<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1996
REGISTRATION NO. 333-______________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RESOUND CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 77-0019588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
220 Saginaw Drive, Seaport Centre
Redwood City, California 94063
(415) 780-7800
(Address of principal executive offices)
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PETER RIEPENHAUSEN
President and Chief Executive Officer
ReSound Corporation.
220 Saginaw Drive, Seaport Centre
Redwood City, California 94063
(415) 780-7800
(Name, address, and telephone number of agent for service)
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COPIES TO:
ELIAS J. BLAWIE
LAURA A. GORDON
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
(415) 854-4488
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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.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 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. / /
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock,
$.01 par value per share............ 3,477,682 $8.50 $29,560,297 $10,193.20
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Common Stock, $.01 par value per
share, issuable upon conversion of 1,019,944 (2)(3) $8.50 $8,669,524 $2,989.49
Convertible Notes.....................
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Common Stock, $.01 par value per
share, issuable upon exercise of 77,794 (3)(4) $8.50 $661,249 $228.01
Warrants..............................
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee based on the average of the high and low prices of the
Common Stock as reported on the NASDAQ National Market on August 12, 1996
pursuant to Rule 457(c).
(2) Represents the number of shares of Common Stock issuable upon conversion
of outstanding principal and any accrued, unpaid interest, of the
Promissory Notes, as of June 30, 1996.
(3) Also covers any additional shares that may become issuable as a result of
(i) the accrual of interest from time to time with respect to the
Promissory Notes and (ii) the antidilution provisions of the Promissory
Notes and the Warrants.
(4) Represents the number of shares currently issuable upon the exercise of
Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
RESOUND CORPORATION
4,575,420 SHARES
COMMON STOCK
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
-----------------------
This Prospectus relates to the public offering, which is not being
underwritten, of 4,575,420 shares of the common stock, par value $.01 per share
(the "Common Stock"), of ReSound Corporation ("ReSound" or the "Company"). All
4,575,420 shares (the "Shares") may be offered by certain shareholders of the
Company (the "Selling Shareholders") who received, or may from time to time
receive, such shares (i) upon conversion of the Company's Convertible Promissory
Notes dated February 21, 1995 (the "February 1995 Notes"), issued pursuant to a
series of identical Note Purchase Agreements of the same date (the "February
1995 Purchase Agreements"), (ii) upon conversion of the Company's Convertible
Promissory Notes dated November 21, 1995 (the "November 1995 Notes"), issued
pursuant to a series of identical Note and Warrant Purchase Agreements of the
same date (the "November 1995 Purchase Agreements"), (iii) upon exercise of the
Company's Warrants dated November 21, 1995 (the "Warrants"), issued pursuant to
the November 1995 Purchase Agreements, and (iv) in a private placement pursuant
to a series of identical Common Stock Purchase Agreements dated June 14, 1996
(the "June 1996 Purchase Agreements" and, together with the February 1995
Purchase Agreements and November 1995 Purchase Agreements, the "Agreements").
The Shares may be offered by the Selling Shareholders from time to time
in transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares. Pursuant to the Agreements, the Company has agreed to bear certain
expenses in connection with the registration of the Shares being offered and
sold by the Selling Shareholders.
The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol RSND. On August 13, 1996 the last reported sales price for the
Common Stock was $8.88 per share.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act. See "Plan of Distribution" herein for a description of indemnification
arrangements.
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.
The date of this Prospectus is August __, 1996
<PAGE> 3
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Shareholder or by any other person. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this Prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.
AVAILABLE INFORMATION
ReSound Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 75 Park Place,
New York, New York 10007 and 230 South Dearborn Street, Chicago, Illinois 60604.
Copies of such material can be obtained by mail from the Public Reference Branch
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. The Common Stock of the Company is quoted on the Nasdaq
National Market, and such material may also be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W. Washington, D.C. 2006.
The Company has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information regarding
the Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and to the exhibits and schedules filed therewith. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of all or
any part thereof may be obtained from such office upon payment of the prescribed
fees.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 0-20046) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995, as amended by the Company's Form 10-K/A filed April 18, 1996.
2. The Company's definitive Proxy Statement dated April 26, 1996, filed
in connection with the June 24, 1996 Annual Meeting of Shareholders of ReSound.
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996.
4. The Company's Current Report on Form 8-K filed July 15, 1996.
5. The descriptions of the Company's Common Stock, $0.01 par value per
share, contained in its Registration Statement on Form 8-A dated March 3, 1993,
and July 7, 1994, including any amendment or report filed for the purpose of
updating such descriptions.
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All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference in this Prospectus. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document which also is
incorporated by reference herein) modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference, other than exhibits to such documents. Requests should be directed to
ReSound Corporation, 220 Saginaw Drive, Seaport Centre, Redwood City,
California, 94063, Attention Paul A. Busse, Senior Vice President of Finance and
Administration and Chief Financial Officer, telephone: (415) 780-7800.
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<PAGE> 5
THE COMPANY
ReSound is a hearing health care company that designs, manufactures and
sells technologically advanced hearing devices. The Company's hearing devices
incorporate patented sound processing technology and are currently offered in
in-the-canal ("ITC"), in-the-ear ("ITE") and behind-the-ear ("BTE") versions.
The Company's Multiband Full Dynamic Range Compression Sound Processing
technology enables ReSound(R) hearing devices to be individually programmed to
adjust the amplification of sound continuously in response to the acoustic
environment and each user's residual range of hearing. The Company's Sonar
product line incorporates non-proprietary, nonlinear sound processing
technologies into ITC and ITE custom hearing devices. The Company's Viennatone
product line spans all segments of the market, from small BTE products to high
power instruments with numerous options.
In June 1996, the Company acquired certain assets of the worldwide
hearing health care business activity of Minnesota Mining and Manufacturing
Company ("3M") and assigned those assets acquired thereby to its wholly-owned
subsidiary Sonar Hearing Health Corporation. The assets acquired from 3M
included 17 U.S. patents and a number of additional applications. The completion
of the acquisition resulted in the dismissal of a patent infringement lawsuit
brought against the Company by 3M. In December 1994, the Company acquired 100%
of the shares of Viennatone AG, an Austria-based hearing instrument manufacturer
("Viennatone").
The Company currently distributes its products to more than 3,400
authorized dispensers worldwide through wholly-owned subsidiaries in Germany,
the Netherlands, the United Kingdom, France, Austria, Sweden and Australia; an
exclusive distributor in Japan; non-exclusive distribution agreements with
retail outlets in Canada, Spain, Belgium, Denmark and Switzerland; and the joint
venture operation ReSound Asia Ltd. in Hong Kong, China and Taiwan. In addition,
the Company owns and operates a chain of 24 retail hearing devices stores in
Austria that it obtained through the Viennatone acquisition.
The Company's corporate offices are located in Redwood City,
California. The mailing address and telephone number are: 220 Saginaw Drive,
Seaport Centre, Redwood City, California 94063, telephone: (415) 780-7800. The
Company was incorporated in the State of California on February 3, 1984 and is
traded on the Nasdaq National Market under the symbol RSND.
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RISK FACTORS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION
IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE BUT ARE NOT LIMITED TO THOSE DISCUSSED
BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED
IN THIS PROSPECTUS BY REFERENCE. PROSPECTIVE PURCHASERS OF SHARES OF COMMON
STOCK OFFERED HEREBY SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, IN
ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS.
HISTORY OF LOSSES; PROFITABILITY UNCERTAIN
The Company was primarily engaged in research and development from its
inception in February 1984 through December 1989. Although the Company began
shipments of its first hearing device product in December 1989, the Company
continues to expend substantial financial and other resources on the development
of hearing device products. The Company incurred significant net losses since
its inception. At June 30, 1996, the Company's accumulated deficit was
approximately $36.8 million. There can be no assurance that the Company will be
able to achieve or maintain profitability in the future.
MANAGEMENT OF EXPANDING OPERATIONS; INTEGRATION OF RECENT ACQUISITIONS
The Company's operations and number of employees have expanded
significantly in recent years, including the hiring of over 130 employees in
connection with the acquisition of certain assets of 3M's hearing health care
business activity in June 1996. This expansion has placed, and is expected to
continue to place, significant demands on the Company's administrative,
operational and financial personnel and systems. The Company has made
significant acquisitions in the past and may continue to make acquisitions in
the future. Managing acquired business opportunities, such as the 3M hearing
health care assets, and the acquisitions of Viennatone (acquired in December
1994) and Sonar Design & Hortechnik GmbH (acquired in January 1994), entails
numerous operational and financial risks, including difficulties in assimilating
acquired operations, diversion of management's attention to other business
concerns, amortization of acquired intangible assets and potential loss of key
employees or customers of acquired operations. In addition to the general risks
associated with the expansion of corporate operations, managing acquired
operations in new geographic areas, which is part of the Company's expansion
strategy, entails numerous operational and financial risks, including
difficulties in recruiting and integrating employees at remote locations and
difficulties in developing a local market for the Company's services and
products. The Company has in the past experienced and could in the future
experience difficulties and delays in managing operations in new geographic
areas. There can be no assurance that the Company will be able to achieve growth
effectively, or manage any such growth, and failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations.
VOLATILITY OF STOCK PRICE AND QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The Company's stock price has been and may continue to be subject to
significant volatility. The trading price of the Common Stock may be affected
significantly by the Company's quarterly forecasts and results of operations
which may vary greatly based on a number of factors, including the introduction
and market acceptance of new products offered by the Company and its
competitors, the receipt and timing of regulatory approvals for new Company
products, changes in the Company's product mix, rates of product returns,
repairs and remakes, the Company's success in expanding its U.S. and
international operations, the costs of expanding the Company's existing
distribution channels and establishing new distribution channels, the Company's
ability to continue to attract qualified engineers for future product
development, changes in U.S. and international health care regulations and
practices, and the costs involved in prosecuting and defending patent claims or
other litigation. Any shortfall in revenues or earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Common Stock in any given period. Further, the Company
participates in a highly dynamic industry, which often results in significant
volatility of the Common Stock price irrespective of Company performance.
Fluctuations in the price of the Common Stock may be exacerbated by
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<PAGE> 7
conditions in the medical device and technology industry segments or conditions
in the financial markets generally.
Quarterly revenues and operating results depend primarily on the volume
and timing of orders during the quarter, which can be difficult to forecast. A
significant portion of the Company's operating expenses are relatively fixed in
the short term, and planned expenditures are based on sales forecasts. If
revenue levels are below expectations, net income, if any, may be
disproportionately affected because only a small portion of the Company's
expenses varies with revenue in the short term, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company has experienced growth in net revenue in recent
years, there can be no assurance that the Company will sustain such revenue
growth in the future or be profitable on an operating basis in any future
period. For these reasons, the Company believes that period-to-period
comparisons of its results are not necessarily meaningful and should not be
relied upon as indications of future performance.
UNCERTAINTY REGARDING MARKET ACCEPTANCE OF NEW PRODUCTS
The Company's products primarily target the high-end segment of the
hearing device market. The future success of the Company will likely depend on
its ability to design, manufacture and effectively market new products that
provide superior performance at acceptable prices within this segment. Any
quality, durability or reliability problems with such new products, regardless
of materiality, or any other actual or perceived problems with future Company
products, could have a material adverse effect on market acceptance of such
products. There can be no assurance that such problems or perceived problems
will not arise or that, even in the absence of such problems, new Company
products will receive market acceptance. Further, there can be no assurance that
the Company will, if necessary, be able to obtain regulatory approvals
permitting the sale and use of new Company products. A failure of future Company
products to receive regulatory approval in the U.S. or any other country or the
failure of such products, if approved, to achieve market acceptance for any
reason would have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the announcement by the
Company or its competitors of new products could cause hearing care
professionals or hearing impaired individuals to defer purchases of existing
Company products or return previously purchased Company products, thereby
adversely affecting the Company's business, financial condition and results of
operations.
HIGHLY COMPETITIVE INDUSTRY; RISK OF OBSOLESCENCE
The hearing device industry is intensely competitive. Hearing device
manufacturers have generally differentiated themselves from the competition on
the basis of price, product quality and reliability, product miniaturization and
cosmetic appeal, technical support and service, and marketing and distribution
channels. The Company's products are generally priced at a premium above
products offered by its competitors. Failure of the Company to distinguish its
products on the basis of performance advantages would have a material adverse
effect on the Company's business, financial condition and results of operations.
Several of the Company's competitors have substantially greater financial,
manufacturing, marketing and technical resources than those of the Company.
Furthermore, there can be no assurance that the Company's competitors do not
have or will not develop products or new technologies that may be more
cost-effective at addressing hearing impairment than the Company's current or
future products or that the Company's technologies and products will not be
rendered obsolete or uncompetitive. The Company's inability to offer competitive
products for any significant period of time in the future would have a material
adverse effect on the business, financial condition and results of operations of
the Company.
RISKS OF INTERNATIONAL SALES
The Company's international revenues accounted for approximately 34%,
51%, 65% and 61% of the Company's net sales in the 1993, 1994, 1995 and the six
months ended June 30, 1996, respectively. The Company expects that international
sales will continue to account for a significant portion of its total revenues.
The Company desires to continue to expand its operations outside of the United
States and to enter additional international markets, which will require
significant management attention and financial resources and subject the Company
further to the risks of operating internationally. These risks include
unexpected changes in regulatory
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<PAGE> 8
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, the burdens of
complying with a variety of foreign laws and regulations, and the difficulty in
staffing and managing international operations. The Company is also subject to
general political and economic risks in connection with its international
operations, such as political instability, changes in diplomatic and trade
relationships and general economic fluctuations in specific countries or
markets. The Company cannot predict whether quotas, duties, taxes, or other
charges or restrictions will be imposed by the United States, Japan, countries
in the European Community or other countries upon the import or export of the
Company's products in the future, or what effect any such actions would have on
its business, financial condition or results of operations. There can be no
assurance that regulatory, geopolitical and other factors will not adversely
affect the Company's business, financial condition and results of operations in
the future or require the Company to modify its current business practices.
In addition, because most of the Company's international sales, and a
large portion of the associated expenses, are denominated in foreign currencies,
gains and losses on the conversion to U.S. dollars of accounts receivable and
accounts payable arising from international operations may contribute to
fluctuations in the Company's operating results. Further, fluctuations in
currency exchange rates may negatively impact the Company's ability to compete
in terms of price against products denominated in local currencies. For example,
international sales in the first six months of 1996 declined five percent from
the comparable period in 1995, due in part to weaker European currencies. To
date, the Company has not found it appropriate to hedge the risks associated
with fluctuations in exchange rates. However, it is possible that the Company
may undertake such transactions in the future. There can be no assurance that
any hedging techniques implemented by the Company would be successful or that
the Company's business, financial condition and results of operations will not
be materially adversely affected by exchange rate fluctuations.
GOVERNMENT REGULATION
The development, production and marketing of the Company's current
products and products under development are subject to regulation by numerous
governmental authorities in the United States (including the United States Food
and Drug Administration (the "FDA") and the California Department of Health
Services) and other countries. In the United States, medical device products are
subject to rigorous FDA review. The United States Federal Food, Drug, and
Cosmetic Act (the "FDC Act") and other federal statutes and regulations govern
or influence the design, testing, manufacture, labeling, sale, storage, record
keeping, approval, advertising and promotion of such products. Noncompliance
with applicable requirements can result in fines, recall of seizure of products,
total or partial suspension of production, refusal of the government to approve
product license applications or withdrawal of approvals, injunctions, civil
fines and criminal prosecution.
In order to obtain FDA permission to market a new medical device, the
Company must submit proof of substantial equivalence in a 510(k) pre-market
notification submission or proof of safety and efficacy in a Pre-Market Approval
("PMAA"). In many cases, such proof entails extensive clinical tests. The
testing, preparation of necessary applications and processing of those
applications by the FDA is expensive, time-consuming, lengthy and uncertain. The
review of a PMAA generally takes one to two years from the date the application
is accepted for filing, but may take significantly longer. It generally takes
from four to twelve months from submission to obtain clearance of a 510(k)
notification, but may take longer. Recently, the FDA has been requiring more
rigorous demonstration of substantial equivalence in 510(k) notifications than
in the past. There is no assurance that the FDA will act favorably or quickly in
making such reviews, and significant difficulties or costs may be encountered by
the Company in its efforts to obtain FDA approvals that could delay or preclude
the Company from marketing any product it may develop. The FDA may also require
post-marketing testing and surveillance to monitor the effects of products or
place conditions on any approvals that could restrict commercial applications of
such products. Marketing permission may be withdrawn if compliance with
regulatory requirements is not maintained or if problems occur following initial
marketing. In addition, delays imposed by the governmental approval process may
materially reduce the period during which the Company may have the exclusive
right to exploit patented products or technologies unless the Company is
successful in obtaining patent term restoration.
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<PAGE> 9
The FDA regulations and requirements governing the marketing processes
for medical devices require, among other things, the presentation of substantial
evidence, often based upon clinical studies, establishing safety and efficacy of
new medical devices. The two methods for obtaining FDA permission to market are
the submission of a Pre-Market Notification under Section 510(k) of the FDC Act
and a PMAA seeking pre-market approval from the FDA. Applicants seeking a 510(k)
clearance must show that the device is substantially equivalent to another
legally marketed predicate device. The 510(k) process can require clinical
testing of the applicable device under an Investigational Device Exemption
("IDE"), while the pre-market approval process always requires clinical data.
The PMAA procedure is far more complex and time-consuming.
The Company's clinical research programs for uncleared or unapproved
devices are subject to the IDE regulations of the FDA and California State
regulations. These regulations govern many important aspects of the clinical
investigation of medical products, including obtaining informed consent from
clinical subjects, securing the approval of an Institutional Review Board and
maintaining required documentation relating to the conduct of the
investigational study. In addition, for some devices, these regulations may
require the Company to obtain approval from the FDA prior to the commencement of
clinical investigations of new products or of expanded applications for any
commercially available product.
If the PMAA procedure is being utilized, the results of the
pre-clinical and clinical studies and other information such as the device
description, GMP regulation compliance, bio-compatability and labeling materials
regarding the medical device under study are submitted to the FDA in the form of
a PMAA for approval to commence commercial sales. In responding to the PMAA, the
FDA may grant marketing approval, with or without conditions, require additional
testing or information, or deny the application.
Regardless of whether a 510(k) notification or PMAA is required, the
Company also must register as a medical device manufacturer with the FDA and be
licensed by the Food and Drug Branch of the California Department of Health
Services. The Company is subject to inspection on a routine basis by both the
FDA and the State of California for compliance with the FDA's GMP and medical
device reporting ("MDR") regulations and comparable state regulations. Those
regulations impose certain procedural and documentation requirements upon the
Company with respect to manufacturing and quality assurance activities.
Additionally, the Company must comply with various FDA requirements for design,
safety, advertising, labeling, record keeping and reporting of negative
experiences in the use of regulated products. The FDA actively enforces
regulations prohibiting marketing of products for non-indicated uses as well as
products that violate design, safety and the other FDA regulations mentioned
above. Failure to comply with applicable regulatory requirements can result in,
among other things, fines, suspensions or loss of permission to market products,
seizures or recalls of products, operating restrictions, injunctions, civil
fines and criminal prosecution. The FDA has proposed changes to the GMP
regulations and has promulgated new MDR regulations, both of which will likely
increase the cost of compliance with GMP requirements. The Company also is
subject to numerous federal, state and local laws relating to such matters as
safe working conditions, manufacturing practices, environmental protection, fire
hazard control and disposal of hazardous or potentially hazardous substances.
Changes in existing requirements or adoption of new requirements, such as design
control and postmarket surveillance, could have a material adverse effect on the
Company's business, financial condition, and results of operations. Although the
Company believes that it is in compliance with all applicable regulations of the
FDA and the State of California, current regulations depend heavily on
administrative interpretation, and there can be no assurance that the Company
will not incur significant costs to comply with laws and regulations in the
future or that laws and regulations will not have a material adverse effect upon
the Company's business, financial condition or results of operations.
Sales of medical device products outside the United States are subject
to international regulatory requirements that vary widely from country to
country. The time required to obtain approvals required by other countries may
be longer or shorter than that required for FDA approval, and requirements for
licensing may differ from FDA requirements. Some countries have historically
permitted human studies earlier in the product development cycle than the United
States. Other countries, such as Japan, have standards similar to those of the
FDA. This disparity in the regulation of medical devices may result in more
rapid product approvals in certain countries than in the United States, while
approvals in countries such as Japan or France may require longer than in the
United States. The European Union has completed the Medical Device Directive
that provides guidelines for
-8-
<PAGE> 10
obtaining CE-Marking for medical devices to be sold within the Union. The
Company has obtained the required certifications of quality systems that are
prerequisite to obtaining CE-Marking. Viennatone, Sonar and the Redwood City
facility have obtained the ISO 9001 and EN 46001 quality system certifications.
ReSound-Ireland has achieved ISO 9002 certification. Once ReSound products have
the CE-Marking, they may be sold throughout the member states without clearance
by individual countries. However, individual country requirements regarding
third party reimbursements, advertising, professional training, language of
labeling materials and others will still apply and may make certain markets more
difficult to penetrate.
Certain of the Company's products also may be subject to U.S. Federal
Communications Commission ("FCC") regulation, which establishes radio frequency
emission standards for certain electronic equipment. Products that fail to
comply with these regulations may not be sold in the United States until
appropriate modifications are made. Various countries in which the Company
markets its products, or in which the Company may do so in the future, also have
regulatory agencies or standards authorities that perform functions comparable
to the FCC, and the Company will need to comply with these requirements to the
extent that it markets covered products in such countries.
PROPRIETARY TECHNOLOGY, UNPREDICTABILITY OF PATENT PROTECTION AND RELATED
LITIGATION
The Company's ability to compete effectively will depend substantially
on its ability to develop new technology and to protect the proprietary aspects
of its current and future technology by securing and maintaining patent and
trade secret protection. There can be no assurance that the Company's issued
patents, any future patents that may be issued as a result of the Company's
patent applications, or any patents that the Company has licensed or may
license, will offer any degree of protection to the Company's products against
competitive products. There can also be no assurance that any additional patents
will be issued from any of the patent applications owned by or licensed to the
Company, that any patents that are or may be issued or licensed to the Company
or any of the Company's patent applications will not be challenged, or
invalidated in the future, or that any patents issued to or licensed by the
Company will not be infringed upon or designed around by others. In addition,
there can be no assurance that the Company's competitors, some of whom have
substantial resources, will not seek to apply for and obtain patents that will
prevent, limit or interfere with the Company's ability to make, use or sell its
products either in the United States or in international markets. In addition,
American Telegraph and Telephone Company ("AT&T") has been granted an exclusive
license to three patents related to the Company's sound processing technology
for use in applications other than hearing assistance. This license will
restrict the Company's ability to use or license its sound processing technology
in such applications. AT&T also has the right to grant sublicenses to these
patents to third parties where required under its pre-existing agreements with
such parties. There can be no assurance that such parties will not develop
competitive products based on these sublicenses.
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies in this industry have employed intellectual property litigation to
gain a competitive advantage. Between 1992 and 1996, the Company was involved in
three separate actions claiming that the Company's products and technologies
infringed outstanding patents owned by others. All of these actions have been
settled or withdrawn. There can be no assurance that the Company will not in the
future become subject to patent infringement claims and litigation or
interference proceedings declared by the United States Patent and Trademark
Office ("USPTO") to determine the priority of inventions. The defense and
prosecution of intellectual property suits, USPTO interference proceedings and
related legal and administrative proceedings are both costly and time consuming.
Litigation may be necessary to enforce patents issued or licensed to the
Company, to protect the Company's trade secrets or know-how or to determine the
enforceability, scope and validity of the proprietary rights of others.
The Company has been contacted periodically by parties asserting that
certain of the Company's products infringe on patent rights or violate other
proprietary rights held by such parties. Any litigation or interference
proceedings involving the Company will result in substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel. An adverse determination in litigation or interference
proceedings to which the Company may become a party could subject the Company to
significant
-9-
<PAGE> 11
liabilities to third parties, require the Company to seek licenses from third
parties, prevent the Company from manufacturing and selling its products, or
require the Company to redesign its products, all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company also relies on trade secrets and proprietary know-how that
it seeks to protect, in part, by confidentiality agreements with its customers,
employees, consultants, collaborators and potential collaborators. There can be
no assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
DEPENDENCE ON KEY SUPPLIERS
Certain key components used in the Company's products are currently
available only from single or limited sources. These include ReSound's
proprietary sound processing integrated circuit manufactured exclusively for the
Company by AT&T and used in all of the hearing devices sold under the ReSound
brand name and the cases and remote control units for the Company's BTE hearing
devices. In addition, the Company subcontracts for the manufacture of its
Portable Prescriptive Programming ("P3") System(TM) from a single supplier. The
ReSound sound processing circuit manufactured by AT&T, the BTE cases and the P3
System are purchased under written agreements, while other components are
purchased pursuant to purchase orders on an as-needed basis. The Company's
primary source of supply for BTE cases is a competing manufacturer of hearing
devices. Although the Company has a written agreement for the supply of BTE
cases and is currently designing its own case, there can be no assurance that
this supplier will continue to sell BTE cases to the Company or that the Company
will successfully manufacture and market its own case. The Company also
subcontracts the manufacture of the remote control and subcontracts the assembly
of the hybrid circuit used for sound processing. Although the Company believes
that with adequate notice it can secure, if necessary, alternate sources for the
BTE cases, remote control and P3 System, there can be no assurance that such
alternate sources, if necessary, would be obtained or that the Company's sole or
limited source suppliers will continue to provide sufficient quantities of
suitable-quality components at acceptable prices. The loss of sole or limited
source suppliers or the inability of such suppliers to meet the Company's price,
quality, quantity and delivery requirements would have a material adverse effect
on the Company's business, financial condition and results of operations.
EFFECT OF PRODUCT RETURNS, REPAIRS AND REMAKES
The Company believes that the hearing device industry is characterized
by a relatively high rate of product returns (approximately 17 to 25%). Many
states have laws that require hearing device dispensers to allow purchasers a
minimum period of time for return of their hearing devices, typically 30 days.
In addition, as patients are often unable to judge the performance of a new
hearing device at the dispenser's office, many dispensers allow hearing device
purchasers to purchase the product on a trial basis. The Company believes that
many dispensers encourage potential purchasers to try a variety of hearing
devices on a trial basis, in part because of the industry's liberal return
policy. The Company's hearing devices sold in the U.S. and Canada may be
returned without charge, for a period of 90 days following delivery to the
dispenser. In Europe and Asia, the Company sells primarily to chains of hearing
device dispensers, and all returns from the end-customer are the responsibility
of these chains. In addition, in the U.S. and Canada, the Company currently
offers a one or three-year warranty to the dispenser on the electronic
components of its hearing devices and a 12-month warranty against defects in the
manufacture of the custom shell. The Company offers a 12-month warranty to the
distributor on the P3 System in the U.S. Internationally, the Company offers a
12-month warranty to the distributor on the components of its hearing devices.
In Austria, the retail business is characterized by an average trial period of
up to 60 days to return the already-fitted device. Austrian dealers typically
offer a 12-month warranty commencing on the date of invoice. However, Viennatone
does not typically issue an invoice for a hearing device until the patient is
fully satisfied and has accepted the device. If the Company were to experience
high rates of return on its products due to imperfections in product design or
manufacture or for reasons unrelated to product quality due to the industry's
liberal return policy, the Company's business, financial condition and results
of operations would be materially adversely affected.
-10-
<PAGE> 12
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon a limited number of key management and
technical personnel. The Company's future success will depend in part upon its
ability to attract and retain highly qualified personnel. The Company competes
for such personnel with other companies, academic institutions, government
entities and other organizations. There can be no assurance that the Company
will be successful in retaining or hiring qualified personnel. The loss of key
personnel or the inability to hire qualified personnel would have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISK OF PRODUCT LIABILITY CLAIMS; INSURANCE
Medical device companies are subject to inherent risks of product
liability claims. The use of the Company's products or technology, the sale of
such products, and medical procedures associated with prescribing and fitting
these products may expose the Company to product liability claims. Although the
Company has not experienced any material product liability claims to date, there
can be no assurance that the Company will not experience losses due to product
liability claims in the future. The Company currently maintains liability
insurance with coverage of $21 million per occurrence and an annual aggregate
maximum of $21 million. However, there can be no assurance that product
liability or other claims will not exceed such insurance coverage limits or that
such insurance will continue to be available on commercially acceptable terms,
or at all. Any product liability claims or series of claims against the Company,
regardless of their merit or eventual outcome, would have a material adverse
effect on the Company's business, financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT
In the United States, third-party reimbursement generally is not
available for the purchase of hearing devices. As a result, the price of a
hearing device may be a key factor in the patient's decision to purchase such a
device. In international markets, reimbursement is generally provided, although
the levels of reimbursement vary. In Denmark, the Netherlands and Switzerland,
full or almost full reimbursement is generally provided. Partial reimbursement
is commonly provided in Austria, Belgium, France and Germany. Any change or
anticipated change in the reimbursement levels available to purchasers of the
Company's products in other countries could affect the Company's sales in the
relevant geographic markets, which could materially adversely affect the
Company's business, financial condition and results of operations.
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company has taken a number of actions that could have the effect of
discouraging a takeover attempt that might be beneficial to shareholders who
wish to receive a premium for their shares from a potential bidder. The Company
has adopted a shareholder rights plan that would cause substantial dilution to a
person who attempts to acquire the Company on terms not approved by the
Company's Board of Directors. The shareholder rights plan may therefore have the
effect of delaying or preventing any change in control and deterring any
prospective acquisition of the Company. In addition, the Company's Articles of
Incorporation grant the Board of Directors the authority to issue up to
2,000,000 shares of Preferred Stock, of which 54,055 shares have been issued to
date, and to determine the price, rights, preferences and privileges of those
shares without any further vote or action by the Company's shareholders. The
rights of the holders of Common stock will be subject to, and may be adversely
affected by, the rights of the holders of any shares of Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult or less
attractive for a third party to acquire a majority of the outstanding voting
stock of the Company. Such Preferred Stock may also have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof would have a material adverse effect on the market value of the Common
Stock.
-11-
<PAGE> 13
SALE OF COMMON STOCK, CONVERTIBLE NOTES AND
WARRANTS TO SELLING SHAREHOLDERS
In February 1995, the Company entered into the February 1995 Purchase
Agreements with each of Cagen Holdings Limited ("Cagen"), Charter Ventures II,
L.P. ("Charter") and The Mingly Corporation Limited ("Mingly," and collectively
with Cagen and Charter, the "1995 Purchasers"), pursuant to which the 1995
Purchasers purchased the February 1995 Notes in the aggregate principal amount
of $10,000,000 from the Company. The February 1995 Notes bear interest at a rate
of 8% per annum, and principal and interest due thereunder were convertible into
1,019,944 shares of Common Stock as of June 30, 1996.
