has reserved for issuance) any shares of its capital stock or
other securities of the Company, which names all persons entitled to receive
such shares or other securities (and/or states their respective positions at the
Company) and the shares or other securities required to be issued thereunder.
All of the issued and outstanding shares of the capital stock of the Company
have been duly authorized and validly issued in compliance with all applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act") and
applicable state "blue sky" laws and regulations, and are fully paid, non-
assessable, and subject to no liens or restrictions on transfer of any kind
except restrictions on transfer imposed by applicable securities laws. The
Company does not have outstanding, except as contemplated by this Agreement, any
rights (preemptive or other) to subscribe for or to purchase, or any warrants or
options for the purchase of, or any agreements, understandings or arrangements
providing for or other obligations requiring the issuance (contingent or other)
of, or any calls, commitments or claims of any character relating to, any shares
of any class of its capital stock or any securities convertible into or
exchangeable for any such stock. The Company is not subject to any obligations
(contingent or other) to repurchase or otherwise acquire or rescind the sale of
any shares of any class of its stock or any securities, rights or options
related thereto.
4.3. GOVERNING DOCUMENTS. The copies of the Certificate of
Incorporation and By-Laws of the Company as currently in effect which have
heretofore been delivered to the Investors are true, complete and correct.
4.4. FINANCIAL INFORMATION. The Company's balance sheet as at
January 15, 1996, previously delivered to the Investors, fairly presents the
Company's financial condition as at such date. There has been no material
adverse change since January 15, 1996, in the business, operations, assets,
prospects or condition (financial or otherwise) of the Company or its Business
other than in the ordinary course of business.
4.5. ENFORCEABILITY OF AGREEMENTS. The Company has duly taken all
corporate action necessary to authorize the execution, delivery and performance
of this Agreement and each of the Related Agreements. This Agreement and each
of the Related Agreements constitutes (or, in the case of the Related
Agreements, will constitute upon execution and delivery thereof at the Closing)
the valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except to the extent enforcement thereof may be
limited by insolvency, bankruptcy and similar laws affecting generally the
enforcement of contractual rights and by the discretionary nature of equitable
remedies.
4.6. NO VIOLATION; NO DEFAULTS. Neither the execution nor delivery
of this Agreement or any of the Related Agreements, nor the consummation of any
transaction contemplated hereby or thereby, including without limitation the
issuance and sale of the Securities as provided herein, has constituted or
resulted in or will constitute or result in a breach of the provisions of any
mortgage, lease, license or other instrument, contract or agreement to which the
Company is a party or by which it is bound, or the charter or by-laws of the
Company or the violation of any judgment, decree, law or governmental or
administrative order, rule or regulation which, singly or in the aggregate, may
have any material adverse effect on the business, operations, assets, prospects
or condition (financial or otherwise) of the Company. The Company is not in
default under any provision of its charter, by-laws, or under any provision of
any mortgage, lease, license or other instrument, contract or agreement to which
it is a party or by which it is bound or of any law, ordinance, approval, rule
or regulation or any terms of any applicable order, judgment or decree of any
court, arbitrator or governmental or administrative authority which, singly or
in the aggregate, may have any material adverse effect on the business,
operation, assets, prospects or condition (financial or otherwise) of the
Company.
<PAGE>
6
4.7. BROKERS' FEES. There are no brokers', finders', or similar fees
due from the Company in respect of the transactions contemplated by this
Agreement or any of the Related Agreements.
4.8. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
Schedule 4.8 or in the financial statements referred to in Section 4.4 hereof,
or arising in the ordinary course of business and for obligations created
pursuant to this Agreement and the Related Agreements, as of the Stage I Closing
Date, the Company will have no material liabilities (fixed or contingent,
including without limitation any liabilities for money borrowed or any tax
liabilities due or to become due) and will be subject to no material obligations
under any contract or commitment of any kind.
4.9. LITIGATION. Except as disclosed on Schedule 4.9, there is
neither pending nor, to the Company's knowledge and belief, threatened any
action, suit, proceeding or claim, or any basis therefor, to which the Company,
Liou or any officer of the Company is or may be named as a party or its or his
property is or may be subject or which calls into question any of the
transactions contemplated by this Agreement.
4.10. CONSENTS. No consent, approval or authorization of, or filing
with, any governmental authority is required in connection with the Company's
valid execution, delivery or performance of this Agreement and the Related
Agreements, or the consummation of any other transaction to be consummated at
the Closing.
4.11. TRADEMARKS, LICENSES, ETC. The Company has or has the right to
use all patents, patent applications, trademarks, trademark rights, trade names,
trade name rights, copyrights, licenses, trade secrets, permits, authorizations
and other rights, as are necessary for the conduct of its business, all of which
are in full force and effect, and the Company is in substantial compliance with
the foregoing without any infringement of, adverse claim in respect of or known
conflict with the valid rights of others which could affect or impair in a
material manner the business or assets or financial condition of the Company.
The Company has previously delivered to the Investors a schedule listing all
material patents, patent applications, licenses, copyrights and similar
intellectual property rights of the Company. All material items of intellectual
property used by the Company's business are or will be made subject to patent,
copyright, trade secret or other appropriate legal protection and the Company is
under no obligation to compensate any other Person for the use thereof. The
Company has complied with all of its obligations of confidentiality in respect
of the claimed trade secrets or proprietary information of others and knows of
no violation of such obligations of confidentiality as are owed to the Company.
No employee, agent or consultant of the Company is subject to confidentiality
restrictions in favor of any third person the breach of which could subject the
Company to any material liability.
4.12. FOUNDER. Liou is of sound mind and body and mentally and
physically capable of fulfilling his obligations under the Employment Agreement.
4.13. PROCEEDS. All cash proceeds from the sale of the Securities
will be used for general corporate purposes.
4.14. REGISTRATION RIGHTS. Except as provided for in this Agreement,
the Company is under no obligation to register under the Securities Act any of
its currently outstanding securities or any of its securities which may
hereafter be issued.
4.15. SUBSIDIARIES; TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES;
INSURANCE. The Company has no subsidiary and owns no security issued by or
interest in any other corporation, partnership or other organization. The
Company has valid title to and ownership of all the properties and assets
purported to be owned by it, free from all mortgages, pledges, liens, security
interests, conditional sale agreements, encumbrances or charges, except such as
are described on Schedule 4.15 hereto. The Company enjoys peaceful and
undisturbed possession under all leases under which it is operating and all such
leases are valid and subsisting and in full force and effect. The
<PAGE>
7
Company maintains those insurances (including product liability insurance) and
in the amounts set forth on Schedule 4.15.
