AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1997
REGISTRATION NO. 333-10721
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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BRUNSWICK TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MAINE 2221 01-0402052
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION
OR ORGANIZATION)
----------
MARTIN S. GRIMNES
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
43 BIBBER PARKWAY
BRUNSWICK, MAINE 04011
(207) 729-7792
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
MARIANNE GILLERAN, ESQ. VICTOR J. PACI, ESQ.
GADSBY & HANNAH LLP BINGHAM, DANA & GOULD LLP
225 FRANKLIN STREET 150 FEDERAL STREET
BOSTON, MA 02110 BOSTON, MA 02110
(617) 345-7000 (617) 951-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1997
PROSPECTUS
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
BRUNSWICK TECHNOLOGIES, INC.
COMMON STOCK
- --------------------------------------------------------------------------------
Of the 2,000,000 shares of Common Stock, $0.0001 par value (the "Common Stock")
offered hereby, 1,500,000 shares are being sold by Brunswick Technologies, Inc.
(the "Company") and 500,000 shares are being sold by North Atlantic Venture
Fund, L.P. (the "Selling Stockholder"). The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholder. See "PRINCIPAL AND
SELLING STOCKHOLDERS." Prior to the offering described herein (the "Offering"),
there has been no public market for the Common Stock and there can be no
assurance that a market will develop after completion of the Offering, or that
if developed, it will be sustained. The Common Stock has been approved for
listing on the Nasdaq National Market ("Nasdaq") under the symbol "BTIC." It is
currently estimated that the initial public offering price of the Common Stock
will be between $9.00 and $11.00 per share. See "UNDERWRITING" for a discussion
of the factors that will be considered in determining the initial public
offering price.
- --------------------------------------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION WHICH SHOULD BE
CAREFULLY CONSIDERED BY INVESTORS BEFORE PURCHASING SHARES OF THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNTS(1) COMPANY(2) STOCKHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------------------------------
Total $ $ $ $
================================================================================
</TABLE>
(1) Does not include additional cash compensation to Josephthal Lyon & Ross
Incorporated ("Josephthal") and Southwest Securities as representatives of
the several Underwriters (together, the "Representatives") in the form of a
non-accountable expense allowance. In addition, see "UNDERWRITING" for
information concerning indemnification and contribution arrangements with
the Underwriters and other compensation payable to the Representatives.
(2) Before deducting expenses payable by the Company estimated to be $750,000,
including the non-accountable expense allowance payable to the
Representatives.
(3) The Selling Stockholder has granted the Underwriters an option, exercisable
within 45 days of the consummation of the Offering, to purchase up to
300,000 additional shares of Common Stock, on the terms set forth above,
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts, Proceeds to
Company and Proceeds to Selling Stockholder will be $____, $____ , $____ ,
and $____ , respectively. The Company will receive no proceeds from the
exercise of such option. See "PRINCIPAL AND SELLING STOCKHOLDERS" and
"UNDERWRITING."
- --------------------------------------------------------------------------------
The Common Stock is being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering and to reject any order in whole or in part. It is expected that
delivery of the Common Stock offered hereby will be made against payment at the
offices of Josephthal Lyon & Ross Incorporated, New York, New York on or
about________ , 1997.
JOSEPHTHAL LYON & ROSS SOUTHWEST SECURITIES
The date of this Prospectus is , 1997.
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PHOTOS AND GRAPHICS
Inside front cover fold-out page adjacent to cover page of Prospectus. The
center of the page has a large color photograph of one of the Company's
production machines with the Company logo and the slogan "REINFORCED THROUGH
INNOVATION" in the lower left hand corner of the photograph. "BRUNSWICK
TECHNOLOGIES, INC." is printed across the top of the page. The caption along the
bottom of the photograph reads, "Designed by BTI, this machine is unique in the
industry. It can produce 100+ ounces per square yard and 100+ inch-wide
quadraxial engineered reinforcement fabric in a single step."
The following legends appear centered on the bottom of the page.
BiTex(R) and Cofil(R) are registered trademarks of the Company. All other
trademarks and trade names referred to in this Prospectus are the property of
their respective owners.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET AND
OTHER MARKETS. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Two adjacent interior fold-out pages opposite to the Prospectus Summary:
text in the upper left-hand corner of the left-side page reads, "BTI's
manufacturing processes make these innovative product applications possible."
There are six color photographs which are captioned (counter-clockwise from
top): (1) "Burlington Northern Railroad/Trinity Industries Inc./Hardcore DuPont
Composites LLC boxcar ready for endurance testing"; (2) "Assembly by Hardcore
DuPont Composites LLC of the first 68 foot two-piece insulated boxcar using the
SCRIMP manufacturing process"; (3) "50 foot round-the-world BOC racing sloop
testing BTI materials"; (4) "New hollow Hardshaft composite marine pilings"; (5)
and (6) "Underground petroleum storage tanks". On the top of the right-side
page, there is a photograph captioned "Norwegian-made subsea well protection
cover for North Sea oil production". Beneath that photograph is a three-step
illustration with the title, "The Advantages of BTI's processes are:". Above the
first illustration is the caption, "Efficient, uniform distribution of chopped
fibers without binder"; above the second illustration is the caption, "Straight
fiber orientation"; and above the third illustration is the caption, "Adding
value by combining materials in one step to produce unique engineered
reinforcements". On the bottom half of the right-side page is a larger, more
detailed version of the Company's logo, with the slogan "REINFORCED THROUGH
INNOVATION" running along the bottom of the page.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "RISK FACTORS." Investors should also
refer to a Glossary of Technical Terms on page 56 for a description of certain
technical terms used in this Prospectus. Unless otherwise indicated, all Common
Stock share and per share data and information in this Prospectus (i) have been
adjusted to give effect to a 33:1 stock split to be effected immediately prior
to the effectiveness of the registration statement of which this Prospectus is a
part, (ii) assume the conversion, upon the closing of the Offering, of all
outstanding shares of the Company's preferred stock, no par value (the
"Preferred Stock"), into 2,337,192 shares of Common Stock and the issuance to
such holders of Preferred Stock of an estimated additional 199,301 shares of
Common Stock in payment of an estimated $1,993,010 in accrued cash dividends as
of the closing of the Offering (estimated as of January 31, 1997) pursuant to
the terms of such Preferred Stock, (iii) assume no exercise of outstanding
options to purchase an aggregate of 561,089 shares of Common Stock with a
weighted average exercise price of $1.57 per share (assuming a $10.00 offering
price ), (iv) assume no exercise of outstanding warrants to purchase an
aggregate of 336,200 shares of Common Stock with a weighted average exercise
price of $5.41 per share, (v) assume no conversion of a convertible subordinated
promissory note into 364,825 shares of Common Stock (assuming a $10.00 Offering
price) and (vi) assume the consummation of a recapitalization whereby the
Company's no par value common stock is converted into Common Stock, which
recapitalization is to be effected immediately prior to the effectiveness of the
registration statement of which this Prospectus is a part.
THE COMPANY
Brunswick Technologies, Inc. (the "Company") is a leading developer and
producer of engineered reinforcement fabrics used in the fabrication of
composite materials. The Company's technologically advanced stitchbonding
equipment and processes prepare glass, carbon and other fibers for combination
with resin to produce laminates used in the construction of such diverse items
as boats, skis, diving boards, protective helmets and ballistic armor
applications, car and truck parts, and industrial tanks and pipes. Since the
invention of composite reinforcement fabrics in the early 1940's, these
materials have developed broad applicability as substitutes for wood, steel, and
concrete. Composite products offer substantial benefits over conventional
materials, including: a higher strength-to-weight ratio, greater design
flexibility while maintaining structural integrity, chemically inert properties
and lower maintenance requirements. As a result of their superior features,
composite reinforcement fabrics are increasingly demanded by a growing number of
industries and applications, including transportation, infrastructure,
recreation, petro-chemical and construction. Management believes the use of
engineered composite reinforcement fabrics will continue to grow as the market
is made more aware of the positive features of such materials and as the cost of
more advanced composite fibers such as carbon continues to decline.
The Company's principal strength lies in its innovative quadraxial
single-step stitchbonding process. Through use of its proprietary production
equipment, the Company can quickly and cost effectively produce engineered
composite reinforcement fabrics in sizes and shapes not otherwise generally
available. Fabrics created from the Company's proprietary manufacturing process
offer characteristics integral to the use of composite materials in
infrastructure, industrial and large scale commercial applications.
The Company has introduced a number of manufacturing processes that not only
more efficiently create composite reinforcement fabrics, but also optimize the
performance characteristics of such fabrics. In a proprietary single-step
production process, the Company is able to stitchbond fibers in different
directions without diminishing the composite fibers' inherent properties, thus
dramatically improving the structural strength of the reinforcement fabric. This
compares favorably, firstly, with traditional composite fabrics which are woven,
and therefore require the use of more resin to achieve the same degree of
structural integrity, and secondly, with the more costly multi-step processes of
other weft-insertion or stitchbonding manufacturing technologies used by
competitors. In addition, the Company's proprietary, high through-put
manufacturing processes have the ability to produce heavyweight quadraxial
fabrics over 100
3
inches wide in a single-step, which allows for cost-effective fabrication of
composite parts of up to 10 inches thick. The combination of these features
produces fabrics which enable composite fabricators to manufacture end-products
at competitive costs while maintaining the required structural integrity of
these products.
In a move to accelerate the implementation of its strategic business plan
and expand its product line, the Company acquired Advanced Textiles, Inc.
("ATI"), a subsidiary of Burlington Industries, Inc. ("Burlington") on October
30, 1996. ATI, which now operates as a wholly-owned subsidiary of the Company,
produces first generation light-weight composite reinforcement fabrics targeted
towards specialized niche markets. These light-weight fabrics typically sell for
a higher margin than other types of composite reinforcement fabrics. ATI
manufactures these fabrics from fiberglass and other higher modulus fibers such
as carbon and aramid; therefore, ATI's product line complements that of the
Company and provides it with an enhanced ability to offer a broader spectrum of
product types. The Company believes that by offering a product line which
satisfies a broader range of composite reinforcement fabric requirements, it
will be better positioned to be the principal provider of these fabrics to its
expanded customer base. The Company believes it will capture additional market
share by cross-marketing its existing products to ATI's customers and vice
versa.
The Company's strategy is to increase revenues and net income through
expansion of its domestic and international market share in the composite
reinforcement fabric industry, making additional strategic acquisitions for
product and market presence, and engaging in joint projects which complement the
Company's strategy. The key elements of this strategy include: (i) targeting
additional applications for composite reinforcement fabrics in the
transportation, offshore petro-chemical and infrastructure sectors; (ii)
increasing its international presence; (iii) continuously innovating its
state-of-the-art manufacturing processes; (iv) extending its product offerings
further along the value-added chain towards net shape products and (v) expanding
its manufacturing capacity and broadening its geographic market presence.
The Company is currently participating in several significant joint ventures
and research and development projects. The Company is working with E.I. DuPont
de Nemours and Company, Inc., Hardcore Composites Ltd., The Dow Chemical Company
and Johns Hopkins University in an effort to create heavyweight composites for
industrial applications such as marine pilings, bridges, rail cars and shipping
containers. The Company has also entered into two research agreements with the
University of Maine, the first of which is to develop a composite alternative to
plywood, and the second of which is to develop composites for very thick
applications adaptable to large sub-marine structures. Additionally, the Company
is working with ABB Offshore Technology, a division of ASEA Brown Boveri S.A.,
to develop offshore well-head covers and pipeline protection structures. In
December, 1996 the Company entered into an agreement with Norsk Hydro A.S., one
of the largest North Sea oil operators pursuant to which the parties will
identify opportunities for the application of the Company's technology to new
markets, including the use of composite structures in the off-shore oil
industry, with the aim of developing strategies to address such opportunities.
The Company also has a corporate collaboration with Vetrotex CertainTeed
Corp. ("Vetrotex"), the U.S. fiberglass manufacturing arm of Saint Gobain S.A.,
the largest materials and construction company in Europe. This collaboration
includes a significant equity ownership by Vetrotex in the Company and a supply
relationship whereby the Company purchases a majority of its fiberglass needs
from Vetrotex. The Company is currently developing products and processes to
take advantage of a new product developed by Vetrotex and its affiliates.
The Company maintains two manufacturing facilities, one in Maine and the
other (its recently acquired ATI facility) in Texas. During 1996, the Company
moved its Maine operations into a new, state-of-the-art, 50,000 square foot
manufacturing facility. The Company was organized as a Maine corporation in 1984
and began operations in 1985. The Company's executive offices are located at 43
Bibber Parkway, Brunswick, Maine 04011 and its telephone number is (207)
729-7792.
4
THE OFFERING
Common Stock Offered by
the Company............. 1,500,000 shares
Common Stock Offered by
the Selling
Stockholder............. 500,000 shares
Common Stock Outstanding(1):
Before Offering ........ 2,835,817 shares
After Offering ......... 4,335,817 shares
Use of Proceeds........... Purchase of capital equipment, repayment of bank
debt, research and development expenditures, payment
of $3.6 million of the principal amount of the
convertible note issued in connection with the
acquisition of Advanced Textiles, Inc., potential
additional acquisitions, potential purchase of the
Company's current manufacturing facilities and
general working capital purposes. See "USE OF
PROCEEDS."
Risk Factors.............. The securities offered hereby involve a high degree
of risk and immediate and substantial dilution. See
"RISK FACTORS" and "DILUTION."
Nasdaq symbol............. "BTIC"
________
(1) Includes an estimated 2,337,192 shares of Common Stock to be issued to
holders of outstanding shares of the Company's preferred stock, no par value
(the "Preferred Stock") upon the conversion of all of the outstanding shares
of the Preferred Stock into Common Stock, 1,000 shares of Common Stock in
the aggregate to be issued to two directors-elect of the Company, and an
estimated additional 199,301 shares to be issued to the holders of Preferred
Stock in payment of accrued dividends (estimated as of January 31, 1997),
all to occur concurrently with the consummation of the Offering, but does
not include (a) a total of 561,089 shares of Common Stock reserved for
issuance upon the exercise of stock options granted under the Company's 1991
Stock Option Plan, 1994 Stock Option Plan and 1997 Equity Incentive Plan
(collectively, the "Plans"), (b) a total of 336,200 shares of Common Stock
reserved for issuance pursuant to the exercise of warrants to be outstanding
as of the closing of the Offering, (c) 371,590 shares reserved for issuance
upon the exercise of options or other awards available under the Plans but
not yet granted under the Plans and (d) a total of 364,825 shares of Common
Stock issuable to Burlington (assuming an Offering price of $10.00 per
share) upon conversion (after October 30, 1997) of an outstanding
interest-bearing convertible subordinated promissory note (the "Convertible
Note") in the principal amount of $3,648,250 (after payment in cash of 50%
of the outstanding principal amount of the Convertible Note following the
completion of the Offering). The weighted average exercise price of the
options and warrants to purchase Common Stock described above is $3.01 per
share. See "DIVIDEND POLICY," "BUSINESS -- Acquisition of Advanced Textiles,
Inc.," "MANAGEMENT -- Stock Incentive Plans," "CERTAIN TRANSACTIONS,"
"PRINCIPAL AND SELLING STOCKHOLDERS," "DESCRIPTION OF CAPITAL STOCK AND
CERTAIN INDEBTEDNESS," and "UNDERWRITING."
5
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
BRUNSWICK TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, COMPANY PRO FORMA(1)
------------ ------------- --------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1995 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $2,625 $4,701 $6,376 $9,596 $ 15,476 $11,033 $ 13,423 $26,444 $21,381
Cost of goods sold 2,215 3,700 4,996 7,382 11,979 8,489 10,365 21,218 16,930
----- ----- ----- ----- ------ ----- ------ ------ ------
Gross profit 410 1,001 1,380 2,214 3,497 2,544 3,058 5,226 4,451
Other operating expenses 736 971 1,258 1,874 2,492 1,787 2,441 3,441 3,069
Moving costs -- -- -- -- 9 -- 248 9 248
Facility repair costs -- -- -- -- 150 -- (148) 150 (148)
----- ----- ----- ----- ------ ----- ------ ------ ------
Operating income (loss) (326) 30 122 340 846 757 517 1,626 1,282
Other income (expense), net (95) (27) (11) (26) (61) (27) 98 (455) (179)
----- ----- ----- ----- ------ ----- ------ ------ ------
Income (loss) before income taxes (421) 3 111 314 785 730 615 1,171 1,103
Income tax benefit (expense) -- -- -- -- 122 113 (222) 1,638 (415)
----- ----- ----- ----- ------ ----- ------ ------ ------
Net income (loss) (421) 3 111 314 907 843 393 2,809 688
Preferred stock dividend -- (269) (332) (450) (450) (338) (338) -- --
Accretion of preferred stock
redemption value -- (51) (71) (76) (82) (61) (66) -- --
----- ----- ----- ----- ------ ----- ------ ------ ------
Net income (loss) attributable to
common stock $ (421) $ (317) $ (292) $ (212) $ 375 $ 444 $ (11) $ 2,809 $ 688
===== ===== ===== ===== ====== ===== ====== ===== ======
Pro forma earnings per common
share(2) $ 0.26 $ 0.11 $ 0.81 $ 0.20
========== ======== ======= =======
Pro forma weighted average common
shares outstanding(2) 3,452(2) 3,486(2) 3,457 3,491
===== ===== ===== =====
</TABLE>
ADVANCED TEXTILES, INC.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales $ 7,959 $8,332 $10,043 $11,169 $10,570
Cost of goods sold 7,324 7,582 9,040 9,574 8,504
----- ----- ----- ----- -----
Gross profit 635 750 1,003 1,595 2,066
Other operating expenses 747 725 938 890 939
----- ----- ----- ----- -----
Operating income (loss) (112) 25 65 705 1,127
Other income (expense), net (161) (38) (31) (21) 7
Litigation settlement (3,400) -- -- -- --
----- ----- ----- ----- -----
Income (loss) before income taxes (3,673) (13) 34 684 1,134
Income tax benefit (expense) -- -- -- 1,493 (429)
----- ----- ----- ----- -----
Net income (loss) $(3,673) $ (13) $ 34 $ 2,177 $ 705
======= ====== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED BALANCE SHEETS: SEPTEMBER 30, 1996
--------------------------------------------------------
BRUNSWICK ADVANCED PRO FORMA(1)(3)
TECHNOLOGIES, INC. TEXTILES, INC. COMBINED
------------------ -------------- --------
(UNAUDITED)
<S> <C> <C> <C>
Working capital $ 808 $2,235 $ 11,794
Total assets 8,738 3,754 26,931
Long-term liabilities 1,359 -- 5,428
Total liabilities 4,647 704 9,586
Preferred stock 6,473 -- --
Stockholders' equity (deficit) $(2,382) $3,050 $17,345
======= ====== =======
</TABLE>
(1) Adjusted to reflect the acquisition of Advanced Textiles, Inc. on October
30, 1996 and the pro forma combination of the results of operations and
financial condition of the Company and ATI. See "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS."
(2) Calculation is shown in Note 1 of Notes of Financial Statements of the
Company.
(3) Adjusted to give effect to the sale by the Company of 1,500,000 shares of
Common Stock at an assumed Offering price of $10.00 per share and the
application of the estimated net proceeds therefrom (after deducting
discounts, allowances and Offering expenses). See "USE OF PROCEEDS."
6
RISK FACTORS
The purchase of shares of Common Stock offered hereby involves a high degree
of risk. Prospective investors should carefully consider the following factors,
in addition to the other information set forth herein, in evaluating the Company
and its business before purchasing shares of the Common Stock offered hereby.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS, CYCLICAL NATURE OF END-PRODUCT
MANUFACTURER INDUSTRIES, SEASONALITY AND SUPPLY FACTORS. Many of the purchasers
of end-products produced with the Company's composite reinforcement fabrics are
engaged in cyclical industries, including the marine industry which has
accounted for approximately 80% of the Company's net sales, due to the effects
of general economic conditions or other factors. The Company has also
experienced a seasonal effect on its sales to a certain extent with respect to
the marine industry and winter sports products. In addition, the Company's sales
have varied from period to period as a result of fluctuations in the general
availability of fiberglass used by the Company in its manufacturing process.
When supplies of fiberglass are short, the Company's distributors and
end-product manufacturers order additional inventory of composite reinforcement
fabrics to ensure availability of product. When the supply of fiberglass later
improves, the Company's sales may decline due to decreasing demand by its
distributors and end-product manufacturers as a result of their build-up of
excess inventory during the period when fabric availability was tight. In the
first quarter of 1996, the Company's net sales were increased by its
distributors building their inventory levels to cushion against the supply
shortage that was industry wide throughout 1995. In the second quarter of 1996,
the Company's distributors reduced their inventory in response to the general
availability of fiberglass, thereby contributing to a reduction in the Company's
net sales to $4.4 million from $4.7 million in the first quarter of 1996. A
decrease in net sales to $4.25 million occurred for the same reasons in the
third quarter. Management estimates that through the remainder of 1996 its
distributors maintained an approximate three-week supply of composite
reinforcement fabrics as opposed to an approximate twelve-week supply in the
first quarter of 1996. Management expects this trend towards returning to more
typical inventory levels to continue as long as the supply of fiberglass remains
plentiful. The impact of the cyclicality and/or seasonality of the end-product
manufacturing industries using the Company's products, fiberglass supply and
related inventory factors or other factors affecting the purchasing decisions of
end-product manufacturers, could adversely affect the Company's net sales. This
may result in fluctuations in the Company's results of operations, may make it
more difficult for the Company to accurately forecast its financial requirements
and may result in fluctuations in the market price of the Common Stock. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
DEPENDENCE ON FEW FIBERGLASS SUPPLIERS. There are only three significant
suppliers from which the Company may purchase its fiberglass requirements.
Vetrotex, a stockholder of the Company, currently supplies more than half of the
Company's fiberglass requirements, with the remainder being supplied primarily
by a single other vendor. A supply agreement which the Company had entered into
with Vetrotex expired on August 25, 1996, but the Company is continuing to
purchase more than 50% of its supply from Vetrotex upon substantially the same
terms as set forth in the former agreement. Although the Company is not under
supply pressures to enter into a new supply agreement due to the current general
availability of fiberglass in the marketplace, the Company and Vetrotex have
each expressed an interest in negotiating an extension of their agreement. The
Company intends to enter into contracts with one or two other suppliers to
ensure a continuing supply of fiberglass, but there can be no assurance that the
Company will be successful in its efforts to secure such agreements. One of the
two other significant fiberglass suppliers holds a 50% equity interest in one of
the Company's primary competitors. The Company's ability to operate and to
increase its revenues is dependent upon its ability to obtain an adequate supply
of fiberglass and may be limited by competition for the same source of supply.
Suppliers of fiberglass may not be able to supply the quantity, quality or
variety of inventory that the Company requires in a timely manner or on price
terms favorable to the Company. The failure or inability of any of the major
suppliers to produce for any significant period due to labor problems, furnace
meltdown or other equipment problems, or any other reason, could also have a
materially adverse effect on the available supply of fiberglass required by the
Company. The failure to obtain an adequate supply or a substantial increase in
the cost of fiberglass would have a material adverse effect on the Company. See
"BUSINESS -- Supply" and "-- Backlog."
7
DEPENDENCE ON FOUR PRINCIPAL DISTRIBUTORS. Although the Company primarily
markets its products directly to end-product manufacturers which sell to
consumers, approximately 90% of the Company's sales are made through
distributors. Four distributors accounted in the aggregate for 85%, 89% and 78%
of the gross sales of the Company (not including ATI) for the fiscal years ended
December 31, 1993, 1994 and 1995, respectively. Each of the four distributors
accounted for more than 10% of the gross sales of the Company (not including
ATI) during such period. Four of ATI's distributors accounted in the aggregate
for 76%, 75% and 80% of ATI's net sales for the fiscal years ended October 1,
1994, September 30, 1995 and September 28, 1996, respectively. One of ATI's
distributors accounted for approximately 53% of ATI's net sales for its fiscal
year ended September 28, 1996. Management believes that one or more of the
Company's competitors may, due to the Company's acquisition of ATI, seek to
engage in distribution arrangements with one or more of ATI's distributors
which, if successful, could have a material adverse effect upon the Company. The
Company does not have written contracts with any of its distributors, which the
Company believes is consistent with industry practice. The Company's
distributors also sell products that are competitive with the products supplied
by the Company. The loss of any of its major distributors would have a material
adverse effect on the Company. See "BUSINESS -- Marketing and Sales."
INTEGRATION OF OPERATIONS AS THE RESULT OF ACQUISITION OF ATI. If the
Company is to realize the anticipated benefits of its recent acquisition of ATI,
ATI's operations must be integrated and combined efficiently and effectively
with those of the Company. The process of rationalizing manufacturing, supply
and distribution channels, computer and accounting systems and other aspects of
operations, while managing a larger and geographically expanded entity with
additional fabric products, will present a significant challenge to the
Company's management. There can be no assurance that the integration process
will be successful or that the anticipated benefits of this acquisition will be
fully realized. The dedication of management resources to such integration may
detract attention from the day-to-day business of the Company. The difficulties
of integration may be increased by the necessity of coordinating geographically
separated manufacturing operations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. There can be no
assurance that the Company will be able to achieve any expense reductions
through the removal of duplicative expenses or through economies of scale, that
there will not be substantial costs associated with any such reductions or that
such reductions will not result in a decrease in revenues or that there will not
be other material adverse effects on the Company of these integration efforts.
Such effects could also materially reduce the short-term earnings of the
Company. See "BUSINESS -- Acquisition of Advanced Textiles, Inc."
DEPENDENCE ON PRODUCT AND PROCESS INNOVATION; MARKET ACCEPTANCE. The
Company's ability to continue its revenue growth will be dependent upon its
ability to continue both product and process innovation through research and
development and other means. In order to remain competitive, the Company must
maintain the engineering and technical capability to respond to customer demands
for new and improved versions of its current products at competitive prices. The
Company has invested, and intends to continue to invest, in the development and
refinement of its production processes in order to reduce costs and expand its
capability to produce a broader range of products. Wood, concrete and steel
products may cost less than products using the Company's reinforcement fabrics.
No assurance can be given that the Company will achieve further market
acceptance of its products, that it will be successful in developing new
products or that such products will be accepted by end-product manufacturers due
to quality or cost considerations. See "BUSINESS -- Product Engineering,
Manufacturing and Development."
COMPETITION. There is no single competitor that produces materials with the
same characteristics as all of the Company's products. However, there are other
products in the marketplace which compete with each of the Company's products.
Wood, concrete and steel products may cost less than products using the
Company's reinforcement fabrics. The Company believes that there are only two
other companies, Johnston Composite Industries, a subsidiary of Johnston
Industries Inc., and Knytex, Inc., a joint venture between Owens-Corning
Fiberglass and Hexcel Corporation, using a weft-insertion or stitchbonding
process that have significant shares of the weft-inserted and stitchbonded
composite reinforcement fabrics market. Although the Company believes that it is
one of the largest suppliers in the United States market for composite
reinforcement fabrics, it believes that each of its significant competitors has
greater financial, marketing and operating resources than the Company. Although
the Company relies on certain proprietary information and believes that there is
no equipment currently
8
commercially available that is able to duplicate, through the same one-step
production process, the fabrics produced by the Company, there is equipment
available to produce fabrics possessing certain of the characteristics of
products required by composite manufacturers. As existing barriers to the market
are not prohibitive, others may enter the marketplace to compete with the
Company and these additional competitors may have resources greater than those
of the Company. Management also believes that one or more of the Company's
competitors may, due to the Company's acquisition of ATI, seek to engage in
distribution arrangements with one or more of ATI's distributors which, if
successful, could have a material adverse effect upon the Company. Competition
in the fiberglass industry is based upon price, quality and design innovation as
well as marketing and distribution strategies. There can be no assurance that
the Company's products will be able to compete successfully with other products
available for the same applications. See "BUSINESS -- Competition."
RISKS RELATING TO GROWTH AND EXPANSION; LIMITS ON CAPITAL EXPENSES. If the
Company's revenues and earnings grow rapidly, such growth may significantly
strain the Company's management and its operational and technical resources. If
the Company is successful in rapidly obtaining greater market penetration with
its products, the Company will be required to deliver increasing volumes of
highly complex products to its customers on a timely basis at a reasonable cost
to the Company. No assurance can be given that the Company's efforts to expand
its manufacturing activities will be successful or that the Company will be able
to satisfy increased production demands on a timely and cost-effective basis.
The Company's success will also depend, in part, upon its ability to provide its
customers with engineering, manufacturing, marketing and other support. Efforts
to expand the Company's manufacturing capacity and support therefore could
require significant additional personnel; no assurance can be given that the
Company will be able to attract and retain such personnel. In addition to the
levels of support currently provided, including the ability to modify its
technology and products to meet end-product manufacturer requirements, the
Company will also be required to continue to improve its operational, management
and financial systems and controls. Failure to manage possible growth could have
a material adverse effect on the Company. In connection with the industrial
development financing underlying the construction of the facility leased by the
Company in Brunswick, Maine, the Company was required, pursuant to Internal
Revenue Code requirements, to agree to limit certain capital expenditures
through the period ending December 12, 1998. The restrictions are applicable to
capital expenditures (whether incurred by the Company, its affiliates or
unaffiliated parties) with respect to the Company's (or the Company's
affiliates') facilities or property located in the Town of Brunswick. As of
December 31, 1996 additional capital expenditures of up to approximately $5.8
million may be incurred in Brunswick through December 12, 1998. Management
believes that the anticipated capital expenditures through the relevant period
will not exceed that amount, although if the Company's plans change, the limit
could restrict desired activities. The Company also has the option to lease
equipment, in lieu of purchasing such equipment, as equipment leases are
generally not restricted by the limitations. Further, if the Company were to
purchase the Brunswick facility and the bonds used to finance it were repaid
(which repayment would require the consent of the holders of such bonds), the
capital expenditures restriction would be terminated. In addition, in connection
with the acquisition of ATI and the issuance to Burlington of the Convertible
Note, Burlington agreed to subordinate its debt to the Company's senior lenders
in an amount not to exceed $7,500,000 plus the amount of any principal payments
made to Burlington. Therefore, if the Company should desire to obtain financing
arrangements which would require a senior position for more than such amount,
the Company would be required to obtain Burlington's consent or pay Burlington
to the extent necessary. See "USE OF PROCEEDS," "BUSINESS -- Products" and "--
Product Engineering, Manufacturing and Development."
BROAD DISCRETION OVER USE OF PROCEEDS; POSSIBLE ACQUISITIONS. The Company
plans to repay its bank debt with a portion of the net proceeds of the Offering
and, as required by the terms of the Convertible Note, to pay to Burlington
$3,648,250 (equal to approximately 27.6% of the estimated net proceeds) of the
outstanding principal amount of such Convertible Note. At December 31, 1996 term
and revolving bank debt aggregated approximately $2.6 million or 20% of the
estimated net proceeds. An additional $3.0 million or 22.7% of the estimated net
proceeds has been allocated to the purchase of capital equipment through
December 31, 1998. However, the Company may also use a portion of the net
proceeds for additional acquisitions to broaden its product line as well as
manufacturing capacity, product market
9
coverage, and distribution channels. The Company may make other acquisitions in
the future. Acquisitions require significant financial and management resources
both at the time of the transaction and during the process of integrating the
newly acquired business into the Company's operations. The Company's operating
results could be adversely affected if it is unable to successfully integrate
such new companies into its operations. Future acquisitions by the Company could
also result in potentially dilutive issuances of securities, the incurrence of
additional debt and contingent liabilities, and amortization expenses related to
goodwill and other intangible assets, which could materially adversely affect
the Company's profitability. Certain of the net proceeds will also be used to
fund working capital, as well as the Company's research and development efforts.
The Company may also consider purchasing its manufacturing facility in
Brunswick, Maine. Management will have broad discretion in allocating and
applying such proceeds and the Company's stockholders may not have an
opportunity to review or vote upon the terms of these unspecified expenditures
or review the financial statements of any businesses which may be acquired. The
Company has no commitments or agreements with respect to any additional
acquisition, joint venture or licensing of any technology other than those
specifically identified in this Prospectus. No assurance can be given that the
Company can successfully complete any additional acquisitions or that any such
acquisitions would not have a material adverse effect on the Company. See "USE
OF PROCEEDS."
RISK OF POTENTIAL PRODUCT LIABILITY CLAIMS. As a manufacturer of components
used in products which include boats, skis and diving boards, the Company is
subject to the potential risks of product liability claims. Although the Company
maintains insurance coverage against such liabilities, any such claim against
the Company might exceed the amount of such insurance coverage or fall outside
the scope of such coverage. A successful product liability claim or series of
claims could have a material adverse effect on the Company.
CONCENTRATION OF MANUFACTURING FACILITIES. The Company's manufacturing
operations are conducted at, and substantially all of the Company's inventory is
maintained in, two facilities, one in Brunswick, Maine and the other in Seguin,
Texas. Any significant casualty loss to, or extended interruption of operations
at, either facility would have a material adverse effect on the Company.
Replacement of the Company's customized manufacturing equipment could take
several months and would have a material adverse effect on the Company. See
"BUSINESS -- Property."
INTELLECTUAL PROPERTY. Although the Company has three registered trademarks
and owns two patents, it relies almost entirely upon unpatented technology in
its production processes. The Company relies in part upon state and federal
trade secrets and unfair competition laws to protect its intellectual property.
There can be no assurances that the Company can adequately protect its rights in
such unpatented proprietary technology or that others will not independently
develop substantially equivalent or better proprietary information or
techniques, or otherwise gain access to the Company's proprietary technology or
that others will disclose such technology. The Company will continue to seek
additional protection for newly developed intellectual property as deemed
appropriate. There can be no assurance as to the breadth or degree of protection
which existing or future trademarks, patents and copyrights may afford the
Company, that any trademark or patent application will result in issued
trademarks or patents, or that the Company's intellectual property will not be
circumvented or invalidated. Foreign intellectual property laws may not
adequately protect the Company's intellectual property. There can be no
assurance that the Company's products do not or will not violate the proprietary
rights of others, that the Company's intellectual property would be upheld if
challenged, or that the Company would not be prevented from using its
intellectual property, any of which occurrences could have an adverse effect on
the Company. The Company received a notice from a competitor in 1987 with
respect to an alleged infringement of certain of the competitor's patents. The
Company denied the allegations and has received no further communications from
the competitor since a meeting was held with representatives of the alleging
party in 1992. In addition, the Company may not have the financial resources
necessary to enforce or defend its trademarks, patents and copyrights at the
time of any apparent infringement or of any challenge. See "BUSINESS --
Intellectual Property."
DEPENDENCE UPON KEY PERSONNEL. The success of the Company will be largely
dependent on the personal efforts of Martin S. Grimnes, William M. Dubay, Robert
R. Fuller and Thomas L. Wallace. The Company does not have any employment
agreements with any of these employees. The loss of the
10
services of any of these individuals would have a material adverse effect on the
Company. The Company is the owner and beneficiary of a "key man" life insurance
policy on each of Messrs. Grimnes and Dubay in the amount of $1 million each.
See "MANAGEMENT."
CONTROL BY EXISTING STOCKHOLDERS. Upon the consummation of the Offering, the
current stockholders of the Company will beneficially own approximately 53.9% of
the outstanding shares of Common Stock (assuming no exercise of outstanding
stock options or warrants, no exercise of the Underwriters' over-allotment
option or conversion of the Convertible Note). Accordingly, these stockholders,
acting together, will be able to elect all of the Company's directors and,
generally, to direct the affairs of the Company. Mr. Grimnes and four
representatives of major stockholders are currently Directors of the Company.
The Board of Directors has elected Mr. Dubay to replace one of the
representatives of a major stockholder who will be resigning, and the Board has
also elected two additional directors (both of whom will be independent), with
both actions effective as of the consummation of the Offering. The Board of
Directors has also determined that, at the next annual meeting of the Company,
it will recommend to the stockholders a proposal to increase the size of the
Board to allow for between seven to nine directors. The four remaining incumbent
directors and Mr. Dubay will constitute a majority of the Board of Directors
following the Offering. Voting together, these directors could effectively block
any major corporate transactions, such as a merger or sale of substantially all
of the Company's assets, that under Maine law requires the affirmative vote of
holders of a majority of the outstanding Common Stock of the Company. See
"MANAGEMENT," "PRINCIPAL AND SELLING STOCKHOLDERS" and "DESCRIPTION OF CAPITAL
STOCK AND CERTAIN INDEBTEDNESS."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock in
the Offering will experience immediate and substantial dilution in net tangible
book value per share from the initial public offering price. Such dilution at
September 30, 1996, would have been equal to $7.18 per share or 72% of an
assumed Offering price of $10.00 per share. See "DILUTION."
ABSENCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE;
POSSIBLE VOLATILITY OF SHARE PRICE. Prior to the Offering, there has been no
public market for the Common Stock. The Offering price has been arbitrarily
determined by negotiations between the Company and the Underwriters and
represents a substantial increase in value over the exercise price of certain
outstanding options and warrants to purchase Common Stock issued as recently as
September, 1995. The Offering price does not necessarily bear any relationship
to the Company's assets, book value, total revenue or other established criteria
of value and should not be considered indicative of the actual value of the
Common Stock. There can be no assurance that an active trading market will
develop and continue after completion of the Offering or that the market price
of the Common Stock will not decline below the Offering price. Stock prices for
many companies fluctuate widely for reasons which can be unrelated to operating
results. These fluctuations, as well as general economic, political and market
conditions, such as a recession or military conflict, may also have a material
adverse effect on the market price for the Common Stock. See "UNDERWRITING."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market following the completion of the Offering could have
an adverse effect on the market price of the Common Stock. There will be
approximately 4,335,817 shares of Common Stock outstanding immediately after the
Offering, including the 2,000,000 shares offered hereby. Upon completion of the
Offering, all of the shares of Common Stock offered hereby will be eligible for
public sale without restriction, except for shares purchased by affiliates
(those controlling or controlled by or under common control with the issuer and
generally deemed to include officers and directors) of the Company. The
2,335,817 shares of Common Stock that will be owned by the Company's current
stockholders following the Offering (assuming no exercise of the Underwriters'
over-allotment option), including (i) 1,837,192 shares of Common Stock to be
issued to existing holders of Preferred Stock upon conversion of their shares of
Preferred Stock, (ii) 1,000 shares in the aggregate to be issued to two
directors-elect of the Company upon the consummation of the Offering, (iii) an
estimated 199,301 shares of Common Stock to be issued to the holders of
Preferred Stock in payment of accrued dividends (estimated as of January 31,
1997) concurrently with the completion of the Offering (the "Dividend Shares"),
and (iv) 298,324 shares of Common Stock outstanding on the date hereof, are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act of 1933, as amended, (the "Securities Act"). Subject to
the volume and holding period limitations of Rule 144 and the "lock-up"
11
agreements described below, all currently outstanding shares of Common Stock
will be eligible for sale under Rule 144 beginning 90 days after the
commencement of the Offering. As of December 31, 1996, 2,109,178 shares
(assuming no exercise of the Underwriters' over-allotment option) would be
eligible for sale subject to the volume limitations of Rule 144; out of that
2,109,178 shares, 227,568 shares would also be eligible for sale under Rule
144(k) without volume limitations. The Dividend Shares, an aggregate of 336,200
shares issuable under warrants outstanding as of the closing of the Offering,
5,350 shares issued to Peter L. DeWalt in October 1996 and 364,825 shares
issuable upon conversion of the Convertible Note (assuming an Offering price of
$10.00 per share) after the Offering will be eligible to trade under Rule 144 on
the second anniversary of their issuance subject to volume and other
limitations. The 561,089 shares of Common Stock issuable under outstanding
options, if exercised, and 54,021 shares (including 37,686 shares eligible for
sale under Rule 144) issued upon the exercise of previously granted stock
options would be tradable 90 days after the commencement of the Offering under
Rule 701 of the Securities Act. All existing holders of the Company's capital
stock have been granted registration rights by the Company pursuant to which
they may as a group on two occasions demand that the Company register the resale
of all or a portion of their Common Stock and may otherwise "piggyback" upon
certain registrations by the Company of its securities. Burlington has been
granted equivalent registration rights with respect to the 364,825 shares of
Common Stock issuable after October 30, 1997 under the Convertible Note if
converted by Burlington and Josephthal holds similar registration rights with
respect to the shares issuable upon exercise of its warrants. The holders of all
shares of Common Stock outstanding immediately prior to the closing of the
Offering, the holders of all options and warrants to purchase Common Stock and
Burlington have agreed not to sell or otherwise dispose of any of their shares
of Common Stock, or exercise registration rights with respect to such stock, for
a period of 13 months after the closing of the Offering without the prior
written consent of Josephthal. The possibility that substantial amounts of
Common Stock may be sold in the public market after the expiration of the
thirteen month "lock-up" period may adversely affect the prevailing market price
for the Common Stock and could impair the Company's ability to raise additional
capital through the sale of its equity securities. See "SHARES ELIGIBLE FOR
FUTURE SALE."
LACK OF DIVIDENDS. To date, the Company has not paid any dividends on either
the Common Stock or Preferred Stock. Concurrently with the closing of the
Offering, the Company will issue approximately 199,301 shares of Common Stock to
the holders of its Preferred Stock in payment of accrued cash dividends which
are expected to aggregate approximately $1,993,010 as of January 31, 1997. Under
the terms of its existing bank loan agreements, the Company may not pay
dividends without the consent of the lender. The Company currently intends to
retain future earnings to finance the growth and development of the Company's
business and does not anticipate paying any dividends in the foreseeable future.
See "DIVIDEND POLICY."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK. The
Company's Restated Articles of Incorporation permit it to issue undesignated
"blank-check" preferred stock ("New Preferred Stock"). Accordingly, shares of
the Company's New Preferred Stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. Such
rights, privileges and preferences could include preferential voting rights,
dividend rights in excess of those provided to holders of Common Stock, and
conversion rights, redemption privileges or liquidation preferences not
available to holders of Common Stock. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of holders of
any New Preferred Stock that may be issued in the future. The issuance of New
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of the Company.
The provision also may limit the price that certain investors may be willing to
pay in the future for shares of the Common Stock. The Board's ability to issue
New Preferred Stock may have a depressive effect on the market price of the
Common Stock, may deter or prevent a change of control of the Company, and may
reduce the premium to shareholders in a change of control transaction. The
Company has no present plans to issue any shares of its New Preferred Stock. See
"DESCRIPTION OF CAPITAL STOCK AND CERTAIN INDEBTEDNESS."
12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by it hereunder at an assumed Offering price of $10.00 per
share are estimated to be approximately $13.2 million after deducting
underwriting discounts and estimated additional Offering expenses of
approximately $750,000 payable by the Company, which includes the
Representatives' expense allowance. The Company intends to use approximately
$9.35 million of the net proceeds of the Offering to (i) pay approximately $3.65
million of the outstanding principal amount of the Convertible Note issued to
Burlington in connection with the acquisition of ATI, (ii) expand its
manufacturing capacity through the purchase of additional capital equipment
estimated to aggregate approximately $3.0 million over the next two years, (iii)
repay in full its existing term and revolving bank debt aggregating
approximately $2.6 million at December 31, 1996, and (iv) make approximately
$100,000 of capital improvements to ATI's plant in Texas. The Company expects
that the approximately $3.85 million remaining from the estimated net proceeds,
with respect to which the Company has no specific plans, will be used for
general corporate purposes, including research and development and possible
additional acquisitions of complementary businesses and product lines.
The terms of the Convertible Note issued to Burlington in connection with
the acquisition of ATI require that the Company pay $3,648,250, an amount equal
to half of the outstanding principal amount of the Convertible Note ($7,296,500)
to the holder thereof, no later than seven months following the Offering. On
October 30, 2002, 50% of the then-oustanding principal amount of the Convertible
Note, plus any additional amount permitted by the Company's then-existing
financial covenants with any senior lenders, will be payable. Any remaining
principal amount of the Convertible Note will be payable on October 30, 2003.
The Convertible Note bears interest at the rate of 9.5% per annum.
The Company's $1.425 million term equipment loan bears interest, at the
Company's option, at the prime rate or the London Interbank Offered Rate
("LIBOR") plus 2.25%. The Company's revolving line of credit, with $1,179,967
outstanding as of December 31, 1996, bears interest, at the Company's option, at
the prime rate or LIBOR plus 1.75%. As of September 30, 1996 the Company had
elected (i) a nine month LIBOR rate on the equipment loan which will be
effective through March 1, 1997 and which equals an "all-in" rate of 8%, and
(ii) to pay interest at the prime rate (8 1/4 %) on borrowings under the line of
credit. The Company borrowed amounts under the line of credit for working
capital purposes, primarily to finance increases in inventory balances in 1996.
The Company may consider purchasing its manufacturing facility in Brunswick,
Maine. The Company has had discussions with several parties regarding additional
acquisitions, but has no agreements or commitments with respect to any such
additional acquisitions. Pending the uses described above, the proceeds of the
Offering will be invested in short-and medium-term investment-grade,
interest-bearing securities.
In addition to its desire to make the expenditures described above, the
Company chose to proceed with the Offering at this time because it believes
current market conditions are favorable for equity offerings of issuers similar
to the Company, because it would like to create liquidity for its current
stockholders and employees, many of whom have owned Common Stock, or options to
purchase Common Stock, for a number of years, and because it believes a public
market for the Common Stock will enable it to better take advantage of
acquisition and other opportunities (such as the acquisition of ATI) where it
can use shares of Common Stock as consideration. Management also believes that
the net proceeds from the Offering will enable the Company to increase its
domestic market share and fuel expansion in foreign markets.
DIVIDEND POLICY
To date, the Company has not paid any dividends on either the Common Stock
or the Preferred Stock. Concurrently with the closing of the Offering, all of
the outstanding shares of Preferred Stock will convert to 2,337,192 shares of
Common Stock and the Company will issue an estimated 199,301 shares of Common
Stock (assuming payment as of January 31, 1997) to the holders of the Preferred
Stock in payment of accrued cash dividends which will equal in the aggregate an
estimated $1,993,010 as of January 31, 1997. The Company currently intends to
retain future earnings to finance the growth and development of the Company's
business and does not anticipate paying any dividends in the foreseeable future.
The payment of dividends is within the discretion of the Board of Directors and
will depend upon the Company's earnings, its capital requirements, financial
condition and other relevant factors. Under the terms of its existing bank loan
agreements, the Company may not pay dividends without the consent of the lender.
13
DILUTION
The difference between the public offering price per share of Common Stock
and the pro forma net tangible book value per share of the Company after the
Offering constitutes the dilution per share to investors in the Offering. Net
tangible book value per share is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock (adjusted to give effect to (i) a
33:1 stock split; (ii) the conversion of the Preferred Stock outstanding at
September 30, 1996 into 2,337,192 shares of Common Stock; (iii) 1,000 shares in
the aggregate to be issued to directors-elect upon consummation of the Offering;
and (iv) the issuance of an estimated 199,301 shares of Common Stock in payment
of accrued Preferred Stock dividends of $1,993,010 (estimated as of January 31,
1997); all to be effected prior to the closing of the Offering).
At September 30, 1996, the net tangible book value of the Company, after
combining on a pro forma basis the accounts of Advanced Textiles, Inc. with
those of the Company, was ($978,000) or ($0.34) per share of Common Stock. After
giving effect to the sale by the Company of the 1,500,000 shares of Common Stock
offered by it hereunder at an assumed Offering price of $10.00 per share (less
underwriting discounts and estimated expenses of the Offering), the pro forma
net tangible book value of the Company at September 30, 1996, would have been
approximately $2.82 per share, representing an immediate increase in net
tangible book value of $3.16 per share to existing stockholders and immediate
dilution of $7.18 per share to investors in the Offering.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share....................... $10.00
Net tangible book value per share at September 30, 1996........... $(0.34)
Increase per share attributable to new investors.................. $ 3.16
Pro forma net tangible book value per share after Offering............ $ 2.82
------
Dilution of pro forma net tangible book value per share to new investors $7.18
======
</TABLE>
The following table sets forth, on a pro forma basis at September 30, 1996,
a comparison of the number of shares of Common Stock purchased from the Company
and the Selling Stockholder, the total consideration paid, and the average price
per share paid by existing stockholders and to be paid by new investors
purchasing Common Stock in the Offering at an assumed Offering price of $10.00
per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE
PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing stockholders(1) 2,335,817 53.9% $ 6,294,284 23.9% $ 2.70
New investors(1) 2,000,000 46.1% $20,000,000 76.1% $10.00
--------- ------ ----------- ------
Total 4,335,817 100.0% $26,294,284 100.0%
========= ====== =========== ======
</TABLE>
_________________
(1) The sale of 500,000 shares by the Selling Stockholder in the Offering will
reduce the number of shares of Common Stock held by the existing
stockholders from 2,835,817 to 2,335,817 or 53.9% of the total number of
shares of Common Stock to be outstanding after the Offering (2,035,817
shares and 46.9% if the Underwriters' over-allotment option is exercised in
full), and will increase the number of shares of Common Stock held by new
investors to 2,000,000 or 46.1% of the total number of shares of Common
Stock to be outstanding (2,300,000 shares and 53.1% if the Underwriters'
over-allotment option is exercised in full). See PRINCIPAL AND SELLING
STOCKHOLDERS."
The information set forth in the preceding table assumes (i) no exercise of
options to purchase a total of 561,089 shares of Common Stock that have been
granted under the Plans; (ii) no exercise of warrants outstanding as of the
closing of the Offering to purchase an aggregate of 336,200 shares of Common
Stock; (iii) no exercise of additional options which may be granted in the
future under the Plans to acquire up to 371,590 shares of Common Stock and (iv)
no conversion of the Convertible Note into 364,825 shares of Common Stock
(assuming an Offering price of $10.00 per share). See "MANAGEMENT -- Stock
Incentive Plans," "DESCRIPTION OF CAPITAL STOCK AND CERTAIN INDEBTEDNESS," and
"UNDERWRITING."
14
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 on an actual basis, on a pro forma basis reflecting the
acquisition of ATI, and as adjusted to give effect to (i) the sale of the
1,500,000 shares of Common Stock offered by the Company hereby at an assumed
initial public Offering price of $10.00 per share; (ii) the conversion of the
outstanding Preferred Stock into 2,337,192 shares of Common Stock concurrently
with the consummation of the Offering; (iii) the issuance of 199,301 shares of
Common Stock in payment of accrued Preferred Stock dividends concurrently with
the consummation of the Offering (estimated as of January 31, 1997); and (iv)
liquidation of all bank debt, payment of $3,648,250 (50% of the outstanding
principal amount of the Convertible Note) and the increase of the Company's
working capital with the remainder of the estimated net proceeds of the
Offering. The information set forth below should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30,1996
-----------------------------------
PRO FORMA
ACTUAL COMBINED AS ADJUSTED
------ -------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Note payable to a bank $ 602 $ 602 $ --
Current installments of long term debt 140 232 92
Convertible note -- 7,296 3,648
Long-term debt 1,296 1,717 421
Convertible preferred stock 6,473 6,473 --
Stockholders' equity (deficit)(1):
Preferred stock, $10.00 par value; 1,000,000 shares
authorized; no shares outstanding -- -- --
Common Stock; $0.0001 par value;
20,000,000 shares authorized; shares
outstanding -- 292,974 actual; 298,324
pro forma combined; 4,335,817 as adjusted(2) 406 460 20,133
Accumulated deficit (2,788) (2,788) (2,788)
------ ------ ------
Total stockholders' equity (deficit) (2,382) (2,328) 17,345
------ ------ ------
Total capitalization $ 6,129 $13,992 $ 21,506
======= ======= ========
</TABLE>
_________________
(1) The information set forth in the preceding table assumes (i) no exercise of
options to purchase a total of 561,089 shares of Common Stock that have
been granted under the Plans; (ii) no exercise of warrants outstanding as
of the closing of the Offering to purchase an aggregate of 336,200 shares
of Common Stock; (iii) no exercise of additional options which may be
granted in the future under the Plans to acquire up to 371,590 shares of
Common Stock and (iv) no conversion of the Convertible Note. See
"MANAGEMENT -- Stock Incentive Plans," "DESCRIPTION OF CAPITAL STOCK AND
CERTAIN INDEBTEDNESS," and "UNDERWRITING."
(2) Does not include 3,300 shares of Common Stock held as treasury shares by
the Company. The 4,335,817 shares of Common Stock outstanding as of
September 30, 1996 as adjusted include all of the shares of Preferred Stock
then outstanding which will convert automatically, upon the closing of the
Offering, to 2,337,192 shares of Common Stock, the 5,350 shares of Common
Stock issued to Peter L. DeWalt on October 30, 1996, an additional 199,301
shares of Common Stock being issued to holders of Preferred Stock in
payment of an estimated $1,993,010 in accrued cash dividends as of the
closing of the Offering (estimated as of January 31, 1997), and 1,000
shares to be issued in the aggregate to two directors-elect.
15
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 30, 1996, the Company acquired ATI for a total acquisition cost
of $8,113,000 which included aggregate consideration of $7,863,000, payable
through (i) the issuance of the Convertible Note, (ii) the incurrence of a
non-interest bearing obligation and (iii) the issuance of shares of Common
Stock, and estimated transaction costs of approximately $250,000. The Company
intends to operate ATI as a subsidiary.
The Unaudited Pro Forma Combined Financial Information gives effect to the
acquisition of ATI under the purchase method of accounting using the assumptions
and adjustments described in the accompanying Notes to Pro Forma Combined
Financial Information and should be read in conjunction with the historical
financial statements of the Company and ATI included elsewhere herein. The pro
forma information does not purport to be indicative of the results which would
have been reported if the above transaction had been in effect for the periods
presented or which may result in the future.
The Unaudited Pro Forma Condensed Combined Balance Sheet is presented to
give effect to the acquisition of ATI as if it had occurred on September 30,
1996 and combines the balance sheet of the Company as of September 30, 1996 with
that of ATI as of September 28, 1996. The Unaudited Pro Forma Condensed Combined
Statements of Income assume the transaction occurred at the beginning of the
fiscal year ended December 31, 1995 and combines the statements of income of the
Company for the year ended December 31, 1995 and the nine months ended September
30, 1996 with the statements of income of ATI for the twelve months ended
December 31, 1995 and the nine months ended September 28, 1996. See the
accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
The Unaudited Pro Forma Condensed Balance Sheet also assumes the closing of
the Company's initial public offering as if it had occurred on September 30,
1996. See the accompanying Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.
The presentation of the Pro Forma Financial Information for ATI for the year
ended December 31, 1995 combines the results of operations for ATI for the year
ended September 30, 1995, adjusted by adding the results of operations of ATI
for the quarter ended December 31, 1995 and omitting the results for the
comparative quarter ended December 31, 1994. The revenues and net earnings of
ATI omitted for the quarter ended December 31, 1994 were $2,411,000 and $99,000,
respectively.
16
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
ADVANCED BRUNSWICK
TEXTILES, INC. TECHNOLOGIES, INC.
-------------- ------------------
SEPTEMBER 28, SEPTEMBER 30, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
-------------- ------------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 632 $ 203 (B) $ 9,813 $ 9,752
(A) (896)
Accounts receivable, net 1,040 962 2,002
Inventories 1,266 2,549 3,815
Deferred income taxes and other current assets 1 382 -- 383
------- ------- ------- -------
Total current assets 2,939 4,096 8,917 15,952
------- ------- ------- -------
Property, plant and equipment 2,458 5,568 (A) (908) 7,118
Less accumulated depreciation 1,643 1,350 (1,643) 1,350
------- ------- ------- -------
Net property, plant and equipment 815 4,218 735 5,768
------- ------- ------- -------
Goodwill (A) 5,123 5,123
(A) (75)
Deferred charges and other assets -- 424 (B) (261) 88
------- ------- --- ------- -------
Total assets $ 3,754 $ 8,738 $ 14,439 $ 26,931
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to a bank $ -- $ 602 $ -- $ 602
Current portion of long-term debt -- 140 140
Amount due Burlington -- current (A) 92 92
Due to stockholder 1,154 1,154
Accounts payable 524 959 (A) 175 1,658
Accrued liabilities 180 433 (A) (101) 512
------- ------- ------- -------
Total current liabilities 704 3,288 166 4,158
------- ------- ------- -------
Amount due Burlington (A) 421 421
Convertible subordinated note (A) 7,296 3,648
(B) (3,648)
Long term debt 1,296 1,296
Deferred income taxes 63 63
Convertible preferred stock -- 6,473 (C) (6,473) --
Stockholders' equity:
Common stock 6,029 406 (A) 54
(B) 13,200
(A) (6,029)
(C) 6,473 20,133
(Accumulated deficit) (2,979) (2,788) (A) 2,979 (2,788)
------- ------- ------- -------
Total stockholders' equity (deficit) 3,050 (2,382) 16,677 17,345
------- ------- ------- -------
Liabilities and stockholders' equity $ 3,754 $ 8,738 $ 14,439 $ 26,931
======= ======= ======= =======
</TABLE>
17
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
ADVANCED BRUNSWICK ADVANCED BRUNSWICK
TEXTILES, TECHNOLOGIES, PRO FORMA PRO FORMA TEXTILES, TECHNOLOGIES, PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED INC. INC. ADJUSTMENTS COMBINED
---- ---- ----------- -------- ---- ---- ----------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA) (IN THOUSANDS EXCEPT PER SHARE DATA)
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .................. $10,968 $15,476 $26,444 $7,958 $13,423 $21,381
Cost of goods sold ......... 9,239 11,979 21,218 6,565 10,365 16,930
----- ------ ------ ----- ------ ------
Gross profit ............. 1,729 3,497 5,226 1,393 3,058 4,451
Operating expenses ......... 807 2,492 (D) 142 3,441 522 2,441 (D) 106 3,069
Moving costs ............... -- 9 9 -- 248 248
Facility repair costs ...... -- 150 -- 150 -- (148) -- (148)
----- ------ ----- ------ ----- ------ ------
Operating income ......... 922 846 (142) 1,626 871 517 (106) 1,282
Other income (expense), net (14) (61) (E) (380) (455) 8 98 (E) (285) (179)
--- --- ---- ---- ---- ---- ---- ----
Income before income tax
benefit (expense) ........ 908 785 (522) 1,171 879 615 (391) 1,103
(D) 51 (D) 38
Income tax benefit (expense) 1,329 122 (E) 136 1,638 (333) (222) (E) 102 (415)
--- --- ---- ---- ---- ---- ---- ----
Net income ............... $ 2,237 $ 907 $(335) $ 2,809 $ 546 $ 393 $(251) $ 688
======= ======= ===== ======= ====== ======= ===== =======
Pro forma earnings per
share $ 0.81 $ 0.20
======= =======
Pro forma weighted average
common shares outstanding 3,457 3,491
======= =======
</TABLE>
18
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(A) The $8.1 million acquisition cost recorded for the acquisition of ATI
includes $250,000 in estimated transaction costs. Consideration
aggregating $7,863,000 was paid in the form of a $7,296,500 convertible
subordinated note, a non-interest bearing obligation of $600,000
(discounted to $513,000 using an interest rate of 8.25%), and shares of
Common Stock valued at $53,500. The estimated fair market value of net
assets acquired was $2,990,000. The following adjustments allocate the
purchase cost of the acquisition:
* Adjust ATI working capital of $2,235,000 to $1,440,000 which
represents the agreed amount to be acquired by the Company and adjust
for $101,000 of liabilities not assumed by the Company. Excess working
capital of $896,000 was paid to Burlington Industries.
* Adjust ATI property, plant and equipment for the estimated fair market
value of fixed assets acquired. The adjustment eliminated ATI's
accumulated depreciation of $1,643,000 and reduces the cost of ATI's
fixed assets by $908,000, to the estimated fair market value of the
fixed assets acquired of $1,550,000.
* Eliminate deferred acquisition costs already recorded by the Company
of $75,000, and accrue an additional estimated cost of $175,000, for a
total estimated acquisition cost of $250,000.
* Record the Convertible Note due Burlington Industries of $7,296,500
and the non-interest bearing note discounted to $513,000, of which
$92,000 is currently payable.
* Record issuance of stock to a minority shareholder of ATI for $53,500.
* Eliminate the equity accounts of ATI by adjusting Common Stock of
$6,029,000 and accumulated deficit of $2,979,000.
* Record goodwill of $5,123,000, which represents the excess of the
purchase price of $8,113,000 over the fair market value of assets
acquired and liabilities assumed of $2,990,000.
(B) To record the offering of 1,500,000 shares of Common Stock by the
Company at an assumed Offering price of $10.00 per share net of
underwriting discounts and estimated expenses of $750,000. In accordance
with the terms of the acquisition of ATI, a portion of the net proceeds
of the Offering is assumed to be used to pay 50% of the principal amount
of the Convertible Note ($3,648,250) as required by the terms thereof.
(C) To record the conversion of the outstanding shares of Preferred Stock
into shares of Common Stock upon the closing of the Offering.
(D) To record the incremental depreciation and amortization and the related
income tax benefit resulting from the stepped up basis in the ATI assets
resulting from the acquisition by the Company. The real property,
machinery and equipment, and goodwill of ATI are being depreciated and
amortized at the respective lives of 20, 15, and 20 years.
(E) To record interest on the Convertible Note which carries a stated rate
of 9.5%, to record imputed interest on the $600,000 obligation to
Burlington at an interest rate of 8.25% and to record the related tax
benefit.
19
SELECTED FINANCIAL INFORMATION
The selected financial data set forth below for each of the Company's fiscal
years ended December 31, 1993 and 1994 and at December 31, 1994 are derived from
the financial statements of the Company audited by KPMG Peat Marwick LLP,
independent public accountants, which are included elsewhere in this Prospectus.
The selected financial data set forth below for the Company's nine months ended
September 30, 1996 and the fiscal year ended December 31, 1995 and at September
30, 1996 and December 31, 1995 are derived from the financial statements of the
Company audited by Coopers & Lybrand L.L.P., independent accountants, which are
included elsewhere in this Prospectus. The selected financial data set forth
below for the nine months ended September 30, 1995 are derived from the
unaudited financial statements of the Company, which appear elsewhere in this
Prospectus, and in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations. The operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the operating results for the entire year. The selected financial
data set forth below for ATI's fiscal years ended September 30, 1994, 1995 and
1996 are derived from the financial statements of ATI audited by Ernst & Young
LLP, independent accountants, which appear elsewhere in this Prospectus. The
selected financial data set forth below for ATI for the fiscal years ended 1992
and 1993 are derived from the unaudited financial statements of ATI, and in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations. The selected financial data set forth below
should be read in conjunction with the Financial Statements and Notes thereto
and with MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, COMPANY PRO FORMA(1)
------------ ------------- --------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1995 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ....................... $2,625 $4,701 $6,376 $9,596 $15,476 $11,033 $13,423 $26,444 $21,381
Cost of goods sold .............. 2,215 3,700 4,996 7,382 11,979 8,489 10,365 21,218 16,930
Gross profit .................... 410 1,001 1,380 2,214 3,497 2,544 3,058 5,226 4,451
Other operating expenses ........ 736 971 1,258 1,874 2,492 1,787 2,441 3,441 3,069
Moving costs .................... -- -- -- -- 9 -- 248 9 248
Facility repair costs ........... -- -- -- -- 150 -- (148) 150 (148)
----- ----- ----- ----- ----- ----- ----- ------ ------
Operating income (loss) ......... (326) 30 122 340 846 757 517 1,626 1,282
Other income (expense), net ..... (95) (27) (11) (26) (61) (27) 98 (455) (179)
----- ----- ----- ----- ----- ----- ----- ------ ------
Income (loss) before income taxes (421) 3 111 314 785 730 615 1,171 1,103
Income tax benefit (expense) .... -- -- -- -- 122 113 (222) 1,638 (415)
----- ----- ----- ----- ----- ----- ----- ------ ------
Net income (loss) ............... (421) 3 111 314 907 843 393 2,809 688
----- ----- ----- ----- ----- ----- ----- ------ ------
Preferred stock dividend ........ -- (269) (332) (450) (450) (338) (338) -- --
Accretion of preferred stock
redemption value .............. -- (51) (71) (76) (82) (61) (66) -- --
----- ----- ----- ----- ----- ----- ----- ------ ------
Net income (loss) attributable to
common stock .................. $ (421) $ (317) $ (292) $ (212) $ 375 $ 444 $ (11) $ 2,809 $ 688
====== ====== ====== ====== ======= ======= ======= ======= =======
Pro forma earnings per common share $ 0.26 $ 0.11 $ 0.81 $ 0.20
======= ======= ======= =======
Pro forma weighted average common
shares outstanding ............ 3,452 (2) 3,486 (2) 3,457 3,491
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
ADVANCED TEXTILES, INC.