In November 1995, the Company entered into the November 1995 Purchase
Agreements with Cagen and Charter, pursuant to which Cagen and Charter purchased
from the Company (i) the November 1995 Notes in the aggregate principal amount
of $2,000,000, and (ii) the Warrants initially exercisable for an aggregate of
up to 77,794 shares (the "Warrant Shares") of Common Stock at an initial
exercise price of $7.7125 per share, subject to adjustment. In June 1996, Cagen
and Charter elected to convert the November 1995 Notes into an aggregate of
265,506 shares (the "November 1995 Note Shares," and collectively with the
February 1995 Note Shares, the "Note Shares") of Common Stock.
On June 14, 1996, the Company entered into the June 1996 Purchase
Agreements with the parties set forth under "Selling Shareholders," excluding
Cagen, Charter and Mingly, (collectively, the "1996 Purchasers" and, together
with the 1995 Purchasers, the "Purchasers"), pursuant to which the Company sold
an aggregate of 3,212,176 shares of Common Stock to the 1996 Purchasers at a
price of $10.75 per share. The sale of the Common Stock was completed on June
28, 1996.
This prospectus covers the sale of 4,575,420 shares of Common Stock by
the Purchasers.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares
offered hereby may be sold by the Selling Shareholders from time to time in
transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock of the Company for
a period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Shareholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Shareholders.
-12-
<PAGE> 14
The Company agreed to register the Shares under the Securities Act and
to indemnify and hold the Selling Shareholders harmless against certain
liabilities under the Securities Act that could arise in connection with the
sale by the Selling Shareholders of the Shares. The Company has agreed to pay
all fees and expenses incident to the filing of this Registration Statement,
other than broker's commissions or discounts, transfer taxes, and fees and
expenses, if any, of counsel or other advisors to the Selling Shareholders.
The Company has agreed to maintain the effectiveness of this
Registration Statement until the earlier of the sale of all the Shares
registered pursuant to this Prospectus or the earliest date as of which each
holder of Shares can sell all of the Shares it holds in any three-month period
under Rule 144 under the Securities Act. No sales may be made pursuant to this
Prospectus after such date unless the Company amends or supplements this
Prospectus to indicate that it has agreed to extend such period of
effectiveness.
-13-
<PAGE> 15
SELLING SHAREHOLDERS
The following table sets forth the number of shares of Common Stock
owned by each of the Selling Shareholders as of June 30, 1996. Except as
indicated, none of the Selling Shareholders has had a material relationship with
the Company within the past three years other than as a result of the ownership
of the Shares or other securities of the Company. Because the Selling
Shareholders may offer all or some of the Shares which they hold pursuant to the
offering contemplated by this Prospectus, and because there are currently no
agreements, arrangements or understandings with respect to the sale of any of
the Shares, no estimate can be given as to the number of Shares that will be
held by the Selling Shareholders after completion of this offering. The Shares
offered by this Prospectus may be offered from time to time by the Selling
Shareholders named below:
<TABLE>
<CAPTION>
Number of Shares Percent of Number of Shares
Beneficially Outstanding Registered for
Name of Selling Shareholder Owned (1) Shares Sale Hereby
- --------------------------- ---------------- ----------- ----------------
<S> <C> <C> <C>
Cagen Holdings Limited (2)(3)............... 783,617 3.93% 783,617
Charter Ventures II, L.P (3)(4)............. 273,644 1.41 273,644
The Mingly Corporation Limited (3)(5)....... 305,983 1.56 305,983
T. Rowe Price Associates, Inc. (6).......... 1,488,372 7.71 1,488,372
Rockefeller & Co., Inc. (7)................. 558,140 2.89 558,140
von Rautenkranz Nachfolger Gbr.............. 465,116 2.41 465,116
Benaroya Capital Company, L.L.C............. 186,047 * 186,047
Strong Capital Management, Inc. (8)......... 186,000 * 186,000
Furman Selz LLC (9)......................... 133,954 * 133,954
Prolific Asset Management Limited (10)...... 71,512 * 46,512
Bank of England Pension Fund................ 46,511 * 46,511
Walden Management Pension
Corporation............................ 45,000 * 45,000
Professional Edge Fund L.P.................. 36,524 * 36,524
Tonga Partners L.P.......................... 20,000 * 20,000
---------
Total.................................. 4,575,420
=========
</TABLE>
- ------------------------------
* Less than 1%
(1) Information with respect to beneficial ownership is based upon
information contained in filings made with the Securities and Exchange
Commission, as modified by information obtained from the Selling
Shareholders.
(2) Includes (i) 611,967 shares issuable upon conversion of the February
1995 Notes, (ii) 38,897 shares issuable upon exercise of Warrants and
(iii) 132,753 shares issued upon conversion of the November 1995 Notes.
(3) C.M. Cha, Chairman of The Mingly Corporation Limited, is also a
director of Cagen Holdings Limited. Johnson M.D. Cha, who is a son of
C.M. Cha and a director of Cagen Holdings Limited, and Payson M.S. Cha,
who is a son of C.M. Cha and a Joint Managing Director of The Mingly
Corporation Limited, are directors of a general partner of Charter
Ventures II, L.P. Cagen Holdings Limited, The Mingly Corporation
Limited and Charter Ventures II, L.P. each disclaim beneficial
ownership of shares owned by the others. Johnson M.D. Cha and Payson
M.S. Cha are directors of an entity that is party to a joint venture
with the Company that has exclusive distribution rights to the
Company's hearing health care products in Hong Kong, Taiwan and the
People's Republic of China.
(4) Includes (i) 101,994 shares issuable upon conversion of the February
1995 Notes, (ii) 38,897 shares issuable upon exercise of Warrants and
(iii) 132,753 shares issued upon conversion of the November 1995 Notes.
(5) These shares are issuable upon conversion of the February 1995 Notes.
-14-
<PAGE> 16
(6) Includes (i) 223,256 shares held by Lobstercrew & Co., nominee for T.
Rowe Price Health Sciences Fund, Inc., (ii) and 893,023 shares held by
Bridge & Co., nominee for T. Rowe Price New Horizons Fund, Inc. (iii)
372,093 shares held by Orchid & Co., nominee for T. Rowe Price
Threshold Fund III, L.P. T. Rowe Price Associates, Inc., a registered
investment advisory firm, is the investment manager of all three funds.
The general partner of the T. Rowe Price Threshold Fund III, L.P. is a
wholly-owned subsidiary of T. Rowe Price Associates, Inc.
(7) Includes (i) 224,930 shares held by Rockefeller & Co. U.S. Small
Capitalization Fund, L.P., (ii) 226,047 shares held by Pocantico Fund
and (iii) 107,163 shares held by 5500 Fund. Rockefeller & Co., Inc., a
registered investment advisory firm, is a general partner and the
investment manager of all three partnerships. Additionally, Jane A.
Freeman, an investment manager at and employee of Rockefeller & Co.,
Inc., is a general partner of Pocantico Fund and 5500 Fund.
(8) Includes (i) 22,326 shares held by Crestwood Capital International
Ltd., (ii) 55,814 shares held by Crestwood Capital Partners L.P. and
(iii) 55,814 shares held by a proprietary account of Furman Selz LLC.
Furman Selz Management BVI, Ltd., the investment advisor of Crestwood
Capital International Ltd., has appointed Furman Selz LLC as its
sub-advisor. Furman Selz LLC is the general partner of Crestwood
Capital Partners L.P. Michael R. Weissberg, an Executive Vice
President of Furman Selz LLC, is the individual at Furman Selz
primarily responsible for managing all three funds.
(9) Includes (i) 102,000 shares held by Harbour Investments Ltd., (ii)
40,000 shares held by Strong Special Investment Limited Partnership,
(iii) 7,000 shares held by Strong Quest Limited Partnership and (iv)
37,000 shares held by Strong Small Cap Fund. Strong Capital Management,
Inc. is the investment advisor of all four funds, and the general
partner of Strong Special Investment Limited Partnership and Strong
Quest Limited Partnership.
(10) Includes (i) 27,907 shares held by Midland Bank Trust Company for and
on behalf of Prolific Technology and (ii) 43,605 shares held by Midland
Bank Trust Company for an on behalf of Prolific American Opportunities.
Prolific Asset Management Limited is the investment advisor of both
funds.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Venture Law Group, A
Professional Corporation, 2800 Sand Hill Road, Menlo Park, California 94025.
EXPERTS
The consolidated financial statements and schedule of ReSound included
in ReSound's Annual Report as amended (Form 10K/A) for the year ended December
31, 1995, have been audited by Ernst & Young LLP, Independent Auditors, as set
forth in their report included therein and incorporated herein by reference.
Such consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
-15-
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale and distribution of the Common Stock
being registered. Normal commission expenses and brokerage fees and any
applicable transfer taxes are payable individually by the Selling Shareholders.
All amounts are estimates except the registration fee.
<TABLE>
<CAPTION>
Amount
To be Paid
----------
<S> <C>
Registration Fee................................................................... $13,410.70
Legal Fees and Expenses............................................................ 50,000.00
Accounting Fees and Expenses....................................................... 5,000.00
Miscellaneous...................................................................... 6,589.30
----------
Total..................................................................... $75,000.00
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a
corporation's Board of Directors to grant indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933. Article IV of the Registrant's Amended
and Restated Articles of Incorporation and Article VI of the Registrant's Bylaws
provide for indemnification of its directors, officers, employees and other
agents to the maximum extent permitted by law. In addition, the Registrant has
entered into Indemnification Agreements with its officers and directors and
maintains director and officer liability insurance.
ITEM 16. EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
4.1 Note Purchase Agreement dated February 21, 1995, by
and between the Company and Cagen Holdings Limited
4.2 Note Purchase Agreement dated February 21, 1995, by
and between the Company and Charter Ventures II,
L.P.
4.3 Note Purchase Agreement dated February 21, 1995, by
and between the Company and The Mingly Corporation
Limited
4.4(1) Note and Warrant Purchase Agreement dated November
21, 1995, by and between the Company and Cagen
Holdings Limited
4.5(2) Note and Warrant Purchase Agreement dated November
21, 1995, by and between the Company and Charter
Ventures II, L.P.
- ------------
(1) Incorporated by reference to Exhibit 10.21 filed with the Registrant's Form
10-K for the year ended December 31, 1995.
(2) Incorporated by reference to Exhibit 10.22 filed with the Registrant's Form
10-K for the year ended December 31, 1995.
II-1
<PAGE> 18
4.6 Common Stock Purchase Agreement dated June 14, 1996,
by and between the Company and the Selling
Shareholders listed on page 12 of this Prospectus,
excluding Charter Ventures II, L.P., The Mingly
Corporation Limited and Cagen Holdings Limited.
5.1 Opinion of Venture Law Group, A Professional
Corporation
23.1 Consent of Ernst & Young LLP, Independent Auditors
(see page II-5)
23.2 Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (see page II-4)
- --------------------
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) 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.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 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 against the Registrant by such director, officer
or controlling person in connection with the securities being registered
hereunder, 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 of 1933 and will be governed by the
final adjudication of such issue.
II-2
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Redwood City, State of California, on the 14th
day of August, 1996.
RESOUND CORPORATION
By: /s/ Peter Riepenhausen
--------------------------------------------
Peter Riepenhausen
President and Chief Executive Officer
II-3
<PAGE> 20
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Peter
Riepenhausen and Paul Busse, and each of them acting individually, as his
attorney-in-fact, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Registration
Statement. Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 14th day of August, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- ------------------------------------------------------------------
<S> <C>
/s/ Peter Riepenhausen President, Chief Executive Officer and Director
---------------------------
(Peter Riepenhausen)
/s/ Paul A. Busse Senior Vice President of Finance and Administration and Chief
--------------------------- Financial Officer (Principal Financial and Accounting Officer)
(Paul A. Busse) and Assistant Secretary
/s/ Rodney Perkins Chairman of the Board of Directors
---------------------------V
(Rodney Perkins, M.D.)
/s/ Robert K. Anderson Director
---------------------------
(Robert K. Anderson)
/s/ Richard L. Goode Director
---------------------------
(Richard L. Goode)
Director
---------------------------
(Donald M. Kendell)
/s/ Eugene Kleiner Director
---------------------------
(Eugene Kleiner)
/s/ Philip S. Schlein Director
---------------------------
(Philip S. Schlein)
/s/ Robert C. Wilson Director
---------------------------
(Robert C. Wilson)
</TABLE>
II-4
<PAGE> 21
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related prospectus of ReSound
Corporation for the registration of 4,575,420 shares of its common stock and to
the incorporation by reference therein of our report dated January 26, 1996,
except for Note 12, as to which the date is April 8, 1996, with respect to the
consolidated financial statements and schedule of ReSound Corporation included
in its Annual Report as amended (Form 10-K/A) for the year ended December 31,
1995, filed with the Securities and Exchange Commission.
Palo Alto, California ERNST & YOUNG LLP
August 14, 1996
II-5
<PAGE> 22
RESOUND CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
4.1 Note Purchase Agreement dated February 21, 1995 by and between the
Company and Cagen Holdings Limited
4.2 Note Purchase Agreement dated February 21, 1995 by and between the
Company and Charter Ventures II, L.P.
4.3 Note Purchase Agreement dated February 21, 1995 by and between the
Company and The Mingly Corporation Limited
4.4(1) Note and Warrant Purchase Agreement dated November 21, 1995, by and
between the Company and Cagen Holdings Limited.
4.5(2) Note and Warrant Purchase Agreement dated November 21, 1995, by and
between the Company and Charter Ventures II, L.P.
4.6 Common Stock Purchase Agreement dated June 14, 1996, by and between the
Company and the Selling Shareholders listed on page 14 of this
Prospectus, excluding Charter Ventures II, L.P., The Mingly Corporation
Limited and Cagen Holdings Limited.
5.1 Opinion of Venture Law Group, A Professional Corporation
23.1 Consent of Ernst & Young, LLP, Independent Auditors (see Page II-5)
23.2 Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (see Page II-4)
</TABLE>
- ---------
(1) Incorporated by reference to Exhibit 10.21 filed with the Registrant's Form
10-K for the year ended December 31, 1995.
(2) Incorporated by reference to Exhibit 10.22 filed with the Registrant's Form
10-K for the year ended December 31, 1995.
<PAGE> 1
Exhibit 4.1
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement") is made as of February
21, 1995 by and between ReSound Corporation, a California corporation (the
"Company") and Cagen Holdings Limited (the "Purchaser").
RECITALS
This Agreement is one of several identical agreements each of even date
herewith (collectively, the "Agreements") for the purchase and sale of the
Company's 8% convertible promissory notes in the form attached to this Agreement
as Exhibit A (each a "Note" and collectively, the "Notes"). Together, the
Agreements provide for the purchase and sale of Notes in the aggregate principal
amount of U.S. $10,000,000 by the Company to the Purchaser and to certain other
purchasers (collectively, the "Purchasers").
AGREEMENT
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED IN THIS AGREEMENT,
AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS:
1. Authorization and Sale of the Notes. The Company has, or before
the Closing (as defined below) will have, authorized the purchase and sale of
the Notes to the Purchasers. Subject to the terms and conditions of this
Agreement, the Company will issue and sell to the Purchaser and the Purchaser
will purchase from the Company a Note in the principal amount of U.S.
$6,000,000.
2. Closing of Purchase and Sale. The closing of the purchase and
sale of the Notes (the "Closing") shall take place at the offices of Venture Law
Group, 2800 Sand Hill Road, Menlo Park, California 94025, at 10:00 a.m., on
February 21, 1995, or at such time and place as the Company and the Purchasers'
counsel may agree (such time and date being referred to in this Agreement as the
"Closing Date"). At the Closing, the Company will deliver to the Purchasers the
Notes to be purchased by the Purchasers from the Company, which shall be
registered in the name of the respective Purchaser against payment of the
purchase price therefor.
3. Representations and Warranties of the Company. Except as set
forth on Exhibit B to this Agreement (the "Schedule of Exceptions"), the Company
hereby makes the following representations and warranties to the Purchaser:
3.1 Existence; Good Standing; Compliance with Law. The Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of California. The Company is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of each other jurisdiction in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary, except for jurisdictions in which the failure to be so
qualified or to be in good standing would not have a Material Adverse Effect (as
defined below). As used in this Agreement, the term "Material Adverse Effect"
shall mean any change or effect that is or is likely
<PAGE> 2
to be materially adverse to (a) the business, assets (including intangible
assets), financial condition, results of operations or prospects of the Company
and its subsidiaries taken as a whole (b) the ability of the Company to pay or
perform its obligations under the Note Documents (as hereinafter defined), or
(c) the rights and remedies of the Purchaser under the Note Documents. The
Company has all requisite corporate power and authority to own its properties
and carry on its business as now conducted. As used in this Agreement, the term
"Note Documents" shall mean and include this Agreement, the Note, the Pledge
Agreement (as hereinafter defined) the Distribution Agreement Amendment (as
hereinafter defined) and all other documents, instruments and agreements
delivered to the Purchaser in connection with this Agreement or such specified
Note Documents.
3.2 Authority; No Conflict; Required Filings and Consents. The
Company has all requisite corporate power and authority to enter into this
Agreement and the other Note Documents and to consummate the transactions
contemplated hereby including the issuance of the shares of Common Stock of the
Company issuable on conversion of the Note. The execution and delivery of this
Agreement, the Notes and the other Note Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement, the Notes
and the Distribution Agreement Amendment have been duly executed and delivered
by the Company and constitute, and the other Note Documents when executed and
delivered will constitute, valid and binding obligations of the Company, legally
enforceable in accordance with their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of
general application relating to or affecting enforcement of creditors' rights or
as limited by the effect of general principles of equity upon the availability
of equitable remedies. The Common Stock of the Company to be issued upon
conversion of the Note will be duly authorized and validly issued, fully paid
and nonassessable. The execution and delivery of this Agreement, the Notes and
the other Note Documents does not, and the consummation of the transactions
contemplated hereby and thereby, including the issuance of the shares of Common
Stock of the Company issuable on conversion of the Note will not, conflict with,
or result in any violation of, or default (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under
(i) any provision of the Articles of Incorporation or Bylaws of the Company, or
(ii) any mortgage, indenture, lease, or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its respective
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required by
or with respect to the Company in connection with the execution and delivery of
this Agreement, the Notes and the other Note Documents by the Company or the
consummation by the Company of the transactions contemplated hereby and thereby,
including the issuance of the shares of Common Stock of the Company issuable on
conversion of the Note, except (i) such consents, approvals, orders,
authorizations, registration, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country, (ii) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not have a Material Adverse Effect, and (iii) filings
necessary to perfect the security interest to be granted under the Pledge
Agreement.
-2-
<PAGE> 3
3.3 SEC Documents. The Company has furnished, or made available
to counsel for Purchaser, a true and complete copy of each statement, report,
registration statement and definitive proxy statement filed by the Company with
the Securities and Exchange Commission ("SEC") since January 1, 1994 (the "SEC
Documents"), which are all the documents (other than preliminary material) that
the Company was required to file with the SEC since such date. As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the Securities Act of 1933, as amended (the "Securities
Act"), and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements made therein not misleading in
light of the circumstances under which they were made, except to the extent
corrected by a subsequently filed SEC Document. The financial statements of the
Company included in the SEC Documents (the "Company Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of operations,
shareholders' equity and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal, recurring audit adjustments). The
Company has also furnished the Purchasers with a copy of its press release
describing its results of operation and related matters on an unaudited basis
for the fourth quarter and fiscal year ended December 31, 1994 (the "Press
Release"), and a copy of its Form 8-K as filed with the Securities and Exchange
Commission on December 19, 1994 concerning its acquisition of Viennatone AG (the
"Form 8-K"). Except as disclosed in the SEC Documents, in the Schedule of
Exceptions, in the Press Release, in the Form 8-K, or except as contemplated by
this Agreement or on account of the transactions contemplated hereby, since
December 31, 1994 there has not been any material adverse change in the results
of operations, financial condition, assets or business of the Company and its
subsidiaries taken as a whole.
3.4 Undisclosed Liabilities. The Company does not have any
liabilities, either accrued, absolute, contingent or otherwise, of a nature
required to be reflected in a balance sheet or related notes prepared in
accordance with generally accepted accounting principles consistently applied
which are not reflected or provided for in the Company Financial Statements
except those arising after December 31, 1994 which are in the ordinary course of
business and which, in the aggregate, would not have a Material Adverse Effect.
3.5 Complete Copies of Materials. The Company has delivered or
made available true and complete copies of each document that has been requested
by Purchaser or representatives of Purchaser.
3.6 Capitalization. The Company has authorized capital stock
of 50,000,000 shares of Common Stock, $0.01 par value and 2,000,000 shares of
Preferred Stock, $0.01 par value. As of the close of business on December 31,
1994, 15,203,420 shares of Common Stock and no shares of Preferred Stock were
issued and outstanding. There are no outstanding rights,
-3-
<PAGE> 4
warrants, options, subscriptions, agreements or commitments giving anyone any
right to require the Company to sell or issue any capital stock or other
securities, except that as of the close of business on December 31, 1994: (i)
the Company had issued and outstanding options under its 1988 Stock Option Plan
which may be exercised to purchase an aggregate of 2,427,881 shares of the
Company's Common Stock and had reserved an additional 153,480 shares for future
issuance under such plan; (ii) the Company had issued and outstanding options
under its 1992 Directors' Stock Option Plan which may be exercised to purchase
an aggregate of 125,000 shares of the Company's Common Stock and had reserved an
additional 25,000 shares for future issuance under such plan; and (iv) the
Company had issued an aggregate of 79,441 shares of the Company's Common Stock
under its 1992 Employee Stock Purchase Plan and had reserved an additional
120,559 shares for future issuance under such plan. All outstanding securities
of the Company were issued in compliance with applicable federal and state
securities laws.
4. Representations and Warranties of Purchaser.
4.1 Authority. The Purchaser has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby has been duly authorized by
all necessary corporate or partnership action on the part of the Purchaser. The
Purchaser hereby represents and warrants to the Company that this Agreement,
when executed and delivered by the Purchaser, will be valid and legally
enforceable as to the Purchaser in accordance with the terms of the Agreement,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application relating to or affecting
enforcement of creditors' rights or as limited by the effect of general
principles of equity upon the availability of equitable remedies.
4.2 Investment Representations; Legends.
(a) Investment Representations. The Purchaser hereby
acknowledges its understanding that the Notes have not been registered under the
Securities Act, and that they are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
the Purchaser's representations contained herein. Purchaser hereby represents
and warrants to and agrees with the Company as follows:
(i) Knowledge of Offer. It has carefully reviewed
this Agreement. All matters relating to this Agreement have been discussed with
it and explained to its satisfaction by the management of Company or persons
acting on the Company's behalf. Nothing in the preceding sentence shall in any
way limit the Company's representations and warranties made herein or pursuant
hereto.
(ii) Ability to Bear Economic Risk. It is able to
bear the economic risk of the investment represented by this Agreement.
(ii) Knowledge and Experience in Financial and
Business Matters. It has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risk of the investment
represented by this Agreement.
-4-
<PAGE> 5
(iv) Determination of Suitability of Investment. It
has had the risk involved in the investment represented by this Agreement
explained to it, it recognizes this risk, and it has determined that such
investment is suitable for it in light of its financial circumstances and
available investment opportunities.
(v) Limitations on Disposition It understands that
it must bear the economic risk of this investment indefinitely unless the Notes
or the Common Stock into which the Notes may be converted are registered
pursuant to the Securities Act, or an exemption from such registration is
available, and that the Company has no present intention of registering the
Notes. It further understands that there is no assurance that any exemption from
the Securities Act will be available with respect to the Notes, or if available,
that such exemption will allow it to dispose of or otherwise transfer any or all
of the Notes or the Common Stock into which the Notes may be converted under the
circumstances, in the amounts or at the times it might propose.
(vi) Investment Purpose It is acquiring the Notes and
the Common Stock into which the Notes may be converted for its own account and
not with a view toward the distribution thereof.
(b) Legends.
(i) Each Note and any Common Stock issued on
conversion of the Notes shall be stamped or otherwise imprinted with a legend
substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING
THE REQUIREMENTS OF RULE 144 OR REGULATION S OF THE
SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL
TO THE ISSUER OR SUCH OTHER COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION, OR IN ACCORDANCE WITH THE AGREEMENT
COVERING THE PURCHASE OF THESE SECURITIES AND RESTRICTING
THEIR TRANSFER."
Notwithstanding the foregoing, such legend shall not be required, or if
previously imposed shall be removed by the Company, from any Note or stock
certificate at such time as a registration statement under the Securities Act is
in effect with respect to the legended security, or upon delivery to the Company
of an opinion by counsel satisfactory to the Company, in form and substance
satisfactory to the Company, to the effect that such security can be freely
transferred without such registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Notes were issued.
-5-
<PAGE> 6
(ii) Each Note and any Common Stock issued upon
conversion of the Notes shall also bear any legend required by any applicable
state securities law. Such legends shall be removed upon delivery to the Company
of an opinion by counsel satisfactory to the Company, in form and substance
satisfactory to the Company, to the effect that such security can be freely
transferred without such legend.
5. Conditions to the Purchaser's Obligations at the Closing. The
Purchaser's obligation to purchase the Note shall be subject to each of the
following conditions having been fulfilled to Purchaser's satisfaction on or
before the Closing Date:
5.1 Representations and Warranties, Performance of Obligations.
The representations and warranties made by the Company in Section 3 shall be
true and correct on the Closing Date with the same effect as though made on and
as of such date; the Company's business, assets, and prospects shall not have
been adversely affected prior to the Closing Date; and the Company shall have
performed all actions, met all conditions and satisfied all obligations required
to be performed or satisfied by it under this Agreement on or prior to the
Closing Date.
5.2 Issuance of Note. The Company shall have duly executed a
Note payable to the Purchaser in the amount of the Purchaser's commitment
hereunder.
5.3 Corporate Documents. The Company shall have delivered to
the Purchaser such evidence of the Company's good standing and its authorization
of this Agreement and the other Note Documents as the Purchaser or its counsel
shall reasonably request.
5.4 No Events of Default or Defaults. No Event of Default (as
defined in the Note) or event or circumstance which with the giving of any
notice or the lapse of time or both, would become an Event of Default (a
"Default"), shall have occurred.
5.5 Purchaser Board Approval. The Purchaser's board of
directors or other similar governing body shall have approved the execution,
delivery and performance of this Agreement by the Purchaser.
5.6 Opinion of Counsel to the Company. The Purchasers shall
have received from Venture Law Group, a Professional Corporation, counsel for
the Company, an opinion letter addressed to it, dated the Closing Date,
substantially the same, in form and content, as that attached as Exhibit C. In
rendering the opinion called for under this Section 5.2, counsel may rely as to
factual matters on certificates of public officials and officers of the Company.
5.7 Consents, Permits, and Waivers. The Company shall have
obtained any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
5.8 Purchase Permitted by Applicable Law. The purchase of the
Notes (including the Common Stock issuable upon conversion of the Notes) on the
Closing Date shall not be prohibited by any applicable law or governmental
regulation.
-6-
<PAGE> 7
5.9 Amendment to Distribution Agreement. The Company shall have
entered into the Amendment to the International Distribution Agreement between
the Company and RSND Asia Limited dated July 19, 1994 in the form attached to
this Agreement as Exhibit D (the "Distribution Agreement Amendment").
5.10 Purchase of Notes. The other Purchasers shall have purchased
their respective Notes from the Company in accordance with the other Agreements.
6. Conditions to the Company's Obligations at the Closing. The
obligation of the Company to issue and sell the Notes to be issued and sold
hereunder shall be subject to the following conditions, any of which may be
waived by the Company, having been fulfilled on or before the Closing Date:
6.1 Representations and Warranties. The representations and
warranties made by the Purchaser in Section 4 hereof shall be true and correct
on the Closing Date with the same effect as though made on and as of such date.
6.2 Consents, Permits and Waivers. The Company shall have
obtained any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
6.3 Purchase Permitted by Applicable Law. The purchase of the
Notes (including the Common Stock issuable upon conversion of the Notes) on the
Closing Date shall not be prohibited by any applicable law or governmental
regulation.
6.4 Purchase of Notes. The Purchasers shall have purchased
Notes from the Company in the aggregate principal amount of U.S. $10,000,000.
7. Registration Requirements.
7.1 Registration Rights.
(a) Registration Statement.
(i) Beginning on the earlier of (A) November 21,
1995, or (B) the occurrence of a Special Conversion Event (as defined in the
Notes), or (C) the Company becoming aware that a Special Conversion Event is
reasonably likely to occur within the next 60 days, the Purchaser shall be
entitled to demand that the Company secure the effectiveness of a "shelf"
registration statement under Rule 415 under the Securities Act (the
"Registration Statement") with the SEC, for the sale by Purchaser of all of the
shares of Common Stock issuable upon conversion of the Notes (the "Shares"), to
be effective as soon as practicable in the event of a Special Conversion Event
and otherwise to be effective not later than February 21, 1996. Prior to
demanding any such registration, the Purchaser shall first consult with the
Company for a reasonable period in the event of a Special Conversion Event, and
for a period of at least 15 days otherwise, concerning the need for such
registration in light of Purchaser's ability to sell freely all of the shares of
Common Stock issuable upon conversion of the Notes in the United States public
markets under Rule 144, Regulation S or otherwise.
-7-
<PAGE> 8
(ii) Following such consultation, whether to demand
such Registration Statement shall be at the sole discretion of the Purchaser,
and the Company shall take all action necessary to comply with such demand. The
Company represents and warrants that on the date the Registration Statement
becomes effective, the Registration Statement will comply in all material
respects with the applicable requirements of the Securities Act and the rules
thereunder; on the date of its effectiveness the Registration Statement will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein
not misleading, provided, however, that no representation is made by the Company
with respect to written information furnished to the Company by or on behalf of
the Purchaser specifically for inclusion in the Registration Statement; and the
final prospectus contained in the Registration Statement, if not filed pursuant
to Rule 424(b), will not, and on the date of any filing pursuant to Rule 424(b),
such final prospectus (together with any supplement thereto) will not, include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, provided, however, that no
representation is made by the Company with respect to written information
furnished to the Company by or on behalf of the Purchaser specifically for
inclusion in such prospectus. The Company will promptly: (A) notify Purchaser
when the Registration Statement is declared effective; and (B) notify Purchaser
of any stop-order or similar proceeding by the SEC or any state securities
authority.
(b) Continuing Effectiveness. The Company shall promptly
prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such Registration Statement and
keep the Registration Statement effective until all the Shares have been sold
pursuant thereto or until all of the Purchasers are able to dispose of their
entire remaining ownership interest in the Shares in the United States public
markets in a single transaction under Regulation S without limitation as to
volume or under Rule 144 without invoking clause (e)(1)(ii) of Rule 144. The
Company shall provide a transfer agent, registrar and CUSIP number with respect
to all securities registered by such Registration Statement.