4.16. ENVIRONMENTAL COMPLIANCE. The Company has taken all necessary steps
to investigate its usage of its properties and its operations conducted thereon
and, based upon such diligent investigation, has determined that:
(a) none of the Company or, to the best of its knowledge, any
operator of its properties is in violation, or alleged violation, of any
judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation those arising under the
Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any
state or local statute, regulation, ordinance, order or decree relating to
health, safety or the environment (hereinafter "Environmental Laws"), which
violation would have a material adverse effect on the environment or the
business, assets or financial condition of the Company;
(b) the Company has not received notice from any third party including
without limitation any federal, state or local governmental authority, (i) that
the Company or any predecessor in interest has been identified by the United
States Environmental Protection Agency ("EPA") as a potentially responsible
party under CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous waste as
defined by 42 U.S.C. (S)6903(5), any hazardous substances as defined by 42
U.S.C. (S)9601(14), any pollutant or contaminant as defined by 42 U.S.C.
(S)9601(33) and any toxic substance, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws ("Hazardous
Substances") which any one of them has generated, transported or disposed of has
been found at any site at which a federal, state or local agency or other third
party has conducted or has ordered that the Company or any predecessor in
interest conduct a remedial investigation, removal or other response action
pursuant to any Environmental Law; or (iii) that any of them is or shall be a
named party to any claim, action, cause of action, complaint (contingent or
otherwise) legal or administrative proceeding arising out of any third party's
incurrence of costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances;
(c) except as set forth in Schedule 4.16 hereto, to the best of the
Company's knowledge: (i) no portion of the Company's properties has been used
for the handling, manufacturing, processing, storage or disposal of Hazardous
Substances except in accordance with applicable Environmental Laws; and no
underground tank or other underground storage receptacle for Hazardous
Substances is located on such properties; (ii) in the course of any activities
conducted by the Company or operators of its properties, no Hazardous Substances
have been generated or are being used on such properties except in accordance
with applicable Environmental Laws; (iii) there have been no releases (i.e. any
past or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or threatened
releases of Hazardous Substances on, upon, into or from the properties of the
Company, which releases would have a material adverse effect on the value of
such properties or adjacent properties or the environment; (iv) to the best of
the Company's knowledge, there have been no releases on, upon, from or into any
real property in the vicinity of the real properties of the Company which,
through soil or ground water contamination, may have come to be located on, and
which would have a material adverse effect on the value of, the properties of
the Company; and (v) in addition, any Hazardous Substances that have been
generated on the properties of the Company, have been transported offsite only
by carriers having an identification number issued by the EPA and treated or
disposed of only by treatment or disposal facilities maintaining valid permits
as required under applicable Environmental Laws, which transporters and
facilities have been and are, to the best of the Company's knowledge, operating
in compliance with such permits and applicable Environmental Laws; and
<PAGE>
8
(d) to the best of the Company's knowledge, none of the properties
of the Company are or shall be subject to any applicable environmental cleanup
responsibility law or environmental restrictive transfer law or regulation by
virtue of the transactions set forth herein and contemplated hereby.
4.17. TAXES. The Company has, to the best of the Company's knowledge,
accurately prepared and timely filed all federal, state and other tax returns
required by law to be filed by it, and all taxes shown to be due and all
additional assessments have been paid or provision made therefore. There are no
transfer, issuance or similar taxes imposed by law in connection with the
issuance, sale or delivery of the Securities.
4.18. OFFERING. Subject to the truth and accuracy of the
representations of the Investors set forth in Section 5 hereof, the offer, sale
and issuance of the Securities as contemplated by this Agreement are exempt from
the registration requirements of the Securities Act, and neither the Company nor
any one acting on its behalf will take any action hereafter that would cause the
loss of such exemption. The Company has complied and will comply with all
applicable state "blue sky" or securities laws in connection with the offer,
sale and issuance of the Securities as contemplated by this Agreement.
4.19. DISCLOSURE. Neither this Agreement nor any of the Related
Agreements contains any untrue statement of a material fact and does not omit to
state a material fact necessary in order to make the statements contained herein
or therein misleading in the light of the circumstances under which they were
made.
5. INVESTOR REPRESENTATIONS. Each Investor represents and warrants to the
Company as of his or its execution of this Agreement that:
5.1. INVESTMENT REPRESENTATIONS.
(a) He or it is acquiring the Securities for investment, and not
with a view to selling or otherwise distributing any thereof in violation of the
Securities Act; provided, however, that nothing contained herein shall prevent
the Investor from requesting that the Securities be registered in the name of
its nominee or transferring the Securities in compliance with applicable laws.
(b) That no person or entity, other than the Company or its
authorized representatives, has offered the Securities to the undersigned.
(c) That he or it has such knowledge and experience in financial and
business matters that he or it is capable of evaluating the merits and risks of
an investment in the Company, or he and his or its financial and investment
advisors together have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of an
investment in the Company.
(d) That (i) it has been called to his or its attention in
connection with his or its investment in the Company that such investment is
speculative in nature and involves a high degree of risk, and (ii) he or it is
aware that the Company is in the start-up stage and thus has limited operating
history.
(e) He or it and his or its representatives have been permitted full
and complete access to the books and records and other documents of the Company
which he and his or it and its representatives have desired or requested to
review and that he and his or it and its representatives have had a full
opportunity to meet with the officers of the Company to discuss such matters a
such Investor has elected to review, and that any questions regarding the
Company and its business have been answered to the full satisfaction of the
undersigned.
(f) He or it is an "accredited investor" as defined in Regulation D
under the Securities Act.
<PAGE>
9
(g) That he or it understands that no federal or state agency has
passed upon or made any recommendation or endorsement of an investment in the
Securities.
(h) That he or it will notify the Company immediately, and in any
event prior to the date this agreement is accepted by the Company or any
Securities are issued to such Investor, if any event occurs which would
materially and adversely affect any of the above representations or warranties.