FISCAL YEAR ENDED
-------------------------------------------------------------------------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales ........................................... $ 7,959 $8,332 $10,043 $11,169 $10,570
Cost of goods sold .................................. 7,324 7,582 9,040 9,574 8,504
----- ----- ----- ----- -----
Gross profit ........................................ 635 750 1,003 1,595 2,066
Other operating expenses ............................ 747 725 938 890 939
----- ----- ----- ----- -----
Operating income (loss) ............................. (112) 25 65 705 1,127
Other income (expense), net ......................... (161) (38) (31) (21) 7
Litigation settlement ............................... (3,400) -- -- -- --
----- ----- ----- ----- -----
Income (loss) before income taxes ................... (3,673) (13) 34 684 1,134
Income tax benefit (expense) ........................ -- -- -- 1,493 (429)
----- ----- ----- ----- -----
Net income (loss) ................................... $(3,673) $ (13) $ 34 $ 2,177 $ 705
======= ====== ======= ======= =======
</TABLE>
20
BRUNSWICK TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
------------ ------------------
BRUNSWICK ADVANCED
TECHNOLOGIES, TEXTILES, PRO FORMA(1)(3)
1991 1992 1993 1994 1995 INC. INC. COMBINED
---- ---- ---- ---- ---- ---- ---- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................. $ 236 $ (252) $ 548 $ 631 $ 905 $ 808 $2,235 $11,794
Total assets .................... 2,022 2,472 4,338 5,665 7,867 8,738 3,754 26,931
Long-term liabilities ........... 272 460 337 1,177 1,069 1,359 -- 5,428
Total liabilities ............... 1,481 1,810 1,873 2,886 4,168 4,647 704 9,586
Preferred stock ................. 2,460 2,918 5,012 5,538 6,070 6,473 -- --
Stockholders' equity (deficit) .. $(1,919) $(2,256) $(2,547) $(2,759) $(2,371) $(2,382) $3,050 $17,345
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
ADVANCED TEXTILES, INC.
<TABLE>
<CAPTION>
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................. $ 768 $ 610 $ 280 $1,021 $2,235
Total assets .................... 2,967 2,826 2,658 3,040 3,754
Long-term liabilities............ 700 500 -- -- --
Total liabilities................ 1,755 1,627 1,425 1,124 704
Stockholders' equity ............ $1,212 $1,199 $1,233 $1,916 $3,050
====== ====== ====== ====== ======
</TABLE>
__________________
(1) Adjusted to reflect the acquisition of ATI on October 30, 1996 and the pro
forma combination of results of operations and financial condition of ATI
and the Company.
(2) Calculation is shown in Note 1 of Notes to Financial Statements of the
Company.
(3) Adjusted to give effect to the sale by the Company of 1,500,000 shares of
Common Stock at an assumed Offering price of $10.00 and the application of
the estimated net proceeds therefrom (after deducting discounts, allowance
and Offering expenses). See "USE OF PROCEEDS."
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BRUNSWICK TECHNOLOGIES, INC.
Except with respect to the matters discussed under the heading "Liquidity
and Capital Resources" below, the financial condition and results of operations
described below do not include discussion of the financial condition of the
Company, or its results of operations, on a combined basis with those of ATI.
Reference is made to the Unaudited Pro Forma Condensed Combined Financial
Information, the Selected Financial Information of ATI and to the separate
discussion on ATI's financial condition and results of operations presented
below.
INTRODUCTION
Brunswick Technologies, Inc. is a leading developer and manufacturer of
engineered composite reinforcement fabrics produced from glass and other fibers.
The Company has experienced net revenue growth of 50.5% and 61.3% for 1994 and
1995, respectively, and 21.7% for the first nine months of 1996, as compared to
the same period for 1995. Net Income for 1995 increased by $592,309, or 188%,
from $314,196 in 1994, to $906,505. For the nine months ended September 30,
1996, net income decreased by $449,821, or 53.4%, to $393,273 from $843,094 for
the same period in 1995. The comparison of net income between the 1996 and 1995
nine month periods is affected by two unusual transactions, moving expenses and
facility repair costs, as well as income taxes which reflected a $113,000
benefit in 1995 and a $222,000 expense in 1996. During the nine months ended
September 30, 1996 the Company incurred moving expenses of $248,314 offset in
part by a $147,545 income item related to facility repair costs. The Company's
primary strategic objective is to continue the growth experienced prior to 1996
by building upon its expanded customer and product base resulting from its
acquisition of ATI and by targeting new market and product applications for
engineered composite reinforcement fabrics manufactured using the Company's
proprietary processes. These include the transportation, offshore petrochemical,
and infrastructure markets. The Company intends to pursue joint projects with
leaders in different industrial sectors to accelerate the substitution of the
Company's composite reinforcement fabrics for conventional materials. The
Company is also considering using its fabrics to produce certain end-user
products itself, in addition to supplying its fabrics to other manufacturers.
Although the Company utilizes independent distributors for approximately 90%
of its sales, it markets its products primarily to the ultimate end-product
manufacturer. In 1996, the Company moved its Maine operations into a new,
state-of-the-art, 50,000 square foot manufacturing facility which is leased from
a corporation affiliated with the Town of Brunswick, Maine. The Company
currently operates six production machines.
ACQUISITION OF ADVANCED TEXTILES, INC.
On October 30, 1996, the Company acquired all of the capital stock of ATI
for a purchase price of $7,863,000, payable through a convertible subordinated
promissory note of $7,296,500 (the "Convertible Note") in favor of Burlington
Industries, Inc. ("Burlington"), a non-interest bearing obligation (the
"Obligation") to Burlington discounted to $513,000 and 5,350 shares of Common
Stock issued to Peter L. DeWalt, who held a minority interest in ATI. The
Company incurred transactional costs of approximately $250,000 associated with
this purchase. The terms of the Convertible Note require that 50% of the
principal amount of the Convertible Note ($3,648,250) will be paid within seven
months after the completion of the Offering. The remaining principal amount of
the Convertible Note will be payable on October 30, 2002 and October 30, 2003.
On the earlier date, the Company is required to pay 50% of the then outstanding
principal plus any additional amount permitted by the Company's then existing
financial covenants with its senior lenders. The Obligation will be payable as
follows: $100,000 on December 15, 1996, and then on each succeeding December 15
until the entire Obligation is paid, an amount equal to at least $100,000 based
on certain income tax effects experienced by the Company.
The Company will operate ATI as a wholly-owned subsidiary of the Company.
This acquisition will be recorded on the books of the Company under the purchase
method of accounting and financial statements will be reported on a consolidated
basis. The acquisition cost of $8,113,000, (including the
22
estimated transactional costs of the acquisition) on the books of the Company,
is being allocated among the purchased assets and assumed liabilities according
to their estimated fair market value. It is currently estimated as of September
28, 1996 (the end of ATI's fiscal year prior to the acquisition) that the real
property and the machinery and equipment purchased had fair market values of
$800,000 and $750,000, respectively, and that the working capital equalled
$1,440,000. At September 28, 1996, ATI's property, plant and equipment had a
book value of $815,000. The purchase price in excess of such fair market value
will be allocated to goodwill and amortized over a 20 year period. The real
property and the machinery and equipment purchased will be depreciated over 20
and 15 years, respectively.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue ..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold .............................. 78.4 76.9 77.4 76.9 77.2
----- ----- ----- ----- -----
Gross profit .................................... 21.6 23.1 22.6 23.1 22.8
Selling, general and administrative expenses .... 17.7 15.6 13.5 13.6 15.2
Research and development expenses ............... 2.0 3.9 2.6 2.6 3.0
Moving costs .................................... 0.0 0.0 0.0 0.0 1.8
Facility repair cost ............................ 0.0 0.0 1.0 0.0 (1.1)
----- ----- ----- ----- -----
Operating income ................................ 1.9 3.6 5.5 6.9 3.9
Other income (expense):
Interest expense ............................. 0.0 (0.2) (0.8) (0.9) (0.8)
Miscellaneous, net ........................... (0.2) (0.1) 0.4 0.6 1.5
----- ----- ----- ----- -----
(0.2) (0.3) (0.4) (0.3) 0.7
----- ----- ----- ----- -----
Income before income tax ........................ 1.7 3.3 5.1 6.6 4.6
Income tax benefit (expense) .................... 0.0 0.0 0.8 1.0 (1.7)
----- ----- ----- ----- -----
Net income ...................................... 1.7% 3.3% 5.9% 7.6% 2.9%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net Sales. Net Sales for the nine month period ended September 30, 1996
increased by $2.4 million or 21.7% to $13.4 million from $11.0 million for the
same period in 1995. This increase was attributable to a 13.7% increase in
pounds of product sold and a 6.9% increase in the average price per pound. For
the period in 1996, 9,613,160 pounds of product were sold at an average sales
price of $1.40 per pound versus 8,453,600 pounds at an average sales price of
$1.31 per pound during the same period in 1995. In spite of continuing declines
in distributor inventories, revenues grew due to increased numbers of customers,
applications and markets for the Company's products.
Gross Profit. Gross profit increased to $3.0 million for the nine month
period ended September 30, 1996 from $2.5 million for the same period in 1995.
Gross profit margin remained relatively flat at 22.8% of net sales for the nine
month period in 1996 compared to 23.1% for the same period in 1995.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percentage of net sales increased to 15.2% for the
nine month period ended September 30, 1996 from 13.6% for the same period in
1995. Shipping expenses increased $116,234 or 23.36%. Selling expense increased
$159,776 or 34.59%. Salaries and travel accounted for $47,777 and $65,868 of
this increase respectively. Marketing expense increased $27,474 or 51.79%
primarily due to increases in consulting fees. General and administrative costs
increased $191,973 or 39.79%. The increase in this expense category was due in
part to $47,647 of profit sharing plan expense being accrued in 1996 as
23
opposed to none being accrued in the 1995 period, as the plan was adopted in
December 1995. Also in general and administrative expense, salaries increased
$69,840.
Research and Development Expenses. Research and development expenses as a
percentage of net sales increased to 3.0% for the nine month period ended
September 30, 1996 from 2.6% for the same period in 1995, primarily due to
adding a Director of Research and a design technician and their commensurate
expenses totaling $66,845.
Operating Income. Operating income decreased to $516,521 for the nine month
period ended September 30, 1996 from $757,370 for the same period in 1995.
Operating income as a percentage of net sales decreased to 3.9% for the period
ended September 30, 1996 from 6.9% for the same period in 1995 due in part to
unusual costs related to moving to the new facility of $248,314 representing
1.8% of net sales. In connection with the move to the new facility, the Company
recorded in 1995 an expense of $150,000 in 1995 to cover the expenses estimated
to be incurred for the restoration of the facilities being vacated. The repairs
thought to be required when the expense was recorded did not materialize and
therefore the unexpended amount of $147,545 was recognized as an addition to
operating income in June 1996 which offset, to some extent, the other increases
in operating expenses. Excluding these two unusual transactions, operating
income for the period in 1996 would have been $617,290 or 4.6% of net sales, a
19% decrease from the prior period.
Other Income. The period ended September 30, 1996 was favorably affected by
reimbursement of expenses related to expenditures on new technologies from a
grant from the National Institute of Standards and Technology ("NIST") in the
amount of $287,137. Costs of goods sold was credited for $71,307 of this amount
while $215,830 was credited to other income. The reimbursement of certain
expenditures from this grant resulted in a credit of $26,453 to cost of goods
sold and recognition of $51,349 as other income in the 1995 period.
Income Taxes. The period ended September 30, 1995 reflects its share of the
income tax benefit recorded in 1995 in recognition of the fact that the
Company's accumulated net operating losses would be utilized. Since all the
benefit from net operating loss carryforwards was recognized in 1995, an income
tax expense was recorded in the 1996 period, at an effective rate of 36%.
Net Income. Net income for the nine month period ended September 30, 1996
was $393,273 or 2.9% of net sales as compared to $843,094 or 7.6% of net sales
for the same period in 1995. The decrease was due to the unusual moving costs of
$100,769 (net of the credit of $147,545 related to facility repair costs) and an
increase in income taxes of $335,000 during the 1996 period. During the same
period in 1995, the Company had an income tax benefit of $113,000. Income before
taxes for the period in 1996 was 4.6% of net sales or 5.3% of net sales when
adjusted for the unusual moving and facility repair expenses, compared to 6.6%
of net sales for the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net Sales for 1995 increased by $5.9 million or 61% to $15.5
million from $9.6 million for 1994. The increase in net sales is attributable
primarily to volume increases and favorable product mix gains. The Company
experienced sales increases in all of its major industry sectors: marine,
transportation, infrastructure, recreational and industrial. Furthermore, the
Company's aggressive sales and marketing efforts have continued to yield new
customers in existing markets and new applications in both existing and new
markets.
Gross Profit. Gross profit increased to $3.5 million for 1995 from $2.2
million for 1994. Gross profit margin decreased to 22.6% of net sales for 1995
from 23.1% for 1994. The decrease in gross profit margin is attributable
primarily to higher costs paid per pound for raw materials. Cost of goods sold
in 1995 increased primarily due to the increase in pounds sold and an increase
in the cost of materials. The
24
labor component of cost of goods sold per pound decreased by 11.0% in 1995 to
$0.085 from $0.0955 in 1994. The average raw material cost of goods sold per
pound increased by 10.7% in 1995 to $0.83 from $0.75 in 1994. The increase in
the cost of raw material was due in part to an industry wide shortage in the
supply of fiberglass materials. Also influencing the 1995 increase in cost of
goods sold were indirect cost increases in depreciation ($70,435), amortization
of leasehold improvements ($29,562), building rent expense ($20,769), utilities
($13,224), and operating supplies ($13,974). See "RISK FACTORS -- Possible
Fluctuations in Operating Results, Cyclical Nature of End-Product Manufacturer
Industries, Seasonality and Supply Factors."
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses as a percentage of net sales decreased to 13.5%
for 1995 from 15.6% for 1994. Operating expenses as a percentage of net sales
were all lower in 1995 than 1994 due to economies of scale. Wage expense
increased in all expense classifications due, to a large degree, to the increase
in total employees from 49 at year end of 1994 to 65 at year end in 1995. Also,
1995 contains a full year of salary expense for two employees added to the
management group in the last quarter of 1994, one classified in sales expense
and the other in general and administrative expense. Shipping expenses are
classified within the SG&A caption throughout the financial statements and were
favorably impacted by an increase in the capacity of trucks used per shipment as
well as results from improved rates from the carrier. Also within the SG&A
category, selling and marketing expense increased by $168,155, from $525,883 in
1994 to $694,038 in 1995. This was primarily due to an increase in wage expense
of $70,534 from $190,548 to $261,082. In addition, there was an increase of
$35,835, from $8,623 in 1994 to $44,458 in 1995, in outside consulting fees for
marketing services. General and administrative expense increased by $204,751,
from $484,991 in 1994 to $689,742 in 1995. This was primarily due to an increase
in wage expense of $98,068 from $191,543 in 1994 to $289,611 in 1995. Also,
depreciation of office equipment, furniture and fixtures increased by $11,944,
the amortization of leasehold improvements increased by $23,139, and municipal
property taxes increased by $14,263.
Research and Development Expense. The Company continued to favor research
and development expenditure which increased year to year by 9.2% while
decreasing as a percentage of net sales from 3.9% for 1994 to 2.6% for 1995.
Research and development expense increased by $34,292 from $373,955 in 1994 to
$408,247 in 1995. This growth resulted from a $106,755 increase in wage expense,
from $183,597 in 1994 to $290,352 in 1995.
Operating Income. Operating income increased by 149% to $845,927 for 1995
from $340,219 in 1994. Operating income as a percentage of net sales increased
to 5.5% for 1995 from 3.6% for 1994.
Other Income. The Company is a participant in a consortium to develop a
manufacturing competency to replace wood, steel, and concrete with high
performance composite reinforcement fabrics. The project has been awarded a
grant by NIST whereby 50% of the project's costs will be reimbursed. In 1995,
the Company incurred project eligible costs of $201,936 and applied for
reimbursement of $100,968, for which the Company has recorded miscellaneous
income of $66,742 and reduced cost of goods sold by $34,226.
Income Taxes. The Company received an income tax benefit of $121,900 in 1995
due to the recognition of its net operating loss carryforwards ("NOLs") as
compared to 1994 when no income tax expense or benefit was recorded. The
Company's NOLs were not recognized prior to 1995 due to uncertainty as to
whether the Company would have earnings to which the NOLs could be applied.
During 1995, the uncertainty was significantly reduced as the Company reported
substantially higher taxable income suggesting that more likely than not, the
Company's NOLs would be fully realized.
Net Income. Net income for 1995 was $906,505 or 5.9% of net sales as
compared to $314,196 or 3.3% of net sales for 1994. Income before taxes for the
year ended 1995 was 5.1% of net sales, compared to 3.3% of net sales in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Sales. Net sales for 1994 increased by $3.2 million or 50% to $9.6
million from $6.4 million for 1993. This represented a 48% increase in pounds of
product sold from 5.2 million in 1993 to 7.7 million in 1994. Sales of BiTex,
the Company's high-speed production, heavyweight product line,
25
increased from 38.7% of total pounds shipped in 1993 to 48.4% in 1994.
Traditional products (other than BiTex) decreased from 60.1% of total pounds
shipped in 1993 to 50.4% in 1994. This represented a continued expansion in the
market for cost efficient, multi-axial heavyweight composite reinforcement
materials for the marine, industrial and other markets. The average price per
pound for all products remained at $1.30 due to the increase in the average
price per pound for BiTex products.
Gross Profit. Gross profit increased to $2.2 million for 1994 from $1.4
million in 1993. Gross profit margin increased to 23.1% of net sales for 1994
from 21.6% in 1993. The increase in gross profit margin was attributable to
sales volume increases. Cost of goods sold as a percentage of net sales declined
from 78.4% in 1993 to 76.9% in 1994, primarily due to a change in the
methodology of accounting for research and development ("R&D") costs. In 1994,
the Company began to classify indirect manufacturing costs incurred in the
process of producing samples of an R&D nature as R&D costs rather than cost of
goods sold. Such costs amounted to $133,440 in 1994. This methodology more
accurately reflects the research and development nature of these expenses. If
this methodology had not been changed in 1994, the relationship of cost of goods
sold and gross profit to net sales would have been virtually the same as in
1993. The overall cost per pound sold declined slightly to $0.956 in 1994 from
$0.965 in 1993. The average material cost per pound sold increased by 3% from
$0.726 to $0.748 in 1994.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percentage of net sales decreased to 15.6% for 1994
from 17.7% for 1993.
Research and Development Expense. Research and development expenses as a
percentage of net sales increased to 3.9% for 1994 from 2.0% for 1993, in part
reflecting a reclassification of certain R&D expenses (see Gross Profit).
Operating Income. Operating income increased to $340,219 for the year ended
1994 from $122,292 in 1993. Operating income as a percentage of net sales
increased to 3.6% for 1994 from 1.9% for 1993.
Income Taxes. The Company neither incurred an income tax expense nor
received income tax benefits for either of the years 1994 or 1993.
Net Income. Net income for the year ended 1994 was $314,196 or 3.3% of net
sales as compared to $111,476 or 1.7% of net sales for 1993.
26
QUARTERLY RESULTS
The following table presents financial information derived from the
Company's unaudited financial statements for each quarter included in the year
ended December 31, 1995 and for the quarters ended March 31, 1996, June 30, 1996
and September 30, 1996. Such information has been prepared on the same basis as
the audited Financial Statements appearing elsewhere in this Prospectus. Based
on unaudited financial statements for the quarter ended September 30, 1996, net
revenues for such quarter of 1996 increased by 5.3% to $4,246,000 from
$4,031,000 for the same period in 1995. Gross profit decreased by 7.0% to
$865,000 from $930,000 for the same period in 1995. Net income in the third
quarter in 1996 decreased by 79% to $66,000 from $314,000 for the same period in
1995.
BRUNSWICK TECHNOLOGIES, INC.
COMPARATIVE QUARTERLY EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 QUARTERS ENDED 1995 QUARTERS ENDED
------------------- -------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH31
------------ ------- -------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross sales $4,724 111% $4,911 110% $5,228 110% $4,665 105% $4,279 106% $4,175 109% $3,373 106%
Allowances 358 8% 373 8% 397 8% 164 4% 184 4% 227 6% 170 5%
Other deductions 120 3% 105 2% 87 2% 60 1% 64 2% 123 3% 24 1%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Net sales 4,246 100% 4,433 100% 4,744 100% 4,441 100% 4,031 100% 3,825 100% 3,179 100%
Cost of goods sold 3,381 80% 3,353 76% 3,631 77% 3,489 79% 3,101 77% 2,909 76% 2,480 78%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Gross profit 865 20% 1,080 24% 1,113 23% 952 21% 930 23% 916 24% 699 22%
Selling general and
administrative
expense 715 17% 689 16% 635 13% 589 13% 535 13% 522 14% 438 14%
Research and development
expenses 102 2% 157 3% 143 3% 116 3% 113 3% 91 2% 88 3%
Moving cost 5 0% 100 2% 143 3% 9 0% -- 0% -- 0% -- 0%
Facility repair cost -- 0% (148) (3)% -- 0% 150 3% -- 0% -- 0% -- 0%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Operating income 43 1% 282 6% 192 4% 88 2% 282 7% 303 8% 173 5%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Other income (expense):
NIST grant 118 3% 53 1% 45 1% 16 1% 5 1% 23 1% 23 1%
Interest expense (45) (1)% (30) (1)% (26) (1)% (31) (1)% (28) (1)% (31) (1)% (34) (1)%
Miscellaneous, net (12) 0% (4) 0% (1) 0% (19) (1)% 13 0% 1 0% 1 0%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
61 1% 19 0% 20 0% (34) (1)% (10) 0% (7) 0% (10) 0%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Income before income
tax 104 2% 301 6% 210 4% 54 1% 272 7% 296 8% 163 5%
Income tax benefit
(expense) (38) 0% (109) (2)% (75) (1)% 9 0% 42 1% 46 1% 25 1%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Net income $ 66 2% $ 192 4% $ 135 3% $ 63 1% $ 314 8% $ 342 9% $ 188 6%
====== === ====== === ====== === ====== == ====== === ====== === ====== =
</TABLE>
In the first quarter of 1996, the Company's net sales increased as its
distributors built their inventory levels to cushion against the continuation of
a fiberglass supply shortage that was industry-wide throughout 1995. In the
second quarter of 1996, the Company's distributors reduced their inventory
levels in response to the general availability of fiberglass, thereby
contributing to a reduction in the Company's net sales to $4.4 million from $4.7
million in the first quarter of 1996. A decrease in net sales to $4.25 million
occurred for the same reasons in the third quarter. Management estimates that
during the second quarter of 1996 its distributors maintained an approximate
three-week inventory of composite reinforcement fabrics as opposed to an
approximate twelve-week supply in the first quarter of 1996. Management also
estimates that during the remainder of 1996, the Company's distributors
maintained an approximate three-weeks inventory.
The Company's quarterly results of operations may be subject to fluctuations
due to factors including changes in distribution channels' and end-users'
inventories, and general economic conditions. The Company has traditionally
operated with relatively little backlog and generally arranges delivery promptly
upon receipt of orders. Therefore, a majority of the Company's sales in each
quarter have resulted from orders placed in that quarter.
27
ADVANCED TEXTILES, INC.
INTRODUCTION
Advanced Textiles, Inc., prior to its acquisition by the Company, was a
substantially wholly-owned subsidiary of Burlington Industries, Inc. ATI
produces specialty weft-inserted and woven fabrics for the reinforced
plastics/composites industry. Markets for ATI's weft-inserted and woven fabrics
include the marine, pultrusion, aerospace, transportation, military, armor,
electronics, corrosion-resistance and sports/consumer industries using raw
materials of fiberglass, aramid, carbon/graphite, S-2 glass, hybrids, blends and
co-mingled fibers. Fiber orientations include unidirectional biaxial, biased
biaxial, triaxial and quadraxial patterns. ATI's strategic objective is to
provide high quality, value-added specialty fabrics to existing markets and to
target new markets and product applications for composite reinforced fabrics.
ATI utilizes independent distributors for approximately 64% of its sales
with approximately 53% of sales made to one distributor, FRP Supply, Inc. One
other customer to whom sales are made on a direct basis accounts for
approximately 10% of its sales. Subsequent to the acquisition of ATI, the
Company reconfirmed its relationship with ATI's major distributors,
notwithstanding the Company's belief that the majority of ATI's sales volume
could be sustained on a direct sales basis.
ATI was founded in 1985, and employs 63 people, most of whom are employed at
its Seguin, Texas manufacturing facility. ATI currently operates 16 production
weft-insertion machines and eight production looms.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 28, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Net Sales. Net sales for fiscal year 1996 were $10,570,000 as compared to
$11,169,000 in 1995, a decrease of 5.4%. This decrease is primarily attributable
to a unit volume decrease of 9.8% or $1.1 million due to a fiberglass supply
shortage that was industry-wide from mid-fiscal year 1995 through mid-fiscal
year 1996. In late 1996, ATI's distributors reduced their inventory levels in
response to the general availability of fiberglass, thus causing sales to be
depressed for the remainder of fiscal year 1996. This volume decrease was
somewhat offset by $0.5 million of selling price increases and an improved mix
of products with higher unit selling prices.
Gross Profit. Gross profit margins increased to $2,066,000 in fiscal year
1996 from $1,595,000 in the prior year period, an increase of 29.5%. Gross
profit margins as a percent of sales increased from 14.3% in fiscal year 1995 to
19.5% in fiscal year 1996. Lower unit volume adversely affected gross profit
margins $0.2 million or 9.8%, but were more than offset by higher selling prices
and the improved mix in sales of $0.5 million noted above as well as
productivity and efficiencies gains in manufacturing. Raw material price
increases were more than offset by waste, construction and mix of material
gains. These manufacturing improvements contributed approximately $0.1 million
to the gross profit margin improvement.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percent of net sales increased from 8.0% in fiscal
1995 to 8.9% in fiscal year 1996. Selling, general and administrative dollar
expenses rose $49,000 in fiscal 1996 as compared to 1995 primarily due to higher
travel and entertainment expenses, as well as increased leased office space
expense. The remainder of the increase as a percent of net sales is a function
of the lower sales volume.
Interest Income. Interest income increased $6,000 and interest expense
declined $22,000 in fiscal 1996 as compared to fiscal 1995 due to the retirement
of ATI's long-term debt in fiscal year 1995.
Income Taxes. The income tax provision for the 1996 fiscal year was $429,000
which represents an effective tax rate of 37.8% as a percentage of income before
income taxes. The income tax benefit of $1,493,000 for the 1995 fiscal year
reflects the benefit resulting from the removal of a valuation allowance since
ATI evaluated that it was more likely than not that ATI's net operating loss
carryforwards ("NOLs") would be utilized. (See Note D of Notes to Financial
Statements of ATI.)
Net Income. Net income for fiscal 1996 was $705,000 or 6.7% of net sales as
compared to $2,177,000 or 19.5% of net sales in fiscal 1995. This was the result
of ATI utilizing an income tax benefit of $1,493,000 in fiscal 1995.
28
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED OCTOBER 1, 1994
Net Sales. Net sales for fiscal year 1995 were $11,169,000 as compared to
$10,043,000 in fiscal year 1994, an increase of 11.2%. This $1.1 million
increase was primarily due to selling price increases and improved mix of
products in fiscal year 1995 as compared to fiscal year 1994.
Gross Profit. Gross profit margins increased from $1,003,000 in fiscal year
1994 to $1,595,000 in fiscal year 1995, an increase of 59%. Gross profit margins
as a percent of net sales increased from 10.0% in the fiscal year ended
September 1994 to 14.3% in the fiscal year ended September 1995. This increase
in gross profit margins is primarily due to selling price increases and the
product mix improvement discussed above, somewhat offset by higher raw material
prices and the increased overhead expenses in fiscal year 1995, versus fiscal
year 1994.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percentage of net sales decreased from 9.3% in
fiscal year 1994 to 8.0% in fiscal year 1995. This improvement in selling,
general and administrative as a percent of sales is primarily a function of
increased sales dollars in fiscal year 1995 as compared to fiscal year 1994.
Interest Expense. Interest expense declined $9,000 in fiscal year 1995 as
compared to fiscal year 1994 due to a reduction in long-term debt in fiscal year
1995.
Income Taxes. The income tax benefit of $1,493,000 for fiscal year 1995
reflects the benefit resulting from the removal of a valuation allowance
established in previous years since ATI evaluated that it was now more likely
than not that its NOLs would be utilized. No income tax provision was recorded
in fiscal year 1994. (See Note D of Notes to Financial Statements of ATI.)
Net Income. Net income for fiscal year 1995 was $2,177,000 or 19.5% of net
sales as compared to $34,000 or 0.3% of net sales in fiscal year 1994. ATI
utilized an income tax benefit of $1,493,000 in fiscal year 1995. Income before
taxes for fiscal year 1995 was 6.1% of net sales as compared to 0.3% in fiscal
year 1994.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its acquisition of ATI, the Company's principal sources of funds
have historically been cash flow generated from operations and advances under
its bank line of credit and equipment term loan facilities. ATI's principal
source of funds has historically been cash flow generated from operations. The
Company and ATI have recently experienced similar trends in decreasing cash flow
generated from operations, due primarily in each case to increases in finished
goods and work in process inventories. The Company's cash flow decreased from
$898,275 for the nine months ended September 30, 1995 to $527,470 in the
comparable period in 1996. ATI's cash flow decreased from $857,000 for its
fiscal year ended September 30, 1995 to $535,000 for its fiscal year ended
September 28, 1996.
The Company currently is party to loan arrangements with a bank providing a
line of credit and a term equipment loan. Both loans are secured by
substantially all of the assets of the Company and ATI. The amount of credit
available under the line of credit, which is a demand facility, is equal to the
sum of 75% of eligible accounts receivable plus 50% of eligible inventories up
to a total of $2.5 million. At December 31, 1996, $1,179,967 was outstanding,
the interest rate was 8 1/4 %, and the balances of eligible accounts receivable
and inventories did not restrict the available credit so that the full $2.5
million was available to borrow. Line of credit borrowings bear interest, at the
Company's option, at the prime rate or the LIBOR rate plus 1.75%. There is a
commitment fee of 1/8 of 1% on the unused balance.
The equipment loan is in an amount of $1.1 million plus 75% of incremental
machine expenditures prior to February 28, 1997 up to a total loan of $1.8
million. Borrowings under the equipment loan bear interest, at the Company's
option, at the prime rate or the LIBOR rate plus 2.25%. For purpose of the
equipment loan, the Company is obligated to make interest only payments through
January 31, 1997, at which time the principal begins amortization over an 84
month period. At the date of the loan closing, the Company certified $433,000 of
incremental machine expenditures and, as a result, was advanced
29
$325,414 under this loan to make the outstanding balance $1,425,414 at December
31, 1996 and the interest rate as of such date was 8%. All amounts owed under
the bank loans will be repaid from the proceeds of the Offering.
The statements of cash flows for both the Company and ATI included in the
Financial Statements reflect each entity's liquidity and capital resource
requirements for the periods presented.
The Company's obligations to its preferred stockholders are outlined in Note
6 of Notes to Financial Statements of the Company. Shares of all series of
Preferred Stock will convert into shares of Common Stock upon the closing of the
Offering and the dividend obligations relative thereto will be satisfied by the
issuance of additional shares of Common Stock.
The Company anticipates expending approximately $375,000, $1,325,000 and
$1,300,000 in capital expenditures in the fourth quarter of 1996, the 1997
fiscal year and the 1998 fiscal year, respectively, but had no material
commitments relative to capital expenditures as of September 30, 1996 other than
its obligations to repay the equipment loan to its bank as described above.
Future cash requirements will also include payment of $3,648,250 to
Burlington within seven months after the closing of the Offering under the terms
of the Convertible Note (with the remaining $3,648,250 becoming due in 2002 and
2003). The Company is also obligated to pay $600,000 to Burlington as follows:
$100,000 on December 15, 1996 and then on each succeeding December 15 until the
entire $600,000 is paid. In addition, the Company is obligated to pay Burlington
a contingent amount of at least $100,000 (but no more than $200,000) based on
certain income tax effects experienced by the Company. As described above, cash
will also be required for machinery and equipment and other production
facilities to accommodate the Company's planned growth as well as working
capital needs related to the anticipated expansion of operations. Cash will also
be needed for expenditures on research, development and marketing activities for
new products. Expenditures may also be required relative to other acquisitions
of entities in related or complementary activities. The net proceeds of the
Offering to the Company are estimated to be $13,200,000, which the Company
anticipates, (when combined with cash generated from operations) will provide
sufficient financial resources into 1999. The Company also anticipates that any
additional cash needs will be met through the use of bank debt facilities and
the sale of long term indebtedness and equity.
30
BUSINESS
INTRODUCTION
Brunswick Technologies, Inc. (the "Company") is a technologically advanced,
leading developer and producer of engineered reinforcement fabrics used in the
fabrication of composite materials. The Company's technologically advanced
stitchbonding equipment and processes prepare glass, carbon and other fibers for
combination with resin to produce laminates used in the construction of such
diverse items as boats, skis, diving boards, protective helmets and ballistic
armor applications, car and truck parts, and industrial tanks and pipes. Since
the invention of composite reinforcement fabrics in the early 1940's, these
materials have developed broad applicability as substitutes for wood, steel, and
concrete.
Composite products offer substantial benefits over conventional materials,
including: a higher strength-to-weight ratio, greater design flexibility while
maintaining structural integrity, chemically inert properties and lower
maintenance requirements. As a result of their superior features, composite
reinforcement fabrics are increasingly demanded by a growing number of
industries and applications, including transportation, infrastructure,
recreation, petro-chemical and construction. Management believes the use of
engineered composite reinforcement fabrics will continue to grow as the market
is made more aware of the positive features of such materials and as the cost of
more advanced composite fibers such as carbon continues to decline.
The Company's principal strength lies in its innovative quadraxial
single-step stitchbonding fabrication process. Through use of its proprietary
production equipment, the Company can quickly and cost effectively produce
engineered composite reinforcement fabrics in sizes and shapes not otherwise
generally available. Fabrics created from the Company's proprietary
manufacturing process offer characteristics integral to the production of
composite materials in infrastructure, industrial and large scale commercial
applications.
The Company has introduced a number of manufacturing processes that not only
more efficiently create composite reinforcement fabrics, but also optimize the
performance characteristics of such fabrics. In a proprietary single-step
production process, the Company is able to stitchbond fibers in different
directions without diminishing the composite fibers' inherent properties, thus
dramatically improving the structural strength of the reinforcement fabric. This
compares favorably, firstly, with traditional composite fabrics which are woven,
and therefore require the use of more resin to achieve the same degree of
structural integrity, and secondly, with the more costly multi-step processes of
other weft-insertion or stitchbonding manufacturing technologies used by
competitors. In addition, the Company's proprietary, high through-put
manufacturing processes have the ability to produce heavyweight quadraxial
fabrics over 100 inches wide in a single-step, which allows for cost-effective
fabrication of composite parts of up to 10 inches thick. The combination of
these features produces fabrics which enable composite fabricators to
manufacture end-products at competitive costs while maintaining the maximum
structural integrity of these products.
In a move to accelerate the implementation of its strategic business plan
and expand its product line, the Company acquired Advanced Textiles, Inc.
("ATI"), a subsidiary of Burlington Industries, Inc. ("Burlington") on October
30, 1996. ATI, which now operates as a wholly-owned subsidiary of the Company,
produces first generation light-weight composite reinforcement fabrics targeted
towards specialized niche markets. These light-weight fabrics typically sell for
a higher margin than other types of composite reinforcement fabrics. ATI
manufactures these fabrics from fiberglass and other higher modulus fibers such
as carbon and aramid; therefore, ATI's product line complements that of the
Company and, therefore, provides it with an enhanced ability to offer a broader
spectrum of product types. The Company believes that by offering a product line
which satisfies a broader range of composite reinforcement fabric requirements,
it will be better positioned to be the principal provider of these fabrics to
its expanded customer base. The Company believes it will capture additional
market share by cross-marketing its existing products to ATI's customers and
vice versa.
The Company's strategy is to increase revenues and net income through
increasing its domestic and international market share in the composite
reinforcement fabric industry as well as making additional strategic
acquisitions for product and market presence, and engaging in joint projects.
The key elements of
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this strategy include: (i) targeting additional applications for composite
reinforcement fabrics in the transportation, offshore petro-chemical and
infrastructure sectors; (ii) increasing its international presence; (iii)
continuous innovation of its state-of-the-art manufacturing processes; (iv)
extension of its product offerings further along the value-added chain towards
net shape products and (v) acquiring additional businesses or engaging in joint
projects with companies which complement the Company's strategy, including the
expansion of its manufacturing capacity and the broadening of its geographic
market presence.
INDUSTRY BACKGROUND
Since the invention of composite reinforcement fabrics made from fiberglass
in the early 1940's, various attempts have been made to commercialize the
potential of these fabrics as replacements for wood, steel and concrete. These
diverse pioneering projects include the 1953 Corvette and Wonder Bread delivery
trays from the early 1950's. While these efforts were remarkable for their day,
the potential of these materials did not start to be realized until the mid
1960's when the recreational boat industry converted from wood to composite
reinforcement fabrics. This development spurred the expansion of the composite
fiber industry from occasional to broad usage in a wide variety of consumer
products such as skis, diving boards and protective helmets, and in industrial
applications, including cars, trucks, ballistic armor applications and
industrial tanks and pipes. Over this period the processes used to create
fabrics composed of composite fibers have dramatically evolved.
Traditionally, reinforcement fibers were woven together to create a
composite reinforcement fabric. The weaving process aligns these fibers along
the zero-to-ninety degree axis, inserting them over and under each other to
create the weave, resulting in the bending of such fibers, or crimping. While
woven fabrics are highly suitable for certain applications such as ballistic
protection, the crimping which occurs in the weaving process reduces each
individual fiber's strength and reinforcement properties. As the mechanical
properties of the composite reinforcement fabric is the key parameter for the
design of the underlying product or application, the integrity of the fiber's
performance defines the amount of such fibers needed to achieve specific
performance specifications. In contrast to weaving, stitchbonding a composite
fabric allows the manufacturer to optimize the fibers' mechanical properties,
thus reducing the volume of fibers required as compared to the weaving process.
The Company's innovative stitchbonding production processes align the composite
reinforcement fibers in a variety of axes. All of this takes place in a single
production step and at high production throughputs, all without crimping the
fiber and thereby avoiding diminishing the fiber's strength. While certain of
the Company's competitors also can offer weft-inserted or stitchbonded
reinforcement fabrics, they generally manufacture their products in multi-step
processes. The competitors' manufacturing processes are more costly due to the
greater number of steps in the process and the lower throughput rate as compared
to the Company's proprietary, high throughput, one-step process.
The first generation of knitted fabrics offered significant strength
advantages compared to woven reinforcements, and thus were able to produce
savings in material usage and weight. These fabrics, however, were priced at a
substantial premium over traditional woven fabrics. Today, lighter-weight
knitted specialty fabrics, such as those manufactured by ATI, have become a
higher-margin, niche product in the composite reinforcement market.
In 1990, the Company introduced a revolutionary new product line, BiTex, the
first generation of price-competitive, heavy-weight stitchbonded reinforcement
fabrics. For the first time, weft-inserted or stitchbonded composite
reinforcement fabrics, whose market potential was previously limited by their
high cost, became competitive in numerous composite applications, from
automobile bumpers and one-piece molded commercial aircraft structures to
high-strength consumer products such as boat hulls and skis.
COMPANY STRATEGY
The Company's strategy to continue its current growth includes the following
elements:
* Successful integration of ATI's operations, products, customer base and
capacity with the Company's existing operations, including the application
of the Company's specialized know-how and technical skills to ATI's
manufacturing capabilities, from which the Company expects to achieve: (i)
cost-savings through economies of scale; (ii) the opportunity for
32
cross-marketing to both ATI's and the Company's existing customers with a
more complete product line; (iii) rationalization of distribution
channels; (iv) higher manufacturing efficiencies at ATI's production
facility; and (v) overall greater horizontal prevalence in the composite
reinforcement fabrics market;
* Continued expansion of its leadership position in the composite
reinforcement fabrics industry, development of new products and processes
to answer the needs of a wide range of industries including the continuing
integration of fabric design elements with the specific needs of composite
fabricators and capitalization upon the Company's position as the only
supplier of composite reinforcement fabrics to develop and manufacture its
own production equipment;
* Pursuit of additional acquisitions to broaden further the Company's
product line as well as manufacturing capacity, product market coverage,
and distribution channels;
* Extension of activities into international markets, in particular Europe
and Latin America, and further expansion into specific product niche
markets with ATI's specialty products;
* Fostering of more joint projects with a wide range of manufacturers as
well as universities and state and federal governments to develop new
composite products incorporating composite reinforcement fabrics; and
* Development of component products which will reduce the steps between
fabric formation and end-user products, and the manufacture of completed
components for certain end-user products. See "-- Product Engineering,
Manufacturing and Development."
ACQUISITION OF ADVANCED TEXTILES, INC.
On October 30, 1996, the Company acquired all of the outstanding capital
stock of ATI pursuant to a Stock Purchase Agreement dated as of October 22, 1996
among the Company, Burlington and Peter L. DeWalt, the President (and partial
owner) of ATI. In consideration for the capital stock of ATI, the Company (i)
agreed to pay to Burlington the sum of $600,000 in cash (discounted to $513,000
using an interest rate of 8.25%) over a two to six year period and issued to
Burlington a convertible subordinated promissory note in the aggregate principal
amount of $7,296,500, and (ii) issued to Mr. DeWalt 5,350 shares of Common
Stock.
The acquisition was the result of extensive negotiations between the Company
and Burlington. The Company elected to pursue this acquisition because it
believes that by offering a product line which satisfies a broader range of
composite reinforcement fabric requirements, it will be better positioned to be
the principal provider of these fabrics to its expanded customer base. The
Company believes it will capture additional market share by cross-marketing its
existing products to ATI's customers and vice versa. The Company also believes
that it can apply its specialized know-how and technical skills to ATI's
manufacturing capabilities and achieve cost-savings through economies of scale.
Additionally, the acquisition offers integrated distribution channels and higher
manufacturing efficiencies at ATI's production facility.
The Company intends to integrate certain of the operations of ATI into its
existing operations gradually, and has caused ATI to enter into an Employment
Agreement with Mr. DeWalt to oversee the integration of ATI and the Company. The
Company also expects to upgrade certain of the capital equipment of ATI located
in its Seguin, Texas manufacturing facility and consolidate certain duplicative
functions. See "USE OF PROCEEDS" and "MANAGEMENT."
PRODUCTS
The Company currently manufactures composite reinforcement fabrics, also
referred to as stitchbonded or non-crimped fabrics, primarily from glass fibers,
and is distributing them under the BiTex and Cofil trade names. The Company is
continuously researching new methods of producing other types of composite
fabrics and the use of new fibers to create them. The Company's introduction of
its proprietary stitchbonding production processes in 1990 enabled composite
reinforcement fabrics to compete more successfully with conventional materials
by reducing such fabric's manufacturing costs, which previously had been
prohibitively high.
33
ATI was a pioneer in the industry's transition to non-crimped reinforcement
fabrics, although it still produces some woven fabrics for specific
applications, such as ballistic armor applications. ATI's present product range
focuses on high-margin, high-quality, specialty products required by a wide
range of end users. In general, the weft-inserted light-weight and
super-light-weight fabrics that ATI produces are not sold as commodities;
rather, composite manufacturers seek out ATI's products for very specific
applications.
The Company's composite reinforcement fabrics permitted a reduction in the
quantity of fibers used and the consequential reduction in the quantity of resin
required, leading to significant reductions in cost for equivalent mechanical
performance. The Company believes that it is currently the only supplier of
composite reinforcement fabrics which develops and manufactures its own
production equipment. The Company's proprietary production processes allow it to
offer composite reinforcement fabrics of varying weights, widths and fiber
orientations, and to produce fabric at unrivaled efficiencies. Furthermore,
these fabrics can be engineered to respond to a customer's specific
requirements. The Company's experience indicates that these proprietary
processes can be successfully applied to other base materials, allowing for
production of reinforcement fabrics from various carbon, aramid and other
fibers. The Company's current output is presently used by end-product
manufacturers to build a wide range of products, including boats, diving boards,
snowboards, swimming pools, truck bodies, ballistic protection products and
corrosion sensitive vessels.
Engineered composite reinforcement fabrics offer significant advantages over
other currently used materials:
* STRENGTH-TO-WEIGHT RATIO. Composite products possess a strength-to-weight
ratio much higher than that of steel, wood or concrete. Composite
reinforcement fabrics are uncommonly strong for their weight and density.
Use of these materials in transportation industries provides for
substantial fuel savings and greater payload capacity. The marine market
is the most mature of the industries currently using composite
reinforcement fabrics. Truck and railcar manufacturers are developing
bodies made out of these materials. Certain light-weight woven fabrics
offer high energy-absorbtion characteristics and, therefore, are ideal for
ballistic shielding applications. Furthermore, due to their inherent
strength-to-weight ratio, construction materials can be built from
reinforcement fabrics in both load and no-load designs and in shapes too
complex to be built from much heavier metals. The Company is working in a
joint development project to develop products for infrastructure
applications such as bridges and reinforced column wrapping for earthquake
protection. See "-- Joint Projects."
* LONGER LIFE-CYCLE. Products produced from composite reinforcement fabrics
do not rust or rot, are chemically inert, non-conductive and generally
maintenance free, making their life-cycles significantly longer than those
of steel, concrete or wood. These features allow use of composite
reinforcement fabrics in environmentally corrosive situations, such as
salt water immersion or highway construction. Accordingly, these products
are increasingly used in finished products such as marine pilings,
telephone poles, one-piece septic tanks, guardrails, building columns,
bridge columns, and bridges. The housing industry is using these materials
in construction, both residential and commercial.
* GREATER SAFETY. Products produced with composite reinforcement fabrics do
not suffer from the disintegration failures suffered by steel and
concrete. Moreover, composite materials offer significantly greater
high-energy impact absorption, and their one-piece fabrication means that
no weak seams need to be introduced into the part. The Company is working
with its customers to develop products made from composite reinforcement
fabrics which will offer non-varying mechanical strength and stiffness
through the entire life-cycle of the product, and to lower the risk of
continuous deterioration and degradation of strength, which can be caused
by metal fatigue in steel or environmental erosion in concrete. These
tougher products are being developed for use in automotive and highway
safety applications, bullet-resistant applications, structural support,
and as components of deep-sea oil drilling platforms.
* DESIGN AND PROCESS FREEDOM AND EFFICIENCY. Composite reinforcement fabrics
can be molded in tremendously flexible ways, allowing the creation of
complex parts. Manufacturers assembling final products using these
materials are able to use one part, formed in a complex shape, instead
34
of having to use two or more simpler parts formed from metals. This
obviously results in significant cost savings, in both material and labor
costs. Architecturally, designers can create shapes that would not
otherwise be buildable from conventional construction materials.
Furthermore, many final products, through weight savings, can be installed
in one piece, such as septic tanks. Other ongoing projects include the
development of on-site fabrication of parts using new injection molding
and bonding techniques.
* ENVIRONMENTAL BENEFITS. Use of the Company's stitchbonded products reduces
the amount of resin required to manufacture the end-product, resulting in
the decreased release of volatile organic compounds by end-product
fabricators. The use of composite reinforcement fabrics in products which
substitute for wood, steel or concrete can diminish the amount of
chemicals released in the environment. For example, marine pilings and
telephone poles constructed of composite materials would not be treated
with arsenic or other toxic substances presently required to provide
adequate product cycle life to wood products. Due to their high
strength-to-weight ratios, composite reinforcement fabrics offer the
transportation industry substantial fuel savings and permit the transport
of greater payloads due to increased truck capacity. The construction
industry is starting to use these fabrics as a shield from noise, heat,
weather, and electro-magnetic interference. These products can be highly
insulating, in addition to their chemically non-reactive nature, making
them ideal for use as pipes, tanks and ducting, especially in corrosive
situations. The paper and petrochemical industries are starting to use
these types of products in hostile environments.
PRODUCT ENGINEERING, MANUFACTURING AND DEVELOPMENT
The Company believes that its strongest competitive advantage is its
technical and developmental know-how. The principal reasons for its progress in
technical development thus far are the quality of its product design and its
engineering and manufacturing capabilities. These capabilities enable the
Company to design and engineer products that meet or exceed end-product
manufacturers' performance and reliability specifications. The Company believes
that it has created and will continue to create know-how and technology to
manufacture products at lower costs than its competitors by pursuing its
engineering and manufacturing development in-house. The quality of the
technology and know-how of a business or product line is an important factor in
the Company's evaluation of potential acquisition candidates.
The Company's operations utilize current-generation computer systems for
product design and documentation as well as for performance testing. A key to
the Company's ability to reduce manufacturing cost has been the reduction of
direct labor through the introduction of its proprietary single-step, automated
or semi-automated manufacturing processes.
The Company believes that its ability to produce fabric in a single step at
20 feet/minute is the fastest in the composite reinforcement fabrics industry.
It also believes that it has the unique capacity to produce quadraxial
reinforcements over 100 inches wide in a single step. The Company's proprietary
capabilities allow composite reinforcement fabrics to be produced by
continuously placing reinforcement fibers in layers at different angular
orientations and concurrently stitching them together to achieve certain desired
properties, depending upon the application, such as greater carrying capability
and corresponding strength. The Company's machines are capable of producing
reinforcements in five different directions/orientations and planes or any
combination thereof.
The Company has continued to build on the success of its BiTex product line,
and has introduced the following product and process innovations:
* First commercial binderless mat production process introduced in
1990;
* First single-step quadraxial products introduced in 1992;
* First 100+ inch-wide single-step quadraxial fabrics commercialized
in 1993; and
* First capability to produce, in a single-step, 150 inch 0-90 degree
binderless mat product, and commercialization of same in 1994.
The Company believes that it can apply its technical and developmental
expertise to ATI's operations. Management expects that the application of the
Company's engineering and design ability to ATI's current weft-insertion
equipment and manufacturing process should result in a greater range of
35
light-weight and super-light-weight specialty products, which would be
manufactured with greater efficiencies. The Company intends to upgrade certain
of ATI's machinery at the earliest appropriate time and to increase the
throughput of ATI's manufacturing facility.
With the acquisition of ATI, the Company expects that its manufacturing
operations, which include 22 production machines and facilities aggregating
approximately 90,000 square feet will be sufficient for approximately the next
30 months, supplemented by a certain amount of capital expenditures to update
certain of ATI's equipment and to purchase additional equipment. The Company has
not experienced any material shutdowns in its history.
The Company invests in product development to meet and anticipate customer
requirements. The Company also undertakes end-product manufacturer-sponsored or
joint sponsored product development contracts. Accordingly, the Company's
development activities are generally product or program specific. The Company
spent $124,685, $373,955 and $408,247 on both Company-sponsored and
customer-sponsored research and development in the fiscal years ended December
31, 1993, 1994 and 1995, respectively.
Certain of the Company's current research and development activities are
directed toward producing new processing equipment which can manufacture in a
single step composite reinforcement fabrics double the weight of those currently
produced by the Company.
Certain other of the Company's research and development activities are
focused upon manufacturing processes and equipment so that the Company might
produce certain end-user products. Such equipment may mold or "net-shape"
composite fabrics into specific shapes or continuous forms such as piping or
tubular structures on-site.
MARKETING AND SALES
The Company's competitive position in the marketplace is dependent upon its
continuing ability to design innovative processes to generate products for
specific composite fabricator applications. The Company's marketing philosophy
is to have a team of employees work directly with prospective and active
composite fabricators. The Company markets its products primarily through its
own marketing and sales force directly to composite fabricators either
individually or at trade shows.
Although 85%, 89% and 78% of the Company's gross sales were made through
four distributors (GLS Corporation, M.A. Hanna Resin Distribution, Plastic
Sales, Inc. and RP Associates) in 1993, 1994 and 1995, respectively, and 77%
during the first nine months of 1996, each distributor is comprised of a subset
of multiple regional distributors. As to GLS Corporation, the Company made sales
of $3,093,993, $4,934,489, and $7,357,071 in 1993, 1994 and 1995, respectively,
and $7,225,995 for the first nine months of 1996. As to M.A. Hanna Resin
Distribution, the Company made sales of $1,092,994, $1,738,229, and $2,499,410
in 1993, 1994 and 1995, respectively, and $1,551,585 for the first nine months
of 1996. As to Plastic Sales, Inc., the Company made sales of $557,680,
$850,598, and $914,399 in 1993, 1994 and 1995, respectively, and $784,401 for
the first nine months of 1996. As to RP Associates, the Company made sales of
$979,263, $1,422,262, and $1,985,714 in 1993, 1994 and 1995, respectively, and
$1,750,614 for the first nine months of 1996. In 1993, 1994 and 1995 the Company
made 2.0%, 4.3% and 9.8%, respectively of its sales directly to composite
fabricators.
The four largest purchasers of ATI's products accounted in the aggregate for
76%, 75% and 80% of ATI's net sales for the fiscal years ended October 1, 1994,
September 30, 1995 and September 28, 1996, respectively. FRP Supply, Inc., ATI's
largest customer, accounted for approximately 53% of ATI's net sales, or
$5,559,289, $5,876,330, $5,286,161, respectively, for each of the last three
fiscal years. S-2 Yachts accounted for net sales of $1,215,889, $961,000, and
$905,071 for each of ATI's last three fiscal years. General Fiberglass accounted
for net sales of $891,249, $731,982, and $651,087 for each of ATI's last three
fiscal years. Fibercast accounted for net sales of $694,903, $668,207, and
$698,222 for each of ATI's last three fiscal years. In ATI's 1994, 1995 and 1996
fiscal years, it made 34%, 37% and 36%, respectively of its sales directly to
composite fabricators.
Management believes that the key to the Company's sales and marketing
strategy is the development of long-term relationships with end-product
manufacturers through its team approach of combining product development and
sales. The Company's production and sales managers work with sales staff in all
markets to develop products for particular end-product manufacturers. The
Company believes that its recent
36
acquisition of ATI will enable it to market a greater spectrum of products to a
wider group of distributors and end-product manufacturers, including ATI's
distributors and customers. In addition, certain of the products currently being
sold by the Company will be available for sale to the former customers of ATI.
SUPPLY
There are only three significant suppliers from which the Company may
purchase its fiberglass requirements: PPG Industries, Inc., Owens-Corning
Fiberglass, Inc. and Vetrotex. The Company was party to a contract with Vetrotex
which expired in August 1996 pursuant to which Vetrotex was required to supply,
and the Company was required to purchase, 90% of its fiberglass requirements.
Even though the supply contract has expired, the Company currently purchases
over half of its fiberglass requirements from Vetrotex under terms substantially
the same as those of the expired supply contract. The Company believes that it
is a significant purchaser of fiberglass strands from Vetrotex and the Company
and Vetrotex have mutually expressed an interest in negotiating a new supply
contract. The Company is also negotiating with additional vendors to ensure a
continued supply of fiberglass for its production needs. The Company believes
that the acquisition of ATI may improve its ability to negotiate more favorable
terms with its suppliers because it will be purchasing larger gross amounts of
raw materials. The Company's ability to operate and to grow is dependent upon
its ability to obtain an adequate supply of fiberglass.
BACKLOG
The Company's backlog as of September 30, 1996, was $570,200, or
approximately 1.5 weeks of sales. Backlog as of September 30, 1995, was
approximately $2,979,600, or approximately 10.5 weeks of sales. In September
1995, over $1,710,300 of the backlog consisted of orders that were past their
shipping date as a result of capacity and raw material constraints present in
the market at the time. This caused distributors and customers to hedge against
future shortages and place additional orders, which drove the backlog to very
high levels. In the second quarter of 1996, backlog returned to more historic
levels as fiberglass supplies became more plentiful.
ATI's backlog as of September 28, 1996 was $886,383.
Due to the capacity and raw material constraints present in the market in
the first quarter of 1996, the Company's net sales were increased as its
distributors built their inventory levels to cushion against the industry-wide
supply shortage that existed throughout 1995. In the second quarter of 1996, the
Company's distributors reduced their inventory in response to the general
availability of fiberglass, thereby contributing to a reduction in the Company's
net sales to $4.4 million from $4.7 million in the first quarter of 1996. A
decrease in net sales to $4.25 million occurred for the same reasons in the
third quarter of 1996. Management estimates that during the remainder of 1996
its distributors maintained an approximate three-week supply of composite
reinforcement fabrics as opposed to an approximate twelve-week supply in the
second quarter of 1996. Management expects this trend of returning to historic
distribution supply levels to continue as long as fiberglass supplies remain
plentiful.
The industry-wide shortage of fiberglass was caused by increasing demand and
insufficient capacity to meet the demand. The demand increase caused fiberglass
suppliers to take action to increase their production capabilities. To increase
such capabilities, however, fiberglass suppliers needed to reduce or stop their
output temporarily, in order to modify their production equipment and furnaces.
Such shut-downs or slow-downs exacerbated the supply shortage.
JOINT PROJECTS
In February 1995, the Company entered into a Collaborative Agreement with
E.I. DuPont de Nemours and Company, Inc. ("DuPont"), Hardcore Composites Ltd.
("Hardcore"), The Dow Chemical Company and Johns Hopkins University under the
Federal Advanced Technology Program to develop agile heavyweight composites for
large civil bridge infrastructure applications. For its part in the cooperative
project, the Company was awarded up to $750,000 in matching funds over three
years as part of a $13.5 million grant from the U.S. Department of Commerce and
the National Institute of Standards and Technology. The project is
37
directed toward the study of the manufacturing competency of composites produced
with Seeman Composite Resin Infusion Molding Process (SCRIMP) technology (a
process of layering dry fabric and drawing resin through the layered fabric with
the use of vacuum pressure) and their ability to increase the life of large
structures such as bridges, while reducing such structures' cost and weight. The
Company believes that the project will also assist in the development of
cost-effective design and manufacturing technologies for composite materials
that can be used to build other large structures which are strong, lightweight,
and resistant to corrosion and seismic shock. In addition to being the sole
supplier of composite fabrics for the project, the Company has undertaken to try
to develop enabling technology which would enhance the speed, quality and
cost-effectiveness of composite reinforcement fabric production. To accomplish
this goal, the Company is working towards developing machinery, procedures and
alternative methods of bonding together reinforcement fabrics. The project
participants are also working towards the development of a prototype system
which would allow rapid style changes and the production of fabrics with
variable widths.
The entire budget of the program contemplated by the Collaborative Agreement
is approximately $1,547,000, which is to be spent over three years. The Company
has estimated that the cost to complete this program to be approximately
$772,000, with the Company being responsible for half of that amount. The
remaining $386,000 cost will be supplied by a grant from the National Institute
of Standards and Technology. The Company is responsible for adherence to
applicable federal laws and regulations covering both federal funds and
non-federal funds, including allowability of costs.
The parties to the Collaborative Agreement have mutually agreed to protect
each other's proprietary information for a period of five years. Any technology
jointly developed in the performance of the Collaborative Agreement ("Program
Technology") is to be owned jointly by the project participants, with the right
to use the same on an unrestricted basis. The Program Technology may also be
subject to a non-exclusive, non-transferable paid-up license to the United
States government which may not publicly disclose any proprietary information
relative to the Program Technology.
The Company is also involved in a collaboration with Hardcore DuPont
Composites LLC ("Hardcore DuPont"), a joint venture between Hardcore and DuPont,
wherein the Company provided the engineered composite fabric for the manufacture
of two railroad cars using the SCRIMP process. These successful prototypes have
permitted the consortium comprised of Hardcore DuPont, Burlington Northern and
Trinity Industries to propose a project for the industrial manufacture of
railroad cars using the Company's composite fabric.
In October 1995, the Company began a joint venture project with the
University of Maine ("UM") to develop a composite plywood alternative utilizing
waste wood fibers from the paper industry (the "Composite Panel Project"). The
project is funded in part by the Center for Technology Transfer ("CTT"), a
non-profit partnership among the Maine Science and Technology Foundation, UM,
the University of Southern Maine, the Maine Technical College System, and
certain companies in Maine operating in the metals and electronics industries.
Funding for CTT is provided by a grant from the U.S. Department of Energy under
its Experimental Program to Stimulate Competitive Research (EPSCoR). The project
was undertaken as part of a proposal to develop hybrid (wood and fiberglass)
composite structural panels which have commercial application for the
construction industry. The goal is to develop products that will be cost
competitive with traditional wood products. The Company and UM will individually
own the intellectual property rights to any technology developed separately, and
will own jointly any intellectual property rights arising from technology
developed together. Furthermore, UM agreed to license to the Company any and all
of its intellectual property rights arising from the project, on an exclusive,
world-wide, and reasonable basis.
Together with UM, the Company is required to furnish all personnel,
facilities, materials and services to complete the Composite Panel Project. The
cost sharing obligation of the Company for the project is $29,376 cash match and
$14,663 in-kind match. UM and the Company are required to pay back $113,587 as a
contribution to CTT out of profits generated from the activities of the project,
payable from revenues to the Company from net sales of new products developed
under the project or revenues UM or the Company derive from license fees or
royalties on the use of intellectual property developed thereunder.
38
The Department of Defense has awarded funding through the 1995 Defense
Experimental Program to Stimulate Competitive Research (DEPSCoR) to UM relative
to a study of the dynamics of thick composite structures. The Company has agreed
to provide the project with industrial composite expertise, laminate
engineering, reinforcement materials, composite fabrication through
subcontracts, and participation through analytical reviews and program
management reviews. The Company will also provide up to $45,000 of in-kind
support to UM for this project. While the Company does not expect to generate
material profits from this project, it will provide the Company with valuable
experience and modeling techniques for the use of the Company's heavyweight
fabrics in the Naval, off-shore oil, sub-marine and waterfront infrastructure
materials markets.
The Company is currently working with ABB Offshore Technology ("AOT"), a
division of ASEA Brown Boveri S.A. in AOT's development of a full range of
composite well head covers and pipe protection structures for the offshore oil
and gas industry constructed from advanced engineered composite reinforcement
fabrics. These lightweight structures range in size up to 90' by 90' by 90' and
would replace corrosion-prone heavy steel structures.
In December, 1996 the Company entered into an agreement with Norsk Hydro
A.S., one of the largest North Sea oil operators pursuant to which the parties
will identify opportunities for the application of the Company's technology to
new markets, including the use of composite structures in the off-shore oil
industry, with the aim of developing strategies to address such opportunities.
Funding for each of these projects is part of the Company's regular,
on-going research and development expense. Except for Hardcore DuPont, a
participant in the NIST project, and North End Composites, a subcontractor in
the DEPSCoR project, the Company does not have any supply arrangements with the
entities involved in these projects.
COMPETITION
The Company's principal competitors are producers of woven reinforcement
fabrics and other producers of stitched or weft-inserted reinforcement products.
Competition is based on price, product performance and customer support. The
Company's continued success will depend in part on its ability to continue to
develop and introduce cost competitive quality products that meet or exceed
end-product manufacturer requirements.
There is no competitor that manufactures products that are substantially
similar to or competitive with all of the Company's products. However, there are
competitors for each of the Company's products and the Company believes that
there are only two companies remaining after its acquisition of ATI that have
significant shares of the stitched or weft-inserted reinforcement markets. These
are Johnston Composite Industries, a subsidiary of Johnston Industries Inc., and
Knytex, a joint venture between Owens-Corning Fiberglass and Hexcel Corporation.
The Company believes that it has one of the largest shares of the United States
market for weft-inserted or stitchbonded (non-crimped) composite reinforcement
fabrics.
EMPLOYEES
As of December 31, 1996, the Company had 127 full time employees, of whom
103 were employed in engineering and manufacturing, 10 in sales and marketing
and 14 in administrative and management functions. No employees are represented
by unions.