(c) Copies of Documents. The Company shall furnish to
Purchaser with respect to the Shares registered under the Registration Statement
such number of copies of prospectuses and preliminary prospectuses and
supplements in conformity with the requirements of the Securities Act and such
other documents as Purchaser may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Shares by Purchaser.
(d) Blue Sky Laws. The Company shall use its best efforts
to register or qualify the Shares covered by such Registration Statements under
such other securities or blue sky laws of such jurisdictions as Purchaser shall
reasonably request and do any and all other acts or things which may be
necessary or desirable to enable the Purchaser to consummate the public sale or
other disposition in such jurisdictions, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or file a general consent to service of process in any such
jurisdictions.
-8-
<PAGE> 9
(e) Availability of Information. With a view to making
available to Purchaser the benefits of Rule 144(d) promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit Purchaser to sell Shares to the public without registration, the Company
hereby covenants and agrees, so long as Purchaser owns any Shares to: (i) make
and keep public information available, as those terms are understood and defined
in Rule 144; (ii) file with the SEC in a timely manner all reports and other
documents required of The Company under the Securities Act and the Exchange Act;
and (iii) furnish to Purchaser (A) a written statement by the Company that it
has complied with the reporting requirements of the Securities Act and the
Exchange Act, (B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other information as may be reasonably requested in order
to avail Purchaser of any rule or regulation of the SEC that permits the selling
of the Shares without registration.
(f) Expenses The Company shall bear all expenses in
connection with the procedures set forth in Sections 7.1(a) through (e) above
and the registration of the Shares pursuant to the Registration Statement, other
than broker's commissions or discounts, transfer taxes, and fees and expenses,
if any, of counsel or other advisors to Purchaser.
(g) Assignment. The right to sell Shares under the
Registration Statement will automatically be assigned to each permitted
transferee of Notes, and the provisions of Sections 7.1 and 7.2 hereof shall
apply to such transferee as if such transferee were a Purchaser hereunder. In
the event that it is necessary, in order to permit a transferee of a Note to
sell Shares pursuant to the Registration Statement, to amend the Registration
Statement to name such transferee, the transferee shall, upon written notice to
the Company, be entitled to have the Company make such amendment as soon as
reasonably practicable.
(h) Successor Registrant. If the Company shall not be the
surviving corporation in any merger or consolidation and this Note shall remain
outstanding after the consummation of such transaction, the Company shall cause
adequate provision to be made such that the surviving corporation shall provide
registration rights at least as favorable to the holder of this Note as are
provided in Section 7 hereof.
7.2 Securities Indemnification.
(a) Definitions. For the purposes of this Section 7.2 the
term "Registration Statement" shall include any final prospectus, exhibit,
supplement or amendment included in or relating to the Registration Statement
referred to in Section 7.1. As used in this Section 7.2, the term "untrue
statement" shall include any untrue statement or alleged untrue statement, or
any omission or alleged omission to state in the Registration Statement a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The Company's Indemnity. The Company agrees to
indemnify and hold harmless Purchaser, each of its officers, directors,
partners, advisors, each person controlling such Purchaser within the meaning of
Section 15 of the Securities Act, each underwriter, if any, and each person
controlling any such underwriter within the meaning of Section 15 of the
Securities Act, from and against any and all expenses, losses, claims, damages
or liabilities (or
-9-
<PAGE> 10
actions, proceedings or settlements in respect thereof) to which such persons
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions, proceedings or settlements
in respect thereof) arise out of, or are based upon, any untrue statement of a
material fact contained in the Registration Statement, or arise out of any
failure by the Company to fulfill any undertaking included in the Registration
Statement or arise out of any violation by the Company of the Securities Act or
the Exchange Act or any rule or regulation thereunder applicable to the Company
with respect to the Registration Statement and relating to action or inaction
required of the Company, and will reimburse each such Purchaser, each of its
officers, directors, partners, advisors, each person controlling such Purchaser,
each underwriter, and each person controlling any such underwriter, for any
legal and other expenses reasonably incurred in connection with investigating
and defending or settling any such expense, claim, loss, damage or liability;
provided, however, that the Company shall not be liable in any such case to the
extent that such expense, loss, claim, damage or liability arises out of, or is
based upon, an untrue statement made in such Registration Statement in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such Purchaser specifically for inclusion in the Registration
Statement, or any untrue statement in any prospectus that is corrected in any
subsequent prospectus that was delivered to the Purchasers at least five (5)
business days prior to the pertinent sale or sales by such Purchaser.
(c) Purchaser's Indemnity. Purchaser agrees to indemnify
and hold harmless the Company (and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, each officer of the
Company who signs the Registration Statement and each director of the Company)
from and against any losses, claims, damages or liabilities (including
reasonable legal or other expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim) to which
the Company (or any such officer, director or controlling person) may become
subject (under the Securities Act or otherwise), insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement of a material fact contained in the
Registration Statement on the effective date thereof if such untrue statement
was made in reliance upon and in conformity with written information furnished
by or on behalf of such Purchaser specifically for inclusion in the Registration
Statement; provided, however, such Purchaser shall not be liable in any such
case to the extent that such loss, claims, damage or liability arises out of, or
is based upon, an untrue statement made in reliance upon and in conformity with
written information furnished by or on behalf of such Purchaser, if such
information is corrected and written notice of such correction is delivered to
the Company at least five (5) business days prior to the pertinent sale or
sales. Purchaser's obligation to indemnify the Company hereunder shall be
limited to the total amount of the proceeds received by such Purchaser for the
Shares sold pursuant to the Registration Statement.
(d) Notice of Claim and Representation. Promptly after
receipt by any indemnified person of a notice of a claim or the beginning of any
action in respect of which indemnity is to sought against an indemnifying person
pursuant to this Section 7.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and such indemnifying
person shall have been notified thereof, such indemnifying person shall be
entitled to participate therein, and, to the
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<PAGE> 11
extent it shall wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified person. After notice from the indemnifying
person to such indemnified person of its election to assume the defense thereof,
such indemnifying person shall not be liable to such indemnified person for any
legal expenses subsequently incurred by such indemnified person in connection
with the defense thereof; provided, however, that if there exists or shall exist
a conflict of interest that would make it inappropriate, in the opinion of
counsel to the indemnified person, for the same counsel to represent both the
indemnified person and such indemnifying person or any affiliate or associate
thereof, the indemnified person shall be entitled to retain its own counsel at
the expense of such indemnifying person; provided, however, that no indemnifying
person shall be responsible for the fees and expenses of more than one separate
counsel for all indemnified parties under the Agreements. The failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 7.2 to the extent such
failure is not prejudicial. No indemnifying party, in the defense of any claim
or litigation, shall, except with the consent of each indemnified party, consent
to the entry of any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(e) Contribution Obligation. If the indemnification
provided for in this Section 7.2 is unavailable under state or federal law to an
indemnified person hereunder in respect to any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to herein,
then the indemnifying person, in lieu of indemnifying such indemnified person,
shall contribute to the amount paid or payable by such indemnified person as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company and the Purchaser in
connection with the untrue statements of material fact or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Purchaser shall be determined by reference to, among other things, whether the
untrue statements of material fact or omissions relate to information supplied
by the Company or by the Purchaser and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages or liabilities referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim.
The Company and Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 7.2(e) were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to herein. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
7.3 Survival. The obligations of the Company and Purchaser under
this Section 7 shall survive the payment of the Notes.
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<PAGE> 12
8. Affirmative Covenants of the Company.
8.1 Board Visitation Rights. The Company shall permit one of
three designated representatives of all Purchasers of the Notes to attend
meetings of the Company's Board of Directors in a nonvoting observer capacity at
the Purchasers' own expense and shall give such representative copies of all
notices, minutes, consents, and other materials that it provides to its
directors as and when provided to its directors; provided, however, that the
Company reserves the right to exclude such representative from access to any
material or meeting or portion thereof to the extent the Company reasonably
believes upon advise of counsel that such exclusion is necessary to preserve the
attorney-client privilege. The Company will make every reasonable effort to
minimize the number and length of such exclusions. The foregoing board
visitation rights shall generally be assignable in connection with any permitted
assignment or transfer of the Notes. Notwithstanding the foregoing, or any other
provision in this Agreement to the contrary, in no event shall any
representative attending any Board Meeting be engaged in, employed by, or
otherwise affiliated with any person or entity (other than an affiliate company
of the Company) engaged in the business of designing, manufacturing or selling
hearing aid devices (the "Restricted Business") without the Company's prior
written consent.
8.2 Information Covenants.
(a) Financial Information. The Company will furnish
Purchaser:
(i) promptly after they are sent, made available or
filed, copies of all reports, proxy statements and financial statements that the
Company sends or makes available to its shareholders and, within ten (10) days
of filing, all registration statements and reports that the Company files with
the SEC, including 10-Q, 10-K and 8-K reports, or with any other governmental
authority where such registration statements and reports may be filed;
(ii) as soon as possible, and in any event within five
(5) days after the Company has knowledge of (A) the occurrence of an Event of
Default (as defined in the Notes), or (B) any default or event of default as
defined in any other evidence of debt or under any other agreement, indenture or
other instrument under which such debt has been issued, but only if such debt
exceeds Two Million Dollars ($2,000,000) and such default or Event of Default,
or such other default or event of default is not waived on or before ten (10)
business days after it occurs, the statement of the chief executive officer or
chief financial officer of the Company setting forth details of such default or
event of default and the action which the Company proposes to take with respect
thereto;
(iii) prompt written notice of any actual or threatened
claims, litigation, suits, proceedings or disputes (whether or not purportedly
on behalf of the Company) against or affecting the Company which, if adversely
determined, would have a Material Adverse Effect (including claims, litigation,
suits, proceedings or disputes involving monetary amounts in excess of Five
Million Dollars ($5,000,000) not covered by insurance), or any material labor
controversy resulting in or threatening to result in a strike against the
Company, or any proposal by any governmental authority to acquire any of the
material assets or business of the Company, if such strike or acquisition would
have a Material Adverse Effect.
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<PAGE> 13
(iv) prompt written notice of changes in the name of
the Company.
(b) Inspection Rights. The Company shall maintain adequate
books and accounts in accordance with generally accepted accounting principles
applied on a consistent basis. The Purchaser or a single representative of the
Purchasers shall have the right, at the Purchaser's expense prior to a Default
or an Event of Default (as defined in the Note) and thereafter and during the
continuance thereof, at the Company's expense, to visit and inspect any of the
properties of the Company or any of its subsidiaries, including its and their
books of account, and to take extracts therefrom. The Purchaser shall also have
the right, at the Purchaser's expense prior to a Default or an Event of Default
and thereafter and during the continuance thereof, at the Company's expense, to
visit and inspect any of the properties of the Company or any of its
subsidiaries, to discuss its and their affairs, finances, and accounts with its
and their officers, all at such reasonable times and as often as may be
reasonably requested. Notwithstanding the foregoing, the Company or any
subsidiary shall not be required at any time pursuant to this Section 8.2(b) to
disclose to any representatives of the Purchasers (i) any manufacturing or trade
secret or secret process or other data the disclosure of which the Company
reasonably believes may adversely affect its business, or (ii) any customer data
to any such Purchaser or representative of the Purchasers engaged in a business
similar to the business in which the Company or any of its subsidiaries is
engaged at such time, nor shall the Company or any subsidiary be required at any
time pursuant to this Section 8.2(b) to disclose to the Purchasers or any
representative of the Purchasers any information or data that is classified by
the Government or subject to a non-disclosure agreement in favor of any third
party.
(c) Information Confidential. Purchaser acknowledges that
the information received by it pursuant hereto is confidential and for such
Purchaser's use only, and it will not use such information in violation of the
Exchange Act or reproduce, disclose, or disseminate such information to any
other person (other than its employees or agents having a need to know the
contents of such information, and its attorneys), except in connection with the
exercise of rights under this Agreement unless (i) the Purchaser is required to
disclose such information by a governmental body, (ii) such information is or
becomes generally available to the public other than as a result of a disclosure
by the Purchasers, (iii) such information is or becomes available on a
non-confidential basis from a source other than the Company provided that such
source is not bound by a confidentiality agreement with the Company known to the
Purchasers, or (iv) such information is disclosed to any actual or prospective
assignee of the Note, provided such person has executed in favor of the Company
a confidentiality agreement containing terms substantially identical to this
section.
(d) The Company's financial statements shall be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis.
8.3 Notices. The Company will furnish to the Purchaser the
notices required by Section 1(d) of the Note regarding Conversion Events (as
defined in the Note).
8.4 Security Interest. The Company acknowledges and agrees that
in the event that (1) the Company's ratio of debt to equity (as such amounts are
specified in the Company's most recent financial statements, but provided that
any change in retained earnings as a result of
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<PAGE> 14
any nonrecurring and non-operating loss, expense or write-off shall not be
included in the calculation of such ratio) (the "Debt Ratio") exceeds one to
one, and (2) all Purchasers elect not to redeem the Notes as a result of such
event as provided therein, then upon the Purchasers' request it will execute and
deliver the Pledge Agreement in substantially the form attached to this
Agreement as Exhibit E (the "Pledge Agreement") and take all necessary and
appropriate action contemplated by the obligations imposed upon the Company upon
the effectiveness of such Pledge Agreement to grant to an agent appointed by the
Purchasers pursuant to a separate agreement to hold such security interest on
behalf of the Purchasers (the "Agent") a first priority security interest in the
collateral described therein. The Company hereby agrees that it will not sell,
transfer, assign, encumber, pledge or otherwise dispose of any of the assets
constituting "Pledged Collateral" as that term is defined in the Pledge
Agreement.
8.5 Repayment of Loan. The Company has repaid in full that
certain loan between the Company and Silicon Valley Bank evidenced by that
certain Loan and Security Agreement dated as of December 23, 1994.
9. Miscellaneous.
9.1 Survival of Representations and Warranties. The
representations and warranties made by the Purchaser and the Company in this
Agreement and the respective obligations of each party, to be performed on the
terms hereof at, prior to, or after the Closing Date hereunder, shall not expire
with, or be terminated, or extinguished by, such Closing on the Closing Date.
All statements as to factual matters contained in any certificate, exhibit or
other instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be the
representations and warranties of the Company hereunder as of the date of such
certificate or instrument.
9.2 Expenses. Whether or not the purchase and sale of the Note
contemplated by this Agreement is consummated, the Company shall, upon request,
pay all of the reasonable legal fees incurred by all Purchasers in connection
with the preparation, execution and delivery of the Agreements and the related
documents, in an amount not to exceed forty thousand dollars ($40,000.00) in the
aggregate against presentation of itemized invoices detailing services rendered.
The Company shall pay upon request against presentation of itemized invoices
detailing services rendered, all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by the Purchaser or Agent in
the enforcement or attempt to enforce any covenant of the Company under this
Agreement or any other Note Document which is not performed as and when required
by such document.
9.3 Modification; Waiver. No modification or waiver of any
provision of this Agreement shall be effective unless in writing and approved by
the Company and a majority-in-interest of the Purchasers. Upon the effectuation
of each waiver, consent, agreement of amendment or modification, the Company
promptly shall give written notice thereof to the Purchasers as provided in
Section 9.4 of this Agreement.
9.4 Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by
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<PAGE> 15
registered airmail (or certified first class mail if both the addressor and
addressee are located in the United States), postage prepaid and addressed to
the parties as follows:
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
To Purchaser:
Cagen Holdings Limited
819 Swire House
11 Chater Road
Central
Hong Kong
Attention: Louise Chan
Telephone: 852-522-6141
Telecopier: 852-029-0720
or to such other single place as any single addressee shall designate by written
notice to the other addressees.
9.5 Successors and Assigns. All covenants and agreements of the
parties contained in this Agreement shall be binding upon and inure to the
benefit of their respective successors and permitted assigns. Except for an
assignment by operation of law in connection with a merger or consolidation
involving the Company, the Company may not assign or transfer any of its rights
or obligations under any Note Document without the prior written consent of
Purchaser. Any purported assignment in violation of this section shall be void.
9.6 Governing Law. This Agreement shall in all respects be
governed by the laws of the State of California, United States of America as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California without reference to rules of
conflicts of laws.
9.7 Headings. The section and paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
9.8 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
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<PAGE> 16
9.9 California Qualification. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES WITH RESPECT TO SUCH SECURITIES ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
9.10 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.11 Delays or Omissions. It is agreed that no delay or omission
to exercise any rights, power, or remedy accruing to either party, upon any
breach or default of the other party under this Agreement, shall impair any such
rights, power, or remedy, nor shall it be construed to be a waiver of any such
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. It is further agreed that any waiver, permit, consent,
or approval of any kind or character on a party's part of any breach or default
under this Agreement, or any waiver on a party's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing, and that all remedies, either
under this Agreement or by law or otherwise afforded to such party, shall be
cumulative and not alternative.
9.12 Severability. If any provision in this Agreement or any
other Note Document is found or held to be invalid or unenforceable, then the
meaning of such provision shall be construed, to the extent feasible, so as to
render the provision enforceable, and if no feasible interpretation would save
such provision, it shall be severed from the remainder of such document which
shall remain in full force and effect unless the severed provision is essential
and material to the rights or benefits received by any party. In such event, the
parties shall use their best efforts to negotiate, in good faith, a substitute,
valid and enforceable provision or agreement which most nearly effects their
intent in entering into this Agreement or such other Note Document, as
appropriate.
9.13 Indemnification. To the fullest extent permitted by law, the
Company agrees to protect, indemnify, defend and hold harmless Purchaser, Agent
and their respective directors, officers, employees, agents and any affiliate
thereof (collectively, the "Indemnitees") from and against any liabilities,
losses, damages or expenses of any kind or nature related to any suits, claims
or demands (including in respect of or for reasonable attorney's fees and other
expenses) brought by third parties arising on account of or in connection with
any matter or thing or action or failure to act by the Indemnitees, or any of
them, arising out of or relating to the Agreements, the Notes and the purchase
of the Notes, except to the extent that (a) such liability arises from the
willful misconduct or gross negligence of such Indemnitee, or (b) the provisions
of
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<PAGE> 17
Section 7.2 ("Securities Indemnification") of this Agreement are applicable to
such suit, claim or demand. Upon receiving knowledge of any suit, claim or
demand asserted by a third party that an Indemnitee believes is covered by this
indemnity, such Indemnitee shall give the Company notice of the matter and an
opportunity to defend it, at the Company's sole cost and expense, with legal
counsel satisfactory to such Indemnitee, as the case may be. Such Indemnitee may
also require the Company to defend the matter. Any failure or delay of such
Indemnitee to notify the Company of any such suit, claim or demand shall not
relieve the Company of its obligations under this Section but shall reduce such
obligations to the extent of any increase in those obligations caused solely by
such reasonable failure or delay. The obligations of the Company under this
Section shall survive the payment and performance of the Notes.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed themselves or by their respective representatives thereunto duly
authorized as of the day and year first above written.
RESOUND CORPORATION
By: /s/ Paul Busse
-------------------------------
Title: Chief Financial Officer
----------------------------
CAGEN HOLDINGS LIMITED
By: /s/ Louise Chan
-------------------------------
Title: Managing Director
----------------------------
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<PAGE> 19
EXHIBIT A
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A
TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OR REGULATION S OF THE
SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL TO THE
ISSUER OR SUCH OTHER COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION, OR IN
ACCORDANCE WITH THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES
AND RESTRICTING THEIR TRANSFER.
CONVERTIBLE PROMISSORY NOTE
DUE FEBRUARY 21, 2000
ReSound Corporation, a California corporation (the "Company"), for
value received, promises to pay to the order of <<Purchaser>> the principal sum
of <<Amount>> (<<Amount2>>), plus interest thereon from the date of this Note
until paid at the rate of eight percent (8%) per annum.
The principal amount of this Note and any outstanding accrued interest
thereon shall be due and payable on February 21, 2000. Interest shall be payable
on the last business day (the "Interest Payment Date") in each calendar quarter
(commencing with the calendar quarter ending March 31, 1995), and in addition,
any accrued interest shall be payable upon payment of principal or conversion of
principal. Any default in the payment of any amount not paid when due hereunder
shall bear interest at the rate of ten percent (10%) per annum from the date due
until paid. All payments by the Company under this Note shall be subject to
deduction for any applicable withholding tax as may be required by law, provided
that the Company shall not withhold such taxes to the extent that the holder of
this Note establishes the right to an exemption from withholding tax under
applicable tax laws. The Company shall provide the holder of this Note prior
notice of its intention to withhold as soon as practicable and in any event at
least 30 days prior to making any payment as to which a withholding deduction
shall be made. The Company shall provide the holder of this Note evidence of
payment of such withholding tax promptly following availability of such
evidence.
Payments of both principal and interest are to be made by wire transfer
payable to <<Purchaser>> at <<Address2>> or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America in immediately available funds.
This Note is the Note referred to in the Note Purchase Agreement, dated
as of February 21, 1995, between the Company and <<Purchaser>> (the "Note
Purchase Agreement"). Capitalized terms used herein have the meanings assigned
to those terms in the Note Purchase Agreement, unless otherwise defined herein.
<PAGE> 20
The following is a statement of the rights of the holder of this Note
and the conditions to which this Note is subject, and to which the holder
hereof, by the acceptance of this Note, agrees:
1. Conversion of Note.
(a) Conversion into Common Stock; Conversion Price. The
principal and accrued interest on this Note is convertible by the registered
holder hereof, in whole or in part, into fully paid and nonassessable shares of
the Company's Common Stock (the "Common Stock") at the Conversion Price (as
defined below) in effect at the time of conversion, determined as provided and
upon the terms set forth below, at any time on or after the earlier of (1)
February 22, 1996, (2) a Change of Control (as defined below) of the Company,
(3) the Company's Debt Ratio exceeding one-to-one, (4) acquisition by a person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) (other
than Purchasers and their affiliates) of 15% or more of the outstanding voting
stock of the Company, or (5) a merger, consolidation or combination to which the
Company is a party (regardless of whether the Company survives) in which the
shareholders of the Company immediately before the transaction do not own at
least 5/6 of the voting power in the surviving corporation immediately after the
transaction (all of the foregoing "Conversion Events," and all of the foregoing
except conversion pursuant to clause (1)(a)(1) above, "Special Conversion
Events"). This Note shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the principal
amount of this Note or a specified portion thereof by the effective Conversion
Price. The "Conversion Price" per share at which the Common Stock shall
initially be issuable upon conversion of this Note shall be $10.00; provided,
however, that such Conversion Price shall be subject to adjustment as set forth
in Section 8 of this Note. As used in this Note, the term "Change of Control"
shall mean (i) any consolidation, merger, or combination of the Company whether
or not the Company is the surviving entity, other than where shareholders of the
Company immediately prior to the closing of such consolidation, merger or
combination own at least a majority of the voting equity securities of the
successor entity immediately following such closing, or (ii) a sale, conveyance,
lease or other disposition of all or substantially all the Company's assets
(regardless of whether or not to a single entity or as an entirety).
(b) Registrations; Approvals. If any shares of Common Stock to
be reserved for the purpose of conversion of this Note require registration or
listing with, or approval of, any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or otherwise,
before such shares may be validly issued or delivered upon conversion, the
Company will, in good faith and as expeditiously as possible, at its expense,
endeavor to secure such registration, listing or approval, as the case may be.
(c) Taxes. The Company covenants that all shares of Common
Stock which may be issued upon the conversion of this Note will, upon conversion
of this Note, be fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
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<PAGE> 21
(d) Notice to Holders Prior to Certain Actions. In case:
(i) the Company makes any distribution or dividend or
takes any other action that would require an adjustment in the Conversion Price
pursuant to Section 8 of this Note;
(ii) of any merger, consolidation or combination
involving the Company in which the shareholders of the Company immediately
before the transaction do not own at least 5/6 of the voting power in the
surviving corporation immediately after the transaction;
(iii) of the occurrence of any other event
constituting a Change of Control; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company:
the Company shall cause to be delivered to the holder of this Note as promptly
as possible but in any event at least 15 days prior to the applicable date
hereinafter specified, a notice stating (x) in the case of a dividend or other
distribution, the date on which a a record date is to be taken for the purpose
of such event or if a record is not to be taken, the date as of which the
holders of Common Stock of record are to be entitled to such dividend or
distribution, or (y) in the case of any other event specified above, the date on
which such event is expected to become effective or occur. In the case of any
other event that would constitute a Conversion Event, the Company shall cause
notice of the date of such event (or, if such date is not known, the date on
which, or time period within which, the Company reasonably expects such event to
occur) to be delivered to the holder of this Note as promptly as practicable but
in any event not later than five business days after the earlier of (i) the date
on which the Company discovers that such event has occurred, and (ii) the date
on which the Company discovers that such event is reasonably likely to occur
within the next 60 days.
2. Mechanics of Conversion.
(a) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of this Note. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Company shall pay cash
equal to such fraction multiplied by the then effective Conversion Price.
(b) Notice of Conversion. Before the holder of this Note shall
be entitled to convert the same or any portion thereof into shares of Common
Stock, it shall surrender this Note (or such documentation as may be required by
Section 7 hereof) at the office of the Company or of any transfer agent for this
Note, and shall give written notice to the Company at such office (on the
Conversion Form attached to this Note, or a substantial equivalent thereof) that
it elects to convert the same or a specified portion thereof, and shall state
therein its name or the name of names of its nominees in which it wishes the
certificate or certificates for shares of Common Stock to be issued. The holder
may specify in such notice that such conversion may be effective
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<PAGE> 22
at a later time or immediately prior to or immediately after the occurrence of a
specified Conversion Event that has yet to occur; if no such specification is
given, such notice shall be deemed to request conversion of such Note effective
immediately prior to the close of business on the date of such surrender of this
Note together with such notice.
(c) Stock Certificates. The Company shall, as soon as
practicable thereafter, issue and deliver at such office to the holder of this
Note, or to its nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which it shall be entitled. Upon conversion
as specified in Section 2(b) above, the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date. Upon conversion of only a portion of the principal amount of this
Note the Company shall issue and deliver to, or upon the written order of, the
holder of this Note, at the expense of the Company, a new Note of denomination
in principal amount equal to the unconverted portion of this Note and bearing
interest from the last Interest Payment Date on which interest was actually paid
in full in accordance with the terms hereof.
3. Charges, Taxes and Expenses. Issuance of a certificate for shares of
Common Stock upon the conversion of this Note shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificate shall be issued in the name
of the holder of this Note or such certificates shall be issued in such name or
names as may be directed by the holder of this Note; provided, however, that in
the event certificates for shares of Common Stock (or replacement Notes) are to
be issued in a name other than the name of the holder of this Note, this Note
when surrendered for exercise or transfer shall be accompanied by the Assignment
Form attached hereto duly executed by the holder hereof; and provided further,
that upon any transfer involved in the issuance or delivery of any certificates
for shares of Common Stock or replacement Notes, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
4. Redemption.
(a) Redemption Terms.
(i) Redemption At Option Of Holder. This Note is
redeemable, in whole or in part, at the option of the holder on or after (1) the
consummation of a Change of Control of the Company, or (2) the Company's Debt
Ratio exceeding one-to-one.
(ii) Redemption At Option Of The Company. This Note
is also redeemable, in whole but not in part, at the option of the Company upon
the consummation of a Change of Control of the Company; provided, however, that
the Company simultaneously redeems all, but not less than all of its 8%
convertible promissory notes issued and outstanding concurrently with this Note;
and provided further, that if the Company elects to redeem this Note, the holder
hereof, following notice of such election, shall have the option to convert all
or any portion of this Note into Common Stock at the then applicable Conversion
Price prior to the consummation of the Change of Control of the Company. The
Company shall provide the holder
-4-
<PAGE> 23
of this Note with notice of the Company's election to redeem this Note at least
20 days prior to the date of redemption. Notwithstanding anything to the
contrary in this Note, the Company shall not have the right to prepay this Note
under this Section 4 if the Declining Premium Amount (as defined below) required
to be paid pursuant this Section in connection with such prepayment may not
legally be paid or may be subject to recovery from the holder of this Note for
any reason.
(b) Redemption Price. In the event of redemption at the
election the holder of this Note pursuant to this Section 4, the Company shall
pay to the holder of this Note an amount equal to the principal and accrued
interest outstanding under this Note. In the event of redemption at the election
the Company pursuant to this Section 4, the Company shall pay to the holder of
this Note an amount equal to the principal and accrued interest then outstanding
under this Note plus the product of (i) the principal then outstanding under
this Note, multiplied by (ii) the Declining Premium Amount (as defined below).
(c) Definitions. The term "Declining Premium Amount" shall
equal, as of the dates indicated, the following:
<TABLE>
<CAPTION>
Date of Redemption of this Note Declining Premium Amount
------------------------------- ------------------------
Pursuant to this Section 4
--------------------------
<S> <C>
Prior to February 21, 1996 0.80
On or after February 21, 1996, but before 0.70
February 21, 1997
On or after February 21, 1997, but before 0.60
February 21, 1998
On or after February 21, 1998, but before 0.50
February 21, 1999
On or after February 21, 1999 0.40
</TABLE>
5. No Rights as Shareholder. This Note does not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company
prior to the conversion hereof.
6. Exchange and Registry of Note. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this Note. This Note may be surrendered for exchange,
transfer or conversion, in accordance with its terms, at such office or agency
of the Company, and the Company shall be entitled to rely in all respects, prior
to written notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (provided
that the written indemnity of the original holder hereof is deemed to be
sufficient indemnity), and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon
-5-
<PAGE> 24
surrender and cancellation of this Note, if mutilated, the Company will make and
deliver a new Note which shall carry the same rights to interest (unpaid and to
accrue) carried by this Note so that there will not be any loss or gain of
interest on this Note, stating that such Note is issued in replacement of this
Note, making reference to the original date of issuance of this Note (and any
successors hereto) and dated as of such cancellation, in lieu of this Note.
8. Dilution.
(a) General Conversion Price Adjustment. The Conversion Price
per share and the number of shares issuable upon conversion hereunder are
subject to adjustment from time to time after the issuance of this Note such
that the holder hereof will obtain the benefit of any adjustment, offer or other
rights provided to the Company's shareholders as if the holder hereof had been a
shareholder of the Company commencing on the date of issuance of this Note
(including adjustments for any stock splits, stock dividends, other
distributions and the like). By way of example, and not by way of limitation,
the Conversion Price shall be adjusted in the following manner:
(i) If, after the date of this Note, the Company
shall issue additional shares of Common Stock, by reason of the declaration or
payment of any dividend on the Common Stock payable in Common Stock, or by
reason of a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock) the Conversion Price of this Note in
effect immediately prior to such declaration or subdivision shall, concurrently
with the effectiveness of such declaration or subdivision, be proportionately
decreased.