5.2. AUTHORIZATION; ENFORCEABILITY. It has taken all necessary
action to authorize its execution, delivery and performance of this Agreement
and the other Related Agreements to which it is or may become a party. This
Agreement constitutes, and each of the Related Agreements to which it is a party
will constitute, upon execution and delivery thereof at the Closing, its legal,
valid and binding agreement.
5.3. BROKERS. It has not retained, utilized or been represented by
any broker or finder in connection with the transactions contemplated by this
Agreement.
6. CONDITIONS PRECEDENT.
6.1. CONDITIONS PRECEDENT TO EACH CLOSING. The obligation of each
Investor to purchase Securities at each Closing is subject to the Company's
compliance with its agreements herein and to the satisfaction, on or prior to
each Closing Date, of the following conditions precedent (except to the extent
waived in writing by the Investors in their sole discretion including in
connection with the exercise by the Investors of their rights under Section
3.1(e), (f) or (g) hereof):
(a) Legality; Governmental Authorizations. The purchase of and
payment for the Securities to be purchased by the Investors shall not be
prohibited by any law or governmental order or regulation, and shall not subject
any Investor to any penalty, tax, liability or other onerous condition. All
necessary consents, approvals, licenses, permits, orders and authorizations of,
or registrations, declarations and filings with, any governmental or
administrative agency or of any other Person with respect to any of the
transactions contemplated hereby or by the Related Agreements shall have been
duly obtained or made and shall be in full force and effect. True and complete
copies of each of the foregoing as in effect shall have been furnished to the
Investors.
(b) No Change in Law, Etc. No legislation, order, rule, ruling or
regulation shall have been enacted or made by or on behalf of any governmental
body, department or agency, nor shall any investigation by any governmental
authority or administrative body have been commenced, nor shall any decision of
any court of competent jurisdiction have been rendered which in the judgment of
an Investor would materially and adversely affect, restrain, prevent or change
the transactions contemplated by this Agreement or the Related Agreements or
materially and adversely affect the business, operations, assets, prospects or
condition (financial or otherwise) of the Company.
(c) Proper Proceedings. All necessary and proper proceedings shall
have been taken by the Company to authorize the execution, delivery and
performance of each of this Agreement and the Related Agreements and of each of
the transactions contemplated hereby and thereby.
(d) General. All instruments and legal, governmental,
administrative and corporate proceedings in connection with the transactions
contemplated by this Agreement and the Related Agreements shall be satisfactory
in form and substance to the Investors, and the Investors shall have received
counterpart originals, or certified or other copies of all documents, including
without limitation records of corporate or other proceedings and opinions of
counsel, which it may have reasonably requested in connection therewith.
6.2. CONDITIONS PRECEDENT TO THE STAGE I CLOSING. In addition
to the satisfaction of the conditions set forth in Section 6.1 above, the
obligation of each Investor to purchase and pay for
<PAGE>
10
Stage I Securities at the Stage I Closing is subject to the satisfaction of the
following conditions precedent (except to the extent waived in writing by such
Investor in its sole discretion):
(a) Certificate of Designation. The Certificate of Designation shall
have been approved by resolutions duly adopted by the Company's board of
directors and shall have been filed with the office of the Secretary of State of
the State of Delaware.
(b) First Refusal Agreement. The Company shall have executed and
delivered to the Investors the First Refusal Agreement substantially in the form
of Exhibit 6.2(b) hereto.
(c) Employment Agreement. Liou, the Company and the Investors shall
have executed and delivered the Employment Agreement substantially in the form
of Exhibit 6.2(c).
(d) Shareholders Agreements. The Company, the Investors and each
Person who, as of the Stage I Closing, owns any shares of capital stock of the
Company shall have executed and delivered the Shareholders Agreement
substantially in the form of Exhibit 6.2(d).
(e) Administrative Services Agreement. The Company and Kopin shall
have executed and delivered the Administrative Services Agreement substantially
in the form of Exhibit 6.2(e).
(f) Employee Proprietary Rights and Nondisclosure Agreements. The
Company shall have delivered to the Investors a copy of its Employee Proprietary
Rights and Nondisclosure Agreement signed by each of the Company's employees
(other than Liou).
(g) Legal Opinion. The Investors shall have received a favorable
legal opinion from Company counsel substantially in the form of Exhibit 6.2(g)
hereto.
(h) Board of Directors. The Company shall have (i) adopted an
amendment to its By-Laws fixing the number of its directors at four and (ii)
established a Compensation Committee of its Board of Directors consisting of at
least a majority of the non-management directors; and, consistent with the
Shareholders Agreement, the Company's Board of Directors shall, as of the Stage
I Closing Date, consist of at least the following three individuals (the fourth
member being such person as shall be nominated by management of the Company and
agreed to by the Investors, as provided under the Shareholders Agreement):
Two persons nominated by the Investors
Tian-I Liou
(i) Representations and Warranties; Officers' Certificates. The
representations and warranties contained or incorporated by reference herein
shall be true and correct in all material respects on and as of the Stage I
Closing Date with the same force and effect as though made on and as of the
Stage I Closing Date, both before and after giving effect to the sale of the
Stage I Securities; and the Investors shall have received on the Stage I Closing
Date a certificate to these effects signed by the President of the Company and a
certificate as to the matters represented and warranted in Section 4.12 signed
by Liou.
6.3. CONDITIONS PRECEDENT TO THE STAGE II CLOSING. In addition to the
continuing satisfaction of the conditions set forth in Sections 6.1 and 6.2
hereof, the obligation of each Investor to purchase and pay for Stage II
Securities at the Stage II Closing is subject to the satisfaction of the
following conditions precedent (except to the extent waived in writing by such
Investor in its sole discretion including in connection with the exercise by the
Investors of their rights under Section 3.1(e) hereof):
(a) The Company's President and Chief Executive Officer shall have
delivered to the Investors a written notice (the "Stage II Notice") certifying
that the milestones set forth in
<PAGE>
11
Schedule 6.3 have occurred and requesting that the Stage II Closing be effected
as promptly as practicable.
(b) There shall not have been any material misstatement with respect
to, or any material breach of, any of the representations and warranties set
forth in Section 4 hereof as of the date of the Stage I Closing; there shall not
be any material misstatement with respect to, or any material breach of, any of
the representations and warranties set forth in Sections 4.1-13, and 4.15-4.19
as of the date of the Stage II Closing; there shall not be any material
misstatement with respect to, or any material breach of, any of the
representations and warranties set forth in Section 4 hereof (other than those
set forth in Sections 4.1-13, and 4.15-4.19), as of the date of the Stage II
Closing, except as disclosed in writing to and accepted by the Investors, which
acceptance shall not be unreasonably withheld; and the Company shall not be in
material default of any covenant set forth in this Agreement.