PROPERTIES
The Company's executive offices and major manufacturing/warehouse facility
is located in a facility in Brunswick, Maine, of approximately 50,000 square
feet which was completed in March 1996. The Company leases the property from
Brunswick Development Corporation ("BDC"), a Maine corporation wholly owned by
the town of Brunswick. The Company's lease is for a term of 10 years and
commenced on January 1, 1996, with an option to extend the term for one
additional five-year period. The Company also has an option to purchase the
facility at any time between the conclusion of the fifth year of the current
lease and the end of the lease, at an option price equal to the greater of fair
market value of the facility or the residual debt payable by BDC on the bonds
issued to finance the construction of the facility. The Company may, however,
consider the purchase of the property prior to the option
39
date, which purchase would require the consent of the bond holders. The rent for
the facility is $181,500 annually for the first five years of the lease; the
lease provides for periodic scheduled rent increases, with a final annual rent
of $206,000 for the last year of the current lease.
With the acquisition of ATI, the Company acquired approximately 40,000
square feet of manufacturing, office and warehouse space in Seguin, Texas,
including the underlying real estate. ATI is currently using this space for its
operations.
The Company also maintains 10,400 square feet of warehouse space at another
location in Brunswick, Maine, for which it pays rent of $44,495 per year and
6,000 square feet of warehouse space in Seguin, Texas, for which it pays rent of
$6,900 per year.
INTELLECTUAL PROPERTY
Although the Company has three registered trademarks and owns two patents
relating to its product, the Company relies almost entirely upon unpatented
technology in its production processes. The Company relies in part upon state
and federal trade secrets and unfair competition laws to protect its
intellectual property. Management's philosophy is to patent only those processes
as to which the process may be determined when analyzing the product produced.
There can be no assurances that the Company can adequately protect its rights in
such unpatented proprietary technology or that others will not independently
develop substantially equivalent or better proprietary information or
techniques, or otherwise gain access to the Company's proprietary technology or
disclose such technology. The Company will seek additional protection for newly
developed intellectual property as deemed appropriate. One patent, which expires
in September 2011, relates to a bound and structurally reinforced thermoplastic
multi-layer composite fabric which is moldable. No product relating to this
patent has yet been commercialized. Although the other patent, which expires in
December 2009, relates to a manufacturing process commercialized by the Company,
management believes that it would be very difficult to assess whether a
competitive product was produced by a process which infringes the process
covered by such patent.
Hexcel Corporation, formerly named Knytex, Inc. ("Hexcel") sued ATI in 1988
in the United States District Court for the Western District of Texas ("the
Court"). The suit concerned certain obligations of ATI's then president (the
"Employee"), who had been previously employed by the parent of Hexcel (the
"Employer"). The Employee, while working for the Employer, had co-invented a
structural reinforcement fabric in the form of a double-bias fabric and a
continuous double-bias process for making such double-bias fabric. The
co-inventors filed a patent with respect to the bias process invention (the
"Patent"). The co-inventors assigned the Patent application to Hexcel. The
Employee also signed agreements with the Employer relative to the nondisclosure
of inventions made by him while in the employ of Employer to others outside the
Company. Following Employee's separation from Employer in 1983, the Employee,
Peter L. DeWalt and Burlington formed ATI, and the lawsuit concerned certain of
ATI's production processes.
The judgment and order resulting from the lawsuit concluded that a
manufacturing process used by ATI infringed the Patent and that ATI and the
Employee were liable for misappropriation of trade secrets due to ATI's use of
double- and triple-bias fabric processes. The court awarded Hexcel lost profits
adjudged to be approximately $2.24 million plus interest and attorneys' fees.
ATI ultimately paid Hexcel approximately $3.1 million in May, 1992, upon losing
its appeal of the judgment. The Court also found that when ATI changed its
process in 1988, it discontinued the use of the processes at issue, and
therefore, the Court issued no injunction.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to its
business. The Company is not party to any material pending legal proceedings.
40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Martin S. Grimnes(1)(2) 49 Chairman, Chief Executive Officer 1984
and Director
David M. Coit(1)(3) 49 Director 1987
Peter N. Walmsley(1)(3) 60 Director 1991
Donald R. Hughes 67 Director elect *
Max G. Pitcher 61 Director elect *
Gregory Peters(1)(2) 51 Director 1995
David E. Sharpe(1)(2) 54 Director 1993
William M. Dubay 46 President and Chief Operating Officer; *
Director elect
Robert R. Fuller 40 Vice President, Sales
John P. O'Sullivan 54 Chief Financial Officer and Treasurer
Thomas L. Wallace 44 Vice President, Manufacturing
Peter L. DeWalt 60 President, Advanced Textiles, Inc.
_________
* Messrs. Dubay, Hughes and Pitcher have each agreed to serve on the Board of
Directors, and the Board intends to elect each of them to the Board to fill
vacancies, effective with the closing of the Offering.
(1) Messrs. Coit, Walmsley, Peters and Sharpe were elected to the Board of
Directors as the designees of the holders of the outstanding Preferred
Stock and Mr. Grimnes was elected as the designee of the holders of Common
Stock pursuant to the terms of the Restated Articles of Incorporation of
the Company, as in effect prior to the Offering. Messrs. Coit and Peters
were elected by the holders of Series AA and BB Preferred Stock, the
majority owner of both series being the Selling Stockholder. Mr. Walmsley
was elected by the holders of Series C Preferred Stock, the majority owner
of which is AMT Venture Partners Ltd. Mr. Sharpe was elected by the holders
of Series D Preferred Stock, the sole holder of which is Vetrotex. Upon the
closing of the Offering, all of the Preferred Stock will convert into
Common Stock, thereby terminating the ability of the holders of Preferred
Stock to elect directors as individual classes, but each of the aforesaid
individuals other than Mr. Peters will continue to serve as directors. Mr.
Peters has agreed to resign effective with the closing of the Offering. See
"CERTAIN TRANSACTIONS" and "PRINCIPAL AND SELLING STOCKHOLDERS."
(2) Member of the Compensation Committee.
(3)Member of the Audit Committee.
</TABLE>
MARTIN S. GRIMNES is the founder of the Company and since the Company's
inception in 1984, has served as a director and between 1984 and 1987 as
president and treasurer. Mr. Grimnes has been Chief Executive Officer since the
Company's inception and Chairman of the Board since 1987. Mr. Grimnes has a
textile engineering degree from the Technische Akademie e. V. in Hohenstein,
Germany and a B.S. in Industrial Management from the University of Vermont.
Prior to founding the Company, he was export manager for W. S. Libbey Co. of
Lewiston, Maine, an industrial and decorative textile manufacturer (1980 - 1984)
and General Manager of Sandvika Veveri A/S of Oslo, Norway, a decorative textile
manufacturer (1974 - 1980).
41
DAVID M. COIT has been, since 1986, President of North Atlantic Capital
Corporation, a venture capital management company which manages three venture
capital funds, including the North Atlantic Venture Fund, L.P., which is selling
500,000 shares of Common Stock in the Offering. Mr. Coit is also a General
Partner with Mr. Peters of North Atlantic Capital Partners, Limited Partnership,
which is the General Partner of the venture fund. Previously, Mr. Coit was
President of Maine Capital Corporation and an Assistant Vice President for
commercial lending of First National Bank of Boston. Mr. Coit attended Yale
University and received his M.B.A. from the Harvard Graduate School of Business
Administration.
PETER N. WALMSLEY has been for more than the past five years, one of two
general partners of AMT Associates Ltd., which is the sole general partner of
both AMT Venture Partners, Ltd. and JHAM Limited Partnership, which are venture
capital funds and stockholders of the Company. During the past five years he has
been President and 50% owner of AMT Management, Inc., and also for the last
three years, President and sole owner of Newton Delaware, Inc., corporations
which manage the two funds. Mr. Walmsley was previously Manager, Acquisitions &
Divestitures in the Corporate Plans Department at E.I. DuPont de Nemours & Co.,
Inc., where he was also responsible for the corporate venture capital
activities. Mr. Walmsley received his Ph.D. in chemical engineering at
Manchester University in England.
DONALD R. HUGHES has agreed to become a Director of the Company effective
upon the closing of the Offering. Mr. Hughes retired from his previous positions
as Vice Chairman, Chief Financial Officer, and director of Burlington
Industries, Inc., where he had been employed for over 35 years, at the end of
1994. Mr. Hughes is currently a consultant to Burlington. Mr. Hughes is former
Chairman of the Fiber, Fabric and Apparel Coalition for Trade, the former
President of the American Textile Manufacturers Institute, and former Chairman
of the North Carolina Citizens for Business and Industry. He is a director of
the Wachovia Corporation, and a member of the Board of Visitors of the
University of North Carolina at Chapel Hill's Graduate School of Business
Administration. He is also on the Board of Trustees of the Moses H. Cone
Memorial Hospital in Greensboro, North Carolina. Mr. Hughes received his
bachelor's and master's degrees from Harvard University.
MAX G. PITCHER has agreed to become a Director of the Company effective upon
the closing of the Offering. Mr. Pitcher is President of NEFT Inc., which
manufactures oil equipment in Russia. Mr. Pitcher retired from Conoco Inc. on
January 1, 1993, where he was executive vice president, exploration production,
with oversight responsibility for Europe, Africa, and the former U.S.S.R. Mr.
Pitcher had been with Conoco for 30 years. He was also a senior vice president
of E.I. Du Pont de Nemours and Company, Inc., the parent company of Conoco. Mr.
Pitcher received his bachelor's and master's degrees in petroleum geology from
Brigham Young University and his Ph.D. in geology from Columbia University. He
is a member of the American Association of Petroleum Geologists (AAPG) and
currently serves on AAPG's industry liaison committee.
GREGORY PETERS has been, since 1986, Vice President and Treasurer of North
Atlantic Capital Corporation, a venture capital management company, which
manages three venture capital funds, including the North Atlantic Venture Fund
L.P., which is selling 500,000 shares of Common Stock in the Offering. Mr.
Peters is also a General Partner with Mr. Coit of North Atlantic Capital
Partners, Limited Partnership, which is the General Partner of the venture fund.
Mr. Peters has agreed to resign from the Board of Directors of the Company upon
the closing of the Offering.
DAVID E. SHARPE has been employed in management or executive positions for
Vetrotex and its affiliates for more than 22 years, most recently serving since
1989 as vice president of sales and marketing of Vetrotex. Vetrotex is a
stockholder of the Company and a major supplier of raw materials thereto. Mr.
Sharpe is a member of the Board of the Composites Institute of the Society of
the Plastics Industry, Inc. He holds a B.S. in biology and chemistry from
Otterbein College in Westerville, Ohio and an M.B.A. in finance and economics
from New York University.
WILLIAM M. DUBAY has been employed by the Company since May 1989 and has
served as President and Chief Operating Officer since November 1991. Mr. Dubay
received a B.A. in Business Education from Thomas College in Waterville, Maine,
and prior to his employment by the Company was Manager of Provider Services for
Blue Cross/Blue Shield of Maine (November 1987 through April 1989) and from
42
June 1981 through August 1987 was employed by Sabre Yachts in South Casco,
Maine, a nationally known manufacturer of premium quality sailing yachts, where
he earned successive promotions to Senior Manager, Manufacturing. Mr Dubay has
agreed to become a Director of the Company upon the closing of the Offering.
ROBERT R. FULLER has served as Vice President, Sales, since 1993 and has
been with the Company since 1990. Mr. Fuller received his B.S. in
engineering-naval architecture from the University of Michigan in Ann Arbor.
Prior to his employment with the Company, Mr. Fuller founded and was Chief
Executive Officer of Advanced Sail Concepts, a ship design firm located in
Massachusetts and North Carolina. He has also served as a naval architect and
project manager with General Dynamics in Quincy, Massachusetts.
JOHN P. O'SULLIVAN has served as Chief Financial Officer of the Company
since October 1994 and as Treasurer since March 1995. From January 1979 to April
1994, Mr. O'Sullivan was Vice President, Finance and Administration for Bangor
Hydro Electric Co. in Bangor, Maine. Between 1975 to 1978, he served as
Commissioner of Finance and Administration (the Chief Financial Officer) for the
State of Maine. Mr. O'Sullivan is both a Certified Management Accountant and a
Certified Public Accountant, and received his B.A. in economics from the College
of the Holy Cross and his M.B.A. from the Amos Tuck School of Business
Administration at Dartmouth College.
THOMAS L. WALLACE has served as Vice President, Manufacturing since January
1994. Prior thereto he was Manufacturing Manager for Personal Electronics in
Manchester, N.H. from March 1992 through December 1993, Director of Quality
Assurance for AM Technologies in Manchester, N.H. from August 1991 until March
1992 and Director of Operations for Summa Four, also in Manchester, N.H. from
May 1983 until August 1991. Mr. Wallace received his B.S. in business management
from Franklin Pierce College and has completed various M.B.A. courses at the
University of New Hampshire.
PETER L. DEWALT has been President of Advanced Textiles, Inc., since 1985.
Mr. DeWalt was a co-founder of ATI, and was previously employed for over two
decades by PPG Industries, Inc., in various executive positions in
manufacturing, technical service, product development, sales and marketing. Mr.
DeWalt is a graduate of Waynesburg College. Mr. DeWalt has been retained by the
Company to oversee the operations of ATI in Seguin, Texas and assist in the
integration of the operations of ATI with those of the Company.
The Company has granted Josephthal the right to designate one person for
election to the Company's Board of Directors until the third anniversary of the
closing of the Offering. In connection with this right, the Company has agreed
to use its best efforts to cause Josephthal's designee to be elected to the
Company's Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board maintains a Compensation Committee which will consist of Messrs.
Grimnes, Sharpe, and either Mr. Hughes or Mr. Pitcher after the closing of the
Offering. The Board also maintains an Audit Committee which will consist of
Messrs. Coit and Walmsley after the closing of the Offering. The Board has no
nominating committee. The Audit Committee reviews the results of operations of
the Company with the officers of the Company who are responsible for accounting
matters and, from time to time, with the Company's independent public
accountants. The Compensation Committee reviews and evaluates the compensation
and benefits of all officers of the Company, reviews general policy matters
relating to compensation and benefits of employees of the Company, and makes
recommendations concerning these matters to the Board of Directors. The
Compensation Committee also administers the Company's stock option plans.
See "-- Stock Incentive Plans."
COMPENSATION OF DIRECTORS
For fiscal 1995, all Directors were reimbursed by the Company for their
out-of-pocket expenses incurred in connection with attendance at Board and
committee meetings or otherwise in the performance of their services as a
Director. No Directors received any other compensation for performance of their
services as Directors. Martin S. Grimnes, who also serves as Chief Executive
43
Officer of the Company, did receive compensation for his services as an officer.
Following the closing of the Offering, Directors who are not employees of the
Company or affiliated with or related to a principal stockholder of the Company
will be paid an annual retainer of $6,000, payable quarterly, a fee of $1,000
for each Board or committee meeting attended, will be issued 500 shares of
Common Stock upon each of their elections and will each be granted an option to
purchase 4,500 shares of Common Stock exercisable at the fair market value at
time of grant, which option will vest in three equal tranches over a three year
period so long as the individual remains a director. Messrs. Pitcher and Hughes
will receive such compensation upon their elections following the Offering. The
exercise price of the options that will be granted to them will be equal to the
Offering price. All Directors are reimbursed by the Company for their
out-of-pocket expenses incurred in connection with attendance at Board and
committee meetings or otherwise in the performance of their services as a
Director. See "-- Stock Incentive Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for the year ended December 31, 1996 of the Company's Chief
Executive Officer and each executive officer who was compensated in excess of
$100,000 for such year from the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION SALARY($) COMPENSATION($)
------------------ --------- ---------------
<S> <C> <C>
Martin S. Grimnes,
Chairman and Chief Executive Officer 109,994 12,275(1)
William M. Dubay
President and Chief Operating Officer 104,120 27,186(2)
Robert R. Fuller
Vice President, Sales 98,906 13,961(3)
_________
(1) Includes an aggregate of $5,970 for accrued but unpaid bonuses for the the
fiscal year ended December 31, 1995, $3,402 in payments for health
insurance, personal use of a company car valued at $1,107 and $1,796 for
paid sick time.
(2) Includes $1,999 in payments for accrued but unused vacation time, $3,348
for an accrued but unpaid bonus for the fiscal year ended December 31,
1995, $16,650 for accrued but unpaid salary earned in the fiscal year ended
December 31, 1995, $3,405 in payments for health insurance, personal use of
a company car valued at $1,165 and $619 for paid sick time.
(3) Includes $2,790 for an accrued but unpaid bonus for the fiscal year ended
December 31, 1995, $3,158 in payments for health insurance, personal use of
a company car valued at $6,054 and $1,959 for paid sick time.
</TABLE>
The Board of Directors of the Company adopted a formula profit sharing plan
in September of 1995. A bonus pool was calculated as a percentage of annual net
revenue, adjusted by the rate of revenue growth. One-half of this bonus pool was
disbursed to management according to the approved plan, while the other one-half
of the bonus pool was disbursed to all other employees in an amount directly
proportional to their wage level. Each of the executive officers named above may
also receive compensation in 1997 under the formula profit sharing plan for the
fiscal year ended December 31, 1996. Messrs. Grimnes, Dubay and Fuller received
$3,720, $3,348 and $2,790, respectively, in 1996 under the formula profit
sharing plan for the Company's fiscal year ended December 31, 1995. The same
profit sharing plan is in effect for 1997.
44
ATI and Peter L. DeWalt have entered into a two-year employment agreement
pursuant to which Mr. DeWalt shall continue to serve as President of ATI and
shall receive a base salary of $125,000. In the event that the Compensation
Committee determines, in the exercise of its sole discretion, that Mr. DeWalt
has performed satisfactorily in connection with the integration of the
operations of ATI with those of the Company, on October 30, 1997 ATI shall pay
Mr. DeWalt a performance bonus of up to $40,000. Mr. DeWalt will also be
eligible for a bonus of up to $40,000 on October 30, 1998, on the same terms.
Upon the successful completion of the Agreement's two-year term, the Company
shall issue to Mr. DeWalt an additional 5,350 shares of Common Stock. The
agreement also provides for the grant of an option to Mr. DeWalt to purchase up
to 9,900 shares of Common Stock at a price per share equal to the Offering price
which option shall vest on October 30, 1998.
STOCK INCENTIVE PLANS
1991 Stock Option Plan. The Company's 1991 Stock Option Plan (the "1991
Plan") was adopted by the Board of Directors and approved by the stockholders of
the Company on January 24, 1991. Pursuant to the 1991 Plan, the Board of
Directors is authorized to grant options, in its discretion, to key personnel
and directors of the Company. The number of shares, term and vesting schedule
for exercise of the options were also determined by the Board of Directors. All
options are exercisable at the fair market value of the shares of Common Stock
at the time of grant. In the event of a merger (where the Company is not the
surviving entity), dissolution or liquidation of the Company or the sale or
exchange of all or substantially all of the Company's assets, each optionee
shall be given twenty days prior notice and may exercise their options to the
extent vested, but the options will otherwise expire upon the occurence of such
an event. The 1991 Plan was amended by the Board of Directors on December 13,
1996. The Board of Directors has determined to recommend adoption of the
amendment of the 1991 Plan to the Company's shareholders at the next meeting
thereof, to be held in January, 1997. The changes to the 1991 plan include: (i)
allowing grants to be made to consultants to the Company, in addition to
directors and employees, as well as employees, directors or consultants to
affiliates of the Company; (ii) decreasing the maximum aggregate number of
shares which may be issued pursuant to the 1991 Plan to 484,935; and (iii)
allowing recipients to keep vested options in the event his or her employment,
consultant relationship, or directorship is terminated, whether voluntarily or
involuntarily.
1994 Stock Option Plan. The Company's 1994 Stock Option Plan (the "1994
Plan") was adopted by the Board of Directors and stockholders of the Company on
May 25, 1994. Pursuant to the 1994 Plan, the Board of Directors was authorized
to grant options, in its discretion, to key personnel, consultants and directors
of the Company with all options to be granted for a term of up to ten years from
when the options become exercisable. The number of shares and vesting schedule
for exercise of the options are also determined by the Board of Directors. All
options are exercisable at the fair market value of the shares of Common Stock
at the time of grant. In the event of a merger (where the Company is not the
surviving entity), dissolution or liquidation of the Company or the sale or
exchange of all or substantially all of the Company's assets, each optionee
shall be given twenty days prior notice and may exercise their options to the
extent vested, but the options will otherwise expire upon the occurence of such
an event. The 1994 Plan was amended by the Board of Directors on December 13,
1996. The Board of Directors has determined to recommend adoption of the
amendment of the 1994 Plan to the Company's shareholders at the next meeting
thereof, to be held in January, 1997. The changes to the 1994 plan include: (i)
allowing grants to be made to consultants to the Company, in addition to
directors and employees, as well as employees, directors or consultants to
affiliates of the Company; (ii) decreasing the maximum aggregate number of
shares which may be issued pursuant to the 1994 Plan to 83,325; and (iii)
allowing recipients to keep vested options in the event his or her employment,
consultant relationship, or directorship is terminated, whether voluntarily or
involuntarily.
1997 Equity Incentive Plan. The Company's 1997 Equity Incentive Plan (the
"1997 Plan" and with the 1991 Plan and the 1994 Plan, the "Plans") was adopted
by the Board of Directors on December 13, 1996. The Board of Directors has
determined to recommend adoption of the 1997 Plan to the shareholders at the
next annual meeting thereof, to be held in January, 1997. A total of 421,740
shares of Common Stock have been reserved for awards under the 1997 Plan.
Pursuant to the 1997 Plan, a committee of the Board of Directors (the
"Committee") is authorized to grant incentive stock options,
45
non-statutory stock options (together, "Options"), stock appreciation rights
("SARs"), restricted stock or similar securities defined thereunder
(collectively, "Awards"), all in its discretion, to key personnel, consultants
and directors of the Company or one of its affiliates. The number of shares and
vesting schedules for exercise of the Awards will be determined by the
Committee. All incentive stock options are exercisable at the fair market value
of the shares of Common Stock at the time of grant while non-statutory stock
options and SARs may be issued with an exercise price no less than 50% of such
fair market value. The terms and conditions of incentive stock options shall be
subject to, and comply with, Section 422 of the Internal Revenue Code. In the
event of a change in control of the Company, the Committee may: (i) provide for
the acceleration of any time period relating to the exercise or realization of
the Award, (ii) provide for the purchase of the Award upon the recipient's
request, (iii) adjust the terms of the Award to reflect the change in control,
(iv) cause the Award to be assumed, or new rights substituted therefor, by
another entity, or (v) make such other provision as the Committee may consider
equitable and in the best interests of the Company.
At December 31, 1996, 18 employees and two outside consultants held options
to purchase a total of 520,839 shares of Common Stock under the Plans. The
options are exercisable at prices ranging from $0.03 to $10.00, and expire at
dates ranging from September 18, 1999 to September 15, 2010. In 1997,
Twenty-nine employees have received options to purchase an aggregate of 40,250
shares of Common Stock, effective upon the closing of the Offering. These
options will be exercisable at the Offering price, and will expire on the tenth
anniversary of the closing of the Offering. Messrs. Grimnes, Dubay and Fuller
own options to purchase 140,300, 130,470, and 84,604 shares, respectively, under
the Plans. None of these executive officers received any grants of options in
the fiscal year ended December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on the number and value of
unexercised options held at December 31, 1996 by the Company's chief executive
officer and the other executive officers of the Company whose annual
compensation exceeded $100,000 in 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#)(1) AT FY-END($)(2)
----------------------- ------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin S. Grimnes -- -- 119,460 15,840 $1,148,350 $ 134,400
William M. Dubay -- -- 114,840 11,880 $1,111,110 $ 100,800
Robert R. Fuller -- -- 70,224 11,880 $ 658,952 $ 100,800
__________
(1) Does not include options to purchase an aggregate of 11,250 shares of
Common Stock granted to Messrs. Grimnes, Dubay and Fuller after December
31, 1996, such options to be effective upon the closing of the Offering.
(2) The exercise prices of these options range from $0.03 to $1.52, the fair
market values per share of the Common Stock on the respective dates of
grant, as determined by the Company's Board of Directors. In order to
present meaningful information, these values have been calculated based on
the assumed Offering price of $10.00 per share, less the exercise price per
share.
</TABLE>
46
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and notes thereto set forth certain information
regarding beneficial ownership of the Common Stock, as of December 31, 1996, and
as adjusted for the sale of the shares of Common Stock hereunder, by (i) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of the Common Stock, (ii) each of the Company's directors, (iii) those
officers of the Company whose annual cash compensation from the Company exceeded
$100,000 in 1996, and (iv) all directors and officers of the Company as a group.
The information as to each person has been furnished by such person, and, except
as noted, each person named in the table has sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
------------------
SHARES SHARES BENEFICIALLY
NAME AND ADDRESS OF BENEFICIALLY OWNED OWNED AFTER PRIOR TO AFTER
BENEFICIAL OWNER PRIOR TO OFFERING OFFERING OFFERING(1) OFFERING(1)
---------------- ----------------- -------- -------- --------
<S> <C> <C> <C> <C>
David M. Coit*(2)......................... 1,453,221 953,221 42.0% 19.2%
70 Center Street
Portland, ME 04101
Gregory B. Peters*(2)..................... 1,453,221 953,221 42.0% 19.2%
70 Center Street
Portland, ME 04101
North Atlantic Venture Fund, L.P(2)....... 1,453,221 953,221 42.0% 19.2%
70 Center Street
Portland, ME 04101
David E. Sharpe*(3)....................... 710,327 710,327 20.5% 14.3%
750 E. Swedesford Road
Valley Forge, PA 19482
Vetrotex CertainTeed Corp.(3)............. 710,327 710,327 20.5% 14.3%
750 E. Swedesford Road
Valley Forge, PA 19482
Peter N. Walmsley* (4).................... 391,250 391,250 11.3% 7.9%
10929 Wickshire Way
Rockville, MD 20852
AMT Associates, Ltd.(4)................... 391,250 391,250 11.3% 7.9%
10929 Wickshire Way
Rockville, MD 20852
Martin S. Grimnes*(5) .................... 320,760 320,760 9.3% 6.5%
43 Bibber Parkway
Brunswick, ME 04011
William M. Dubay**(6) .................... 114,840 114,840 3.3% 2.3%
Robert Fuller(7) ......................... 70,224 70,224 2.0% 1.4%
Donald R. Hughes** ....................... -- 500 -- +
Max G. Pitcher** ......................... -- 500 -- +
All Directors and Officers as a group
(12 persons)(8) ....................... 3,097,652 2,598,652 89.6% 52.4%
</TABLE>
__________
* Member of Board of Directors of the Company.
** Director-elect.
+ Less than 1%.
(1) For the purpose of calculating this table of beneficial ownership, the
3,458,286 shares of Common Stock deemed outstanding prior to the Offering
include: (i) 298,324 shares of Common Stock, (ii) 2,337,192 shares of
Common Stock issued upon the conversion of Preferred Stock, outstanding as
47
of December 31, 1996, (iii) 623,469 shares of Common Stock issuable upon
exercise of the common stock purchase warrants and employee stock options
which will be exercisable within 60 days of December 31, 1996, and (iv) an
estimated 199,301 shares of Common Stock to be issued to holders of
Preferred Stock in payment of accrued dividends upon conversion of the
Preferred Stock to Common Stock effective with the consummation of the
Offering (assuming the closing as of January 31, 1997). The number of
shares of Common Stock deemed outstanding after the Offering, 4,959,286
shares, also (a) includes the 1,500,000 shares of Common Stock being
offered for sale by the Company in the Offering, and (b) 1,000 shares in
the aggregate to be issued to Messrs. Hughes and Pitcher upon their
election to the Board contemporaneous with the consummation of the
Offering.
(2) Shares beneficially owned by North Atlantic Venture Fund, L.P. (the
"Selling Stockholder") prior to the Offering consists of 1,165,824 shares
of Common Stock issued pursuant to the conversion of the outstanding
Preferred Stock, 194,700 shares of Common Stock subject to warrants
currently exercisable and 92,697 shares to be issued in payment of accrued
dividends on its Preferred Stock. The Selling Stockholder is selling
500,000 shares of Common Stock (converted from its holding of Preferred
Stock immediately prior to the closing of the Offering) in the Offering and
has granted the Underwriters a 45-day option to purchase up to 300,000
additional shares to cover over-allotments. See "UNDERWRITING." The Selling
Stockholder will beneficially own 953,221 shares after the Offering. If the
over-allotment is exercised in full, the Selling Stockholder will
beneficially own 653,221 shares (or approximately 13.2%) of the Common
Stock after the Offering. Messrs. Coit and Peters are general partners of
North Atlantic Capital Partners, Limited Partnership, the sole general
partner of NAVF and have voting control of the shares owned by the Selling
Stockholder. Messrs. Coit and Peters disclaim beneficial ownership of
shares held or beneficially owned by the Selling Stockholder except to the
extent of their pecuniary interests therein.
(3) Includes 580,800 shares of Common Stock held by Vetrotex to be issued
pursuant to the conversion of Preferred Stock and 58,841 shares in payment
of accrued dividends. Mr. Sharpe, a director of the Company, is the Vice
President, Sales and Marketing, of Vetrotex. Mr. Sharpe disclaims
beneficial ownership of shares held or beneficially owned by Vetrotex.
(4) Consists of 363,000 shares of Common Stock issued pursuant to the
conversion of Preferred Stock held by AMT Venture Partners, Ltd. ("AMT")
and JHAM Limited Partnership ("JHAM") and 28,250 shares to be issued in
payment of accrued dividends. Mr. Walmsley is one of two general partners
of AMT Associates Ltd., which is a general partner of both AMT and JHAM,
which are venture capital funds and stockholders of the Company. AMT
Associates Ltd. has 100% of the voting powers of the shares owned by AMT
and JHAM. Mr. Walmsley disclaims beneficial ownership of shares held or
beneficially owned by AMT and JHAM except to the extent of his pecuniary
interest therein.
(5) Includes 119,460 shares of Common Stock subject to options exercisable
within 60 days of December 31, 1996.
(6) Includes 114,840 shares of Common Stock subject to options exercisable
within 60 days of December 31, 1996.
(7) Includes 70,224 shares of Common Stock subject to options exercisable
within 60 days of December 31, 1996.
(8) Includes 336,204 shares of Common Stock subject to options exercisable
within 60 days of December 31, 1996. The Selling Stockholder is selling
500,000 shares of Common Stock in the Offering and has granted the
Underwriters a 45-day option to purchase up to 300,000 additional shares to
cover over-allotments. See "UNDERWRITING." Directors and officers as a
group will beneficially own 2,598,652 shares after the Offering. If the
Underwriters' over-allotment is exercised in full, Directors and officers
as a group will beneficially own 2,298,652 shares (or approximately 46.4%)
of the Common Stock after the Offering.
48
CERTAIN TRANSACTIONS
In August, 1993, the Company and certain stockholders sold an aggregate of
528,000 shares of Series D Convertible Preferred Stock, 46,860 shares of Series
AA Preferred Stock and 5,940 shares of Series BB Preferred Stock of the Company
to Vetrotex for an aggregate cash purchase price of $1,936,000. The purchase
price was determined by negotiation between the Company, the selling
stockholders, and Vetrotex. Concurrently with such sale, certain stockholders
sold 70,686 shares of Common Stock for a purchase price equal to $1.52 per
share. The selling stockholders included Martin Grimnes, a director and officer
of the Company, William M. Dubay, an officer of the Company who has been elected
to the Board of Directors effective upon the closing of the Offering, and Robert
R. Fuller, an officer of the Company. Messrs. Grimnes, Dubay and Fuller received
$50,000, $23,000 and $10,600, respectively, from the sale to Vetrotex of 33,000,
15,180 and 6,996 shares, respectively, of Common Stock. The Company also
received an aggregate of $1,760,000 from Vetrotex in the sale of 528,000 shares
of Series D Preferred Stock. Concurrently with the sales transaction, the
Company and Vetrotex entered into a three year Supply Agreement which expired
August 25, 1996, pursuant to which Vetrotex agreed to sell to the Company and
the Company agreed to purchase from Vetrotex not less than 90% of the Company's
requirements of fiberglass products. For calendar years 1993, 1994 and 1995, and
for the nine month period ending September 30, 1996, the Company paid Vetrotex
$3,213,169, $4,911,399, $7,809,567, and $6,856,083, respectively, for fiberglass
products purchased pursuant to the Supply Agreement. See "BUSINESS -- Supply."
In March 1992 Vetrotex loaned the Company $300,000, on an interest-free
basis, to finance the purchase and modification of one stitchbonding machine.
Vetrotex obtained a purchase money security interest in the machine. The Company
is currently making quarterly payments of $17,500 to Vetrotex to reduce this
debt. As of December 31, 1996, the remaining debt was $32,500.
In October 1996 the Company acquired all of the capital stock of ATI from
Burlington and Peter L. DeWalt. Mr. DeWalt, who was the President of ATI and
held capital stock of ATI equal to less than 1% of the outstanding capital stock
of ATI, received 5,350 shares of Common Stock in connection with the sale of his
interest in ATI to the Company. Mr. DeWalt and ATI have entered into an
employment agreement with a two-year term. See "MANAGEMENT -- Executive
Compensation."
The Restated Articles of Incorporation of the Company provide in the
designations of rights and preferences of the Series AA Convertible Preferred
Stock, Series BB Convertible Preferred Stock, Series C Convertible Preferred
Stock and Series D Convertible Preferred Stock that the holders of the Series AA
and BB stock shall have the right, voting as a single class, to elect one
director of the Company, the holders of the BB, C and D stock, each voting as a
separate series, are entitled to elect one director each, and the holders of
Common Stock shall have the right to elect one director. Pursuant to these
rights, Messrs. Coit, Peters, Sharpe and Walmsley have been elected to the Board
of Directors by the holders of Preferred Stock. All series of Preferred Stock
will automatically convert to Common Stock upon the consummation of the Offering
and the rights of the holders of the Preferred Stock to elect directors
described above shall terminate. See "MANAGEMENT."
49
DESCRIPTION OF CAPITAL STOCK AND CERTAIN INDEBTEDNESS
Upon the closing of the Offering, the Company will be authorized to issue
20,000,000 shares of Common Stock, $0.0001 par value, and 1,000,000 shares of
preferred stock, $10.00 par value ("New Preferred Stock"). The Company's
outstanding shares of Series AA, Series BB, Series C and Series D Preferred
Stock will automatically convert to Common Stock upon closing of the Offering.
Upon such closing, 4,335,817 shares of Common Stock will be outstanding and no
shares of New Preferred Stock will be outstanding.
COMMON STOCK
The following summary description of the Common Stock is qualified in its
entirety by reference to the Company's Amended and Restated Articles of
Incorporation.
As of December 31, 1996, there were 8 holders of Common Stock and 23 persons
held presently exercisable options or warrants to purchase shares of Common
Stock at exercise prices per share below the assumed Offering price of $10.00
per share. The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted for the election of
directors can elect all of the directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of all liabilities. Holders of shares of Common Stock, as
such, have no conversion, preemptive or other subscription rights, and there are
no redemption provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby, when
issued against the consideration set forth in this Prospectus, will be, fully
paid and nonassessable.
RECAPITALIZATION
Immediately prior to the commencement of the Offering, all outstanding no
par value common stock will be converted into $0.0001 par Common Stock. As of
the closing of the Offering, each share of the Company's four series of
outstanding Preferred Stock will convert to 33 shares of Common Stock $0.0001
par value. Furthermore, each holder of such Preferred Stock is entitled to
receive cumulative dividends upon conversion. Such holders of Preferred Stock
will receive an aggregate of 199,301 shares of Common Stock in payment of an
estimated $1,993,010 in accrued cash dividends as of the closing of the Offering
(estimated as of January 31, 1997).
PREFERRED STOCK
The Board of Directors has the authority to issue the New Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action of the stockholders. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of holders of any New Preferred Stock that may be issued in the
future. The Board's ability to issue New Preferred Stock may have a depressive
effect on the market price of the Common Stock, may deter or prevent a change of
control of the Company, and may reduce the premium to shareholders in a change
of control transaction. The Company has no present plans to issue any shares of
its New Preferred Stock.
WARRANTS
Certain of the Company's stockholders hold warrants to purchase an aggregate
of 211,200 shares of Common Stock at an exercise price of $1.52 per share. Such
warrants were issued by the Company in 1991 and can be exercised, in whole or in
part, at any time prior to their respective expiration dates, the latest of
which is December 31, 1997. The Company has also agreed to grant to Josephthal
five-year warrants to purchase 125,000 shares of Common Stock at an exercise
price equal to 120% of the purchase price for shares of Common Stock in the
Offering.
50
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
On October 30, 1996, the Company acquired all of the capital stock of ATI, a
subsidiary of Burlington, the consideration for which included in part the
delivery to Burlington of an unsecured convertible subordinated promissory note
in the principal amount of $7,296,500 (the "Convertible Note"). The Convertible
Note bears interest at a rate of 9.5% per annum, payable semi-annually. Within
seven months after the completion of the Offering, 50% of the principal amount
of the Convertible Note ($3,648,250) will become due and payable. The remaining
50% of the principal amount of the Convertible Note will be payable in equal
installments on October 30, 2002 and October 30, 2003 respectively, provided
that an additional payment of principal shall be made on October 30, 2002 to the
extent it would not cause the Company to violate the terms of its financial
covenants with its senior lenders as of such time. Alternatively, Burlington has
the right, after October 30, 1997 in lieu of cash payment, to convert the
remaining 50% of the principal amount of the Convertible Note (excluding accrued
interest) into 364,825 shares of Common Stock (assuming an Offering price of
$10.00). The Company may prepay the Convertible Note at any time after October
30, 1997, provided that Burlington may convert upon notice of prepayment.
The Company's obligations to Burlington are subordinated to its existing
bank indebtedness and Burlington has agreed that it will subordinate its debt to
$7.5 million (increased by the amount of any principal repayments made to it) in
senior financing arrangements.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe,
L.P.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the completion of the Offering could have an adverse effect on the market price
of the Common Stock. There will be approximately 4,335,817 shares of Common
Stock outstanding immediately after the Offering, including the 2,000,000 shares
offered hereby. Upon completion of the Offering, all of the shares of Common
Stock offered hereby will be eligible for public sale without restriction,
except for shares purchased by affiliates (those controlling or controlled by or
under common control with the issuer and generally deemed to include officers
and directors) of the Company. The 2,335,817 shares of Common Stock that will be
owned by the Company's current stockholders following the Offering, including
(i) 1,837,192 shares of Common Stock to be issued to existing holders of
Preferred Stock upon conversion of their shares of Preferred Stock, (ii) 1,000
shares in the aggregate to be issued to two directors-elect of the Company upon
the consummation of the Offering, (iii) an estimated 199,301 shares of Common
Stock to be issued to the holders of Preferred Stock in payment of accrued
dividends (estimated as of January 31, 1997) concurrently with the completion of
the Offering (the "Dividend Shares") and (iv) 298,324 shares of Common Stock
outstanding on the date hereof, are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act. Additionally, there
will be outstanding as of the closing of the Offering, options and warrants to
purchase an aggregate of 663,719 shares of Common Stock (excluding warrants
granted to Josephthal in connection with investment banking services provided to
the Company) which, when issued in accordance with the terms of such options and
warrants, will be restricted shares under the Securities Act.
As consideration in part for the acquisition of ATI, Burlington holds the
Convertible Note which is convertible after October 30, 1997 into 364,825 shares
of Common Stock.
Subject to the volume and holding period limitations of Rule 144 and the
"lock-up" agreement described below, all currently outstanding shares of Common
Stock will be eligible for sale under Rule 144 beginning 90 days after the
commencement of the Offering. In general, under Rule 144 as currently in effect,
subject to the satisfaction of certain other conditions, a person, including an
affiliate of the Company (or persons whose shares are aggregated with such
affiliate), who has owned restricted shares of Common Stock beneficially for at
least two years is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one percent (1%) of the total number
of outstanding shares of the same class or, if the Common Stock is quoted on
Nasdaq, the average weekly trading volume during the four calendar weeks
preceding the sale. Beginning on the commencement of
51
the Offering, 2,109,178 shares of Common Stock (assuming no exercise of the
Underwriters' over-allotment option) would be eligible for sale under Rule 144.
A person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned shares of
Common Stock for at least three years is entitled to sell such shares under Rule
144(k) without regard to any of the limitations described above. Beginning on
the commencement of the Offering, 227,568 shares of Common Stock would be
eligible for sale without volume limitations under Rule 144(k), in addition to
being eligible for sale under Rule 144.
The Dividend Shares, an aggregate of 336,200 shares issuable under warrants
outstanding as of the closing of the Offering, 5,350 shares issued to Peter L.
DeWalt in October 1996 and 364,825 shares issuable upon conversion of the
Convertible Note (assuming an Offering price of $10.00 per share) after the
Offering will be eligible to trade under Rule 144 on the second anniversary of
their issuance subject to volume and other limitations. The 561,089 shares of
Common Stock issuable under outstanding options, if exercised, and 54,021 shares
(including 37,686 shares eligible for sale under Rule 144) issued upon the
exercise of previously granted stock options would be tradable 90 days after the
commencement of the Offering under Rule 701 of the Securities Act.
REGISTRATION RIGHTS
The holders of all outstanding shares of Common Stock prior to the Offering
(including shares of Common Stock issuable upon the conversion of shares of the
Company's Series AA, Series BB, Series C and Series D Preferred Stock, and the
exercise of certain outstanding warrants but excluding shares held by Peter L.
DeWalt) equal in the aggregate to 2,846,716 shares of Common Stock, have been
granted registration rights by the Company pursuant to which they may as a group
on two occasions demand that the Company register the resale of all or a portion
of their Common Stock and may otherwise "piggyback" upon certain registrations
by the Company of its securities. Burlington has been granted equivalent
registration rights, including two demand rights, with respect to the shares of
Common Stock issuable upon the exercise of the Convertible Note, and Josephthal
will receive similar rights, including one demand right, with respect to the
shares of Common Stock issuable upon the exercise of the warrants issued to
Josephthal upon the closing of the Offering. Mr. DeWalt has also been granted
"piggyback" rights with respect to certain registrations by the Company of its
securities in which Burlington participates. All holders of registration rights,
including Burlington, Mr. DeWalt and the Representatives, have agreed not to
exercise their registration rights with respect to the Offering and for an
additional period of 13 months following the closing date of the Offering.
LOCK-UP AGREEMENTS
Burlington and the holders of all shares of Common Stock and options and
warrants to purchase Common Stock outstanding immediately prior to the
consummation of the Offering have agreed not to sell or otherwise dispose of any
shares of Common Stock for a period of 13 months from the commencement of the
Offering without the prior written consent of Josephthal. The possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise capital through the sale of its equity
securities.
52
UNDERWRITING
Under the terms and subject to the conditions set forth in an underwriting
agreement (the "Underwriting Agreement") among the Company, the Selling
Stockholder and Josephthal Lyon & Ross Incorporated ("Josephthal") and Southwest
Securities (together, the "Representatives"), the Company and the Selling
Stockholder have agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to purchase,
on a firm commitment basis, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ------
<S> <C>
Josephthal Lyon & Ross Incorporated
Southwest Securities
---------
TOTAL 2,000,000
=========
</TABLE>
The Underwriters are committed to purchase all shares of Common Stock
offered hereby, if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein. In the event of a default by an
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
such commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Underwriters have advised the Company and the Selling Stockholder that
they propose initially to offer the shares of Common Stock offered hereby to the
public at the public offering price per share set forth on the cover page of
this Prospectus. The Underwriters may allow a concession of not more than $ per
share to selected dealers; and the Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share on sales to certain other
dealers. After the initial public offering, the concession to selected dealers
and the reallowance to other dealers may be changed by the Underwriters. The
shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act and the Securities Exchange Act of 1934, as amended, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
The Underwriters have been granted an option by the Selling Stockholder,
exercisable within 45 days after the date of this Prospectus, to purchase up to
an additional 300,000 shares of Common Stock at the Offering price, less
underwriting discounts. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the sale of the shares offered
hereby. To the extent such option is exercised in whole or in part, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional shares of Common Stock proportionate to
its initial commitment.
The holders of all shares of the Common Stock, and options and warrants to
purchase Common Stock, outstanding prior to the Offering have executed
agreements with Josephthal pursuant to which they have agreed not to sell or
otherwise dispose of their shares of Common Stock during the thirteen month
period following the commencement of the Offering.
53
The Company has agreed to pay the Representatives a non-accountable expense
allowance of 0.75% of the gross proceeds of the Offering ($112,500 if the
Over-allotment Option is not exercised and $150,000 if the Over-allotment Option
is exercised in full), none of which has been paid to date. The Company also has
agreed to pay all expenses in connection with registering or qualifying the
shares offered hereby for sale under the laws of the states in which shares are
sold by the Underwriters (including expenses of counsel retained for such
purposes by the Underwriters, not to exceed $15,000).
In addition, the Company has entered into a Financial Advisory Agreement
with Josephthal pursuant to which Josephthal has been engaged, for a twelve
month period ending in June 1997, to provide consulting advice as an investment
banker as shall be agreed to from time to time by the Company and Josephthal. As
compensation for Josephthal's services under the Financial Advisory Agreement,
the Company has paid to Josephthal $30,000, has agreed to pay an additional
$30,000 and has agreed to sell to Josephthal, for nominal consideration,
warrants to purchase from the Company 125,000 shares of Common Stock (the
"Josephthal Warrants"). The Josephthal Warrants will be initially exercisable at
an exercise price equal to 120% of the purchase price for shares of Common Stock
in the Offering for a period of five years commencing one year after the date of
this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the date hereof, except to
officers of Josephthal. The Josephthal Warrants will also provide for adjustment
in the number of shares of Common Stock issuable upon the exercise thereof as a
result of certain subdivisions and combinations of the Common Stock. The
Josephthal Warrants grant to the holders thereof certain rights of registration
for the securities issuable upon exercise of the Josephthal Warrants.
In addition, in the event that Josephthal originates a financing or a
merger, acquisition, joint venture or other transaction to which the Company is
a party, Josephthal will receive a fee of up to 5% of the aggregate
consideration actually received by the Company in connection with the
transaction; provided, however, the fee may be reduced under certain
circumstances. The Company will pay an additional fee of $118,447 to Josephthal
in connection with the acquisition of ATI.
The Company has granted Josephthal the right to designate one person for
election to the Company's Board of Directors until the third anniversary of the
closing of the Offering. In connection with this right, the Company has agreed
to use its best efforts to cause Josephthal's designee to be elected to the
Company's Board of Directors.
The proposed Offering price range was determined through the Company's
negotiations with the Representatives, during which the following factors, among
others, were deemed to be significant by the Company and the Representatives in
valuing the Common Stock: (i) a continuing and sustained period of revenue
increases, including positive operating results, (ii) enhanced prospects for the
Company following its combination with ATI, (iii) the increase in applications
and resultant broadening of the market for composite reinforcement fabrics, and
(iv) valuations in the public market for similarly capitalized companies.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. See "ADDITIONAL INFORMATION."
CHANGES IN ACCOUNTANTS
In July 1995, the Company advised KPMG Peat Marwick LLP ("Peat Marwick") that it
would no longer retain the firm as independent accountants due to the closing of
Peat Marwick's office in Portland, Maine. The reports of Peat Marwick for the
previous years (1994 and 1993) did not contain an adverse opinions or a
disclaimer of opinions, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. The decision to change accountants was
recommended by the Company's Audit Committee and approved by the full Board of
Directors. During the periods reviewed by Peat Marwick there were no
disagreements with Peat Marwick on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreement(s) if not resolved to the satisfaction of Peat Marwick, would have
caused it to make reference to the subject matter of the disagreements in
connection with its report. Coopers and Lybrand L.L.P. was engaged by the
Company as its independent accountants in July 1995.
54
LEGAL MATTERS
The validity of the Common Stock offered by the Company will be passed upon
for the Company by Eaton, Peabody, Bradford & Veague, P.A., Bangor, Maine.
Daniel G. McKay, a member of that firm, is Clerk of the Company. While Mr. McKay
has served as corporate counsel to the Company, he performs only ministerial
functions in his role as Clerk of the Company and has no direct or indirect
interest in the Company. Certain other legal matters with respect to the Company
will be passed upon for the Underwriters by Gadsby & Hannah LLP, Boston,
Massachusetts, counsel for the Company. Certain legal matters will be passed
upon for the Underwriters by Bingham, Dana & Gould LLP, Boston, Massachusetts.
EXPERTS
The financial statements for the fiscal year ended December 31, 1995 of the
Company and the nine-month period ended September 30, 1996 included or
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement have been audited by Coopers & Lybrand L.L.P., independent public
accountants, as indicated in its report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing. The financial statements for the fiscal years ended December 31, 1994
and December 31, 1993 of the Company included or incorporated by reference in
this Prospectus and elsewhere in the Registration Statement have been audited by
KPMG Peat Marwick LLP, independent public accountants, as indicated in its
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing. The financial
statements of Advanced Textiles, Inc. at September 28, 1996 and September 30,
1995, and for each of the three years in the period ended September 28, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young, LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included herein in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement, including the
exhibits and schedules filed therewith, which may be inspected without charge at
the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Northwestern Atrium Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661-2511, and Northeast Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of the Registration Statement may be obtained from the Commission from its
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549 upon
payment of prescribed fees. The Commission also maintains a Web site at
http://www.sec.gov, containing reports, proxy and information statements, and
other information regarding registrants, including the Company, that file
electronically with the Commission. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete
and, where the contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to the exhibit filed with the Commission.
The Company will furnish to its stockholders annual reports containing
audited financial statements accompanied by an opinion thereon of an independent
public accountant, and such other periodic reports as the Company may determine
to be appropriate or as may be required by law.
55
GLOSSARY OF TECHNICAL TERMS
BINDERLESS MAT:
A mat composed of short reinforcing fibers stitchbonded together in random
orientations, instead of glued together in the traditional fashion.
COMPOSITE FIBERS:
Fibers used to reinforce the resin matrix in composite construction.
LAMINATE:
Composite material consisting of reinforcing fibers and a resin matrix.
QUADRAXIAL:
Composite reinforcing material with fibers aligned along four axes, namely
0 degrees, 90 degrees, +45 degrees, and -45 degrees.
RESIN:
Liquid substance that solidifies due to either a temperature or chemical
change, and which binds reinforcing fibers together to form a laminate.
STITCHBONDING:
A bonding technique for fibers in which fibers are connected by stitches
that are sewn through the fibers.
WEAVING:
A traditional method of producing composite fabrics in which fibers pass
over and under adjacent fibers as a method of interlocking the fibers.
WEFT-INSERTION:
A bonding technique for fibers in which the fibers are held together by a
series of interlocking stitches that do not pass through the fibers.
56
BRUNSWICK TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BRUNSWICK TECHNOLOGIES, INC.:
Report of Coopers & Lybrand L.L.P. F-2
Report of KPMG Peat Marwick LLP F-3
Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 F-4
Statements of Income for the Years Ended December 31, 1993, 1994 and 1995 and for
the Nine Months Ended September 30, 1995 and 1996 F-5
Statements of Stockholders' Deficit for the Years Ended December 31, 1993, 1994 and
1995 and for the Nine Months Ended September 30, 1996 F-6
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and
for the Nine Months Ended September 30, 1995 and 1996 F-7
Notes to Financial Statements F-8
ADVANCED TEXTILES, INC.:
Report of Ernst & Young LLP F-17
Balance Sheets as of September 30, 1995 and September 28, 1996 F-18
Statements of Operations for the Years Ended October 1, 1994, September 30, 1995
and September 28, 1996 F-19
Statements of Cash Flows for the Years Ended October 1, 1994, September 30, 1995
and September 28, 1996 F-20
Notes to Financial Statements F-21
</TABLE>
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
BRUNSWICK TECHNOLOGIES, INC.:
We have audited the accompanying balance sheets of Brunswick Technologies,
Inc., as of September 30, 1996 and December 31, 1995, and the related statements
of income, stockholders' deficit, and cash flows for the nine months ended
September 30, 1996 and the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Brunswick Technologies, Inc. as of
December 31, 1994, and for the years ended December 31, 1994 and 1993, were
audited by other auditors, whose report dated January 20, 1995, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 and 1995 financial statements referred to above
present fairly, in all material respects, the financial position of Brunswick
Technologies, Inc., as of September 30, 1996 and December 31, 1995, and the
results of its operations and its cash flows for the nine months ended September
30, 1996 and the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Portland, Maine
October 30, 1996,
except for Note 1,
as to which the date
is January 6, 1997
F-2
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
BRUNSWICK TECHNOLOGIES, INC.:
We have audited the accompanying balance sheet of Brunswick Technologies,
Inc., as of December 31, 1994, and the related statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1994 and
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brunswick Technologies, Inc.
as of December 31, 1994 and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1993 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
January 20, 1995
Boston, Massachusetts
F-3
BRUNSWICK TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SEPTEMBER 30,
-------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 2,806 $ 117,959 $ 202,593
Accounts receivable, net of allowance for doubtful accounts of $12,365
in 1994, $7,287 in 1995, and $35,774 in 1996 942,446 2,013,699 961,918
Inventories 1,325,804 1,429,864 2,549,455
Refundable income taxes -- 16,000 --
Deferred income taxes -- 306,700 224,100
Other current assets 68,117 119,801 157,825
----------- ----------- -----------
Total current assets 2,339,173 4,004,023 4,095,891
----------- ----------- -----------
Property, plant and equipment:
Furniture and fixtures 125,051 212,861 310,375
Leasehold improvements 255,256 271,595 58,839
Machinery and equipment 3,709,607 4,475,800 5,136,532
Vehicles 52,004 60,678 62,678
----------- ----------- -----------
4,141,918 5,020,934 5,568,424
Less accumulated depreciation and amortization (885,463) (1,261,881) (1,349,860)
----------- ----------- -----------
Net property, plant and equipment 3,256,455 3,759,053 4,218,564
----------- ----------- -----------
Deferred charges -- -- 336,857
Other assets, net 68,926 103,470 86,603
----------- ----------- -----------
$ 5,664,554 $ 7,866,546 $ 8,737,915
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft $ 119,216 $ 216,622 $ --
Note payable to bank 80,000 -- 602,000
Current installments of long-term debt 59,251 109,162 139,842
Current obligations under capital leases 1,625 2,620 --
Due to stockholder 906,790 1,599,678 1,153,560
Accounts payable-trade 372,694 795,192 959,182
Accrued expenses 168,943 344,030 417,996
Income taxes payable -- 32,000 14,924
----------- ----------- -----------
Total current liabilities 1,708,519 3,099,304 3,287,504
----------- ----------- -----------
Due to stockholder 102,500 32,500 --
Long-term debt, excluding current installments 1,074,544 1,003,971 1,295,767
Deferred income taxes -- 32,600 63,000
Commitments
Convertible preferred stock (liquidation preference of $6,528,787) 5,537,717 6,069,530 6,473,371
Stockholders' deficit:
Preferred stock, $10 par value; 1,000,000 shares authorized, none
outstanding -- -- --
Common stock, $0.0001 Par value; 20,000,000 shares authorized, 296,274
outstanding 27 29 29
Additional paid-in-capital 392,617 410,290 410,490
Treasury stock, 3,300 shares at cost -- (5,000) (5,000)
Accumulated deficit (3,151,370) (2,776,678) (2,787,246)
----------- ----------- -----------
Total stockholders' deficit (2,758,726) (2,371,359) (2,381,727)
----------- ----------- -----------
$ 5,664,554 $ 7,866,546 $ 8,737,915
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
BRUNSWICK TECHNOLOGIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales $ 6,376,385 $ 9,596,578 $ 15,476,424 $ 11,033,626 $ 13,423,512
Cost of goods sold (raw material purchased
from a stockholder amounted to
$3,213,169 in 1993, $4,911,399 in
1994, $7,809,567 in 1995, and $6,173,673 and
$6,856,083 for the nine months ended September
30, 1995 and 1996, respectively) 4,996,633 7,382,285 11,978,978 8,489,131 10,365,153
------------ ------------ ------------ ------------ ------------
Gross profit 1,379,752 2,214,293 3,497,446 2,544,495 3,058,359
Selling, general and administrative expenses 1,132,775 1,500,119 2,084,712 1,495,624 2,038,985
Research and development expenses 124,685 373,955 408,247 291,501 402,084
Moving costs -- -- 8,560 -- 248,314
Facility repair costs -- -- 150,000 -- (147,545)
------------ ------------ ------------ ------------ ------------
Operating income 122,292 340,219 845,927 757,370 516,521
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest expense -- (19,595) (124,122) (93,616) (101,841)
Miscellaneous, net (10,816) (6,428) 62,800 66,340 200,593
------------ ------------ ------------ ------------ ------------
(10,816) (26,023) (61,322) (27,276) 98,752
------------ ------------ ------------ ------------ ------------
Income before income tax 111,476 314,196 784,605 730,094 615,273
Income tax benefit (expense) -- -- 121,900 113,000 (222,000)
------------ ------------ ------------ ------------ ------------
Net income 111,476 314,196 906,505 843,094 393,273
------------ ------------ ------------ ------------ ------------
Preferred stock dividend (332,787) (450,120) (450,120) (337,590) (337,590)
Accretion of preferred stock redemption value (70,864) (75,910) (81,693) (61,269) (66,251)
------------ ------------ ------------ ------------ ------------
Net income (loss) attributable to common stock $ (292,175) $ (211,834) $ 374,692 $ 444,235 $ (10,568)
============ ============ ============ ============ ============
Pro forma earnings per common share $ 0.26 $ 0.11
============ ============
Pro forma weighted average common shares
outstanding 3,452,045 3,486,026
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
BRUNSWICK TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------
ADDITIONAL TOTAL
PAID-IN TREASURY ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK DEFICIT DEFICIT
------ ------ ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 247,500 $25 $391,709 -- $(2,647,361) $(2,255,627)
Exercise of common stock options 24,486 2 908 -- -- 910
Accrual of preferred stock dividend -- -- -- -- (332,787) (332,787)
Accretion of preferred stock redemption value -- -- -- -- (70,864) (70,864)
Net income -- -- -- -- 111,476 111,476
------- ---- --------- ------ ------------ -----------
Balance at December 31, 1993 271,986 27 392,617 -- (2,939,536) (2,546,892)
Accrual of preferred stock dividend -- -- -- -- (450,120) (450,120)
Accretion of preferred stock redemption value -- -- -- -- (75,910) (75,910)
Net income -- -- -- -- 314,196 314,196
------- ---- --------- ------ ------------ -----------
Balance at December 31, 1994 271,986 27 392,617 -- (3,151,370) (2,758,726)
Exercise of common stock options 13,035 2 3,573 -- -- 3,575
Exercise of warrants to purchase common stock 4,653 -- 14,100 -- -- 14,100
Repurchases of common stock -- -- -- $(5,000) -- (5,000)
Accrual of preferred stock dividend -- -- -- -- (450,120) (450,120)
Accretion of preferred stock redemption value -- -- -- -- (81,693) (81,693)
Net income -- -- -- -- 906,505 906,505
------- ---- --------- ------ ------------ -----------
Balance at December 31, 1995 289,674 29 410,290 (5,000) (2,776,678) (2,371,359)
Exercise of common stock options 6,600 -- 200 -- -- 200
Accrual of preferred stock dividend -- -- -- -- (337,590) (337,590)
Accretion of preferred stock redemption value -- -- -- -- (66,251) (66,251)
Net income -- -- -- -- 393,273 393,273
------- ---- --------- ------ ------------ -----------
Balance at September 30, 1996 296,274 $ 29 $410,490 $(5,000) $(2,787,246) $(2,381,727)
======= ==== ======== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
BRUNSWICK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 111,476 $ 314,196 $ 906,505 $ 843,094 $ 393,273
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 141,606 266,574 396,595 297,612 368,769
Deferred taxes -- -- (274,100) (254,000) 113,000
(Gain) loss on sale of property, plant and equipment 1,803 -- (4,164) -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (264,360) (156,751) (1,071,253) (288,346) 1,051,781
(Increase) in inventories (180,481) (617,119) (104,060) (253,195) (1,119,591)
(Increase) decrease in refundable income taxes -- -- (16,000) (15,000) 16,000
(Increase) decrease in other current assets (44,242) 12,883 (51,684) (32,476) (38,024)
Increase (decrease) in due to stockholder 603,913 161,277 622,888 579,647 (478,618)
Increase (decrease) in other accounts payable
and accrued expenses (245,911) (252,773) 597,585 (9,061) 237,956
Increase (decrease) in income taxes payable -- -- 32,000 30,000 (17,076)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 123,804 (271,713) 1,034,312 898,275 527,470
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (993,969) (1,286,797) (899,271) (331,480) (801,460)
Proceeds from sale of property, plant and equipment -- -- 12,126 -- --
Increase in other assets (1,959) (48,914) (36,140) (64,990) (9,953)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (995,928) (1,335,711) (923,285) (396,470) (811,413)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Bank overdraft -- 119,216 97,406 40,960 (216,622)
Net proceeds (repayments) under line of credit (107,246) 80,000 (80,000) (80,000) 602,000
Proceeds from long-term debt borrowings -- 1,100,000 -- -- 325,414
Repayment of long-term debt (219,787) (198,953) (20,662) -- (2,938)
Net principal repayments under capital lease obligations (12,753) (3,250) (5,293) (4,139) (2,620)
Proceeds from exercise of common stock options and
warrants 1,310 -- 17,675 3,575 200
Issuance of convertible preferred stock 1,760,000 -- -- -- --
Costs related to issuance of convertible preferred stock (69,938) (2,724) -- -- --
Deferred charges -- -- -- -- (336,857)
Repurchase of common stock -- -- (5,000) (5,000) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities 1,351,586 1,094,289 4,126 (44,604) 368,577
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 479,462 (513,135) 115,153 457,201 84,634
Cash at beginning of period 36,479 515,941 2,806 2,806 117,959
----------- ----------- ----------- ----------- -----------
Cash at end of period $ 515,941 $ 2,806 $ 117,959 $ 460,007 $ 202,593
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including interest capitalized of $53,523
in 1993 and $36,945 in 1994) $ 67,091 $ 52,552 $ 128,276 $ 59,455 $ 67,191
=========== =========== =========== =========== ===========
Income taxes $ -- $ -- $ 136,200 $ 5,200 $ 110,476
=========== =========== =========== =========== ===========
</TABLE>
During 1995, the Company entered into a capital lease obligation amounting to
$6,288 for telephone equipment.
The accompanying notes are an integral part of the financial statements.
F-7
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Brunswick Technologies, Inc. is a developer and manufacturer of stitchbonded
engineered composite reinforcement fabrics made from glass, carbon and other
fibers. Its products are used in a diverse range of products, including those
used in the marine, automotive, construction, and transportation industries.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out cost method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures 2-15
Machinery and equipment 7-15
Vehicles 5
</TABLE>
Amortization of capitalized leased assets and leasehold improvements is
provided on the straight-line method over the shorter of the lease term or the
useful life. Interest expense incurred on borrowings used to finance the
construction of production machinery is capitalized and included in the cost
basis of the asset.
Expenditures for maintenance, repairs, and minor replacements are charged to
operations while expenditures for major replacements and betterments are added
to the property, plant and equipment accounts. When fixed assets are retired or
otherwise disposed of, the asset cost and accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is
reflected in income.
Accounting for Stock Options and Stock Warrants
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 -- Accounting for Stock Based Compensation
(SFAS No. 123). This statement requires a fair value based method of accounting
for employee stock options and similar equity instruments. It also permits a
company to continue to measure compensation expense for such plans as prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25). The Company has elected to continue to measure its cost
using APB No. 25 and as required, will disclose the impact of SFAS No. 123 in
the notes to the December 1996 financial statements.
F-8
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Research and Development
Expenditures for research and development are charged to operations as
incurred.
Patents
Costs associated with securing patents for the Company's products are
capitalized and amortized over the shorter period of 17 years, or the estimated
useful life.
Grants
The Company recognizes revenues from cost reimbursement grants from
government agencies as reimbursable expenses are incurred.
Pro Forma Earnings per Common Share
Earnings per share has been presented on a pro forma basis after giving
effect to the conversion of the outstanding convertible preferred stock, plus
when their effect is dilutive, common stock equivalents consisting of shares
subject to stock options and warrants.
The following table presents information necessary to calculate pro forma
earnings per share:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
---- ----
<S> <C> <C>
Net income $ 906,505 $ 393,273
========== ==========
Pro forma earnings per common shares $ 0.26 $ 0.11
========== ==========
Common shares outstanding:
Weighted average common shares 280,830 292,974
Common share equivalents 633,722 655,559
Conversion of preferred stock 2,337,192 2,337,192
Preferred stock dividend 199,301 199,301
Directors' stock grants 1,000 1,000
--------- ---------
Adjusted shares outstanding 3,452,045 3,486,026
========== =========
</TABLE>
Stock Split and Authorized Shares
On January 6, 1997, the Board of Directors approved a 33 to 1 stock split of
the Company's common stock to be effective immediately prior to the effective
date of the registration statement for the Company's initial public offering.