(ii) In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Conversion Price of this Note in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(iii) In the case of any merger of the Company with
or into another corporation or the conveyance of all or substantially all of the
assets of the Company to another corporation in which the shareholders of the
Company are to receive cash, securities or other consideration for their shares,
this Note shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the corporation deliverable upon conversion of this Note would have
been entitled upon such merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the Company's Board of Directors) shall be made in
the application of the provisions herein set forth with respect to the rights
and interests thereafter of the holder of this Note, to the end that the
provisions set forth herein (including all provisions with respect to changes in
and other adjustments of the Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of this Note. If the Common
Stock is changed into any other class or classes of securities, whether by
capital reorganization, reclassification or otherwise, the Conversion Price
shall be adjusted based on substantially the same principles.
-6-
<PAGE> 25
(iv) If the Company shall, by dividend or otherwise,
distribute to holders of Common Stock any cash, securities (including rights or
warrants), evidences of indebtedness or other assets or property not otherwise
covered elsewhere in this Section 8, the Conversion Price shall be adjusted by
multiplying the Conversion Price in effect immediately prior to the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which is the current market price per share of Common
Stock on the date fixed for such determination less the fair market value
(determined not later than the date of such distribution in good faith by
resolution of the Board of Directors of the Company) of the portion of the
distribution applicable to one share of Common Stock, and the denominator of
which is such current market price per share of Common Stock.
(v) For the purpose of any computation under Section
8(a)(iv) of the current market price per share of Common Stock on a specified
date, such price shall be deemed to be the average closing price per share of
Common Stock for the twenty consecutive trading days prior to the date in
question. The date immediately prior to the date on which the Common Stock
trades "ex" dividend or "ex" rights (i.e., without the right to receive the
dividend or distribution), rather than the record date, shall be deemed to be
the date for determining shareholders entitled to receive such dividend or
distribution.
(vi) If the rights issued under the Company's
Preferred Shares Rights Agreement dated July 5, 1994 (the "Rights"), are
separated from the Common Stock in accordance with the provisions of the Rights
Agreement such that the holder of this Note would thereafter not be entitled to
receive any such Rights in respect to the Common Stock issuable upon conversion,
the Conversion Price will be adjusted to reflect the Rights using the same
principles set forth above in Section 8(a)(iv) as if the Rights had been
distributed on the separation date; provided that if such Rights expire,
terminate or are redeemed by the Company, the Conversion Price shall then be
readjusted to be the Conversion Price which would then be in effect if such
separation had not occurred. In lieu of any such adjustment, Borrower may amend
the Rights Agreement to provide that upon conversion of this Note the holder
thereof will receive, in addition to the Common Stock issuable upon such
conversion, the Rights that would have attached to such shares of Common Stock
if the Rights had not become separated from the Common Stock pursuant to the
provisions of the Rights Agreement.
(vii) In case the Company or any of its subsidiaries
shall make a tender offer for all or any portion of the Common Stock in which
the price paid per share of Common Stock exceeds the closing price per share of
Common Stock as of the date on which such offer expires, the Conversion Price
shall be adjusted by multiplying the Conversion Price in effect on such
expiration date by a fraction, the numerator of which is the number of shares of
Common Stock outstanding (including any tendered shares) on such expiration date
multiplied by the current market price per share of Common Stock on the trading
day next succeeding the expiration date, and the denominator shall be the sum of
(x) the fair market value (determined in good faith by resolution of the Board
of Directors of the Company) of the aggregate consideration payable to
shareholders in such offer and (y) the product of the number of shares of Common
Stock outstanding (less any shares purchased in the offer) on the expiration
date and the current market price per share of Common Stock on the trading day
next succeeding the expiration date.
-7-
<PAGE> 26
(e) Authorized Shares. The Company covenants that during the
period the Note is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the conversion of this Note. The Company further covenants that its
issuance of this Note shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of the Company's Common Stock upon the
conversion of this Note.
(f) Notice of Adjustment. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for this Note, the Company at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the holder of this Note a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request at any time of the holder of this Note, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price of at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of this Note.
(g) Good Faith. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Note and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of this Note against impairment.
9. Events of Default.
(a) The occurrence or existence of any one or more of the
following shall constitute an "Event of Default" hereunder:
(i) The Company shall fail to make any payment of
principal or interest on this Note within five (5) days of when due;
(ii) Any representation or warranty of the Company
under this Note, the Note Purchase Agreement or the other Note Documents is
false or misleading when made or deemed made;
(iii) The breach of any covenant of the Company under
this Note, the Note Purchase Agreement or the other Note Documents which is not
cured by the Company within ten (10) days after notice thereof in writing, or
within fifteen (15) days after the Company should have known of such breach;
(iv) An "Event of Default," as defined in any of the
other Notes shall occur;
-8-
<PAGE> 27
(v) Any default under any indebtedness of the Company
in excess of $2,000,000 shall occur and not be cured by the Company within ten
(10) days after notice thereof in writing;
(vi) Any default in the Loan Agreement dated December
7, 1994 by and among the Company, ReSound Hortechnologie GmbH, ReSound Horgerate
GmbH and Bank Austria Aktiengessellschaft shall occur and not be cured by the
Company within ten (10) days after notice thereof in writing;
(vii) A final judgment or final judgments for the
payment of money, which individually or in the aggregate exceed $5,000,000,
shall be rendered against the Company and the same shall remain undischarged for
a period of thirty (30) days during which execution shall not be effectively
stayed;
(viii) Any judgment, writ, assessment, warrant of
attachment, execution, levy or similar process shall be issued or levied against
80% or more of the assets of the Company and such judgment, writ, assessment,
warrant of attachment, execution, levy or similar process shall not be released,
stayed, vacated or otherwise dismissed within ten (10) days after issue or levy;
(ix) If a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Company in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and such decree or order shall remain unstayed and in effect for a
period of thirty (30) consecutive days; or
(x) If the Company shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of the Company or for any substantial part of
its property, or shall make any general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due or shall take any
corporate action in furtherance of any of the foregoing.
(b) Remedies. Upon the occurrence or existence of any Event of
Default (other than an Event of Default referred to in Section 9(a)(ix) or (x))
and at any time thereafter during the continuance of such Event of Default, the
holder hereof may, by written notice to the Company, declare the principal and
accrued interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note Purchase
Agreement to the contrary notwithstanding. Upon the occurrence or existence of
any Event of Default described in Section 9(a)(ix) or (x), immediately and
without notice, the principal and accrued interest outstanding hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the Notes to the contrary
notwithstanding. In addition to
-9-
<PAGE> 28
the foregoing remedies, upon the occurrence or existence of any Event of
Default, the holder hereof may exercise any right, power or remedy permitted to
it by law, either by suit in equity or by action at law, or both.
10. Miscellaneous.
(a) Issue Date. The provisions of this Note shall be construed
and shall be given effect in all respect as if it had been issued and delivered
by the Company on earlier of the date hereof or the date of issuance of any Note
for which this Note is issued in replacement. This Note shall be binding upon
any successors or assigns of the Company. This Note shall in all respects be
governed by the laws of the State of California, United States of America as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California without reference to rules of
conflicts of laws.
(b) Restrictions. The holder hereof acknowledges that the
Common Stock acquired upon the conversion of this Note may have restrictions
upon its resale imposed by state and federal securities laws.
(c) Registration Rights. The shares of Common Stock issuable
upon conversion of this Note are covered by certain registration rights set
forth in Section 7 of the Note Purchase Agreement pursuant to which this Note
was issued by the Company.
(d) Assignment. The holder may assign this Note in whole or in
part; provided however, that (i) such assignment is made in compliance with all
applicable securities laws, (ii) such assignment is made in minimum amounts of
not less than $1,000,000 of principal amount due under this Note (or if less,
the remaining principal balance hereof), and (iii) this Note shall not be
assignable to any person or entity engaged in the business of designing,
manufacturing or selling hearing aid devices (the "Restricted Business") without
the Company's prior written consent. Except for an assignment by operation of
law in connection with a merger or consolidation involving the Company, the
Company may not assign or transfer any of its rights or obligations under this
Note or any other Note Document without the prior written consent of the holder
of this Note. Any purported transfer of this Note in violation of this Section
10(d) shall be void.
(e) Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by registered airmail (or certified first
class mail if both the addressor and addressee are located in the United
States), postage prepaid and addressed to the parties as follows:
-10-
<PAGE> 29
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
To Holder:
<<Purchaser>>
<<Address>>
Telephone: <<Phone>>
Telecopier: <<Fax>>
or to such other single place as any single addressee shall designate by written
notice to the other addressees.
(g) Enforcement. The Company shall pay all reasonable fees and
expenses, including reasonable attorneys' fees, incurred by the note holder in
the enforcement of any of the Company's obligations hereunder not performed when
due. The Company hereby waives notice of presentment, demand, protest or notice
of any kind.
-11-
<PAGE> 30
IN WITNESS WHEREOF, the Company has caused this Note to be executed by
its officer thereunto duly authorized.
Dated: February ____, 1995
RESOUND CORPORATION
By:
------------------
Title:
------------------
-12-
<PAGE> 31
NOTICE OF CONVERSION
To: RESOUND CORPORATION
(1) The undersigned hereby elects to convert $____________ in principal
amount of this Note into shares of Common Stock of ReSound Corporation (or into
such other securities as this Note is convertible pursuant to the terms hereof)
pursuant to the terms of the attached Note, and tenders herewith the Note,
together with all applicable transfer taxes, if any.
Such conversion is to be effective (complete one only):
/ / immediately prior to the close of business on the
date of receipt of this Notice by the Company
/ / other (specify):
If no specification is given, such conversion shall be
effective immediately prior to the close of business on the date of receipt of
this Notice by the Company.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Address)
(3) Please reissue a Note representing the unconverted balance of this
Note, if any, in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Address)
(4) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
- ------------------------------------ -----------------------------------
(Date) (Signature)
<PAGE> 32
ASSIGNMENT FORM
(To assign the foregoing note, execute
this form and supply required information.
Do not use this form to convert the note.)
FOR VALUE RECEIVED, an interest corresponding to _____% of the unpaid
principal amount of the foregoing Note and all rights evidenced thereby are
hereby assigned to
(Please Print)
whose address is
(Please Print)
Dated: ________________________, 19___.
Holder's Signature: ______________________________
Holder's Address: ______________________________
______________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Note, without alteration or enlargement or any change
whatever.
<PAGE> 33
EXHIBIT B
SCHEDULE OF EXCEPTIONS
Set forth below are the confidential exceptions to the
representations and warranties made by ReSound Corporation (the "Company") in
Section 3 of the Note Purchase Agreement (the "Agreement") dated February 21,
1995. Unless specifically designated otherwise, capitalized terms used herein
shall have the same meanings given them in the Agreement. Each exception applies
to the section numbers indicated below.
Section 3.2 ("Authority; No Conflict; Required Filings and Consents")
1. The issuance of shares of the Company's Common Stock upon conversion
of the Notes may require the filing of a Form 10-C with the SEC, depending on
the number of shares of the Company's Common Stock outstanding at the time of
such conversion.
2. If requested by the Purchasers pursuant to Section 7 of the
Agreement, the Company will be required to file a Registration Statement with
the SEC for the sale of the shares of Common Stock issuable upon conversion of
the Notes.
3. The Company is a party to a Loan and Security Agreement with Silicon
Valley Bank dated December 23, 1994 (the "Bank Agreement"). The Bank Agreement
provides for a single loan advance to the Company in the aggregate principal
amount of $5,000,000, which advance has been made and repaid in full. Pursuant
to the Bank Agreement, Silicon Valley Bank has acquired a first priority
security interest in all of the Company's assets, including without limitation,
all of its goods, equipment, inventory, contract rights, general intangibles,
accounts, documents, cash, deposit accounts and securities. The Company expects
Silicon Valley Bank to file a termination statement with respect to such
security interest, although such event may not take place prior to the Closing
4. Section 5.2 ("Ownership of Newco") of the Shareholder Agreement
between the Company and ReHear, Ltd. dated July 19, 1994 precludes the Company
from transferring, assigning, hypothecating or in any way alienating any of the
securities of RSND Asia Limited owned by the Company. If executed, the Pledge
Agreement will create a first priority security interest in such securities.
Section 3.4 ("Undisclosed Liabilities")
The Company is the defendant in a lawsuit filed in January 1993 in the
United States District Court, Northern District of California, by a partnership
consisting of two individuals. The plaintiff alleged that the Company's use of
certain electrically erasable programmable read only memory ("EEPROM") and
related architecture incorporated in its hearing devices infringed the
plaintiff's U.S. patent. The trial in this matter commenced on January 3, 1995,
and a verdict in favor of the plaintiff (including on the issues of willful
infringement) was entered on January 26, 1995. Plaintiff was awarded damages in
the amount of two and one-half percent of sales of the
<PAGE> 34
affected products, which the Company estimates to be approximately $2,700,000
based on estimated sales of such products through 1994. The Plaintiff has asked
the Court to increase the award based upon the jury's findings that the
infringement was willful.
The Company is the defendant in a lawsuit filed in September 1993 in
the United States District Court, District of Minnesota, by Minnesota Mining and
Manufacturing Company (3M) alleging that the Company's hearing devices and
programming systems infringe the claims of three patents owned by the plaintiff.
The patents include claims directed to methods and apparatus used in programming
hearing devices. The complaint also alleges false advertising, product
disparagement, and related claims and seeks damages in an unspecified amount and
an injunction prohibiting the Company from infringing the patents and from
competing unfairly with plaintiff. The Company has filed an answer to the
plaintiff's complaint, denying the claims made concerning alleged patent
infringement, false advertising, product disparagement and related claims, as
well as any damages related to such claims. Since the suit was filed, a fourth
patent has been added to the suit, but 3M has indicated that another patent will
be dropped from the suit. The Company has counterclaimed for a declaration that
all the patents in the suit are invalid and not infringed.
The Company is the defendant in a lawsuit filed in August 1994 in the
U.S. District Court for the District of New Jersey by an individual, Paul
Yanick. Mr. Yanick originally claimed infringement of four patents but has
dropped one of the patents from the suit, as well as, other claims, through the
filing of an amended complaint. The company does not believe that it infringes
any of the patents in suit and believes that the patents in suit are invalid.
The Company has been named as a defendant, along with its senior
officers, directors and others, in a lawsuit filed on June 24, 1994 in the
United States District Court for the Northern District of California. The case
is a class action, filed on behalf of all purchasers of the Company's common
stock between March 29, 1993 and March 18, 1994. The complaint alleges that the
defendants violated Section l0(b) of the 1934 Securities Exchange Act by making
false and misleading statements about the Company's business and future
prospects, which had the effect of artificially inflating the price of the
Company's common stock. The Company believes plaintiffs' allegations to be
without merit.
Section 3.6 ("Capitalization")
On July 5, 1994, the Company declared a dividend distribution of one
Preferred Share Purchase Right (a "Right") on each outstanding share of the
Company's Common Stock. Each Right will entitle shareholders to buy one
one-thousandth of a share of the Company's Series A Participating Preferred
Stock at an exercise price of $50.00. The Rights will become exercisable at the
close of business on the tenth day (or such later date as may be determined by a
majority of Continuing Directors, as defined in the Preferred Shares Rights
Agreement dated as of July 5, 1994) after a person or group announces the
acquisition of 15% or more of the Company's Common Stock or announces
commencement of a tender offer or exchange offer, the consum mation of which
would result in ownership by the person or group of 30% or more of the Common
Stock. The Company will be entitled to redeem the Rights at $0.01 per Right at
any time prior to the close of business on the tenth day (or such later date as
may be determined by a majority of the Continuing Directors) following
acquisition by a person or group of 15% or more
-2-
<PAGE> 35
of the Company's Common Stock. The dividend distribution was made on July 20,
1994. The rights will expire on July 5, 2004.
If, prior to redemption or exchange of the Rights, a person or group
acquires 15% or more of the Company's Common Stock (other than pursuant to a
tender offer which is made for all the outstanding shares of Common Stock of the
Company and approved by a majority of the Continuing Directors after determining
that the offer is both adequate and otherwise in the best interests of the
Company and its shareholders), each Right not owned by a holder of 15% or more
of the Common Stock will entitle its holder to purchase, at the Right's then
current exercise price, that number of shares of Common Stock of the Company
(or, in certain circumstances as determined by the Board, cash, other property
or other securities) having a market value at that time of twice the Right's
exercise price. If, after the tenth day following acquisition by a person or
group of 15% or more of the Company's Common Stock, the Company sells more than
50% of its assets or earning power or is acquired in a merger or other business
transaction, the acquirer must assume the obligations under the Rights and each
Right not owned by a holder of 15% or more of the Common Stock will entitle its
holder to purchase, at the Right's then current exercise price, that number of
shares of Common Stock of the acquirer having a market value at that time of
twice the Right's exercise price. At any time after a person or group acquires
15% or more of the Company's Common Stock and prior to the acquisition by the
acquirer of 50% or more of the outstanding Common Stock, the Board of Directors
of the Company may exchange the Rights (other than those owned by the acquirer
or its affiliates) for Common Stock of the Company at an exchange ratio of one
share of Common Stock per Right.
-3-
<PAGE> 36
EXHIBIT C
February 21, 1995
Cagen Holdings Limited
819 Swire House
11 Chater Road
Central
Hong Kong
The Mingly Corporation Limited
820 Swire House
11 Chater Road
Central
Hong Kong
Charter Ventures II, L.P.
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Ladies and Gentlemen:
We have acted as counsel for ReSound Corporation, a California
corporation (the "Company") in connection with the several Note Purchase
Agreements by and among the Company and Cagen Holdings Limited, The Mingly
Corporation Limited and Charter Ventures II, L.P. (each a "Purchaser," and
collectively, the "Purchasers") dated as of February 21, 1995 (each a "Note
Purchase Agreement," and collectively, the "Note Purchase Agreements"), and the
Company's Convertible Promissory Notes in the aggregate principal amount of U.S.
$10,000,000 dated as of February 21, 1995 issued to the Purchasers pursuant to
the Note Purchase Agreements (the "Notes," and collectively with the Note
Purchase Agreements, the Pledge Agreement and the Distribution Agreement
Amendment the "Transaction Documents"). Unless defined herein, capitalized terms
have the meaning given them in the Note Purchase Agreements.
In rendering this opinion, we have made such legal and factual
examinations and inquiries as we have deemed advisable or necessary for the
purpose of rendering this opinion. In addition, we have examined originals or
copies of documents, corporate records and other writings which we consider
relevant for the purposes of this opinion. In such examination we have assumed
the genuineness of all signatures on original documents, the conformity to
original documents of all copies submitted to us and the due execution and
delivery of all documents, other than by the
<PAGE> 37
Company, where due execution and delivery are a prerequisite to the
effectiveness thereof. In making our examination of documents executed by
entities other than the Company, we have assumed that each other entity had the
power to enter into and perform all its obligations thereunder and we also have
assumed the due authorization by each such other entity of all requisite
actions.
Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or belief, it is intended to
signify that in the course of our representation of the Company in connection
with the transactions referred to in the first paragraph hereof, no information
has come to our attention that would give us actual knowledge of the existence
or absence of such facts. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Company.
In rendering the opinion set forth in paragraph (a) below, (i) in order
to determine in which states qualification is appropriate, we have assumed that
qualification may be required only in those states in which the Company owns or
leases real property, maintains offices or has employees, and we have relied on
the Company's listing of those states without independent verification on the
Certificate of Paul Busse, Senior Vice President, Finance and Administration and
Chief Financial Officer of the Company (the "Management Certificate"), and (ii)
as to the qualification and good standing of the Company in the states so
identified in such Management Certificate, we have relied exclusively on
certificates of public officials, although we have not obtained tax good
standing certificates (other than a California franchise tax certificate for the
Company) and no opinion is provided with respect to tax good standing (other
than with respect to the Company in California).
In rendering the opinion in paragraph (e) below, we have reviewed and
are providing an opinion only with respect to the Transaction Documents,
judgments and orders set forth in the Management Certificate.
In rendering the opinion expressed in paragraphs (g) and (h) below, we
have assumed and express no opinion with respect to the following: (a) that the
representations and warranties of the Purchasers set forth in the Note Purchase
Agreements are true and complete; and (b) the accuracy and completeness of the
information provided by the Company to the Purchasers in connection with such
offer and sale. We have also assumed the accuracy of, and have relied upon, the
Company's representations to us that the Company has made no offer to sell the
Notes by means of any "general solicitation," as defined in Regulation D under
the Securities Act or the "publication of any advertisement" (as defined under
the California Corporate Securities Act of 1968, as amended, and the regulations
thereunder) and that no offer or sale of the Notes has been made or will be made
in any states other than California.
The opinions hereinafter expressed are subject to the following further
qualifications:
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<PAGE> 38
(i) We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than California or the federal law of the United States of
America are applicable to the Transaction Documents or the transactions
contemplated thereby;
(ii) We express no opinion as to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, usury or other similar laws
relating to or affecting the rights of creditors generally, including, without
limitation, laws relating to fraudulent transfers or conveyances, preferences
and equitable subordination;
(iii) Our opinions are qualified by the limitations imposed by
general principles of equity upon the availability of equitable remedies or the
enforcement of provisions of the Transaction Documents; and the effect of
judicial decisions which have held that certain provisions are unenforceable
when their enforcement would violate the implied covenant of good faith and fair
dealing, or would be commercially unreasonable, or where their breach is not
material;
(iv) We express no opinion regarding the enforceability of any
security interest, collateral assignment, or similar interest granted by the
Company to secure its obligations under the Notes or the existence or perfection
of any such security interest, collateral assignment, or similar interest;
(v) Our opinion is based upon current statutes, rules,
regulations, cases and official interpretive opinions, and it covers certain
items that are not directly or definitively addressed by such authorities;
(vi) The effect of judicial decisions which may permit the
introduction of extrinsic evidence to modify the terms or the interpretation of
the Transaction Documents;
(vii) The enforceability of provisions of the Transaction
Documents which purport to establish evidentiary standards or to make
determinations conclusive;
(vii) The enforceability of provisions of the Transaction
Documents which purport to establish particular courts as the forum for the
adjudication of any controversy relating to the Transaction Documents;
(ix) The enforceability of provisions of the Transaction
Documents expressly or by implication waiving broadly or vaguely stated rights,
or waiving rights granted by law where such waivers are against public policy;
(x) The enforceability of provisions of the Transaction
Documents providing that rights or remedies are not exclusive, that every right
or remedy is cumulative, or that the election of a particular remedy or remedies
does not preclude recourse to one or more other remedies;
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<PAGE> 39
(xi) We express no opinion as to compliance with applicable
antifraud statutes, rules or regulations of applicable state and federal laws
concerning the issuance or sale of securities; and
(xii) Provisions in the Transaction Documents purporting to
provide for indemnification and contribution under certain circumstances may be
unenforceable.
Based on our examinations of the Transaction Documents, subject to the
foregoing qualifications and the limitations, qualifications, assumptions and
covenants set forth in Exhibit B (the "Disclosure Schedule") attached to the
Note Purchase Agreement, we are of the opinion that:
(a) The Company is a corporation duly organized and existing under the
laws of the State of California, and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in each state in which the
failure to be so qualified would have a material adverse effect on the Company.
(b) The Company has the requisite corporate power and authority to
execute and deliver the Transaction Documents, to sell and issue the Notes, to
issue the Common Stock issuable upon conversion of the Notes and to carry out
and perform its obligations under the terms of the Transaction Documents.
(c) All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of the Transaction Documents by the Company, the authorization,
sale, issuance and delivery of the Notes (and the Common Stock, issuable upon
conversion thereof) and the performance of all of the Company's obligations
under the Transaction Documents has been taken. The shares of Common Stock,
issuable upon conversion of the Notes have been duly and validly authorized and
reserved and, when issued in compliance with the provisions of the Notes will be
validly issued, fully paid and nonassessable. The Notes, the Note Purchase
Agreements and the Distribution Agreement Amendment have been duly and validly
executed and delivered by the Company and, constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms.
(e) The execution, delivery and performance of and compliance with the
Transaction Documents, and the issuance of the Notes and the Common Stock,
issuable upon conversion thereof, have not resulted and will not result in any
material violation of, or conflict with, or constitute a material default under,
and have not resulted and will not result in any material violation of, or
conflict with, or constitute a material default under (i) the Company's Articles
of Incorporation or Bylaws, or (ii) any statute, rule or regulation or any
judgment or order known to us of Federal or California law to which the Company
is a party, or by which the Company is bound.
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<PAGE> 40
(f) To our knowledge, there are no actions, suits, proceedings or
investigations pending or threatened against the Company, or its properties
before any court or governmental agency that questions the validity of the
Transaction Documents or any action taken or to be taken in connection
therewith.
(g) No consent, approval or authorization of or designation,
declaration or filing with, any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of the
Transaction Documents, or the offer, sale or issuance of the Notes (and the
Common Stock, issuable upon conversion thereof), or the consummation of any
other transaction contemplated by the Transaction Documents, except the notice
filing required by Section 25102(f) of the California Corporate Securities Law
of 1968, as amended and except for any filings necessary to perfect the security
interest to be granted under the Pledge Agreement.
(h) The offer, sale and issuance of the Notes and the issuance of the
Common Stock, to be issued upon conversion thereof, constitute transactions
exempt from the registration requirements of Section 5 of the Securities Act and
exempt from the qualification requirements of the California Corporate
Securities Law of 1968, as amended.
This opinion is furnished to you pursuant to Section 5.6 of the Note
Purchase Agreements and is solely for your benefit and may not be relied on by,
nor may copies be delivered to, any other person without our prior written
consent. We assume no obligation to inform you of any facts, circumstances,
events or changes in the law that may hereafter be brought to our attention that
may alter, affect or modify the opinion expressed herein.
Sincerely,
VENTURE LAW GROUP,
A Professional Corporation
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<PAGE> 41
EXHIBIT D
FIRST AMENDMENT TO INTERNATIONAL DISTRIBUTOR AGREEMENT
This First Amendment (the "Amendment") to the International Distributor
Agreement by and between ReSound Corporation, a California corporation
("ReSound") and RSND Asia, Limited, a British Virgin Islands corporation ("RSND
Asia") dated as of July 19, 1994 (the "Agreement") is made as of February ____,
1995. Unless specifically designated otherwise, capitalized terms used herein
shall have the same meanings given them in the Agreement.
In consideration of the mutual promises contained herein, and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereby agree as follows:
1. Section 2(b). Section 2(b) of the Agreement is hereby amended to
include the following sentence at the end of such section:
"Notwithstanding the foregoing provisions of this Section
2(b), in the event that there is a foreclosure on the Pledged
Collateral (as defined in the Pledge Agreement (the "Pledge
Agreement") attached as Exhibit E to the Manufacturer's Note
Purchase Agreements entered into with certain other parties
dated February ____, 1995) pursuant to the terms of such
Pledge Agreement, then the Distributor shall thereafter be
entitled to distribute the Products in the Territory and in
each other country in which Distributor then has distribution
rights hereunder on an exclusive basis, regardless of
Distributor's achievement or non-achievement of the Minimum
Sales Commitment."
2. Effect of Amendment. Except as amended as set forth above, the
Agreement shall continue in full force and effect.
3. Miscellaneous. This Amendment may be executed in counterparts, and
shall be governed by California law.
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date set forth above.
RESOUND CORPORATION RSND ASIA, LIMITED
By: By:
---------------------------- ------------------------------
Title: Title:
---------------------------- ------------------------------
RESOUND, LIMITED
By:
------------------------------
Title:
------------------------------
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<PAGE> 43
EXHIBIT E
PLEDGE AGREEMENT
This Pledge Agreement, dated as of ___________, _____, is executed by
ReSound Corporation, a California corporation ("ReSound") in favor of
______________________, a _____________ as agent (in such capacity, the "Agent")
for the holders of ReSound's convertible promissory notes in the aggregate
principal amount of U.S. $10,000,000 (each a "Note," and collectively the
"Notes") issued pursuant to the several Note Purchase Agreements (each a "Note
Purchase Agreement," and collectively, the "Note Purchase Agreements") dated
February 21, 1995 by and among ReSound and The Mingly Corporation Limited, Cagen
Holdings Limited and Charter Ventures II, L.P. (each a "Note Holder," and
collectively, the "Note Holders").
RECITALS
A. Pursuant to the Note Purchase Agreements, the Note Holders have
purchased the Notes.
B. Agent has been appointed as agent for the Note Holders pursuant to
that certain [Insert name of agreement appointing Agent] dated as of __________,
_____ between Agent and the Note Holders.
C. Pursuant to the terms of the Note Purchase Agreements ReSound is
obligated to enter into this Pledge Agreement with the Agent on behalf of the
Note Holders.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, ReSound hereby agrees with Agent as follows:
1. Definitions and Interpretation. Unless otherwise defined herein, all
other capitalized terms used herein and defined in the Note Purchase Agreements
shall have the respective meanings given to those terms in the Note Purchase
Agreements, and all terms defined in the California Uniform Commercial Code (the
"UCC") shall have the respective meanings given to those terms in the UCC.
2. The Pledge. To secure the Obligations as defined in Section 3
hereof, ReSound hereby pledges and assigns to, and grants to, Agent, acting on
behalf of the Note Holders, a security interest in, all of ReSound's right,
title and interest, whether now existing or hereafter arising from the following
property (collectively, the "Pledged Collateral"):
(a) All of the shares of RSND Asia Limited (the "Issuer")
owned by ReSound (the "Shares") and any additional shares of Issuer hereafter
acquired by ReSound, including shares issued upon exercise of the Pledged
Warrants (as defined below) (collectively, the "Pledged Shares");
<PAGE> 44
(b) All warrants to purchase shares of Issuer owned by
ReSound, and any additional warrants, options or other rights to purchase shares
of Issuer hereafter acquired by ReSound (collectively the "Pledged Warrants");
(c) All dividends (including cash dividends), other
distributions (including stock redemption proceeds), or other property,
securities or instruments, in respect of or in exchange for the Pledged Shares
or the Pledged Warrants, whether by way of dividends, stock dividends,
recapitalizations, mergers, consolidations, split-ups, combinations or exchanges
of shares or warrants or otherwise;
(d) All of ReSound's rights under that certain Shareholder
Agreement dated as of July 19, 1994, as amended from time to time, between
ReSound and ReHear Investments, Ltd. (the "Shareholder Agreement") and that
certain Share and Warrant Purchase Agreement dated as of July 19, 1994, between
ReSound and Issuer; and
(e) All proceeds of the foregoing (the "Proceeds").
3. Security for Obligations. The obligations secured by this Pledge
Agreement (the "Obligations") shall mean the aggregate principal, interest,
fees, expenses and other amounts, due or to become due, now existing or
hereafter arising, under the Notes, the Note Purchase Agreements, this Pledge
Agreement or any other document, instrument or agreement issued or delivered in
connection herewith or therewith.
4. Delivery of Pledged Collateral. All certificates or instruments
representing or evidencing the Pledged Collateral shall be delivered to Agent
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Agent.