(c) Each of the Related Agreements shall be in full force and effect.
(d) The Investors shall have received a certificate of the President
and Chief Executive Officer of the Company, dated the Stage II Closing Date, to
the effect that the conditions precedent set forth in Sections 6.1 and 6.3 have
been fully satisfied, and certifying further that since the Stage I Closing Date
there has not been any material adverse change in the financial condition or
operations of the Company.
(e) The Company shall have delivered to the Investors a certificate or
certificates, dated the Stage II Closing Date, of the Secretary of the
Corporation certifying as to the resolutions of the Company's Board of Directors
authorizing the issuance to the Investors of the Stage II Securities, the
execution and delivery of such other documents and instruments as may be
required by this Agreement in connection with the Stage II Closing, and the
consummation of the transactions contemplated hereby, and certifying that such
resolutions were duly adopted and have not been rescinded or amended as of said
date.
6.4. CONDITIONS PRECEDENT TO THE STAGE III CLOSING. In addition to
the continuing satisfaction of the conditions set forth in Sections 6.1 and
6.2 hereof, the obligation of each Investor to purchase and pay for Stage III
Securities at the Stage III Closing is subject to the satisfaction of the
following conditions precedent (except to the extent waived in writing by such
Investor in its sole discretion including in connection with the exercise by the
Investors of their rights under Section 3.1(f) hereof):
(a) The Stage II Closing shall have occurred.
(b) The Company's President and Chief Executive Officer shall have
delivered to the Investors a written notice (the "Stage III Notice") certifying
that the milestones set forth in Schedule 6.4 have occurred and requesting that
the Stage III Closing be effected as promptly as practicable.
(c) There shall not have been any material misstatement with respect
to, or any material breach of, any of the representations and warranties set
forth in Section 4 hereof as of the date of the Stage III Closing; there shall
not be any material misstatement with respect to, or any material breach of, any
of the representations and warranties set forth in Section 4.1-13, and 4.15-4.19
as of the date of the Stage III closing; there shall not be any material
misstatement with respect to, or any material breach of, any of the
representations and warranties set forth in Section 4 hereof (other than those
set forth in Sections 4.1-13, and 4.15-4.19), as of the date of the Stage III
Closing, except as disclosed in writing to and accepted by the Investors, which
acceptance shall not be unreasonably withheld; and the Company shall not be in
material default of any covenant set forth in this Agreement.
(d) Each of the Related Agreements shall be in full force and effect.
<PAGE>
12
(e) The Investors shall have received a certificate of the President
and Chief Executive Officer of the Company, dated the Stage III Closing Date, to
the effect that the conditions precedent set forth in Sections 6.1 and 6.4 have
been fully satisfied, and certifying further that since the Stage I Closing Date
there has not been any material adverse change in the financial condition or
operations of the Company.
(f) The Company shall have delivered to the Investors a certificate or
certificates, dated the Stage III Closing Date, of the Secretary of the
Corporation certifying as to the resolutions of the Company's Board of Directors
authorizing the issuance to the Investors of the Stage III Securities, the
execution and delivery of such other documents and instruments as may be
required by this Agreement in connection with the Stage III Closing, and the
consummation of the transactions contemplated hereby, and certifying that such
resolutions were duly adopted and have not been rescinded or amended as of said
date.
6.5. CONDITIONS PRECEDENT TO THE STAGE IV CLOSING. In addition to the
continuing satisfaction of the conditions set forth in Sections 6.1 and 6.2
hereof, the obligation of each Investor to purchase and pay for Stage IV
Securities at the Stage IV Closing is subject to the satisfaction of the
following conditions precedent (except to the extent waived in writing by such
Investor in its sole discretion including in connection with the exercise by the
Investors of their rights under Section 3.1(g) hereof):
(a) The Stage III Closing shall have occurred.
(b) The Company's President and Chief Executive Officer shall have
delivered to the Investors a written notice (the "Stage IV Notice") certifying
that the milestones set forth in Schedule 6.5 have occurred and requesting that
the Stage IV Closing be effected as promptly as practicable.
(c) There shall not have been any material misstatement with respect
to, or any material breach of, any of the representations and warranties set
forth in Section 4 hereof as of the date of the Stage I Closing; there shall not
be any material misstatement with respect to, or any material breach of, any of
the representations and warranties set forth in Section 4.1-13, and 4.15-4.19 as
of the date of the Stage IV closing; there shall not be any material
misstatement with respect to, or any material breach of, any of the
representations and warranties set forth in Section 4 hereof (other than those
set forth in Sections 4.1-13, and 4.15-4.19), as of the date of the Stage IV
Closing, except as disclosed in writing to and accepted by the Investors, which
acceptance shall not be unreasonably withheld; and the Company shall not be in
material default of any covenant set forth in this Agreement.
(d) Each of the Related Agreements shall be in full force and effect.
(e) The Investors shall have received a certificate of the President
and Chief Executive Officer of the Company, dated the Stage IV Closing Date, to
the effect that the conditions precedent set forth in Sections 6.1 and 6.5 have
been fully satisfied, and certifying further that since the Stage I Closing Date
there has not been any material adverse change in the financial condition or
operations of the Company.
(f) The Company shall have delivered to the Investors a certificate or
certificates, dated the Stage IV Closing Date, of the Secretary of the
Corporation certifying as to the resolutions of the Company's Board of Directors
authorizing the issuance to the Investors of the Stage IV Securities, the
execution and delivery of such other documents and instruments as may be
required by this Agreement in connection with the Stage IV Closing, and the
consummation of the transactions contemplated hereby, and certifying that such
resolutions were duly adopted and have not been rescinded or amended as of said
date.