All share and per share amounts have been retroactively restated to reflect this
stock split. In addition, on August 14, 1996 the Board and the shareholders
approved an increase in the authorized shares of common stock to 20,000,000
shares, to be effective immediately prior to the effective date of the
Registration Statement. The Board and the shareholders also authorized the
creation of a new undesignated class of preferred stock consisting of 1,000,000
shares, $10 par value.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
F-9
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Reclassifications
Certain prior year amounts primarily relating to preferred stock have been
reclassified to conform with the presentation used in the 1996 financial
statements. Pursuant to Securities and Exchange Commission regulations,
convertible preferred stock has been reclassified outside of stockholders'
equity and accrued dividends and an increase in the preferred stock carrying
value based on anticipated redemption value have been recorded. As a result, the
accumulated deficit has increased by $526,030 and $531,813 at December 31, 1994
and 1995, respectively, and $403,841 at September 30, 1996.
Unaudited Financial Statements
The unaudited financial statements for the nine months ended September 30,
1995 have been prepared on the same basis as the audited financial statements
and in the opinion of the Company, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
statements and the results of operations for this period.
2. INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SEPTEMBER 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Raw materials $ 515,060 $ 450,447 $ 228,198
Work in process 219,066 324,772 416,976
Finished goods 591,678 654,645 1,904,281
---------- ---------- ----------
$1,325,804 $1,429,864 $2,549,455
========== ========== ==========
</TABLE>
3. DEFERRED CHARGES
Deferred charges consist of costs incurred in connection with the
acquisition of Advanced Textiles, Inc. (see Note 13) and the Company's initial
public offering. The balance at September 30, 1996 includes acquisition costs
approximating $75,000 which will be allocated as part of the purchase of
Advanced Textiles, Inc. and initial public offering costs of approximately
$261,000 will be offset in the stockholders' equity accounts against the
proceeds received upon closing of the public offering. In the event the offering
is not successful, these initial public offering costs approximating $261,000
will be expensed.
4. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SEPTEMBER 30,
-------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
5.75% note payable to a financial institution, payable in monthly
installments of principal and interest of $384, through January
1999; collateralized by a motor vehicle $ 16,824 $ 13,133 $ 10,195
Equipment loan payable to a bank with interest payable monthly and
principal amortized over 84 months beginning on March 1, 1997;
collateralized by all corporate assets 1,100,000 1,100,000 1,425,414
8.75% note payable with monthly principal and interest installments of
$548. The note was collateralized by a vehicle and was paid in full
in December 1995, when the vehicle was sold 16,971 -- --
----------- ----------- ------------
1,133,795 1,113,133 1,435,609
Less current installments (59,251) (109,162) (139,842)
----------- ----------- ------------
Long-term debt, excluding current installments $ 1,074,544 $ 1,003,971 $ 1,295,767
=========== =========== ===========
</TABLE>
F-10
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
4. DEBT -- (CONTINUED)
The schedule of maturities of long-term debt on a calendar year basis at
September 30, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 1,152
1997 173,832
1998 208,008
1999 204,336
2000 203,571
2001 203,571
Thereafter 441,139
-----------
$ 1,435,609
===========
</TABLE>
On May 30, 1996, the Company renegotiated its existing debt facility with a
bank. The new agreement increases the Company's line of credit from $1 million
to $1.5 million and increases an equipment line of credit from $1.1 million to
$1.8 million.
Borrowings under the line of credit are based on 75% of eligible accounts
receivable and 50% of eligible inventory. At the Company's option, interest is
charged at either the bank's prime rate or the London Interbank Borrowing Rate
(LIBOR), plus 1.75%. There is a commitment fee of 0.125% on any unused balance.
At September 30, 1996, borrowings under the line of credit amounted to $602,000.
The weighted average interest rate of borrowings outstanding at September 30,
1996, was 8.25%. The line of credit expires on June 1, 1997. At October 26,
1996, the Company was in discussions with its bank to increase the line of
credit by $1.0 million and to pledge the accounts receivable and inventory of
Advanced Textiles, Inc. (see Note 13) as collateral.
Under the equipment term line of credit loan, the bank will advance 75% of
the equipment cost to be acquired up to a total loan of $1.8 million. At the
Company's option, interest is charged at either the bank's prime rate or LIBOR,
plus 2.25%. At September 30, 1996, the Company had elected a nine month LIBOR
rate which will be effective through March 1, 1997 and which equals 8% including
the 2.25% mark up. Principal on outstanding balances will be repaid in 84 equal
installments commencing March 1, 1997. At September 30, 1996, $1,425,414 was
outstanding under the equipment line of credit loan and the ability to receive
further advances will expire on January 31, 1997.
The loan agreement contains certain restrictive covenants, including
limitations on capital expenditures, debt to equity ratio, debt service coverage
and minimum net income. The borrowings under this agreement are collateralized
by all corporate assets.
5. LEASES
Commencing January 1, 1996, the Company began leasing a newly constructed
manufacturing facility. The lease term is for ten years with an option to renew
for an additional five years. The Company has the option to purchase the
facility at fair market value at any time between the end of the fifth year of
the lease and the end of the lease. In connection with the vacating of its
former facility in December 1995, the Company recorded $150,000 as its estimated
cost to make repairs to the premises as specified in its lease agreement.
However, this estimate was not realized and $147,545 was reversed in June 1996.
In connection with the relocation to its new facility, the Company has recorded
a separate operating expense for the cost of the move, which includes the rental
expense for the old facility for the six months through June 30, 1996. The
Company also has operating leases for equipment and a vehicle. Total rental
expense under all operating leases was $147,114, $164,293, and $176,558 for the
years ended December 31, 1993, 1994, and 1995, respectively, and $131,611 and
$233,554 for the nine months ended September 30, 1995 and 1996, respectively.
F-11
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
5. LEASES -- (CONTINUED)
At September 30, 1996, future minimum lease payments on a calendar year
basis under all non-cancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
------
<S> <C>
1996 $ 46,475
1997 184,065
1998 181,500
1999 181,500
2000 181,500
2001 181,500
Thereafter 1,778,500
---------
Minimum future lease payments $2,735,040
==========
</TABLE>
6. CONVERTIBLE PREFERRED STOCK (SEE ALSO NOTE 12)
The Company's convertible preferred stock, no par value consists of four
series whose activity is shown in the following table:
<TABLE>
<CAPTION>
TOTAL
CONVERTIBLE
SERIES AA SERIES BB SERIES C SERIES D PREFERRED SHARES
--------- --------- -------- -------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 3,657 $216,040 33,167 $1,742,877 18,000 $ 959,057 -- -- 54,824 $ 2,917,974
Issuance of preferred
stock, net of costs -- -- -- -- -- -- 16,000 $1,690,062 16,000 1,690,062
Accrual of preferred stock
dividend -- 18,285 -- 165,835 -- 90,000 -- 58,667 -- 332,787
Accretion of preferred
stock redemption value -- 29,845 -- 18,217 -- 6,975 -- 15,827 -- 70,864
----- -------- ------ ---------- ------ ---------- ------ ---------- ------ -----------
Balance at December 31,
1993 3,657 264,170 33,167 1,926,929 18,000 1,056,032 16,000 1,764,556 70,824 5,011,687
Accrual of preferred stock
dividend -- 18,285 -- 165,835 -- 90,000 -- 176,000 -- 450,120
Accretion of preferred
stock redemption value -- 34,465 -- 18,432 -- 7,031 -- 15,982 -- 75,910
----- -------- ------ ---------- ------ ---------- ------ ---------- ------ -----------
Balance at December 31,
1994 3,657 316,920 33,167 2,111,196 18,000 1,153,063 16,000 1,956,538 70,824 5,537,717
Accrual of preferred stock
dividend -- 18,285 -- 165,835 -- 90,000 -- 176,000 -- 450,120
Accretion of preferred
stock redemption value -- 39,818 -- 18,650 -- 7,089 -- 16,136 -- 81,693
----- -------- ------ ---------- ------ ---------- ------ ---------- ------ -----------
Balance at December 31,
1995 3,657 375,023 33,167 2,295,681 18,000 1,250,152 16,000 2,148,674 70,824 6,069,530
Accrual of preferred stock
dividend -- 13,673 -- 124,401 -- 67,518 -- 131,998 -- 337,590
Accretion of preferred
stock redemption value -- 34,504 -- 14,158 -- 5,366 -- 12,223 -- 66,251
----- -------- ------ ---------- ------ ---------- ------ ---------- ------ -----------
Balance at September 30,
1996 3,657 $423,200 33,167 $2,434,420 18,000 $1,323,036 16,000 $2,292,895 70,824 $ 6,473,371
===== ======== ====== ========== ====== ========== ====== ========== ====== ===========
Liquidation preference at
September 30, 1996 $452,555 $2,446,067 $1,327,500 $2,302,665 $ 6,528,787
======== ========== ========== ========== ===========
</TABLE>
F-12
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
6. CONVERTIBLE PREFERRED STOCK (SEE ALSO NOTE 12) -- (CONTINUED)
All of the preferred stock series are entitled to cumulative dividends at
the rate of 10% per annum of the original issue price. This entitlement began on
January 1, 1992, for the Series AA, BB, and C and on September 1, 1993, for the
Series D preferred stock. The dividends are to be paid out of any funds legally
available; to date the Company has not paid any such amounts. Upon redemption or
conversion of the preferred stock, or upon liquidation of the Company, all such
dividends shall become immediately due and payable. Such unpaid dividends
amounted to $1,844,737 at September 30, 1996. In addition, the preferred shares
have a liquidation preference of $100, $50, $50, and $110 per share for the
series AA, BB, C, and D preferred shares, respectively, plus unpaid cumulative
dividends. The shares are convertible into common stock based on a conversion
price on the date that the shares are surrendered for conversion. At the
effective date of the registration statement for the Company's initial public
offering, each share of all series of the preferred stock will be convertible
into 33 shares of common stock.
The holders of not less than two-thirds of the total number of shares of
preferred stock outstanding (of all series, collectively) may elect to require
the Company to redeem, such number of shares of each series of convertible
preferred stock outstanding on January 1, 1996, as may be tendered from time to
time on the following dates: 33% on June 1, 1996; 67% on June 1, 1997; and 100%
on June 1, 1998. Each redemption will be allocated pro rata among the holders of
all series of the convertible preferred stock electing to participate in such
redemption. The redemption price is the greater of: a) fair market value of the
shares to be redeemed, or b) $100, $50, $50, and $110 per share for the Series
AA, BB, C and D, respectively, plus unpaid cumulative dividends.
7. CAPITAL STOCK
The Company has two employee stock option plans, one established in 1991 and
the other in 1994. The plans reserve for issuance 990,000 shares of common
stock. Options granted vest at a rate of 20% per year beginning one year after
the date of grant.
A summary of changes in common stock options during 1994, 1995, and 1996 is:
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE
------ ---------
<S> <C> <C>
Outstanding grants at December 31, 1993 435,039 $0.03-$1.52
Granted 16,500 $1.52
Exercised --
Canceled --
-------
Outstanding grants at December 31, 1994 451,539 $0.03-$1.52
Granted 83,325 $1.52
Exercised (13,035) $0.03-$1.52
Canceled (4,290) $0.03-$1.52
-------
Outstanding grants at December 31, 1995 517,539 $0.03-$1.52
Granted --
Exercised (6,600) $0.03
Canceled --
-------
Outstanding grants at September 30, 1996 510,939 $0.03-$1.52
=======
Shares exercisable at December 31, 1994 308,319 $0.03-$1.52
=======
Shares exercisable at December 31, 1995 363,429 $0.03-$1.52
=======
Shares exercisable at September 30, 1996 368,859 $0.03-$1.52
=======
</TABLE>
F-13
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
7. CAPITAL STOCK -- (CONTINUED)
Through the date of the Company's initial public offering, the plans have
provided for, at the option of the Company, the repurchase of stock held by
employees when they terminate service with the Company. In 1995, the Company
repurchased 3,300 common shares at $1.52 per share from a former employee. These
shares are held by the Company and recorded as Treasury Stock at their cost of
$5,000.
In conjunction with the issuance of convertible preferred stock, the Company
has issued warrants for the purchase of its common stock. Each warrant is
exercisable for one share of common stock. In 1995, warrants were exercised to
purchase 4,653 common shares at $3.03 per share. At September 30, 1996, the
Company had 211,200 warrants outstanding at an exercise price of $1.52 per
warrant, which expire on various dates on or before December 31, 1997.
8. CONCENTRATION OF CREDIT RISK
The Company utilizes a national distribution system that sells to
approximately 600-700 end users. Four individual distributors accounted for
approximately 85%, 89% and 78% of the Company's 1993, 1994 and 1995 revenues,
respectively, and 80% and 77% for each of the nine-month periods ended September
30, 1995 and 1996, respectively. The same distributors also represent the
aforementioned percentages of the Company's respective account receivable
balances at December 31, 1994 and 1995 and 47% at September 30, 1996.
9. INCOME TAXES
Income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ -- $ -- $(120,200) $(111,000) $(102,000)
State -- -- (32,000) (30,000) (7,000)
------ ------ ---------- --------- ---------
-- -- (152,200) (141,000) (109,000)
------ ------ ---------- --------- ---------
Deferred:
Federal -- -- 214,600 199,000 (83,000)
State -- -- 59,500 55,000 (30,000)
------ ------ ---------- --------- ---------
-- -- 274,100 254,000 (113,000)
------ ------ ---------- --------- ---------
Total tax benefit (expense) $ -- $ -- $ 121,900 $ 113,000 $(222,000)
====== ====== ========== ========= =========
</TABLE>
The actual income tax benefit (expense) differs from the expected tax
computed by applying the U.S. federal corporate tax rate of 34% to income before
income tax as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed expected income tax $(38,000) $(107,000) $(267,000) $(248,000) $(209,000)
State income taxes (6,000) (18,000) (47,000) (44,000) (7,000)
Change in valuation allowance 12,000 138,000 439,100 408,000 --
Benefit of net operating loss carryforwards 42,000 -- -- -- --
Other (10,000) (13,000) (3,200) (3,000) (6,000)
------- ------- ------ ------ ------
Total income tax benefit (expense) $ -- $ -- $ 121,900 $ 113,000 $(222,000)
======== ========= ========= ========= =========
</TABLE>
F-14
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
9. INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities consist of the
following at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SEPTEMBER 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Reserves $ 22,027 $ 92,900 56,000
Net operating loss carryforward 665,498 303,000 200,000
Alternative minimum tax credit carryforward -- 152,200 188,000
Compensation 49,587 26,000 26,000
Other 29,103 56,000 94,100
Depreciation and amortization (327,115) (356,000) (403,000)
-------- -------- --------
Total deferred taxes 439,100 274,100 161,100
Less valuation allowance (439,100) -- --
--------
Net deferred taxes $ -- $ 274,100 $ 161,100
========= ========= =========
Current deferred tax assets $ -- $ 306,700 $ 224,100
========= ========= =========
Non-current deferred tax liabilities $ -- $ (32,600) $ (63,000)
========= ========= =========
</TABLE>
As of December 31, 1995, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $760,000, which
expire at various dates through 2006. Under Internal Revenue Code Section 382,
utilization of net operating loss carryforwards may be limited in the event of
changes in the ownership structure of the Company. Such a change occurred in
1990, and approximately $522,000 of the net operating loss carryforwards are
limited for utilization at approximately $95,000 per year. In addition, the
Company has alternative minimum tax credit carryforwards of approximately
$152,200 which have no expiration date. At December 31, 1994, the Company had a
net deferred tax position which was offset by a valuation allowance of $439,100
due to uncertainties about the ultimate realization of net operating loss
carryforwards. At December 31, 1995, the Company was still in a deferred tax
asset position and no valuation allowance was recorded as current year
utilization of net operating loss carryforwards and projected utilization in the
future of such carryforwards removed material uncertainties about the ultimate
realization of the deferred tax assets.
10. RELATED PARTIES
The Company purchases over half of its raw materials inventory from a
stockholder. For the years ended December 31, 1993, 1994, and 1995, purchases of
raw materials were $3,213,169, $4,911,399, and $7,809,567 respectively. For the
nine months ended September 30, 1995 and 1996, purchases were $6,173,673 and
$6,856,083, respectively. At December 31, 1994 and 1995, and September 30, 1996,
the Company had due this stockholder, $836,790, $1,529,678, and $1,103,560,
respectively, for purchases of raw materials. In addition, the Company was
obligated under a non-interest bearing note payable to the stockholder, payable
in quarterly installments of $17,500 through April 1997. Amounts due under this
note at December 31, 1994 and 1995 and September 30, 1996 were $172,500,
$102,500 and $50,000, respectively. The note is collateralized by certain
equipment.
11. NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST) GRANT
The Company is a participant in a consortium to develop a manufacturing
competency to replace wood, steel, and concrete with high performance
composites. The project has been awarded a grant by NIST whereby 50% of the
project's costs will be reimbursed. In 1995, the Company incurred project
eligible costs of $201,936 and applied
F-15
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1995 IS UNAUDITED)
11. NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST) GRANT -- (CONTINUED)
for reimbursement of $100,968, for which the Company has recorded miscellaneous
income of $66,742 and reduced cost of goods sold by $34,226. For the nine months
ended September 30, 1995, the Company has applied $51,349 of this to other
income and $26,453 as a credit to cost of goods sold. For the nine months ended
September 30, 1996, the Company incurred project eligible costs of $574,274 and
applied for reimbursement of $287,137, for which the Company has recorded
miscellaneous income of $215,830, and reduced cost of goods sold by $71,307.
12. PRO FORMA INFORMATION
Pursuant to the terms of the convertible preferred stock agreements, the
outstanding shares of preferred stock will automatically convert to common
stock, to be effective immediately prior to the commencement of the Company's
initial public offering. As a result, 70,824 shares of preferred stock will be
converted to 2,337,192 shares of common stock. In addition, on August 14, 1996,
the Board of Directors approved the issuance of common stock in lieu of cash
payment of the cumulative preferred dividend. This will result in an additional
199,301 shares of common stock being issued to preferred stockholders as of the
closing of the offering. In addition, the Board approved the grant of stock to
Directors totaling 1,000 shares, to be issued at the closing of the Offering.
The following pro forma information has been included to reflect the conversion
of the outstanding preferred stock to common stock, the issuance of additional
shares of common stock in lieu of payment of a cumulative cash dividend, and
directors' stock grants.
<TABLE>
<CAPTION>
ACTUAL AT PRO FORMA
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1996 ADJUSTMENTS 1996
---- ----------- ----
<S> <C> <C> <C>
Convertible preferred stock $ 6,473,371 $(6,473,371) $ --
============ =========== ==========
Stockholders' (deficit) equity:
Preferred stock, $10 par value actual and pro forma; 1,000,000 shares
authorized and none outstanding actual and pro forma -- -- --
Common stock, par value $0.0001 actual and pro forma; 20,000,000 shares
authorized actual and pro forma; 296,274 shares outstanding, actual;
2,833,767 shares outstanding pro forma 29 254 283
Additional paid-in-capital 410,490 6,473,117 6,883,607
Treasury stock, 3,300 shares at cost (5,000) -- (5,000)
Accumulated deficit (2,787,246) -- (2,787,246)
----------- ----------- ----------
$(2,381,727) $ 6,473,371 $4,091,644
=========== =========== ==========
</TABLE>
13. SUBSEQUENT EVENT
On October 30, 1996, the Company acquired the outstanding common stock of
Advanced Textiles, Inc. (ATI). The acquisition will be accounted for under the
purchase method, and accordingly the assets acquired and liabilities assumed
will be recorded at their estimated fair values. The total cost of the
acquisition is approximately $8,113,000, including amounts payable to the seller
in the form of a subordinated promissory note in the principal amount of
$7,296,500 and deferred cash payments discounted to $513,000. In addition, the
Company issued 5,350 shares to an employee of ATI who held a minority position
in ATI. Pro forma financial information is presented in this registration
statement beginning on page 16.
F-16
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
ADVANCED TEXTILES, INC.
We have audited the accompanying balance sheets of Advanced Textiles, Inc.,
as of September 28, 1996 and September 30, 1995 and the related statements of
operations and cash flows for each of the three years in the period ended
September 28, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Textiles, Inc., at
September 28, 1996 and September 30, 1995, and the results of its operations and
its cash flows for each of the three years in the period ended September 28,
1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Greensboro, North Carolina
October 18, 1996
F-17
ADVANCED TEXTILES, INC.
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 632 $ 227
Customer accounts receivable after deductions of $19 and $17 for
the respective dates for doubtful accounts 1,036 883
Sundry receivables 4 0
Inventories 1,266 1,029
Prepaid expenses 1 6
------- -------
Total current assets 2,939 2,145
Fixed assets, at cost:
Land and land improvements 72 72
Buildings 625 625
Machinery, fixtures and equipment 1,761 1,686
------- -------
2,458 2,383
Less accumulated depreciation 1,643 1,488
------- -------
Fixed assets -- net 815 895
------- -------
$ 3,754 $ 3,040
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable -- trade $ 524 $ 860
Sundry payables and accrued expenses 134 74
Advance from parent company 46 190
------- -------
Total current liabilities 704 1,124
Shareholders' equity:
Common stock, par value $100 per share -- authorized and issued, 36,500 shares;
outstanding 36,250 shares 3,650 3,650
Capital in excess of par value 2,465 2,036
Accumulated deficit (2,979) (3,684)
------- -------
3,136 2,002
Less cost of common stock held in treasury (86) (86)
------- -------
Total shareholders' equity 3,050 1,916
------- -------
$ 3,754 $ 3,040
======= =======
</TABLE>
See notes to financial statements.
F-18
ADVANCED TEXTILES, INC.
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------
SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 10,570 $ 11,169 $ 10,043
Cost of sales 8,504 9,574 9,040
-------- -------- --------
Gross profit 2,066 1,595 1,003
Selling, administrative and general expenses 939 890 938
-------- -------- --------
Operating income before interest and taxes 1,127 705 65
Interest expense 3 25 34
Interest income (10) (4) (3)
-------- -------- --------
Income before income taxes 1,134 684 34
Income tax (expense) benefit (429) 1,493 0
-------- -------- --------
Net income $ 705 $ 2,177 $ 34
======== ======== ========
</TABLE>
See notes to financial statements.
F-19
ADVANCED TEXTILES, INC.
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------
SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 705 $ 2,177 $ 34
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of fixed assets 210 204 201
Non-cash income tax expense (benefit) 429 (1,494) 0
Changes in assets and liabilities:
Customer accounts receivable -- net (153) (357) 175
Sundry notes and accounts receivable (4) 1 (1)
Inventories (237) 123 (158)
Prepaid expenses 5 (1) (2)
Accounts payable and accrued expenses (276) 8 (1)
Advance from parent company (144) 190 0
Other 0 6 0
------- ------ -------
Total adjustments (170) (1,320) 214
------- ------ -------
Net cash provided by operating activities 535 857 248
------- ------ -------
Cash flows from investing activities:
Capital expenditures (133) (173) (65)
Proceeds from asset sales 3 21 0
------- ------ -------
Net cash used by investing activities (130) (152) (65)
------- ------ -------
Cash flows from financing activities:
Repayment of long term debt 0 (500) (200)
------- ------ -------
Net cash used by financing activities 0 (500) (200)
------- ------ -------
Net change in cash and cash equivalents 405 205 (17)
Cash and cash equivalents at beginning of period 227 22 39
------- ------ -------
Cash and cash equivalents at end of period $ 632 $ 227 $ 22
======= ======= =======
Supplemental disclosures of cash flow information:
Interest received (paid) -- net $ 7 $ (29) $ (32)
======= ======= =======
Income taxes paid $ 0 $ (1) $ 0
======= ======= =======
</TABLE>
See notes to financial statements.
F-20
ADVANCED TEXTILES, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 1, 1994, SEPTEMBER 30, 1995, AND SEPTEMBER 28, 1996
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents: Cash equivalents consist of all temporary, highly liquid
investments with original maturities of three months or less.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out, FIFO method) or market.
Fixed Assets: Fixed assets are stated on the basis of cost. Depreciation of
fixed assets is calculated over the estimated useful lives of the related assets
principally using the straight-line method.
Revenue Recognition: In general, the Company recognizes revenues from
product sales when units are shipped.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fiscal Year: The Company uses a 52-53 week fiscal year.
NOTE B -- NATURE OF BUSINESS
The Company produces specialty knitted and woven fabrics for the reinforced
plastics/composites industry. Markets include marine, pultrusion, aerospace,
transportation, military, armor, electronics, corrosion-resistance, and
sports/consumer industries. Such markets are predominately located equally in
the southeast and midwest portions of the United States.
The Company sells approximately 60% of its volume through distributors with
approximately 53% of sales made to one distributor. The Company believes that
the majority of its sales volume could be sustained on a direct sales basis.
NOTE C -- INVENTORIES
Inventories at September 28, 1996 and September 30, 1995 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 627 $ 419
Stock in process 336 277
Produced goods 303 333
------ ------
$1,266 $1,029
====== ======
</TABLE>
NOTE D -- INCOME TAXES
The Company's taxable income (loss) is included in the consolidated federal
income tax return of its parent company, Burlington Industries, Inc. (Parent)
which owns 99.31% of the common stock of the Company. The Company recognizes
federal income tax provisions that would have resulted had the Company filed a
separate federal tax return. The provisions for state income taxes is computed
on a separate return basis. Since the Parent is not charging or paying the
Company for its tax liability or benefit, the resulting annual tax expense is
reflected as a capital contribution by the Parent and any benefit is reflected
as a deemed dividend from the Company to the Parent.
F-21
ADVANCED TEXTILES, INC.
NOTES TO FINANCIAL STATEMENTS - (C0NTINUED)
OCTOBER 1, 1994, SEPTEMBER 30, 1995, AND SEPTEMBER 28, 1996
NOTE D -- INCOME TAXES -- (Continued)
At October 3, 1993, on a stand alone basis, the Company had net operating
loss carryforwards that had been utilized in the consolidated federal tax return
of the Parent. In addition, the Company had state net operating loss
carryforwards. At that date, the Company had recorded a valuation allowance for
the full benefit of these net operating loss carryforwards (NOLs) as management
did not believe it was more likely than not these NOLs would be utilized on a
stand alone basis. In 1994, the utilization of NOLs was offset by a reduction of
the valuation allowance, resulting in no income tax expense for the year. In
1995, the Company had pre-tax income of $684,000 and projected income for future
periods, therefore at September 30, 1995, the Company removed the valuation
allowance as it was now more likely than not that the Company would utilize the
NOLs on a stand alone basis. The Company recognized the 1995 benefit of
$1,494,000 as a deemed dividend to the Parent. In 1996, the Company had tax
expense of $429,000. This amount has been reflected as a contribution from the
Parent since the Parent did not charge the Company for this expense.
Income tax (expense) benefit is different from the amount computed by
applying the U.S. federal corporate tax rate of 34% to income before income
taxes. The principal reasons for the difference are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax at federal corporate rate $(386) $ (233) $ (12)
State income taxes, net of federal benefit (34) (24) 0
Change in valuation allowance 0 1,755 16
Expenses with no tax benefits (9) (5) (4)
----- ------ -----
Income tax (expense) benefit $(429) $1,493 $ 0
===== ====== =====
</TABLE>
NOTE E -- SHAREHOLDERS' EQUITY
For each of the 1996, 1995 and 1994 fiscal years, the only changes to
shareholders' equity was net income and non cash income taxes as described in
Note D during the respective fiscal year.
NOTE F -- DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan available to substantially all
employees. The Company may, at its discretion, make contributions matching all
or some portion of employees' elective contributions to the plan, or may also
make other discretionary contributions to the plan. Such contributions are based
primarily on the performance of the Company. Total expense amounted to $16,335,
$11,810 and $2,130 in the 1996, 1995 and 1994 fiscal years, respectively.
NOTE G -- CONTINGENCIES
The Company has sundry claims and other lawsuits pending against it. It is
not possible to determine with certainty the ultimate liability, if any, of the
Company in any of these matters, but in the opinion of management, their outcome
should have no material adverse effect upon the financial condition or results
of operations of the Company.
F-22
ADVANCED TEXTILES, INC.
NOTES TO FINANCIAL STATEMENTS - (C0NTINUED)
OCTOBER 1, 1994, SEPTEMBER 30, 1995, AND SEPTEMBER 28, 1996
NOTE H -- LETTER OF INTENT
On September 25, 1996, Burlington signed a letter of intent to sell all the
capital stock of the Company to Brunswick Technologies, Inc. ("BTI") for a
purchase price of $7.95 million ($600,000 payable in various annual cash
installments during a period up to six years and a convertible subordinated
promissory note bearing interest at an annual rate of 9.5%, payable in various
installments through 2003). The specific repayment terms of the promissory note
are determinable based upon the successful consummation of an initial public
offering of BTI's common stock or securities convertible into common stock.
Under the terms of the agreement, closing of the sale must occur prior to
November 1, 1996 and the net working capital of the Company shall aggregate at
least $1.45 million. Burlington will provide such cash as may be necessary to
avoid any shortfall of working capital and BTI will pay to Burlington any such
excess in cash.
F-23
Inside back cover of the Prospectus. There is a large centered
photograph of a person snowboarding down a mountain. The caption beneath it
reads, "BTI engineered fabrics enhance the performance of snowboards and other
sporting equipment." The Company logo and the slogan "REINFORCED THROUGH
INNOVATION" is in the lower left-hand corner of the page.
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary 3
Risk Factors 7
Use of Proceeds 13
Dividend Policy 13
Dilution 14
Capitalization 15
Unaudited Pro Forma Condensed Combined
Financial Information 16
Selected Financial Information 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 22
Business 31
Management 41
Principal and Selling Stockholders 47
Certain Transactions 49
Description of Capital Stock and Certain
Indebtedness 50
Shares Eligible for Future Sale 51
Underwriting 53
Change in Accountants 54
Legal Matters 55
Experts 55
Additional Information 55
Glossary of Technical Terms 56
Index to Financial Statements F-1
</TABLE>
UNTIL _____________, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
2,000,000 Shares
[Logo]
BRUNSWICK TECHNOLOGIES, INC.
Common Stock
-------------------
P R O S P E C T U S
-------------------
JOSEPHTHAL LYON & ROSS
SOUTHWEST SECURITIES
, 1997
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various costs and expenses payable in
connection with the sale and distribution of the securities being registered,
other than underwriting discounts. All of the amounts shown are estimates except
the SEC registration fee and the NASD filing fee.
AMOUNT TO
BE PAID BY
REGISTRANT
----------
SEC registration fee $ 7,138
Nasdaq National Market listing fee $ 36,744
NASD fee $ 2,570
Printing and engraving $ 60,000
Legal fees and expenses of the Registrant $ 187,000
Accounting fees and expenses $ 245,000
Blue sky fees and expenses $ 15,000
Transfer agent fees $ 4,500
Expense allowance to Representative $ 150,000
Miscellaneous $ 42,048
---------
Total $ 750,000
=========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (1) of Section 719 of the Maine Business Corporation Act empowers
a corporation to indemnify, or if so provided in the corporation's bylaws, shall
in all cases indemnify, any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that that person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, trustee, partner, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by that person in connection with such action, suit or proceeding; provided that
no indemnification may be provided for any person with respect to any matter as
to which that person shall have been finally adjudicated: (a) not to have acted
honestly or in the reasonable belief that that person's action was in or not
opposed to the best interest of the corporation or its shareholders or, in the
case of a person serving as a fiduciary of an employee benefit plan or trust, in
or not opposed to the best interest of the plan or trust, or its participants or
beneficiaries; or (b) with respect to any criminal action or proceeding, to have
had reasonable cause to believe that that person's conduct was unlawful.
Furthermore, subsection (1) of Section 719 provides that the termination of
any action, suit or proceeding by judgment, order or conviction adverse to that
person, or by settlement or plea of nolo contendere or its equivalent, shall not
of itself create a presumption that that person did not act honestly or in the
reasonable belief that that person's action was in or not opposed to the best
interests of the corporation or its shareholders or, in the case of a person
serving as a fiduciary of an employee benefit plan or trust, in or not opposed
to the best interests of that plan or trust or its participants or beneficiaries
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that that person's conduct was unlawful.
II-1
Subsection (1-A) of Section 719 provides that notwithstanding any provision
of subsection (1), a corporation shall not have the power to indemnify any
person with respect to any claim, issue or matter asserted by or in the right of
the corporation as to which that person is finally adjudicated to be liable to
the corporation unless the court in which the action, suit or proceeding was
brought shall determine that, in view of all the circumstances of the case, that
person is fairly and reasonably entitled to indemnity for such amounts as the
court shall deem reasonable.
Subsection (3) of Section 719 provides that any indemnification under
subsection (1), unless ordered by a court or required by the bylaws, shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances and in the best interests of the corporation.
That determination shall be made by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to that action, suit or
proceeding, or if such a quorum is not obtainable, or even if obtainable, if a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the shareholders. Such a determination once made may not
be revoked and, upon the making of that determination, the director, officer,
employee or agent may enforce the indemnification against the corporation by a
separate action notwithstanding any attempted or actual subsequent action by the
board of directors.
Finally, subsection (6) of Section 719 provides that a corporation shall
have power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, trustee,
partner, fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or other enterprise
against any liability asserted against that person and incurred by that person
in any such capacity, or arising out of that person's status as such, whether or
not the corporation would have the power to indemnify that person against such
liability under this section.
Section 14 of Article Third of the Second Restated Bylaws of the Company
provides for such indemnification to the fullest extent that the Maine Business
Corporation Act permits, as more fully described in the five paragraphs
immediately preceding above.
The Company has purchased directors and officers liability insurance
covering liabilities incurred by its officers and directors in connection with
the performance of their duties from National Union Fire Insurance Company of
Pittsburgh, PA., in the amount of $3,000,000.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since August 1993, the Registrant has sold and issued the following
securities:
In August, 1993, the Company and certain stockholders sold an aggregate of
528,000 shares of Series D Convertible Preferred Stock, 46,860 shares of Series
AA Preferred Stock and 5,940 shares of Series BB Preferred Stock of the Company
to Vetrotex CertainTeed Corp. ("Vetrotex") for an aggregate cash purchase price
of $1,936,000. The purchase price was determined by negotiation between the
Company, the selling stockholders, and Vetrotex. Concurrently with such sale,
certain stockholders sold 70,686 shares of Common Stock for a purchase price
equal to $1.52 per share. The shares sold by the Company were sold pursuant to
Section 4(2) of the Securities Act, as no public offering of securities was
made. This exemption was available as the only offeree of securities in the
transaction was Vetrotex, the supplier of 80% of the Company's raw material
needs at the time.
On March 15, 1995 John Busch and Jurgen Kok exercised options to acquire
1,650 and 2,475 shares of the Company's Common Stock, respectively, at an
aggregate exercise price of $50 and $75, respectively. On March 15, 1995 and
April 23, 1996, Herschel Sternlieb exercised options to acquire 1,650 and 6,600
shares of the Company's Common Stock, respectively, at an aggregate exercise
price of $250. On March 30, 1995, Lisa Anderson-Bisson exercised options to
acquire 3,960 shares of the Company's Common Stock at an aggregate exercise
price of $3,300. On August 11, 1995, Peter Rand exercised options to acquire
3,300 shares of the Company's Common Stock at an aggregate exercise price of
$100. The Company purchased said shares from Mr. Rand within 60 days of the
exercise of his options. On December 31, 1995, Dudley Follansbee acquired 4,653
shares of the Company's Common
II-2
Stock pursuant to warrants at an aggregate price of $14,100. In issuing these
shares to its employees, the Company relied upon the exemption from the
registration provisions of the Securities Act provided by Rule 701 promulgated
under such Act.
On October 30, 1996, the Company acquired all of the outstanding capital
stock of ATI from Burlington for a purchase price of $7,863,000, payable in part
by the issuance of a convertible subordinated promissory note of $7,296,500 in
favor of Burlington (the "Convertible Note") and the issuance to Peter L. DeWalt
of 5,350 shares of Common Stock. The Convertible Note bears interest at a rate
of 9.5% per annum, payable semi-annually. Within seven months after the
completion of the Offering, 50% of the principal amount of the Convertible Note
($3,648,250) will become due and payable. The remaining 50% of the principal
amount of the Convertible Note will be payable in equal installments on October
30, 2002 and October 30, 2003 respectively, provided that additional payments of
principal shall be made on October 30, 2002 to the extent it would not cause the
Company to violate the terms of its financial covenants with its senior lenders
as of such time. Alternatively, Burlington has the right, in lieu of cash
payment, to convert the remaining 50% of the principal amount of the Convertible
Note into 364,825 shares of Common Stock. In issuing the Convertible Note to
Burlington and the 5,350 shares of Common Stock to Mr. DeWalt, the Company
relied upon the exemption from the registration provisions of the Securities Act
provided by Regulation D promulgated under such Act.
The Company has granted, pursuant to its 1991 Stock Option Plan, its 1994
Stock Option Plan, and its 1997 Equity Incentive Plan, a total of 215,325
options to purchase Common Stock to employees of the Company within the last
three years. These grants are deemed to be exempt transactions as sales of an
issuer's securities pursuant to a written contract or plan relating to the
compensation of such employees under Rule 701 under the Securities Act.
ITEM 16. EXHIBITS
(a) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Articles of Incorporation of the Registrant.
3.2 -- Third Restated Bylaws of the Registrant.
*4.1 -- Amended and Restated Registration Rights Agreement dated August 25, 1993.
*4.2 -- Amendment No. 1 to the Registration Rights Agreement dated October 30, 1996.
*4.3 -- Amendment No. 2 to the Registration Rights Agreement dated October 30, 1996.
4.4 -- Form of Josephthal Warrant.
4.5 -- Specimen stock certificate for shares of Common Stock.
4.6 -- Amendment No. 3 to Registration Rights Agreement dated February 3, 1997.
5.1 -- Opinion of Eaton, Peabody, Bradford & Veague, P.A. as to legality of shares.
*10.1 -- Loan Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
*10.2 -- Security Agreement between the Registrant and Fleet Bank of Maine dated May 30,
1996.
*10.3 -- Demand Note in favor of Fleet Bank of Maine dated May 30, 1996.
*10.4 -- Supply Agreement between the Registrant and Vetrotex CertainTeed Corp. dated August
25, 1993 (confidential portions of which have been omitted and filed separately with the
Commission under a request for confidential treatment pursuant to Rule 406 under the
Securities Act).
*10.5 -- Private Activity Bond Requirements Certificate of Brunswick Technologies, Inc.
dated December 1, 1995.
*10.6 -- Lease Agreement between the Registrant and Brunswick
Development Corporation dated August 1, 1995.
*10.7 -- Collaborative Agreement between the Registrant and E.I. DuPont de Nemours and
Company, Inc., et al.
</TABLE>
II-3
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
*10.8 -- Financial Advisory Agreement and Indemnification Agreement between the Registrant
and the Representative.
*10.9 -- Installment Promissory Note between the Registrant and Vetrotex CertainTeed Corp.
dated March 31, 1992.
*10.10 -- Security Agreement between the Registrant and Vetrotex CertainTeed Corp. dated
March 31, 1992.
*10.11 -- Stock Purchase Agreement among the Registrant, Burlington Industries, Inc. and
Peter L. DeWalt dated October 22, 1996 and First Amendment to Stock Purchase Agreement
dated October 29, 1996.
*10.12 -- Registration Rights Agreement among the Registrant, Burlington Industries, Inc.,
and Peter L. DeWalt, dated October 30, 1996.
*10.13 -- Employment Agreement between Advanced Textiles, Inc. and Peter L. DeWalt, dated
October 30, 1996.
*10.14 -- Convertible Subordinated Promissory Note made by the Registrant in favor of Burlington
Industries, Inc. dated October 30, 1996.
*10.15 -- Recapitalization Agreement among the Registrant and the holders of its common stock.
*10.16 -- Term Note in favor of Fleet Bank of Maine dated May 30, 1996.
*10.17 -- First Amendment to Term Note dated December, 1996.
*10.18 -- First Amendment to Loan Agreement dated December, 1996.
*10.19 -- First Amendment to Demand Note dated December, 1996.
*10.20 -- First Amendment to Security Agreement dated December, 1996.
*10.21 -- 1991 Stock Option Plan.
*10.22 -- Amendment No. 1 to 1991 Stock Option Plan.
*10.23 -- 1994 Employee Stock Option Plan.
*10.24 -- Amendment No. 1 to 1994 Employee Stock Option Plan.
*10.25 -- 1997 Equity Incentive Plan.
10.26 -- Form of Common Stock Purchase Warrent.
10.27 -- Form of Amendment No.1 to Common Stock Purchase Warrant.
*16 -- Letter of KPMG Peat Marwick LLP re change in certifying accountant.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Eaton, Peabody, Bradford & Veague, P.A. (included in Exhibit 5.1.)
23.4 -- Consent of Ernst & Young LLP.
*24.1 -- Power of Attorney (included in signature page to Registration Statement).
*27 -- Financial Data Schedule.
*99.1 -- Consent of Donald R. Hughes to be named herein as Director-elect.
*99.2 -- Consent of Max G. Pitcher to be named herein as Director-elect.
*99.3 -- Consent of William M. Dubay to be named herein as Director-elect.
</TABLE>
- ----------
* Previously filed.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable, not required
under the instructions, or all the information required is set forth in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-4
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered herein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF BRUNSWICK, STATE OF
MAINE, ON THE 4TH DAY OF FEBRUARY, 1997.
BRUNSWICK TECHNOLOGIES, INC.
BY: /S/ JOHN P. O'SULLIVAN
-------------------------
JOHN P. O'SULLIVAN,
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Principal Executive Officer February 4, 1997
------------------------- and Director
MARTIN S. GRIMNES
* Director February 4, 1997
-------------------------
DAVID M. COIT
* Director February 4, 1997
-------------------------
GREGORY B. PETERS
* Director February 4, 1997
-------------------------
DAVID E. SHARPE
* Director February 4, 1997
-------------------------
PETER N. WALMSLEY
/S/ JOHN P. O'SULLIVAN Treasurer and Principal February 4, 1997
------------------------- Financial and Accounting Officer
JOHN P. O'SULLIVAN
* President and Principal February 4, 1997
------------------------- Operating Officer
WILLIAM M. DUBAY
BY: /S/ JOHN P. O'SULLIVAN
------------------------
JOHN P. O'SULLIVAN,
ATTORNEY-IN-FACT February 4, 1997
</TABLE>
II-6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Articles of Incorporation of the Registrant.
3.2 -- Third Restated Bylaws of the Registrant.
*4.1 -- Amended and Restated Registration Rights Agreement dated August 25, 1993.
*4.2 -- Amendment No. 1 to the Registration Rights Agreement dated October 30, 1996.
*4.3 -- Amendment No. 2 to the Registration Rights Agreement dated October 30, 1996.
4.4 -- Form of Josephthal Warrant.
4.5 -- Specimen stock certificate for shares of Common Stock.
4.6 -- Amendment No. 3 to Registration Rights Agreement dated February 3, 1997.
5.1 -- Opinion of Eaton, Peabody, Bradford & Veague, P.A. as to legality of shares.
*10.1 -- Loan Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
*10.2 -- Security Agreement between the Registrant and Fleet Bank of Maine dated May 30,
1996.
*10.3 -- Demand Note in favor of Fleet Bank of Maine dated May 30, 1996.
*10.4 -- Supply Agreement between the Registrant and Vetrotex CertainTeed Corp. dated August
25, 1993 (confidential portions of which have been omitted and filed separately with the
Commission under a request for confidential treatment pursuant to Rule 406 under the
Securities Act).
*10.5 -- Private Activity Bond Requirements Certificate of Brunswick Technologies, Inc.
dated December 1, 1995.
*10.6 -- Lease Agreement between the Registrant and Brunswick Development Corporation dated August 1, 1995.
*10.7 -- Collaborative Agreement between the Registrant and E.I. DuPont de Nemours and
Company, Inc., et al.
*10.8 -- Financial Advisory Agreement and Indemnification Agreement between the Registrant
and the Representative.
*10.9 -- Installment Promissory Note between the Registrant and Vetrotex CertainTeed Corp.
dated March 31, 1992.
*10.10 -- Security Agreement between the Registrant and Vetrotex CertainTeed Corp. dated
March 31, 1992.
*10.11 -- Stock Purchase Agreement among the Registrant, Burlington Industries, Inc. and
Peter L. DeWalt dated October 22, 1996 and First Amendment to Stock Purchase Agreement
dated October 29, 1996.
*10.12 -- Registration Rights Agreement among the Registrant, Burlington Industries, Inc.,
and Peter L. DeWalt, dated October 30, 1996.
*10.13 -- Employment Agreement between Advanced Textiles, Inc., a subsidiary of the Registrant,
and Peter L. DeWalt, dated October 30, 1996.
*10.14 -- Convertible Subordinated Promissory Note made by the Registrant in favor of Burlington
Industries, Inc. dated October 30, 1996.
*10.15 -- Recapitalization Agreement among the Registrant and the holders of its common
stock.
*10.16 -- Term Note in favor of Fleet Bank of Maine dated May 30, 1996.
*10.17 -- First Amendment to Term Note dated December, 1996.
*10.18 -- First Amendment to Loan Agreement dated December, 1996.
*10.19 -- First Amendment to Demand Note dated December, 1996.
*10.20 -- First Amendment to Security Agreement dated December, 1996.
*10.21 -- 1991 Stock Option Plan.
*10.22 -- Amendment No. 1 to 1991 Stock Option Plan.
*10.23 -- 1994 Employee Stock Option Plan.
*10.24 -- Amendment No. 1 to 1994 Employee Stock Option Plan.
*10.25 -- 1997 Equity Incentive Plan.
10.26 -- Form of Common Stock Purchase Warrant.
10.27 -- Form of Amendment No. 1 to Common Stock Puchase Warrant.
*16 -- Letter of KPMG Peat Marwick LLP re change in certifying accountant.
23.1 -- Consent of Coopers & Lybrand L.L.P.
</TABLE>
INDEX TO EXHIBITS -- (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Eaton, Peabody, Bradford & Veague, P.A. (included in Exhibit 5.1.)
23.4 -- Consent of Ernst & Young LLP.
*24.1 -- Power of Attorney (included in signature page to Registration Statement).
*27 -- Financial Data Schedule.
*99.1 -- Consent of Donald R. Hughes to be named herein as Director-elect.
*99.2 -- Consent of Max G. Pitcher to be named herein as Director-elect.
*99.3 -- Consent of William M. Dubay to be named herein as Director-elect.
</TABLE>
- ----------
* Previously filed.
EXHIBIT 1.1
[FORM OF UNDERWRITING AGREEMENT]
2,000,000 SHARES OF COMMON STOCK
BRUNSWICK TECHNOLOGIES, INC.
UNDERWRITING AGREEMENT
New York, New York
February ____, 1997
Josephthal Lyon & Ross Incorporated
Southwest Securities, Inc.
(As Representatives of the
several Underwriters named
on Schedule A hereto)
200 Park Avenue - 24th Floor
New York, New York 10166
Ladies and Gentlemen:
Brunswick Technologies, Inc., a Maine corporation (the "Company"), and
North Atlantic Venture Fund, L.P. (the "Selling Stockholder"), hereby confirm
their respective agreements with Josephthal Lyon & Ross Incorporated
("Josephthal"), Southwest Securities, Inc. ("Southwest"), and each of the other
Underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any Underwriters substituted as hereinafter provided in
Section 13), for whom Josephthal and Southwest are acting as representatives (in
such capacity, Josephthal and Southwest shall hereinafter be referred to as
"Representatives"), with respect to (i) the sale by the Company and the purchase
by the Underwriters, acting severally and not jointly, of an aggregate of
1,500,000 shares (the "Company Firm Shares"), of the Company's common stock,
$0.0001 par value per share ("Common Stock"), and (ii) the sale by the Selling
Stockholder and the purchase by the Underwriters, acting severally and not
jointly, of an aggregate of 500,000 additional shares of the Common Stock (the
"Selling Stockholder Firm Shares"), in the respective amounts set forth on
Schedule A. The Company Firm
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Shares and the Selling Stockholder Firm Shares are hereinafter referred to
sometimes as the "Firm Shares."
Upon your request, as provided in Section 2(b) of this Agreement, the
Selling Stockholder shall also sell to the Underwriters, acting severally and
not jointly, up to an additional 300,000 Shares of Common Stock for the purpose
of covering over-allotments, if any (the "Option Shares"). The Company also
proposes to issue to and sell to Josephthal warrants (the "Representative's
Warrants") pursuant to a Representative's Warrant Agreement in the form of
Exhibit 1 hereto (the "Representative's Warrant Agreement") for the purchase of
an additional 125,000 shares of Common Stock at an exercise price equal to 120%
of the price of the shares in the Offering (as defined below). Any shares of
Common Stock issuable upon the exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Shares." The Firm Shares and
the Option Shares are hereinafter sometimes referred to as the "Shares."
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission"), a registration statement, and
amendments thereto, on Form S-l (No. 333-10721), including any related
preliminary prospectus ("Preliminary Prospectus"), and any registration
statements filed under Rule 462 under the Securities Act of 1933, as
amended (the "Act"), for the registration of the Firm Shares and the
Option Shares under the Act, which registration statements and
amendment or amendments have been prepared by the Company in conformity
in all material respects with the requirements of the Act. The Company
will not file any amendment thereto to which the Underwriters shall
have objected in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement on Form S-1, as amended and on file with the Commission on
the date hereof (including the prospectus, financial statements,
schedules, exhibits, and all other documents filed as a part thereof or
incorporated therein including without limitation those documents or
information incorporated by reference therein, and all information
deemed to be a part thereof as of such time pursuant to paragraph (b)
of Rule 430A of the Regulations and any registration statements filed
under Rule 462 under the Act with respect to the Firm Shares or the
Option Shares) is hereinafter called the "Registration Statement," and
the form of prospectus contained in the Registration Statement in the
form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as applicable. Each reference
herein to the effective date or effective time of the Registration
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Statement shall be deemed to mean in each case each effective date or
time of the Company's registration statement on Form S-1 (No.
333-10721) and any additional registration statements filed under Rule
462 under the Act with respect to the Firm Shares or the Option Shares.
(b) Neither the Commission nor, to the best of the Company's
knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any of the Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any thereof
and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been
instituted or are pending or, to the best of the Company's knowledge,
threatened. Each of the Preliminary Prospectus, the Registration
Statement and the Prospectus at the time of filing thereof conformed
with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement or the
Prospectus at the time of filing thereof contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made
in reliance upon and in conformity with written information furnished
to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option
Closing Date, if any, and during such longer period as the Prospectus
may be required to be delivered in connection with sales by the
Underwriters or a dealer, each of the Registration Statement and the
Prospectus will contain all statements that are required to be stated
therein in accordance with the Act and the Rules and Regulations, and
will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, will contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, provided,
however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or
on behalf of any Underwriter expressly for use in the Preliminary
Prospectus, the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto.
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Maine. Except as set forth in the Prospectus, the Company does not
own an interest in any corporation,
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partnership, trust, joint venture or other business entity. The Company
is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations require such qualification or licensing,
except for jurisdictions where the failure to so file would not have a
Material Adverse Effect (as defined below) upon the Company. The
Company has all requisite corporate power and authority, and has
obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including without
limitation those having jurisdiction over environmental or similar
matters) (collectively, "Permits"), to own or lease its properties and
conduct its business as described in the Prospectus, except where the
failure to obtain any such Permit would not have a Material Adverse
Effect upon the Company; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations; and the Company has not received
any notice of proceedings relating to the revocation or modification of
any such authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, could have a Material
Adverse Effect upon the Company. The disclosures in the Registration
Statement concerning the effects of federal, state, local and foreign
laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct and do not omit to state any
material fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made. As
used herein, "Material Adverse Effect" means any effect on the Company
that, individually or in the aggregate, materially and adversely
affects the business condition (financial or otherwise), operations,
results of operations, earnings, assets, position, prospects,
properties or value of the Company.
(e) The Company has, as of the date specified therein, a duly
authorized, issued and outstanding capitalization as set forth in the
Prospectus under "Capitalization" and "Description of Securities" and
will have the adjusted capitalization set forth therein on the Closing
Date and each Option Closing Date, if any, based upon the assumptions
set forth therein, and the Company is not a party to or bound by any
instrument, agreement, or other arrangement providing for it to issue
any capital stock, warrants, options or other securities, or any rights
with respect thereto, except for this Agreement, the Representative's
Warrant Agreement and as described in the Prospectus. The Selling
Stockholder Firm Shares and the Option Shares are duly authorized,
validly issued, fully paid and non-assessable and conform to the
description thereof in the Prospectus. The Company Firm Shares, the
Representative's Warrants and the Representative's Shares and all other
securities issued or issuable by the Company conform, or when issued
and paid for, will conform, in all respects to all statements with
respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have
been duly authorized and
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validly issued and are fully paid and nonassessable and the holders
thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of
any holders of any security of the Company or similar contractual
rights granted by or binding upon the Company. The Selling Stockholder
Firm Shares and the Option Shares are duly authorized, validly issued,
fully paid and non-assessable and conform to the description thereof in
the Prospectus The Firm Shares, the Option Shares, the Representative's
Warrants and the Representative's Shares are not and will not be
subject to any preemptive or other similar rights of any stockholder or
other person, have been duly authorized, and when issued, paid for, and
delivered in accordance with the terms hereof, will be validly issued,
fully paid and non-assessable and will conform to the description
thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Firm
Shares, the Option Shares, the Representative's Warrants and the
Representative's Shares has been duly and validly taken; and the
certificates representing the Firm Shares, the Representative's
Warrants and the Representative's Shares are or will be in due and
proper form. Upon the issuance and delivery of, and payment for, the
Firm Shares, the Option Shares, the Representative's Warrants and the
Representative's Shares, the Underwriters will acquire good and
marketable title to such Firm Shares, Option Shares, Representative's
Warrants, or Representative's Shares, free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever other than such as may be
created by the Underwriters and provided that the Underwriters purchase
such shares in good faith and without notice of any adverse claim. The
Company has the full power and authority to issue shares of Common
Stock in payment of certain cash dividends payable to the holders of
the Company's outstanding Series AA Convertible Preferred Stock, no par
value, Series BB Convertible Preferred Stock, no par value, Series C
Convertible Preferred Stock, no par value, and Series D Convertible
Preferred Stock, no par value (collectively, the "Series Preferred
Stock"), pursuant to the terms of such Series Preferred Stock, and upon
such issuance the holders of the Series Preferred Stock will have no
further rights to any dividends, declared or undeclared, with respect
to any periods occurring prior to the Closing Date.
(f) The financial statements of the Company, including the
related notes and schedules thereto, included in the Registration
Statement, the Preliminary Prospectus and the Prospectus fairly present
the financial position, income, changes in cash flow, changes in
stockholders' equity, and the results of operations of the Company at
the respective dates and for the respective periods to which they apply
and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. The pro forma
financial
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statements and other pro forma financial information (including the
notes thereto) included in the Registration Statement and the
Prospectus (A) present fairly the information shown therein, (B) have
been prepared in accordance with the applicable requirements of Rule
11-02 of Regulation S-X promulgated under the Act and the Exchange Act,
(C) have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, and (D) have
been properly compiled on the bases described therein, and the
assumptions used in the preparation of the pro forma financial
statements and other pro forma financial information and included in
the Registration Statement and the Prospectus are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein. Except as described
in the Prospectus, there has been no adverse change or development
involving a prospective material change in the business, condition
(financial or otherwise), operations, results of operations, earnings,
assets, position, prospects, properties or value of the Company,
whether or not arising in the ordinary course of business, since the
date of the financial statements included in the Registration Statement
and the Prospectus and the outstanding debt, assets (both tangible and
intangible), and business of the Company conform in all material
respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. The financial information set forth in
the Prospectus under the headings "Summary Financial Data," "Selected
Financial Data," "Capitalization," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," fairly
present, on the basis stated in the Prospectus, the information set
forth therein, and have been derived from or compiled on a basis
consistent with that of the audited financial statements included in
the Prospectus.
(g) The Company (i) has paid all federal, state, local and
foreign taxes that are due and payable, including, without limitation
withholding taxes and amounts payable under Chapters 21 through 24 of
the Internal Revenue Code of 1986, as amended (the "Code"), and has
duly filed all information returns it is required to file pursuant to
the Code, (ii) has established adequate reserves for such taxes that
are not due and payable, and (iii) does not have any tax deficiency or
claims outstanding, proposed, or assessed against it which would have a
Material Adverse Effect.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the
issuance by the Company of the Firm Shares, the Option Shares, the
Representative's Warrants or the Representative's Shares, (ii) the
purchase by the Underwriters of the Firm Shares, the Option Shares, the
Representative's Warrants or the Representative's Shares, (iii) the
consummation by the Company of any of its obligations under this
Agreement or the Representative's Warrant Agreement, or (iv) resales of
the Firm Shares and Option Shares in connection with the distribution
contemplated hereby.
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(i) The Company maintains insurance policies, including
without limitation general liability and property insurance, that
insure the Company and its employees and agents against such losses and
risks as are generally insured against by comparable businesses. The
Company (A) has not failed to give notice or present any insurance
claim with respect to any matter including without limitation the
Company's business, property or employees, under any insurance policy
or surety bond in a due and timely manner, (B) has no disputes or
claims against any underwriters of such insurance policies or surety
bonds and has not failed to pay any premiums due and payable
thereunder, and (C) has not failed to comply with any condition
contained in such insurance policies or surety bonds. There are no
facts or circumstances under any such insurance policy or surety bond
known to the Company that would relieve any insurer of its obligation
to satisfy in full any otherwise valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding
(including without limitation those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or, to
the Company's knowledge, threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the
Company that (i) questions the validity of the capital stock of the
Company, this Agreement, the Representative's Warrant Agreement or any
action taken or to be taken by the Company pursuant to or in connection
with this Agreement, the Representative's Warrant Agreement or the
public offering of the Firm Shares and the Option Shares contemplated
by this Agreement, (ii) is required to be disclosed in the Registration
Statement that is not so disclosed (and such proceedings, if any, as
are summarized in the Registration Statement are accurately summarized
in all respects), or (iii) might have a Material Adverse Effect.
(k) The Company has full legal right, power and authority to
(A) authorize, issue, deliver and sell the Firm Shares, the Option
Shares, the Representative's Warrants and the Representative's Shares,
(B) enter into this Agreement and the Representative's Warrant
Agreement and to consummate the transactions contemplated hereby and
thereby, and (C) issue shares of Common Stock to the holders of the
Series Preferred Stock in payment of accrued cash dividends as
described in the Prospectus; and this Agreement and the
Representative's Warrant Agreement have been duly and properly
authorized, executed and delivered by the Company. This Agreement and
the Representative's Warrant Agreement constitute legal, valid and
binding agreements of the Company enforceable against the Company in
accordance with their terms, except (i) as such enforceability may be
limited or otherwise affected by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar
laws affecting creditors' rights generally, (ii) as such enforceability
of any indemnification or contribution provisions may be limited under
applicable laws or the public policies underlying such laws and (iii)
that the
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remedies of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding may be brought.
None of the Company's issue and sale of the Firm Shares, the Option
Shares and the Representative's Warrants and, upon exercise of the
Representative's Warrants, the Representative's Shares, execution or
delivery of this Agreement and the Representative's Warrant Agreement,
its performance hereunder and thereunder, its consummation of the
transactions contemplated herein and therein, its issuance of shares of
Common Stock to the holders of the Series Preferred Stock in payment of
accrued cash dividends as described in the Prospectus, or the conduct
of its business as described in the Registration Statement, the
Prospectus and any amendments or supplements thereto, conflicts with or
will conflict with, or results or will result in any breach or
violation of, any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security interest,
defect, or other restriction or equity of any kind whatsoever upon,
properties or assets (tangible or intangible) of the Company pursuant
to the terms of, (i) the Restated Articles of Incorporation or Third
Restated By-Laws of the Company, each as amended to date, (ii) any
license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or
any other agreement or instrument to which the Company is a party or by
which it is bound or to which any of its properties or assets (tangible
or intangible) is or may be subject, or any indebtedness, or (iii) any
statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including without
limitation those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
(l) Except as described in the Prospectus, no consent,
approval, authorization or order of, and no filing with, any court,
regulatory body, government agency or other body, domestic or foreign,
or any other person or entity, is required for the issuance of the Firm
Shares or the Option Shares pursuant to the Prospectus and the
Registration Statement, the issuance of the Representative's Warrants
and, upon the exercise thereof, the Representative's Shares, the
performance of the Company's obligations under this Agreement and the
Representative's Warrant Agreement, and the transactions contemplated
hereby, including without limitation any waiver of any preemptive,
first refusal, or other rights that any person or entity may have for
the issue and/or sale of any of the Firm Shares or Option Shares,
except such as have been or may be obtained under the Act (including
the filing by the Company of a Form D under the Act with the Commission
with respect to the issuance of the Representative's Warrants) or may
be required under state securities or Blue Sky laws and the National
Association of Securities Dealers, Inc. (the "NASD") in connection with
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the Underwriters' purchase and distribution of the Firm Shares or
Option Shares hereunder.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as
exhibits to the Registration Statement to which the Company is a party
or by which it is bound or to which any of its assets, properties, or
business are subject, have been duly and validly authorized, executed
and delivered by the Company and constitute the legal, valid and
binding agreements of the Company, enforceable against the Company in
accordance with their respective terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with
respect thereto by Form S-1 under the Act, and there are no contracts
or other documents that are required by the Act to be described in the
Registration Statement or filed as exhibits to the Registration
Statement that are not described or filed as required, and the exhibits
that have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except
as may otherwise be indicated or contemplated herein or therein, the
Company has not (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into
any transaction other than in the ordinary course of business, or (iii)
declared or paid any dividend or made any other distribution on or in
respect of its capital stock of any class, and there has not been any
change in the capital stock, or any change in the debt (long or short
term) or liabilities (other than in the ordinary course of business,
none of which are individually or in the aggregate, material) or
material change in or affecting the business, condition (financial or
otherwise), operations, results of operations, earnings, assets,
prospects, position, properties or value of the Company.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note,
loan or credit agreement, purchase order or any other agreement or
instrument evidencing an obligation for borrowed money, or any other
material agreement or instrument to which the Company is a party or by
which it is bound or to which any of the property or assets (tangible
or intangible) of the Company is subject or affected, except for such
defaults that would not individually or in the aggregate have a
Material Adverse Effect.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance
with all federal, state, local and foreign laws and regulations
respecting employment and
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employment practices, terms and conditions of employment, and wages and
hours. There are, to the Company's knowledge, no pending investigations
involving the Company by the U.S. Department of Labor, or any other
governmental agency responsible for the enforcement of such federal,
state, local or foreign laws and regulations. There is, to the
Company's knowledge, no unfair labor practice charge or complaint
against the Company pending before the National Labor Relations Board
or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company or any
predecessor entity, and none has ever occurred. No representation
question exists respecting the employees of the Company, and no
collective bargaining agreement or modification thereof is currently
being negotiated by the Company. To the Company's knowledge, no
grievance or arbitration proceeding is pending under any expired or
existing collective bargaining agreements of the Company. No labor
dispute with the employees of the Company exists or, to the Company's
knowledge, is imminent.
(q) Except as described in the Prospectus, or has otherwise
been described in writing to the Representatives, the Company does not
maintain, sponsor, or contribute to any program or arrangement that is
an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are deemed in Sections 3(2),
3(1), and 3(37), respectively, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). Except as
described in the Prospectus, the Company does not maintain or
contribute, (and has not previously maintained or contributed) to a
"defined benefit plan," as defined in Section 3(35) of ERISA. No ERISA
Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975
of the Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all material reporting,
disclosure, and other requirements of the Code and ERISA as they relate
to any such ERISA Plan. Except as has been described in writing to the
Representatives, determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA
Plan and the attendant trust are qualified thereunder. The Company has
never completely or partially withdrawn from a "multiemployer plan."
(r) None of the Company nor any of its employees, directors,
stockholders, partners or affiliates (within the meaning of the Rules
and Regulations) has taken or will take, directly or indirectly, any
action designed to, or that has constituted or might reasonably be
expected to cause or result in (under the Exchange Act or otherwise),
stabilization or manipulation of the price of any security of the
Company, whether to facilitate the sale or resale of the Shares or
otherwise; and the Company shall not take, or permit any such person to
take, any
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such action, provided, however, that no representation is given by the
Company as to actions taken or that may be taken by the Underwriters.