5. Representations and Warranties. ReSound hereby represents and
warrants as follows:
(a) Issuance of Pledged Shares, Etc. The Pledged Shares have
been duly authorized and are validly issued and are fully paid and
non-assessable, and except as set forth in the Shareholder Agreement, the
Pledged Shares and the Pledged Warrants are owned by ReSound free and clear of
any and all liens, pledges, encumbrances or charges, and ReSound has not
optioned or otherwise agreed to sell, hypothecate, pledge, or otherwise encumber
or dispose of the Pledged Shares.
(b) Security Interest. The pledge of the Pledged Collateral
creates a valid security interest in the Pledged Collateral, which security
interest is a perfected and first priority security interest, securing the
payment of the Obligations and the obligations hereunder.
(c) Restatement of Representations and Warranties. On and as
of the date any property becomes Pledged Collateral, the foregoing
representations and warranties shall apply to such additional Pledged
Collateral.
6. Further Assurances. ReSound agrees to cause the security interest
granted hereby to be entered on the books of Issuer in a manner sufficient to
provide notice hereof. ReSound agrees
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<PAGE> 45
that at any time and from time to time, at ReSound's expense, ReSound will
promptly execute and deliver all further instruments and documents, including
all additional Pledged Shares and Pledged Warrants, and take all further action,
that may be necessary or desirable, or that Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby and the priority thereof, or to enable Agent to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral. ReSound agrees not to surrender or lose possession of (other than to
Agent), sell, encumber or otherwise dispose of, or transfer, any Pledged
Collateral or right or interest therein and to keep the Pledged Collateral free
of all liens other than the lien granted hereby.
7. Voting Rights; Dividends; Etc.
(a) Rights Prior to an Event of Default. So long as no Event
of Default (as hereinafter defined) shall have occurred and be continuing:
(i) ReSound shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Pledged Shares or
any part thereof for any purpose not inconsistent with the terms of this Pledge
Agreement and the other Note Documents.
(ii) ReSound shall be entitled to exercise all
rights under the agreements described in Section 2(d).
(iii) ReSound shall be entitled to exercise
the Pledged Warrants pursuant to their terms at the sole discretion of ReSound.
(iv) ReSound shall be entitled to receive and
retain free and clear of the security interest of Agent hereunder any and all
dividends and interest paid in respect of the Pledged Shares, provided, however,
that any and all (A) dividends and interest paid or payable other than in cash
in respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for any Pledged Shares or
Pledged Warrants, (B) dividends and other distributions paid or payable in cash
in respect of any Pledged Shares or Pledged Warrants in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or
otherwise distributed in respect of principal of, or in redemption of, or in
exchange for, any Pledged Shares or Pledged Warrants, shall be, and shall be
forthwith delivered to Agent to hold as, Pledged Collateral and shall, if
received by ReSound, be received in trust for the benefit of Agent, be
segregated from the other property or funds of ReSound and be forthwith
delivered to Agent as Pledged Collateral in the same form as so received (with
any necessary endorsement) to be held as part of the Pledged Collateral.
(b) Rights Following an Event of Default. Upon the occurrence
and during the continuance of an Event of Default:
(i) All rights of ReSound to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to Section 7(a)(i), to exercise the contractual rights which
it would otherwise be entitled to exercise pursuant to Section 7(a)(ii), to
exercise the right to exercise the Pledged Warrants pursuant to Section
7(a)(iii), and to receive the dividends and interest payments which it would
otherwise be authorized to receive and retain pursuant to Section 7(a)(iv),
shall cease and all such rights shall thereupon become vested
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<PAGE> 46
in Agent which shall thereupon have the sole right, but not the obligation, to
exercise such voting and other consensual rights and to receive and hold as
Pledged Collateral such dividends and interest payments.
(ii) All dividends and interest payments which
are received by ReSound contrary to the provisions of subparagraph (i) of this
Section 7(b) shall be received in trust for the benefit of Agent, shall be
segregated from other funds of ReSound and shall be forthwith delivered to Agent
as Pledged Collateral in the same form as so received (with any necessary
endorsement).
8. Events of Default.
(a) Event of Default. An event of default (an "Event of
Default") shall be deemed to have occurred under this Pledge Agreement in the
event that there is an "Event of Default" as defined in any of the Notes.
(b) Rights Under the UCC. In addition to all other rights
granted hereby, by the Notes, the Note Purchase Agreements and by law, Agent
shall have, with respect to the Pledged Collateral, the rights and obligations
of a secured party under the UCC.
(c) Sale of Pledged Collateral. ReSound acknowledges and
recognizes that Agent may be unable to effect a public sale of all or a part of
the Pledged Shares and Pledged Warrants and may be compelled to resort to one or
more private sales to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire the Pledged Shares and Pledged Warrants
for their own account, for investment and not with a view to the distribution or
resale thereof. ReSound acknowledges that any such private sales may be at
prices and on terms less favorable to Agent than those of public sales, and
agrees that such private sales shall be deemed to have been made in a
commercially reasonable manner and that Agent has no obligation to delay the
sale of any Pledged Shares or Pledged Warrants to permit the issuer thereof to
register it for public sale under the Securities Act of 1933, as amended, or
under any state securities law.
(d) Compliance with the Exchange Act. Upon the occurrence of
an Event of Default and at Agent's request, ReSound agrees to use ReSound's
reasonable best efforts to cause Issuer to disseminate publicly all information
required to be disseminated pursuant to the Securities Exchange Act of 1934, as
amended, if Issuer is then required to file reports under such Act, or to
otherwise make available such information as to permit the public or private
sale of the Pledged Collateral in accordance with the terms of this Pledge
Agreement. ReSound further agrees to use ReSound's reasonable best efforts to
cause Issuer to cooperate with Agent in taking whatever additional action may be
required to effect such public or private sale of the Pledged Collateral.
(e) Notice, Etc. In any case where notice of sale is required,
seven (7) days' notice shall be deemed reasonable notice. Agent may have resort
to the Pledged Collateral or any portion thereof with no requirement on the part
of Agent to proceed first against any other Person or property.
(f) Other Remedies. Upon the occurrence and during the
continuance of an Event of Default, (i) at the request of Agent, ReSound shall
assemble the Pledged Collateral not yet in Agent's possession and make available
to Agent all records relating to the Pledged Collateral at any
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<PAGE> 47
place or places specified by Agent, together with such other information as
Agent shall request concerning ReSound's ownership of the Pledged Collateral and
relationship to Issuer; and (ii) Agent or its nominee shall have the right, but
shall not be obligated, to vote or give consent with respect to the Pledged
Shares or any part thereof and to exercise ReSound's rights under the Pledged
Warrants.
9. Appointed Attorney-in-Fact.
ReSound hereby appoints Agent as ReSound's attorney-in-fact, with full
authority in the place and stead of ReSound and in the name of ReSound or
otherwise, from time to time in Agent's discretion and to the full extent
permitted by law to take any action and to execute any instrument which Agent
may deem necessary or advisable to accomplish the purposes of this Pledge
Agreement in accordance with the terms and provisions hereof, including to
receive, endorse and collect all instruments made payable to ReSound
representing any dividend, interest payment or other distribution in respect of
the Pledged Collateral or any part thereof and to give full discharge for the
same and to make any compromise or settlement, and take any action it reasonably
deems advisable, with respect to the Pledged Collateral.
ReSound hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred on Agent
hereunder are solely to protect its interests in the Pledged Collateral and
shall not impose any duty upon Agent to exercise any such powers. It is further
agreed and understood between the parties hereto that such care as Agent gives
to the safekeeping of its own property of like kind shall constitute reasonable
care of the Pledged Collateral when in Agent's possession; provided, however,
that Agent shall not be required to make any presentment, demand or protest, or
give any notice and need not take any action to preserve any rights against any
prior party or any other person in connection with the Obligations or with
respect to the Pledged Collateral. Agent shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and in no
event shall Agent or any of its officers, directors, employees or agents be
responsible to ReSound for any act or failure to act, except for gross
negligence or willful misconduct.
10. Miscellaneous.
(a) Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by registered airmail (or certified first
class mail if both the addressor and addressee are located in the United
States), postage prepaid and addressed to the parties as follows:
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
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<PAGE> 48
To Agent:
________________________
________________________
________________________
To Note Holders:
Cagen Holdings Limited
819 Swire House
11 Chater Road
Central
Hong Kong
Attention: Louise Chan
Telephone: 852-522-6141
Telecopier: 852-029-0720
Charter Ventures II, L.P.
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Attention: A. Barr Dolan
Telephone: (415) 325-6953
Telecopier: (415) 325-4762
The Mingly Corporation Limited
820 Swire House
11 Chater Road
Central
Hong Kong
Attention: Payson M. Cha
Telephone: 852-521-4473
Telecopier: 852-845-3735
or to such other single place as any single addressee shall designate by written
notice to the other addressees. ReSound shall deliver all notices hereunder to
Agent and the Note Holders.
(b) Nonwaiver. No failure or delay on Agent's part in
exercising any right hereunder shall operate as a waiver thereof or of any other
right nor shall any single or partial exercise of any such right preclude any
other further exercise thereof or of any other right.
(c) Amendments and Waivers. This Pledge Agreement may not be
amended or modified, nor may any of its terms be waived, except by written
instruments signed by ReSound, Agent and any Note Holders required by the Notes
and Note Purchase Agreements. Each waiver or
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<PAGE> 49
consent under any provision hereof shall be effective only in the specific
instances for the purpose for which given.
(d) Assignments. This Pledge Agreement shall be binding upon
and inure to the benefit of Agent, the Note Holders, ReSound and their
respective successors and assigns; provided, however, that ReSound, Agent, and
the Note Holders may sell, assign and delegate their respective rights and
obligations hereunder only as permitted by the Notes and Note Purchase
Agreements.
(e) Cumulative Rights, Etc. The rights, powers and remedies of
Agent under this Pledge Agreement shall be in addition to all rights, powers and
remedies given to Agent by virtue of any applicable law, rule or regulation of
any governmental authority, the Notes, the Note Purchase Agreements, or any
other agreement, all of which rights, powers, and remedies shall be cumulative
and may be exercised successively or concurrently without impairing Agent's
rights hereunder. ReSound waives any right to require Agent to proceed against
any person or to exhaust any Pledged Collateral or to pursue any remedy in
Agent's power.
(f) Payments Free of Taxes, Etc. All payments made by ReSound
under this Pledge Agreement shall be made by ReSound free and clear of and
without deduction for any and all present and future taxes, levies, charges,
deductions and withholdings. In addition, ReSound shall pay upon demand any
stamp or other taxes, levies or charges of any jurisdiction with respect to the
execution, delivery, registration, performance and enforcement of this Pledge
Agreement. Upon request by Agent or any Note Holder, ReSound shall furnish
evidence satisfactory to Agent or such Note Holder that all requisite
authorizations and approvals by, and notices to and filings with, governmental
authorities and regulatory bodies have been obtained and made and that all
requisite taxes, levies and charges have been paid.
(g) Partial Invalidity. If any provision in this Pledge
Agreement is found or held to be invalid or unenforceable, then the meaning of
such provision shall be construed, to the extent feasible, so as to render the
provision enforceable, and if no feasible interpretation would save such
provision, it shall be severed from the remainder of such document which shall
remain in full force and effect unless the severed provision is essential and
material to the rights or benefits received by any party. In such event, the
parties shall use their best efforts to negotiate, in good faith, a substitute,
valid and enforceable provision or agreement which most nearly effects their
intent in entering into this Pledge Agreement.
(h) Governing Law. This Pledge Agreement shall be governed by
and construed in accordance with the laws of the State of California without
reference to conflicts of law rules (except to the extent governed by the UCC).
(i) Counterparts. This Pledge Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
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<PAGE> 50
IN WITNESS WHEREOF, ReSound has caused this Pledge Agreement to be
executed as of the day and year first above written.
RESOUND CORPORATION
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Acknowledged:
[Agent]
By:
---------------------------
Name:
---------------------------
Title:
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Exhibit 4.2
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement") is made as of February
21, 1995 by and between ReSound Corporation, a California corporation (the
"Company") and Charter Ventures II, L.P. (the "Purchaser").
RECITALS
This Agreement is one of several identical agreements each of even date
herewith (collectively, the "Agreements") for the purchase and sale of the
Company's 8% convertible promissory notes in the form attached to this Agreement
as Exhibit A (each a "Note" and collectively, the "Notes"). Together, the
Agreements provide for the purchase and sale of Notes in the aggregate principal
amount of U.S. $10,000,000 by the Company to the Purchaser and to certain other
purchasers (collectively, the "Purchasers").
AGREEMENT
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED IN THIS AGREEMENT,
AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS:
1. Authorization and Sale of the Notes. The Company has, or before the
Closing (as defined below) will have, authorized the purchase and sale of the
Notes to the Purchasers. Subject to the terms and conditions of this Agreement,
the Company will issue and sell to the Purchaser and the Purchaser will purchase
from the Company a Note in the principal amount of U.S. $1,000,000.
2. Closing of Purchase and Sale. The closing of the purchase and sale
of the Notes (the "Closing") shall take place at the offices of Venture Law
Group, 2800 Sand Hill Road, Menlo Park, California 94025, at 10:00 a.m., on
February 21, 1995, or at such time and place as the Company and the Purchasers'
counsel may agree (such time and date being referred to in this Agreement as the
"Closing Date"). At the Closing, the Company will deliver to the Purchasers the
Notes to be purchased by the Purchasers from the Company, which shall be
registered in the name of the respective Purchaser against payment of the
purchase price therefor.
3. Representations and Warranties of the Company. Except as set forth
on Exhibit B to this Agreement (the "Schedule of Exceptions"), the Company
hereby makes the following representations and warranties to the Purchaser:
3.1 Existence; Good Standing; Compliance with Law. The Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of California. The Company is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of each other jurisdiction in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary, except for jurisdictions in which the failure to be so
qualified or to be in good standing would not have a Material Adverse Effect (as
defined below). As used in this Agreement, the term "Material Adverse Effect"
shall mean any change or effect that is or is likely
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to be materially adverse to (a) the business, assets (including intangible
assets), financial condition, results of operations or prospects of the Company
and its subsidiaries taken as a whole (b) the ability of the Company to pay or
perform its obligations under the Note Documents (as hereinafter defined), or
(c) the rights and remedies of the Purchaser under the Note Documents. The
Company has all requisite corporate power and authority to own its properties
and carry on its business as now conducted. As used in this Agreement, the term
"Note Documents" shall mean and include this Agreement, the Note, the Pledge
Agreement (as hereinafter defined) the Distribution Agreement Amendment (as
hereinafter defined) and all other documents, instruments and agreements
delivered to the Purchaser in connection with this Agreement or such specified
Note Documents.
3.2 Authority; No Conflict; Required Filings and Consents. The
Company has all requisite corporate power and authority to enter into this
Agreement and the other Note Documents and to consummate the transactions
contemplated hereby including the issuance of the shares of Common Stock of the
Company issuable on conversion of the Note. The execution and delivery of this
Agreement, the Notes and the other Note Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement, the Notes
and the Distribution Agreement Amendment have been duly executed and delivered
by the Company and constitute, and the other Note Documents when executed and
delivered will constitute, valid and binding obligations of the Company, legally
enforceable in accordance with their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of
general application relating to or affecting enforcement of creditors' rights or
as limited by the effect of general principles of equity upon the availability
of equitable remedies. The Common Stock of the Company to be issued upon
conversion of the Note will be duly authorized and validly issued, fully paid
and nonassessable. The execution and delivery of this Agreement, the Notes and
the other Note Documents does not, and the consummation of the transactions
contemplated hereby and thereby, including the issuance of the shares of Common
Stock of the Company issuable on conversion of the Note will not, conflict with,
or result in any violation of, or default (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under
(i) any provision of the Articles of Incorporation or Bylaws of the Company, or
(ii) any mortgage, indenture, lease, or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its respective
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required by
or with respect to the Company in connection with the execution and delivery of
this Agreement, the Notes and the other Note Documents by the Company or the
consummation by the Company of the transactions contemplated hereby and thereby,
including the issuance of the shares of Common Stock of the Company issuable on
conversion of the Note, except (i) such consents, approvals, orders,
authorizations, registration, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country, (ii) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not have a Material Adverse Effect, and (iii) filings
necessary to perfect the security interest to be granted under the Pledge
Agreement.
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3.3 SEC Documents. The Company has furnished, or made
available to counsel for Purchaser, a true and complete copy of each statement,
report, registration statement and definitive proxy statement filed by the
Company with the Securities and Exchange Commission ("SEC") since January 1,
1994 (the "SEC Documents"), which are all the documents (other than preliminary
material) that the Company was required to file with the SEC since such date. As
of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the Securities Act of 1933, as amended (the
"Securities Act"), and none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements made therein not misleading
in light of the circumstances under which they were made, except to the extent
corrected by a subsequently filed SEC Document. The financial statements of the
Company included in the SEC Documents (the "Company Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of operations,
shareholders' equity and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal, recurring audit adjustments). The
Company has also furnished the Purchasers with a copy of its press release
describing its results of operation and related matters on an unaudited basis
for the fourth quarter and fiscal year ended December 31, 1994 (the "Press
Release"), and a copy of its Form 8-K as filed with the Securities and Exchange
Commission on December 19, 1994 concerning its acquisition of Viennatone AG (the
"Form 8-K"). Except as disclosed in the SEC Documents, in the Schedule of
Exceptions, in the Press Release, in the Form 8-K, or except as contemplated by
this Agreement or on account of the transactions contemplated hereby, since
December 31, 1994 there has not been any material adverse change in the results
of operations, financial condition, assets or business of the Company and its
subsidiaries taken as a whole.
3.4 Undisclosed Liabilities. The Company does not have any
liabilities, either accrued, absolute, contingent or otherwise, of a nature
required to be reflected in a balance sheet or related notes prepared in
accordance with generally accepted accounting principles consistently applied
which are not reflected or provided for in the Company Financial Statements
except those arising after December 31, 1994 which are in the ordinary course of
business and which, in the aggregate, would not have a Material Adverse Effect.
3.5 Complete Copies of Materials. The Company has delivered or
made available true and complete copies of each document that has been requested
by Purchaser or representatives of Purchaser.
3.6 Capitalization. The Company has authorized capital stock
of 50,000,000 shares of Common Stock, $0.01 par value and 2,000,000 shares of
Preferred Stock, $0.01 par value. As of the close of business on December 31,
1994, 15,203,420 shares of Common Stock and no shares of Preferred Stock were
issued and outstanding. There are no outstanding rights,
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warrants, options, subscriptions, agreements or commitments giving anyone any
right to require the Company to sell or issue any capital stock or other
securities, except that as of the close of business on December 31, 1994: (i)
the Company had issued and outstanding options under its 1988 Stock Option Plan
which may be exercised to purchase an aggregate of 2,427,881 shares of the
Company's Common Stock and had reserved an additional 153,480 shares for future
issuance under such plan; (ii) the Company had issued and outstanding options
under its 1992 Directors' Stock Option Plan which may be exercised to purchase
an aggregate of 125,000 shares of the Company's Common Stock and had reserved an
additional 25,000 shares for future issuance under such plan; and (iv) the
Company had issued an aggregate of 79,441 shares of the Company's Common Stock
under its 1992 Employee Stock Purchase Plan and had reserved an additional
120,559 shares for future issuance under such plan. All outstanding securities
of the Company were issued in compliance with applicable federal and state
securities laws.
4. Representations and Warranties of Purchaser.
4.1 Authority. The Purchaser has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby has been duly authorized by
all necessary corporate or partnership action on the part of the Purchaser. The
Purchaser hereby represents and warrants to the Company that this Agreement,
when executed and delivered by the Purchaser, will be valid and legally
enforceable as to the Purchaser in accordance with the terms of the Agreement,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application relating to or affecting
enforcement of creditors' rights or as limited by the effect of general
principles of equity upon the availability of equitable remedies.
4.2. Investment Representations; Legends.
(a) Investment Representations. The Purchaser hereby
acknowledges its understanding that the Notes have not been registered under the
Securities Act, and that they are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
the Purchaser's representations contained herein. Purchaser hereby represents
and warrants to and agrees with the Company as follows:
(i) Knowledge of Offer. It has carefully
reviewed this Agreement. All matters relating to this Agreement have been
discussed with it and explained to its satisfaction by the management of Company
or persons acting on the Company's behalf. Nothing in the preceding sentence
shall in any way limit the Company's representations and warranties made herein
or pursuant hereto.
(ii) Ability to Bear Economic Risk. It is
able to bear the economic risk of the investment represented by this Agreement.
(ii) Knowledge and Experience in Financial
and Business Matters. It has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risk of the
investment represented by this Agreement.
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(iv) Determination of Suitability of
Investment. It has had the risk involved in the investment represented by this
Agreement explained to it, it recognizes this risk, and it has determined that
such investment is suitable for it in light of its financial circumstances and
available investment opportunities.
(v) Limitations on Disposition. It
understands that it must bear the economic risk of this investment indefinitely
unless the Notes or the Common Stock into which the Notes may be converted are
registered pursuant to the Securities Act, or an exemption from such
registration is available, and that the Company has no present intention of
registering the Notes. It further understands that there is no assurance that
any exemption from the Securities Act will be available with respect to the
Notes, or if available, that such exemption will allow it to dispose of or
otherwise transfer any or all of the Notes or the Common Stock into which the
Notes may be converted under the circumstances, in the amounts or at the times
it might propose.
(vi) Investment Purpose. It is acquiring the
Notes and the Common Stock into which the Notes may be converted for its own
account and not with a view toward the distribution thereof.
(b) Legends.
(i) Each Note and any Common Stock issued on
conversion of the Notes shall be stamped or otherwise imprinted with a legend
substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT, A "NO ACTION" LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION WITH
RESPECT TO SUCH TRANSFER, A TRANSFER MEETING
THE REQUIREMENTS OF RULE 144 OR REGULATION S
OF THE SECURITIES AND EXCHANGE COMMISSION,
OR AN OPINION OF COUNSEL TO THE ISSUER OR
SUCH OTHER COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER
IS EXEMPT FROM SUCH REGISTRATION, OR IN
ACCORDANCE WITH THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING
THEIR TRANSFER."
Notwithstanding the foregoing, such legend shall not be required, or if
previously imposed shall be removed by the Company, from any Note or stock
certificate at such time as a registration statement under the Securities Act is
in effect with respect to the legended security, or upon delivery to the Company
of an opinion by counsel satisfactory to the Company, in form and substance
satisfactory to the Company, to the effect that such security can be freely
transferred without such registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Notes were issued.
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(ii) Each Note and any Common Stock issued
upon conversion of the Notes shall also bear any legend required by any
applicable state securities law. Such legends shall be removed upon delivery to
the Company of an opinion by counsel satisfactory to the Company, in form and
substance satisfactory to the Company, to the effect that such security can be
freely transferred without such legend.
5. Conditions to the Purchaser's Obligations at the Closing. The
Purchaser's obligation to purchase the Note shall be subject to each of the
following conditions having been fulfilled to Purchaser's satisfaction on or
before the Closing Date:
5.1 Representations and Warranties, Performance of
Obligations. The representations and warranties made by the Company in Section 3
shall be true and correct on the Closing Date with the same effect as though
made on and as of such date; the Company's business, assets, and prospects shall
not have been adversely affected prior to the Closing Date; and the Company
shall have performed all actions, met all conditions and satisfied all
obligations required to be performed or satisfied by it under this Agreement on
or prior to the Closing Date.
5.2 Issuance of Note. The Company shall have duly executed a
Note payable to the Purchaser in the amount of the Purchaser's commitment
hereunder.
5.3 Corporate Documents. The Company shall have delivered to
the Purchaser such evidence of the Company's good standing and its authorization
of this Agreement and the other Note Documents as the Purchaser or its counsel
shall reasonably request.
5.4 No Events of Default or Defaults. No Event of Default (as
defined in the Note) or event or circumstance which with the giving of any
notice or the lapse of time or both, would become an Event of Default (a
"Default"), shall have occurred.
5.5 Purchaser Board Approval. The Purchaser's board of
directors or other similar governing body shall have approved the execution,
delivery and performance of this Agreement by the Purchaser.
5.6 Opinion of Counsel to the Company. The Purchasers shall
have received from Venture Law Group, a Professional Corporation, counsel for
the Company, an opinion letter addressed to it, dated the Closing Date,
substantially the same, in form and content, as that attached as Exhibit C. In
rendering the opinion called for under this Section 5.2, counsel may rely as to
factual matters on certificates of public officials and officers of the Company.
5.7 Consents, Permits, and Waivers. The Company shall have
obtained any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
5.8 Purchase Permitted by Applicable Law. The purchase of the
Notes (including the Common Stock issuable upon conversion of the Notes) on the
Closing Date shall not be prohibited by any applicable law or governmental
regulation.
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5.9 Amendment to Distribution Agreement. The Company shall
have entered into the Amendment to the International Distribution Agreement
between the Company and RSND Asia Limited dated July 19, 1994 in the form
attached to this Agreement as Exhibit D (the "Distribution Agreement
Amendment").
5.10. Purchase of Notes. The other Purchasers shall have
purchased their respective Notes from the Company in accordance with the other
Agreements.
6. Conditions to the Company's Obligations at the Closing. The
obligation of the Company to issue and sell the Notes to be issued and sold
hereunder shall be subject to the following conditions, any of which may be
waived by the Company, having been fulfilled on or before the Closing Date:
6.1 Representations and Warranties. The representations and
warranties made by the Purchaser in Section 4 hereof shall be true and correct
on the Closing Date with the same effect as though made on and as of such date.
6.2 Consents, Permits and Waivers. The Company shall have
obtained any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
6.3 Purchase Permitted by Applicable Law. The purchase of the
Notes (including the Common Stock issuable upon conversion of the Notes) on the
Closing Date shall not be prohibited by any applicable law or governmental
regulation.
6.4. Purchase of Notes. The Purchasers shall have purchased
Notes from the Company in the aggregate principal amount of U.S. $10,000,000.
7. Registration Requirements.
7.1 Registration Rights.
(a) Registration Statement.
(i) Beginning on the earlier of (A) November
21, 1995, or (B) the occurrence of a Special Conversion Event (as defined in the
Notes), or (C) the Company becoming aware that a Special Conversion Event is
reasonably likely to occur within the next 60 days, the Purchaser shall be
entitled to demand that the Company secure the effectiveness of a "shelf"
registration statement under Rule 415 under the Securities Act (the
"Registration Statement") with the SEC, for the sale by Purchaser of all of the
shares of Common Stock issuable upon conversion of the Notes (the "Shares"), to
be effective as soon as practicable in the event of a Special Conversion Event
and otherwise to be effective not later than February 21, 1996. Prior to
demanding any such registration, the Purchaser shall first consult with the
Company for a reasonable period in the event of a Special Conversion Event, and
for a period of at least 15 days otherwise, concerning the need for such
registration in light of Purchaser's ability to sell freely all of the shares of
Common Stock issuable upon conversion of the Notes in the United States public
markets under Rule 144, Regulation S or otherwise.
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(ii) Following such consultation, whether to
demand such Registration Statement shall be at the sole discretion of the
Purchaser, and the Company shall take all action necessary to comply with such
demand. The Company represents and warrants that on the date the Registration
Statement becomes effective, the Registration Statement will comply in all
material respects with the applicable requirements of the Securities Act and the
rules thereunder; on the date of its effectiveness the Registration Statement
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein not misleading, provided, however, that no representation is made
by the Company with respect to written information furnished to the Company by
or on behalf of the Purchaser specifically for inclusion in the Registration
Statement; and the final prospectus contained in the Registration Statement, if
not filed pursuant to Rule 424(b), will not, and on the date of any filing
pursuant to Rule 424(b), such final prospectus (together with any supplement
thereto) will not, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading, provided,
however, that no representation is made by the Company with respect to written
information furnished to the Company by or on behalf of the Purchaser
specifically for inclusion in such prospectus. The Company will promptly: (A)
notify Purchaser when the Registration Statement is declared effective; and (B)
notify Purchaser of any stop-order or similar proceeding by the SEC or any state
securities authority.
(b) Continuing Effectiveness. The Company shall
promptly prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such Registration Statement and
keep the Registration Statement effective until all the Shares have been sold
pursuant thereto or until all of the Purchasers are able to dispose of their
entire remaining ownership interest in the Shares in the United States public
markets in a single transaction under Regulation S without limitation as to
volume or under Rule 144 without invoking clause (e)(1)(ii) of Rule 144. The
Company shall provide a transfer agent, registrar and CUSIP number with respect
to all securities registered by such Registration Statement.
(c) Copies of Documents. The Company shall furnish to
Purchaser with respect to the Shares registered under the Registration Statement
such number of copies of prospectuses and preliminary prospectuses and
supplements in conformity with the requirements of the Securities Act and such
other documents as Purchaser may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Shares by Purchaser.
(d) Blue Sky Laws. The Company shall use its best
efforts to register or qualify the Shares covered by such Registration
Statements under such other securities or blue sky laws of such jurisdictions as
Purchaser shall reasonably request and do any and all other acts or things which
may be necessary or desirable to enable the Purchaser to consummate the public
sale or other disposition in such jurisdictions, provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
do business or file a general consent to service of process in any such
jurisdictions.
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(e) Availability of Information. With a view to
making available to Purchaser the benefits of Rule 144(d) promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit Purchaser to sell Shares to the public without registration, the Company
hereby covenants and agrees, so long as Purchaser owns any Shares to: (i) make
and keep public information available, as those terms are understood and defined
in Rule 144; (ii) file with the SEC in a timely manner all reports and other
documents required of The Company under the Securities Act and the Exchange Act;
and (iii) furnish to Purchaser (A) a written statement by the Company that it
has complied with the reporting requirements of the Securities Act and the
Exchange Act, (B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other information as may be reasonably requested in order
to avail Purchaser of any rule or regulation of the SEC that permits the selling
of the Shares without registration.
(f) Expenses. The Company shall bear all expenses in
connection with the procedures set forth in Sections 7.1(a) through (e) above
and the registration of the Shares pursuant to the Registration Statement, other
than broker's commissions or discounts, transfer taxes, and fees and expenses,
if any, of counsel or other advisors to Purchaser.
(g) Assignment. The right to sell Shares under the
Registration Statement will automatically be assigned to each permitted
transferee of Notes, and the provisions of Sections 7.1 and 7.2 hereof shall
apply to such transferee as if such transferee were a Purchaser hereunder. In
the event that it is necessary, in order to permit a transferee of a Note to
sell Shares pursuant to the Registration Statement, to amend the Registration
Statement to name such transferee, the transferee shall, upon written notice to
the Company, be entitled to have the Company make such amendment as soon as
reasonably practicable.
(h) Successor Registrant. If the Company shall not be
the surviving corporation in any merger or consolidation and this Note shall
remain outstanding after the consummation of such transaction, the Company shall
cause adequate provision to be made such that the surviving corporation shall
provide registration rights at least as favorable to the holder of this Note as
are provided in Section 7 hereof.