<PAGE>
13
6.6. CONDITIONS TO OBLIGATIONS OF THE COMPANY. It shall be a
condition precedent to the obligations of the Company hereunder to be performed
at the Stage I Closing, the Stage II Closing, the Stage III Closing or the Stage
IV Closing, as the case may be, as to each Investor (including any Co-Investor
(as defined in Section 15)) that (i) the representations and warranties
contained herein of such Investor (and Co-Investor) shall be true and correct as
of the date of each such Closing with the same force and effect as though such
representations and warranties had been made on and as of such date, and each
Investor (and Co-Investor) will execute and deliver to the Company a certificate
to these effects, (ii) such Investor (and Co-Investor) shall have materially
complied with all of its agreements, covenants and obligations hereunder and
under all other agreements executed in connection with the transactions
contemplated hereby to which it is as party, and (iii) such Investor shall have
executed and delivered, and shall remain legally bound under, the Shareholders
Agreement.
7. COVENANTS. In addition to its other undertakings herein, the
Company covenants that so long as any Securities remain outstanding it will
comply with each of the following provisions:
7.1. REPORTS. The Company will maintain a system of accounting in
which full, true and correct entries will be made of all dealings and
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis. The
Company will furnish the following financial statements, notices and requests to
the Investors and, with respect to the financial statements referred to in
Sections 7.1.1 and 7.1.2, to any other Person holding any shares of the
Securities:
7.1.1. Annual Statements. As soon as available, and in any event
within 60 days after the end of each fiscal year of the Company, the
balance sheet of the Company as of the end of such fiscal year and its
statements of operations and changes in financial position for such year,
setting forth in each case in comparative form the figures for the next
preceding fiscal year (commencing with the fiscal year ending in 1996),
said statements being accompanied by the audit report thereon of certified
public accountants of national recognized standing reasonably satisfactory
to the Investor, to the effect that such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior years and present fairly the
financial position of the Company as of the dates specified and the results
of its operations and changes in financial position with respect to the
periods specified.
7.1.2. Quarterly Reports. As soon as available, and in any event
within 30 days after the end of each of the first three fiscal quarters in
each fiscal year of the Company, the balance sheet of the Company as of the
end of such quarter and its statements of operations and changes in
financial position for such quarter and the portion of the fiscal year then
ended, setting forth in each case the figures for the corresponding periods
of the immediately preceding fiscal year in comparative form (commencing
with the fiscal year ending in 1996), all in reasonable detail.
7.1.3. Monthly Reports. As soon as practicable, and in any event
within 30 days after the end of each calendar month of each fiscal year,
financial statements of the Company as of the end of such month in form
acceptable to the Investors.
7.1.4. Officers' Certificates. Together with delivery of financial
statements of the Company pursuant to Sections 7.1.1 and 7.1.2 above, a
certificate of the President and, the Treasurer of the Company that such
statements have been properly prepared and are correct (subject in the case
of interim financial statements only to normal year-end audit adjustments).
7.1.5. Budgets. As soon as practicable and in any event within 30
days after the commencement of each calendar year, an annual budget, and
copies of financial budgets of income and expenditures on a month-to-month
basis.
<PAGE>
14
7.2. KEY MAN LIFE INSURANCE. The Company shall obtain not later than the
Stage II Closing Date and maintain with a financially sound and reputable
insurance company, term life insurance on the life of Liou, in the amount of at
least $1,000,000, which proceeds shall be payable to the order of the Company.
The Company will not cause or permit any assignment of the proceeds of such
policy and will not borrow against such policy.
7.3. NOTICE OF LITIGATION, DEFAULTS, ETC. The Company will promptly give
the Investors notice of any litigation or any administrative proceeding to which
it may hereafter become a party which involves a potential liability (before
giving effect to receipt of proceeds of applicable insurance policies, if any)
equal to or greater than $25,000, or which may otherwise result in any material
adverse change in the business, operations, assets, prospects or condition
(financial or otherwise) of the Company. Forthwith upon any officer of the
Company obtaining knowledge of any default or event of default under any
agreement relating to indebtedness for money borrowed or on account of a capital
lease obligation, the Company will furnish to the Investors a notice specifying
the nature and period of existence thereof and what action the Company has
taken, is taking or proposes to take with respect thereto. Promptly after the
receipt thereof, the Company will provide to the Investors copies of any reports
as to inadequacies in accounting controls submitted by independent accountants.
7.4. OTHER INFORMATION. From time to time upon request of any authorized
officer or representative of the Investor, the Company will furnish to any such
authorized officer or representative such information regarding the business,
affairs, prospects and condition (financial or otherwise) (including materials
furnished to the directors of the Company at or in connection with board
meetings) as such officer or representative may reasonably request. Each such
officer or representative shall have the right upon reasonable prior notice
during normal business hours to inspect the properties of the Company to examine
the books and records of the Company to make copies, notes and abstracts
therefrom, and to make an independent examination of the books and records of
the Company.
7.5. INSURANCE. The Company shall maintain with financially sound and
reputable insurers insurance with respect to its properties, business and
against such casualties and contingencies and in such types and such amounts as
shall be in accordance with sound business practice. Without limiting the
foregoing, the Company will (i) keep all of its physical property insured
against fire and extended coverage risks in amounts and with deductibles equal
to those generally maintained by businesses engaged in similar activities, (ii)
maintain workers compensation or similar insurance as may be required by law,
and (iii) maintain general public liability insurance in amounts and with
deductibles equal to those generally maintained by businesses engaged in similar
activities and in any case a basic policy with a limit of liability of not less
than $1 million and an umbrella policy with a limit of liability of not less
than $5 million against claims for bodily injury, death or property damage
occurring on, in or about the properties of the Company, business interruption
insurance and product liability insurance.
7.6. SHAREHOLDERS AGREEMENT. The Company shall cause any Person who
subsequently becomes a holder of any shares of capital stock of the Company or
any option, warrant or other right to acquire same to become a Shareholder party
to the Shareholders Agreement concurrently therewith.
7.7. EXTRAORDINARY TRANSACTIONS. The Company shall not, directly or
indirectly, without the affirmative approval or consent of the Board or, in the
case of clause (viii) below, the Compensation Committee of the Board of
Directors (consisting of at least a majority of nonmanagement Directors), (i)
sell, pledge, encumber, abandon, transfer, lease or otherwise dispose of any of
its properties or assets (except the sale of its products in the ordinary course
of business), (ii) purchase, lease or otherwise acquire all or substantially all
the properties or assets of another corporation or entity, (iii) make any
material change in the nature of the Company's business, (iv) enter into any
transaction or series of related transactions involving
<PAGE>
15
the expenditure or commitment of $50,000 or more, (v) enter into any transaction
with any director, officer, employee or holder of more than 5% of the
outstanding capital stock of any class or series of capital stock of the
Company, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of such person, is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof, except for transactions
on customary terms related to such person's employment or as contemplated by
this Agreement or the transactions contemplated hereby, (vi) authorize, create,
issue any additional shares of capital stock or rights, options, warrants or
other securities convertible into or exchangeable for capital stock or any debt
security which by its terms is convertible into or exchangeable for any equity
security, (vii) increase or prepay the compensation payable to any of the
executive employees of the Company or any of the employees of the Company with
annual salaries equal or in excess of $70,000, (viii) grant any stock option or
other rights in or to any capital stock of the Company to any director, officer,
employee, consultant or adviser of or to the Company, or (ix) borrow any monies.