(s) Except as disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names,
copyrights, technology, and know-how, and none of the licenses or
rights to the foregoing, presently owned or held by the Company or used
in or necessary to the conduct of its business as now conducted or
proposed to be conducted (all of the foregoing, collectively,
"Intellectual Properties"), are in dispute or, to the best knowledge of
the Company, are in any conflict with the right of any other person or
entity. The Company (i) owns or has the right to use all Intellectual
Properties free and clear of all liens, charges, claims (to the extent
known to the Company), encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever,
without infringing upon or otherwise acting adversely to the right or
claimed right of any person, corporation or other entity, and (ii) is
not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any Intellectual Properties with respect to the use
thereof or in connection with the conduct of its business or otherwise.
(t) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all unpatented and/or unpatentable
proprietary or confidential information, systems and procedures),
inventions, designs, processes, works of authorship, computer programs
and technical data and information that are material to the
development, manufacture, operation, and sale of all products and
services sold or proposed to be sold by the Company, free and clear of
and without violating any right, lien, or claim (to the extent known to
the Company) of others, including without limitation former employers
of its employees, former and current employers of each member of the
Company's Board of Directors or members of the Company's Board of
Directors. The Company is not aware of any development of similar or
identical trade secrets or technical information by others.
(u) The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of all of its
Intellectual Properties.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it free and
clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind
whatsoever, other than (i) those referred to in the Prospectus, (ii)
liens for taxes not yet due and payable and (iii) those listed on
copies of title policies relating to such property which have been
delivered to the Representatives.
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(w) KPMG Peat Marwick LLP, Coopers & Lybrand, L.L.P. and Ernst
& Young LLP, whose reports are filed with the Commission as a part of
the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(x) Except as described in the Prospectus under
"Underwriting," there are no agreements, understandings, claims,
payments, issuances, or other arrangements, whether oral or written,
for services in the nature of a finder's or origination fee with
respect to the sale of the Firm Shares or the Option Shares, or any
other agreements, understandings, claims, payments, issuances, or other
arrangements with respect to the Company or any of its officers,
directors, stockholders, partners, employees, or affiliates that may
affect the Underwriters' compensation, as determined by the NASD.
Except as has been previously disclosed to the Representatives and the
NASD, no officer, director or stockholder of the Company is a member of
the NASD, an affiliate of the NASD, a person associated with a member
or an associated person of a member within the meaning of Rule 2710 of
the NASD Conduct Rules.
(y) The Common Stock has been approved for listing on the
NASDAQ National Market ("NNM").
(z) Neither the Company nor any of its officers, employees, or
agents nor any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate
for office (domestic or foreign) or other person who was, is, or may be
in a position to help or hinder the business of the Company (or assist
the Company in connection with any actual or proposed transaction) that
(a) might subject the Company or any other such person to any damage or
penalty in any civil, criminal, or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might
have had a materially adverse effect on the assets, business or
operations of the Company, or (c) if not continued in the future, might
adversely affect the assets, business, prospects or operations of the
Company. The Company's internal accounting controls are sufficient to
cause the Company to comply with the Foreign Corrupt Practices Act of
1977, as amended.
(aa) To the Company's knowledge, except as set forth in the
Prospectus, no officer, director or principal stockholder of the
Company, nor any "affiliate" or "associate" (as these terms are defined
in Rule 405 of the Rules and Regulations) of any of the foregoing
persons or entities has or has had, either directly or indirectly, (i)
an interest in any person or entity that (A) furnishes or sells
services or products that are furnished or sold or are proposed to be
furnished or sold by
-13-
the Company, or (B) purchases from or sells or furnishes to the Company
any goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound
or affected. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing or proposed agreements,
arrangements, understandings or transactions between or among the
Company and any officer, director or principal stockholder of the
Company, or any partner, affiliate or associate of any of the foregoing
persons or entities.
(bb) The certificate delivered by the Company to the
Underwriters pursuant to Section 8(i) herein shall be deemed a
representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(cc) Each of the minute books of the Company has been made
available to the Underwriters and such books contain copies of all
minutes of all meetings and actions of the directors, stockholders,
finance committee, compensation committee and any other committee of
the Board of Directors of the Company since the time of its
incorporation, and reflects accurately in all material respects all
transactions referred to in such minutes.
(dd) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or
other convertible or exchangeable securities of the Company have any
right which has not been waived to include any securities issued by the
Company in the Registration Statement or in any registration statement
to be filed by the Company or to require the Company to file a
registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ee) The Company has, prior to the effective date of the
Registration Statement, purchased term key-man insurance on the lives
of Martin Grimnes and William Dubay, in the amount of $1,000,000 each,
of which the Company is the sole beneficiary.
(ff) The conversion of all outstanding shares of the Series
Preferred Stock as set forth in the Prospectus will occur automatically
upon the closing of the purchase of the Firm Shares and upon such
closing, without any further action of the Company's Board of Directors
or any shareholders of the Company, every one (1) share of Series
Preferred Stock of the Company will simultaneously convert into one (1)
validly issued, fully paid and nonassessable share of Common Stock.
(gg) The issuance of shares of Common Stock to the holders of
the Series Preferred Stock in payment of accrued cash dividends as
described in the Prospectus has been duly authorized by the Company and
the shareholders of the
-14-
Company in accordance with all agreements, documents, understandings
and instruments affecting the rights, duties, responsibilities,
obligations and/or privileges of holders of Series Preferred Stock or
to which the Company is bound, including without limitation, the
Restated Articles of Incorporation of the Company, including the
Schedules thereto describing the designations, powers, preferences and
rights of the Series Preferred Stock, and the Company's Third Restated
By-laws, each as amended to date.
(hh) The Company has provided Josephthal with true copies of
duly executed, legally binding and enforceable agreements pursuant to
which each of the Company's officers, directors, stockholders and
holders of securities exchangeable or exercisable for, convertible
into, or evidencing any right to purchase or subscribe for, shares of
Common Stock has agreed that, without the prior written consent of
Josephthal, such person or entity will not directly or indirectly offer
to sell, sell, grant any option for the sale of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any legal or
beneficial interest in any shares of Common Stock, any securities
convertible into or exercisable or exchangeable for shares of Common
Stock, or any warrants, options, or other rights to purchase, subscribe
for, or otherwise acquire any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) until after
thirteen (13) months after the effective date of the Registration
Statement (collectively, the "Lock-up Agreements"). On or before the
Closing Date, the Company shall have delivered instructions to the
Transfer Agent authorizing it to place appropriate legends on the
certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the
Company's ledgers.
2. Purchase, Sale, and Delivery of the
Shares and the Representative's Warrants.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and
conditions herein set forth, (i) the Company agrees to issue and sell
the Company Firm Shares to the several Underwriters, (ii) the Selling
Stockholder agrees to sell the Selling Stockholder Firm Shares to the
several Underwriters, and (iii) each Underwriter severally and not
jointly, agrees to purchase from the Company and the Selling
Stockholder, at a price of $____ per Share, the respective number of
Firm Shares (to be adjusted by the Representatives to eliminate
Fractional Shares) determined by multiplying the aggregate number of
Firm Shares by a fraction the numerator of which is the aggregate
number of Firm Shares set forth on Schedule A hereto opposite the name
of such Underwriter, and the denominator of which is the aggregate
number of Firm Shares to be purchased by all the Underwriters, and in
the event and to the extent that the Underwriters shall exercise the
election to purchase any Option Shares as provided below, (A) the
Selling Stockholder
-15-
agrees to sell the Option Shares to the several Underwriters, and (B)
each of the Underwriters agrees, severally and not jointly, to purchase
from the Selling Stockholder, at a price of $____ per Share, that
portion of the number of Option Shares as to which such election shall
have been exercised (to be adjusted by the Representatives so as to
eliminate fractional shares) determined by multiplying the aggregate
number of Option Shares so elected to be exercised by a fraction the
numerator of which is the aggregate number of Firm Shares set forth on
Schedule A hereto opposite the name of such Underwriter, and the
denominator of which is the aggregate number of Firm Shares to be
purchased by all the Underwriters.
(b) On the basis of the representations, warranties,
covenants, and agreements herein contained, but subject to the terms
and conditions herein set forth, the Selling Stockholder hereby grants
an option to the Underwriters, severally and not jointly to purchase
all or any part of an additional 300,000 Shares of Common Stock at a
price of $_______ per Share. The option granted hereby will expire 45
days after (i) the date on which the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under
the Rules and Regulations, or (ii) the date of this Agreement if the
Company has elected to rely upon Rule 430A under the Rules and
Regulations and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments that may be made in
connection with the offering and distribution of the Firm Shares upon
notice by the Underwriters to the Selling Stockholder setting forth the
respective numbers and types of Option Shares as to which the
Underwriters are then exercising the option and the time and date of
payment and delivery for any such Option Shares. Any such time and date
of delivery (an "Option Closing Date") shall be determined by
Josephthal, but shall not be later than seven (7) full business days
after the exercise of said option, nor in any event prior to the
Closing Date, as hereinafter defined, unless otherwise agreed upon by
Josephthal and the Company. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Shares shall be
delivered unless the Firm Shares shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
(c) On the bases of the representations, warranties,
covenants, and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company agrees to issue and sell
the Representative's Warrants to Josephthal, and Josephthal agrees to
purchase the Representative's Warrants from the Company, for an
aggregate purchase price of $125.00.
(d) Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the offices of
Josephthal at 200 Park Avenue, 24th Floor, New York, New York 10166, or
at such other place as shall be agreed upon by Josephthal and the
Company. Such delivery and payment shall be made
-16-
at 10:00 a.m. (New York City time) on ___________, 1997, or at such
other time and date as shall be agreed upon by Josephthal and the
Company, but not less than three (3) nor more than seven (7) full
business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called the
"Closing Date"). In addition, in the event that any or all of the
Option Shares are purchased by the Underwriters, payment of the
purchase price for, and delivery of certificates for, such Option
Shares shall be made at the above-mentioned office of Josephthal or at
such other place as shall be agreed upon by Josephthal and the Selling
Stockholder on each Option Closing Date as specified in the notice from
Josephthal to the Selling Stockholder. Delivery of the certificates for
the Firm Shares and the Option Shares, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not
jointly, of the purchase price for the Firm Shares and the Option
Shares, if any, to the order of the Company or the Selling Stockholder,
as applicable, by wire transfer in the amount of the purchase price
therefor in New York Clearing House funds. Certificates for the Firm
Shares and the Option Shares, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may
request in writing at least two (2) business days prior to Closing Date
or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Shares and the Option Shares, if any, shall
be made available to the Underwriters at such office or such other
place as the Underwriters may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to
Closing Date or the relevant Option Closing Date, as the case may be.
3. Public Offering of the Firm Shares. As soon after the effective date
of the Registration Statement as Josephthal deems advisable, the Underwriters
shall make a public offering (the "Offering") of the Firm Shares (other than to
residents of or in any jurisdiction in which qualification of the Firm Shares is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus. Josephthal may from time to time increase or decrease
the Offering price of the Firm Shares after the distribution thereof has been
completed to such extent as Josephthal, in its sole discretion, deems advisable.
The Underwriters may enter into one or more agreements as the Underwriters, in
each of their sole discretion, deems advisable with one or more broker-dealers
who shall act as dealers in connection with such public offering.
4. Representations of the Selling Stockholder. The Selling Stockholder
represents and warrants to, and agrees with, each of the Underwriters that:
(a) All consents, approvals, authorization and orders
necessary for the execution and delivery by the Selling Stockholder of
this Agreement, and for the sale and delivery of the Selling
Stockholder Firm Shares and the Option Shares hereunder, have been
obtained; and the Selling Stockholder has full right, power
-17-
and authority to enter into this Agreement and to sell, assign,
transfer and deliver the Shares to be sold by the Selling Stockholder
hereunder;
(b) This Agreement has been duly authorized, executed and
delivered by the Selling Stockholder and constitutes a valid and
binding obligation of the Selling Stockholder, enforceable in
accordance with its terms;
(c) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required in connection with the sale of the Selling Stockholder Firm
Shares or the Option Shares by the Selling Stockholder or the
consummation by the Selling Stockholder of the transactions on its part
contemplated by this Agreement, except such as have been obtained under
the Act or the rules and regulations thereunder and such as may be
required under state securities or Blue Sky laws or the by-laws and
rules of the NASD in connection with the purchase and distribution by
the Underwriters of the Shares;
(d) The sale of the Shares to be sold by the Selling
Stockholder hereunder and the performance by the Selling Stockholder of
this Agreement and the consummation of the transactions contemplated
hereby will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any party a right
to terminate any of its obligations under, or result in the
acceleration of any obligation under, any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Selling Stockholder is a party or
by which the Selling Stockholder or any of its properties is bound or
affected, or violate or conflict with the Certificate of Incorporation
or Limited Partnership, By-laws or partnership agreement of the Selling
Stockholder or any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable
to the Selling Stockholder;
(e) The Selling Stockholder has, and at the Closing Date and
any Option Closing Date will have, good and valid title to the Shares
to be sold by the Selling Stockholder hereunder, free and clear of all
liens, encumbrances, equities or claims; and, upon delivery of such
Shares and payment therefor pursuant hereto, good and valid title to
such Shares, free and clear of all liens, encumbrances, equities or
claims, will pass to each of the several Underwriters who have
purchased such Shares in good faith and without notice of any such
lien, encumbrance, equity or claim or any other adverse claim within
the meaning of the Uniform Commercial Code;
(f) The Selling Stockholder will not, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock within
thirteen (13) months
-18-
after the date of the Prospectus otherwise than hereunder or with your
express written consent;
(g) The Selling Stockholder has not taken and will not at any
time take, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result in, or which will
constitute, stabilization of the price of shares of Common Stock to
facilitate the sale or resale of any of the Shares;
(h) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by the
Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and
any further amendments or supplements to the Registration Statement and
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(i) The Selling Stockholder is not a member of or directly or
indirectly an affiliate of or associated with any member of the NASD,
except to the extent previously disclosed in writing to the Company and
the Representatives.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, the Selling
Stockholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
The Selling Stockholder specifically agrees that the obligations of the
Selling Stockholder hereunder shall not be terminated by the operation of law,
whether by the death or incapacity of the Selling Stockholder or, in the case of
an estate or trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by the
occurrence of any other event. If the Selling Stockholder or any such executor
or trustee should die or become incapacitated, or if any such estate or trust
should be dissolved, or if such corporation or partnership should be dissolved,
or if any other such event should occur, before the delivery of the Shares
hereunder, certificates representing the Shares to be sold by the Selling
Stockholder shall be delivered by or on behalf of the Selling Stockholder in
accordance with the terms and conditions of this Agreement.
-19-
5. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective
as promptly as practicable and shall not at any time, whether before or
after the effective date of the Registration Statement, file any
amendment to the Registration Statement or supplement to the Prospectus
or file any document under the Act or Exchange Act before termination
of the offering of the Firm Shares by the Underwriters of which
Josephthal shall not previously have been advised and furnished with a
copy, or to which Josephthal shall have objected or which is not in
compliance with the Act, the Exchange Act and the Rules and
Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company shall advise Josephthal and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes
effective, or if the provisions of Rule 430A promulgated under the Act
will be relied upon, when the Prospectus has been filed in accordance
with said Rule 430A and when any post-effective amendment to the
Registration Statement becomes effective, (ii) of the issuance by the
Commission of any stop order or of the initiation, or the threatening,
of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the
Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, or the institution of proceedings for that purpose,
(iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification
of any of the Firm Shares and the Option Shares for offering or sale in
any jurisdiction or of the initiation or threatening of any proceeding
for that purpose, (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any
state securities commission authority shall enter a stop order or
suspend such qualification at any time, the Company shall make every
effort to obtain promptly the lifting of such order or suspension.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to Josephthal or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission
pursuant to Rule 424(b)(1) (or, if applicable and if consented to by
the Representative, pursuant to Rule 424(b)(4)) not later than the
Commission's close of business on the earlier of (i) the second
business day following the execution and delivery of this Agreement and
(ii) the fifteenth business day after the effective date of the
Registration Statement.
-20-
(d) The Company will give Josephthal notice of its intention
to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement
to the Prospectus (including any revised prospectus that the Company
proposes for use by the Underwriters in connection with the offering of
the Shares that differs from the corresponding prospectus on file at
the Commission at the time the Registration Statement becomes
effective, whether or not such revised prospectus is required to be
filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish Josephthal with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the
case may be, and will not file any such prospectus to which Josephthal
or Bingham, Dana & Gould LLP ("Underwriters' Counsel"), shall object.
(e) The Company shall endeavor in good faith, in cooperation
with Josephthal, at or prior to the time the Registration Statement
becomes effective, to qualify the Firm Shares and the Option Shares for
offering and sale under the securities laws of such jurisdictions as
Josephthal may designate to permit the continuance of sales and
dealings therein for as long as may be necessary to complete the
distribution, and shall make such applications, file such documents and
furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company shall, unless Josephthal agrees that
such action is not at the time necessary or advisable, use all
reasonable efforts to file and make such statements or reports at such
times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts
to comply with all requirements imposed upon it by the Act and the
Exchange Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Shares in
accordance with the provisions hereof and the Prospectus, or any
amendments or supplements thereto. If at any time when a prospectus
relating to the Firm Shares and the Option Shares is required to be
delivered under the Act, any event shall have occurred as a result of
which, in the opinion of counsel for the Company or Underwriters'
Counsel, the Prospectus, as then amended or supplemented, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company shall notify Josephthal
promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act, each
such amendment or supplement to be satisfactory
-21-
to Underwriters' Counsel, and the Company shall furnish to the
Underwriters copies of such amendment or supplement as soon as
available and in such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45
days after the end of the twelve-month period beginning on the day
after the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (90 days in the
event that the end of such fiscal quarter is the end of the Company's
fiscal year), the Company shall make generally available to its
security holders, in the manner specified in Rule 158(b) of the Rules
and Regulations, and to Josephthal, an earnings statement in the detail
required by, and otherwise complying with, the provisions of Section
11(a) of the Act and Rule 158(a) of the Rules and Regulations, which
statement need not be audited unless required by the Act, covering a
period of at least twelve consecutive months after the effective date
of the Registration Statement.
(h) During a period of five years after the date hereof, the
Company shall furnish to its stockholders and the Representatives, as
soon as practicable, annual reports (including financial statements
audited by independent public accountants) and to the Representatives
and, upon request, the stockholders, unaudited quarterly reports of
earnings, and shall deliver to the Representatives:
(i) concurrently with furnishing such quarterly
reports to its stockholders, statements of income of the
Company for each quarter in the form furnished to the
Company's stockholders and certified by the Company's
principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports
to its stockholders, a balance sheet of the Company as at the
end of the preceding fiscal year, together with statements of
operations, stockholders' equity, and cash flows of the
Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public
accountants;
(iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with
the Commission, the NASD or any securities exchange;
(v) every press release and every material news item
or article of interest to the financial community in respect
of the Company or its affairs that was released or prepared by
or on behalf of the Company; and
-22-
(vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
(or their) business that the Representative may request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a
consolidated basis to the extent that the accounts of the Company and
its subsidiaries are consolidated, and will be accompanied by similar
financial statements for any significant subsidiary that is not so
consolidated.
(i) The Company shall maintain a Transfer Agent, and if
necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its
Common Stock.
(j) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the
Company shall furnish to the Representatives or by mail to the
Underwriter's order, without charge, at such place as the Underwriters
may designate, copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto
(two of which copies shall be signed and shall include all financial
statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as
available and in such quantities as the Underwriters may request for
purposes contemplated by the Act.
(k) On or before the effective date of the Registration
Statement, the Company shall provide Josephthal with true copies of
additional duly executed, legally binding and enforceable Lock-Up
Agreements for any additional officers, directors and stockholders of
the Company and holders of the Company's securities exchangeable or
exercisable for, convertible into, or evidencing any right to purchase
or subscribe for, shares of Common Stock, pursuant to which such
officers, directors, stockholders and option holders have agreed that,
without the prior written consent of Josephthal, such person or entity
will not directly or indirectly offer to sell, sell, grant any option
for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of any legal or beneficial interest in any shares
of Common Stock, any securities convertible into or exercisable or
exchangeable for shares of Common Stock, or any warrants, options, or
other rights to purchase, subscribe for, or otherwise acquire any
shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) until at least thirteen (13) months after the
effective date of the Registration Statement. On or before the Closing
Date, the Company shall deliver instructions to the Transfer Agent
authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to
place appropriate stop transfer orders on the Company's ledgers. During
the thirteen-month period commencing with the effective date of the
Registration
-23-
Statement, the Company shall not, without the prior written consent of
Josephthal, sell, contract, or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any warrants, options, or other rights
with respect to any shares of Common Stock, except for (x) the issuance
of options to purchase shares of Common Stock pursuant to stock option
plans described in the Prospectus or approved by the Board of Directors
prior to the date hereof, copies of which have been provided to the
Underwriters, provided that no more than 371,590 such options may be so
granted, and none of such options shall be issued with an exercise or
strike price which is less than the greater of (a) the public offering
price of the Shares set forth herein, or (b) the fair market value of
the underlying Common Stock on the date of grant, or (y) shares of
Common Stock which may be issued (i) to the holders of the Series
Preferred Stock upon the conversion of such shares into shares of
Common Stock in accordance with the terms of such Series Preferred
Stock or in payment of accrued cash dividends on such Series Preferred
Stock as described in the Prospectus, (ii) upon the exercise of stock
options or warrants outstanding on the date hereof and described in the
Prospectus, (iii) upon the conversion of that certain Convertible
Promissory Note of the Company, dated as of October 30, 1996, in the
aggregate principal of $7,863,000, (iv) upon the exercise of options
granted under stock option or stock incentive plans that have been
adopted by the Board of Directors on or before the date hereof and
copies of which have been provided to the Representatives, provided,
that any such options granted after the dates hereof comply with the
provisio to clause (y) above, and (v) 2,000 shares of Common Stock in
the aggregate to be issued to director-elects of the Company as
described in the Prospectus (the "Director Shares").
(l) None of the Company, nor any of its officers, directors,
or stockholders, nor any of their respective affiliates (within the
meaning of the Rules and Regulations) will take, directly or
indirectly, any action designed to, or that might reasonably be
expected to cause or result in, stabilization or manipulation of the
price of any securities of the Company, provided, however, that no
representation is given with respect to actions taken or that may be
taken by the Underwriters.
(m) The Company shall apply the net proceeds from the sale of
the Firm Shares and Option Shares in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the Prospectus. No
portion of the net proceeds will be used, directly or indirectly, to
acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms, and
other documents (including without limitation a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time under
the Act, the Exchange Act, and the Rules and Regulations, and all such
reports, forms and documents filed
-24-
shall comply in all material respects as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules
and Regulations.
(o) The Company shall furnish to the Representatives as early
as practicable prior to each of the date hereof, the Closing Date, and
each Option Closing Date, if any, but no later than two (2) full
business days prior thereto, a copy of the latest available unaudited
interim financial statements of the Company (which in no event shall be
as of a date more than thirty (30) days prior to the date of the
Prospectus) which have been read by the Company's independent public
accountants, as stated in their letters to be furnished pursuant to
subsections 6(j), 6(l) and 6(k) hereof.
(p) The Company shall cause the Shares to be quoted on NNM or
any national securities exchange registered under Section 6 of the
Exchange Act and, for a period of seven (7) years from the date hereof,
shall use its best efforts to maintain the NNM quotation of the Common
Stock (to the extent outstanding).
(q) For a period of three (3) years from the Closing Date, the
Company shall furnish to the Representatives, upon the request of the
Representatives and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock and (ii) the
list of holders of all of the Company's securities.
(r) The Company shall, as soon as practicable, (i) but in no
event less than 5 business days before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing
for the registration under the Exchange Act of the Firm Shares and
Option Shares and (ii) but in no event more than 30 days from the
effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions or Moody's OTC Manual and to continue such inclusion for a
period of not less than seven (7) years.
(s) The Company hereby agrees that it will not for a period of
thirteen (13) months from the effective date of the Registration
Statement, adopt, propose to adopt, or otherwise permit to exist any
employee, officer, director, consultant or compensation plan or
arrangement (with the exception of the Company's 1991 Stock Option
Plan, 1994 Stock Option Plan or 1997 Equity Incentive Plan, hereinafter
referred to as the "Existing Plans"), permitting the grant, issue or
sale of any shares of Common Stock or other securities of the Company,
other than the Director Shares, (i) in an amount greater than an
aggregate of 932,679 shares (including shares subject to options or
other grants, or available for options or other grants, or issued after
December 31, 1996 pursuant to options granted under the Existing
Plans), of Common Stock (including securities convertible into or
exchangeable for shares of Common Stock), (ii) at an exercise price
that is less than the greater of (a) the public offering price of the
Shares set forth herein and (b) the fair market value on the date of
grant or sale, (iii) upon payment for such
-25-
securities with any form of consideration other than cash or Common
Stock, or (iv) upon payment of less than the full purchase or exercise
price for such shares of Common Stock or other securities of the
Company on or before the date of issuance. Neither during such thirteen
month period shall the Company adopt or permit the existence of any
stock appreciation rights, phantom options or similar arrangements with
respect to the Common Stock.
(t) Until the completion of the distribution of the Firm
Shares, the Company shall not without the prior written consent of
Josephthal and Underwriters' Counsel, issue, directly or indirectly,
any press release or other communication or hold any press conference
with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary
course of the Company's business consistent with past practices with
respect to the Company's operations.
(u) For a period of seven (7) years from the date hereof, the
Company shall not take any action or actions that might prevent or
disqualify the Company's use of Form's S-l and S-3 (or other
appropriate form) for the registration under the Act of any shares of
Common Stock which may be owned by Josephthal.
(v) From the effective date of the Registration Statement
until the third anniversary of the Closing Date, Josephthal shall have
the right to designate one (1) individual for election to the Board of
Directors of the Company (the "Board"), and the Company shall use its
best efforts to cause any person so designated for election to be
elected as a director of the Company. In the event Josephthal shall not
have designated such individual at the time of any meeting of the Board
or such person is unavailable to serve, (i) the Company shall notify
Josephthal of each meeting of the Board, and (ii) an individual
selected by Josephthal shall be permitted to attend all meetings of the
Board and to receive all notices and other correspondence and
communications sent by the Company to members of the Board. Such
individual shall be reimbursed for their reasonable and documented
out-of-pocket expenses incurred in connection with his service on, or
attendance of meetings of, the Board.
(w) The Company agrees that in the event of the sale or merger
of the Company, any significant subsidiary thereof, or any significant
assets thereof (each a "Transaction"), prior to the Closing Date, the
Company shall pay Josephthal a fee of 5% of the Legal Consideration (as
hereinafter defined) of the first $5 million of the Transaction and 2%
of the Legal Consideration which exceeds $5 million. For purposes of
this Section 4(w), "Legal Consideration" is defined as the total market
value on the day of closing of stock, cash, assets and all other
property (real or personal, tangible or intangible) exchanged or
received, directly or indirectly by the Company or any of its security
holders in connection with any Transaction, including without
limitation any excess
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above market amounts paid or received pursuant to any employment
agreement, any excess above market amounts paid or received pursuant to
any consulting agreement, any excess above market amounts paid or
received pursuant to any covenant not to compete, any excess above
market amounts paid or received pursuant to any earn-out or contingent
payment right or similar arrangement, agreement or understanding,
whether oral or written, associated with such Transaction. Property
shall be valued for this purpose at the fair market value thereof as
agreed to by the parties hereto or if the parties are unable to agree,
as determined by a mutually acceptable independent appraiser, the cost
of which shall be borne by the Company. Securities which are publicly
traded shall be valued at the closing price of such securities as
reported on a national exchange or NNM if so listed or quoted, or if
not so listed or quoted, the average of the closing ask prices, as
reported by NASDAQ, in either event for the last day prior to the
closing date of such Transaction; if the securities are not so listed
or quoted, the securities shall be valued in the same manner as
property described above. All debt instruments or evidences thereof and
all amounts payable to shareholders pursuant to any employment
agreements, consulting agreements, covenants not to compete, earn-out
or contingent payment rights or other similar agreements, arrangements
or understanding shall be valued at the aggregate amount payable
thereunder. All amounts payable pursuant to this Section 4(w) hereof
are due and payable to Josephthal, in cash or by certified check, at
the closing or closings of any Transaction or when received by the
Company, if later. In the event of a conflict or inconsistency among
the fees to be paid by the Company pursuant to that certain Financial
Advisory Agreement dated as of June 24, 1996, by and between the
Company and Josephthal (the "Financial Advisory Agreement"), and this
Agreement, the higher fee shall apply.
(x) The Company agrees that it shall not, without the prior
consent of Josephthal, grant to any person any rights which are
exercisable during the period ending thirteen (13) months from the
effective date of the Registration Statement, or modify any rights
previously granted to any person so as to cause the Company to register
any securities of the Company with the Commission within the period
ending thirteen (13) months from the effective date of the Registration
Statement.
6. Covenants of the Selling Stockholder. The Selling Stockholder agrees
to pay or cause to be paid all taxes, if any, on the transfer and sale of the
Shares to be sold by the Selling Stockholder hereunder and the fees and
expenses, if any, of counsel and accountants retained by the Selling
Stockholder. The Company agrees with the Selling Stockholder to pay all costs
and expenses incident to the performance of the obligations of the Selling
Stockholder under this Agreement (except as set forth above), including, but not
limited to, all expenses incident to the delivery of the certificates for the
Shares to be sold by the Selling Stockholder, the costs and expenses incident to
the preparation, printing and filing of the Registration Statement (including
all exhibits thereto) and the Prospectus and any amendments or supplements
thereto, the expenses of qualifying the Shares to be sold by the Selling
Stockholder under the state securities or Blue Sky laws,
-27-
all filing fees and the reasonable fees and expenses of counsel for the
Underwriters payable in connection with the review of the offering of the Shares
by the NASD, and the cost of furnishing to the Underwriters the required copies
of the Registration Statement and Prospectus and any amendments or supplements
thereto; provided that the Selling Stockholder agrees to pay or cause to be paid
its pro rata share (based on the percentage which the number of Shares sold by
the Selling Stockholder bears to the total number of Shares sold) of all
underwriting discounts, commissions and expenses.
7. Payment of Expenses.
(a) The Company hereby agrees to pay, on each of the Closing
Date and each Option Closing Date (to the extent not paid at the
Closing Date) all expenses and fees (other than fees and expenses of
Underwriters' Counsel, except as provided in clauses (iv) and (x)
below) incident to the performance of the obligations of the Company
under this Agreement, including without limitation (i) the fees and
expenses of accountants and counsel for the Company, (ii) all costs and
expenses incurred in connection with the preparation, duplication,
printing, (including mailing and handling charges) filing, delivery,
and mailing (including the payment of postage with respect thereto) of
the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of
postage with respect thereto), and delivery of this Agreement, any
Agreement among Underwriters, Selected Dealer Agreements, and related
documents entered into in connection with the Offering, including the
cost of all copies thereof and of the Preliminary Prospectuses and of
the Prospectus and any amendments thereof or supplements thereto
supplied to the Underwriters and such dealers as the Underwriters may
request, in quantities as hereinabove stated, (iii) the printing,
engraving, issuance, and delivery of the Shares including without
limitation (A) the purchase by the Underwriters or the Representatives,
as the case may be, of the Firm Shares, the Option Shares, and the
Representative's Shares, (B) the consummation by the Company of any of
its obligations under this Agreement and (C) resale of the Firm Shares
and the Option Shares by the Underwriters in connection with the
distribution contemplated hereby, (iv) the qualification of the Shares
under state or foreign securities or "Blue Sky" laws and determination
of the status of such securities under legal investment laws, including
the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum," and the "Legal
Investments Survey," if any, and disbursements and fees of counsel in
connection therewith, which such expenses shall not exceed $15,000, (v)
advertising costs and expenses of both the Company and the
Representatives, including without limitation all costs and expenses in
connection with the "road show," information meetings, and
presentations, bound volumes and prospectus memorabilia and
"tomb-stone" advertisement expenses, (vi) costs and expenses in
connection with Company counsel's due diligence investigations,
including without limitation the fees of any independent counsel or
consultant
-28-
retained, (vii) fees and expenses of the Transfer Agent and Registrar,
(viii) the fees payable to the Commission and the NASD, (ix) the fees
and expenses incurred in connection with the quotation of the Shares on
NNM and any other exchange, and (x) any and all reasonable due
diligence fees and expenses of the Underwriters incurred in connection
with any intellectual property matters in connection with the offering
which shall not exceed $15,000.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 8, Section 12(a) or Section
14, the Company shall reimburse and indemnify the Representatives for
all of their reasonable and documented out-of-pocket expenses,
including the fees and disbursements of Underwriters' Counsel, less any
amounts already paid pursuant to Section 7(c) hereof; provided,
however, that if this Agreement is terminated by the Underwriters in
accordance with Section 12(a), the total amount of such reimbursement
and indemnification of the Representatives' expenses shall not exceed
$50,000.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 7, it shall
pay to the Representatives on the Closing Date by certified or bank
cashier's check or, at the election of the Representatives, by
deduction from the proceeds of the offering contemplated hereby a
non-accountable expense allowance equal to three quarters of one
percent (.75%) of the gross proceeds received by the Company from the
sale of the Firm Shares. In the event the Representatives elect to
exercise the over-allotment option described in Section 2(b) hereof,
the Company agrees to pay to the Representatives on each Option Closing
Date (by certified or bank cashier's check or, at the Representatives'
election, by deduction from the proceeds of the Offering) a
non-accountable expense allowance equal to three quarters of one
percent (.75%) of the gross proceeds from the sale of the Option Shares
sold on such Option Closing Date.
8. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholder herein
as of the date hereof and as of the Closing Date and each Option Closing Date,
if any, as if they had been made on and as of the Closing Date or Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date or Option
Closing Date, if any, of the statements of the officers of the Company made
pursuant to the provisions hereof; and the performance by the Company and the
Selling Stockholder on and as of the Closing Date and each Option Closing Date,
if any, of its covenants and obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 Noon, New York time, on the date of this Agreement or
such later date
-29-
and time as shall be consented to in writing by Josephthal, and at the
Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or shall be pending or contemplated by the Commission and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of
Underwriters' Counsel. If the Company has elected to rely upon Rule
430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to
Closing Date the Company shall have provided evidence satisfactory to
Josephthal of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules
and Regulations.
(b) The Representatives shall not have advised the Company
that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact that, in the Representatives' opinion, is
material, or omits to state a fact that, in the Representatives'
opinion, is material and is required to be stated therein or is
necessary to make the statements therein not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of
fact that, in the Representatives' opinion, is material, or omits to
state a fact that, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) On or prior to the Closing Date, the Representatives shall
have received from Underwriters' Counsel, such opinion or opinions with
respect to the Registration Statement, the Prospectus, and other
related matters as the Representatives may request and Underwriters'
Counsel shall have received such papers and information as they request
to enable them to pass upon such matters.
(d) At Closing Date, the Underwriters shall have received the
favorable opinion of Gadsby & Hannah LLP, counsel to the Company, dated
the Closing Date, addressed to the Underwriters and in the form
attached hereto as Exhibit 2.
(e) At each Option Closing Date, if any, the Underwriters
shall have received the favorable opinion of Gadsby & Hannah LLP,
counsel to the Company, dated the Option Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters'
Counsel, confirming as of Option Closing Date the statements made by
such counsel in its opinion delivered on the Closing Date.
-30-
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished
such documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the
matters referred to in subsection (c) of this Section 6, or in order to
evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, or conditions of the Company, or herein
contained.
(g) On the Closing Date and each Option Closing Date,
Hutchins, Wheeler & Dittmar, P.C., counsel to the Selling Stockholder,
shall have furnished to you their written opinion, dated such date, in
the form attached hereto as Exhibit 3:
(h) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change, or any
development involving a prospective adverse change, in the business,
condition (financial or otherwise), operations, results of operations,
earnings, assets, prospects, properties, position or value of the
Company, whether or not in the ordinary course of business, from the
latest dates as of which such are set forth in the Registration
Statement and Prospectus; (ii) there shall have been no transaction,
not in the ordinary course of business, entered into by the Company,
from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus that is
materially adverse to the Company; (iii) the Company shall not be in
material default under any provision of any instrument relating to any
outstanding indebtedness; (iv) except as is described in or
contemplated by the Prospectus, for shares of Common Stock which may be
issued (A) to the holders of the Series Preferred Stock upon conversion
of, and in payment of accrued cash dividends on, such Series Preferred
Stock, or (c) upon the exercise of option or warrants to purchase
Common Stock outstanding at September 30, 1996, as described in the
Prospectus, the Company shall not have issued any securities (other
than the Firm Shares, the Option Shares and the Director Shares) or
declared or paid any dividend or made any distribution in respect of
its capital stock of any class and there shall not have been any change
in the capital stock or any material change in the debt (long or short
term) or liabilities (other than in the ordinary course of business,
none of which are individually, or in the aggregate, material) or
material obligations of the Company contingent or otherwise; (v) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and
Prospectus; (vi) no action, suit or proceeding, at law or in equity,
shall have been pending or threatened (or circumstances giving rise to
same) against the Company, or involving or affecting its business or
properties, before or by any court or federal, state or foreign
commission, board, or other administrative agency wherein an
unfavorable decision, ruling or finding may materially adversely affect
the business, condition (financial or otherwise),
-31-
operations, results of operations, earnings, assets, prospects,
properties, position or value of the Company, except as set forth in
the Registration Statement and Prospectus; and (vii) no stop order
shall have been issued under the Act and no proceedings therefor shall
have been initiated, threatened, or contemplated by the Commission.
(i) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company,
signed by the principal executive officer and by the chief financial or
chief accounting officer of the Company, dated the Closing Date or
Option Closing Date, as the case may be, to the effect that each of
such persons has carefully examined the Registration Statement, the
Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or such Option Closing Date, as the case
may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
(ii) No stop order suspending the effectiveness of
the Registration Statement or any part thereof has been
issued, and no proceedings for that purpose have been
instituted or are pending or, to the best of each of such
persons knowledge, after due inquiry, are contemplated or
threatened under the Act;
(iii) The Registration Statement and the Prospectus
and each amendment and each supplement thereto, if any,
contain all material statements and information required to be
included therein, and none of the Registration Statement, the
Prospectus, or any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the
Preliminary Prospectus or any supplement thereto included any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as is described in or contemplated by
the Prospectus: (a) the Company has not incurred, up to and
including the Closing Date or the Option Closing Date, as the
case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or
contingent; (b) except for shares of Common Stock which may be
issued to the holders of the Series
-32-
Preferred Stock in payment of accrued cash dividends on such
Series Preferred Stock, as described in the Prospectus, the
Company has not paid or declared any dividends or other
distributions on its capital stock; (c) the Company has not
entered into any transactions not in the ordinary course of
business; (d) there has not been any change in the capital
stock or debt (long or short-term) of the Company (other than
in the ordinary course of business, none of which are
individually or in the aggregate, material); (e) the Company
has not sustained any material loss or damage to its property
or assets, whether or not insured; (f) there is no litigation
pending or threatened (or circumstances giving rise to same)
against the Company or any affiliated party of it that is
required to be set forth in an amended or supplemented
Prospectus and that has not been set forth; and (g) there has
occurred no event required to be set forth in an amended or
supplemented Prospectus that has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (i) are to such documents as amended and supplemented at the
date of such certificate.
(j) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriters, as described in the Registration
Statement.
(k) At the time this Agreement is executed, the Underwriters
shall have received a letter from Coopers & Lybrand L.L.P. dated such
date, addressed to the Underwriters and in form and substance
satisfactory in all respects to the Underwriters and Underwriters'
Counsel:
(i) Confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company
as of December 31, 1995, and September 30, 1996 and for the
year or, in the case of the period ending September 30, 1996,
the nine months, then ended, included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules
and Regulations thereunder and that the Representatives may
rely upon such opinion with respect to such financial
statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited
interim financial statements of the Company, a reading of the
latest available minutes of the stockholders
-33-
and board of directors and the various committees of the board
of directors of the Company, consultations with officers and
other employees of the Company responsible for financial and
accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would
lead them to believe that (A) the pro forma financial
information contained in the Registration Statement and
Prospectus does not comply as to form in all material respects
with the applicable accounting requirements of the Act and the
Rules and Regulations or is not fairly presented in conformity
with generally accepted accounting principles applied on a
basis consistent with that of the audited financial statements
of the Company or the unaudited pro forma financial
information included in the Registration Statement, (B) the
unaudited financial statements and supporting schedules of the
Company included in the Registration Statement do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements of the Company included in the Registration
Statement, or (C) at a specified date not more than five (5)
days prior to the effective date of the Registration
Statement, there has been any change in the capital stock of
the Company, any change in the long-term debt of the Company,
or any decrease in the stockholders' equity of the Company or
any decrease in the net current assets or net assets of the
Company as compared with amounts shown in the September 30,
1996 balance sheets included in the Registration Statement,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (D) during
the period from September 30, 1996 to a specified date not
more than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net revenues
or net earnings of the Company or decrease in net earnings per
common share of the Company, in each case as compared with the
corresponding period beginning October 1, 1995 other than as
set forth in or contemplated by the Registration Statement,
or, if there was any such decrease, setting forth the amount
of such decrease;
(iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company (including
a break-down of commercial paper and notes payable to banks);
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers,
-34-
percentages, statements and information may be derived from
the general accounting records, including work sheets, of the
Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained
from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not
constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found
them to be in agreement: and
(vi) statements as to such other matters incident to
the transaction contemplated hereby as the Representatives may
request.
(l) At the time this Agreement is executed, the Underwriters
shall have received a letter from KPMG Peat Marwick LLP, dated such
date, addressed to the Underwriters and in form and substance
satisfactory in all respects to the Underwriters and Underwriters'
Counsel:
(i) Confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company
as of December 31, 1993 and 1994 and for the years then ended,
included in the Registration Statement comply as to form in
all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations
thereunder and that the Representatives may rely upon such
opinion with respect to such financial statements and
supporting schedules included in the Registration Statement;
(iii) stating that they have compared specific dollar
amounts, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set
forth in the Prospectus in each case to the extent that such
amounts, percentages, statements and information may be
derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring
an interpretation by legal counsel, with the results obtained
from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not
constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found
them to be in agreement: and
(iv) statements as to such other matters incident to
the transaction contemplated hereby as the Representatives may
request.
-35-
(m) At the time this Agreement is executed, the Underwriters
shall have received a letter from Ernst & Young LLP, dated such date,
addressed to the Underwriters and in form and substance satisfactory in
all respects to the Underwriters and Underwriters' Counsel:
(i) Confirming that they are independent certified
public accountants with respect to Advanced Textiles, Inc.
("ATI") within the meaning of the Act and the applicable Rules
and Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of ATI as of
September 28, 1996 and September 30, 1995, and for each of the
three years in the period ended September 28, 1996 included in
the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the
Representatives may rely upon such opinion with respect to
such financial statements and supporting schedules included in
the Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited
interim financial statements of ATI, a reading of the latest
available minutes of the stockholders and board of directors
and the various committees of the board of directors of ATI,
consultations with officers and other employees of ATI
responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that the unaudited
financial statements and supporting schedules of ATI included
in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited financial statements of ATI included in
the Registration Statement;
(iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to ATI set forth in the Prospectus in each case to
the extent that such amounts, numbers, percentages, statements
and information may be derived from the general accounting
records, including work sheets, of ATI and excluding any
questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter
and found them to be in agreement: and
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(v) statements as to such other matters incident to
the transaction contemplated hereby as the Representative may
request.
(n) At Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from each of KPMG Peat Marwick LLP,
Coopers & Lybrand, L.L.P. and Ernst & Young LLP letters, dated as of
the Closing Date or such Option Closing Date, as the case may be, to
the effect that they reaffirm that the statements made in the letters
furnished pursuant to subsections (k), (l) or (m), as applicable, of
this Section, except that the specified date referred to therein as of
which the examination made by them as described therein shall be a date
not more than five days prior to Closing Date or such Option Closing
Date, as the case may be, and if the Company has elected to rely on
Rule 430A of the Rules and Regulations, such letter shall also contain
such statements as to procedures and results in connection therewith as
the Representatives may request.
(o) The Company shall have delivered to the Representatives a
letter from each of KPMG Peat Marwick and Coopers & Lybrand L.L.P.
addressed to the Company stating that they have not during the
immediately preceding two year period brought to the attention of the
Company's management any "weakness" as defined in Statement of Auditing
Standards No. 60 "Communication of Internal Control Structure Related
Matters Noted in an Audit," in any of the Company's internal controls.
(p) The Company shall have delivered to the Representatives a
letter from Ernst & Young LLP addressed to ATI stating that they have
not during the immediately preceding two year period brought to the
attention of the ATI's management any "weakness" as defined in
Statement of Auditing Standards No. 60 "Communication of Internal
Control Structure Related Matters Noted in an Audit," in any of the
Company's internal controls.
(q) On or before the Closing Date, the Underwriters shall have
received the favorable opinion of Fish & Richardson, special counsel to
the Company, dated the Closing Date, addressed to the Underwriters, in
form and substance satisfactory to Underwriter's Counsel, and in
substantially the form attached hereto as Exhibit 4.
(r) On each of Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representatives for the
several Underwriters' accounts, certificates representing the
appropriate number of Firm Shares or Option Shares, as the case may be.
(s) No order suspending the sale of the Securities in any
jurisdiction designated by the Representatives pursuant to subsection
(e) of Section 4 hereof
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shall have been issued on either the Closing Date or the Option Closing
Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(t) The Selling Stockholder shall have furnished or caused to
be furnished to you at the Closing Date and any Option Closing Date
certificates of the Selling Stockholder dated as of the Closing Date or
such Option Closing Date, as the case may be, satisfactory to you, as
to the accuracy of the representations and warranties of the Selling
Stockholder, herein at and as of such date, as to the performance by
the Selling Stockholder of all of its obligations hereunder to be
performed at or prior to such date, and as to such other matters as you
may reasonably request.
(u) On or before Closing Date, the Common Stock shall have
been duly approved for quotation on NNM, subject to official notice of
issuance.
(v) On or before Closing Date, there shall have been delivered
to the Underwriters all of the Lock-up Agreements, in form and
substance satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
that have not been fulfilled or extend the time for their fulfillment.
9. Indemnification.
(a) The Company hereby agrees to indemnify and hold harmless
each of the Underwriters (for purposes of this Section 9 "Underwriters"
shall include the officers, directors, partners, employees, agents, and
counsel of each Underwriter), and each person, if any, who controls
such Underwriter (each a "controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses, or liabilities,
joint or several (and actions in respect thereof), whatsoever
(including but not limited to any and all reasonable and documented
expenses incurred in investigating, preparing, or defending against any
litigation commenced or threatened, or any claim whatsoever), as such
are incurred to which the Underwriters or such controlling person may
become subject under the Act, the Exchange Act, or any other statute or
at common law or otherwise or under the laws of foreign countries,
arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time
to time amended and supplemented); (ii) in any post-effective amendment
or amendments or any new registration statement or prospectus in which
is included
-38-
securities of the Company issued or issuable upon exercise of the Firm
Shares or the Option Shares; or (iii) in any application or other
document or written communication (in this Section 9 collectively
called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to
qualify the Firm Shares or the Option Shares under the securities laws
thereof or filed with the Commission, any state securities commission
or agency, NNM or any other securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in the light of the circumstances under
which they were made), unless such statement or omission was made in
reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in
addition to any other theory of liability that the Company may have at
common law or otherwise.
(b) The Selling Stockholder hereby agrees to indemnify and
hold harmless each of the Underwriters and each controlling person
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages,
expenses, or liabilities, joint or several (and actions in respect
thereof), whatsoever (including but not limited to any and all
reasonable and documented expenses incurred in investigating,
preparing, or defending against any litigation commenced or threatened,
or any claim whatsoever), as such are incurred upon presentation of
reasonably satisfactory invoices in respect thereof, to which the
Underwriters or such controlling person may become subject under the
Act, the Exchange Act, or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or
based upon any untrue statement or alleged untrue statement of a
material fact contained (i) in any Preliminary Prospectus, the
Registration Statement or the Prospectus (as from time to time amended
and supplemented); or (ii) in any post-effective amendment or
amendments or any new registration statement or prospectus in which is
included securities of the Company issued or issuable upon exercise of
the Firm Shares or the Option Shares; or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of
the Prospectus, in the light of the circumstances under which they were
made), unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with
respect to the Underwriters by or on behalf of the Underwriters
expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement
thereto, as the case may be, provided, however, that the total
liability of the Selling Stockholder under the indemnity agreement in
this Section 9 shall not exceed the lesser of
-39-
(i) that percentage of the total amount of such losses, claims, damages
or liabilities indemnified under this Section 9 which equals the
percentage obtained by dividing the total number of Shares sold by the
Selling Stockholder by the total number of Shares sold hereunder, or
(ii) the total initial public offering price of the Shares sold by the
Selling Stockholder under this Agreement, less underwriters' discounts
and commissions.
The indemnity agreement in this subsection (b) shall be in
addition to any other theory of liability that the Selling Stockholder
may have at common law or otherwise, provided that the total liability
of the Selling Stockholder shall not exceed the amounts as limited
above. In addition, the indemnity and contribution obligations of the
Selling Stockholder under this Section 9 shall terminate without
recourse to the partners thereof with respect to any claim not made
with respect thereto prior to December 31, 1998.
(c) Each of the Underwriters agree severally, but not jointly,
to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement, each other
person, if any, who controls the Company within the meaning of the Act,
and the Selling Stockholder, to the same extent as the foregoing
indemnity from the Company to the Underwriters but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in
strict conformity with, written information furnished to the Company
with respect to any Underwriter by such Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions
only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this
Offering. The Company acknowledges that the statements with respect to
the public offering of the Shares set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute
the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus.
The indemnity agreement in this subsection (c) shall be in
addition to any liability which the Underwriters may have at common law
or otherwise.
(d) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof
is to be made against one or more indemnifying parties under this
Section 9, notify each party against whom indemnification is to be
sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability
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which it may have under this Section 9 except and only to the extent
that it has been actually materially prejudiced by such failure or from
any liability that it may have otherwise). In case any such action is
brought against any indemnified party, and it notifies an indemnifying
party or parties of the commencement thereof, the indemnifying party or
parties will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party
or parties shall have the right to employ its or their own counsel in
any such case but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties unless (i) the employment
of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at
the expense of the indemnifying party, (ii) the indemnifying parties
shall not have employed counsel reasonably satisfactory to such
indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii)
such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them that are different from
or additional to those available to one or all of the indemnifying
parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events such reasonable and
documented fees and expenses of one additional counsel shall be borne
by the indemnifying parties. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition
to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances. Anything in this Section 9
to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its
written consent unless such consent was unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action,
investigation, inquiry, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim
or action), unless such settlement, compromise or consent (i) includes
an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding and (ii) does not
include a statement as to or an admission of fact, culpability or a
failure to act by or on behalf of any indemnified party.
(e) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 9, but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or
-41-
the denial of the last right of appeal) that such indemnification may
not be enforced in such case, notwithstanding the fact that the express
provisions of this Section 9 provide for indemnification in such case,
or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the
amount paid as a result of such losses, claims, damages, expenses, or
liabilities (or actions in respect thereof) (A) in such proportion as
is appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified
on the other hand, from the offering of the Firm Shares and the Option
Shares, or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand, in
connection with the statements or omissions that resulted in such
losses, claims, damages, expenses, or liabilities, as well as any other
relevant equitable considerations. In any case where the Company or the
Selling Stockholder is a contributing party and the Underwriters are
the indemnified party, the relative benefits received by each of the
Company or the Selling Stockholder on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares
(before deducting expenses) bear to the total underwriting discounts
received by the Underwriters hereunder, in each case as set forth in
the table on the Cover Page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company, the Selling Stockholder or by the Underwriters, and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such untrue statement or omission.
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions in respect
thereof) referred to above in this subparagraph (e) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action, claim, investigation, inquiry, suit or proceeding.
Notwithstanding the provisions of this paragraph (e), the Underwriters
shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by the
Underwriters hereunder and the Selling Stockholder shall not be
required to contribute any amount in excess of the net proceeds
received by the Selling Stockholder in connection with the sale of
shares to the Underwriters. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 9, each
person, if any, who controls the Company within the meaning of the Act,
each officer of the Company who has signed any registration statement
included in the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company,
subject in each case to this subparagraph (e). Any
-42-
party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect to which a claim for contribution may be made against another
party or parties under this subparagraph (e), notify such party or
parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties
from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subparagraph (e), or to the
extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in
addition to any liabilities that any indemnifying party may have at
common law or otherwise.
(f) In the event that any of the Underwriters suffers any
losses, claims, damages, expenses or liabilities which may be the
subject of an indemnification claim under Section 9(a) of this
Agreement or a contribution claim under Section 9(e) of this Agreement,
the Underwriters agree to use all reasonable diligence to pursue any
such claims against the Company. Except with respect to claims based on
written information provided by the Selling Stockholder expressly for
inclusion in any Preliminary Prospectus, the Registration Statement or
Prospectus, to the extent that any of the Underwriters is able to
recover the full amount of such indemnification or contribution claim
(including without limitation reimbursement of expenses) from the
Company, the Underwriters agree not to pursue recovery for such amounts
from the Selling Stockholder under Sections 9(b) and 9(e) hereof and
will promptly reimburse the Selling Stockholder for any amounts
previously paid (including without limitation any amounts paid in
reimbursement of expenses) to any of the Underwriters under Sections
9(b) or 9(e) with respect to such claim.
10. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the applicable Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and respective
indemnity agreements contained in Section 9 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriters, the Selling Stockholder, the Company, or any controlling
person of any Underwriters, the Selling Stockholder or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the Firm
Shares, Option Shares and Representative's Warrants to the Underwriters and
Josephthal, as the case may be.
11. Effective Date. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as Josephthal, in its discretion, shall release the Shares for the
sale to the public; provided, however, that the
-43-
provisions of Sections 7, 9 and 12 of this Agreement shall at all times be
effective. For purposes of this Section 11, the Shares to be purchased hereunder
shall be deemed to have been so released upon the earlier of dispatch by the
Underwriters of telegrams to securities dealers releasing such shares for
offering or the release by Josephthal for publication of the first newspaper
advertisement that is subsequently published relating to the Shares.
12. Termination.
(a) Subject to subsection (b) of this Section 12, the
Representatives shall have the right to terminate this Agreement, (i)
if any domestic or international event or act or occurrence has
disrupted, or in the Representatives' opinion will in the immediate
future disrupt the financial markets; or (ii) any material adverse
change in the financial markets shall have occurred; or (iii) if
trading on the New York Stock Exchange, the American Stock Exchange, or
in the over-the-counter market shall have been suspended, or minimum or
maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iv) if the United States
shall have become involved in a war or major hostilities, or if there
shall have been an escalation in an existing war or major hostilities
or a national emergency shall have been declared in the United States;
or (v) if a banking moratorium has been declared by a state or federal
authority; or (vi) if a moratorium in foreign exchange trading has been
declared; or (vii) if the Company shall have sustained a loss material
or substantial to the Company by fire, flood, accident, hurricane,
earthquake, theft, sabotage, or other calamity or malicious act that,
whether or not such loss shall have been insured, will, in the
Representatives' opinion, make it inadvisable to proceed with the
delivery of the Shares; or (viii) if there shall have been such a
material adverse change in the conditions or prospects of the Company,
or such material adverse change in the general market, political or
economic conditions, in the United States or elsewhere as in the
Representatives' judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Shares.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section l2(a), the Company shall
promptly reimburse and indemnify the Underwriters for all of its
reasonable and documented expenses, including the reasonable and
documented fees and disbursements of counsel for the Underwriters in an
amount not to exceed $50,000. Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried out
within the time specified herein, or any extension thereof granted to
the Underwriters, by reason of any failure on the part of the Company
or the Selling Stockholder to perform any undertaking or satisfy any
condition of this Agreement by them to be performed or satisfied
(including without limitation
-44-
pursuant to Sections 8 or 14 hereof) then, the Company shall promptly
reimburse and indemnify the Representatives for all reasonable and
documented expenses, including the reasonable and documented fees and
disbursements of counsel for the Underwriters (less amounts previously
paid pursuant to Section 7(c) hereof including the Blue Sky counsel
fees and expenses and Blue Sky funding fees limited as set forth in
Section 7(b) above. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this
Agreement (including without limitation pursuant to Sections 8, 12, 13,
and 14 hereof), and whether or not this Agreement is otherwise carried
out, the provisions of Sections 7 and 9 shall not be in any way
affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
13. Substitution of Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8, Section 12 or Section 14
hereof) to purchase the Firm Shares or the Option Shares that it or they are
obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), Josephthal shall have the right, within 24 hours thereafter, to
make arrangement for one or more of the non-defaulting Underwriters, or any
other Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, Josephthal shall not have completed such arrangements within
such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Shares to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Shares, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section 13 shall relieve any
defaulting Underwriters from liability in respect of any default by such
Underwriters under this Agreement.
In the event of any such default that does not result in a termination
of this Agreement, Josephthal shall have the right to postpone the Closing Date
for a period not exceeding seven days in order to effect any required changes in
the Registration Statement or Prospectus or in any other documents or
arrangements.
14. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Shares that it is
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obligated to sell hereunder on such date, then this Agreement shall terminate
(or, if such default shall occur with respect to any Option Shares to be
purchased on an Option Closing Date, the Underwriters may at the
Representatives' option, by notice from the Representatives to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Sections 7, 9, and 12 hereof. No action taken
pursuant to this Section 14 shall relieve the Company from liability, if any, in
respect of such default.
15. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Underwriters at Josephthal Lyon & Ross Incorporated, 200 Park Avenue - 24th
Floor, New York, New York 10166, Attention: Scott A. Weisman; with a copy to
Bingham, Dana & Gould LLP, 150 Federal Street, Boston, Massachusetts 02110,
Attention: Victor J. Paci, Esq. Notices to the Company shall be directed to the
Company at 43 Bibber Parkway, Brunswick, Maine 04011, Attention: John
O'Sullivan, Chief Financial Officer, with a copy to Gadsby & Hannah LLP, 225
Franklin Street, Boston, Massachusetts 02110, Attention: Walter D. Wekstein,
Esq. and Marianne Gilleran, Esq. Notices to the Selling Stockholder shall be
directed to: North Atlantic Ventures, 70 Center Street, Portland, Maine 04101;
with a copy to Hutchins, Wheeler & Dittmar, P.C., 101 Federal Street, Boston,
Massachusetts 02110, Attention: Harry A. Hanson, III, Esq.
16. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the other indemnities
referred to in Section 9 hereof, and their respective successors, legal
representatives, and assigns, no other person shall have or be construed to have
any legal or equitable right, remedy, or claim under or in respect of or by
virtue of this Agreement or any provisions herein contained. No purchaser of
Shares from the Underwriters shall be deemed to be a successor by reason merely
of such purchase.
17. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to choice of law or conflict of laws principles.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same agreement.
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19. Entire Agreement; Amendments. This Agreement, the Representative's
Warrant Agreement, and the Financial Advisory Agreement, constitute the entire
agreement of the parties hereto and supersede all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing signed by the
Underwriters and the Company.
[Signature page follows.]
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If the foregoing correctly sets forth the understanding among the
Underwriters, the Selling Stockholders and the Company, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Very truly yours,
BRUNSWICK TECHNOLOGIES, INC.
By:
------------------------------
Name:
Title:
THE SELLING STOCKHOLDER
NORTH ATLANTIC VENTURE FUND,
Limited Partnership
By: North Atlantic Capital Partners,
Limited Partnership, General Partner
By:
------------------------------
Name:
Title: General Partner
Confirmed and accepted
as of the date first above written:
JOSEPHTHAL LYON & ROSS INCORPORATED
SOUTHWEST SECURITIES, INC.
For themselves and as Representatives
of the several Underwriters
named in Schedule A hereto
BY: JOSEPHTHAL LYON & ROSS INCORPORATED
By:
---------------------------------
Name:
Title:
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SCHEDULE A
Number of Firm
Shares to
Name of Underwriters be Purchased
-------------------- ------------
Josephthal Lyon & Ross
Incorporated.....................................
Southwest Securities, Inc..........................
---------
TOTAL: 2,000,000
EXHIBIT 3.1
Annex A
-------
BRUNSWICK TECHNOLOGIES, INC.
RESTATED ARTICLES OF INCORPORATION
FIRST: The name of the corporation is Brunswick Technologies, Inc., and
it is located in Maine at Brunswick.
SECOND: The name of its Clerk, who must be a Maine resident, and the
address of its registered office shall be:
Name: Daniel G. McKay
Street and Number: 144 Exchange Street, P.O. Box 1210
City: Bangor, Maine 04402-1210
THIRD: The number of directors constituting the board of directors of
the corporation shall be no less than seven and no more than nine.
FOURTH: The board of directors is not authorized to increase or
decrease the number of directors.
FIFTH: There shall be two or more classes of shares. The designation of
each such class, the number of shares which the corporation is authorized to
issue and the par value, if any, are as set forth below. Additional information
required by Section 403 of the Maine Business Corporation Act is set out in the
Schedules A through E attached hereto and made a part hereof.
Number of
Class Series Authorized Shares Par Value
----- ------ ----------------- ---------
Common - 20,000,000 $.0001
Convertible Preferred AA 3,657 None
Convertible Preferred BB 33,167 None
Convertible Preferred C 18,000 None
Convertible Preferred D 16,000 None
Preferred - 1,000,000 $10.00
SUMMARY
The aggregate par value of all shares having par value is $10,002,000
The total number of authorized shares of all classes without part value
is 70,824 shares.
SIXTH: Meetings of the shareholders may be held outside of the State of
Maine.
SEVENTH: The holders of shares of any class of stock having voting
rights hereunder shall not possess preemptive rights as set forth in ss.623 of
the Maine Business Corporation Act.
EIGHTH: Other provisions of these articles, including provisions for
the regulation of the internal affairs of the corporation, are set forth in
Schedules A through E attached hereto and made a part hereof.
NINTH: The provisions of 13-A.M.R.S.A., ss.910, or any successor
provision, shall not be applicable to the Corporation.
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SCHEDULE A
SERIES AA CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and known
as "Series AA Convertible Preferred Stock" shall consist of 3,657 shares.
2. Voting.
2A. General. Except as may be otherwise provided in these
terms of the Series AA Convertible Preferred Stock or by law, the Series AA
Convertible Preferred Stock shall vote together with all other classes and
series of stock of the Corporation as a single class on all actions to be taken
by the stockholders of the Corporation. Each share of Series AA Convertible
Preferred Stock shall entitle the holder thereof to such number of votes per
share on each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of Series AA Convertible
Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series AA Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of five.
2C. Board Seats. The holders of the Series AA Convertible
Preferred Stock, voting together with the holders of the Series BB Convertible
Preferred Stock as a separate class, shall be entitled to elect one (1) director
of the Corporation. The holders of the Series BB, Series C and Series D
Convertible Preferred Stock, voting as separate series, shall each be entitled
to elect one (1) director of the Corporation. The holders of the Common Stock
shall be entitled to elect one (1) director of the Corporation. At any meeting
held for the purpose of electing directors, the presence in person or by proxy
of the holders of a majority of the shares of Series AA Convertible Preferred
Stock and a majority of shares of the Series BB Convertible Preferred Stock then
outstanding shall constitute a quorum for the election of the director to be
elected solely by the holders of the Series AA and Series BB Convertible
Preferred Stock. A vacancy in any directorship to be elected solely by the
holders of the Series AA and Series BB Convertible Preferred Stock shall be
filled only by vote or written consent of the holders of the Series AA and
Series BB Convertible Preferred Stock.
3. Dividends
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Series AA Convertible Preferred Stock shall be entitled to
receive, out of any funds, legally available therefor, cumulative dividends at
the annual rate of Ten Percent (10%) of original issue price per share (the
"Accruing Dividends") (subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reclassification other similar event). Such Accruing Dividends
shall accrue on each share of Series AA Convertible Preferred Stock from January
1, 1992 whether or not earned or declared.