7.2 Securities Indemnification.
(a) Definitions. For the purposes of this Section 7.2
the term "Registration Statement" shall include any final prospectus, exhibit,
supplement or amendment included in or relating to the Registration Statement
referred to in Section 7.1. As used in this Section 7.2, the term "untrue
statement" shall include any untrue statement or alleged untrue statement, or
any omission or alleged omission to state in the Registration Statement a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The Company's Indemnity. The Company agrees to
indemnify and hold harmless Purchaser, each of its officers, directors,
partners, advisors, each person controlling such Purchaser within the meaning of
Section 15 of the Securities Act, each underwriter, if any, and each person
controlling any such underwriter within the meaning of Section 15 of the
Securities Act, from and against any and all expenses, losses, claims, damages
or liabilities (or
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actions, proceedings or settlements in respect thereof) to which such persons
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions, proceedings or settlements
in respect thereof) arise out of, or are based upon, any untrue statement of a
material fact contained in the Registration Statement, or arise out of any
failure by the Company to fulfill any undertaking included in the Registration
Statement or arise out of any violation by the Company of the Securities Act or
the Exchange Act or any rule or regulation thereunder applicable to the Company
with respect to the Registration Statement and relating to action or inaction
required of the Company, and will reimburse each such Purchaser, each of its
officers, directors, partners, advisors, each person controlling such Purchaser,
each underwriter, and each person controlling any such underwriter, for any
legal and other expenses reasonably incurred in connection with investigating
and defending or settling any such expense, claim, loss, damage or liability;
provided, however, that the Company shall not be liable in any such case to the
extent that such expense, loss, claim, damage or liability arises out of, or is
based upon, an untrue statement made in such Registration Statement in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such Purchaser specifically for inclusion in the Registration
Statement, or any untrue statement in any prospectus that is corrected in any
subsequent prospectus that was delivered to the Purchasers at least five (5)
business days prior to the pertinent sale or sales by such Purchaser.
(c) Purchaser's Indemnity. Purchaser agrees to
indemnify and hold harmless the Company (and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, each officer
of the Company who signs the Registration Statement and each director of the
Company) from and against any losses, claims, damages or liabilities (including
reasonable legal or other expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim) to which
the Company (or any such officer, director or controlling person) may become
subject (under the Securities Act or otherwise), insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement of a material fact contained in the
Registration Statement on the effective date thereof if such untrue statement
was made in reliance upon and in conformity with written information furnished
by or on behalf of such Purchaser specifically for inclusion in the Registration
Statement; provided, however, such Purchaser shall not be liable in any such
case to the extent that such loss, claims, damage or liability arises out of, or
is based upon, an untrue statement made in reliance upon and in conformity with
written information furnished by or on behalf of such Purchaser, if such
information is corrected and written notice of such correction is delivered to
the Company at least five (5) business days prior to the pertinent sale or
sales. Purchaser's obligation to indemnify the Company hereunder shall be
limited to the total amount of the proceeds received by such Purchaser for the
Shares sold pursuant to the Registration Statement.
(d) Notice of Claim and Representation. Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to sought against an indemnifying
person pursuant to this Section 7.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and such indemnifying
person shall have been notified thereof, such indemnifying person shall be
entitled to participate therein, and, to the
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extent it shall wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified person. After notice from the indemnifying
person to such indemnified person of its election to assume the defense thereof,
such indemnifying person shall not be liable to such indemnified person for any
legal expenses subsequently incurred by such indemnified person in connection
with the defense thereof; provided, however, that if there exists or shall exist
a conflict of interest that would make it inappropriate, in the opinion of
counsel to the indemnified person, for the same counsel to represent both the
indemnified person and such indemnifying person or any affiliate or associate
thereof, the indemnified person shall be entitled to retain its own counsel at
the expense of such indemnifying person; provided, however, that no indemnifying
person shall be responsible for the fees and expenses of more than one separate
counsel for all indemnified parties under the Agreements. The failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 7.2 to the extent such
failure is not prejudicial. No indemnifying party, in the defense of any claim
or litigation, shall, except with the consent of each indemnified party, consent
to the entry of any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(e) Contribution Obligation. If the indemnification
provided for in this Section 7.2 is unavailable under state or federal law to an
indemnified person hereunder in respect to any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to herein,
then the indemnifying person, in lieu of indemnifying such indemnified person,
shall contribute to the amount paid or payable by such indemnified person as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company and the Purchaser in
connection with the untrue statements of material fact or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Purchaser shall be determined by reference to, among other things, whether the
untrue statements of material fact or omissions relate to information supplied
by the Company or by the Purchaser and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages or liabilities referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim.
The Company and Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 7.2(e) were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to herein. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
7.3 Survival. The obligations of the Company and Purchaser
under this Section 7 shall survive the payment of the Notes.
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<PAGE> 12
8. Affirmative Covenants of the Company.
8.1 Board Visitation Rights. The Company shall permit one of
three designated representatives of all Purchasers of the Notes to attend
meetings of the Company's Board of Directors in a nonvoting observer capacity at
the Purchasers' own expense and shall give such representative copies of all
notices, minutes, consents, and other materials that it provides to its
directors as and when provided to its directors; provided, however, that the
Company reserves the right to exclude such representative from access to any
material or meeting or portion thereof to the extent the Company reasonably
believes upon advise of counsel that such exclusion is necessary to preserve the
attorney-client privilege. The Company will make every reasonable effort to
minimize the number and length of such exclusions. The foregoing board
visitation rights shall generally be assignable in connection with any permitted
assignment or transfer of the Notes. Notwithstanding the foregoing, or any other
provision in this Agreement to the contrary, in no event shall any
representative attending any Board Meeting be engaged in, employed by, or
otherwise affiliated with any person or entity (other than an affiliate company
of the Company) engaged in the business of designing, manufacturing or selling
hearing aid devices (the "Restricted Business") without the Company's prior
written consent.
8.2 Information Covenants.
(a) Financial Information. The Company will furnish
Purchaser:
(i) promptly after they are sent, made
available or filed, copies of all reports, proxy statements and financial
statements that the Company sends or makes available to its shareholders and,
within ten (10) days of filing, all registration statements and reports that the
Company files with the SEC, including 10-Q, 10-K and 8-K reports, or with any
other governmental authority where such registration statements and reports may
be filed;
(ii) as soon as possible, and in any event
within five (5) days after the Company has knowledge of (A) the occurrence of an
Event of Default (as defined in the Notes), or (B) any default or event of
default as defined in any other evidence of debt or under any other agreement,
indenture or other instrument under which such debt has been issued, but only if
such debt exceeds Two Million Dollars ($2,000,000) and such default or Event of
Default, or such other default or event of default is not waived on or before
ten (10) business days after it occurs, the statement of the chief executive
officer or chief financial officer of the Company setting forth details of such
default or event of default and the action which the Company proposes to take
with respect thereto;
(iii) prompt written notice of any actual or
threatened claims, litigation, suits, proceedings or disputes (whether or not
purportedly on behalf of the Company) against or affecting the Company which, if
adversely determined, would have a Material Adverse Effect (including claims,
litigation, suits, proceedings or disputes involving monetary amounts in excess
of Five Million Dollars ($5,000,000) not covered by insurance), or any material
labor controversy resulting in or threatening to result in a strike against the
Company, or any proposal by any governmental authority to acquire any of the
material assets or business of the Company, if such strike or acquisition would
have a Material Adverse Effect.
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<PAGE> 13
(iv) prompt written notice of changes in the
name of the Company.
(b) Inspection Rights. The Company shall maintain
adequate books and accounts in accordance with generally accepted accounting
principles applied on a consistent basis. The Purchaser or a single
representative of the Purchasers shall have the right, at the Purchaser's
expense prior to a Default or an Event of Default (as defined in the Note) and
thereafter and during the continuance thereof, at the Company's expense, to
visit and inspect any of the properties of the Company or any of its
subsidiaries, including its and their books of account, and to take extracts
therefrom. The Purchaser shall also have the right, at the Purchaser's expense
prior to a Default or an Event of Default and thereafter and during the
continuance thereof, at the Company's expense, to visit and inspect any of the
properties of the Company or any of its subsidiaries, to discuss its and their
affairs, finances, and accounts with its and their officers, all at such
reasonable times and as often as may be reasonably requested. Notwithstanding
the foregoing, the Company or any subsidiary shall not be required at any time
pursuant to this Section 8.2(b) to disclose to any representatives of the
Purchasers (i) any manufacturing or trade secret or secret process or other data
the disclosure of which the Company reasonably believes may adversely affect its
business, or (ii) any customer data to any such Purchaser or representative of
the Purchasers engaged in a business similar to the business in which the
Company or any of its subsidiaries is engaged at such time, nor shall the
Company or any subsidiary be required at any time pursuant to this Section
8.2(b) to disclose to the Purchasers or any representative of the Purchasers any
information or data that is classified by the Government or subject to a
non-disclosure agreement in favor of any third party.
(c) Information Confidential. Purchaser acknowledges
that the information received by it pursuant hereto is confidential and for such
Purchaser's use only, and it will not use such information in violation of the
Exchange Act or reproduce, disclose, or dis seminate such information to any
other person (other than its employees or agents having a need to know the
contents of such information, and its attorneys), except in connection with the
exercise of rights under this Agreement unless (i) the Purchaser is required to
disclose such information by a governmental body, (ii) such information is or
becomes generally available to the public other than as a result of a disclosure
by the Purchasers, (iii) such information is or becomes available on a
non-confidential basis from a source other than the Company provided that such
source is not bound by a confidentiality agreement with the Company known to the
Purchasers, or (iv) such information is disclosed to any actual or prospective
assignee of the Note, provided such person has executed in favor of the Company
a confidentiality agreement containing terms substantially identical to this
section.
(d) The Company's financial statements shall be
prepared in accordance with generally accepted accounting principles applied on
a consistent basis.
8.3 Notices. The Company will furnish to the Purchaser the
notices required by Section 1(d) of the Note regarding Conversion Events (as
defined in the Note).
8.4 Security Interest. The Company acknowledges and agrees
that in the event that (1) the Company's ratio of debt to equity (as such
amounts are specified in the Company's most recent financial statements, but
provided that any change in retained earnings as a result of
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<PAGE> 14
any nonrecurring and non-operating loss, expense or write-off shall not be
included in the calculation of such ratio) (the "Debt Ratio") exceeds one to
one, and (2) all Purchasers elect not to redeem the Notes as a result of such
event as provided therein, then upon the Purchasers' request it will execute and
deliver the Pledge Agreement in substantially the form attached to this
Agreement as Exhibit E (the "Pledge Agreement") and take all necessary and
appropriate action contemplated by the obligations imposed upon the Company upon
the effectiveness of such Pledge Agreement to grant to an agent appointed by the
Purchasers pursuant to a separate agreement to hold such security interest on
behalf of the Purchasers (the "Agent") a first priority security interest in the
collateral described therein. The Company hereby agrees that it will not sell,
transfer, assign, encumber, pledge or otherwise dispose of any of the assets
constituting "Pledged Collateral" as that term is defined in the Pledge
Agreement.
8.5 Repayment of Loan. The Company has repaid in full that
certain loan between the Company and Silicon Valley Bank evidenced by that
certain Loan and Security Agreement dated as of December 23, 1994.
9. Miscellaneous.
9.1 Survival of Representations and Warranties. The
representations and warranties made by the Purchaser and the Company in this
Agreement and the respective obli gations of each party, to be performed on the
terms hereof at, prior to, or after the Closing Date hereunder, shall not expire
with, or be terminated, or extinguished by, such Closing on the Closing
Date. All statements as to factual matters contained in any certificate, exhibit
or other instrument delivered by or on behalf of the Company pursuant hereto or
in connection with the transactions contemplated hereby shall be deemed to be
the representations and warranties of the Company hereunder as of the date of
such certificate or instrument.
9.2 Expenses. Whether or not the purchase and sale of the Note
contemplated by this Agreement is consummated, the Company shall, upon request,
pay all of the reasonable legal fees incurred by all Purchasers in connection
with the preparation, execution and delivery of the Agreements and the related
documents, in an amount not to exceed forty thousand dollars ($40,000.00) in the
aggregate against presentation of itemized invoices detailing services rendered.
The Company shall pay upon request against presentation of itemized invoices
detailing services rendered, all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by the Purchaser or Agent in
the enforcement or attempt to enforce any covenant of the Company under this
Agreement or any other Note Document which is not performed as and when required
by such document.
9.3 Modification; Waiver. No modification or waiver of any
provision of this Agreement shall be effective unless in writing and approved by
the Company and a majority-in-interest of the Purchasers. Upon the effectuation
of each waiver, consent, agreement of amendment or modification, the Company
promptly shall give written notice thereof to the Purchasers as provided in
Section 9.4 of this Agreement.
9.4 Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by
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<PAGE> 15
registered airmail (or certified first class mail if both the addressor and
addressee are located in the United States), postage prepaid and addressed to
the parties as follows:
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
To Purchaser:
Charter Ventures II, L.P.
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Attention: A. Barr Dolan
Telephone: (415) 325-6953
Telecopier: (415) 325-4762
or to such other single place as any single addressee shall designate by written
notice to the other addressees.
9.5 Successors and Assigns. All covenants and agreements of
the parties contained in this Agreement shall be binding upon and inure to the
benefit of their respective successors and permitted assigns. Except for an
assignment by operation of law in connection with a merger or consolidation
involving the Company, the Company may not assign or transfer any of its rights
or obligations under any Note Document without the prior written consent of
Purchaser. Any purported assignment in violation of this section shall be void.
9.6 Governing Law. This Agreement shall in all respects be
governed by the laws of the State of California, United States of America as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California without reference to rules of
conflicts of laws.
9.7 Headings. The section and paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
9.8 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
9.9 California Qualification. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
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<PAGE> 16
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES WITH RESPECT TO SUCH SECURITIES ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
9.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
9.11 Delays or Omissions. It is agreed that no delay or
omission to exercise any rights, power, or remedy accruing to either party, upon
any breach or default of the other party under this Agreement, shall impair any
such rights, power, or remedy, nor shall it be construed to be a waiver of any
such breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. It is further agreed that any waiver, permit, consent,
or approval of any kind or character on a party's part of any breach or default
under this Agreement, or any waiver on a party's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing, and that all remedies, either
under this Agreement or by law or otherwise afforded to such party, shall be
cumulative and not alternative.
9.12 Severability. If any provision in this Agreement or any
other Note Document is found or held to be invalid or unenforceable, then the
meaning of such provision shall be construed, to the extent feasible, so as to
render the provision enforceable, and if no feasible interpretation would save
such provision, it shall be severed from the remainder of such document which
shall remain in full force and effect unless the severed provision is essential
and material to the rights or benefits received by any party. In such event, the
parties shall use their best efforts to negotiate, in good faith, a substitute,
valid and enforceable provision or agreement which most nearly effects their
intent in entering into this Agreement or such other Note Document, as
appropriate.
9.13 Indemnification. To the fullest extent permitted by law,
the Company agrees to protect, indemnify, defend and hold harmless Purchaser,
Agent and their respective directors, officers, employees, agents and any
affiliate thereof (collectively, the "Indemnitees") from and against any
liabilities, losses, damages or expenses of any kind or nature related to any
suits, claims or demands (including in respect of or for reasonable attorney's
fees and other expenses) brought by third parties arising on account of or in
connection with any matter or thing or action or failure to act by the
Indemnitees, or any of them, arising out of or relating to the Agreements, the
Notes and the purchase of the Notes, except to the extent that (a) such
liability arises from the willful misconduct or gross negligence of such
Indemnitee, or (b) the provisions of Section 7.2 ("Securities Indemnification")
of this Agreement are applicable to such suit, claim or demand. Upon receiving
knowledge of any suit, claim or demand asserted by a third party that an
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<PAGE> 17
Indemnitee believes is covered by this indemnity, such Indemnitee shall give the
Company notice of the matter and an opportunity to defend it, at the Company's
sole cost and expense, with legal counsel satisfactory to such Indemnitee, as
the case may be. Such Indemnitee may also require the Company to defend the
matter. Any failure or delay of such Indemnitee to notify the Company of any
such suit, claim or demand shall not relieve the Company of its obligations
under this Section but shall reduce such obligations to the extent of any
increase in those obligations caused solely by such reasonable failure or delay.
The obligations of the Company under this Section shall survive the payment and
performance of the Notes.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed themselves or by their respective representatives thereunto duly
authorized as of the day and year first above written.
RESOUND CORPORATION
By: /s/ Paul Busse
------------------------------
Title: Chief Financial Officer
------------------------------
CHARTER VENTURES II, L.P.
By: /s/ A. Barr Dolan
------------------------------
Title: General Partner
------------------------------
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<PAGE> 19
EXHIBIT A
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A
TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OR REGULATION S OF THE
SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL TO THE
ISSUER OR SUCH OTHER COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION, OR IN
ACCORDANCE WITH THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES
AND RESTRICTING THEIR TRANSFER.
CONVERTIBLE PROMISSORY NOTE
DUE FEBRUARY 21, 2000
ReSound Corporation, a California corporation (the "Company"), for
value received, promises to pay to the order of <<Purchaser>> the principal sum
of <<Amount>> (<<Amount2>>), plus interest thereon from the date of this Note
until paid at the rate of eight percent (8%) per annum.
The principal amount of this Note and any outstanding accrued interest
thereon shall be due and payable on February 21, 2000. Interest shall be payable
on the last business day (the "Interest Payment Date") in each calendar quarter
(commencing with the calendar quarter ending March 31, 1995), and in addition,
any accrued interest shall be payable upon payment of principal or conversion of
principal. Any default in the payment of any amount not paid when due hereunder
shall bear interest at the rate of ten percent (10%) per annum from the date due
until paid. All payments by the Company under this Note shall be subject to
deduction for any applicable withholding tax as may be required by law, provided
that the Company shall not withhold such taxes to the extent that the holder of
this Note establishes the right to an exemption from withholding tax under
applicable tax laws. The Company shall provide the holder of this Note prior
notice of its intention to withhold as soon as practicable and in any event at
least 30 days prior to making any payment as to which a withholding deduction
shall be made. The Company shall provide the holder of this Note evidence of
payment of such withholding tax promptly following availability of such
evidence.
Payments of both principal and interest are to be made by wire transfer
payable to <<Purchaser>> at <<Address2>> or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America in immediately available funds.
This Note is the Note referred to in the Note Purchase Agreement, dated
as of February 21, 1995, between the Company and <<Purchaser>> (the "Note
Purchase Agreement"). Capitalized terms used herein have the meanings assigned
to those terms in the Note Purchase Agreement, unless otherwise defined herein.
<PAGE> 20
The following is a statement of the rights of the holder of this Note
and the conditions to which this Note is subject, and to which the holder
hereof, by the acceptance of this Note, agrees:
1. Conversion of Note.
(a) Conversion into Common Stock; Conversion Price. The
principal and accrued interest on this Note is convertible by the registered
holder hereof, in whole or in part, into fully paid and nonassessable shares of
the Company's Common Stock (the "Common Stock") at the Conversion Price (as
defined below) in effect at the time of conversion, determined as provided and
upon the terms set forth below, at any time on or after the earlier of (1)
February 22, 1996, (2) a Change of Control (as defined below) of the Company,
(3) the Company's Debt Ratio exceeding one-to-one, (4) acquisition by a person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) (other
than Purchasers and their affiliates) of 15% or more of the outstanding voting
stock of the Company, or (5) a merger, consolidation or combination to which the
Company is a party (regardless of whether the Company survives) in which the
shareholders of the Company immediately before the transaction do not own at
least 5/6 of the voting power in the surviving corporation immediately after the
transaction (all of the foregoing "Conversion Events," and all of the foregoing
except conversion pursuant to clause (1)(a)(1) above, "Special Conversion
Events"). This Note shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the principal
amount of this Note or a specified portion thereof by the effective Conversion
Price. The "Conversion Price" per share at which the Common Stock shall
initially be issuable upon conversion of this Note shall be $10.00; provided,
however, that such Conversion Price shall be subject to adjustment as set forth
in Section 8 of this Note. As used in this Note, the term "Change of Control"
shall mean (i) any consolidation, merger, or combination of the Company whether
or not the Company is the surviving entity, other than where shareholders of the
Company immediately prior to the closing of such consolidation, merger or
combination own at least a majority of the voting equity securities of the
successor entity immediately following such closing, or (ii) a sale, conveyance,
lease or other disposition of all or substantially all the Company's assets
(regardless of whether or not to a single entity or as an entirety).
(b) Registrations; Approvals. If any shares of Common Stock to
be reserved for the purpose of conversion of this Note require registration or
listing with, or approval of, any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or otherwise,
before such shares may be validly issued or delivered upon conversion, the
Company will, in good faith and as expeditiously as possible, at its expense,
endeavor to secure such registration, listing or approval, as the case may be.
(c) Taxes. The Company covenants that all shares of Common
Stock which may be issued upon the conversion of this Note will, upon conversion
of this Note, be fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
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<PAGE> 21
(d) Notice to Holders Prior to Certain Actions. In case:
(i) the Company makes any distribution or dividend or
takes any other action that would require an adjustment in the Conversion Price
pursuant to Section 8 of this Note;
(ii) of any merger, consolidation or combination
involving the Company in which the shareholders of the Company immediately
before the transaction do not own at least 5/6 of the voting power in the
surviving corporation immediately after the transaction;
(iii) of the occurrence of any other event
constituting a Change of Control; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company:
the Company shall cause to be delivered to the holder of this Note as promptly
as possible but in any event at least 15 days prior to the applicable date
hereinafter specified, a notice stating (x) in the case of a dividend or other
distribution, the date on which a a record date is to be taken for the purpose
of such event or if a record is not to be taken, the date as of which the
holders of Common Stock of record are to be entitled to such dividend or
distribution, or (y) in the case of any other event specified above, the date on
which such event is expected to become effective or occur. In the case of any
other event that would constitute a Conversion Event, the Company shall cause
notice of the date of such event (or, if such date is not known, the date on
which, or time period within which, the Company reasonably expects such event to
occur) to be delivered to the holder of this Note as promptly as practicable but
in any event not later than five business days after the earlier of (i) the date
on which the Company discovers that such event has occurred, and (ii) the date
on which the Company discovers that such event is reasonably likely to occur
within the next 60 days.
2. Mechanics of Conversion.
(a) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of this Note. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Company shall pay cash
equal to such fraction multiplied by the then effective Conversion Price.
(b) Notice of Conversion. Before the holder of this Note shall
be entitled to convert the same or any portion thereof into shares of Common
Stock, it shall surrender this Note (or such documentation as may be required by
Section 7 hereof) at the office of the Company or of any transfer agent for this
Note, and shall give written notice to the Company at such office (on the
Conversion Form attached to this Note, or a substantial equivalent thereof) that
it elects to convert the same or a specified portion thereof, and shall state
therein its name or the name of names of its nominees in which it wishes the
certificate or certificates for shares of Common Stock to be issued. The holder
may specify in such notice that such conversion may be effective
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<PAGE> 22
at a later time or immediately prior to or immediately after the occurrence of a
specified Conversion Event that has yet to occur; if no such specification is
given, such notice shall be deemed to request conversion of such Note effective
immediately prior to the close of business on the date of such surrender of this
Note together with such notice.
(c) Stock Certificates. The Company shall, as soon as
practicable thereafter, issue and deliver at such office to the holder of this
Note, or to its nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which it shall be entitled. Upon conversion
as specified in Section 2(b) above, the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date. Upon conversion of only a portion of the principal amount of this
Note the Company shall issue and deliver to, or upon the written order of, the
holder of this Note, at the expense of the Company, a new Note of denomination
in principal amount equal to the unconverted portion of this Note and bearing
interest from the last Interest Payment Date on which interest was actually paid
in full in accordance with the terms hereof.
3. Charges, Taxes and Expenses. Issuance of a certificate for shares of
Common Stock upon the conversion of this Note shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificate shall be issued in the name
of the holder of this Note or such certificates shall be issued in such name or
names as may be directed by the holder of this Note; provided, however, that in
the event certificates for shares of Common Stock (or replacement Notes) are to
be issued in a name other than the name of the holder of this Note, this Note
when surrendered for exercise or transfer shall be accompanied by the Assignment
Form attached hereto duly executed by the holder hereof; and provided further,
that upon any transfer involved in the issuance or delivery of any certificates
for shares of Common Stock or replacement Notes, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
4. Redemption.
(a) Redemption Terms.
(i) Redemption At Option Of Holder. This Note is
redeemable, in whole or in part, at the option of the holder on or after (1) the
consummation of a Change of Control of the Company, or (2) the Company's Debt
Ratio exceeding one-to-one.
(ii) Redemption At Option Of The Company. This Note
is also redeemable, in whole but not in part, at the option of the Company upon
the consummation of a Change of Control of the Company; provided, however, that
the Company simultaneously redeems all, but not less than all of its 8%
convertible promissory notes issued and outstanding concurrently with this Note;
and provided further, that if the Company elects to redeem this Note, the holder
hereof, following notice of such election, shall have the option to convert all
or any portion of this Note into Common Stock at the then applicable Conversion
Price prior to the consummation of the Change of Control of the Company. The
Company shall provide the holder
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<PAGE> 23
of this Note with notice of the Company's election to redeem this Note at least
20 days prior to the date of redemption. Notwithstanding anything to the
contrary in this Note, the Company shall not have the right to prepay this Note
under this Section 4 if the Declining Premium Amount (as defined below) required
to be paid pursuant this Section in connection with such prepayment may not
legally be paid or may be subject to recovery from the holder of this Note for
any reason.
(b) Redemption Price. In the event of redemption at the
election the holder of this Note pursuant to this Section 4, the Company shall
pay to the holder of this Note an amount equal to the principal and accrued
interest outstanding under this Note. In the event of redemption at the election
the Company pursuant to this Section 4, the Company shall pay to the holder of
this Note an amount equal to the principal and accrued interest then outstanding
under this Note plus the product of (i) the principal then outstanding under
this Note, multiplied by (ii) the Declining Premium Amount (as defined below).
(c) Definitions. The term "Declining Premium Amount" shall
equal, as of the dates indicated, the following:
<TABLE>
<CAPTION>
Date of Redemption of this Note Declining Premium Amount
------------------------------- ------------------------
Pursuant to this Section 4
--------------------------
<S> <C>
Prior to February 21, 1996 0.80
On or after February 21, 1996, but before 0.70
February 21, 1997
On or after February 21, 1997, but before 0.60
February 21, 1998
On or after February 21, 1998, but before 0.50
February 21, 1999
On or after February 21, 1999 0.40
</TABLE>
5. No Rights as Shareholder. This Note does not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company
prior to the conversion hereof.
6. Exchange and Registry of Note. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this Note. This Note may be surrendered for exchange,
transfer or conversion, in accordance with its terms, at such office or agency
of the Company, and the Company shall be entitled to rely in all respects, prior
to written notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (provided
that the written indemnity of the original holder hereof is deemed to be
sufficient indemnity), and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon
-5-
<PAGE> 24
surrender and cancellation of this Note, if mutilated, the Company will make and
deliver a new Note which shall carry the same rights to interest (unpaid and to
accrue) carried by this Note so that there will not be any loss or gain of
interest on this Note, stating that such Note is issued in replacement of this
Note, making reference to the original date of issuance of this Note (and any
successors hereto) and dated as of such cancellation, in lieu of this Note.
8. Dilution.
(a) General Conversion Price Adjustment. The Conversion Price
per share and the number of shares issuable upon conversion hereunder are
subject to adjustment from time to time after the issuance of this Note such
that the holder hereof will obtain the benefit of any adjustment, offer or other
rights provided to the Company's shareholders as if the holder hereof had been a
shareholder of the Company commencing on the date of issuance of this Note
(including adjustments for any stock splits, stock dividends, other
distributions and the like). By way of example, and not by way of limitation,
the Conversion Price shall be adjusted in the following manner:
(i) If, after the date of this Note, the Company
shall issue additional shares of Common Stock, by reason of the declaration or
payment of any dividend on the Common Stock payable in Common Stock, or by
reason of a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock) the Conversion Price of this Note in
effect immediately prior to such declaration or subdivision shall, concurrently
with the effectiveness of such declaration or subdivision, be proportionately
decreased.
(ii) In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Conversion Price of this Note in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(iii) In the case of any merger of the Company with
or into another corporation or the conveyance of all or substantially all of the
assets of the Company to another corporation in which the shareholders of the
Company are to receive cash, securities or other consideration for their shares,
this Note shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the corporation deliverable upon conversion of this Note would have
been entitled upon such merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the Company's Board of Directors) shall be made in
the application of the provisions herein set forth with respect to the rights
and interests thereafter of the holder of this Note, to the end that the
provisions set forth herein (including all provisions with respect to changes in
and other adjustments of the Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of this Note. If the Common
Stock is changed into any other class or classes of securities, whether by
capital reorganization, reclassification or otherwise, the Conversion Price
shall be adjusted based on substantially the same principles.
-6-
<PAGE> 25
(iv) If the Company shall, by dividend or otherwise,
distribute to holders of Common Stock any cash, securities (including rights or
warrants), evidences of indebtedness or other assets or property not otherwise
covered elsewhere in this Section 8, the Conversion Price shall be adjusted by
multiplying the Conversion Price in effect immediately prior to the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which is the current market price per share of Common
Stock on the date fixed for such determination less the fair market value
(determined not later than the date of such distribution in good faith by
resolution of the Board of Directors of the Company) of the portion of the
distribution applicable to one share of Common Stock, and the denominator of
which is such current market price per share of Common Stock.
(v) For the purpose of any computation under Section
8(a)(iv) of the current market price per share of Common Stock on a specified
date, such price shall be deemed to be the average closing price per share of
Common Stock for the twenty consecutive trading days prior to the date in
question. The date immediately prior to the date on which the Common Stock
trades "ex" dividend or "ex" rights (i.e., without the right to receive the
dividend or distribution), rather than the record date, shall be deemed to be
the date for determining shareholders entitled to receive such dividend or
distribution.
(vi) If the rights issued under the Company's
Preferred Shares Rights Agreement dated July 5, 1994 (the "Rights"), are
separated from the Common Stock in accordance with the provisions of the Rights
Agreement such that the holder of this Note would thereafter not be entitled to
receive any such Rights in respect to the Common Stock issuable upon conversion,
the Conversion Price will be adjusted to reflect the Rights using the same
principles set forth above in Section 8(a)(iv) as if the Rights had been
distributed on the separation date; provided that if such Rights expire,
terminate or are redeemed by the Company, the Conversion Price shall then be
readjusted to be the Conversion Price which would then be in effect if such
separation had not occurred. In lieu of any such adjustment, Borrower may amend
the Rights Agreement to provide that upon conversion of this Note the holder
thereof will receive, in addition to the Common Stock issuable upon such
conversion, the Rights that would have attached to such shares of Common Stock
if the Rights had not become separated from the Common Stock pursuant to the
provisions of the Rights Agreement.