7.8. MEETINGS OF THE BOARD OF DIRECTORS. The Company shall call, and use
its best efforts to have, regular meetings of the Board of Directors of the
Company not less often than monthly. The Company shall pay all reasonable
travel expense and other out-of-pocket disbursements incurred by all non-
employee directors in connection with attending meetings of the Board of
Directors of the Company.
7.9. DESIGNATION OF COMPANY EMPLOYEE. In the event of the failure by the
Company to timely meet all of the milestones established as a condition
precedent to either of the Stage II Closing, Stage III Closing or Stage IV
Closing, then immediately following any such failure (a "Default"), the
Investors shall have the right thereafter to designate an individual (or his or
her successor should such person be terminated by the Company as described
below), who shall be employed by the Company as an executive officer and shall
be subject to the same terms and policies applicable to the Company's employees.
Such employee will report directly to the President of the Company and may be
terminated by the Board of Directors of the Company.
7.10. COMPLIANCE WITH INVESTMENT POLICY. The Company shall invest all
proceeds from the sale of Securities and other Company funds pending their
application for corporate purposes in accordance with such investment policies
as shall be adopted from time to time by the Board of Directors of the Company.
7.11. IC DESIGN AND PROCESSING ASSISTANCE. The Company shall render
assistance to Kopin on IC display design, IC processing improvement and, if
feasible, chipset designs. Kopin shall pay the Company a consulting fee and
reimburse the Company for its documented out-of-pockets costs relating to such
assistance.
7.12. IC FOUNDRY ASSISTANCE. The Company shall render assistance to
Claybridge and other Investors on matters relating to entry into IC
manufacturing, including establishment of IC foundries, training, processing and
procurement. Claybridge and such Investors shall pay the Company a consulting
fee and reimburse the Company for its documented out-of-pockets costs relating
to such assistance.
8. REGISTRATION RIGHTS. The Company hereby grants to the Investors certain
rights to require the Company to register its capital stock in compliance with
the Securities Act. The provisions governing such registration rights are set
out in the Registration Rights Agreement attached as Exhibit 8.1 hereto, which
Exhibit 8.1 is hereby incorporated by reference and made an integral part of
this Agreement. The Company and the Investors hereby absolutely and
unconditionally agree to be bound and governed by, and specifically make and
adopt, all of the terms and provisions contained in Exhibit 8.1 annexed hereto.
9. REMEDIES.
<PAGE>
16
9.1. REMEDIES. If either party shall fail to perform or observe any of
the covenants, agreements or provisions set forth or incorporated by reference
in this Agreement or in any of the Related Agreements, then and in each and
every such case the other party may proceed to enforce performance of such
obligations in such manner as it may elect and may proceed to protect and
enforce its rights by suit in equity, action at law and/or other appropriate
proceeding for performance of such obligations.
9.2. COURSE OF DEALING. No course of dealing between the Company on the
one hand, and the Investors or any holder of Securities, on the other hand,
shall operate as a waiver of any rights under this Agreement or any Related
Agreement. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any other occasion. No waiver or statement of
satisfactory cure or consent shall be binding upon one party or any holder of
any Securities unless it is in writing and signed by the party to be changed.
9.3. WAIVERS. Each party hereby waives, to the extent not prohibited by
applicable law, (a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions hereof) and (b)
any requirement of diligence or promptness on the part of any other party or any
Securities in the enforcement of its rights under the provisions of this
Agreement.
9.4. EQUITABLE REMEDIES. The parties to this Agreement hereby
acknowledges that monetary damages are an inadequate remedy for breach of the
covenants contained in this Agreement or in any Related Agreement; therefore, it
is agreed that each of such covenants of one party and provisions shall be
enforceable by specific performance, including all forms of injunctive relief.
Each party hereby waives any defense based on the adequacy of any remedies at
law.
10. PAYMENT ON SECURITIES; TRANSFER; LEGENDS
10.1. PAYMENT. All payments made by the Company in respect of any
Securities shall be made in immediately available funds in lawful money of the
United States for credit, not later than 12:00 noon, Boston time, to the account
of the Investor and shall be accompanied by sufficient information to identify
the source and application thereof, or in any event by such other reasonable
method or at such other address, as such Investor shall have from time to time
notified the Company thereof.
10.2. TRANSFER OF SECURITIES. If, at any time of any conversion, transfer
(other than a conversion or transfer not involving a change in the beneficial
ownership of such securities) or surrender for exchange of any share of
Securities or any securities issued upon exchange or conversion, or in
replacement thereof (or in respect of such securities), such securities shall
not be registered under the Securities Act or qualified under any applicable
state securities law, the Company may require, as a condition of allowing such
conversion, transfer or exchange, that the holder or transferee of such
securities, as the case may be, furnish to the Company such information as, in
the reasonable opinion of counsel for the Company, is necessary in order to
establish that such exercise, transfer or exchange may be made without
registration under the Securities Act or qualification under such state
securities law; provided, however, that nothing contained in this Section 10.2
shall relieve the Company from complying with the provisions of Section 8 hereof
or any provision of the Certificate of Incorporation (as amended).
10.3. LEGENDS. To the extent applicable, each certificate or other
document evidencing any of the Securities to be purchased and sold pursuant to
this Agreement or any Common Stock issued upon conversion of the Securities
shall be endorsed with the legends set forth below, and each Investor covenants
that, except to the extent such restrictions are waived by the Company, it shall
not transfer the shares represented by any such certificate without complying
with the restrictions on transfer described in the legends endorsed on such
certificate:
<PAGE>
17
(a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY ACCEPTABLE
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) If required by the authorities of any state in connection with the
issuance or sale of the Securities or the Common Stock issued upon conversion of
the Securities, the legend required by such state authority.