Such Accruing Dividends on the Series AA Convertible Preferred
Stock shall be cumulative so that if such dividends in respect of any previous
or current annual dividend period, at the annual rate specified above, shall not
have been paid or declared and a sum sufficient for the payment thereof set
apart, the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Common Stock. Upon
conversion or redemption of the Series AA Convertible Preferred Stock under
paragraphs 6 and 7 hereof, or upon the liquidation or winding up of the affairs
of the Corporation, all such accrued and unpaid dividends, whether or not earned
or declared, to and until the date of such conversion, redemption, liquidation
or winding up, shall become immediately due and payable and shall be paid in
full. Upon conversion as provided in Section 6Q below, the Corporation, in lieu
of cash payment, may pay such accrued and unpaid dividends by delivery to the
holders of shares of the Corporation's Common Stock valued for such purpose at
the price paid by the public for such shares as described in Section 6Q.
Notwithstanding the foregoing, and except in the case of payments on
liquidation pursuant to Section 4 (under which the Series C and Series D
Convertible Preferred Stock shall be entitled to preferential payment of
Accruing Dividends) the Series AA Convertible Preferred Stock shall rank pari
passu with the Series BB, Series C and Series D Convertible Preferred Stock as
to the payment of dividends, and the holders of Series BB, Series C and Series D
Convertible Preferred Stock shall be entitled to dividends at the same rate per
share of such stock as have been declared, paid or set aside for holders of
Series AA Preferred Stock, without any preference as among holders of different
series of preferred stock.
(b) Restrictions. Unless all accrued dividends on the Series AA
Convertible Preferred Stock shall have been paid or declared and a sum
sufficient for the payment thereof set apart, (i) no dividend shall be paid or
declared, and no distribution shall be made, on any Common Stock, (ii) no shares
of Series AA Convertible Preferred Stock shall be converted under paragraph 6Q
hereof unless holders thereof consent to such conversion, and (iii) no shares of
any other class or series of stock of the Corporation shall be purchased,
redeemed or acquired by the Corporation and no amounts shall be paid into or set
aside or made available for the purchase, redemption or acquisition thereof;
provided however, that this restriction shall not apply to the repurchase of
shares of Common Stock held by employees or officers of the Corporation issued
from the Corporation's employee incentive stock option plan as in effect as of
November 30, 1991, providing for the reservation of 15,000 shares of Common
Stock for issuance to employees (the "Employee Incentive Stock Option Plan"), or
which are subject to stock repurchase agreements under which the Corporation has
the right to repurchase such shares in the event of termination of employment.
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4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series AA Convertible Preferred Stock shall be entitled, before any distribution
or payment is made upon any stock ranking on liquidation junior to the Series AA
Convertible Preferred Stock, to be paid an amount equal to the greater of (i)
$100.00 per share (subject to equitable adjustment in the event of any stock
dividend, stock split, combination, reclassification or other similar event)
plus, in the case of each share, an amount equal to all Accruing Dividends
unpaid thereon (whether or not declared) and any other dividends declared but
unpaid thereon, computed to the date payment thereof is made available, or (ii)
such amount per share as would have been payable had each such share been
converted to Common Stock pursuant to paragraph 6 immediately prior to such
liquidation, dissolution or winding up, and the holders of Series AA Convertible
Preferred Stock shall not be entitled to any further payment, such amount
payable with respect to one share of Series AA Convertible Preferred Stock being
sometimes referred to as the "Liquidation Payment" and with respect to all
shares of Series AA Convertible Preferred Stock being sometimes referred to as
the "Liquidation Payments." If upon such liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Series AA Convertible Preferred Stock shall be
insufficient to permit payment to the holders of Series AA Convertible Preferred
Stock of the amount distributable as aforesaid, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the holders
of Series AA Convertible Preferred Stock. Upon any such liquidation, dissolution
or winding up of the Corporation, after the holders of Series AA Convertible
Preferred Stock shall have been paid in full the amounts to which they shall be
entitled, the remaining net assets of the Corporation may be distributed to the
holders of stock ranking on liquidation junior to the Series AA Convertible
Preferred Stock. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Payments and the place
where said Liquidation Payments shall be payable, shall be given by mail,
postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior
to the payment date stated therein, to the holders of record of Series AA
Convertible Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof, and the sale or transfer by the Corporation of all
or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank
on liquidation junior to the Series AA Convertible Preferred Stock.
Notwithstanding the foregoing, the Series AA Convertible Preferred
Stock shall be junior to the Series BB, Series C and Series D Preferred Stock in
accordance with the terms thereof as to payments on liquidation, dissolution or
winding up, and the holders of Series BB, Series C and Series D Convertible
Preferred Stock shall be entitled to all payments per share of such stock on
liquidation, dissolution or winding up in accordance with the terms thereof
before any payments are made or set aside for holders of Series AA Preferred
Stock.
-3-
5. Restrictions. At any time when not less than 1,000 shares of Series
AA Convertible Preferred Stock are outstanding (subject to equitable adjustment
in the event of any stock dividend, stock split, combination, reclassification
or other similar event), except where the vote or written consent of the holders
of a greater number of shares of Series AA Convertible Preferred Stock is
required by law or by the Certificate of Incorporation, and in addition to any
other vote required by law or the Certificate of Incorporation, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Series AA Convertible Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not:
5A. Create or authorize the creation of any additional class
or series of shares of stock unless the same ranks junior to the Series AA
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series AA Convertible Preferred Stock or increase the authorized amount
of any additional class or series of shares of stock unless the same ranks
junior to the Series AA Convertible Preferred Stock as to the distribution of
assets on the liquidation, dissolution or winding up of the Corporation, or
create or authorize any obligation or security convertible into shares of Series
AA Convertible Preferred Stock or into shares of any other class of series of
stock unless the same ranks junior to the Series AA Convertible Preferred Stock
as to the distribution of assets on the liquidation, dissolution or winding up
of the Corporation, whether any such creation, authorization or increase shall
be by means of amendment to the Certificate of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities or sell or transfer all or substantially all of its assets;
5C. Amend, alter or repeal its Certificate of Incorporation or
By-laws in a manner which would have a material effect on the rights and
preferences of the Series AA Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay
any dividend or make any distribution on, any shares of stock other than the
Series BB, Series C or Series D Convertible Preferred Stock and the Series AA
Convertible Preferred Stock, except for dividends or other distributions payable
on the Common Stock solely in the form of additional shares of Common Stock and
except for the purchase of shares of Common Stock from former employees of the
Corporation who acquired such shares directly from the Corporation, if each such
purchase is made pursuant to contractual rights held by the Corporation relating
to the termination of employment of such former employee; or
5E. Redeem or otherwise acquire any shares of Series BB,
Series C or Series D Convertible Preferred Stock or Series AA Convertible
Preferred Stock, except as expressly authorized in paragraph 7 hereof or
pursuant to a purchase offer made pro rata to
-4-
all holders of the shares of Series BB, Series C and Series D Convertible
Preferred Stock and Series AA Convertible Preferred Stock on the basis of the
aggregate number of outstanding shares of Series B, Series C and Series D
Convertible Preferred Stock or Series AA Convertible Preferred Stock then held
by each such holder.
6. Conversions. The holders of shares of Series AA Convertible
Preferred Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of
this paragraph 6, the holder of any share or shares of Series AA Convertible
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series AA Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the amount
distributable on the Series AA Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Series AA Convertible Stock so to be
converted by $100.00 and (ii) dividing the result by the conversion price of
$100.00 per share or, in case an adjustment of such price has taken place
pursuant to the further provisions of this paragraph 6, then by the conversion
price as last adjusted and in effect at the date any share or shares of Series
AA Convertible Preferred Stock are surrendered for conversion (such price, or
such price as last adjusted, being referred to as the "Conversion Price"). Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series AA
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series AA
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Series AA Convertible Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such shares or shares of Series AA Convertible Preferred Stock. To
the extent permitted by law, such conversion shall be deemed to have been
effected and the Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares of Series AA Convertible Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby.
-5-
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series AA Convertible
Preferred Stock into Common Stock and no payment or adjustment shall be made
upon any conversion on account of any cash dividends on the Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends, including any Accruing Dividends
prorated to the date of conversion, accrued and unpaid on the shares of Series
AA Convertible Preferred Stock surrendered for conversion to the date upon which
such conversion is deemed to take place as provided in subparagraph 6B. In case
the number of shares of Series AA Convertible Preferred Stock represented by the
certificate or certificates surrendered pursuant to subparagraph 6A exceeds the
number of shares converted, the Corporation shall, upon such conversion, execute
and deliver to the holder, at the expense of the corporation, a new certificate
or certificates for the number of shares of Series AA Convertible Preferred
Stock represented by the certificate or certificates surrendered which are not
to be converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this subparagraph 6C, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Series AA Convertible Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors.
6D. Adjustment of Price Upon Issuance of Common Stock. Except
as provided in subparagraph 6E, if the Corporation shall issue or sell, or is,
in accordance with subparagraphs 6D(1) through 6D(7), deemed to have issued or
sold, any shares of Common Stock or other stock or investment securities (other
than Common Stock issued pursuant to the Employee Incentive Stock Option Plan)
for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then, forthwith upon such
issue or sale, the Conversion Price shall be reduced to the price at which the
Corporation issued or sold, or is deemed to have issued or sold, such shares of
Commons Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any
time the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or
any options for the purchase of, Common stock or any stock or
security convertible into or exchangeable for Common Stock
(such warrants, rights or options being called "Options" and
such convertible or exchangeable stock or securities being
such called "Convertible Securities") whether or not such
Options or the right to convert or exchange any Convertible
Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities (determined
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by dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the
exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options) shall be less than Fifty Percent (50%) of the
Conversion Price in effect immediately prior to the time of
the granting of such Options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued
for such price per share as of the date of granting of such
Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except as
otherwise provided in subparagraph 6D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise
of such Options or upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert
any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (i)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less
than 50% of the Conversion Price in effect immediately prior
to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities shall be deemed
to have been issued for such price per share as of the date of
the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that
(a) except as otherwise provided in subparagraph 6D(3), no
adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities and (b) if any such issue or
sale of such Convertible Securities is made upon exercise of
any Options to purchase any such Convertible
-7-
Securities for which adjustments of the Conversion Price have
been or are to be made pursuant to other provisions of this
subparagraph 6D, no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.
6D(3) Change in Option Price to Conversion Rate. Upon
the happening of any of the following events, namely if the
purchase price provided for in any Option referred to in
subparagraph 6D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 6D(1) or 6D(2), or the
rate at which Convertible Securities referred to in
subparagraph 6D(1) or 6D(2) are convertible into or
exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall
forthwith be readjusted to the Conversion Price which would
have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted,
issued or sold, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
6D(4) Stock Dividends. In case the Corporation shall
declare a dividend or make any other distribution upon any
stock of the Corporation payable in Common Stock (except for
dividends or distributions upon the Common Stock), Options or
Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of
Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith. In case any shares
of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any Options shall be issued in connection
with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options
by the parties thereto, such Options shall be deemed to have
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been issued for such consideration as determined in good faith
by the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take
a record of the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then issue of such record date shall
be deemed to be the date of the issue of sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) Treasury Shares. The disposition of any shares
of Common Stock owned or held by or for the account of the
Corporation shall be considered an issue or sale of Common
Stock for the purpose of this subparagraph 6D.
6E. Certain Issues of Common Stock and Series C Preferred
Stock Excepted. Anything herein to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of the Conversion Price in the case
of the issuance of up to an aggregate of 15,000 shares (appropriately adjusted
to reflect the occurrence of any event described in subparagraph 6F) of Common
stock to directors, officers or employees of the Corporation in connection with
their service as directors of the Corporation or their employment by the
Corporation pursuant to the Employee Incentive Stock Option Plan.
6F. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series AA Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of series AA Convertible Preferred Stock,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common
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Stock immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
6H. Certain Events. If any event occurs of the type
contemplated by the provisions of paragraphs 6D - 6G but not expressly provided
for by such provisions, then the Corporation's Board of Directors will make an
appropriate adjustment in the conversion price so as to protect the rights of
the holders of Series AA Preferred Stock; provided that no such adjustment will
increase the conversion price as otherwise determined pursuant to this
subparagraph or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series AA Preferred Stock.
6I. Purchase of Common Stock by the Corporation. If the
Corporation at any time while the Series AA Preferred Stock is outstanding shall
purchase, redeem or otherwise acquire any of its Common Stock at a price per
share greater than the "Market Price" (as defined below), upon each such
purchase, redemption or acquisition the conversion price shall be adjusted to
that price determined by multiplying such conversion price then in effect by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such purchase, redemption or acquisition
minus the number of shares of Common Stock which the aggregate consideration for
the total number of such shares of Common Stock so purchased, redeemed or
acquired would purchase at the "market Price" (as defined below); and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such purchase, redemption or acquisition. For the purposes of
this subparagraph 6I, a purchase, redemption or acquisition of an option, right
or warrant shall be deemed to be a purchase of the underlying Common Stock, and
the computation herein required shall be made on the basis of the full exercise,
conversion or exchange of such option, right or warrant on the date as of which
such computation is required hereby to be made even if such option, right or
warrant is not exercisable, convertible or exchangeable on such date.
For purposes hereof, "Market Price" shall mean, on any date specified herein,
(A) if any class of capital stock of the Corporation (the "Capital Stock") is
listed or admitted to trading on any national securities exchange, the highest
price obtained by taking the arithmetic mean over a period of 20 consecutive
Trading Days (defined to mean any day on which the NASDAQ National market System
is open for trading on a regular basis) ending the second Trading Day prior to
such date of the average, on each such Trading Day, of the high and low sale
prices of shares of each such class of Capital Stock or if no such sale takes
place on such date, the average of the highest closing bid and lowest closing
asked prices thereof on such date, in each case as officially reported on all
national securities exchanges on which each such class of Capital Stock is then
listed or admitted to trading, or (B) if no shares of any class of Capital Stock
are then listed or admitted to trading on any class of Capital Stock on such
date in the over-the-counter market as shown by the NASDAQ National Market
-10-
System or, if no such shares of any class of Capital Stock are then quoted in
such system, as published by the National Quotation Bureau, Inc. or any similar
successor organization, and in either case as reported by any member firm of the
New York Stock Exchange selected by the Corporation. If no shares of any class
of Capital Stock are then listed or admitted to trading on any national
securities exchange and if no closing bid and asked prices thereof are then so
quoted or published in the over-the-counter market, "Market Price" shall mean
the higher of (x) the book value per share of Capital Stock (assuming for the
purposes of this calculation the economic equivalent of all shares of all
classes of Capital Stock) as determined on a fully diluted basis in accordance
with generally accepted accounting principles by a firm of independent public
accounts of recognized standing (which may be its regular auditors) selected by
the Board of Directors of the Corporation as of the last day of any month ending
within 60 days preceding the date as of which the determination is to be made or
(y) the fair value of one share of the Capital Stock on such day as determined
in good faith by the Corporation's Board; provided, however, that if holders of
seventy-five percent (75%) of the Series AA Preferred Stock object in writing to
such determination with 10 days of receipt of written notification thereof, then
the Market Price shall, at the expense of the Corporation, be determined in good
faith by a national or major regional investment bank selected by vote or
written consent of the Board.
6J. Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, or by telex or telecopy to
non-U.S. residents, addressed to each holder of shares of Series AA Convertible
Preferred Stock at the address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6K. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock
of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with or into, or sale of all
or substantially all its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
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then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or telecopy, addressed to each holder
of any shares of Series AA Convertible Preferred Stock at the address of such
holder as shown on the books of the Corporation, (a) at least 20 days' prior
written notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation , merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6L. Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series AA Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series AA Convertible
Preferred Stock. The Corporation covenants that all shares of Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue and thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Common Stock is at
all times equal to or less than the Conversion Price in effect at the time. The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed. The Corporation will not take any
action which results in any adjustment of the Conversion Price if the total
number of shares of Common Stock issued and issuable after such action upon
conversion of the Series AA Convertible Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Certificate of
Incorporation.
6M. No Reissuance of Series AA Convertible Preferred Stock.
Shares of Series AA Convertible Preferred Stock which are converted into shares
of Common Stock as provided herein shall not be reissued.
6N. Issue Tax. the issuance of certificates for shares of
Common Stock upon conversion of Series AA Convertible Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer
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involved in the issuance and delivery of any certificate in a name other than
that of the holder of the Series AA Convertible Preferred Stock which is being
converted.
6O. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series AA Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion of
any Shares of Series AA Convertible Preferred Stock in any manner which
interferes with the timely conversion of such Series AA Convertible Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
6P. Definition of Common Stock. As used in this paragraph 6,
the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, no par value, as constituted on the date of filing of these terms
of the series AA Convertible Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series AA Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6Q. Mandatory Conversion. If at any time the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $5,000,000 and (ii) the price paid by the public for such shares shall be
at least $250.00 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series AA Convertible Preferred Stock shall automatically
convert to the number of fully paid and nonassessable shares of Common Stock as
if determined by subparagraph 6A.
7. Redemption. The shares of Series AA Convertible Preferred Stock may
be redeemed as follows:
7A. Optional Redemption. The holders of not less than
two-thirds of the total number of shares of Preferred Stock outstanding (of all
Series, collectively) may elect to require the Corporation to redeem, and the
Corporation shall redeem, such number of the shares of each such Series of
Convertible Preferred Stock outstanding on January 1, 1996, as may be tendered
from time to time, in the amounts, and on the date or dates, as follows:
Percentage of All Shares
Outstanding on January 1, 1996,
Date of Redemption which may be redeemed
------------------ ---------------------
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June 1, 1996 33%*
June 1, 1997 67%*
June 1, 1998 100%
* each such redemption being allocated pro-rata among the holders of all
series of the Convertible Preferred Stock electing to participate in
such redemption.
Notice of such election (the "Election Notice") shall be signed by the holders
of not less than two-thirds of the total number of shares of all Series of
Preferred Stock then outstanding and may be delivered to the Corporation at any
time by hand, by courier or by deposit in the United States mail.
7B. Redemption Price. The Series AA Convertible Preferred
Stock to be redeemed on a Redemption Date shall be redeemed by paying for each
share in cash an amount equal to the greater of (i) $100.00 per share plus, in
the case of each share, am amount equal to all Accruing Dividends unpaid thereon
(whether or not declared) and any other dividends declared but unpaid thereon,
computed to the Redemption Date, or, (ii) the fair market value of the shares to
be redeemed, as determined by appraisal as described in paragraph 7E, such
amount being referred to as the "Redemption Price."
7C. Redemption Mechanics. Any holder of Series AA Convertible
Preferred Stock entitled to redemption pursuant to Paragraph 7A may notify the
Corporation in writing that Shares of Series AA Convertible Preferred Stock held
by such holder shall be redeemed on a date specified in said Paragraph 7A. Such
a notice in writing is referred to herein as a "Redemption Notice" and all
shares to be redeemed pursuant to a Redemption Notice are referred to
collectively herein as the "Redemption Shares." The date specified for
redemption of Redemption Shares in a Redemption Notice is referred to herein as
a "Redemption Date." In order to require a redemption on a Redemption Date
specified in Paragraph 7A the Redemption Notice shall be given not later than
the later of (i) twenty days before such Redemption Date (if the Redemption
Notice is delivered by hand or courier) or (ii) twenty-five days before such
Redemption Date (if the Redemption Notice is deposited in the U.S. mail, postage
paid, addressed to the Corporation). A copy of any Redemption Notice shall be
sent by the Corporation to all holders of shares of Series BB, Series C or
Series D Convertible Preferred Stock and Series AA Convertible Preferred Stock
by first class mail within two business days of receipt of a Redemption Notice
by the Corporation. Any holder of Series BB, Series C or Series D Convertible
Preferred Stock or Series AA Convertible Preferred Stock may include all shares
of such stock held by such holder and eligible for redemption on the Redemption
Date in the shares to be redeemed pursuant to the Redemption Notice by notifying
the Corporation in writing no later than ten days prior to the Redemption Date
specified. From and after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of the Redemption Shares (except the right to receive the
Redemption Price) shall cease with respect to such shares, and such shares shall
not
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thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
7D. Payment of Redemption Price. If the funds of the
Corporation legally available for redemption of shares of Series BB, Series C
and Series D Convertible Preferred Stock and Series AA Convertible Preferred
Stock on a particular Redemption Date are insufficient to redeem the total
number of shares of Series BB, Series C and Series D Convertible Preferred Stock
and Series AA Convertible Preferred stock tendered for redemption, the holders
of shares to be redeemed shall be entitled to receive only their ratable shares
of any funds legally available for redemption of shares of those series in
proportion as the respective amounts which would be payable with respect to the
full number of shares tendered by them bears to the total amount which would be
payable if all outstanding shares of those series tendered for redemption were
redeemed in full. The shares of Series BB, Series C and Series D Convertible
Preferred Stock and Series AA Convertible Preferred Stock called for redemption
on a given Redemption Date but not redeemed on such date (such shares being
referred to herein as the "Unredeemed Shares") shall remain outstanding and
entitled to all rights and preferences applicable to shares of those respective
series. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of such Unredeemed Shares, such funds will
be used, at the end of the next succeeding fiscal quarter, to redeem the balance
of such shares, or such portion thereof for which funds are then legally
available, on the basis set forth above. Following any default by the
Corporation i the payment of the Redemption Price, and prior to the actual
redemption of shares called for redemption, the holder of any Unredeemed Shares
may withdraw such holder's call for redemption of such shares, which withdrawal
shall be effective upon the Corporation's receipt of written notice to that
effect from such holder.
On any Redemption Date, payment shall be made in full to the
holders entitled thereto, provided, however, that if the Corporation does not
then have available the funds necessary to effect the required redemption, the
Corporation may, at its election, request that the holders permit the
Corporation to pay all amounts payable on such Redemption Date with a note or
notes bearing interest at 12% annually, payable in five equal annual
installments with the first installment due on the Redemption Date, or upon
other reasonable deferred payment terms, and the holders shall negotiate with
the Corporation in good faith with respect to such requests (but without
obligation to agree to such request).
7E. Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Series AA Convertible Preferred Stock redeemed pursuant to this
paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever
shall be cancelled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce accordingly the number of authorized shares of Series AA
Convertible Preferred Stock.
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7F. Appraisal. In the event of a Redemption, the fair market
value of the Redemption Shares shall be determined as provided for in this
subparagraph 7E. The Corporation and the holders of Redemption Shares shall
endeavor to agree upon a single, independent appraiser. In the event that no
agreement is reached upon a single appraiser, each of the Corporation and the
holders of Redemption Shares shall select an appraiser, and the two appraisers
so selected shall appoint a third appraiser. The appraiser or appraisers so
selected shall endeavor to reach a valuation for the Series BB, Series C and
Series D Convertible Preferred Stock and Series AA Convertible Preferred Stock
with all due speed, and in any event shall submit a valuation in writing to the
Board of Directors within 40 days of their appointment. In the event that the
appraisers or appraiser, as the case may be, do not submit a valuation by the
Redemption Date, the appraiser or appraisers, as the case may be, shall select a
replacement Redemption Date which shall be within five days of the their
submission of a written valuation to the Board. All costs of an appraisal under
this subparagraph 7E shall be borne by the Corporation.
8. Amendments. No provision of these terms of the Series AA Convertible
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series AA Convertible Preferred Stock, voting as a
separate series.
9. Additional Rights of Holders.
9A. Information Rights. Any holder of not less than 5,000
shares of the Series AA Convertible Preferred Stock shall be entitled (i) to
receive from the Corporation, and the Corporation shall deliver to such holders,
on a timely basis and without specific request, annual (audited), quarterly and
monthly financial statements and annual budgets of the Corporation, as well as
any other information reasonably requested by any such holder, (ii) to attend
all meetings of the Board of Directors of the Corporation, and (iii) to receive
copies of all substantive written materials distributed to the Board of
Directors.
9B. Inspection Rights. The holders of the Series AA
Convertible Preferred Stock, and their designees, shall be entitled to inspect
the properties of the Corporation, examine records of the Corporation and make
copies thereof, and discuss the Corporation's affairs with the Corporation's
officers, directors, lay employees and accountants. Any holder shall also be
entitled, at the holder's own expense, to audit the Corporation at any time.
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SCHEDULE B
SERIES BB CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and known
as "Series BB Convertible Preferred Stock" shall consist of 33,167 shares.
2. Voting.
2A. General. Except as may be otherwise provided in these
terms of the Series BB Convertible Preferred Stock or by law, the Series BB
Convertible Preferred Stock shall vote together with all other classes and
series of stock of the Corporation as a single class on all actions to be taken
by the stockholders of the Corporation. Each share of Series BB Convertible
Preferred Stock shall entitle the holder thereof to such number of votes per
share on each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of Series BB Convertible
Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series BB Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of five.
2C. Board Seats. The holders of the Series BB Convertible
Preferred Stock, voting as a separate series, shall be entitled to elect one (1)
director of the Corporation. The holders of the Series BB Convertible Preferred
Stock, voting together with the holders of the Series AA Convertible Preferred
Stock as a separate class, shall be entitled to elect one (1) director of the
Corporation. The holders of the Series C and Series D Preferred Stock shall each
be entitled to elect one (1) director. The holders of the Common Stock shall be
entitled to elect one (1) director of the Corporation. At any meeting held for
the purpose of electing directors, the presence in person or by proxy of the
holders of a majority of the shares of Series BB Convertible Preferred Stock
then outstanding shall constitute a quorum of the Series BB Convertible
Preferred Stock for the election of directors to be elected solely by the
holders of the Series BB Convertible Preferred Stock and jointly by the holders
of the Series AA and Series BB Convertible Preferred Stock. A vacancy in any
directorship to be elected solely by the holders of the Series AA and Series BB
Convertible Preferred Stock shall be filled only by vote or written consent of
the holders of the Series AA and Series BB Convertible Preferred Stock.
3. Dividends
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Series BB Convertible Preferred Stock shall be entitled to
receive, out of any funds, legally available therefor, cumulative dividends at
the annual rate of Ten
Percent (10%) of original issue price per share (the "Accruing Dividends")
(subject to equitable adjustment in the event of any stock dividend, stock
split, combination, reclassification other similar event). Such Accruing
Dividends shall accrue on each share of Series BB Convertible Preferred Stock
from January 1, 1992 whether or not earned or declared.
Such Accruing Dividends on the Series BB Convertible Preferred
Stock shall be cumulative so that if such dividends in respect of any previous
or current annual dividend period, at the annual rate specified above, shall not
have been paid or declared and a sum sufficient for the payment thereof set
apart, the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Common Stock. Upon
conversion or redemption of the Series BB Convertible Preferred Stock under
paragraphs 6 and 7 hereof, or upon the liquidation or winding up of the affairs
of the Corporation, all such accrued and unpaid dividends, whether or not earned
or declared, to and until the date of such conversion, redemption, liquidation
or winding up, shall become immediately due and payable and shall be paid in
full. Upon conversion as provided in Section 6Q below, the Corporation, in lieu
of cash payment, may pay such accrued and unpaid dividends by delivery to the
holders of shares of the Corporation's Common Stock valued for such purpose at
the price paid by the public for such shares as described in Section 6Q.
Notwithstanding the foregoing, and except in the case of payments on
liquidation pursuant to Section 4 (under which the Series C and Series D
Convertible Preferred Stock shall be entitled to preferential payment of
Accruing Dividends) the Series BB Convertible Preferred Stock shall rank pari
passu with the Series AA, Series C and Series D Convertible Preferred Stock as
to the payment of dividends, and the holders of Series AA, Series C and Series D
Convertible Preferred Stock shall be entitled to dividends at the same rate per
share of such stock as have been declared, paid or set aside for holders of
Series BB Preferred Stock, without any preference as among holders of different
series of preferred stock.
(b) Restrictions. Unless all accrued dividends on the Series BB
Convertible Preferred Stock shall have been paid or declared and a sum
sufficient for the payment thereof set apart, (i) no dividend shall be paid or
declared, and no distribution shall be made, on any Common Stock, (ii) no shares
of Series BB Convertible Preferred Stock shall be converted under paragraph 6Q
hereof unless holders thereof consent to such conversion, and (iii) no shares of
any other class or series of stock of the Corporation shall be purchased,
redeemed or acquired by the Corporation and no amounts shall be paid into or set
aside or made available for the purchase, redemption or acquisition thereof;
provided however, that this restriction shall not apply to the repurchase of
shares of Common Stock held by employees or officers of the Corporation issued
from the Corporation's employee incentive stock option plan as in effect as of
November 30, 1991, providing for the reservation of 15,000 shares of Common
Stock for issuance to employees (the "Employee Incentive Stock Option Plan"), or
which are subject to stock repurchase agreements under which the Corporation has
the right to repurchase such shares in the event of termination of employment.
-2-
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series BB Convertible Preferred Stock shall be entitled, before any distribution
or payment is made upon any stock ranking on liquidation junior to the Series BB
Convertible Preferred Stock, to be paid an amount equal to the greater of (i)
$50.00 per share (subject to equitable adjustment in the event of any stock
dividend, stock split, combination, reclassification or other similar event)
plus, in the case of each share, an amount equal to all Accruing Dividends
unpaid thereon (whether or not declared) and any other dividends declared but
unpaid thereon, computed to the date payment thereof is made available, or (ii)
such amount per share as would have been payable had each such share been
converted to Common Stock pursuant to paragraph 6 immediately prior to such
liquidation, dissolution or winding up, and the holders of Series BB Convertible
Preferred Stock shall not be entitled to any further payment, such amount
payable with respect to one share of Series BB Convertible Preferred Stock being
sometimes referred to as the "Liquidation Payment" and with respect to all
shares of Series BB Convertible Preferred Stock being sometimes referred to as
the "Liquidation Payments." If upon such liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Series BB Convertible Preferred Stock shall be
insufficient to permit payment to the holders of Series BB Convertible Preferred
Stock of the amount distributable as aforesaid, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the holders
of Series BB Convertible Preferred Stock. Upon any such liquidation, dissolution
or winding up of the Corporation, after the holders of Series BB Convertible
Preferred Stock shall have been paid in full the amounts to which they shall be
entitled, the remaining net assets of the Corporation may be distributed to the
holders of stock ranking on liquidation junior to the Series BB Convertible
Preferred Stock. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Payments and the place
where said Liquidation Payments shall be payable, shall be given by mail,
postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior
to the payment date stated therein, to the holders of record of Series BB
Convertible Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof, and the sale or transfer by the Corporation of all
or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank
on liquidation junior to the Series BB Convertible Preferred Stock.
Notwithstanding the foregoing, the Series BB Convertible Preferred
Stock shall be senior to Series AA Convertible Preferred Stock, and junior to
the Series C and Series D Convertible Preferred Stock, in accordance with the
terms thereof, as to payments on liquidation, dissolution or winding up, and the
holders of Series C and Series D Convertible Preferred Stock shall be entitled
to all payments per share of such stock on liquidation,
-3-
dissolution or winding up in accordance with the terms thereof before any
payments are made or set aside for holders of Series BB Preferred Stock.
5. Restrictions. At any time when not less than 1,000 shares of Series
BB Convertible Preferred Stock are outstanding (subject to equitable adjustment
in the event of any stock dividend, stock split, combination, reclassification
or other similar event), except where the vote or written consent of the holders
of a greater number of shares of Series BB Convertible Preferred Stock is
required by law or by the Certificate of Incorporation, and in addition to any
other vote required by law or the Certificate of Incorporation, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Series BB Convertible Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not:
5A. Create or authorize the creation of any additional class
or series of shares of stock unless the same ranks junior to the Series BB
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series BB Convertible Preferred Stock or increase the authorized amount
of any additional class or series of shares of stock unless the same ranks
junior to the Series BB Convertible Preferred Stock as to the distribution of
assets on the liquidation, dissolution or winding up of the Corporation, or
create or authorize any obligation or security convertible into shares of Series
BB Convertible Preferred Stock or into shares of any other class of series of
stock unless the same ranks junior to the Series BB Convertible Preferred Stock
as to the distribution of assets on the liquidation, dissolution or winding up
of the Corporation, whether any such creation, authorization or increase shall
be by means of amendment to the Certificate of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities or sell or transfer all or substantially all of its assets;
5C. Amend, alter or repeal its Certificate of Incorporation or
By-laws in a manner which would have a material effect on the rights and
preferences of the Series BB Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay
any dividend or make any distribution on, any shares of stock other than the
Series AA, Series C or Series D Convertible Preferred Stock and the Series BB
Convertible Preferred Stock, except for dividends or other distributions payable
on the Common Stock solely in the form of additional shares of Common Stock and
except for the purchase of shares of Common Stock from former employees of the
Corporation who acquired such shares directly from the Corporation, if each such
purchase is made pursuant to contractual rights held by the Corporation relating
to the termination of employment of such former employee; or
-4-
5E. Redeem or otherwise acquire any shares of Series AA,
Series C or Series D Convertible Preferred Stock or Series BB Convertible
Preferred Stock, except as expressly authorized in paragraph 7 hereof or
pursuant to a purchase offer made pro rata to all holders of the shares of
Series AA, Series C and Series D Convertible Preferred Stock and Series BB
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series AA, Series C and Series D Convertible Preferred Stock or Series
BB Convertible Preferred Stock then held by each such holder.
6. Conversions. The holders of shares of Series BB Convertible
Preferred Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of
this paragraph 6, the holder of any share or shares of Series BB Convertible
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series BB Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the amount
distributable on the Series BB Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Series BB Convertible Stock so to be
converted by $50.00 and (ii) dividing the result by the conversion price of
$50.00 per share or, in case an adjustment of such price has taken place
pursuant to the further provisions of this paragraph 6, then by the conversion
price as last adjusted and in effect at the date any share or shares of Series
BB Convertible Preferred Stock are surrendered for conversion (such price, or
such price as last adjusted, being referred to as the "Conversion Price"). Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series AA
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series BB
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Series BB Convertible Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such shares or shares of Series BB Convertible Preferred Stock. To
the extent permitted by law, such conversion shall be deemed to have been
effected and the Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares of Series BB Convertible Preferred Stock shall
cease, and the person or
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persons in whose name or names any certificate or certificates for shares of
Common stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series BB Convertible
Preferred Stock into Common Stock and no payment or adjustment shall be made
upon any conversion on account of any cash dividends on the Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends, including any Accruing Dividends
prorated to the date of conversion, accrued and unpaid on the shares of Series
BB Convertible Preferred Stock surrendered for conversion to the date upon which
such conversion is deemed to take place as provided in subparagraph 6B. In case
the number of shares or Series BB Convertible Preferred Stock represented by the
certificate or certificates surrendered pursuant to subparagraph 6A exceeds the
number of shares converted, the Corporation shall, upon such conversion, execute
and deliver to the holder, at the expense of the corporation, a new certificate
or certificates for the number of shares of Series BB Convertible Preferred
Stock represented by the certificate or certificates surrendered which are not
to be converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this subparagraph 6C, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Series BB Convertible Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors of the
Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except
as provided in subparagraph 6E, if the Corporation shall issue or sell, or is,
in accordance with subparagraphs 6D(1) through 6D(7), deemed to have issued or
sold, any shares of Common Stock or other stock or investment securities (other
than Common Stock issued pursuant to the Employee Incentive Stock Option Plan)
for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then, forthwith upon such
issue or sale, the Conversion Price shall be reduced to the price at which the
Corporation issued or sold, or is deemed to have issued or sold, such shares of
Commons Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any
time the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or
any options for the purchase of, Common stock or any stock or
security convertible into or exchangeable for Common Stock
(such warrants, rights or options being called "Options" and
such convertible or exchangeable stock or securities being
such called "Convertible Securities") whether or not such
Options or the right to convert or exchange any
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Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the
exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the
total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such
Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares
of Common stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall
be less than Fifty Percent (50%) of the Conversion Price in
effect immediately prior to the time of the granting of such
Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the
issuance of such Convertible Securities and thereafter shall
be deemed to be outstanding. Except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion Price
shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such Options or
upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert
any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (i)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less
than 50% of the Conversion Price in effect immediately prior
to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities shall be deemed
to have been issued for such price per share as of the date of
the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that
(a) except as otherwise provided in subparagraph 6D(3), no
adjustment of the Conversion Price shall be made upon the
actual issue of
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such Common Stock upon conversion or exchange of such
Convertible Securities and (b) if any such issue or sale of
such Convertible Securities is made upon exercise of any
Options to purchase any such Convertible Securities for which
adjustments of the Conversion Price have been or are to be
made pursuant to other provisions of this subparagraph 6D, no
further adjustment of the Conversion Price shall be made by
reason of such issue or sale.
6D(3) Change in Option Price to Conversion Rate. Upon
the happening of any of the following events, namely if the
purchase price provided for in any Option referred to in
subparagraph 6D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 6D(1) or 6D(2), or the
rate at which Convertible Securities referred to in
subparagraph 6D(1) or 6D(2) are convertible into or
exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall
forthwith be readjusted to the Conversion Price which would
have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted,
issued or sold, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
6D(4) Stock Dividends. In case the Corporation shall
declare a dividend or make any other distribution upon any
stock of the Corporation payable in Common Stock (except for
dividends or distributions upon the Common Stock), Options or
Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of
Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith. In case any shares
of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be fair value of such
consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any Options shall be issued in connection
with
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the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no
specific consideration is allocated to such Options by the
parties thereto, such Options shall be deemed to have been
issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take
a record of the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then issue of such record date shall
be deemed to be the date of the issue of sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) Treasury Shares. The disposition of any shares
of Common Stock owned or held by or for the account of the
Corporation shall be considered an issue or sale of Common
Stock for the purpose of this subparagraph 6D.
6E. Certain Issues of Common Stock and Series C Preferred
Stock Excepted. Anything herein to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of the Conversion Price in the case
of the issuance of up to an aggregate of 15,000 shares (appropriately adjusted
to reflect the occurrence of any event described in subparagraph 6F) of Common
stock to directors, officers or employees of the Corporation in connection with
their service as directors of the Corporation or their employment by the
Corporation pursuant to the Employee Incentive Stock Option Plan.
6F. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series BB Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such
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share or shares of series BB Convertible Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such Common Stock immediately theretofore receivable upon such
conversion had such reorganization or reclassification not taken place, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
6H. Certain Events. If any event occurs of the type
contemplated by the provisions of paragraphs 6D - 6G but not expressly provided
for by such provisions, then the Corporation's Board of Directors will make an
appropriate adjustment in the conversion price so as to protect the rights of
the holders of Series BB Preferred Stock; provided that no such adjustment will
increase the conversion price as otherwise determined pursuant to this
subparagraph or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series BB Preferred Stock.
6I. Purchase of Common Stock by the Corporation. If the
Corporation at any time while the Series BB Preferred Stock is outstanding shall
purchase, redeem or otherwise acquire any of its Common Stock at a price per
share greater than the "Market Price" (as defined below), upon each such
purchase, redemption or acquisition the conversion price shall be adjusted to
that price determined by multiplying such conversion price then in effect by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such purchase, redemption or acquisition
minus the number of shares of Common Stock which the aggregate consideration for
the total number of such shares of Common Stock so purchase, redeemed or
acquired would purchase at the "market Price" (as defined below); and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such purchase, redemption or acquisition. For the purposes of
this subparagraph 6I, a purchase, redemption or acquisition of an option, right
or warrant shall be deemed to be a purchase of the underlying Common Stock, and
the computation herein required shall be made on the basis of the full exercise,
conversion or exchange of such option, right or warrant on the date as of which
such computation is required hereby to be made even if such option, right or
warrant is not exercisable, convertible or exchangeable on such date.
For purposes hereof, "Market Price" shall mean, on any date specified herein,
(A) if any class of capital stock of the Corporation (the "Capital Stock") is
listed or admitted to trading on any national securities exchange, the highest
price obtained by taking the arithmetic mean over a period of 20 consecutive
Trading Days (defined to mean any day on which the NASDAQ National market System
is open for trading on a regular basis) ending the second Trading Day prior to
such date of the average, on each such Trading Day, of the high and low sale
prices of shares of each such class of Capital Stock or if no such sale takes
place on such date, the average of the highest closing bid and lowest closing
asked prices thereof on such date, in each case as officially reported on all
national securities exchanges on which
-10-
each such class of Capital Stock is then listed or admitted to trading, or (B)
if no shares of any class of Capital Stock are then listed or admitted to
trading on any class of Capital Stock on such date in the over-the-counter
market as shown by the NASDAQ National Market System or, if no such shares of
any class of Capital Stock are then quoted in such system, as published by the
National Quotation Bureau, Inc. or any similar successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected by the Corporation. If no shares of any class of Capital Stock are then
listed or admitted to trading on any national securities exchange and if no
closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market, "Market Price" shall mean the higher of (x) the book
value per share of Capital Stock (assuming for the purposes of this calculation
the economic equivalent of all shares of all classes of Capital Stock) as
determined on a fully diluted basis in accordance with generally accepted
accounting principles by a firm of independent public accounts of recognized
standing (which may be its regular auditors) selected by the Board of Directors
of the Corporation as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made or (y) the fair
value of one share of the Capital Stock on such day as determined in good faith
by the Corporation's Board; provided, however, that if holders of seventy-five
percent (75%) of the Series BB Preferred Stock object in writing to such
determination within 10 days of receipt of written notification thereof, then
the Market Price shall, at the expense of the Corporation, be determined in good
faith by a national or major regional investment bank selected by vote or
written consent of the Board.
6J. Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall given written
notice thereof, by first class mail, postage prepaid, or by telex or telecopy to
non-U.S. residents, addressed to each holder of shares of Series BB Convertible
Preferred Stock at the address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6K. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock
of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with or into, or sale of all
or substantially all its assets to, another entity or entities; or
-11-
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or telecopy, addressed to each holder
of any shares of Series BB Convertible Preferred Stock at the address of such
holder as shown on the books of the Corporation, (a) at least 20 days' prior
written notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6L. Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series BB Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series BB Convertible
Preferred Stock. The Corporation covenants that all shares of Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue and thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Common Stock is at
all times equal to or less than the Conversion Price in effect at the time. The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed. The Corporation will not take any
action which results in any adjustment of the Conversion Price if the total
number of shares of Common Stock issued and issuable after such action upon
conversion of the Series BB Convertible Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Certificate of
Incorporation.
6M. No Reissuance of Series BB Convertible Preferred Stock.
Shares of Series BB Convertible Preferred Stock which are converted into shares
of Common Stock as provided herein shall not be reissued.
6N. Issue Tax. the issuance of certificates for shares of
Common Stock upon conversion of Series BB Convertible Preferred Stock shall be
made without charge to
-12-
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series BB Convertible Preferred Stock
which is being converted.
6O. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series BB Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion of
any Shares of Series BB Convertible Preferred Stock in any manner which
interferes with the timely conversion of such Series BB Convertible Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
6P. Definition of Common Stock. As used in this paragraph 6,
the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, no par value, as constituted on the date of filing of these terms
of the series BB Convertible Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series BB Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6Q. Mandatory Conversion. If at any time the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $5,000,000 and (ii) the price paid by the public for such shares shall be
at least $250.00 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series BB Convertible Preferred Stock shall automatically
convert to the number of fully paid and nonassessable shares of Common Stock as
if determined by subparagraph 6A.
7. Redemption. The shares of Series BB Convertible Preferred Stock may
be redeemed as follows:
7A. Optional Redemption. The holders of not less than
two-thirds of the total number of shares of Preferred Stock outstanding (of all
Series, collectively) may elect to require the Corporation to redeem, and the
Corporation shall redeem, such number of the shares of each such Series of
Convertible Preferred Stock outstanding on January 1, 1996, as may be tendered
from time to time, in the amounts, and on the date or dates, as follows:
Percentage of All Shares
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Outstanding on January 1, 1996,
Date of Redemption which may be redeemed
------------------ -------------------------------
June 1, 1996 33%*
June 1, 1997 67%*
June 1, 1998 100%
* each such redemption being allocated pro-rata among the holders of all
series of the Convertible Preferred Stock electing to participate in
such redemption.
Notice of such election (the "Election Notice") shall be signed by the
holders of not less than two-thirds of the total number of shares of
all Series of Preferred Stock then outstanding and may be delivered to
the Corporation at any time by hand, by courier or by deposit in the
United States mail.
7B. Redemption Price. The Series BB Convertible Preferred
Stock to be redeemed on a Redemption Date shall be redeemed by paying for each
share in cash an amount equal to the greater of (i) $100.00 per share plus, in
the case of each share, am amount equal to all Accruing Dividends unpaid thereon
(whether or not declared) and any other dividends declared but unpaid thereon,
computed to the Redemption Date, or, (ii) the fair market value of the shares to
be redeemed, as determined by appraisal as described paragraph 7E, such amount
being referred to as the "Redemption Price."
7C. Redemption Mechanics. Any holder of Series BB Convertible
Preferred Stock entitled to redemption pursuant to Paragraph 7A may notify the
Corporation in writing that Shares of Series BB Convertible Preferred Stock held
by such holder shall be redeemed on a date specified in said Paragraph 7A. Such
a notice in writing is refereed to herein as a "Redemption Notice" and all
shares to be redeemed pursuant to a Redemption Notice are referred to
collectively herein as the "Redemption Shares." The date specified for
redemption of Redemption Shares in a Redemption Notice is referred to herein as
a "Redemption Date." In order to require a redemption on a Redemption Date
specified in Paragraph 7A the Redemption Notice shall be given not later than
the later of (i) twenty days before such Redemption Date (if the Redemption
Notice is delivered by hand or courier) or (ii) twenty-five days before such
Redemption Date (if the Redemption Notice is deposited in the U.S. mail, postage
paid, addressed to the Corporation). A copy of any Redemption Notice shall be
sent by the Corporation to all holders of shares of Series AA, Series C or
Series D Convertible Preferred Stock and Series BB Convertible Preferred Stock
by first class mail within two business days of receipt of a Redemption Notice
by the Corporation. Any holder of Series AA, Series C or Series D Convertible
Preferred Stock or Series BB Convertible Preferred Stock may include all shares
of such stock held by such holder and eligible for redemption on the Redemption
Date in the shares to be redeemed pursuant to the Redemption Notice by notifying
the Corporation in writing no later than ten days prior to the Redemption Date
specified. From and after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of the Redemption Shares (except the right to receive the
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Redemption Price) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
7D. Payment of Redemption Price. If the funds of the
Corporation legally available for redemption of shares of Series AA, Series C
and Series D Convertible Preferred Stock and Series BB Convertible Preferred
Stock on a particular Redemption Date are insufficient to redeem the total
number of shares of Series AA, Series C and Series D Convertible Preferred Stock
and Series BB Convertible Preferred stock tendered for redemption, the holders
of shares to be redeemed shall be entitled to receive only their ratable shares
of any funds legally available for redemption of shares of those series in
proportion as the respective amounts which would be payable with respect to the
full number of shares tendered by them bears to the total amount which would be
payable if all outstanding shares of those series tendered for redemption were
redeemed in full. The shares of Series AA, Series C and Series D Convertible
Preferred Stock and Series BB Convertible Preferred Stock called for redemption
on a given Redemption Date but not redeemed on such date (such shares being
referred to herein as the "unredeemed Shares") shall remain outstanding and
entitled to all rights and preferences applicable to shares of those respective
series. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of such Unredeemed Shares, such funds will
be used, at the end of the next succeeding fiscal quarter, to redeem the balance
of such shares, or such portion thereof for which funds are then legally
available, on the basis set forth above. Following any default by the
Corporation in the payment of the Redemption Price, and prior to the actual
redemption of shares called for redemption, the holder of any Unredeemed Shares
may withdraw such holder's call for redemption of such shares, which withdrawal
shall be effective upon the Corporation's receipt of written notice to that
effect from such holder.
On any Redemption Date, payment shall be made in full to the
holders entitled thereto, provided, however, that if the Corporation does not
then have available the funds necessary to effect the required redemption, the
Corporation may, at its election, request that the holders permit the
Corporation to pay all amounts payable on such Redemption Date with a note or
notes bearing interest at 12% annually, payable in five equal annual
installments with the first installment due on the Redemption Date, or upon
other reasonable deferred payment terms, and the holders shall negotiate with
the Corporation in good faith with respect to such requests (but without
obligation to agree to such request).
7E. Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Series BB Convertible Preferred Stock redeemed pursuant to this
paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever
shall be cancelled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce accordingly the number of authorized shares of Series BB
Convertible Preferred Stock.
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7F. Appraisal. In the event of a Redemption, the fair market
value of the Redemption Shares shall be determined as provided for in this
subparagraph 7E. The Corporation and the holders of Redemption Shares shall
endeavor to agree upon a single, independent appraiser. In the event that no
agreement is reached upon a single appraiser, each of the Corporation and the
holders of Redemption Shares shall select an appraiser, and the two appraisers
so selected shall appoint a third appraiser. The appraiser or appraisers so
selected shall endeavor to reach a valuation for the Series AA, Series C and
Series D Convertible Preferred Stock and Series BB Convertible Preferred Stock
with all due speed, and in any event shall submit a valuation in writing to the
Board of Directors within 40 days of their appointment. In the event that the
appraisers or appraiser, as the case may be, do not submit a valuation by the
Redemption Date, the appraiser or appraisers, as the case may be, shall select a
replacement Redemption Date which shall be within five days of the their
submission of a written valuation to the Board. All costs of an appraisal under
this subparagraph 7E shall be borne by the Corporation.
8. Amendments. No provision of these terms of the Series BB Convertible
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series BB Convertible Preferred Stock, voting as a
separate series.
9. Additional Rights of Holders.
9A. Information Rights. Any holder of not less than 5,000
shares of the Series BB Convertible Preferred Stock shall be entitled (i) to
receive from the Corporation, and the Corporation shall deliver to such holders,
on a timely basis and without specific request, annual (audited), quarterly and
monthly financial statements and annual budgets of the Corporation, as well as
any other information reasonably requested by any such holder, (ii) to attend
all meetings of the Board of Directors of the Corporation, and (iii) to receive
copies of all substantive written materials distributed to the Board of
Directors.
9B. Inspection Rights. The holders of the Series BB
Convertible Preferred Stock, and their designees, shall be entitled to inspect
the properties of the Corporation, examine records of the Corporation and make
copies thereof, and discuss the Corporation's affairs with the Corporation's
officers, directors, lay employees and accountants. Any holder shall also be
entitled, at the holder's own expense, to audit the Corporation at any time.
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SCHEDULE C
SERIES C CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and known
as "Series C Convertible Preferred Stock" shall consist of 18,000 shares.
2. Voting.
2A. General. Except as may be otherwise provided in these
terms of the Series C Convertible Preferred Stock or by law, the Series C
Convertible Preferred Stock shall vote together with all other classes and
series of stock of the Corporation as a single class on all actions to be taken
by the stockholders of the Corporation. Each share of Series C Convertible
Preferred Stock shall entitle the holder thereof to such number of votes per
share on each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of Series C Convertible
Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series C Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of five.
2C. Board Seats. The holders of the Series C Convertible
Preferred Stock, voting as a separate series, shall be entitled to elect one (1)
director of the Corporation. The holders of the Series AA Convertible Preferred
Stock, voting together with the holders of the Series BB Convertible Preferred
Stock as a separate class, shall be entitled to elect one (1) director of the
Corporation. The holders of the Series BB Convertible Preferred Stock, voting as
separate series, shall each be entitled to elect one (1) director of the
Corporation. The holders of the Series D Convertible Preferred Stock shall be
entitled to elect one (1) director of the Corporation. The holders of the Common
Stock shall be entitled to elect one (1) director of the Corporation. At any
meeting held for the purpose of electing directors, the presence in person or by
proxy of the holders of a majority of the shares of Series C Convertible
Preferred Stock then outstanding shall constitute a quorum of the Series C
Convertible Preferred Stock for the election of the director to be elected
solely by the holders of the Series C Convertible Preferred Stock. A vacancy in
any directorship to be elected solely by the holders of the Series C Convertible
Preferred Stock shall be filled only by vote or written consent of the holders
of the Series C Convertible Preferred Stock.
3. Dividends
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Series C Convertible Preferred Stock shall be entitled to
receive, out
of any funds, legally available therefor, cumulative dividends at the annual
rate of Ten Percent (10%) of original issue price per share (the "Accruing
Dividends") (subject to equitable adjustment in the event of any stock dividend,
stock split, combination, reclassification other similar event). Such Accruing
Dividends shall accrue on each share of Series C Convertible Preferred Stock
from January 1, 1992 whether or not earned or declared.
Such Accruing Dividends on the Series C Convertible Preferred
Stock shall be cumulative so that if such dividends in respect of any previous
or current annual dividend period, at the annual rate specified above, shall not
have been paid or declared and a sum sufficient for the payment thereof set
apart, the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Common Stock. Upon
conversion or redemption of the Series C Convertible Preferred Stock under
paragraphs 6 and 7 hereof, or upon the liquidation or winding up of the affairs
of the Corporation, all such accrued and unpaid dividends, whether or not earned
or declared, to and until the date of such conversion, redemption, liquidation
or winding up, shall become immediately due and payable and shall be paid in
full. Upon conversion as provided in Section 6Q below, the Corporation, in lieu
of cash payment, may pay such accrued and unpaid dividends by delivery to the
holders of shares of the Corporation's Common Stock valued for such purpose at
the price paid by the public for such shares as described in Section 6Q.
Notwithstanding the foregoing, and except in the case of payments on
liquidation pursuant to Section 4 (under which the Series C and Series D
Convertible Preferred Stock shall be entitled to preferential payment of
Accruing Dividends) the Series C Convertible Preferred Stock shall rank pari
passu with the Series AA, Series BB and Series D Convertible Preferred Stock as
to the payment of dividends, and the holders of Series AA, Series BB and Series
D Convertible Preferred Stock shall be entitled to the same dividends at the
same rate per share of such stock as have been declared, paid or set aside for
holders of Series C Preferred Stock, without any preference as among holders of
different series of preferred stock.
(b) Restrictions. Unless all accrued dividends on the Series C
Convertible Preferred Stock shall have been paid or declared and a sum
sufficient for the payment thereof set apart, (i) no dividend shall be paid or
declared, and no distribution shall be made, on any Common Stock, (ii) no shares
of Series C Convertible Preferred Stock shall be converted under paragraph 6Q
hereof unless holders thereof consent to such conversion, and (iii) no shares of
any other class or series of stock of the Corporation shall be purchased,
redeemed or acquired by the Corporation and no amounts shall be paid into or set
aside or made available for the purchase, redemption or acquisition thereof;
provided however, that this restriction shall not apply to the repurchase of
shares of Common Stock held by employees or officers of the Corporation issued
from the Corporation's employee incentive stock option plan as in effect as of
November 30, 1991, providing for the reservation of 15,000 shares of Common
Stock for issuance to employees (the "Employee Incentive Stock Option Plan"), or
which are subject to stock repurchase agreements under which the
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Corporation has the right to repurchase such shares in the event of termination
of employment.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series C Convertible Preferred Stock shall be entitled, before any distribution
or payment is made upon any stock ranking on liquidation junior to the Series C
Convertible Preferred Stock, to be paid an amount equal to the greater of (i)
two (2) times its cost basis of $50.00 per share (subject to equitable
adjustment in the event of any stock dividend, stock split, combination,
reclassification or other similar event) plus, in the case of each share, an
amount equal to all Accruing Dividends unpaid thereon (whether or not declared)
and any other dividends declared but unpaid thereon, computed to the date
payment thereof is made available, or (ii) such amount per share as would have
been payable had each such share been converted to Common Stock pursuant to
paragraph 6 immediately prior to such liquidation, dissolution or winding up,
and the holders of Series C Convertible Preferred Stock shall not be entitled to
any further payment, such amount payable with respect to one share of Series C
Convertible Preferred Stock being sometimes referred to as the "Liquidation
Payment" and with respect to all shares of Series C Convertible Preferred Stock
being sometimes referred to as the "Liquidation Payments." Liquidation Payments
to holders of Series C Convertible Preferred Stock shall rank equally with
Liquidation Payments made to holders of Series D Convertible Preferred Stock. If
upon such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series C Convertible Preferred Stock shall be insufficient to permit payment to
the holders of Series C Convertible Preferred Stock of the amount distributable
as aforesaid, then the entire assets of the Corporation to be so distributed
shall be distributed ratably among the holders of Series C and Series D
Convertible Preferred Stock. Upon any such liquidation, dissolution or winding
up of the Corporation, after the holders of Series C and Series D Convertible
Preferred Stock shall have been paid in full the amounts to which they shall be
entitled, the remaining net assets of the Corporation may be distributed to the
holders of stock ranking on liquidation junior to the Series C and Series D
Convertible Preferred Stock. Written notice of such liquidation, dissolution or
winding up, stating a payment date, the amount of the Liquidation Payments and
the place where said Liquidation Payments shall be payable, shall be given by
mail, postage prepaid, or by telex to non-U.S. residents, not less than 20 days
prior to the payment date stated therein, to the holders of record of Series C
Convertible Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof, and the sale or transfer by the Corporation of all
or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank
on liquidation junior to the Series C Convertible Preferred Stock.
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Notwithstanding the foregoing, the Series C Convertible Preferred Stock
shall rank equally with the Series D Convertible Preferred Stock and shall be
senior to the Series AA and Series BB Convertible Preferred Stock as to payments
on liquidation, dissolution or winding up, and the holders of Series C and
Series D Convertible Preferred Stock shall be entitled to payments per share of
such stock on liquidation, dissolution or winding up in accordance with the
terms thereof before any payments are made or set aside for holders of Series AA
and Series BB Preferred Stock.
5. Restrictions. At any time when not less than 1,000 shares of Series
C Convertible Preferred Stock are outstanding (subject to equitable adjustment
in the event of any stock dividend, stock split, combination, reclassification
or other similar event), except where the vote or written consent of the holders
of a greater number of shares of Series C Convertible Preferred Stock is
required by law or by the Certificate of Incorporation, and in addition to any
other vote required by law or the Certificate of Incorporation, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Series C Convertible Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not:
5A. Create or authorize the creation of any additional class
or series of shares of stock unless the same ranks junior to the Series C
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series C Convertible Preferred Stock or increase the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series C Convertible Preferred Stock as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into shares of Series C
Convertible Preferred Stock or into shares of any other class of series of stock
unless the same ranks junior to the Series C Convertible Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or increase shall be by
means of amendment to the Certificate of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities or sell or transfer all or substantially all of its assets;
5C. Amend, alter or repeal its Certificate of Incorporation or
By-laws in a manner which would have a material effect on the rights and
preferences of the Series C Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay
any dividend or make any distribution on, any shares of stock other than the
Series AA, Series BB or Series D Convertible Preferred Stock and the Series C
Convertible Preferred Stock, except for dividends or other distributions payable
on the Common Stock solely in the form of additional shares of Common Stock and
except for the purchase of shares of Common
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Stock from former employees of the Corporation who acquired such shares directly
from the Corporation, if each such purchase is made pursuant to contractual
rights held by the Corporation relating to the termination of employment of such
former employee; or
5E. Redeem or otherwise acquire any shares of Series AA,
Series BB or Series D Convertible Preferred Stock or Series C Convertible
Preferred Stock, except as expressly authorized in paragraph 7 hereof or
pursuant to a purchase offer made pro rata to all holders of the shares of
Series AA, Series BB and Series D Convertible Preferred Stock and Series C
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series AA, Series BB and Series D Convertible Preferred Stock or
Series C Convertible Preferred Stock then held by each such holder.
6. Conversions. The holders of shares of Series C Convertible Preferred
Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of
this paragraph 6, the holder of any share or shares of Series C Convertible
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series C Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the amount
distributable on the Series C Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Series C Convertible Stock so to be
converted by $50.00 and (ii) dividing the result by the conversion price of
$50.00 per share or, in case an adjustment of such price has taken place
pursuant to the further provisions of this paragraph 6, then by the conversion
price as last adjusted and in effect at the date any share or shares of Series C
Convertible Preferred Stock are surrendered for conversion (such price, or such
price as last adjusted, being referred to as the "Conversion Price"). Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series C
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series C
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Series C Convertible Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such shares or shares of Series C Convertible Preferred Stock. To
the extent permitted by law, such conversion shall be deemed to have been
effected and the Conversion Price shall
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be determined as of the close of business on the date on which such written
notice shall have been received by the Corporation and the certificate or
certificates for such share or shares shall have been surrendered as aforesaid,
and at such time the rights of the holder of such share or shares of Series C
Convertible Preferred Stock shall cease, and the person or persons in whose name
or names any certificate or certificates for shares of Common stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series C Convertible
Preferred Stock into Common Stock and no payment or adjustment shall be made
upon any conversion on account of any cash dividends on the Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends, including any Accruing Dividends
prorated to the date of conversion, accrued and unpaid on the shares of Series C
Convertible Preferred Stock surrendered for conversion to the date upon which
such conversion is deemed to take place as provided in subparagraph 6B. In case
the number of shares or Series C Convertible Preferred Stock represented by the
certificate or certificates surrendered pursuant to subparagraph 6A exceeds the
number of shares converted, the Corporation shall, upon such conversion, execute
and deliver to the holder, at the expense of the corporation, a new certificate
or certificates for the number of shares of Series C Convertible Preferred Stock
represented by the certificate or certificates surrendered which are not to be
converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this subparagraph 6C, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Series C Convertible Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors.
6D. Adjustment of Price Upon Issuance of Common Stock. Except
as provided in subparagraph 6E, if the Corporation shall issue or sell, or is,
in accordance with subparagraphs 6D(1) through 6D(7), deemed to have issued or
sold, any shares of Common Stock or other stock or investment securities (other
than Common Stock issued pursuant to the Employee Incentive Stock Option Plan)
for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then, forthwith upon such
issue or sale, the Conversion Price shall be reduced to the price at which the
Corporation issued or sold, or is deemed to have issued or sold, such shares of
Commons Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any
time the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or
any options for the purchase of, Common stock or any stock or
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security convertible into or exchangeable for Common Stock
(such warrants, rights or options being called "Options" and
such convertible or exchangeable stock or securities being
such called "Convertible Securities") whether or not such
Options or the right to convert or exchange any Convertible
Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable
to the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common
stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than
Fifty Percent (50%) of the Conversion Price in effect
immediately prior to the time of the granting of such Options,
then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the
date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be
outstanding. Except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon
the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert
any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (i)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less
than 50% of the Conversion Price in effect immediately prior
to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities shall be deemed
to have been
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issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be
deemed to be outstanding, provided that (a) except as
otherwise provided in subparagraph 6D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any Options to
purchase any such Convertible Securities for which adjustments
of the Conversion Price have been or are to be made pursuant
to other provisions of this subparagraph 6D, no further
adjustment of the Conversion Price shall be made by reason of
such issue or sale.
6D(3) Change in Option Price to Conversion Rate. Upon
the happening of any of the following events, namely if the
purchase price provided for in any Option referred to in
subparagraph 6D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 6D(1) or 6D(2), or the
rate at which Convertible Securities referred to in
subparagraph 6D(1) or 6D(2) are convertible into or
exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall
forthwith be readjusted to the Conversion Price which would
have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted,
issued or sold, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
6D(4) Stock Dividends. In case the Corporation shall
declare a dividend or make any other distribution upon any
stock of the Corporation payable in Common Stock (except for
dividends or distributions upon the Common Stock), Options or
Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of
Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith. In case any shares
of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be fair value of such
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consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any Options shall be issued in connection
with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options
by the parties thereto, such Options shall be deemed to have
been issued for such consideration as determined in good faith
by the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take
a record of the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then issue of such record date shall
be deemed to be the date of the issue of sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) Treasury Shares. The disposition of any shares
of Common Stock owned or held by or for the account of the
Corporation shall be considered an issue or sale of Common
Stock for the purpose of this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price in the case of the issuance of up to an
aggregate of 15,000 shares (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F) of Common stock to directors, officers
or employees of the Corporation in connection with their service as directors of
the Corporation or their employment by the Corporation pursuant to the Employee
Incentive Stock Option Plan.
6F. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
stock, then, as a condition of such reorganization or
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reclassification, lawful and adequate provisions shall be made whereby each
holder of a share or shares of Series C Convertible Preferred Stock shall
thereupon have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of series C Convertible Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
6H. Certain Events. If any event occurs of the type
contemplated by the provisions of paragraphs 6D - 6G but not expressly provided
for by such provisions, then the Corporation's Board of Directors will make an
appropriate adjustment in the conversion price so as to protect the rights of
the holders of Series C Preferred Stock; provided that no such adjustment will
increase the conversion price as otherwise determined pursuant to this
subparagraph or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series C Preferred Stock.