(vii) In case the Company or any of its subsidiaries
shall make a tender offer for all or any portion of the Common Stock in which
the price paid per share of Common Stock exceeds the closing price per share of
Common Stock as of the date on which such offer expires, the Conversion Price
shall be adjusted by multiplying the Conversion Price in effect on such
expiration date by a fraction, the numerator of which is the number of shares of
Common Stock outstanding (including any tendered shares) on such expiration date
multiplied by the current market price per share of Common Stock on the trading
day next succeeding the expiration date, and the denominator shall be the sum of
(x) the fair market value (determined in good faith by resolution of the Board
of Directors of the Company) of the aggregate consideration payable to
shareholders in such offer and (y) the product of the number of shares of Common
Stock outstanding (less any shares purchased in the offer) on the expiration
date and the current market price per share of Common Stock on the trading day
next succeeding the expiration date.
-7-
<PAGE> 26
(e) Authorized Shares. The Company covenants that during the
period the Note is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the conversion of this Note. The Company further covenants that its
issuance of this Note shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of the Company's Common Stock upon the
conversion of this Note.
(f) Notice of Adjustment. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for this Note, the Company at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the holder of this Note a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request at any time of the holder of this Note, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price of at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of this Note.
(g) Good Faith. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Note and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of this Note against impairment.
9. Events of Default.
(a) The occurrence or existence of any one or more of the
following shall constitute an "Event of Default" hereunder:
(i) The Company shall fail to make any payment of
principal or interest on this Note within five (5) days of when due;
(ii) Any representation or warranty of the Company
under this Note, the Note Purchase Agreement or the other Note Documents is
false or misleading when made or deemed made;
(iii) The breach of any covenant of the Company under
this Note, the Note Purchase Agreement or the other Note Documents which is not
cured by the Company within ten (10) days after notice thereof in writing, or
within fifteen (15) days after the Company should have known of such breach;
(iv) An "Event of Default," as defined in any of the
other Notes shall occur;
-8-
<PAGE> 27
(v) Any default under any indebtedness of the Company
in excess of $2,000,000 shall occur and not be cured by the Company within ten
(10) days after notice thereof in writing;
(vi) Any default in the Loan Agreement dated December
7, 1994 by and among the Company, ReSound Hortechnologie GmbH, ReSound Horgerate
GmbH and Bank Austria Aktiengessellschaft shall occur and not be cured by the
Company within ten (10) days after notice thereof in writing;
(vii) A final judgment or final judgments for the
payment of money, which individually or in the aggregate exceed $5,000,000,
shall be rendered against the Company and the same shall remain undischarged for
a period of thirty (30) days during which execution shall not be effectively
stayed;
(viii) Any judgment, writ, assessment, warrant of
attachment, execution, levy or similar process shall be issued or levied against
80% or more of the assets of the Company and such judgment, writ, assessment,
warrant of attachment, execution, levy or similar process shall not be released,
stayed, vacated or otherwise dismissed within ten (10) days after issue or levy;
(ix) If a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Company in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and such decree or order shall remain unstayed and in effect for a
period of thirty (30) consecutive days; or
(x) If the Company shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of the Company or for any substantial part of
its property, or shall make any general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due or shall take any
corporate action in furtherance of any of the foregoing.
(b) Remedies. Upon the occurrence or existence of any Event of
Default (other than an Event of Default referred to in Section 9(a)(ix) or (x))
and at any time thereafter during the continuance of such Event of Default, the
holder hereof may, by written notice to the Company, declare the principal and
accrued interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note Purchase
Agreement to the contrary notwithstanding. Upon the occurrence or existence of
any Event of Default described in Section 9(a)(ix) or (x), immediately and
without notice, the principal and accrued interest outstanding hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the Notes to the contrary
notwithstanding. In addition to
-9-
<PAGE> 28
the foregoing remedies, upon the occurrence or existence of any Event of
Default, the holder hereof may exercise any right, power or remedy permitted to
it by law, either by suit in equity or by action at law, or both.
10. Miscellaneous.
(a) Issue Date. The provisions of this Note shall be construed
and shall be given effect in all respect as if it had been issued and delivered
by the Company on earlier of the date hereof or the date of issuance of any Note
for which this Note is issued in replacement. This Note shall be binding upon
any successors or assigns of the Company. This Note shall in all respects be
governed by the laws of the State of California, United States of America as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California without reference to rules of
conflicts of laws.
(b) Restrictions. The holder hereof acknowledges that the
Common Stock acquired upon the conversion of this Note may have restrictions
upon its resale imposed by state and federal securities laws.
(c) Registration Rights. The shares of Common Stock issuable
upon conversion of this Note are covered by certain registration rights set
forth in Section 7 of the Note Purchase Agreement pursuant to which this Note
was issued by the Company.
(d) Assignment. The holder may assign this Note in whole or in
part; provided however, that (i) such assignment is made in compliance with all
applicable securities laws, (ii) such assignment is made in minimum amounts of
not less than $1,000,000 of principal amount due under this Note (or if less,
the remaining principal balance hereof), and (iii) this Note shall not be
assignable to any person or entity engaged in the business of designing,
manufacturing or selling hearing aid devices (the "Restricted Business") without
the Company's prior written consent. Except for an assignment by operation of
law in connection with a merger or consolidation involving the Company, the
Company may not assign or transfer any of its rights or obligations under this
Note or any other Note Document without the prior written consent of the holder
of this Note. Any purported transfer of this Note in violation of this Section
10(d) shall be void.
(e) Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by registered airmail (or certified first
class mail if both the addressor and addressee are located in the United
States), postage prepaid and addressed to the parties as follows:
-10-
<PAGE> 29
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
To Holder:
<<Purchaser>>
<<Address>>
Telephone: <<Phone>>
Telecopier: <<Fax>>
or to such other single place as any single addressee shall designate by written
notice to the other addressees.
(g) Enforcement. The Company shall pay all reasonable fees and
expenses, including reasonable attorneys' fees, incurred by the note holder in
the enforcement of any of the Company's obligations hereunder not performed when
due. The Company hereby waives notice of presentment, demand, protest or notice
of any kind.
-11-
<PAGE> 30
IN WITNESS WHEREOF, the Company has caused this Note to be executed by
its officer thereunto duly authorized.
Dated: February ____, 1995
RESOUND CORPORATION
By:
------------------
Title:
------------------
-12-
<PAGE> 31
NOTICE OF CONVERSION
To: RESOUND CORPORATION
(1) The undersigned hereby elects to convert $____________ in principal
amount of this Note into shares of Common Stock of ReSound Corporation (or into
such other securities as this Note is convertible pursuant to the terms hereof)
pursuant to the terms of the attached Note, and tenders herewith the Note,
together with all applicable transfer taxes, if any.
Such conversion is to be effective (complete one only):
/ / immediately prior to the close of business on the
date of receipt of this Notice by the Company
/ / other (specify):
If no specification is given, such conversion shall be
effective immediately prior to the close of business on the date of receipt of
this Notice by the Company.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Address)
(3) Please reissue a Note representing the unconverted balance of this
Note, if any, in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Address)
(4) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
- ------------------------------------ -----------------------------------
(Date) (Signature)
<PAGE> 32
ASSIGNMENT FORM
(To assign the foregoing note, execute
this form and supply required information.
Do not use this form to convert the note.)
FOR VALUE RECEIVED, an interest corresponding to _____% of the unpaid
principal amount of the foregoing Note and all rights evidenced thereby are
hereby assigned to
(Please Print)
whose address is
(Please Print)
Dated: ________________________, 19___.
Holder's Signature: ______________________________
Holder's Address: ______________________________
______________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Note, without alteration or enlargement or any change
whatever.
<PAGE> 33
EXHIBIT B
SCHEDULE OF EXCEPTIONS
Set forth below are the confidential exceptions to the
representations and warranties made by ReSound Corporation (the "Company") in
Section 3 of the Note Purchase Agreement (the "Agreement") dated February 21,
1995. Unless specifically designated otherwise, capitalized terms used herein
shall have the same meanings given them in the Agreement. Each exception applies
to the section numbers indicated below.
Section 3.2 ("Authority; No Conflict; Required Filings and Consents")
1. The issuance of shares of the Company's Common Stock upon conversion
of the Notes may require the filing of a Form 10-C with the SEC, depending on
the number of shares of the Company's Common Stock outstanding at the time of
such conversion.
2. If requested by the Purchasers pursuant to Section 7 of the
Agreement, the Company will be required to file a Registration Statement with
the SEC for the sale of the shares of Common Stock issuable upon conversion of
the Notes.
3. The Company is a party to a Loan and Security Agreement with Silicon
Valley Bank dated December 23, 1994 (the "Bank Agreement"). The Bank Agreement
provides for a single loan advance to the Company in the aggregate principal
amount of $5,000,000, which advance has been made and repaid in full. Pursuant
to the Bank Agreement, Silicon Valley Bank has acquired a first priority
security interest in all of the Company's assets, including without limitation,
all of its goods, equipment, inventory, contract rights, general intangibles,
accounts, documents, cash, deposit accounts and securities. The Company expects
Silicon Valley Bank to file a termination statement with respect to such
security interest, although such event may not take place prior to the Closing
4. Section 5.2 ("Ownership of Newco") of the Shareholder Agreement
between the Company and ReHear, Ltd. dated July 19, 1994 precludes the Company
from transferring, assigning, hypothecating or in any way alienating any of the
securities of RSND Asia Limited owned by the Company. If executed, the Pledge
Agreement will create a first priority security interest in such securities.
Section 3.4 ("Undisclosed Liabilities")
The Company is the defendant in a lawsuit filed in January 1993 in the
United States District Court, Northern District of California, by a partnership
consisting of two individuals. The plaintiff alleged that the Company's use of
certain electrically erasable programmable read only memory ("EEPROM") and
related architecture incorporated in its hearing devices infringed the
plaintiff's U.S. patent. The trial in this matter commenced on January 3, 1995,
and a verdict in favor of the plaintiff (including on the issues of willful
infringement) was entered on January 26, 1995. Plaintiff was awarded damages in
the amount of two and one-half percent of sales of the
<PAGE> 34
affected products, which the Company estimates to be approximately $2,700,000
based on estimated sales of such products through 1994. The Plaintiff has asked
the Court to increase the award based upon the jury's findings that the
infringement was willful.
The Company is the defendant in a lawsuit filed in September 1993 in
the United States District Court, District of Minnesota, by Minnesota Mining and
Manufacturing Company (3M) alleging that the Company's hearing devices and
programming systems infringe the claims of three patents owned by the plaintiff.
The patents include claims directed to methods and apparatus used in programming
hearing devices. The complaint also alleges false advertising, product
disparagement, and related claims and seeks damages in an unspecified amount and
an injunction prohibiting the Company from infringing the patents and from
competing unfairly with plaintiff. The Company has filed an answer to the
plaintiff's complaint, denying the claims made concerning alleged patent
infringement, false advertising, product disparagement and related claims, as
well as any damages related to such claims. Since the suit was filed, a fourth
patent has been added to the suit, but 3M has indicated that another patent will
be dropped from the suit. The Company has counterclaimed for a declaration that
all the patents in the suit are invalid and not infringed.
The Company is the defendant in a lawsuit filed in August 1994 in the
U.S. District Court for the District of New Jersey by an individual, Paul
Yanick. Mr. Yanick originally claimed infringement of four patents but has
dropped one of the patents from the suit, as well as, other claims, through the
filing of an amended complaint. The company does not believe that it infringes
any of the patents in suit and believes that the patents in suit are invalid.
The Company has been named as a defendant, along with its senior
officers, directors and others, in a lawsuit filed on June 24, 1994 in the
United States District Court for the Northern District of California. The case
is a class action, filed on behalf of all purchasers of the Company's common
stock between March 29, 1993 and March 18, 1994. The complaint alleges that the
defendants violated Section l0(b) of the 1934 Securities Exchange Act by making
false and misleading statements about the Company's business and future
prospects, which had the effect of artificially inflating the price of the
Company's common stock. The Company believes plaintiffs' allegations to be
without merit.
Section 3.6 ("Capitalization")
On July 5, 1994, the Company declared a dividend distribution of one
Preferred Share Purchase Right (a "Right") on each outstanding share of the
Company's Common Stock. Each Right will entitle shareholders to buy one
one-thousandth of a share of the Company's Series A Participating Preferred
Stock at an exercise price of $50.00. The Rights will become exercisable at the
close of business on the tenth day (or such later date as may be determined by a
majority of Continuing Directors, as defined in the Preferred Shares Rights
Agreement dated as of July 5, 1994) after a person or group announces the
acquisition of 15% or more of the Company's Common Stock or announces
commencement of a tender offer or exchange offer, the consum mation of which
would result in ownership by the person or group of 30% or more of the Common
Stock. The Company will be entitled to redeem the Rights at $0.01 per Right at
any time prior to the close of business on the tenth day (or such later date as
may be determined by a majority of the Continuing Directors) following
acquisition by a person or group of 15% or more
-2-
<PAGE> 35
of the Company's Common Stock. The dividend distribution was made on July 20,
1994. The rights will expire on July 5, 2004.
If, prior to redemption or exchange of the Rights, a person or group
acquires 15% or more of the Company's Common Stock (other than pursuant to a
tender offer which is made for all the outstanding shares of Common Stock of the
Company and approved by a majority of the Continuing Directors after determining
that the offer is both adequate and otherwise in the best interests of the
Company and its shareholders), each Right not owned by a holder of 15% or more
of the Common Stock will entitle its holder to purchase, at the Right's then
current exercise price, that number of shares of Common Stock of the Company
(or, in certain circumstances as determined by the Board, cash, other property
or other securities) having a market value at that time of twice the Right's
exercise price. If, after the tenth day following acquisition by a person or
group of 15% or more of the Company's Common Stock, the Company sells more than
50% of its assets or earning power or is acquired in a merger or other business
transaction, the acquirer must assume the obligations under the Rights and each
Right not owned by a holder of 15% or more of the Common Stock will entitle its
holder to purchase, at the Right's then current exercise price, that number of
shares of Common Stock of the acquirer having a market value at that time of
twice the Right's exercise price. At any time after a person or group acquires
15% or more of the Company's Common Stock and prior to the acquisition by the
acquirer of 50% or more of the outstanding Common Stock, the Board of Directors
of the Company may exchange the Rights (other than those owned by the acquirer
or its affiliates) for Common Stock of the Company at an exchange ratio of one
share of Common Stock per Right.
-3-
<PAGE> 36
EXHIBIT C
February 21, 1995
Cagen Holdings Limited
819 Swire House
11 Chater Road
Central
Hong Kong
The Mingly Corporation Limited
820 Swire House
11 Chater Road
Central
Hong Kong
Charter Ventures II, L.P.
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Ladies and Gentlemen:
We have acted as counsel for ReSound Corporation, a California
corporation (the "Company") in connection with the several Note Purchase
Agreements by and among the Company and Cagen Holdings Limited, The Mingly
Corporation Limited and Charter Ventures II, L.P. (each a "Purchaser," and
collectively, the "Purchasers") dated as of February 21, 1995 (each a "Note
Purchase Agreement," and collectively, the "Note Purchase Agreements"), and the
Company's Convertible Promissory Notes in the aggregate principal amount of U.S.
$10,000,000 dated as of February 21, 1995 issued to the Purchasers pursuant to
the Note Purchase Agreements (the "Notes," and collectively with the Note
Purchase Agreements, the Pledge Agreement and the Distribution Agreement
Amendment the "Transaction Documents"). Unless defined herein, capitalized terms
have the meaning given them in the Note Purchase Agreements.
In rendering this opinion, we have made such legal and factual
examinations and inquiries as we have deemed advisable or necessary for the
purpose of rendering this opinion. In addition, we have examined originals or
copies of documents, corporate records and other writings which we consider
relevant for the purposes of this opinion. In such examination we have assumed
the genuineness of all signatures on original documents, the conformity to
original documents of all copies submitted to us and the due execution and
delivery of all documents, other than by the
<PAGE> 37
Company, where due execution and delivery are a prerequisite to the
effectiveness thereof. In making our examination of documents executed by
entities other than the Company, we have assumed that each other entity had the
power to enter into and perform all its obligations thereunder and we also have
assumed the due authorization by each such other entity of all requisite
actions.
Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or belief, it is intended to
signify that in the course of our representation of the Company in connection
with the transactions referred to in the first paragraph hereof, no information
has come to our attention that would give us actual knowledge of the existence
or absence of such facts. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Company.
In rendering the opinion set forth in paragraph (a) below, (i) in order
to determine in which states qualification is appropriate, we have assumed that
qualification may be required only in those states in which the Company owns or
leases real property, maintains offices or has employees, and we have relied on
the Company's listing of those states without independent verification on the
Certificate of Paul Busse, Senior Vice President, Finance and Administration and
Chief Financial Officer of the Company (the "Management Certificate"), and (ii)
as to the qualification and good standing of the Company in the states so
identified in such Management Certificate, we have relied exclusively on
certificates of public officials, although we have not obtained tax good
standing certificates (other than a California franchise tax certificate for the
Company) and no opinion is provided with respect to tax good standing (other
than with respect to the Company in California).
In rendering the opinion in paragraph (e) below, we have reviewed and
are providing an opinion only with respect to the Transaction Documents,
judgments and orders set forth in the Management Certificate.
In rendering the opinion expressed in paragraphs (g) and (h) below, we
have assumed and express no opinion with respect to the following: (a) that the
representations and warranties of the Purchasers set forth in the Note Purchase
Agreements are true and complete; and (b) the accuracy and completeness of the
information provided by the Company to the Purchasers in connection with such
offer and sale. We have also assumed the accuracy of, and have relied upon, the
Company's representations to us that the Company has made no offer to sell the
Notes by means of any "general solicitation," as defined in Regulation D under
the Securities Act or the "publication of any advertisement" (as defined under
the California Corporate Securities Act of 1968, as amended, and the regulations
thereunder) and that no offer or sale of the Notes has been made or will be made
in any states other than California.
The opinions hereinafter expressed are subject to the following further
qualifications:
-2-
<PAGE> 38
(i) We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than California or the federal law of the United States of
America are applicable to the Transaction Documents or the transactions
contemplated thereby;
(ii) We express no opinion as to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, usury or other similar laws
relating to or affecting the rights of creditors generally, including, without
limitation, laws relating to fraudulent transfers or conveyances, preferences
and equitable subordination;
(iii) Our opinions are qualified by the limitations imposed by
general principles of equity upon the availability of equitable remedies or the
enforcement of provisions of the Transaction Documents; and the effect of
judicial decisions which have held that certain provisions are unenforceable
when their enforcement would violate the implied covenant of good faith and fair
dealing, or would be commercially unreasonable, or where their breach is not
material;
(iv) We express no opinion regarding the enforceability of any
security interest, collateral assignment, or similar interest granted by the
Company to secure its obligations under the Notes or the existence or perfection
of any such security interest, collateral assignment, or similar interest;
(v) Our opinion is based upon current statutes, rules,
regulations, cases and official interpretive opinions, and it covers certain
items that are not directly or definitively addressed by such authorities;
(vi) The effect of judicial decisions which may permit the
introduction of extrinsic evidence to modify the terms or the interpretation of
the Transaction Documents;
(vii) The enforceability of provisions of the Transaction
Documents which purport to establish evidentiary standards or to make
determinations conclusive;
(vii) The enforceability of provisions of the Transaction
Documents which purport to establish particular courts as the forum for the
adjudication of any controversy relating to the Transaction Documents;
(ix) The enforceability of provisions of the Transaction
Documents expressly or by implication waiving broadly or vaguely stated rights,
or waiving rights granted by law where such waivers are against public policy;
(x) The enforceability of provisions of the Transaction
Documents providing that rights or remedies are not exclusive, that every right
or remedy is cumulative, or that the election of a particular remedy or remedies
does not preclude recourse to one or more other remedies;
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<PAGE> 39
(xi) We express no opinion as to compliance with applicable
antifraud statutes, rules or regulations of applicable state and federal laws
concerning the issuance or sale of securities; and
(xii) Provisions in the Transaction Documents purporting to
provide for indemnification and contribution under certain circumstances may be
unenforceable.
Based on our examinations of the Transaction Documents, subject to the
foregoing qualifications and the limitations, qualifications, assumptions and
covenants set forth in Exhibit B (the "Disclosure Schedule") attached to the
Note Purchase Agreement, we are of the opinion that:
(a) The Company is a corporation duly organized and existing under the
laws of the State of California, and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in each state in which the
failure to be so qualified would have a material adverse effect on the Company.
(b) The Company has the requisite corporate power and authority to
execute and deliver the Transaction Documents, to sell and issue the Notes, to
issue the Common Stock issuable upon conversion of the Notes and to carry out
and perform its obligations under the terms of the Transaction Documents.
(c) All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of the Transaction Documents by the Company, the authorization,
sale, issuance and delivery of the Notes (and the Common Stock, issuable upon
conversion thereof) and the performance of all of the Company's obligations
under the Transaction Documents has been taken. The shares of Common Stock,
issuable upon conversion of the Notes have been duly and validly authorized and
reserved and, when issued in compliance with the provisions of the Notes will be
validly issued, fully paid and nonassessable. The Notes, the Note Purchase
Agreements and the Distribution Agreement Amendment have been duly and validly
executed and delivered by the Company and, constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms.
(e) The execution, delivery and performance of and compliance with the
Transaction Documents, and the issuance of the Notes and the Common Stock,
issuable upon conversion thereof, have not resulted and will not result in any
material violation of, or conflict with, or constitute a material default under,
and have not resulted and will not result in any material violation of, or
conflict with, or constitute a material default under (i) the Company's Articles
of Incorporation or Bylaws, or (ii) any statute, rule or regulation or any
judgment or order known to us of Federal or California law to which the Company
is a party, or by which the Company is bound.
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<PAGE> 40
(f) To our knowledge, there are no actions, suits, proceedings or
investigations pending or threatened against the Company, or its properties
before any court or governmental agency that questions the validity of the
Transaction Documents or any action taken or to be taken in connection
therewith.
(g) No consent, approval or authorization of or designation,
declaration or filing with, any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of the
Transaction Documents, or the offer, sale or issuance of the Notes (and the
Common Stock, issuable upon conversion thereof), or the consummation of any
other transaction contemplated by the Transaction Documents, except the notice
filing required by Section 25102(f) of the California Corporate Securities Law
of 1968, as amended and except for any filings necessary to perfect the security
interest to be granted under the Pledge Agreement.
(h) The offer, sale and issuance of the Notes and the issuance of the
Common Stock, to be issued upon conversion thereof, constitute transactions
exempt from the registration requirements of Section 5 of the Securities Act and
exempt from the qualification requirements of the California Corporate
Securities Law of 1968, as amended.
This opinion is furnished to you pursuant to Section 5.6 of the Note
Purchase Agreements and is solely for your benefit and may not be relied on by,
nor may copies be delivered to, any other person without our prior written
consent. We assume no obligation to inform you of any facts, circumstances,
events or changes in the law that may hereafter be brought to our attention that
may alter, affect or modify the opinion expressed herein.
Sincerely,
VENTURE LAW GROUP,
A Professional Corporation
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<PAGE> 41
EXHIBIT D
FIRST AMENDMENT TO INTERNATIONAL DISTRIBUTOR AGREEMENT
This First Amendment (the "Amendment") to the International Distributor
Agreement by and between ReSound Corporation, a California corporation
("ReSound") and RSND Asia, Limited, a British Virgin Islands corporation ("RSND
Asia") dated as of July 19, 1994 (the "Agreement") is made as of February ____,
1995. Unless specifically designated otherwise, capitalized terms used herein
shall have the same meanings given them in the Agreement.
In consideration of the mutual promises contained herein, and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereby agree as follows:
1. Section 2(b). Section 2(b) of the Agreement is hereby amended to
include the following sentence at the end of such section:
"Notwithstanding the foregoing provisions of this Section
2(b), in the event that there is a foreclosure on the Pledged
Collateral (as defined in the Pledge Agreement (the "Pledge
Agreement") attached as Exhibit E to the Manufacturer's Note
Purchase Agreements entered into with certain other parties
dated February ____, 1995) pursuant to the terms of such
Pledge Agreement, then the Distributor shall thereafter be
entitled to distribute the Products in the Territory and in
each other country in which Distributor then has distribution
rights hereunder on an exclusive basis, regardless of
Distributor's achievement or non-achievement of the Minimum
Sales Commitment."
2. Effect of Amendment. Except as amended as set forth above, the
Agreement shall continue in full force and effect.
3. Miscellaneous. This Amendment may be executed in counterparts, and
shall be governed by California law.
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date set forth above.
RESOUND CORPORATION RSND ASIA, LIMITED
By: By:
---------------------------- ------------------------------
Title: Title:
---------------------------- ------------------------------
RESOUND, LIMITED
By:
------------------------------
Title:
------------------------------
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<PAGE> 43
EXHIBIT E
PLEDGE AGREEMENT
This Pledge Agreement, dated as of ___________, _____, is executed by
ReSound Corporation, a California corporation ("ReSound") in favor of
______________________, a _____________ as agent (in such capacity, the "Agent")
for the holders of ReSound's convertible promissory notes in the aggregate
principal amount of U.S. $10,000,000 (each a "Note," and collectively the
"Notes") issued pursuant to the several Note Purchase Agreements (each a "Note
Purchase Agreement," and collectively, the "Note Purchase Agreements") dated
February 21, 1995 by and among ReSound and The Mingly Corporation Limited, Cagen
Holdings Limited and Charter Ventures II, L.P. (each a "Note Holder," and
collectively, the "Note Holders").
RECITALS
A. Pursuant to the Note Purchase Agreements, the Note Holders have
purchased the Notes.
B. Agent has been appointed as agent for the Note Holders pursuant to
that certain [Insert name of agreement appointing Agent] dated as of __________,
_____ between Agent and the Note Holders.
C. Pursuant to the terms of the Note Purchase Agreements ReSound is
obligated to enter into this Pledge Agreement with the Agent on behalf of the
Note Holders.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, ReSound hereby agrees with Agent as follows:
1. Definitions and Interpretation. Unless otherwise defined herein, all
other capitalized terms used herein and defined in the Note Purchase Agreements
shall have the respective meanings given to those terms in the Note Purchase
Agreements, and all terms defined in the California Uniform Commercial Code (the
"UCC") shall have the respective meanings given to those terms in the UCC.
2. The Pledge. To secure the Obligations as defined in Section 3
hereof, ReSound hereby pledges and assigns to, and grants to, Agent, acting on
behalf of the Note Holders, a security interest in, all of ReSound's right,
title and interest, whether now existing or hereafter arising from the following
property (collectively, the "Pledged Collateral"):
(a) All of the shares of RSND Asia Limited (the "Issuer")
owned by ReSound (the "Shares") and any additional shares of Issuer hereafter
acquired by ReSound, including shares issued upon exercise of the Pledged
Warrants (as defined below) (collectively, the "Pledged Shares");
<PAGE> 44
(b) All warrants to purchase shares of Issuer owned by
ReSound, and any additional warrants, options or other rights to purchase shares
of Issuer hereafter acquired by ReSound (collectively the "Pledged Warrants");
(c) All dividends (including cash dividends), other
distributions (including stock redemption proceeds), or other property,
securities or instruments, in respect of or in exchange for the Pledged Shares
or the Pledged Warrants, whether by way of dividends, stock dividends,
recapitalizations, mergers, consolidations, split-ups, combinations or exchanges
of shares or warrants or otherwise;
(d) All of ReSound's rights under that certain Shareholder
Agreement dated as of July 19, 1994, as amended from time to time, between
ReSound and ReHear Investments, Ltd. (the "Shareholder Agreement") and that
certain Share and Warrant Purchase Agreement dated as of July 19, 1994, between
ReSound and Issuer; and
(e) All proceeds of the foregoing (the "Proceeds").
3. Security for Obligations. The obligations secured by this Pledge
Agreement (the "Obligations") shall mean the aggregate principal, interest,
fees, expenses and other amounts, due or to become due, now existing or
hereafter arising, under the Notes, the Note Purchase Agreements, this Pledge
Agreement or any other document, instrument or agreement issued or delivered in
connection herewith or therewith.
4. Delivery of Pledged Collateral. All certificates or instruments
representing or evidencing the Pledged Collateral shall be delivered to Agent
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Agent.
5. Representations and Warranties. ReSound hereby represents and
warrants as follows:
(a) Issuance of Pledged Shares, Etc. The Pledged Shares have
been duly authorized and are validly issued and are fully paid and
non-assessable, and except as set forth in the Shareholder Agreement, the
Pledged Shares and the Pledged Warrants are owned by ReSound free and clear of
any and all liens, pledges, encumbrances or charges, and ReSound has not
optioned or otherwise agreed to sell, hypothecate, pledge, or otherwise encumber
or dispose of the Pledged Shares.
(b) Security Interest. The pledge of the Pledged Collateral
creates a valid security interest in the Pledged Collateral, which security
interest is a perfected and first priority security interest, securing the
payment of the Obligations and the obligations hereunder.
(c) Restatement of Representations and Warranties. On and as
of the date any property becomes Pledged Collateral, the foregoing
representations and warranties shall apply to such additional Pledged
Collateral.
6. Further Assurances. ReSound agrees to cause the security interest
granted hereby to be entered on the books of Issuer in a manner sufficient to
provide notice hereof. ReSound agrees
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<PAGE> 45
that at any time and from time to time, at ReSound's expense, ReSound will
promptly execute and deliver all further instruments and documents, including
all additional Pledged Shares and Pledged Warrants, and take all further action,
that may be necessary or desirable, or that Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby and the priority thereof, or to enable Agent to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral. ReSound agrees not to surrender or lose possession of (other than to
Agent), sell, encumber or otherwise dispose of, or transfer, any Pledged
Collateral or right or interest therein and to keep the Pledged Collateral free
of all liens other than the lien granted hereby.
7. Voting Rights; Dividends; Etc.
(a) Rights Prior to an Event of Default. So long as no Event
of Default (as hereinafter defined) shall have occurred and be continuing:
(i) ReSound shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Pledged Shares or
any part thereof for any purpose not inconsistent with the terms of this Pledge
Agreement and the other Note Documents.
(ii) ReSound shall be entitled to exercise all
rights under the agreements described in Section 2(d).
(iii) ReSound shall be entitled to exercise
the Pledged Warrants pursuant to their terms at the sole discretion of ReSound.
(iv) ReSound shall be entitled to receive and
retain free and clear of the security interest of Agent hereunder any and all
dividends and interest paid in respect of the Pledged Shares, provided, however,
that any and all (A) dividends and interest paid or payable other than in cash
in respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for any Pledged Shares or
Pledged Warrants, (B) dividends and other distributions paid or payable in cash
in respect of any Pledged Shares or Pledged Warrants in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or
otherwise distributed in respect of principal of, or in redemption of, or in
exchange for, any Pledged Shares or Pledged Warrants, shall be, and shall be
forthwith delivered to Agent to hold as, Pledged Collateral and shall, if
received by ReSound, be received in trust for the benefit of Agent, be
segregated from the other property or funds of ReSound and be forthwith
delivered to Agent as Pledged Collateral in the same form as so received (with
any necessary endorsement) to be held as part of the Pledged Collateral.