10.4. REMOVAL OF LEGENDS.
(a) Any legend endorsed on a certificate pursuant to Section 10.3(a)
hereof shall be removed (i) if the Securities to be purchased and sold pursuant
to this Agreement or Common Stock issued upon conversion of Securities
represented by such certificate shall have been effectively registered under the
Securities Act, (ii) if such shares may be transferred in compliance with Rule
144 promulgated under the Securities Act, or (iii) if the holder of such shares
shall have provided the Company with an opinion of counsel, in form and
substance reasonably acceptable to the Company and its counsel and from
attorneys reasonably acceptable to the Company and its counsel, stating that the
proposed sale, transfer or assignment of such shares may be made without
registration.
(b) Any legend endorsed on a certificate pursuant to Section 10.3(b)
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of Securities to be
purchased and sold pursuant to this Agreement or Common Stock issued upon
conversion of the Securities provides the Company with an opinion of counsel, in
form and substance reasonably acceptable to the Company and its counsel and from
attorneys reasonably acceptable to the Company and its counsel, stating that
such legend may be removed.
11. EXPENSES, ETC. Whether or not the transactions contemplated by this
Agreement and the Related Agreements shall be consummated, each party agrees to
pay and be responsible for the respective expenses incurred by it in connection
herewith.
12. NOTICES. All notices and other communications pursuant to this Agreement
shall be in writing, either delivered in hand or sent by first-class mail,
postage prepaid, or sent by telex, telecopier, facsimile machine or telegraph,
addressed as follows:
(i) if to the Company, at the address thereof set forth on the first
page hereof, or at such other address as shall have been furnished to the
Investors in writing by the Company;
(ii) if to an Investor, at its address set forth on the first page
hereof or on Exhibit A hereto or at such other address as shall have been
furnished to the Company in writing by such Investor.
Any notice or other communication pursuant to this Agreement shall be
deemed to have been duly given or made and to have become effective (i) when
delivered in hand to the party to which it was directed, (ii) if sent by telex,
telecopier, facsimile machine or telegraph and properly
<PAGE>
18
addressed in accordance with the foregoing provisions of this Section 12, when
received by the addressee, or (iii) if sent by first-class mail, postage
prepaid, and properly addressed in accordance with the foregoing provisions of
this Section 12, (A) when received by the addressee, or (B) on the third
business day following the day of dispatch thereof, whichever of (A) or (B)
shall be the earlier.
13. SURVIVAL AND TERMINATION OF COVENANTS. All covenants, agreements,
representations and warranties made herein or in any other document referred to
herein or delivered to an Investor pursuant hereto shall be deemed to have been
material and relied on by such Investor, notwithstanding any investigation made
by such Investor, and shall survive the execution and delivery to such Investor
hereof and of Securities and shall terminate only as follows: (a) upon the
Company's Qualified Initial Public Offering, except as to the covenants of the
Company contained in Section 7 and the provisions of Sections 8, 11 and 13
hereof; or (b) if such Investor is no longer the holder of Securities or any
Common Stock, this Agreement shall terminate in its entirety as to such Investor
except for the provisions of Sections 11 and 13 hereof.
14. AMENDMENTS AND WAIVERS. Except as otherwise expressly required by any
other provisions of this Agreement, none of the terms or provisions contained in
this Agreement, and none of the agreements, obligations or covenants of the
Company contained in this Agreement or in any Related Agreement, may be amended,
modified, supplemented, waived or terminated unless the Company and the
Investors shall execute an instrument in writing agreeing or consenting to such
amendment, modification, supplement, waiver or termination; provided, however,
that those Investors holding at the time that number of shares of Common Stock
representing not less than fifty-one percent (51%) of the aggregate shares of
Common Stock issued and issuable upon conversion of the Securities may effect
any such waiver, modification, amendment or termination on behalf of all of the
Investors. No assent, express or implied, by the Investors to any breach in or
default of any agreement or condition herein contained by any other party shall
constitute a waiver of or assent to any succeeding breach in or default of the
same or any other agreement or condition hereof. The Company acknowledges and
agrees that the terms and conditions by which the Investors are hereby
committing to purchase Securities have been determined and agreed to in reliance
upon the Company's business plan and objectives, as embodied in the milestone
events set forth on Schedules 6.3-6.5, and on the expectation that the aggregate
purchase price of the Securities will be sufficient to accomplish such plan and
objectives without need for any further private funding. Accordingly, the
Company further acknowledges and agrees in the event of the Company's failure to
meet any of the milestones set forth in such Schedules or should the Company
require additional financing beyond the levels contemplated by this Agreement
that (in addition to acknowledging the enforceability of those provisions herein
or in the Related Agreements that may take effect upon the occurrence of such
event) it will, negotiate in good faith as the case may be, appropriate
modifications to the terms (such as pricing and related matters) by which the
Investors shall be committed and have the right to purchase Securities or the
terms by which the Investors shall have the right to purchase additional
securities of the Company to satisfy such additional unexpected funding
requirements.
15. MISCELLANEOUS. This Agreement and the Related Agreements set forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. The invalidity or unenforceability of any term or
provision hereof shall not affect the validity or enforceability of any other
term or provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. In
this Agreement, the use of any of the three genders shall be deemed to include
the other two. This Agreement is intended to take effect as a sealed instrument
and may be executed in any number of counterparts which together shall
constitute one instrument and shall be governed by and construed in accordance
with the domestic substantive laws of the Commonwealth of Massachusetts without
giving effect to any choice or conflict of law provision or rule that would
cause the application of the domestic substantive laws of any other state, and
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns. The rights of the Investors herein to purchase
Securities at the Stage II Closing, Stage III Closing and Stage IV Closing and
the related rights
<PAGE>
19
hereunder and under the Related Agreements may be assigned by them in writing to
any designee in whole or in part (a "Co-Investor"), provided that the Company
shall have the right to review and approve such Co-Investor, such approval not
to be unreasonably withheld, and provided, further, that any such Co-Investor
agrees to be bound by all of the applicable obligations of the Investors set
forth herein. Exhibit A hereto shall be deemed to be automatically amended by
such designation to reflect the name of such Co-Investor and the amount or
number Securities to be sold to it by the Company and purchased by such Co-
Investor at the applicable Closing (with conforming adjustments to the
Investor's commitments hereunder) without any need for further action by the
parties. The Investors agree to consider promptly and in good faith the
designation of any Person as a Co-Investor of either the Stage III Securities or
the Stage IV Securities if such co-investment is recommended by the Chief
Executive Officer of the Company in order to further the strategic and business
objectives of the Company.