6I. Purchase of Common Stock by the Corporation. If the
Corporation at any time while the Series C Preferred Stock is outstanding shall
purchase, redeem or otherwise acquire any of its Common Stock at a price per
share greater than the "Market Price" (as defined below), upon each such
purchase, redemption or acquisition the conversion price shall be adjusted to
that price determined by multiplying such conversion price then in effect by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such purchase, redemption or acquisition
minus the number of shares of Common Stock which the aggregate consideration for
the total number of such shares of Common Stock so purchased, redeemed or
acquired would purchase at the "market Price" (as defined below); and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such purchase, redemption or acquisition. For the purposes of
this subparagraph 6I, a purchase, redemption or acquisition of an option, right
or warrant shall be deemed to be a purchase of the underlying Common Stock, and
the computation herein required shall be made on the basis of the full exercise,
conversion or exchange of such option, right or warrant on the date as of which
such computation is required hereby to be made even if such option, right or
warrant is not exercisable, convertible or exchangeable on such date.
For purposes hereof, "Market Price" shall mean, on any date specified herein,
(A) if any class of capital stock of the Corporation (the "Capital Stock") is
listed or admitted to trading on any national securities exchange, the highest
price obtained by taking the arithmetic mean over a period of 20 consecutive
Trading Days (defined to mean any day on which the
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NASDAQ National market System is open for trading on a regular basis) ending the
second Trading Day prior to such date of the average, on each such Trading Day,
of the high and low sale prices of shares of each such class of Capital Stock or
if no such sale takes place on such date, the average of the highest closing bid
and lowest closing asked prices thereof on such date, in each case as officially
reported on all national securities exchanges on which each such class of
Capital Stock is then listed or admitted to trading, or (B) if no shares of any
class of Capital Stock are then listed or admitted to trading on any class of
Capital Stock on such date in the over-the-counter market as shown by the NASDAQ
National Market System or, if no such shares of any class of Capital Stock are
then quoted in such system, as published by the National Quotation Bureau, Inc.
or any similar successor organization, and in either case as reported by any
member firm of the New York Stock Exchange selected by the Corporation. If no
shares of any class of Capital Stock are then listed or admitted to trading on
any national securities exchange and if no closing bid and asked prices thereof
are then so quoted or published in the over-the-counter market, "Market Price"
shall mean the higher of (x) the book value per share of Capital Stock (assuming
for the purposes of this calculation the economic equivalent of all shares of
all classes of Capital Stock) as determined on a fully diluted basis in
accordance with generally accepted accounting principles by a firm of
independent public accounts of recognized standing (which may be its regular
auditors) selected by the Board of Directors of the Corporation as of the last
day of any month ending within 60 days preceding the date as of which the
determination is to be made or (y) the fair value of one share of the Capital
Stock on such day as determined in good faith by the Corporation's Board;
provided, however, that if holders of seventy-five percent (75%) of the Series C
Preferred Stock object in writing to such determination with 10 days of receipt
of written notification thereof, then the Market Price shall, at the expense of
the Corporation, be determined in good faith by a national or major regional
investment bank selected by vote or written consent of the Board.
6J. Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall given written
notice thereof, by first class mail, postage prepaid, or by telex or telecopy to
non-U.S. residents, addressed to each holder of shares of Series C Convertible
Preferred Stock at the address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6K. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock
of any class or other rights;
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(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with or into, or sale of all
or substantially all its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or telecopy, addressed to each holder
of any shares of Series C Convertible Preferred Stock at the address of such
holder as shown on the books of the Corporation, (a) at least 20 days' prior
written notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6L. Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series C Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series C Convertible
Preferred Stock. The Corporation covenants that all shares of Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue and thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Common Stock is at
all times equal to or less than the Conversion Price in effect at the time. The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed. The Corporation will not take any
action which results in any adjustment of the Conversion Price if the total
number of shares of Common Stock issued and issuable after such action upon
conversion of the Series C Convertible Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Certificate of
Incorporation.
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6M. No Reissuance of Series C Convertible Preferred Stock.
Shares of Series C Convertible Preferred Stock which are converted into shares
of Common Stock as provided herein shall not be reissued.
6N. Issue Tax. the issuance of certificates for shares of
Common Stock upon conversion of Series C Convertible Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series C Convertible Preferred Stock which is being converted.
6O. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series C Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion of
any Shares of Series C Convertible Preferred Stock in any manner which
interferes with the timely conversion of such Series C Convertible Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
6P. Definition of Common Stock. As used in this paragraph 6,
the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, no par value, as constituted on the date of filing of these terms
of the series C Convertible Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series C Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6Q. Mandatory Conversion. If at any time the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $5,000,000 and (ii) the price paid by the public for such shares shall be
at least $250.00 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series C Convertible Preferred Stock shall automatically
convert to the number of fully paid and nonassessable shares of Common Stock as
if determined by subparagraph 6A.
7. Redemption. The shares of Series C Convertible Preferred Stock may
be redeemed as follows:
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7A. Optional Redemption. The holders of not less than
two-thirds of the total number of shares of Preferred Stock outstanding (of all
Series, collectively) may elect to require the Corporation to redeem, and the
Corporation shall redeem, such number of the shares of each such Series of
Convertible Preferred Stock outstanding on January 1, 1996, as may be tendered
from time to time, in the amounts, and on the date or dates, as follows:
Percentage of All Shares
Outstanding on January 1, 1996,
Date of Redemption which may be redeemed
------------------ -------------------------------
June 1, 1996 33%*
June 1, 1997 67%*
June 1, 1998 100%
* each such redemption being allocated pro-rata among the holders of all
series of the Convertible Preferred Stock electing to participate in
such redemption.
Notice of such election (the "Election Notice") shall be signed by the
holders of not less than two-thirds of the total number of shares of
all Series of Preferred Stock then outstanding and may be delivered to
the Corporation at any time by hand, by courier or by deposit in the
United States mail.
7B. Redemption Price. The Series C Convertible Preferred Stock
to be redeemed on a Redemption Date shall be redeemed by paying for each share
in cash an amount equal to the greater of (i) $100.00 per share plus, in the
case of each share, am amount equal to all Accruing Dividends unpaid thereon
(whether or not declared) and any other dividends declared but unpaid thereon,
computed to the Redemption Date, or, (ii) the fair market value of the shares to
be redeemed, as determined by appraisal as described paragraph 7E, such amount
being referred to as the "Redemption Price."
7C. Redemption Mechanics. Any holder of Series C Convertible
Preferred Stock entitled to redemption pursuant to Paragraph 7A may notify the
Corporation in writing that Shares of Series C Convertible Preferred Stock held
by such holder shall be redeemed on a date specified in said Paragraph 7A. Such
a notice in writing is referred to herein as a "Redemption Notice" and all
shares to be redeemed pursuant to a Redemption Notice are referred to
collectively herein as the "Redemption Shares." The date specified for
redemption of Redemption Shares in a Redemption Notice is referred to herein as
a "Redemption Date." In order to require a redemption on a Redemption Date
specified in Paragraph 7A the Redemption Notice shall be given not later than
the later of (i) twenty days before such Redemption Date (if the Redemption
Notice is delivered by hand or courier) or (ii) twenty-five days before such
Redemption Date (if the Redemption Notice is deposited in the U.S. mail, postage
paid, addressed to the Corporation). A copy of any Redemption Notice shall be
sent by the Corporation to all holders of shares of Series AA, Series BB or
Series D Convertible Preferred Stock and Series C Convertible Preferred Stock by
first class mail within two business days of receipt of a Redemption Notice by
the
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Corporation. Any holder of Series AA, Series BB or Series D Convertible
Preferred Stock or Series C Convertible Preferred Stock may include all shares
of such stock held by such holder and eligible for redemption on the Redemption
Date in the shares to be redeemed pursuant to the Redemption Notice by notifying
the Corporation in writing no later than ten days prior to the Redemption Date
specified. From and after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of the Redemption Shares (except the right to receive the
Redemption Price) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
7D. Payment of Redemption Price. If the funds of the
Corporation legally available for redemption of shares of Series AA, Series BB
and Series D Convertible Preferred Stock and Series C Convertible Preferred
Stock on a particular Redemption Date are insufficient to redeem the total
number of shares of Series AA, Series BB and Series D Convertible Preferred
Stock and Series C Convertible Preferred stock tendered for redemption, the
holders of shares to be redeemed shall be entitled to receive only their ratable
shares of any funds legally available for redemption of shares of those series
in proportion as the respective amounts which would be payable with respect to
the full number of shares tendered by them bears to the total amount which would
be payable if all outstanding shares of those series tendered for redemption
were redeemed in full. The shares of Series AA, Series BB and Series D
Convertible Preferred Stock and Series C Convertible Preferred Stock called for
redemption on a given Redemption Date but not redeemed on such date (such shares
being referred to herein as the "Unredeemed Shares") shall remain outstanding
and entitled to all rights and preferences applicable to shares of those
respective series. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of such Unredeemed Shares,
such funds will be used, at the end of the next succeeding fiscal quarter, to
redeem the balance of such shares, or such portion thereof for which funds are
then legally available, on the basis set forth above. Following any default by
the Corporation in the payment of the Redemption Price, and prior to the actual
redemption of shares called for redemption, the holder of any Unredeemed Shares
may withdraw such holder's call for redemption of such shares, which withdrawal
shall be effective upon the Corporation's receipt of written notice to that
effect from such holder.
On any Redemption Date, payment shall be made in full to the
holders entitled thereto, provided, however, that if the Corporation does not
then have available the funds necessary to effect the required redemption, the
Corporation may, at its election, request that the holders permit the
Corporation to pay all amounts payable on such Redemption Date with a note or
notes bearing interest at 12% annually, payable in five equal annual
installments with the first installment due on the Redemption Date, or upon
other reasonable deferred payment terms, and the holders shall negotiate with
the Corporation in good faith with respect to such requests (but without
obligation to agree to such request).
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7E. Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Series C Convertible Preferred Stock redeemed pursuant to this
paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever
shall be cancelled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce accordingly the number of authorized shares of Series C
Convertible Preferred Stock.
7F. Appraisal. In the event of a Redemption, the fair market
value of the Redemption Shares shall be determined as provided for in this
subparagraph 7E. The Corporation and the holders of Redemption Shares shall
endeavor to agree upon a single, independent appraiser. In the event that no
agreement is reached upon a single appraiser, each of the Corporation and the
holders of Redemption Shares shall select an appraiser, and the two appraisers
so selected shall appoint a third appraiser. The appraiser or appraisers so
selected shall endeavor to reach a valuation for the Series AA, Series BB and
Series D Convertible Preferred Stock and Series C Convertible Preferred Stock
with all due speed, and in any event shall submit a valuation in writing to the
Board of Directors within 40 days of their appointment. In the event that the
appraisers or appraiser, as the case may be, do not submit a valuation by the
Redemption Date, the appraiser or appraisers, as the case may be, shall select a
replacement Redemption Date which shall be within five days of the their
submission of a written valuation to the Board. All costs of an appraisal under
this subparagraph 7E shall be borne by the Corporation.
8. Amendments. No provision of these terms of the Series C Convertible
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series C Convertible Preferred Stock, voting as a separate
series.
9. Additional Rights of Holders.
9A. Information Rights. Any holder of not less than 5,000
shares of the Series C Convertible Preferred Stock shall be entitled (i) to
receive from the Corporation, and the Corporation shall deliver to such holders,
on a timely basis and without specific request, annual (audited), quarterly and
monthly financial statements and annual budgets of the Corporation, as well as
any other information reasonably requested by any such holder, (ii) to attend
all meetings of the Board of Directors of the Corporation, and (iii) to receive
copies of all substantive written materials distributed to the Board of
Directors.
9B. Inspection Rights. The holders of the Series C Convertible
Preferred Stock, and their designees, shall be entitled to inspect the
properties of the Corporation, examine records of the Corporation and make
copies thereof, and discuss the Corporation's affairs with the Corporation's
officers, directors, lay employees and accountants. Any holder shall also be
entitled, at the holder's own expense, to audit the Corporation at any time.
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SCHEDULE D
SERIES D CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and known
as "Series D Convertible Preferred Stock" shall consist of 16,000 shares.
2. Voting.
2A. General. Except as may be otherwise provided in these
terms of the Series D Convertible Preferred Stock or by law, the Series D
Convertible Preferred Stock shall vote together with all other classes and
series of stock of the Corporation as a single class on all actions to be taken
by the stockholders of the Corporation. Each share of Series D Convertible
Preferred Stock shall entitle the holder thereof to such number of votes per
share on each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of Series D Convertible
Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series D Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of five.
2C. Board Seats. The holders of the Series D Convertible
Preferred Stock, voting as a separate class, shall be entitled to elect one (1)
director of the Corporation. The holders of the Series C Convertible Preferred
Stock, voting as a separate class, shall be entitled to elect one (1) director
of the Corporation. The holders of the Series AA Convertible Preferred Stock,
voting together with the holders of the Series BB Convertible Preferred Stock as
a separate class, shall be entitled to elect one (1) director of the
Corporation. The holders of the Series BB Convertible Preferred Stock, voting as
separate series, shall each be entitled to elect one (1) director of the
Corporation. The holders of the Common Stock shall be entitled to elect one (1)
director of the Corporation. At any meeting held for the purpose of electing
directors, the presence in person or by proxy of the holders of a majority of
the shares of Series D Convertible Preferred Stock then outstanding shall
constitute a quorum of the Series D Convertible Preferred Stock for the election
of the director to be elected solely by the holders of the Series D Convertible
Preferred Stock. A vacancy in any directorship to be elected solely by the
holders of the Series D Convertible Preferred Stock shall be filled only by vote
or written consent of the holders of the Series D Convertible Preferred Stock.
3. Dividends
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Series D Convertible Preferred Stock shall be entitled to
receive, out
of any funds, legally available therefor, cumulative dividends at the annual
rate of Ten Percent (10%) of original issue price per share (the "Accruing
Dividends") (subject to equitable adjustment in the event of any stock dividend,
stock split, combination, reclassification other similar event). Such Accruing
Dividends shall accrue on each share of Series D Convertible Preferred Stock
from January 1, 1992 whether or not earned or declared.
Such Accruing Dividends on the Series D Convertible Preferred
Stock shall be cumulative so that if such dividends in respect of any previous
or current annual dividend period, at the annual rate specified above, shall not
have been paid or declared and a sum sufficient for the payment thereof set
apart, the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Common Stock. Upon
conversion or redemption of the Series D Convertible Preferred Stock under
paragraphs 6 and 7 hereof, or upon the liquidation or winding up of the affairs
of the Corporation, all such accrued and unpaid dividends, whether or not earned
or declared, to and until the date of such conversion, redemption, liquidation
or winding up, shall become immediately due and payable and shall be paid in
full. Upon conversion as provided in Section 6Q below, the Corporation, in lieu
of cash payment, may pay such accrued and unpaid dividends by delivery to the
holders of shares of the Corporation's Common Stock valued for such purpose at
the price paid by the public for such shares as described in Section 6Q.
Notwithstanding the foregoing, and except in the case of payments on
liquidation pursuant to Section 4 (under which the Series C and Series D
Convertible Preferred Stock shall be entitled to preferential payment of
Accruing Dividends) the Series D Convertible Preferred Stock shall rank pari
passu with the Series C, Series AA and Series BB Convertible Preferred Stock as
to the payment of dividends, and the holders of Series C, Series AA and Series
BB Convertible Preferred Stock shall be entitled to dividends at the same rate
per share of such stock as have been declared, paid or set aside for holders of
Series D Preferred Stock, without any preference as among holders of different
series of preferred stock.
(b) Restrictions. Unless all accrued dividends on the Series D
Convertible Preferred Stock shall have been paid or declared and a sum
sufficient for the payment thereof set apart, (i) no dividend shall be paid or
declared, and no distribution shall be made, on any Common Stock, (ii) no shares
of Series D Convertible Preferred Stock shall be converted under paragraph 6Q
hereof unless holders thereof consent to such conversion, and (iii) no shares of
any other class or series of stock of the Corporation shall be purchased,
redeemed or acquired by the Corporation and no amounts shall be paid into or set
aside or made available for the purchase, redemption or acquisition thereof;
provided however, that this restriction shall not apply to the repurchase of
shares of Common Stock held by employees or officers of the Corporation issued
from the Corporation's employee incentive stock option plan as in effect as of
November 30, 1991, providing for the reservation of 15,000 shares of Common
Stock for issuance to employees (the "Employee Incentive Stock Option Plan"), or
which are subject to stock repurchase agreements under which the
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Corporation has the right to repurchase such shares in the event of termination
of employment.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series D Convertible Preferred Stock shall be entitled, before any distribution
or payment is made upon any stock ranking on liquidation junior to the Series D
Convertible Preferred Stock, to be paid an amount equal to the greater of (i)
$110.00 per share (subject to equitable adjustment in the event of any stock
dividend, stock split, combination, reclassification or other similar event)
plus, in the case of each share, an amount equal to all Accruing Dividends
unpaid thereon (whether or not declared) and any other dividends declared but
unpaid thereon, computed to the date payment thereof is made available, or (ii)
such amount per share as would have been payable had each such share been
converted to Common Stock pursuant to paragraph 6 immediately prior to such
liquidation, dissolution or winding up, and the holders of Series D Convertible
Preferred Stock shall not be entitled to any further payment, such amount
payable with respect to one share of Series D Convertible Preferred Stock being
sometimes referred to as the "Liquidation Payment" and with respect to all
shares of Series D Convertible Preferred Stock being sometimes referred to as
the "Liquidation Payments." Liquidation Payments to holders of Series D
Convertible Preferred Stock shall rank equally with Liquidation Payments made to
holders of Series C Convertible Preferred Stock. If upon such liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the assets to be distributed among the holders of Series C and Series D
Convertible Preferred Stock shall be insufficient to permit payment to the
holders of Series D Convertible Preferred Stock of the amount distributable as
aforesaid, then the entire assets of the Corporation to be so distributed shall
be distributed ratably among the holders of Series C and Series D Convertible
Preferred Stock. Upon any such liquidation, dissolution or winding up of the
Corporation, after the holders of Series C and Series D Convertible Preferred
Stock shall have been paid in full the amounts to which they shall be entitled,
the remaining net assets of the Corporation may be distributed to the holders of
stock ranking on liquidation junior to the Series C and Series D Convertible
Preferred Stock. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Payments and the place
where said Liquidation Payments shall be payable, shall be given by mail,
postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior
to the payment date stated therein, to the holders of record of Series D
Convertible Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof, and the sale or transfer by the Corporation of all
or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank
on liquidation junior to the Series D Convertible Preferred Stock.
-3-
Notwithstanding the foregoing, the Series D Convertible Preferred Stock
shall rank equally with the Series C Convertible Preferred Stock and shall be
senior to the Series AA and Series BB Convertible Preferred Stock as to payments
on liquidation, dissolution or winding up, and the holders of Series C and
Series D Convertible Preferred Stock shall be entitled to all payments per share
of such stock on liquidation, dissolution or winding up in accordance with the
terms thereof before any payments are made or set aside for holders of Series AA
and Series BB Preferred Stock.
5. Restrictions. At any time when not less than 1,000 shares of Series
D Convertible Preferred Stock are outstanding (subject to equitable adjustment
in the event of any stock dividend, stock split, combination, reclassification
or other similar event), except where the vote or written consent of the holders
of a greater number of shares of Series D Convertible Preferred Stock is
required by law or by the Certificate of Incorporation, and in addition to any
other vote required by law or the Certificate of Incorporation, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Series D Convertible Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not:
5A. Create or authorize the creation of any additional class
or series of shares of stock unless the same ranks junior to the Series D
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series D Convertible Preferred Stock or increase the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series D Convertible Preferred Stock as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into shares of Series D
Convertible Preferred Stock or into shares of any other class of series of stock
unless the same ranks junior to the Series D Convertible Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or increase shall be by
means of amendment to the Certificate of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities or sell or transfer all or substantially all of its assets;
5C. Amend, alter or repeal its Certificate of Incorporation or
By-laws in a manner which would have a material effect on the rights and
preferences of the Series D Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay
any dividend or make any distribution on, any shares of stock other than the
Series AA or Series BB and the Series C and Series D Convertible Preferred
Stock, except for dividends or other distributions payable on the Common Stock
solely in the form of additional shares of Common Stock and except for the
purchase of shares of Common Stock from former
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employees of the Corporation who acquired such shares directly from the
Corporation, if each such purchase is made pursuant to contractual rights held
by the Corporation relating to the termination of employment of such former
employee; or
5E. Redeem or otherwise acquire any shares of Series AA,
Series BB or Series C Convertible Preferred Stock or Series D Convertible
Preferred Stock, except as expressly authorized in paragraph 7 hereof or
pursuant to a purchase offer made pro rata to all holders of the shares of
Series AA, Series BB and Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series AA, Series BB and Series C Convertible Preferred Stock or
Series D Convertible Preferred Stock then held by each such holder.
6. Conversions. The holders of shares of Series D Convertible Preferred
Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of
this paragraph 6, the holder of any share or shares of Series D Convertible
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series D Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the amount
distributable on the Series D Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Series D Convertible Stock so to be
converted by $110.00 and (ii) dividing the result by the conversion price of
$110.00 per share or, in case an adjustment of such price has taken place
pursuant to the further provisions of this paragraph 6, then by the conversion
price as last adjusted and in effect at the date any share or shares of Series D
Convertible Preferred Stock are surrendered for conversion (such price, or such
price as last adjusted, being referred to as the "Conversion Price"). Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series D
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series D
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Series D Convertible Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such shares or shares of Series D Convertible Preferred Stock. To
the extent permitted by law, such conversion shall be deemed to have been
effected and the Conversion Price
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shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Series D Convertible Preferred Stock shall cease, and the person or persons in
whose name or names any certificate or certificates for shares of Common stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series D Convertible
Preferred Stock into Common Stock and no payment or adjustment shall be made
upon any conversion on account of any cash dividends on the Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends, including any Accruing Dividends
prorated to the date of conversion, accrued and unpaid on the shares of Series D
Convertible Preferred Stock surrendered for conversion to the date upon which
such conversion is deemed to take place as provided in subparagraph 6B. In case
the number of shares or Series D Convertible Preferred Stock represented by the
certificate or certificates surrendered pursuant to subparagraph 6A exceeds the
number of shares converted, the Corporation shall, upon such conversion, execute
and deliver to the holder, at the expense of the corporation, a new certificate
or certificates for the number of shares of Series D Convertible Preferred Stock
represented by the certificate or certificates surrendered which are not to be
converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this subparagraph 6C, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Series D Convertible Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors.
6D. Adjustment of Price Upon Issuance of Common Stock. Except
as provided in subparagraph 6E, if the Corporation shall issue or sell, or is,
in accordance with subparagraphs 6D(1) through 6D(7), deemed to have issued or
sold, any shares of Common Stock or other stock or investment securities (other
than Common Stock issued pursuant to the Employee Incentive Stock Option Plan)
for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then, forthwith upon such
issue or sale, the Conversion Price shall be reduced to the price at which the
Corporation issued or sold, or is deemed to have issued or sold, such shares of
Commons Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any
time the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or
any options for the purchase of, Common stock or any stock or
-6-
security convertible into or exchangeable for Common Stock
(such warrants, rights or options being called "Options" and
such convertible or exchangeable stock or securities being
such called "Convertible Securities") whether or not such
Options or the right to convert or exchange any Convertible
Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable
to the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common
stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than
Fifty Percent (50%) of the Conversion Price in effect
immediately prior to the time of the granting of such Options,
then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the
date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be
outstanding. Except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon
the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert
any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (i)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less
than 50% of the Conversion Price in effect immediately prior
to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities shall be deemed
to have been
-7-
issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be
deemed to be outstanding, provided that (a) except as
otherwise provided in subparagraph 6D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any Options to
purchase any such Convertible Securities for which adjustments
of the Conversion Price have been or are to be made pursuant
to other provisions of this subparagraph 6D, no further
adjustment of the Conversion Price shall be made by reason of
such issue or sale.
6D(3) Change in Option Price to Conversion Rate. Upon
the happening of any of the following events, namely if the
purchase price provided for in any Option referred to in
subparagraph 6D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 6D(1) or 6D(2), or the
rate at which Convertible Securities referred to in
subparagraph 6D(1) or 6D(2) are convertible into or
exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall
forthwith be readjusted to the Conversion Price which would
have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted,
issued or sold, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
6D(4) Stock Dividends. In case the Corporation shall
declare a dividend or make any other distribution upon any
stock of the Corporation payable in Common Stock (except for
dividends or distributions upon the Common Stock, Options or
Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of
Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith. In case any shares
of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be fair value of such
-8-
consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any Options shall be issued in connection
with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options
by the parties thereto, such Options shall be deemed to have
been issued for such consideration as determined in good faith
by the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take
a record of the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then issue of such record date shall
be deemed to be the date of the issue of sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) Treasury Shares. The disposition of any shares
of Common Stock owned or held by or for the account of the
Corporation shall be considered an issue or sale of Common
Stock for the purpose of this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price in the case of the issuance of up to an
aggregate of 15,000 shares (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F) of Common stock to directors, officers
or employees of the Corporation in connection with their service as directors of
the Corporation or their employment by the Corporation pursuant to the Employee
Incentive Stock Option Plan.
6F. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
stock, then, as a condition of such reorganization or
-9-
reclassification, lawful and adequate provisions shall be made whereby each
holder of a share or shares of Series D Convertible Preferred Stock shall
thereupon have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of series D Convertible Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
6H. Certain Events. If any event occurs of the type
contemplated by the provisions of paragraphs 6D - 6G but not expressly provided
for by such provisions, then the Corporation's Board of Directors will make an
appropriate adjustment in the conversion price so as to protect the rights of
the holders of Series D Preferred Stock; provided that no such adjustment will
increase the conversion price as otherwise determined pursuant to this
subparagraph or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series D Preferred Stock.
6I. Purchase of Common Stock by the Corporation. If the
Corporation at any time while the Series D Preferred Stock is outstanding shall
purchase, redeem or otherwise acquire any of its Common Stock at a price per
share greater than the "Market Price" (as defined below), upon each such
purchase, redemption or acquisition the conversion price shall be adjusted to
that price determined by multiplying such conversion price then in effect by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such purchase, redemption or acquisition
minus the number of shares of Common Stock which the aggregate consideration for
the total number of such shares of Common Stock so purchase, redeemed or
acquired would purchase at the "market Price" (as defined below); and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such purchase, redemption or acquisition. For the purposes of
this subparagraph 6I, a purchase, redemption or acquisition of an option, right
or warrant shall be deemed to be a purchase of the underlying Common Stock, and
the computation herein required shall be made on the basis of the full exercise,
conversion or exchange of such option, right or warrant on the date as of which
such computation is required hereby to be made even if such option, right or
warrant is not exercisable, convertible or exchangeable on such date.
For purposes hereof, "Market Price" shall mean, on any date specified herein,
(A) if any class of capital stock of the Corporation (the "Capital Stock") is
listed or admitted to trading on any national securities exchange, the highest
price obtained by taking the arithmetic mean over a period of 20 consecutive
Trading Days (defined to mean any day on which the
-10-
NASDAQ National Market System is open for trading on a regular basis) ending the
second Trading Day prior to such date of the average, on each such Trading Day,
of the high and low sale prices of shares of each such class of Capital Stock or
if no such sale takes place on such date, the average of the highest closing bid
and lowest closing asked prices thereof on such date, in each case as officially
reported on all national securities exchanges on which each such class of
Capital Stock is then listed or admitted to trading, or (B) if no shares of any
class of Capital Stock are then listed or admitted to trading on any class of
Capital Stock on such date in the over-the-counter market as shown by the NASDAQ
National Market System or, if no such shares of any class of Capital Stock are
then quoted in such system, as published by the National Quotation Bureau, Inc.
or any similar successor organization, and in either case as reported by any
member firm of the New York Stock Exchange selected by the Corporation. If no
shares of any class of Capital Stock are then listed or admitted to trading on
any national securities exchange and if no closing bid and asked prices thereof
are then so quoted or published in the over-the-counter market, "Market Price"
shall mean the higher of (x) the book value per share of Capital Stock (assuming
for the purposes of this calculation the economic equivalent of all shares of
all classes of Capital Stock) as determined on a fully diluted basis in
accordance with generally accepted accounting principles by a firm of
independent public accounts of recognized standing (which may be its regular
auditors) selected by the Board of Directors of the Corporation as of the last
day of any month ending within 60 days preceding the date as of which the
determination is to be made or (y) the fair value of one share of the Capital
Stock on such day as determined in good faith by the Corporation's Board;
provided, however, that if holders of seventy-five percent (75%) of the Series D
Preferred Stock object in writing to such determination with 10 days of receipt
of written notification thereof, then the Market Price shall, at the expense of
the Corporation, be determined in good faith by a national or major regional
investment bank selected by vote or written consent of the Board.
6J. Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall given written
notice thereof, by first class mail, postage prepaid, or by telex or telecopy to
non-U.S. residents, addressed to each holder of shares of Series D Convertible
Preferred Stock at the address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6K. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock
of any class or other rights;
-11-
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with or into, or sale of all
or substantially all its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or telecopy, addressed to each holder
of any shares of Series D Convertible Preferred Stock at the address of such
holder as shown on the books of the Corporation, (a) at least 20 days' prior
written notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation , merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6L. Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series D Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series D Convertible
Preferred Stock. The Corporation covenants that all shares of Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue and thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Common Stock is at
all times equal to or less than the Conversion Price in effect at the time. The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed. The Corporation will not take any
action which results in any adjustment of the Conversion Price if the total
number of shares of Common Stock issued and issuable after such action upon
conversion of the Series D Convertible Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Certificate of
Incorporation.
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6M. No Reissuance of Series D Convertible Preferred Stock.
Shares of Series D Convertible Preferred Stock which are converted into shares
of Common Stock as provided herein shall not be reissued.
6N. Issue Tax. the issuance of certificates for shares of
Common Stock upon conversion of Series D Convertible Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series D Convertible Preferred Stock which is being converted.
6O. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series D Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion of
any Shares of Series D Convertible Preferred Stock in any manner which
interferes with the timely conversion of such Series D Convertible Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
6P. Definition of Common Stock. As used in this paragraph 6,
the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, no par value, as constituted on the date of filing of these terms
of the series D Convertible Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series D Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6Q. Mandatory Conversion. If at any time the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $5,000,000 and (ii) the price paid by the public for such shares shall be
at least $250.00 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series D Convertible Preferred Stock shall automatically
convert to the number of fully paid and nonassessable shares of Common Stock as
if determined by subparagraph 6A.
7. Redemption. The shares of Series D Convertible Preferred Stock may
be redeemed as follows:
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7A. Optional Redemption. The holders of not less than
two-thirds of the total number of shares of Preferred Stock outstanding (of all
Series, collectively) may elect to require the Corporation to redeem, and the
Corporation shall redeem, such number of the shares of each such Series of
Convertible Preferred Stock outstanding on January 1, 1996, as may be tendered
from time to time, in the amounts, and on the date or dates, as follows:
Percentage of All Shares
Outstanding on January 1, 1996,
Date of Redemption which may be redeemed
------------------ -------------------------------
June 1, 1996 33%*
June 1, 1997 67%*
June 1, 1998 100%
* each such redemption being allocated pro-rata among the holders of all
series of the Convertible Preferred Stock electing to participate in
such redemption.
Notice of such election (the "Election Notice") shall be signed by the
holders of not less than two-thirds of the total number of shares of
all Series of Preferred Stock then outstanding and may be delivered to
the Corporation at any time by hand, by courier or by deposit in the
United States mail.
7B. Redemption Price. The Series D Convertible Preferred Stock
to be redeemed on a Redemption Date shall be redeemed by paying for each share
in cash an amount equal to the greater of (i) $110.00 per share plus, in the
case of each share, am amount equal to all Accruing Dividends unpaid thereon
(whether or not declared) and any other dividends declared but unpaid thereon,
computed to the Redemption Date, or, (ii) the fair market value of the shares to
be redeemed, as determined by appraisal as described paragraph 7E, such amount
being referred to as the "Redemption Price."
7C. Redemption Mechanics. Any holder of Series D Convertible
Preferred Stock entitled to redemption pursuant to Paragraph 7A may notify the
Corporation in writing that Shares of Series D Convertible Preferred Stock held
by such holder shall be redeemed on a date specified in said Paragraph 7A. Such
a notice in writing is referred to herein as a "Redemption Notice" and all
shares to be redeemed pursuant to a Redemption Notice are referred to
collectively herein as the "Redemption Shares." The date specified for
redemption of Redemption Shares in a Redemption Notice is referred to herein as
a "Redemption Date." In order to require a redemption on a Redemption Date
specified in Paragraph 7A the Redemption Notice shall be given not later than
the later of (i) twenty days before such Redemption Date (if the Redemption
Notice is delivered by hand or courier) or (ii) twenty-five days before such
Redemption Date (if the Redemption Notice is deposited in the U.S. mail, postage
paid, addressed to the Corporation). A copy of any Redemption Notice shall be
sent by the Corporation to all holders of shares of Series AA, Series BB or
Series C Convertible Preferred Stock and Series D Convertible Preferred Stock by
first class mail within two business days of receipt of a Redemption Notice by
the
-14-
Corporation. Any holder of Series AA, Series BB or Series C Convertible
Preferred Stock or Series D Convertible Preferred Stock may include all shares
of such stock held by such holder and eligible for redemption on the Redemption
Date in the shares to be redeemed pursuant to the Redemption Notice by notifying
the Corporation in writing no later than ten days prior to the Redemption Date
specified. From and after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of the Redemption Shares (except the right to receive the
Redemption Price) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
7D. Payment of Redemption Price. If the funds of the
Corporation legally available for redemption of shares of Series AA or Series BB
Convertible Preferred Stock and Series C or Series D Convertible Preferred Stock
on a particular Redemption Date are insufficient to redeem the total number of
shares of Series AA, Series BB and Series C Convertible Preferred Stock and
Series D Convertible Preferred stock tendered for redemption, the holders of
shares to be redeemed shall be entitled to receive only their ratable shares of
any funds legally available for redemption of shares of those series in
proporation as the respective amounts which would be payable with respect to the
full number of shares tendered by them bears to the total amount which would be
payable if all outstanding shares of those series tendered for redemption were
redeemed in full. The shares of Series AA or Series BB Convertible Preferred
Stock and Series C and Series D Convertible Preferred Stock called for
redemption on a given Redemption Date but not redeemed on such date (such shares
being referred to herein as the "Unredeemed Shares") shall remain outstanding
and entitled to all rights and preferences applicable to shares of those
respective series. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of such Unredeemed Shares,
such funds will be used, at the end of the next succeeding fiscal quarter, to
redeem the balance of such shares, or such portion thereof for which funds are
then legally available, on the basis set forth above. Following any default by
the Corporation in the payment of the Redemption Price, and prior to the actual
redemption of shares called for redemption, the holder of any Unredeemed Shares
may withdraw such holder's call for redemption of such shares, which withdrawal
shall be effective upon the Corporation's receipt of written notice to that
effect from such holder.
On any Redemption Date, payment shall be made in full to the
holders entitled thereto, provided, however, that if the Corporation does not
then have available the funds necessary to effect the required redemption, the
Corporation may, at its election, request that the holders permit the
Corporation to pay all amounts payable on such Redemption Date with a note or
notes bearing interest at 12% annually, payable in five equal annual
installments with the first installment due on the Redemption Date, or upon
other reasonable deferred payment terms, and the holders shall negotiate with
the Corporation in good faith with respect to such requests (but without
obligation to agree to such request).
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7E. Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Series D Convertible Preferred Stock redeemed pursuant to this
paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever
shall be cancelled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce accordingly the number of authorized shares of Series D
Convertible Preferred Stock.
7F. Appraisal. In the event of a Redemption, the fair market
value of the Redemption Shares shall be determined as provided for in this
subparagraph 7E. The Corporation and the holders of Redemption Shares shall
endeavor to agree upon a single, independent appraiser. In the event that no
agreement is reached upon a single appraiser, each of the Corporation and the
holders of Redemption Shares shall select an appraiser, and the two appraisers
so selected shall appoint a third appraiser. The appraiser or appraisers so
selected shall endeavor to reach a valuation for the Series AA and Series BB
Convertible Preferred Stock and Series C and Series D Convertible Preferred
Stock with all due speed, and in any event shall submit a valuation in writing
to the Board of Directors within 40 days of their appointment. In the event that
the appraisers or appraiser, as the case may be, do not submit a valuation by
the Redemption Date, the appraiser or appraisers, as the case may be, shall
select a replacement Redemption Date which shall be within five days of the
their submission of a written valuation to the Board. All costs of an appraisal
under this subparagraph 7E shall be borne by the Corporation.
8. Amendments. No provision of these terms of the Series D Convertible
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series D Convertible Preferred Stock, voting as a separate
series.
9. Additional Rights of Holders.
9A. Information Rights. Any holder of not less than 5,000
shares of the Series D Convertible Preferred Stock shall be entitled (i) to
receive from the Corporation, and the Corporation shall deliver to such holders,
on a timely basis and without specific request, annual (audited), quarterly and
monthly financial statements and annual budgets of the Corporation, as well as
any other information reasonably requested by any such holder, (ii) to attend
all meetings of the Board of Directors of the Corporation, and (iii) to receive
copies of all substantive written materials distributed to the Board of
Directors.
9B. Inspection Rights. The holders of the Series D Convertible
Preferred Stock, and their designees, shall be entitled to inspect the
properties of the Corporation, examine records of the Corporation and make
copies thereof, and discuss the Corporation's affairs with the Corporation's
officers, directors, lay employees and accountants. Any holder shall also be
entitled, at the holder's own expense, to audit the Corporation at any time.
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SCHEDULE E
Preferred Stock.
- ----------------
The shares of Preferred Stock authorized hereby may be divided into and
issued in one or more series. To the extent that the designations, limitations,
preferences, voting powers, qualifications, and special or relative rights or
privileges of the Preferred Stock or as between series of Preferred Stock are
not established herein, the Directors of this corporation are expressly granted
the authority to establish series of Preferred Stock and to fix and determine,
in whole or in part, the designations, limitations, preferences, voting powers,
qualifications, and special or relative rights or privileges of the Preferred
Stock or as between series of Preferred Stock before the issuance of any shares
of Preferred Stock or any series of Preferred Stock in a resolution or
resolutions of the Board of Directors providing for the issuance of any shares
of Preferred Stock or any series of Preferred Stock. By way of example and
without limitation, such resolution or resolutions may:
(a) specify the series to which any such shares of Preferred Stock
shall belong;
(b) fix the rate of dividend for such series, if any, which
dividend may vary from series to series;
(c) specify whether dividends for such series are cumulative,
non-cumulative or partially cumulative;
(d) specify the manner in which dividends for such series are
payable and the date or dates from which such dividends shall
accrue;
(e) state whether such series shall be redeemable, and state the
price at and the terms and conditions on which shares of such
series may be redeemed;
(f) fix the amount payable on shares of such series in the event
of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
(g) state whether a sinking fund shall be created for the
redemption or repurchase of shares of such series, and, if
such a fund is established, the terms and provisions governing
the operation of any such fund and the status as to reissuance
of any shares of such series repurchased or otherwise
reacquired, redeemed or retired through the operation thereof;
(h) state whether the shares of such series shall be convertible,
and, if convertible, the terms and conditions on which shares
of such series may be converted; and
(i) state what voting rights shares of such series shall have, if
any.
The Board of Directors of the Corporation in such resolution
or resolutions may, in a manner not inconsistent with the provisions of
this Restated Articles of Incorporation and to the extent permitted by
applicable law:
(a) limit the number of shares of such series which may be issued;
(b) impose conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issue of
additional Preferred Stock or other stock of equal or prior
rank to such series as to dividends or distribution of assets
on voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
(c) impose conditions or restrictions upon the payment of
dividends or the making of other distributions of any kind or
character on, or the redemption, repurchase, retirement or
other reacquisition of, shares of any class or series of stock
junior in rank to the shares of such series as to dividends or
distribution of assets on voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(d) grant such other special rights to the holders of shares of
such series as the Board of Directors may determine.
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THIRD RESTATED BYLAWS OF BRUNSWICK TECHNOLOGIES, INC.
ARTICLE I
Offices
Section 1 Registered Office. The registered office of the Corporation shall be
as set forth in the Articles of Incorporation.
Section 2 Other Offices. The Corporation may have such other offices, either
within or without the State of Maine, as the Board of Directors may designate or
as the business of the Corporation may require.
ARTICLE II
Shareholders
Section 1 Annual Meeting. The annual meeting of the shareholders shall be held
during the months of April or May in each year, or at such other time as shall
be fixed by the Board of Directors, for the purpose of electing directors and
the transaction of such other business as may come before the meeting as further
provided in these bylaws. The hour, date and place may subsequently be changed
at any time by vote of the Board of Directors. If no annual meeting has been
held for a period of thirteen months after the end of the Corporation's last
annual meeting orf shareholders, a special meeting in lieu thereof may be held
and such special meeting shall have for the purposes of thes bylaws or otherwise
all the force and effect of an annual meeting. Unless otherwise expressly
provided to the contrary, any and all references hereinafter to these By-Laws to
annual meeting or annual meetings shall also be deemed to refer to any special
meeting(s) in lieu thereof.
Section 2 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may only be called
by the President, the Chairman of the Board of Directors, a majority of the
Board of Directors, or the holders of not less than 10% of the stock entitled to
vote at the meeting At a special meeting of shareholders, only such business
shall be conducted, and only such proposals shall be acted upon, as shall have
been stated in the written notice of the special meeting and otherwise properly
brought before the special meeting.
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Section 3 Place of Meeting. All shareholders' meetings shall be held at the
registered office of the Corporation or at such place or places, within or
without the State of Maine, as may from time to time be fixed by the Board of
Directors, or as shall be specified or fixed in respective notices or waivers of
notice thereof.
Section 4 Notice of Meeting; Adjournments. Unless otherwise provided by law, by
these By-Laws or by the Articles of Incorporation, written notice of the place,
date and hour of all meetings of the Shareholders and stating the purposes of
the meeting shall be given at least ten (10) and not more than sixty (60) days
before the meeting to each Shareholder who is entitled to vote thereat and to
each Shareholder who is otherwise entitled by law or by the Articles of
Incorporation to such notice, by leaving such notice with him or at his
residence or usual place of business, or by mailing it, postage prepaid, and
addressed to such Shareholder at the address of such Shareholder as it appears
in the stock transfer records of the Corporation. Such notice shall be deemed to
have been delivered when hand delivered to such address or when deposited in the
mails so addressed with postage prepaid and shall be given by the Clerk, or in
case of the death, absence, incapacity or refusal of the Clerk, by any other
officer or by a person designated either by the Clerk, by the person or persons
calling the meeting or by the Board of Directors. Whenever notice of a meeting
is required to be given to Shareholders under any provision of law, of the
Articles of Incorporation, or of these By-Laws, a waiver thereof by any method
specified in Me. Rev. Stat. Ann. tit. 13-A, ss.605 or any successor statute, by
such Shareholder or his attorney thereunto authorized, and filed with the
records of the meeting, or the attendance of such shareholders at such meeting
other than for the express purpose of objecting at the beginning of the meeting
to the transaction of any business on grounds that the meeting was not lawfully
called or convened, shall be deemed equivalent to such notice. Neither the
business to be transacted at, nor the purpose of, any annual or special meeting
of shareholders need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled annual or special meeting of shareholders, and a record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting or record date has been sent or
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made pursuant to Section 5 of this Article II or Section 3 of Article III hereof
or otherwise. In no event shall the public announcement of an adjournment,
postponement or rescheduling of any previously scheduled Annual Meeting of
Shareholders commence a new time period for the giving of a shareholder's notice
under Section 5 of Article II and Section 3 of Article III of these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the shareholders to consider fully information that the Board of
Directors determines has not been made sufficiently or timely available to
shareholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any annual or special
meeting of shareholders is adjourned to another hour, date or place, notice need
not be given of the adjourned meeting other than an announcement at the meeting
at which the adjournment is taken of the hour, date and place to which the
meeting is adjourned, and as otherwise required by law.
Section 5. Matters to be Considered at an Annual Meeting.
At any annual meeting of shareholders or any special meeting in lieu of
annual meeting of shareholders (the "Annual Meeting"), only such business shall
be conducted, and only such proposals shall be acted upon, as shall have been
properly brought before such Annual Meeting. To be considered as properly
brought before an Annual Meeting, business must be: (a) specified in the notice
of meeting, (b) otherwise properly brought before the meeting by, or at the
direction of, the Board of Directors, or (c) otherwise properly brought before
the meeting by any holder of record (both as of the time notice of such proposal
is given by the shareholders as set forth below and as of the record date for
the Annual Meeting in question) of any shares of capital stock of the
Corporation entitled to vote at such Annual Meeting who complies with the
requirements set forth in this Section 5.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a
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shareholder of record of any shares of capital stock entitled to vote at such
Annual Meeting, such shareholder shall: (i) give timely notice as required by
Section 5 of these bylaws to the Clerk of the Corporation and (ii) be present at
such meeting, either in person or by a representative. A shareholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 60 days nor more than 150 days
prior to the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a shareholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(A) the 60th day prior to the scheduled date of such Annual Meeting or (B) the
10th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For all purposes of these By-laws, including without limitation,
Section 3 of Article III of these By-laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to shareholders of
record of the Corporation at the time of the mailing of such letter or report.
A shareholder's notice to the Clerk shall set forth as to each matter
proposed to be brought before an Annual Meeting (other than a shareholders
proposal made pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")): (i) a brief description of the business the
shareholder desires to bring before such Annual Meeting and the reasons for
conducting such business at such Annual Meeting, (ii) the name and address, as
they appear on the Corporation's stock transfer books, of the shareholder
proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the shareholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital
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stock of the Corporation registered in such shareholder's name on such books,
and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other shareholders known by the shareholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other shareholders, and (vi) any material
interest of the shareholder proposing to bring such business before such meeting
(or any other shareholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines
that any shareholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 5 or that the information provided in a
shareholder's notice does not satisfy the information requirements of this
Section 5 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any shareholders
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the shareholder proposal was made in accordance
with the terms of this Section 5. If the presiding officer determines that any
shareholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 5 or that the information provided in a shareholder's
notice does not satisfy the information requirements of this Section 5 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors, a designated committee thereof
or the presiding officer determines that a shareholders proposal was made in
accordance with the requirements of this Section 4, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this Section 5, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 5. Nothing in this Section 5 shall be deemed to affect any
rights of shareholders to request inclusion of
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proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
Section 6 Record Date. For purposes of determining shareholders entitled to
receive notice of, or to vote at, any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of a dividend or other distribution, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days and, in the case of a meeting of shareholders, not less than ten (10)
full days prior to the date on which a particular action, requiring such
determination of shareholders, is to be taken. The directors may, in lieu of
fixing a record date, provide that the stock transfer books shall be closed for
a stated period not to exceed sixty (60) days and, in case of a meeting of
shareholders, not less than ten (10) full days immediately preceding the date of
such meeting. If the stock transfer books are not closed and no record date is
fixed for determination of shareholders entitled to receive notice of, or to
vote at, a meeting of shareholders or for determination of shareholders entitled
to receive payment of a dividend or other distribution, the day next preceding
the date on which notice of the meeting is mailed or the day next preceding the
date on which the resolution of the Board of Directors declaring such dividend
or other distribution is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders is made, such determination
shall apply to any adjournment thereof for less than thirty (30) days. The Board
of Directors shall fix a new record date for the adjourned meeting if the
adjournment is for more than thirty (30) days.
Section 7 Voting Record. It shall be the duty of the officer or agent having
charge of the stock transfer books of the Corporation to prepare, at least ten
(10) days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order,
specifying the address of and the number of shares held by each. Such list shall
be open for said 10 days to the examination of any shareholder at the place
where said meeting is to be held and shall be produced and kept at the time and
place of the meeting during the whole time thereof and subject to the inspection
of any shareholder who may be present.
Section 8 Quorum. A majority of the voting power of outstanding shares of all
classes of stock of the Corporation entitled to vote on any matter, represented
in person or by proxy, shall constitute a quorum at a meeting of shareholders
for purposes of voting on that matter. except that if two or more classes or
series of stock are entitled to vote on any
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matter as separate classes or series, then in the case of each such class or
series a quorum for that matter shall consist of a majority of the voting power
of all stock of that class or series issued and outstanding; and except when a
larger quorum is required by law, by the Articles of Incorporation or by these
By-Laws. If less than a quorum is present at any such meeting, the holders of a
majority of the voting power of all classes of stock issued, outstanding and
entitled to vote at such meeting that are present in person or by proxy at such
meeting or the presiding officer of the meeting may adjourn the meeting from
time to time, and the meeting may be held as adjourned without further action
other than an announcement at the meeting at which the adjournment is taken of
the hour, date and place to which the meeting is adjourned and otherwise as may
be required by law. At any such adjourned meeting at which a quorum is present
or represented by proxy, any business may be transacted which might have been
transacted at the meeting of which notice was originally given. The shareholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
Section 9 Proxies. At all meetings of shareholders, a shareholder may vote in
person or by a proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Clerk of the
Corporation or the presiding officer of the meeting before, or at the time of
the meeting. No proxy shall be valid after eleven (11) months from the date of
its execution unless otherwise expressly and conspicuously provided in the
proxy. Every proxy shall be revocable unless it expressly and conspicuously
states that it is irrevocable and unless it otherwise complies with the
requirements of law. Unless otherwise specifically limited by their terms or as
otherwise provided by law, such proxies shall entitle the holders thereof to
vote at any adjournment of such meeting. A proxy purporting to be executed by or
on behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger.
Section 10 Voting of Shares. Each outstanding share shall be entitled to one
vote upon each matter submitted to a vote at a meeting of shareholders, provided
that, with respect to matters as to which fewer than all classes of stock are
entitled to vote, each outstanding share of the class or classes of stock so
entitled shall be entitled to one vote upon each such matter. Neither treasury
shares nor shares of its own stock held by the Corporation nor shares
hypothecated to the Corporation shall be entitled to vote.
Except to the extent that the vote of a greater number of shares or
voting by classes or series of shares is required by statute or by the Articles
of Incorporation of the
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Corporation, at any meeting of shareholders which has been duly called, or
notice and call of which has been unanimously waived, and at which a quorum is
present, any corporate action shall be authorized by a majority of the votes of
all classes of stock that are present at such meeting in person or by proxy and
entitled to be cast at the meeting, voting together as a single class, which are
cast at the meeting.
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe or, in
the absence of such provision, as the board of directors of such other
corporation may determine.
Shares held by a personal representative, guardian or conservator may
be voted by such person, either in person or by proxy, without a transfer of
such shares into his or her name. Shares standing in the name of a trustee may
be voted by such trustee, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him or her without a transfer of such shares
into such trustee's name, which transfer shall reflect his or her capacity as
trustee.
Shares standing in the name of a receiver may be voted by such receiver
without the transfer thereof into his or her name if authority to do so is
conferred by statute or is authorized by the court which appointed such
receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred on the records of the Corporation
into the name of the pledgee, and thereafter the pledgee shall be entitled to
vote the shares so long as they stand of record in the pledgee's name.
Section 11 Informal Action by Shareholders. Any action required or permitted to
be taken at a meeting of the shareholders may be taken without a meeting if
written consents, setting forth the action so taken, are signed by the holders
of all outstanding shares entitled to vote on such action and are filed with the
Clerk of the Corporation as part of the corporate records. Such written consents
shall have the same effect as a unanimous vote of the shareholders.
Section 12. Presiding Officer.
The Chairman, or in his absence, the President, shall preside at all
annual or special meetings of shareholders and shall have the power, among other
things, to adjourn such meeting at any time and from time to time, subject to
Sections 5 and 7 of this Article II. The order of business and all other matters
of procedure at any meeting of the shareholders shall be determined by the
presiding officer.
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Section 13. Voting Procedures and Inspectors of Elections.
The Board of Directors, shall, in advance of any meeting of
shareholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Board of Directors may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of shareholders (or none has
been designated by the Board of Directors), the presiding officer shall appoint
one or more inspectors to act at the meeting. Any inspector may, but need not,
be an officer, employee or agent of the Corporation. The inspector shall perform
such duties as are required by the Maine Business Corporation Act, as amended
from time to time, including the counting of all votes and ballots. The
inspectors may, with the approval of the presiding officer, appoint or retain
other persons or entities to assist the inspectors in the performance of the
duties of the inspectors. All determinations by the inspector(s) and, if
applicable, the presiding officer, shall be subject to further review by any
court of competent jurisdiction.
ARTICLE III
Board of Directors
Section 1 General Powers. The business and affairs of the Corporation shall be
managed by its Board of Directors.
Section 2 Number, Tenure and Qualification. The number of Directors of the
Corporation shall be as set forth in the Corporation's Articles of
Incorporation. Directors shall be elected annually and shall hold office until
the next annual meeting of shareholders and until their respective successors
shall have been elected and qualified. Directors need not be residents of the
State of Maine nor shareholders of the Corporation.
Section 3. Director Nominations.
Nominations of candidates for election as Directors of the Corporation
at any Annual Meeting may be made (a) by, or at the direction of, a majority of
the Board of Directors or (b) by any holder of record (both as of the time
notice of such nomination is given by the shareholder as set forth below and as
of the record date for the Annual Meeting in question) of any shares of the
capital stock of the Corporation entitled to vote at such Annual Meeting who
complies with the procedures set forth in this Section 3. Any shareholder who
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seeks to make such a nomination or his representative must be present in person
at the Annual Meeting. Only persons nominated in accordance with the procedures
set forth in this Section 3 shall be eligible for election as Directors at an
Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Clerk of the Corporation as set forth in this Section 3. A shareholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 60 days nor more than 150 days
prior to the Anniversary Date; provided, however, that in the event the Annual
Meeting is scheduled to be held on a date more than 30 days before the
Anniversary Date or more than 60 days after the Anniversary Date, a
shareholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 60th day prior to the scheduled date of such
Annual Meeting or (ii) the 10th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A shareholder's notice to the Clerk shall set forth as to each person
whom the shareholder proposes to nominate for election or re-election as a
Director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such shareholders notice, and
(iv) the consent of each nominee to serve as a Director if elected. A
shareholder's notice to the Clerk shall further set forth as to the shareholders
giving such notice (i) the name and address, as they appear on the Corporation's
stock transfer books, of such shareholders and of the beneficial owners (if any)
of the Corporation's capital stock registered in such shareholder's name and the
name and address of other shareholder known by such shareholders to be
supporting such nominee(s), (ii) the class and number of shares of the
Corporation's capital stock which are held of record, beneficially owned or
represented by proxy by such
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shareholders and by any other shareholders known by such shareholders to be
supporting such nominee(s) on the record date for the Annual Meeting in question
(if such date shall then have been made publicly available) and on the date of
such shareholder's notice, and (iii) a description of all arrangements or
understandings between such shareholders and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such shareholder.
If the Board of Directors or a designated committee thereof determines
that any shareholder nomination was not timely made in accordance with the terms
of this Section 3 or that the information provided in a shareholder's notice
does not satisfy the informational requirements of this Section 3 in any
material respect, then such nomination shall not be considered at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any shareholder nomination was not timely
made in accordance with the terms of this Section 3 or that the information
provided in a shareholder's notice does not satisfy the informational
requirements of this Section 3 in any material respect, then such nomination
shall not be considered at the Annual Meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a nomination was made in accordance with the terms of this Section 3, the
presiding officer shall so declare at the Annual Meeting and ballots shall be
provided for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this Section 3, in the event that the number of Directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 75
days prior to the Anniversary Date, a shareholder's notice required by this
Section 3 shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if such notice shall be delivered
to, or mailed to and received by, the
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Corporation at its principal executive office not later than the close of
business on the 15th day following the day on which such public announcement is
first made by the Corporation.
No person shall be elected by the shareholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3. Election of Directors at the Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the Annual Meeting in accordance with the procedures set forth in this Section 3
shall be provided for use at the Annual Meeting.
Section 4 Regular Meetings. Regular meetings of the Board of Directors may be
held at such times and places within or without the State of Maine as the Board
of Directors may from time to time fix and, when so fixed, no notice thereof
need be given, provided that any Director who is absent when such times and
places are fixed shall be given notice as provided in Section 6 of this Article
III of the fixing of such times and places, and provided further that any
resolution relating to the holding of regular meetings shall remain in force
only until the next annual meeting of Shareholders. The first meeting of the
Board of Directors following the annual meeting of the Shareholders may be held
without notice immediately after and at the same place as the annual meeting of
the Shareholders or the special meeting held in lieu thereof. If in any year a
meeting of the Board of Directors is not held at such time and place, any action
to be taken may be taken at any later meeting of the Board of Directors with the
same force and effect as if held or transacted at such meeting.
Section 5 Special Meetings. Special meetings of the Directors may be called by
the Chairman of the Board, by the President or if the Chairman and the President
are absent or are unable to act, by any other officer, or by any two directors.
The person or persons authorized to call special meetings of the Board of
Directors may designate any place, either within or without the State of Maine,
as the place for holding any special meeting of the Board of Directors.
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Section 6 Notice. Notice of any special meeting shall be given by any usual
means of communication, including facsimile transmission, not less than three
business days before the meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, properly addressed, with
postage thereon prepaid. Any director may waive notice of any meeting by signing
a waiver of notice, either before or after the meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting has not been properly
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of the meeting, unless the Articles of
Incorporation, or provisions of law so require.
Section 7 Quorum. A majority of the directors in office at the time, present at
any regular or special meeting of the Board of Directors, shall constitute a
quorum for the transaction of business. In the absence of a quorum, a majority
of the directors present may adjourn the meeting from time to time until a
quorum is present, and the meeting may be held as adjourned without further
notice, if the time and place to which the meeting is adjourned are fixed and
announced at the meeting.
Section 8 Manner of Acting. The act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
In the absence of a quorum, no business may be transacted except the adjournment
of the meeting as herein provided. If at any time there are fewer directors in
office than one half of the number of Directors fixed by these Bylaws, the
directors then in office may transact no other business than the filling of
vacancies on the Board of Directors, in the manner and to the extent provided by
Me. Rev. Stat. Ann. tit. ss. 13-A, 706, or any successor provision, until
sufficient vacancies have been filled so that there are in office at least one
half of the number of directors fixed by the Bylaws or the Articles of
Incorporation.
Section 9 Action Without a Meeting. Any action required or permitted to be taken
at any meeting of the Board of Directors may be taken without a meeting, if
prior or subsequent to such action a written consent thereto is signed by all
members of the Board and such written consent is filed with the minutes of the
proceedings of the Board.
Section 10 Vacancies. Any vacancy created by an increase in the number of the
Board of Directors shall be filled only by election at an annual meeting or a
special meeting of shareholders called for that purpose, unless the power to
fill
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specific newly created directorships is expressly delegated to the directors by
a resolution adopted by a majority of each class of stock entitled to vote for
the election of directors at a regular or special meeting of the shareholders.
Any other vacancy, however occurring, in the Board of Directors may be filled by
a majority of the remaining directors or by a sole remaining director. Any
Director elected to fill any vacancy shall be elected for the unexpired term of
his or her predecessor and until his or her successor shall be duly elected and
shall qualify or until such Director's earlier death, resignation or removal.
Section 11 Compensation. By resolution of the Board of Directors, each Director
may be paid his or her expenses, if any, of attendance at each meeting of the
Board of Directors and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payments shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of either standing or
special committees may be allowed such compensation as the directors may
determine for attending committee meetings.
Section 12 Presumption of Assent. A Director of the Corporation who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless his or
her dissent shall be entered in the minutes of the meeting or unless he or she
files a written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or such dissent is forwarded by
registered mail to the clerk of the Corporation immediately after adjournment of
the meeting. Such rights of dissent shall not apply to a Director who voted in
favor of such action.
Section 13 Committees. The Board of Directors, by a resolution passed by a
majority of the directors then in office, may designate one or more committees,
each committee to consist of two or more directors. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided by the Board, shall have in their exercise,
subject to limitations imposed by statute, the powers of the Board of Directors
in the management of the business and affairs of the Corporation and may
authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required.
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Section 14 Participation in Meeting by Telephone. Members of the Board of
Directors, or of any committee designated by the Board, may participate in a
meeting of the Board or such committee by means of conference telephone or
similar communications equipment at which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 15 Indemnity. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
connection with such action, suit or proceeding. Nevertheless, no
indemnification shall be provided for any person with respect to any matter as
to which such person shall have been finally adjudicated in any action, suit or
proceeding not to have acted in good faith in the reasonable belief that his or
her action was in the best interests of the Corporation or, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order or conviction adverse to such person or by settlement or plea of
nolo contendere or its equivalent shall not of itself create a presumption that
such person did not act in good faith in the reasonable belief that his or her
action was in the best interests of the corporation or, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Any indemnification provided hereunder, unless ordered by a court,
shall be made by the Corporation only as authorized in each specific case upon a
determination that such indemnification of the director, officer, employee or
agent is proper under the circumstances because he or she has met the applicable
standard of conduct set forth herein. Such determination shall be made by the
Board of Directors by a majority vote of a quorum consisting of directors who
are not parties to such action, suit or proceeding or, if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or by the
shareholders. Such a determination, once made by the Board of Directors, may not
be revoked by the Board of Directors, and, upon the making of such determination
by the Board of Directors, the director, officer, employee or agent may enforce
the indemnification against the Corporation by a separate action notwithstanding
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any attempted or actual subsequent action by the Board of Directors.
Expenses incurred in defending any civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors, in the
manner herein provided, upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
Corporation as provided in this section.
The indemnification provided by this section shall not be deemed
exclusive of any other rights to which the person indemnified may be entitled
under any bylaw, agreement, or vote of shareholders or disinterested directors,
both as to action in such person's official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs and personal representatives of such a person. A right to
indemnification required by these Bylaws may be enforced by a separate action
against the Corporation, if an order for indemnification has not been entered by
a court in any action, suit or proceeding in respect to which indemnification is
sought.
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by him or her in any such capacity or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under this section.
ARTICLE IV
Officers
Section 1 Title and Number. The officers of the Corporation shall consist of a
Chairman of the Board of Directors, a President, a Treasurer, a Clerk and such
other officers as may be deemed necessary by the Board of Directors. Any two or
more offices may be held by the same person. The salaries of the officers shall
be determined by the Board of Directors or a committee duly designated thereby
and may be altered from time to time except as otherwise provided by contract.
All
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officers shall be entitled to be paid or reimbursed for all costs and
expenditures incurred in the Corporation's business.
Section 2 Election and Term of Office. The officers of the Corporation shall be
elected annually by the Board of Directors at the regular annual meeting of the
Directors and shall hold their offices until their successors are chosen and
have qualified or until their earlier resignation or removal from office. In the
event the officers to be elected by the Board should not be elected at such
meeting, they may be chosen at any subsequent meeting of the Board of Directors.
Section 3 Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
Section 4 Vacancies. Any vacancy, however occurring, in any office, may be
filled by the Board of Directors.
Section 5 Chairman of the Board of Directors. The Chairman of the Board of
Directors, sometimes referred to herein as the Chairman, shall be the chief
executive officer of the Corporation. Subject to the control of the Board of
Directors, the Chairman shall be responsible for directing the business and
affairs of the Corporation including implementation of long range objectives,
policies and plans; shall, when present, preside at all meetings of the
shareholders and of the Board of Directors; shall sign, together with the Clerk
or any other proper officer of the Corporation thereunto authorized by the Board
of Directors, certificates for shares of the Corporation and deeds, mortgages,
bonds, contracts or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation or shall be required by
law to be otherwise signed or executed; and in general shall perform all duties
incident to the office of Chairman and such other duties as may be prescribed by
the Board of Directors from time to time.
Section 6 President. The President shall be the chief operating officer of the
Corporation. In the absence of the Chairman or in the event of his death,
inability or refusal to act, the President shall perform the duties of the
Chairman and, when so acting, shall have all the powers of and be subject to all
the restrictions upon the Chairman. The President shall perform such other
duties as from time to time may be assigned to him by the Chairman or by the
Board of Directors.
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Section 7 Clerk. The Clerk shall keep, in a book kept for such purpose, the
records of all shareholders' and directors' meetings, including records of all
votes and minutes of such meetings; such book shall be kept at the registered
office of the Corporation or at another office of the Corporation to which the
Clerk has ready access. Wherever kept, such book shall be deemed to be in the
custody of the Clerk. The Clerk shall keep on file lists of shareholders
entitled to vote at each meeting; and shall keep on file the most recent list of
shareholders. The Clerk may certify all votes, resolutions and actions of the
shareholders and may certify all votes, resolutions and actions of the Board of
Directors and its committees, and he or she shall perform such other duties as
these Bylaws provide.