<PAGE>
20
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized representatives on the day and in the year
first above written.
UNITEK SEMICONDUCTOR INC.
By:___________________________________
Title
KOPIN CORPORATION
By:_______________________________
Title
CLAYBRIDGE ENTERPRISES LTD.
By:_______________________________
Title
<PAGE>
[BancBoston Leasing LOGO]
CHATTEL LEASING
PROMISSORY NOTE
$785,862.40 January 29, 1996
For value received, the undersigned hereby promises to pay to BANCBOSTON
LEASING INC. ("BancBoston"), or order, at its head office at 100 Federal Street,
Boston, Massachusetts 02110 or at such other place as BancBoston may designate,
the principal amount of seven hundred eighty five thousand eight hundred and
sixty two 40/100 DOLLARS ($785,862.40) with interest thereon, payable as
follows: (i) interest at the rate set forth below on the principal amount
advanced hereunder from the date of such advance through the last day of the
month in which such advance is made payable on May 1, 1996 and thereafter (ii)
33 equal installments of principal and interest of $26,680.03 each beginning on
May 1, 1996. Monthly payments shall be applied first to accrued interest and the
remaining portion to principal. All payments hereunder shall be made in lawful
money of the United States of America and in immediately available funds to the
account of BancBoston at said head office. Interest on the unpaid principal
amount outstanding hereunder shall be payable at a rate per annum equal to eight
19/100 percent (8.19%).
Interest shall be computed on the basis of a 360-day year. Overdue payments
of principal (whether at stated maturity, by acceleration or otherwise), and, to
the extent permitted by law, overdue interest, shall bear interest, compounded
monthly and payable on demand in lawful money of the United States of America
and in immediately available funds, at a rate per annum equal to the interest
rate applicable to this Chattel Leasing Promissory Note ("Promissory Note") plus
4%.
Whenever payment hereunder is to be made on a day other than BancBoston's
business day, such payment shall be due and payable on the immediately following
business day for BancBoston.
This Promissory Note is issued pursuant to, and entitled to the benefits
of, and is subject to, and the obligations of the undersigned hereunder are
secured by the provisions of a certain Security Agreement of even date herewith
by and between the undersigned and BancBoston (herein, as the same may from time
to time be amended or extended, referred to as the "Agreement"), but neither
this reference to the Agreement nor any provision thereof shall affect or impair
the absolute and unconditional obligation of the undersigned maker of this
Promissory Note to pay the principal of and interest on this Promissory Note as
herein provided.
In case a default in the payment of any amounts under this Promissory Note
or under the Agreement shall occur, the aggregate unpaid principal of and
accrued interest on this Promissory Note may become or may be declared to be due
and payable in the manner and with the effect provided in the Agreement and
BancBoston may exercise any rights or pursue any remedies provided for herein,
in the Agreement or under applicable law.
If a proceeding is brought or efforts made to collect this Promissory Note,
BancBoston shall be entitled to collect all reasonable costs and expenses of
such collection efforts or proceeding, including but not limited to reasonable
attorneys' fees.
The undersigned may at its option prepay all or any part of the principal
of this Promissory Note before maturity, which payments shall be applied in the
inverse order of the maturity of installments of principal hereunder provided,
however, that if any portion of the principal amount of this Promissory Note is
prepaid for any reason, whether voluntarily or as a result of acceleration of
the indebtedness evidenced hereby or otherwise, the undersigned shall pay to
BancBoston simultaneously with such prepayment, as a prepayment fee an amount
determined in accordance with the following formula:
<PAGE>
L = (R-T) x PxD
-----------
360
L = amounts payable to BancBoston as a prepayment fee
R = interest rate payable under this Promissory Note
T = effective interest rate at which United States Treasury instruments
maturing on the maturity date of this loan and in the same amount as
this loan can be purchased by The First National Bank of Boston on the
day of such repayment
P = the amount of principal prepaid
D = the number of days remaining until maturity of this loan as of the date
of such prepayment
All funds advanced hereunder which have been repaid may not be reborrowed.
The undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Promissory Note. No
delay or omission on the part of the holder of this Promissory Note shall
operate as a waiver of such right or any other right under this Promissory Note.
No waiver shall be effective unless in writing and signed by the holder of this
Promissory Note, and any such waiver shall not be construed as a bar to or
waiver of any right on any future occasion.
This instrument shall have the effect of an instrument executed under seal
and shall be governed by the laws of The Commonwealth of Massachusetts without
giving effect to the conflicts of law provisions thereof.
KOPIN CORPORATION
By: /s/ PAUL J. MITCHELL
---------------------------------
Paul J. Mitchell
Title: CFO
------------------------------
Address: 695 Myles Standish Blvd.
-----------------------------
Number Street
Taunton
-----------------------------
City
MA 02780
-----------------------------
State Zip Code
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<CASH> 22,292,085
<SECURITIES> 16,346,147
<RECEIVABLES> 7,997,358
<ALLOWANCES> 0
<INVENTORY> 7,608,943
<CURRENT-ASSETS> 55,447,328
<PP&E> 20,842,576
<DEPRECIATION> 9,908,967
<TOTAL-ASSETS> 72,903,451
<CURRENT-LIABILITIES> 15,613,241
<BONDS> 2,385,895
0
0
<COMMON> 109,187
<OTHER-SE> 53,097,558
<TOTAL-LIABILITY-AND-EQUITY> 72,903,451
<SALES> 3,043,766
<TOTAL-REVENUES> 5,333,634
<CGS> 2,707,918
<TOTAL-COSTS> 7,418,887
<OTHER-EXPENSES> 4,990,412 <F1>
<LOSS-PROVISION> 12,000
<INTEREST-EXPENSE> 124,209
<INCOME-PRETAX> (8,721,053)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,721,053)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,721,053)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
<FN>
<F1> Non-recurring charge of $4,990,412 included a write-down associated with
the initial adoption of SFAS No. 121, the expensing of purchased technology, and
the write-off of certain previously deferred expenses.
</FN>
</TABLE>