Section 8 Treasurer. The Treasurer shall keep full and accurate accounts of
receipts and disbursements and books belonging to the Corporation and shall
deposit all monies and other valuable effects in its name and to its credit in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disperse the funds of the Corporation as may be ordered by the Board,
taking proper vouchers therefor, and shall render to the Chairman and Directors
at the regular meetings of the Board, or whenever they may require, an account
of all his or her transactions as Treasurer and of the financial condition of
the Corporation. The Treasurer may sign checks, drafts or orders for the payment
of money unless otherwise provided by resolution of the Board of Directors and
shall in general perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him or her by the
Chairman or the Board of Directors.
Section 9 Delegation of Authority. In the case of the absence of any officer of
the Corporation for any reason that the Board may deem sufficient, the Board of
Directors may delegate some or all of the powers or duties of such officer to
any other officer or to any Director, employee, shareholders or agent for
whatever period of time seems desirable, providing that a majority of the entire
Board concurs therein.
Section 10 Salaries. The salaries of the officers shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from receiving
such salary by reason of the fact that such officer is also a Director of the
Corporation.
ARTICLE V
Contracts. Loans Checks and Deposits
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Section 1 Contracts. The Board of Directors may authorize any officer or
officers or agent or agents to enter into any contract or to execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 2 Loans. No loans shall be contracted on behalf of the Corporation and
no evidences on indebtedness shall be issued in its name unless authorized by
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
Section 3 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers or agent or agents
of the Corporation and in such manner as shall from time to time be determined
by resolution of the Board of Directors.
Section 4 Deposits. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
ARTICLE VI
Resignations
Section 1 Any director or other elected officer or member of any committee,
except the Clerk, may resign at any time. Such resignation shall be made in
writing and shall take effect at the time specified therein. If no time is
specified, it shall take effect from the time of its receipt by the Clerk, who
shall record such resignation, noting the day, hour and minute of its reception.
The acceptance of a resignation shall not be necessary to make it effective. The
Clerk may resign only as provided by law.
ARTICLE VII
Certificates for Shares and Their Transfer
Section 1 Certificates for Shares. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Board of
Directors. Each such certificate shall be signed by any two (2) of: the
Chairman, the President, the Clerk or the Treasurer, and each must be sealed
with the corporate seal or a facsimile thereof. The signatures of such officers
upon the certificate may be facsimiles if the certificate is countersigned by
the Clerk or a transfer agent, or is registered by a registrar, other than the
Corporation itself or one of its employees. Each
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certificate for a share shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, the number of shares issued to such person and the date of issue shall
be entered on the stock transfer books of the Corporation. All certificates
surrendered to the corporation for transfer shall be cancelled. No new
certificates shall be issued until the former certificates for a like number of
shares shall have been surrendered and cancelled, except as provided by Article
VII, Section 5 below.
Section 2 Classes and Series of Classes of Stock. If the Corporation is
authorized to issue more than one class of stock or more than one series of any
class, any designations, preferences or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
said preferences or rights shall be set forth in full or summarized on the face
or back of each certificate which the Corporation shall issue to represent such
class or series of stock; provided that, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock a statement
that the Corporation will furnish without charge to its shareholder who so
requests, a full statement of any designations, preferences or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences or rights.
Section 3 Transfer of Shares. Transfer of shares of the Corporation shall be
made only on the stock transfer books of the Corporation by the holder of record
thereof or by such holder of record's legal representative, who shall furnish
proper evidence of authority to transfer, or by his or her attorney thereunto
authorized by power of attorney, duly executed and filed with the Clerk or
transfer agent of the Corporation, and only upon surrender for cancellation of
the certificates for such shares. The person whose name shall stand on the stock
transfer books of the Corporation shall be deemed by the Corporation to be the
owner thereof for all purposes. Whenever any transfer shall be made for
collateral security and not absolutely, the fact shall be so expressed in the
entry of said transfer. The Corporation shall be entitled to treat the
registered holder of any shares as the absolute owner thereof and accordingly
shall not be bound to recognize any equitable or other claim to, or interest in,
such shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by law.
Section 4 Regulations. The Board may make such rules and regulations as it may
deem expedient, not inconsistent with the Articles of Incorporation or these
Bylaws, concerning the issue, transfer and registration of certificates for
shares of
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the stock of the Corporation. It may appoint, or authorize any principal officer
or officers to appoint, one or more transfer agents and one or more registrars
and may require all certificates of stock to bear the signature or signatures of
any of them.
Section 5 Lost, Destroyed or Mutilated Certificates. In case of loss,
destruction or mutilation of any certificates of stock, another certificate or
certificates may be issued in place thereof upon proof of such loss,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper to do so.
Section 6 Dividends. Dividends upon the capital stock of the corporation may be
declared by the Board of Directors in their discretion at any regular or special
meeting, subject to applicable preferences and to restrictions imposed by law.
Dividends may be paid in cash, in property or in shares of the Corporation's
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the directors, in
their absolute discretion, think proper as a reserve or reserves for meeting
contingencies, for repairing or maintaining any property of the Corporation or
for such other purposes as the directors may determine to be in the best
interests of the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
Section 7 Restrictions on Transfer. The Corporation may enter into appropriate
agreements with shareholders restricting the transfer of one or more classes of
the Corporation's stock. Transfer of the Corporation's stock shall be subject to
such restrictions as may be set forth in any agreement between the Corporation
and the holders of such stock. All restrictions on transfer shall be duly noted
on the stock certificates to which such restrictions apply.
ARTICLE VIII
Corporate Seal
If it is desired, the Corporation shall have a circular seal containing
the name of the Corporation, the year of its creation, and the word "Maine." A
corporate seal may be adopted at any time by a vote of the Board of Directors at
a meeting duly called and held in accordance with these Bylaws.
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ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall begin on the first day of January and
end on the 31st day of December in each year.
ARTICLE X
Amendments
These Bylaws may be altered, amended or repealed and any new Bylaws may
be adopted by the Board of Directors or shareholders entitled to vote to elect
directors. Notwithstanding the foregoing, the directors may not, for 2 years
after such shareholders have amended or repealed any bylaw provision, amend or
readopt the bylaw provision, thus amended or repealed by such shareholders.
Action by the directors with respect to the bylaws shall be taken by a vote of a
majority of those voting thereon, and action by the shareholders with respect to
the bylaws shall be taken by a majority of total votes of all shares of each
class of the Corporation's capital stock at the time outstanding, voting
together as a single class unless otherwise required by statute.
Date adopted: August , 1996
---------------------------
Daniel G. McKay, Clerk
BD&G LLP Draft
01/29/97
______________________________
BRUNSWICK TECHNOLOGIES, INC.
AND
JOSEPHTHAL LYON & ROSS INCORPORATED
_______
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of ______, 1997
_____________________________
REPRESENTATIVE'S WARRANT AGREEMENT, dated as of _____, 1997 (this
"Agreement"), between BRUNSWICK TECHNOLOGIES, INC. a Maine corporation (the
"Company"), and JOSEPHTHAL LYON & ROSS INCORPORATED (the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative 125,000
warrants ("Warrants") to purchase up to an aggregate of 125,000 shares (the
"Shares") of common stock, $0.0001 par value, of the Company ("Common Stock");
WHEREAS, the Company and the Representative are parties to a Financial
Advisory Agreement, dated as of June 24, 1996, pursuant to which the Company
agreed to issue to the Representative the Warrants in consideration for the
services to be provided by the Representative thereunder; and
WHEREAS, the Representative has agreed pursuant to an Underwriting
Agreement (the "Underwriting Agreement") dated as of February _____, 1997, among
the Representative and Southwest Securities, Inc., individually and as
representatives of the several Underwriters listed on Schedule A thereto (the
"Underwriters"), North Atlantic Venture Fund, L.P. as Selling Stockholder, and
the Company, to underwrite the Company's proposed public offering of up to
2,300,000 shares of Common Stock at a public offering price of $_____ per share
(the "Public Offering").
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of an aggregate of one hundred dollars ($100.00), the
agreements herein set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Grant. The Holder (as defined in Section 3.1 below) is hereby
granted an aggregate of 125,000 Warrants giving the Holder the right to
purchase, at any time from February _____, 1998 until 5:30 P.M., New York time,
on ______, 2002 (the "Exercise Period"), up to an aggregate of 125,000 shares of
Common Stock at an initial exercise price (subject to adjustment as provided in
Section 8 hereof) of $____, per share of Common Stock, subject to the terms and
conditions of this Agreement. Each Warrant shall be initially exercisable for
one (1) Share subject to adjustment as provided in Section 8 hereof) at the
exercise price set forth above. Except as set forth herein, the Shares issuable
upon exercise of the Warrants are in all respects identical to the shares of
Common Stock being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in
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Exhibit A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions, and other variations as required or
permitted by this Agreement.
3. Exercise of Warrant.
3.1. Method of Exercise. The Warrants initially are exercisable during
the Exercise Period at an aggregate initial exercise price (subject to
adjustment as provided in Section 8 hereof) per share of Common Stock, set forth
in Section 6 hereof, payable to the Company in cash, by certified check or wire
transfer to an account designated by the Company. Upon surrender during the
Exercise Period of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares of Common Stock purchased, at the Company's
principal offices in the United States (presently located at 43 Bibber Parkway,
Brunswick, Maine) the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
Shares of Common Stock so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
the Warrants). In the case of the purchase of less than all the Shares of Common
Stock purchasable under any Warrant Certificate (whether pursuant to this
Section 3.1 or Section 3.2 hereof), the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Shares of Common Stock
purchasable thereunder.
3.2. Exercise by Surrender of Warrant. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 in exchange for
the number of Shares of Common Stock equal to the product of (x) the number of
Shares of Common Stock as to which the Warrants are being exercised, multiplied
by (y) a fraction, the numerator of which is the aggregate Market Price (as
defined below) of such Common Stock, less the aggregate Exercise Price therefor,
and the denominator of which is such aggregate Market Price. Solely for the
purposes of this paragraph, the Market Price of the Common Stock shall be
calculated as the average of the Market Prices for the Common Stock for each of
the five trading days preceding the date on which the form of election attached
hereto is deemed to have been sent to the Company pursuant to Section 14 hereof.
3.3. Definition of Market Price. As used herein with respect to the
Common Stock, the phrase "Market Price," at any date shall be deemed to be the
last reported sale price of the Common Stock (if such Market Price is being
calculated for the Common Stock), or if no such reported sale takes place on
such day, the average of the last reported sale prices for the last three (3)
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock are listed or admitted to trading or by
NASDAQ, or if such security is not listed or admitted to trading on any such
securities exchange or quoted by NASDAQ, the average closing bid price as
furnished by the NASD through NASDAQ or similar organization if NASDAQ is no
longer reporting such information, or if the Common Stock are not quoted on
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NASDAQ, then as determined in good faith by resolution of the Board of Directors
of the Company, based on the best information available to it.
4. Issuance of Certificates. Upon the exercise of any Warrants and the
payment of the Exercise Price (as defined below) therefor, the issuance of
certificates for Shares of Common Stock, or other securities, properties, or
rights underlying such Warrants, shall be made forthwith (and in any event
within five (5) business days thereafter) without charge to the Holder thereof,
including without limitation any tax (other than a tax in respect of the income
or gain of the Holder) that may be payable in respect of the issuance thereof,
and such certificates shall (subject to the provisions of Sections 5 and 7
hereof) be issued in the name of, or in such names as may be directed by, such
Holder; provided, however, that the Company shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of such Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
of Common Stock (and/or other securities, property, or rights issuable upon the
exercise of the Warrants) shall be executed on behalf of the Company by the then
President and Treasurer of the Company, under its corporate seal reproduced
thereon, attested to, in the case of the Warrant Certificates, by the signature
of the then Secretary or Clerk of the Company. Warrant Certificates shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution, or transfer.
5. Transfer of Warrants and Restrictions Thereon.
5.1. Split-Up, Combination, Exchange and Transfer of Warrants. Subject
to the provisions of Section 5.2 hereof, any Warrant Certificate issued pursuant
to this Agreement may be split up, combined or exchanged for another Warrant
Certificate or Certificates containing the same terms to purchase a like
aggregate number of Warrant Shares. If any Holder desires to split up, combine
or exchange any Warrant Certificate issued pursuant to this Warrant Agreement,
it shall make such request in writing delivered to the Company and shall
surrender to the Company such Warrant Certificate to be so split-up, combined or
exchanged. Upon any such surrender for a split-up, combination or exchange, the
Company shall execute and deliver to the person or persons entitled thereto a
Warrant Certificate or any Warrant Certificate issued pursuant to this
Agreement, as the case may be, as so requested. The Company may require any
Holder to pay a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any split-up, combination or exchange of Warrants.
5.2 Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated,
or otherwise disposed of, in whole or in part, for a period ending on February
_____, 1998, except to officers or partners of the Representative, provided,
that as a
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condition to any such transfer to an officer or partner of the Representative,
the Representative shall deliver to the Company an opinion of counsel, in form
and substance reasonably satisfactory to the Company, that such transfer may be
made pursuant to an available exemption under the Securities Act of 1933, as
amended (the "Act"), subject in any case to Section 7.1 hereof.
6. Exercise Price.
6.1. Initial and Adjusted Exercise Prices. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be $______
per Share of Common Stock purchased thereunder. The adjusted exercise price for
the Common Stock shall be the price that shall result from time to time from any
and all adjustments of the initial exercise price therefor in accordance with
the provisions of Section 8 hereof.
6.2. Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
7.1. Registration Under the Securities Act of 1933. The Warrants have
not been registered under the Act. Upon exercise, in part or in whole, of the
Warrants, certificates representing the Shares of Common Stock underlying the
Warrants and any of the other securities issued or issuable upon exercise of the
Warrants (collectively, the "Warrant Shares") shall be subject to the following
legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"), and
may not be offered or sold except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent applicable,
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) an opinion of counsel, if such
opinion shall be reasonably satisfactory to counsel to the issuer, that
an exemption from registration under such Act is available."
7.2. Piggyback Registration. Subject to the provisions of Section 7.6
of this Agreement: If, at any time commencing one (1) year after the date hereof
and expiring six (6) years thereafter, the Company proposes to register any
shares of its Common Stock under the Act (other than in connection with a merger
or acquisition registered on Form S-4 (or a similar special-purpose form) or
with an employee benefit plan registered on Form S-8 (or a similar
special-purpose form), and other than any such registration using a form that is
not available for the registration of the Warrant Shares for resale to the
public) it will give written notice by registered mail, at least 20 days prior
to the filing of each such registration statement, to all Holders of Warrants
and/or Warrant Shares of its intention to do so. If any of the Holders of
Warrants and/or Warrant Shares notify the Company within 15 days after receipt
of any such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford each of such Holders
of the Warrants and/or Warrant Shares the
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opportunity to have Warrant Shares registered under such registration statement.
In the event that any registration pursuant to this Section 7.2 shall be, in
whole or in part, an underwritten public offering of Common Stock, the number of
Warrant Shares to be included in such underwriting may be reduced (pro rata
among all requesting Holders pursuant hereto and other holders of rights similar
to those described in this Section 7.2, based upon (a) as to the Holders
requesting hereunder, the number of Warrant Shares owned by such Holders, and
(b) as to any other holders of similar rights, shares of Common Stock owned by,
or issuable to, such holders, as to which such rights are applicable), if and to
the extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
the Company therein. In order to facilitate the allocation of shares as provided
herein, the Company or the underwriter may round the number of shares allocable
to any holder to the nearest 100 shares. The Holders electing to register
Warrant Shares in such an underwritten public offering may be required, as a
condition to such registration, to execute the Underwriting Agreement agreed to
by the Company and the managing underwriter in connection therewith, provided,
that if any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw from such underwriting by written notice to the
Company given at least three days prior to the time anticipated for the
registration statement to be declared effective. The Warrant Shares so withdrawn
from such underwriting shall nevertheless be registered in the registration
statement relating to such underwriting unless the withdrawing Holder thereof
requests otherwise.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect to postpone or not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof, without thereby incurring liability to
the Holders.
7.3. Demand Registration.
(a) Subject to the provisions of Section 7.6 of this
Agreement, at any time during the period commencing one (1) year after
the date hereof and expiring four (4) years thereafter, unless all of
the Warrants issued or issuable have been exercised and the Holders of
the Warrant Shares have received a written opinion of Company counsel,
reasonably satisfactory in form and substance to such Holders, to the
effect that all of the Warrant Shares are freely resalable pursuant to
Rule 144(k) promulgated under the Act, the Holders of the Warrants
and/or Warrant Shares representing a "Majority" (as hereinafter
defined) of such securities shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), on one
occasion (whether or not all Holders elect to include their Warrant
Shares in the offering), exercisable by written notice to the Company,
to have the Company prepare and file with the Commission, a
registration statement and such other documents, including a
prospectus, as may be
-6-
necessary in the reasonable opinion of both counsel for the Company and
counsel for the Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale of their respective
Warrant Shares for nine (9) months by such Holders and any other
Holders of the Warrants and/or Warrant Shares who notify the Company
within ten (10) days after receiving notice from the Company of such
request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or
Holders holding a Majority of the Warrants and Warrant Shares to all
other registered Holders of Warrants and/or Warrant Shares within ten
(10) days from the date of the receipt of any such registration
request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the
Warrant Shares within the time period specified in Section 7.4(a)
hereof, pursuant to the written notice specified in Section 7.3(a) of a
Majority of the Holders of the Warrants and/or Warrant Shares, the
Company agrees that, upon the written notice of a Majority of the
Holders of the Warrants and/or Warrant Shares of their election to
exercise their rights under this Section 7.3(c), the Company shall have
the option, but not the obligation, to repurchase (i) any and all
Warrant Shares at the higher of the Market Price per share of Common
Stock on (x) the date of the notice sent pursuant to Section 7.3(a) or
(y) the expiration of the period specified in Section 7.4(a) and (ii)
any and all Warrants at the aggregate Market Price (determined as set
forth above in this Section 7.3(c)) of the Common Stock issuable
thereunder less the aggregate Exercise Price of such Warrants. Such
repurchase shall be in immediately available funds and shall close
within two (2) business days after the later of (i) the expiration of
the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(d).
(d) Notwithstanding anything to the contrary contained herein,
no demand may be made pursuant to this Section 7.3 within the period
beginning on the effective date of a registration statement filed by
the Company either: (x) for its own account pursuant to a firm
commitment underwritten public offering, (y) pursuant to a demand under
Section 4(a) of the Registration Rights Agreement, dated as of October
30, 1996, among the Company, Burlington Industries, Inc. and Peter L.
DeWalt, or (z) pursuant to a demand under Section 4(a) of the Amended
and Restated Registration Rights Agreement, dated as of August 25,
1993, as amended to date, among the Company and certain stockholders of
the Company, and ending on the earlier of the completion of the
distribution pursuant to such registration statement or 120 days after
such effective date.
7.4. Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
and the Representative covenant and agree as follows:
(a) In connection with a demand under Section 7.3, the Company
shall use its best efforts to file a registration statement within 45
days of receipt of any demand
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therefor, shall use its best efforts to have any registration
statements declared effective at the earliest possible time, and shall
furnish each Holder desiring to sell Warrant Shares such number of
prospectuses as such holder shall reasonably have requested. If the
Company shall fail to comply with its obligations under this Section
7.4(a), the Company shall, in addition to any other equitable or other
relief available to the Holder(s), extend the Exercise Period by such
number of days as shall equal the delay caused by the Company's
failure.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling
commissions or other charges of broker-dealers acting on behalf of the
Holders), fees, and expenses incurred by the Company in connection with
all registration statements filed pursuant to Section 7.2 hereof,
including without limitation the Company's legal and accounting fees,
printing expenses, and blue sky fees and expenses.
(c) In the event of the filing of a registration statement
pursuant to a demand made by Holders pursuant to Section 7.3, the
Holders for whom Warrant Shares are pursuant to such demand (including
any Holders whose Warrant Shares are included in such registration
pursuant to Section 7.2), shall pay all costs, fees and expenses
incurred by the Company (including the reasonable and documented fees
and expenses of one counsel for the Company) in connection with all
registration statements filed pursuant to such demand, provided,
however, that (i) in the event that any such registration statement
registers shares for the account of the Company or shareholders other
than any Holders, the Holders shall pay only that portion of the costs,
fees and expenses incurred by the Company in connection with such
registration statement equal to the amount equal to (x) the aggregate
of such costs, fees and expenses incurred by the Company, multiplied by
(y) a fraction, the numerator of which is the number of Warrant Shares
included in such registration statement and the denominator of which is
the total number of shares included in such registration statement; and
(ii) in the event that, at the time the demand is made, the Company is
eligible to use Form S-3 (or any successor form under the Securities
Act) to register the Warrant Shares for resale by the Holders, the
Holders shall not be required to pay fees, costs or expenses of the
Company (including the reasonable and documented fees and expenses of
one counsel for the Company) in connection with any demand made
pursuant to Section 7.3 in the aggregate in excess of $15,000.
(d) The Company shall take all reasonably necessary action
that may be required in qualifying or registering the Warrant Shares
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested
by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process, to qualify
as a foreign corporation to do business under the laws of any such
jurisdiction, or to make any changes in its capital structure or in any
other material aspects of its business or to enter into any material
agreement with any Blue Sky Commissioners, including any agreements to
escrow any shares of its capital stock.
-8-
(e) The Company shall indemnify the Holder(s) of the Warrant
Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing, or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement but only to the
same extent and with the same effect as the provisions contained in
Section 9 of the Underwriting Agreement pursuant to which the Company
has agreed to indemnify each of the Underwriters.
(f) The Holder(s) of the Warrant Shares to be sold pursuant to
a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company and its officers and
directors and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage, expense, or liability (including all
expenses reasonably incurred in investigating, preparing, or defending
against any claim whatsoever) to which they may become subject under
the Act, the Exchange Act, or otherwise, arising from information
furnished in writing by or on behalf of such Holders, or their
successors or assigns, specifically for inclusion in such registration
statement, to the same extent and with the same effect as the
provisions contained in Section 9 of the Underwriting Agreement
pursuant to which each of the Underwriters has severally agreed to
indemnify the Company.
(g) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(h) The Company shall not permit the inclusion of any
securities other than the Warrant Shares to be included in any
registration statement filed pursuant to Section 7.3(a) hereof without
the prior written consent of the Holders of the Warrants and the
Warrant Shares representing a Majority of such securities, provided,
however, that any other holders of shares of Common Stock who have the
right, as of the date hereof, to have their shares of Common Stock
included in certain registrations of the Common Stock undertaken by the
Company, shall have the right to have their shares included in such
registration to the extent of such rights. In the event that any
registration undertaken by the Company pursuant to section 7.3(a) shall
be, in whole or in part, an underwritten public offering, (i) as a
condition to permitting the inclusion of any such shares of Common
Stock other than any Warrant Shares in such registration, each holder
thereof must agree to participate in the underwriting arrangements
contemplated in connection with such underwritten public offering, and
(ii) the number of shares to be included in such registration (other
than any Warrant Shares) may be reduced if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the
Company therein. In the event of the filing of a registration statement
pursuant to Section 7.3 hereof, the Company shall
-9-
not permit any other registration statement to be or remain effective
during the period commencing on the effective date of the registration
statement filed pursuant to Section 7.3 and ending on the date 120 days
after such effective date, other than with respect to shares issuable
in connection with a merger or acquisition and registered on Form S-4
(or a similar special-purpose form) or with an employee benefit plan
and registered on Form S-8 (or a similar special-purpose form), without
the prior written consent of the Holders of the Warrants and the
Warrant Shares representing a Majority of such securities.
(i) The Company shall cause to be furnished to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion
of counsel to the Company, dated the effective date of such
registration statement (or if such registration includes an
underwritten public offering, an opinion dated the date of the closing
under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the
Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and,
in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters
delivered to underwriters in underwritten public offerings of
securities.
(j) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(k) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of
all correspondence between the Commission and the Company, its counsel,
or auditors and all memoranda generated or received by the Company and
relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriters
to do such investigation, upon reasonable advance notice, with respect
to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities
laws or rules of the National Association of Securities Dealers, Inc.
("NASD"). Such investigation shall include access to books, records,
and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
-10-
(l) In connection with an underwritten offering pursuant to
Section 7.3, the Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by
Holders holding a Majority of the Warrant Shares requested to be
included in such underwriting, which may be the Representative. If not
the Representative, the selection of such managing underwriter shall be
subject to the approval of the Company, which shall not be unreasonably
withheld or delayed. Such agreement shall be reasonably satisfactory in
form and substance to the Company, each Holder, and such managing
underwriters, and shall contain such representations, warranties, and
covenants by the Company and the participating Holders and such other
terms and conditions as are customarily contained in agreements of that
type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their
Warrant Shares and may, at their option, require that any or all the
representations, warranties, and covenants of the Company to or for the
benefit of such underwriters shall also be made to and for the benefit
of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their
intended methods of distribution.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants and/or Warrant Shares, shall mean
in excess of fifty percent (50%) of the then outstanding Warrants
and/or Warrant Shares that (i) are not held by the Company, an
affiliate, officer, creditor, employee, or agent thereof or any of
their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the
Commission under the Act.
7.5. Furnishing of Information by Holders in connection with
Registration. In connection with each registration hereunder, the participating
Holders of Warrant Shares will furnish to the Company in writing such
information with respect to themselves and the proposed distribution of Warrant
Shares by them as reasonably shall be necessary in order to assure compliance
with applicable federal and state securities laws.
7.6. No Implied Rights. Notwithstanding any other provision of this
Agreement, nothing in this Agreement shall create any obligation of the Company
to register any securities other than shares of Common Stock that are also
Warrant Shares, except that the Company's registration obligations hereunder
shall also apply to any shares of capital stock or other securities that are
received upon exercise of any Warrant in lieu of shares of Common Stock,
pursuant to Sections 8.5 or 8.6 hereof.
8. Adjustments to Exercise Price and Number of Securities.
8.1. Computation of Adjusted Exercise Price. Except as hereinafter
provided, in case the Company shall at any time after the date hereof issue or
sell any shares of Common Stock, including shares held in the Company's treasury
and shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock and shares
-11-
of Common Stock issued upon the direct or indirect conversion or exchange of
securities for shares of Common Stock, for a consideration per share less than
the Exercise Price per share of Common Stock issuable upon exercise of the
Warrants, as in effect immediately prior to the issuance or sale of such shares,
or without consideration, then forthwith upon such issuance or sale, such
Exercise Price shall (until another such issuance or sale) be reduced to the
price (calculated to the nearest full cent) equal to the quotient derived by
dividing (i) an amount equal to the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to the issuance or sale of such
shares, multiplied by the Exercise Price in effect immediately prior to such
issuance or sale, and (b) the aggregate of the amount of all consideration, if
any, received by the Company upon such issuance or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such issuance or
sale; provided, however, that in no event shall such Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 8.3
hereof, and provided, further, that in no event shall the Exercise Price be
adjusted pursuant to this Section 8 as a direct consequence of the issuance of
shares of Common Stock upon the exercise of options, warrants or other rights to
cause the Company to issue shares of Common Stock in effect on the date hereof
and described in the Prospectus included in the registration statement filed by
the Company in connection with the Public Offering (the "Prospectus"), including
without limitation shares of Common Stock issuable upon conversion of that
Convertible Promissory Note of the Company, dated as of October 30, 1996, in the
aggregate principal amount of $7,863,000, and the issuance of an aggregate of
2,000 shares to be issued to directors-elect of the Company as described in the
Prospectus, or as a direct consequence of the issuance of options under stock
option or stock incentive plans that have been adopted by the Board of Directors
on or before the date hereof, provided that such options have been granted with
an exercise price no less than the fair market value of the shares of Common
Stock or other securities for which such options may be exercised, on the date
such options are granted.
For the purposes of this Section 8 the term "Exercise Price" shall mean
the Exercise Price per share of Common Stock set forth in Section 6 hereof, as
adjusted from time to time pursuant to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of
the cash consideration therefor shall be deemed to be the amount of
cash received by the Company for such shares (or, if shares of Common
Stock are offered by the Company for subscription, the subscription
price, or, if either of such securities shall be sold to underwriters
or dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
-12-
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares
of Common Stock for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor other than cash
shall be deemed to be the value of such consideration as determined in
good faith by the Board of Directors of the Company and shall include
any amounts payable to security holders or any affiliates thereof,
including, without limitation, pursuant to any employment agreement,
royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such amounts being valued
for the purposes hereof at the aggregate amount payable thereunder,
whether such payments are absolute or contingent, and irrespective of
the period or uncertainty of payment, the rate of interest, if any, or
the contingent nature thereof.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have
been issued immediately after the opening of business on the day
following the record date for the determination of stockholders
entitled to receive such dividend or other distribution and shall be
deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights, warrants and upon the conversion
or exchange of convertible or exchangeable securities.
(vi) Notwithstanding any other provision of this Section 8,
the Exercise Price of the shares of Common Stock purchasable hereunder
shall not be reduced at any time if the amount of such reduction would
be less than $0.05, but any such amount shall be carried forward and
reduction with respect thereto shall be made at the time of any
subsequent reduction that, together with any previously carried forward
reductions, aggregates $0.05 or more.
8.2. Options, Rights, Warrants and Convertible and Exchangeable
Securities. In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share less than the Exercise Price in effect immediately
prior to the issuance of such options, rights or warrants, or such convertible
or exchangeable securities, or without consideration, the Exercise Price in
effect immediately prior
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to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of Section
8.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall
be deemed to be issued and outstanding at the time such options, rights
or warrants were issued, and for a consideration equal to the minimum
purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration (determined in
the same manner as consideration received on the issue or sale of
shares in accordance with the terms hereof), if any, received by the
Company for such options, right or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of
issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received
on the issue or sale of shares of Common Stock in accordance with the
terms hereof) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection
(a) of this Section 8.2, or in the price per share at which the
securities referred to in subsection (b) of this Section 8.2 are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities at the new price in respect of
the number of shares issuable upon the exercise of such options, rights
or warrants or the conversion or exchange of such convertible or
exchangeable securities.
8.3. Subdivision and Combination; Stock Dividends and Distributions. In
case the Company shall at any time subdivide or combine the outstanding shares
of Common Stock, or issue shares of Common Stock as a dividend or other
distribution in respect of shares of Common Stock, the Exercise Price per share
of Common Stock purchasable hereunder shall forthwith be proportionately
decreased in the case of a subdivision or stock dividend or distribution or
increased in the case of a combination. Notwithstanding the foregoing, in no
event shall any adjustment in the Exercise Price be made pursuant to this
Section 8.3 upon the issuance of up to ______ shares of Common Stock to the
holders of the Company's outstanding Preferred Stock, no par value, in payment
of cash dividends on such Preferred Stock accrued prior to the date hereof and
described in the Prospectus.
-14-
8.4. Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price per share of Common Stock purchasable hereunder pursuant to the
provisions of this Section 8, the respective numbers of shares of Common Stock
issuable upon the exercise of each Warrant shall be adjusted to the nearest full
amount by multiplying a number equal to the Exercise Price per share of Common
Stock purchasable hereunder in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable upon exercise of the Warrants
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price per share of Common Stock purchasable hereunder.
8.5. Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Restated Articles of Incorporation of the Company as amended through the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
8.6. Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger that does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or surviving such merger shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
holder of each Warrant outstanding immediately prior to the effective time of
such consolidation or merger shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation or merger. Such supplemental warrant
agreement shall provide for adjustments that shall be identical to the
adjustments provided in Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
8.7. Dividends and Other Distributions. In the event that the Company
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of cash or shares of Common Stock) or
otherwise distribute to the holders of Common Stock any assets, property,
rights, evidences of indebtedness, securities, whether issued by the Company or
by another, or any other thing of value (other than cash or shares of Common
Stock), the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants for shares of Common Stock, the same property, assets, rights,
evidences of indebtedness, securities or any other thing of value that they
would have been entitled to receive at the time of such dividend or distribution
as if such Warrants had been exercised, immediately prior to the record date for
determining the stockholders entitled to receive such dividend or distribution,
for the shares of Common Stock for which such Warrants are then being exercised.
At the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
subsection.
-15-
8.8. Preservation of Purchase Rights in Certain Transactions. In case
of any reclassification, capital reorganization or other change of outstanding
shares of Common Stock (other than a subdivision or combination of the
outstanding Common Stock and other than a change in the par value of the Common
Stock) or in case of any consolidation or merger of the Company with or into
another corporation (other than a merger with a subsidiary in which the Company
is the continuing corporation and that does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock of
the class issuable upon exercise of the Warrants) or in case of any sale, lease,
transfer or conveyance to another corporation of the property and assets of the
Company as an entirety or substantially as an entirety, the Company shall use
its best efforts to cause such successor or purchasing corporation, as the case
may be, to execute with the Holders an agreement granting the Holders the right
thereafter, upon payment of the Exercise Price in effect immediately prior to
such action, to receive upon exercise of the Warrants the kind and amount of
shares and other securities and property which he would have owned or have been
entitled to receive after the happening of such reclassification, change,
consolidation, merger, sale or conveyance had the Warrants been exercised
immediately prior to such action. Such agreement shall provide for adjustments
in respect of such shares of stock and other securities and property, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 8. In the event that in connection with any such
reclassification, capital reorganization, change, consolidation, merger, sale or
conveyance, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for, or of, a security
of the Company other than Common Stock, any such issue shall be treated as an
issue of Common Stock covered by the provisions of Section 8. The provisions of
this Section 8.8 shall similarly apply to successive reclassification, capital
reorganizations, consolidations, mergers, sales or conveyances.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of shares of Common Stock in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of any Warrant Certificate, and
in case of loss, theft, or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company shall execute and deliver a new Warrant Certificate of
like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, but instead shall pay cash in lieu of
fractional interests, based on the market value of a share of Common Stock.
-16-
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon such exercise. The Company covenants and agrees that,
upon exercise of the Warrants in the manner provided herein and therein and
payment of the Exercise Price herein, all shares of Common Stock and other
securities issued upon the exercise of the Warrants shall be duly and validly
issued, fully paid, non-assessable, and not subject to the preemptive rights of
any stockholder or other person or entity. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on NASDAQ.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right, or warrant to subscribe therefor;
or
(c) a dissolution, liquidation, or winding-up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets, and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities, or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding-up, or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options, or warrants, or any proposed
dissolution, liquidation, winding-up, or sale.
13. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
14. Supplements and Amendments. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein that may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and that the Company and
the Representative deem shall not adversely affect the interests of the Holders
of Warrant Certificates. Any other amendment or modification of this Agreement
may be made only by written agreement of the Company and the Holders of the
Warrants and the Warrant Shares representing a Majority of such securities.
15. Company Representation. The Company hereby represents and warrants
that (i) all necessary corporate action has been duly and validly taken by the
Company to authorize the execution, deliver and performance of this Agreement
and any Warrant Certificates issued in connection herewith and, upon exercise of
the Warrants or any successor warrants, the issuance of the Warrant Shares, and
(ii) this Agreement and the initial Warrant Certificate representing the
Warrants issued to the Representatives have been duly and validly executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms, except as the enforceability hereof or thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
16. No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Holders or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to holders of the Company's securities under any other
agreements.
17. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company and the Holders,
and their respective successors and assigns hereunder. Each Holder agrees that
it will provide notice to the Company of any
-18-
transfer or assignment of its rights or interests hereunder. Any failure by the
Company to fulfill a covenant or obligation will not be deemed a breach of such
covenant or obligation to the extent that it is the result of the failure of the
Holder to give such notice.
18. Termination. This Agreement shall terminate at the close of
business on ________, 2003. Notwithstanding the foregoing, the provisions of
Sections 7 and 13 through 24 shall survive such termination.
19. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
Each of the Company, the Representative, and the Holders hereby agrees
that any action, proceeding, or claim arising out of, or relating in any way to,
this Agreement shall be brought and enforced in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. Each of the Company, the Representative, and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum.
Any such process or summons to be served upon any of the Company, the
Representative, and/or the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 13 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding, or claim. The Company, the Representative,
and the Holders agree that the prevailing party(ies) in any such action or
proceeding shall be entitled to recover from the other party(ies) all of
its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
20. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except pursuant to
Section 14 hereof.
21. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
22. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
23. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other
-19-
registered Holder(s) of the Warrant Certificates or Warrant Shares any legal or
equitable right, remedy or claim under this Agreement.
24. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same agreement.
[Remainder of Page Left Blank Intentionally]
-20-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
BRUNSWICK TECHNOLOGIES, INC.
[SEAL] By
--------------------------------
Attest:
- ------------------------
Secretary
JOSEPHTHAL LYON & ROSS
INCORPORATED
By
--------------------------------
Name:
Title:
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE TO
OTHER THAN THE OFFICERS AND PARTNERS OF JOSEPHTHAL LYON & ROSS INCORPORATED
PRIOR TO ____________, 1998 IS RESTRICTED IN ACCORDANCE WITH THE WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ________, 2002
(SUBJECT TO EXTENSION AS DESCRIBED HEREIN)
No. W- __Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that JOSEPHTHAL LYON & ROSS
INCORPORATED, or registered assigns, is the registered holder of 125,000
warrants (collectively, the "Warrants") to purchase initially, at any time from
______, 1997 until 5:30 p.m. New York time on ______, 2002 (subject to extension
as described in Section 7.4(b) of the Warrant Agreement referred to below) (the
"Expiration Date"), up to 125,000 fully-paid and non-assessable shares of common
stock, $0.0001 par value ("Common Stock") of BRUNSWICK TECHNOLOGY, INC., a Maine
corporation (the "Company"). The initial exercise price payable hereunder upon
exercise of the Warrants represented hereby for the shares of Common Stock
purchasable hereunder, subject to adjustment as set forth herein (the "Exercise
Price"), is $_____ per share of Common Stock, upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement dated as of ______, 1997, between the Company
and JOSEPHTHAL LYON & ROSS INCORPORATED (the "Warrant Agreement").
-2-
Payment of the Exercise Price shall be made by check payable to the order of the
Company or wire transfer to an account designated by the Company or by surrender
of this Warrant Certificate in the manner provided in the Warrant Agreement.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
-3-
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of _________, 1997.
BRUNSWICK TECHNOLOGIES, INC.
[SEAL] By:
-------------------------------
Name:
Title:
Attest:
- ------------------------------
Secretary
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase shares of Common Stock and
herewith tenders in payment for such securities a check payable to the order of
BRUNSWICK TECHNOLOGIES, INC. (the "Company") in the amount of $ , all in
accordance with the terms of Section 3.1 of the Representative's Warrant
Agreement dated as of ________, 1997 between the Company and JOSEPHTHAL LYON &
ROSS INCORPORATED. The undersigned requests that a certificate for such
securities be registered in the name of_________________, whose address
is_____________ and that such Certificate be delivered to________________, whose
address is_________________.
Dated:
Signature
---------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
(Insert Taxpayer Identification, Social
Security or Other Identifying Number of Holder)
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase shares of Common Stock in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of _______, 1997 between BRUNSWICK TECHNOLOGIES, INC. and
JOSEPHTHAL LYON & ROSS INCORPORATED. The undersigned requests that a certificate
for such securities be registered in the name of_________________, whose address
is_____________________________ and that such Certificate be delivered
to_________________, whose address is____________________________ .
Dated:
Signature
--------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
------------------------------------
(Insert Taxpayer Identification, Social
Security or Other Identifying Number of Holder)
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED__________________ hereby sells, assigns and
transfers unto________________________ .
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated:
Signature
--------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
------------------------------------
(Insert Taxpayer Identification, Social
Security or Other Identifying Number of Holder)
EXHIBIT 4.5
SHARES
THIS CERTIFICATE
IS TRANSFERABLE [COMPANY LOGO]
IN BOSTON, MA OR SEE REVERSE FOR
NEW YORK, NY CERTAIN DEFINITIONS
Brunswick Technologies, Inc.
NUMBER
INCORPORATED UNDER THE LAWS OF THE STATE OF MAINE
BTI
CUSIP 117394 10 6
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE
COMMON STOCK OF THE PAR VALUE OF $0.0001 EACH OF
BRUNSWICK TECHNOLOGIES, INC.
transferable upon the books of the Company COUNTERSIGNED
in person or by attorney upon surrender of this AND REGISTERED
certificate duly endorsed or assigned. This BY
certificate and the shares represented hereby are STATE STREET
subject to the laws of The State of Maine and to BANK AND
the Articles of Incorporation and By-laws of the TRUST COMPANY
Company as from time to time amended. (Canton,
Massachusetts)
This certificate is not valid until countersigned TRANSFER
and registered by the Transfer Agent and AGENT AND
Registrar. REGISTRAR
AUTHORIZED
SIGNATURE
IN WITNESS WHEREOF, Brunswick Technologies, Inc. has caused its
facsimile corporate seal and facsimile signatures of its duly authorized
officers to be hereunto affixed.
Dated:
Corporate Seal
TREASURER CHAIRMEN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
BRUNSWICK TECHNOLOGIES, INC.
THE CORPORATION WILL FURNISH TO THE HOLDER UPON REQUEST WITHOUT CHARGE THE
DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-- as tenants in common UNIF GIFT MIN ACT--.......Custodian......
TEN ENT-- as tenants by the entireties (Cus) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act........................
in common (State)
Additional abbreviations may also be used though not in the
above list.
FOR VALUE RECEIVED,__________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------
------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT____________________________________ ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED____________________
--------------------------------------------------------------------
THE SIGNATURE(S) OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S)
NOTICE: AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGMENT OR ANY CHANGE WHATEVER
SIGNATURE(S) GUARANTEED: ______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17ad-15
EXHIBIT 4.6
AMENDMENT NO. 3 TO THE REGISTRATION RIGHTS AGREEMENT
----------------------------------------------------
THIS AMENDMENT NO. 3 to the Amended and Restated Registration Rights
Agreement (dated August 25, 1993), as amended to date, is entered into as of the
Effective Date (as defined below) between Brunswick Technologies, Inc. (the
"Company") and each of the stockholders of the Company, as listed herein below
(the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders and the Company entered into the Amended and
Restated Registration Rights Agreement as of August 25, 1993 (the "Agreement");
and
WHEREAS, on the Effective Date, the Company will grant warrants to
purchase 125,000 shares of common stock of the Company (assuming a 33 for 1
stock split of the Company's common stock; the "Warrants") to Josephthal, Lyon &
Ross Incorporated ("Josephthal") and in connection with same is granting
registration rights with respect to the shares of common stock issuable upon
exercise of the Warrants; and
WHEREAS, the Stockholders and the Company desire to amend the Agreement
to allow the Company to provide for certain conforming changes between
Josephthal's and the Stockholders' respective registration rights;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration expressed, the Company and each
of the Stockholders agree as follows:
A. The Agreement is hereby amended effective as of the
Effective Date hereof by deleting the last sentence of Section 4(a)
thereof and by substituting in lieu of said sentence the following:
"For purposes of this Agreement, "Restricted Period" shall
mean the period beginning on the effective date of a registration
statement filed by the Company either: (x) for its own account pursuant
to a firm commitment underwritten public offering, (y) pursuant to a
demand under Section 4(a) of the Registration Rights Agreement dated as
of the date hereof among the Company, Burlington Industries, Inc. and
Peter L. DeWalt, or (z) pursuant to a demand for registration in
accordance with the terms of the Warrants granted by the Company to
Josephthal, Lyon & Ross, Incorporated and ending on the earlier of the
completion of the distribution pursuant to such registration statement
or 120 days after such effective date."
B. As hereby amended, the Agreement is ratified and
confirmed in all respects.
C. For purposes hereof, the "Effective Date" shall mean the
closing date of the Company's initial public offering of common stock.
-2-
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the day and year first written.
Brunswick Technologies, Inc.
By:
---------------------------------
- ------------------------------------
its: ,
------------
thereunto duly authorized
STOCKHOLDERS:
North Atlantic Venture Fund, Limited
Partnership
By: North Atlantic Capital Partners,
Limited Partnership, General Partner
By:
----------------------
,
------------------
General Partner
Advanced Material Technologies
Venture Partners, Ltd.
By:
-------------------------------
-------------------------------
its ,
----------------
thereunto duly authorized
Vetrotex CertainTeed Corporation
By:
-------------------------------
-------------------------------
its ,
---------------
thereunto duly authorized
-3-
JHAM Limited Partnership -------------------------------
Martin S. Grimnes
By:
------------------------------
-------------------------------
-----------------, Donald W. Perkins, Sr.
General Partner
-------------------------------
- ------------------------------- Dudley B. Follansbee
Donald D. Notman, Jr.
-------------------------------
- ------------------------------- Lisa Anderson-Bisson
Daniel A. Zilkha
-------------------------------
- ------------------------------- John V. Busch
Thomas N. Tureen
-------------------------------
- ------------------------------- Jurgen Kok
Marilyn Kanefield
-------------------------------
- ------------------------------- Herschel Sternlieb
Dodge D. Morgan
EXHIBIT 5.1
EATON, PEABODY, BRADFORD & VEAGUE, P.A.
ATTORNEYS AT LAW
FLEET CENTER - EXCHANGE STREET
P.O. BOX 1210
BANGOR, MAINE 04402-1210
TELEPHONE (207) 947-0111
FAX (207) 942-3040
February 3, 1997
Board of Directors
Brunswick Technologies, Inc.
43 Bibber Pkwy.
Brunswick, ME 04011
Gentlemen:
You have requested our opinion, as counsel to Brunswick Technologies,
Inc. (the "Company"), with respect to certain matters in connection with a
proposed public offering of 2,000,000 shares of the Company's Common Stock,
$0.0001 par value (the "Shares"), 1,500,000 shares of which will be offered by
the Company and 500,000 Shares of which (800,000 Shares if the over-allotment
option is exercised in full) will be offered by North Atlantic Venture Fund,
L.P. (the "Selling Shareholder"), to be underwritten by certain underwriters
represented by Josephthal Lyon and Ross Incorporated and Southwest Securities
(the "Underwriters"). The offering is to be made pursuant to a Registration
Statement on Form S-1 (File No. 333-10721) filed with the Securities and
Exchange Commission on August 23, 1996, as amended (the "Registration
Statement").
In rendering this opinion we have reviewed, among other documents, the
Company's Restated Articles of Incorporation (and have assumed for purposes
hereof the filing thereof with the Secretary of State of the State of Maine) and
Third Restated By-Laws, each as amended to date, the proceedings of the
Company's stockholders and Board of Directors relating to the authorization and
issuance of the Shares, and the Underwriting Agreement to be entered into among
the Company, the Underwriters and the Selling Shareholder, the form of which is
filed as Exhibit 1.1 to the Registration Statement (the "Underwriting
Agreement"). We also have considered such statutes, rules and regulations as we
have deemed relevant for the purposes hereof.
Based on the foregoing, it is our opinion that:
1. The Company is duly incorporated, validly existing and in good
standing under the laws of
Board of Directors
Page 2
February 3, 1997
the State of Maine.
2. The Shares to be sold by the selling shareholder are, and the Shares
to be sold by the Company, when issued and sold pursuant to the Underwriting
Agreement, will be, legally authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to Eaton, Peabody, Bradford &
Veague, P.A. in "Legal Matters" in the Prospectus which is part of the
Registration Statement.
Very truly yours,
/s/ Eaton, Peabody, Bradford & Veague, P.A.
EXHIBIT 10.26
The securities represented hereby have not been registered under the Securities
Act of 1933 or applicable state securities laws. These securities have been
acquired for investment and not with a view to distribution or resale, and may
not be sold, mortgaged, pledged, hypothecated or otherwise transferred without
an effective registration statement for such securities under the Securities Act
of 1933 and applicable state securities laws, or an opinion of counsel
reasonably satisfactory to the Company that registration is not required under
such Act and applicable state securities laws.
Void after December 31, 1997 Right to Purchase [_______]
shares of Common Stock
(subject to adjustment) of
Brunswick Technologies Inc.
No.[_________]
BRUNSWICK TECHNOLOGIES, INC.
Common Stock Purchase Warrant
BRUNSWICK TECHNOLOGIES, INC. (the "Company"), a Maine corporation,
hereby certifies that, for value received, NORTH ATLANTIC VENTURE FUND, L.P. or
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company at any time or from time to time on or after July 31, 1991 and before
5:00 P.M. Portland, Maine time, on December 31, 1997, [______________________]
fully paid and non-assessable shares of Common Stock, no par value per share, of
the Company ("Common Stock"), at a purchase price per share (the "Purchase
Price") which shall initially be $100.00. The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" shall include all shares of any
class of capital stock of the Company issued in exchange for, or as a
result of any recapitalization, recombination or reorganization
affecting the Common Stock.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person corporate or otherwise) which the holder of this Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of
this Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issued or shall have been issued in exchange for or
in replacement of Common Stock or Other Securities pursuant to Section
5 or otherwise.
(d) The term "Shares" means the Common Stock or Other
Securities issued or issuable upon exercise of this Warrant.
(e) The term "Securities Act" means the Securities Act of
1933, or any successor Federal statute, and the rules and regulations
of the Securities and Exchange Commission (or of any other Federal
agency then administering the Securities Act) thereunder, all as the
same shall be in effect at the time.
1. Transfer or Exchange Without Registration. If, at the time of any
transfer or exchange (other than a transfer or exchange not involving a change
in the beneficial ownership of this Warrant) of this Warrant or Shares, this
Warrant or Shares shall not be registered under the Securities Act (and/or
applicable state securities laws), the Company may require, as a condition of
allowing such transfer or exchange, that the holder or transferee of this
Warrant or Shares, as the case may be, furnish to the Company an opinion of
counsel reasonably acceptable to the Company or a "no action" or similar letter
from the Securities and Exchange Commission (and/or the appropriate state
securities authority) to the effect that such exercise, transfer or exchange may
be made without registration under the Securities Act (and/or applicable state
securities laws). In the case of such transfer or exchange and in the case of an
exercise of this Warrant if the Shares to be issued thereupon are not registered
pursuant to the Securities Act (and/or applicable state securities laws) the
Company may require a written statement that this Warrant or Shares, as the case
may be, are being acquired for investment and not with a view to the
distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within the control of such holder or
transferee, as the case may be). The certificates evidencing the Shares issued
on the exercise of this Warrant shall, if such shares are being sold or
transferred without registration under the Securities Act (and/or applicable
state securities laws), bear a legend in the form of the legend set forth on the
face hereof, provided that in the event that such Shares are later registered
under the Securities Act (and/or applicable state securities laws) such legend
shall no longer be required.
2. Exercise of Warrant.
2.1. Full Exercise. This Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of subscription at the end
hereof duly executed by
-2-
such holder, to the Company at its principal office, accompanied by payment, in
cash or by certified or official bank check payable to the order of the Company,
in the amount obtained by multiplying the number of shares of Common Stock for
which this Warrant is then exercisable by the Purchase Price.
2.2. Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Subsection
2.1 except that the amount payable by the holder on such partial exercise shall
be the amount obtained by multiplying (a) the number of shares of Common Stock
for which this Warrant is then exercisable as shall be designated by the holder
in the subscription at the end hereof by (b) the Purchase Price. On any such
partial exercise, subject to the provisions of Section 1 hereof, the Company at
its expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder may request, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal to the number of such
shares for which this Warrant is then exercisable minus the number of such
shares designated by the holder in the subscription at the end hereof.
2.3 Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Warrant, upon the request of the holder
hereof acknowledge in writing its continuing obligation to afford to such holder
or transferee any rights to which such holder or transferee shall continue to be
entitled after such exercise, exchange or transfer in accordance with the
provisions of this Warrant, provided that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder or transferee any such
rights.
3. Delivery of Stock Certificates. Etc., on Exercise. Subject to
Section 1, as soon as practicable after the exercise of this Warrant in full or
in part, and in any event within a reasonable time, not to exceed twenty (20)
days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder hereof, or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct and so long as such issuance and delivery
is in compliance with or exempt from the registration provisions of the
Securities Act, a certificate or certificates for the number of fully paid and
non-assessable Shares to which such holder shall be entitled on such exercise,
plus, in lieu of any fractional Share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current market
value of one full Share, together with any other stock and other securities and
property (including cash,
-3-
where applicable) to which such holder is entitled upon such exercise pursuant
to Section 4 or otherwise.
4. Adjustments to Purchase Price Upon Extraordinary Common Stock Event.
Upon the happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Purchase Price shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted (and the number of shares for
which this Warrant is exercisable shall be proportionately increased (in the
case of an Extraordinary Common Stock Event specified in subsection (i) or (ii)
below) or proportionately decreased (in the case of an Extraordinary Common
Stock Event specified in subsection (iii) below)) by multiplying the then
effective Purchase Price by a fraction, (1) the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and (2) the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Purchase Price. The Purchase Price and number of shares for which this
Warrant is exercisable, as so adjusted, shall be readjusted in the same manner
upon the happening of any successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) subdivision of outstanding shares of Common Stock
into a greater number of shares of the Common Stock, or (iii) combination of
outstanding shares of the Common Stock into a smaller number of shares of the
Common Stock.
5. Dividends. In the event the Company shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock or in assets (excluding ordinary cash
dividends paid out of retained earnings), then and in each such event provision
shall be made so that the holder of this Warrant shall receive upon exercise
thereof in addition to the number of shares of Common Stock receivable
thereupon, the number of securities or such other assets of the Company which
they would have received had this Warrant been exercised for Common Stock on the
date of such event and had such holder thereafter, during the period from the
date of such event to and including the exercise of this Warrant, retained such
securities or such other assets receivable by it as aforesaid during such
period, giving application to all adjustments called for during such period
under this Warrant with respect to the rights of the holder of this Warrant.
6. Capital Reorganization or Reclassification. If the Common Stock
issuable upon the exercise of this Warrant shall
-4-
be changed into the same or different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for elsewhere in this Warrant, or a reorganization, merger, consolidation or
sale of assets provided for elsewhere in this Warrant), then and in each such
event the holder of this Warrant shall have the right thereafter to exercise
such Warrant for the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by holders of the number of shares of Common Stock for which such Warrant might
have been exercised immediately prior to such reorganization, reclassification
or change, all subject to further adjustment as provided herein.
7. Capital Reorganization Merger. If at any time or from time to time
there shall be a capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Warrant or a merger or consolidation of the Company with or
into another corporation), then, as a part of such reorganization, merger or
consolidation, provision shall be made so that the holder of this Warrant shall
thereafter be entitled to receive upon exercise of the Warrant, the number of
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, to which a
holder of Common Stock issuable upon exercise would have been entitled on such
capital reorganization, merger or consolidation. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Warrant
with respect to the rights of the holder of this Warrant after the
reorganization, merger or consolidation to the end that the provisions of this
Warrant (including adjustment of the Purchase Price then in effect and the
number of shares purchasable upon exercise of this Warrant) shall be applicable
after that event in as nearly equivalent a manner as may be practicable.
8. Accountant's Certificate as to Adjustments. In each case of an
adjustment or readjustment of the Purchase Price, the Company will furnish the
holder of this Warrant with a certificate, prepared by independent public
accountants of recognized standing showing such adjustment or readjustment, and
stating in detail the facts upon which such adjustment or readjustment is based.
9. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) will not increase the par value of any shares of
stock receivable on the exercise of this Warrant above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary
-5-
or appropriate in order that the Company may validly and legally issue fully
paid and non-assessable shares of stock on the exercise of this Warrant from
time to time outstanding, and (c) will not effect a subdivision or split-up of
shares or similar transaction with respect to any class of the Common Stock
without effecting an equivalent transaction with respect to all other classes of
Common Stock.
10. Reporting Requirements.
10.1. Financial Information. Prior to the exercise or
expiration of the right to exercise this Warrant the Company shall furnish to
the holder of this Warrant:
(a) as soon as available and in any event within forty-five
(45) days after the end of each of the first three quarters of each
fiscal year of the Company consolidated and consolidating balance
sheets of the Company and its subsidiaries as of the end of such
quarter, consolidated and consolidating (if the Company has any
material subsidiary) statements of income and retained earnings and a
cash flow statement of the Company and its subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the
end of such quarter and a statement of sources and uses of funds, all
in reasonable detail and duly certified (subject to year-end audit
adjustments and to the addition of notes) by the chief financial
officer of the Company as having been prepared in accordance with
generally accepted accounting principles consistently applied;
(b) as soon as available and in any event within ninety (90)
days after the end of each fiscal year of the Company a copy of the
annual audit report and accompanying financial statements for each year
for the Company and its subsidiaries, including therein consolidated
and consolidating balance sheets of the Company and its subsidiaries as
of the end of such fiscal year, consolidated and consolidating
statements of income and retained earnings and of changes in financial
position of the Company and its subsidiaries for such fiscal year and a
statement of sources and uses of funds, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal
year, all of such consolidated and consolidating balance sheets and
statements to be duly certified by independent public accountants of
recognized national standing; and
-6-
(c) promptly upon sending, making available, or filing the
same, such reports and financial statements as the Company or any
subsidiary shall send or make available generally to the stockholders
of the Company or the Securities and Exchange Commission.
10.2. Notices of Record Date Etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least twenty (20) days prior to the
date specified in such notice on which any such action is to be taken).
11. Reservation of Stock Etc., Issuable on Exercise of This Warrant.
The Company will at all times reserve and keep available, solely for issuance
and delivery on the exercise of the Warrants, all shares of Common Stock (or
Other Securities) from time to time issuable on the exercise of this Warrant.
12. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or (subject to Section 1) on the order of the holder thereof a new
Warrant or
-7-
Warrants of like tenor, in the name of such holder or as such holder (on payment
by such holder or any applicable transfer taxes) may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
for which the Warrant so surrendered is exercisable.
13. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
14. Warrant Agent. The Company may, by written notice to the holder of
this Warrant, appoint an agent having an office in either Boston, Massachusetts
or New York, New York, for the purpose of issuing Shares on the exercise of the
Warrant pursuant to Section 2, exchanging the Warrant pursuant to Section 12,
and replacing the Warrant pursuant to Section 13, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
15. Negotiability, Etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) subject to Section 1 hereof, title to this Warrant may be
transferred by endorsement (by the holder hereof executing the form of
assignment at the end hereof) and delivery in the same manner as in the
case of a negotiable instrument transferable by endorsement and
delivery;
(b) so long as the provision of the Securities Act are
complied with, any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner hereof
and is empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each prior
taker or owner waives and renounces all of his equities or rights in
this Warrant in favor of each such bona fide purchaser, and each bona
fide purchaser shall acquire absolute title hereto and to all rights
represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
-8-
16. Notices, Etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
17. No Stockholder Rights. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company.
18. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant is being delivered in the State of Maine and shall be
construed and enforced in accordance with and governed by its laws. The headings
in this Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. This Warrant is being executed as an
instrument under seal.
19. Expiration. The right to exercise this Warrant shall expire at 5:00
P.M., Portland, Maine time, on December 31, 1997.
Dated: July 31, 1991 BRUNSWICK TECHNOLOGIES, INC.
(Corporate Seal) By:
---------------------------------
Title:
-----------------------------
Attest:
- ----------------------------------------
Title: Clerk
-9-
EXHIBIT 10.27
AMENDMENT NO. 1
TO
BRUNSWICK TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
THIS AMENDMENT NO. 1 TO the Brunswick Technologies, Inc. Common Stock
Purchase Warrant No. [_____________] by and among Brunswick Technologies, Inc.
(the "Company") and [________________________] (the "Holder"), is entered into
as of the ___ day of January, 1997, between the Company and the Holder.
W I T N E S S E T H:
WHEREAS, the Holder and the Company entered into the Brunswick
Technologies, Inc. Common Stock Purchase Warrant (the "Warrant"); and
WHEREAS, the Stockholders and the Company desire to amend the Agreement
to allow the Holders to exercise the Warrants on a cashless basis;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration expressed, the Company and the
Holder agree as follows:
A. AMENDMENTS. The Warrant is hereby modified by amending and restating
the following section of the Warrant in its entirety as follows (capitalized
terms used herein without definition shall have the meanings ascribed to such
terms in the Warrant):
2.1. Full Exercise.
(a) Cash Exercise. This Warrant may be exercised in full by the Holder
by surrender of this Warrant, with the form of subscription at the end hereof
duly executed by such Holder, to the Company at its principal office,
accompanied by payment, in cash or by certified check or official bank check
payable to the order of the Company, in the amount obtained by multiplying the
number of shares of Common Stock for which this Warrant is then exercisable by
the Purchase Price (the "Warrant Purchase Price").
(b) Cashless Exercise. The exercise price payment provisions described
in subsection (a) hereof notwithstanding:
(i) The Holder of the Warrant shall have the right (the
"Conversion Right") to require the Company to convert this Warrant, in
whole or in part, at any time prior to _____________, 1997 into shares
of Common Stock as provided for in this Subsection (b). At the sole
option of the Holder, designated in writing upon the Subscription Form
appended as Annex A hereto (the "Conversion Notice") upon exercise of
the Conversion Right, the Company shall deliver to the
Holder (without payment by the Holder of any Warrant Purchase Price)
that number of shares of Common Stock equal to the quotient obtained by
dividing (A) the value of the Warrant at the time the Conversion Right
is exercised (determined by subtracting (x) the aggregate Warrant
Purchase Price for the shares of Common Stock then issuable upon
exercise of this Warrant (the "Warrant Shares") in effect immediately
prior to the exercise of the Conversion Right from (y) the aggregate
Fair Market Value for the Warrant Shares immediately prior to the
exercise of the Conversion Right) by (B) the Fair Market Value of one
share of Common Stock immediately prior to the exercise of the
Conversion Right.
(ii) When exercising the Conversion Right, the Holder shall
deliver the Conversion Notice to the Company and specifying (A) the
total number of shares of Common Stock the Holder will purchase
pursuant to such conversion and (B) a date not less than one (1) nor
more than twenty (20) business days from the date of the Conversion
Notice for the closing of such purchase.
(iii) Fair Market Value of a share of Common Stock as of a
particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock as of such Determination
Date. Fair Market Value of a share of Common Stock as of a
Determination Date shall mean:
(A) If the Company's Common Stock is traded on an
exchange or is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ")
National Market System, then the closing or last sale price,
respectively, reported for the last business day immediately
preceding the Determination Date.
(B) If the Company's Common Stock is not traded on an
exchange or on the NASDAQ National Market System but is traded
in the over-the-counter market, then the mean of the closing
bid and asked prices reported for the last business day
immediately preceding the Determination Date.
(C) Except as provided in subsections (D) and (E) of
this subsection (b)(iii), if the Company's Common Stock is not
publicly traded, then as determined in good faith by the Board
of Directors of the Company.
(D) If the Determination Date is the date on which
the Company's Common Stock is first sold to the public by the
Company in a firm commitment public offering under the
Securities Act of 1933, as amended (the "1933 Act"), then the
initial public offering price (before deducting commissions,
discounts or expenses) at which the Common Stock is sold in
such offering.
(E) If the Determination Date is the date of a
liquidation, dissolution or winding up of the Company, then
all amounts to be payable per share to holders of the Common
Stock in the event of such liquidation, dissolution or winding
up, plus all other amounts to be payable per share in respect
of the Common Stock in liquidation, assuming for the purposes
of this subsection (E) that all of the shares of Common Stock
then issuable upon exercise of this Warrant are outstanding at
the Determination Date.
B. RATIFICATION. As hereby amended, the Warrant is ratified and confirmed
in all respects.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the day and year first written.
Brunswick Technologies, Inc.
By:
-------------------------------
its: ,
-----------------
thereunto duly authorized
- ----------------------------------
By:
-------------------------------
its: ,
-----------------
thereunto duly authorized
Coopers
& Lybrand
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (No.
333-10721) of our report dated October 30, 1996 on our audit of the financial
statements of Brunswick Technologies, Inc. as of September 30, 1996 and December
31, 1995 and the nine months ended September 30, 1996 and the year ended
December 31, 1995. We also consent to the reference of our firm under the
caption "Experts".
/s/ Coopers & Lybrand L.L.P.
-----------------------------
Coopers & Lybrand L.L.P.
Portland, Maine
February 3, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Brunswick Technologies, Inc.
We consent to the use of our report included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
February 3, 1997
Consent of Independent Auditors
We Consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 18, 1996, with respect to the financial
statements of Advanced Textiles, Inc. included in the Registration Statement
(Form S-1 No.333-10721) and related prospectus of Brunswick Technologies, Inc.
for the registration of 2,000,000 shares of its common stock.
/s/ Ernst & Young LLP
------------------
Ernst & Young LLP
Greensboro, North Carolina
February 3, 1997