(b) Rights Following an Event of Default. Upon the occurrence
and during the continuance of an Event of Default:
(i) All rights of ReSound to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to Section 7(a)(i), to exercise the contractual rights which
it would otherwise be entitled to exercise pursuant to Section 7(a)(ii), to
exercise the right to exercise the Pledged Warrants pursuant to Section
7(a)(iii), and to receive the dividends and interest payments which it would
otherwise be authorized to receive and retain pursuant to Section 7(a)(iv),
shall cease and all such rights shall thereupon become vested
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<PAGE> 46
in Agent which shall thereupon have the sole right, but not the obligation, to
exercise such voting and other consensual rights and to receive and hold as
Pledged Collateral such dividends and interest payments.
(ii) All dividends and interest payments which
are received by ReSound contrary to the provisions of subparagraph (i) of this
Section 7(b) shall be received in trust for the benefit of Agent, shall be
segregated from other funds of ReSound and shall be forthwith delivered to Agent
as Pledged Collateral in the same form as so received (with any necessary
endorsement).
8. Events of Default.
(a) Event of Default. An event of default (an "Event of
Default") shall be deemed to have occurred under this Pledge Agreement in the
event that there is an "Event of Default" as defined in any of the Notes.
(b) Rights Under the UCC. In addition to all other rights
granted hereby, by the Notes, the Note Purchase Agreements and by law, Agent
shall have, with respect to the Pledged Collateral, the rights and obligations
of a secured party under the UCC.
(c) Sale of Pledged Collateral. ReSound acknowledges and
recognizes that Agent may be unable to effect a public sale of all or a part of
the Pledged Shares and Pledged Warrants and may be compelled to resort to one or
more private sales to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire the Pledged Shares and Pledged Warrants
for their own account, for investment and not with a view to the distribution or
resale thereof. ReSound acknowledges that any such private sales may be at
prices and on terms less favorable to Agent than those of public sales, and
agrees that such private sales shall be deemed to have been made in a
commercially reasonable manner and that Agent has no obligation to delay the
sale of any Pledged Shares or Pledged Warrants to permit the issuer thereof to
register it for public sale under the Securities Act of 1933, as amended, or
under any state securities law.
(d) Compliance with the Exchange Act. Upon the occurrence of
an Event of Default and at Agent's request, ReSound agrees to use ReSound's
reasonable best efforts to cause Issuer to disseminate publicly all information
required to be disseminated pursuant to the Securities Exchange Act of 1934, as
amended, if Issuer is then required to file reports under such Act, or to
otherwise make available such information as to permit the public or private
sale of the Pledged Collateral in accordance with the terms of this Pledge
Agreement. ReSound further agrees to use ReSound's reasonable best efforts to
cause Issuer to cooperate with Agent in taking whatever additional action may be
required to effect such public or private sale of the Pledged Collateral.
(e) Notice, Etc. In any case where notice of sale is required,
seven (7) days' notice shall be deemed reasonable notice. Agent may have resort
to the Pledged Collateral or any portion thereof with no requirement on the part
of Agent to proceed first against any other Person or property.
(f) Other Remedies. Upon the occurrence and during the
continuance of an Event of Default, (i) at the request of Agent, ReSound shall
assemble the Pledged Collateral not yet in Agent's possession and make available
to Agent all records relating to the Pledged Collateral at any
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<PAGE> 47
place or places specified by Agent, together with such other information as
Agent shall request concerning ReSound's ownership of the Pledged Collateral and
relationship to Issuer; and (ii) Agent or its nominee shall have the right, but
shall not be obligated, to vote or give consent with respect to the Pledged
Shares or any part thereof and to exercise ReSound's rights under the Pledged
Warrants.
9. Appointed Attorney-in-Fact.
ReSound hereby appoints Agent as ReSound's attorney-in-fact, with full
authority in the place and stead of ReSound and in the name of ReSound or
otherwise, from time to time in Agent's discretion and to the full extent
permitted by law to take any action and to execute any instrument which Agent
may deem necessary or advisable to accomplish the purposes of this Pledge
Agreement in accordance with the terms and provisions hereof, including to
receive, endorse and collect all instruments made payable to ReSound
representing any dividend, interest payment or other distribution in respect of
the Pledged Collateral or any part thereof and to give full discharge for the
same and to make any compromise or settlement, and take any action it reasonably
deems advisable, with respect to the Pledged Collateral.
ReSound hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred on Agent
hereunder are solely to protect its interests in the Pledged Collateral and
shall not impose any duty upon Agent to exercise any such powers. It is further
agreed and understood between the parties hereto that such care as Agent gives
to the safekeeping of its own property of like kind shall constitute reasonable
care of the Pledged Collateral when in Agent's possession; provided, however,
that Agent shall not be required to make any presentment, demand or protest, or
give any notice and need not take any action to preserve any rights against any
prior party or any other person in connection with the Obligations or with
respect to the Pledged Collateral. Agent shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and in no
event shall Agent or any of its officers, directors, employees or agents be
responsible to ReSound for any act or failure to act, except for gross
negligence or willful misconduct.
10. Miscellaneous.
(a) Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by registered airmail (or certified first
class mail if both the addressor and addressee are located in the United
States), postage prepaid and addressed to the parties as follows:
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
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<PAGE> 48
To Agent:
________________________
________________________
________________________
To Note Holders:
Cagen Holdings Limited
819 Swire House
11 Chater Road
Central
Hong Kong
Attention: Louise Chan
Telephone: 852-522-6141
Telecopier: 852-029-0720
Charter Ventures II, L.P.
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Attention: A. Barr Dolan
Telephone: (415) 325-6953
Telecopier: (415) 325-4762
The Mingly Corporation Limited
820 Swire House
11 Chater Road
Central
Hong Kong
Attention: Payson M. Cha
Telephone: 852-521-4473
Telecopier: 852-845-3735
or to such other single place as any single addressee shall designate by written
notice to the other addressees. ReSound shall deliver all notices hereunder to
Agent and the Note Holders.
(b) Nonwaiver. No failure or delay on Agent's part in
exercising any right hereunder shall operate as a waiver thereof or of any other
right nor shall any single or partial exercise of any such right preclude any
other further exercise thereof or of any other right.
(c) Amendments and Waivers. This Pledge Agreement may not be
amended or modified, nor may any of its terms be waived, except by written
instruments signed by ReSound, Agent and any Note Holders required by the Notes
and Note Purchase Agreements. Each waiver or
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<PAGE> 49
consent under any provision hereof shall be effective only in the specific
instances for the purpose for which given.
(d) Assignments. This Pledge Agreement shall be binding upon
and inure to the benefit of Agent, the Note Holders, ReSound and their
respective successors and assigns; provided, however, that ReSound, Agent, and
the Note Holders may sell, assign and delegate their respective rights and
obligations hereunder only as permitted by the Notes and Note Purchase
Agreements.
(e) Cumulative Rights, Etc. The rights, powers and remedies of
Agent under this Pledge Agreement shall be in addition to all rights, powers and
remedies given to Agent by virtue of any applicable law, rule or regulation of
any governmental authority, the Notes, the Note Purchase Agreements, or any
other agreement, all of which rights, powers, and remedies shall be cumulative
and may be exercised successively or concurrently without impairing Agent's
rights hereunder. ReSound waives any right to require Agent to proceed against
any person or to exhaust any Pledged Collateral or to pursue any remedy in
Agent's power.
(f) Payments Free of Taxes, Etc. All payments made by ReSound
under this Pledge Agreement shall be made by ReSound free and clear of and
without deduction for any and all present and future taxes, levies, charges,
deductions and withholdings. In addition, ReSound shall pay upon demand any
stamp or other taxes, levies or charges of any jurisdiction with respect to the
execution, delivery, registration, performance and enforcement of this Pledge
Agreement. Upon request by Agent or any Note Holder, ReSound shall furnish
evidence satisfactory to Agent or such Note Holder that all requisite
authorizations and approvals by, and notices to and filings with, governmental
authorities and regulatory bodies have been obtained and made and that all
requisite taxes, levies and charges have been paid.
(g) Partial Invalidity. If any provision in this Pledge
Agreement is found or held to be invalid or unenforceable, then the meaning of
such provision shall be construed, to the extent feasible, so as to render the
provision enforceable, and if no feasible interpretation would save such
provision, it shall be severed from the remainder of such document which shall
remain in full force and effect unless the severed provision is essential and
material to the rights or benefits received by any party. In such event, the
parties shall use their best efforts to negotiate, in good faith, a substitute,
valid and enforceable provision or agreement which most nearly effects their
intent in entering into this Pledge Agreement.
(h) Governing Law. This Pledge Agreement shall be governed by
and construed in accordance with the laws of the State of California without
reference to conflicts of law rules (except to the extent governed by the UCC).
(i) Counterparts. This Pledge Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
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<PAGE> 50
IN WITNESS WHEREOF, ReSound has caused this Pledge Agreement to be
executed as of the day and year first above written.
RESOUND CORPORATION
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Acknowledged:
[Agent]
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
-8-
<PAGE> 1
Exhibit 4.3
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement") is made as of February
21, 1995 by and between ReSound Corporation, a California corporation (the
"Company") and The Mingly Corporation Limited (the "Purchaser").
RECITALS
This Agreement is one of several identical agreements each of even date
herewith (collectively, the "Agreements") for the purchase and sale of the
Company's 8% convertible promissory notes in the form attached to this Agreement
as Exhibit A (each a "Note" and collectively, the "Notes"). Together, the
Agreements provide for the purchase and sale of Notes in the aggregate principal
amount of U.S. $10,000,000 by the Company to the Purchaser and to certain other
purchasers (collectively, the "Purchasers").
AGREEMENT
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED IN THIS AGREEMENT,
AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS:
1. Authorization and Sale of the Notes. The Company has, or before the
Closing (as defined below) will have, authorized the purchase and sale of the
Notes to the Purchasers. Subject to the terms and conditions of this Agreement,
the Company will issue and sell to the Purchaser and the Purchaser will purchase
from the Company a Note in the principal amount of U.S. $3,000,000.
2. Closing of Purchase and Sale. The closing of the purchase and sale
of the Notes (the "Closing") shall take place at the offices of Venture Law
Group, 2800 Sand Hill Road, Menlo Park, California 94025, at 10:00 a.m., on
February 21, 1995, or at such time and place as the Company and the Purchasers'
counsel may agree (such time and date being referred to in this Agreement as the
"Closing Date"). At the Closing, the Company will deliver to the Purchasers the
Notes to be purchased by the Purchasers from the Company, which shall be
registered in the name of the respective Purchaser against payment of the
purchase price therefor.
3. Representations and Warranties of the Company. Except as set forth
on Exhibit B to this Agreement (the "Schedule of Exceptions"), the Company
hereby makes the following representations and warranties to the Purchaser:
3.1 Existence; Good Standing; Compliance with Law. The Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of California. The Company is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of each other jurisdiction in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary, except for jurisdictions in which the failure to be so
qualified or to be in good standing would not have a Material Adverse Effect (as
defined below). As used in this Agreement, the term "Material Adverse Effect"
shall mean any change or effect that is or is likely
<PAGE> 2
to be materially adverse to (a) the business, assets (including intangible
assets), financial condition, results of operations or prospects of the Company
and its subsidiaries taken as a whole (b) the ability of the Company to pay or
perform its obligations under the Note Documents (as hereinafter defined), or
(c) the rights and remedies of the Purchaser under the Note Documents. The
Company has all requisite corporate power and authority to own its properties
and carry on its business as now conducted. As used in this Agreement, the term
"Note Documents" shall mean and include this Agreement, the Note, the Pledge
Agreement (as hereinafter defined) the Distribution Agreement Amendment (as
hereinafter defined) and all other documents, instruments and agreements
delivered to the Purchaser in connection with this Agreement or such specified
Note Documents.
3.2 Authority; No Conflict; Required Filings and Consents. The
Company has all requisite corporate power and authority to enter into this
Agreement and the other Note Documents and to consummate the transactions
contemplated hereby including the issuance of the shares of Common Stock of the
Company issuable on conversion of the Note. The execution and delivery of this
Agreement, the Notes and the other Note Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement, the Notes
and the Distribution Agreement Amendment have been duly executed and delivered
by the Company and constitute, and the other Note Documents when executed and
delivered will constitute, valid and binding obligations of the Company, legally
enforceable in accordance with their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of
general application relating to or affecting enforcement of creditors' rights or
as limited by the effect of general principles of equity upon the availability
of equitable remedies. The Common Stock of the Company to be issued upon
conversion of the Note will be duly authorized and validly issued, fully paid
and nonassessable. The execution and delivery of this Agreement, the Notes and
the other Note Documents does not, and the consummation of the transactions
contemplated hereby and thereby, including the issuance of the shares of Common
Stock of the Company issuable on conversion of the Note will not, conflict with,
or result in any violation of, or default (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under
(i) any provision of the Articles of Incorporation or Bylaws of the Company, or
(ii) any mortgage, indenture, lease, or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its respective
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required by
or with respect to the Company in connection with the execution and delivery of
this Agreement, the Notes and the other Note Documents by the Company or the
consummation by the Company of the transactions contemplated hereby and thereby,
including the issuance of the shares of Common Stock of the Company issuable on
conversion of the Note, except (i) such consents, approvals, orders,
authorizations, registration, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country, (ii) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not have a Material Adverse Effect, and (iii) filings
necessary to perfect the security interest to be granted under the Pledge
Agreement.
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<PAGE> 3
3.3 SEC Documents. The Company has furnished, or made
available to counsel for Purchaser, a true and complete copy of each statement,
report, registration statement and definitive proxy statement filed by the
Company with the Securities and Exchange Commission ("SEC") since January 1,
1994 (the "SEC Documents"), which are all the documents (other than preliminary
material) that the Company was required to file with the SEC since such date. As
of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the Securities Act of 1933, as amended (the
"Securities Act"), and none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements made therein not misleading
in light of the circumstances under which they were made, except to the extent
corrected by a subsequently filed SEC Document. The financial statements of the
Company included in the SEC Documents (the "Company Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of operations,
shareholders' equity and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal, recurring audit adjustments). The
Company has also furnished the Purchasers with a copy of its press release
describing its results of operation and related matters on an unaudited basis
for the fourth quarter and fiscal year ended December 31, 1994 (the "Press
Release"), and a copy of its Form 8-K as filed with the Securities and Exchange
Commission on December 19, 1994 concerning its acquisition of Viennatone AG (the
"Form 8-K"). Except as disclosed in the SEC Documents, in the Schedule of
Exceptions, in the Press Release, in the Form 8-K, or except as contemplated by
this Agreement or on account of the transactions contemplated hereby, since
December 31, 1994 there has not been any material adverse change in the results
of operations, financial condition, assets or business of the Company and its
subsidiaries taken as a whole.
3.4 Undisclosed Liabilities. The Company does not have any
liabilities, either accrued, absolute, contingent or otherwise, of a nature
required to be reflected in a balance sheet or related notes prepared in
accordance with generally accepted accounting principles consistently applied
which are not reflected or provided for in the Company Financial Statements
except those arising after December 31, 1994 which are in the ordinary course of
business and which, in the aggregate, would not have a Material Adverse Effect.
3.5 Complete Copies of Materials. The Company has delivered or
made available true and complete copies of each document that has been requested
by Purchaser or representatives of Purchaser.
3.6 Capitalization. The Company has authorized capital stock
of 50,000,000 shares of Common Stock, $0.01 par value and 2,000,000 shares of
Preferred Stock, $0.01 par value. As of the close of business on December 31,
1994, 15,203,420 shares of Common Stock and no shares of Preferred Stock were
issued and outstanding. There are no outstanding rights,
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warrants, options, subscriptions, agreements or commitments giving anyone any
right to require the Company to sell or issue any capital stock or other
securities, except that as of the close of business on December 31, 1994: (i)
the Company had issued and outstanding options under its 1988 Stock Option Plan
which may be exercised to purchase an aggregate of 2,427,881 shares of the
Company's Common Stock and had reserved an additional 153,480 shares for future
issuance under such plan; (ii) the Company had issued and outstanding options
under its 1992 Directors' Stock Option Plan which may be exercised to purchase
an aggregate of 125,000 shares of the Company's Common Stock and had reserved an
additional 25,000 shares for future issuance under such plan; and (iv) the
Company had issued an aggregate of 79,441 shares of the Company's Common Stock
under its 1992 Employee Stock Purchase Plan and had reserved an additional
120,559 shares for future issuance under such plan. All outstanding securities
of the Company were issued in compliance with applicable federal and state
securities laws.
4. Representations and Warranties of Purchaser.
4.1 Authority. The Purchaser has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby has been duly authorized by
all necessary corporate or partnership action on the part of the Purchaser. The
Purchaser hereby represents and warrants to the Company that this Agreement,
when executed and delivered by the Purchaser, will be valid and legally
enforceable as to the Purchaser in accordance with the terms of the Agreement,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application relating to or affecting
enforcement of creditors' rights or as limited by the effect of general
principles of equity upon the availability of equitable remedies.
4.2. Investment Representations; Legends.
(a) Investment Representations. The Purchaser hereby
acknowledges its understanding that the Notes have not been registered under the
Securities Act, and that they are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
the Purchaser's representations contained herein. Purchaser hereby represents
and warrants to and agrees with the Company as follows:
(i) Knowledge of Offer. It has carefully
reviewed this Agreement. All matters relating to this Agreement have been
discussed with it and explained to its satisfaction by the management of Company
or persons acting on the Company's behalf. Nothing in the preceding sentence
shall in any way limit the Company's representations and warranties made herein
or pursuant hereto.
(ii) Ability to Bear Economic Risk. It is
able to bear the economic risk of the investment represented by this Agreement.
(ii) Knowledge and Experience in Financial
and Business Matters. It has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risk of the
investment represented by this Agreement.
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<PAGE> 5
(iv) Determination of Suitability of
Investment. It has had the risk involved in the investment represented by this
Agreement explained to it, it recognizes this risk, and it has determined that
such investment is suitable for it in light of its financial circumstances and
available investment opportunities.
(v) Limitations on Disposition. It
understands that it must bear the economic risk of this investment indefinitely
unless the Notes or the Common Stock into which the Notes may be converted are
registered pursuant to the Securities Act, or an exemption from such
registration is available, and that the Company has no present intention of
registering the Notes. It further understands that there is no assurance that
any exemption from the Securities Act will be available with respect to the
Notes, or if available, that such exemption will allow it to dispose of or
otherwise transfer any or all of the Notes or the Common Stock into which the
Notes may be converted under the circumstances, in the amounts or at the times
it might propose.
(vi) Investment Purpose. It is acquiring the
Notes and the Common Stock into which the Notes may be converted for its own
account and not with a view toward the distribution thereof.
(b) Legends.
(i) Each Note and any Common Stock issued on
conversion of the Notes shall be stamped or otherwise imprinted with a legend
substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT, A "NO ACTION" LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO
SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF
RULE 144 OR REGULATION S OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL TO THE
ISSUER OR SUCH OTHER COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT
FROM SUCH REGISTRATION, OR IN ACCORDANCE WITH THE
AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES
AND RESTRICTING THEIR TRANSFER."
Notwithstanding the foregoing, such legend shall not be required, or if
previously imposed shall be removed by the Company, from any Note or stock
certificate at such time as a registration statement under the Securities Act is
in effect with respect to the legended security, or upon delivery to the Company
of an opinion by counsel satisfactory to the Company, in form and substance
satisfactory to the Company, to the effect that such security can be freely
transferred without such registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Notes were issued.
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<PAGE> 6
(ii) Each Note and any Common Stock issued
upon conversion of the Notes shall also bear any legend required by any
applicable state securities law. Such legends shall be removed upon delivery to
the Company of an opinion by counsel satisfactory to the Company, in form and
substance satisfactory to the Company, to the effect that such security can be
freely transferred without such legend.
5. Conditions to the Purchaser's Obligations at the Closing. The
Purchaser's obligation to purchase the Note shall be subject to each of the
following conditions having been fulfilled to Purchaser's satisfaction on or
before the Closing Date:
5.1 Representations and Warranties, Performance of
Obligations. The representations and warranties made by the Company in Section 3
shall be true and correct on the Closing Date with the same effect as though
made on and as of such date; the Company's business, assets, and prospects shall
not have been adversely affected prior to the Closing Date; and the Company
shall have performed all actions, met all conditions and satisfied all
obligations required to be performed or satisfied by it under this Agreement on
or prior to the Closing Date.
5.2 Issuance of Note. The Company shall have duly executed a
Note payable to the Purchaser in the amount of the Purchaser's commitment
hereunder.
5.3 Corporate Documents. The Company shall have delivered to
the Purchaser such evidence of the Company's good standing and its authorization
of this Agreement and the other Note Documents as the Purchaser or its counsel
shall reasonably request.
5.4 No Events of Default or Defaults. No Event of Default (as
defined in the Note) or event or circumstance which with the giving of any
notice or the lapse of time or both, would become an Event of Default (a
"Default"), shall have occurred.
5.5 Purchaser Board Approval. The Purchaser's board of
directors or other similar governing body shall have approved the execution,
delivery and performance of this Agreement by the Purchaser.
5.6 Opinion of Counsel to the Company. The Purchasers shall
have received from Venture Law Group, a Professional Corporation, counsel for
the Company, an opinion letter addressed to it, dated the Closing Date,
substantially the same, in form and content, as that attached as Exhibit C. In
rendering the opinion called for under this Section 5.2, counsel may rely as to
factual matters on certificates of public officials and officers of the Company.
5.7 Consents, Permits, and Waivers. The Company shall have
obtained any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
5.8 Purchase Permitted by Applicable Law. The purchase of the
Notes (including the Common Stock issuable upon conversion of the Notes) on the
Closing Date shall not be prohibited by any applicable law or governmental
regulation.
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<PAGE> 7
5.9 Amendment to Distribution Agreement. The Company shall
have entered into the Amendment to the International Distribution Agreement
between the Company and RSND Asia Limited dated July 19, 1994 in the form
attached to this Agreement as Exhibit D (the "Distribution Agreement
Amendment").
5.10. Purchase of Notes. The other Purchasers shall have
purchased their respective Notes from the Company in accordance with the other
Agreements.
6. Conditions to the Company's Obligations at the Closing. The
obligation of the Company to issue and sell the Notes to be issued and sold
hereunder shall be subject to the following conditions, any of which may be
waived by the Company, having been fulfilled on or before the Closing Date:
6.1 Representations and Warranties. The representations and
warranties made by the Purchaser in Section 4 hereof shall be true and correct
on the Closing Date with the same effect as though made on and as of such date.
6.2 Consents, Permits and Waivers. The Company shall have
obtained any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
6.3 Purchase Permitted by Applicable Law. The purchase of the
Notes (including the Common Stock issuable upon conversion of the Notes) on the
Closing Date shall not be prohibited by any applicable law or governmental
regulation.
6.4. Purchase of Notes. The Purchasers shall have purchased
Notes from the Company in the aggregate principal amount of U.S. $10,000,000.
7. Registration Requirements.
7.1 Registration Rights.
(a) Registration Statement.
(i) Beginning on the earlier of (A) November
21, 1995, or (B) the occurrence of a Special Conversion Event (as defined in the
Notes), or (C) the Company becoming aware that a Special Conversion Event is
reasonably likely to occur within the next 60 days, the Purchaser shall be
entitled to demand that the Company secure the effectiveness of a "shelf"
registration statement under Rule 415 under the Securities Act (the
"Registration Statement") with the SEC, for the sale by Purchaser of all of the
shares of Common Stock issuable upon conversion of the Notes (the "Shares"), to
be effective as soon as practicable in the event of a Special Conversion Event
and otherwise to be effective not later than February 21, 1996. Prior to
demanding any such registration, the Purchaser shall first consult with the
Company for a reasonable period in the event of a Special Conversion Event, and
for a period of at least 15 days otherwise, concerning the need for such
registration in light of Purchaser's ability to sell freely all of the shares of
Common Stock issuable upon conversion of the Notes in the United States public
markets under Rule 144, Regulation S or otherwise.
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<PAGE> 8
(ii) Following such consultation, whether to
demand such Registration Statement shall be at the sole discretion of the
Purchaser, and the Company shall take all action necessary to comply with such
demand. The Company represents and warrants that on the date the Registration
Statement becomes effective, the Registration Statement will comply in all
material respects with the applicable requirements of the Securities Act and the
rules thereunder; on the date of its effectiveness the Registration Statement
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein not misleading, provided, however, that no representation is made
by the Company with respect to written information furnished to the Company by
or on behalf of the Purchaser specifically for inclusion in the Registration
Statement; and the final prospectus contained in the Registration Statement, if
not filed pursuant to Rule 424(b), will not, and on the date of any filing
pursuant to Rule 424(b), such final prospectus (together with any supplement
thereto) will not, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading, provided,
however, that no representation is made by the Company with respect to written
information furnished to the Company by or on behalf of the Purchaser
specifically for inclusion in such prospectus. The Company will promptly: (A)
notify Purchaser when the Registration Statement is declared effective; and (B)
notify Purchaser of any stop-order or similar proceeding by the SEC or any state
securities authority.
(b) Continuing Effectiveness. The Company shall
promptly prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such Registration Statement and
keep the Registration Statement effective until all the Shares have been sold
pursuant thereto or until all of the Purchasers are able to dispose of their
entire remaining ownership interest in the Shares in the United States public
markets in a single transaction under Regulation S without limitation as to
volume or under Rule 144 without invoking clause (e)(1)(ii) of Rule 144. The
Company shall provide a transfer agent, registrar and CUSIP number with respect
to all securities registered by such Registration Statement.
(c) Copies of Documents. The Company shall furnish to
Purchaser with respect to the Shares registered under the Registration Statement
such number of copies of prospectuses and preliminary prospectuses and
supplements in conformity with the requirements of the Securities Act and such
other documents as Purchaser may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Shares by Purchaser.
(d) Blue Sky Laws. The Company shall use its best
efforts to register or qualify the Shares covered by such Registration
Statements under such other securities or blue sky laws of such jurisdictions as
Purchaser shall reasonably request and do any and all other acts or things which
may be necessary or desirable to enable the Purchaser to consummate the public
sale or other disposition in such jurisdictions, provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
do business or file a general consent to service of process in any such
jurisdictions.
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<PAGE> 9
(e) Availability of Information. With a view to
making available to Purchaser the benefits of Rule 144(d) promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit Purchaser to sell Shares to the public without registration, the Company
hereby covenants and agrees, so long as Purchaser owns any Shares to: (i) make
and keep public information available, as those terms are understood and defined
in Rule 144; (ii) file with the SEC in a timely manner all reports and other
documents required of The Company under the Securities Act and the Exchange Act;
and (iii) furnish to Purchaser (A) a written statement by the Company that it
has complied with the reporting requirements of the Securities Act and the
Exchange Act, (B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other information as may be reasonably requested in order
to avail Purchaser of any rule or regulation of the SEC that permits the selling
of the Shares without registration.
(f) Expenses. The Company shall bear all expenses in
connection with the procedures set forth in Sections 7.1(a) through (e) above
and the registration of the Shares pursuant to the Registration Statement, other
than broker's commissions or discounts, transfer taxes, and fees and expenses,
if any, of counsel or other advisors to Purchaser.
(g) Assignment. The right to sell Shares under the
Registration Statement will automatically be assigned to each permitted
transferee of Notes, and the provisions of Sections 7.1 and 7.2 hereof shall
apply to such transferee as if such transferee were a Purchaser hereunder. In
the event that it is necessary, in order to permit a transferee of a Note to
sell Shares pursuant to the Registration Statement, to amend the Registration
Statement to name such transferee, the transferee shall, upon written notice to
the Company, be entitled to have the Company make such amendment as soon as
reasonably practicable.
(h) Successor Registrant. If the Company shall not be
the surviving corporation in any merger or consolidation and this Note shall
remain outstanding after the consummation of such transaction, the Company shall
cause adequate provision to be made such that the surviving corporation shall
provide registration rights at least as favorable to the holder of this Note as
are provided in Section 7 hereof.
7.2 Securities Indemnification.
(a) Definitions. For the purposes of this Section 7.2
the term "Registration Statement" shall include any final prospectus, exhibit,
supplement or amendment included in or relating to the Registration Statement
referred to in Section 7.1. As used in this Section 7.2, the term "untrue
statement" shall include any untrue statement or alleged untrue statement, or
any omission or alleged omission to state in the Registration Statement a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The Company's Indemnity. The Company agrees to
indemnify and hold harmless Purchaser, each of its officers, directors,
partners, advisors, each person controlling such Purchaser within the meaning of
Section 15 of the Securities Act, each underwriter, if any, and each person
controlling any such underwriter within the meaning of Section 15 of the
Securities Act, from and against any and all expenses, losses, claims, damages
or liabilities (or
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<PAGE> 10
actions, proceedings or settlements in respect thereof) to
which such persons may become subject (under the Securities Act or otherwise)
insofar as such losses, claims, damages or liabilities (or actions, proceedings
or settlements in respect thereof) arise out of, or are based upon, any untrue
statement of a material fact contained in the Registration Statement, or arise
out of any failure by the Company to fulfill any undertaking included in the
Registration Statement or arise out of any violation by the Company of the
Securities Act or the Exchange Act or any rule or regulation thereunder
applicable to the Company with respect to the Registration Statement and
relating to action or inaction required of the Company, and will reimburse each
such Purchaser, each of its officers, directors, partners, advisors, each person
controlling such Purchaser, each underwriter, and each person controlling any
such underwriter, for any legal and other expenses reasonably incurred in
connection with investigating and defending or settling any such expense, claim,
loss, damage or liability; provided, however, that the Company shall not be
liable in any such case to the extent that such expense, loss, claim, damage or
liability arises out of, or is based upon, an untrue statement made in such
Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Purchaser
specifically for inclusion in the Registration Statement, or any untrue
statement in any prospectus that is corrected in any subsequent prospectus that
was delivered to the Purchasers at least five (5) business days prior to the
pertinent sale or sales by such Purchaser.
(c) Purchaser's Indemnity. Purchaser agrees to
indemnify and hold harmless the Company (and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, each officer
of the Company who signs the Registration Statement and each director of the
Company) from and against any losses, claims, damages or liabilities (including
reasonable legal or other expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim) to which
the Company (or any such officer, director or controlling person) may become
subject (under the Securities Act or otherwise), insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement of a material fact contained in the
Registration Statement on the effective date thereof if such untrue statement
was made in reliance upon and in conformity with written information furnished
by or on behalf of such Purchaser specifically for inclusion in the Registration
Statement; provided, however, such Purchaser shall not be liable in any such
case to the extent that such loss, claims, damage or liability arises out of, or
is based upon, an untrue statement made in reliance upon and in conformity with
written information furnished by or on behalf of such Purchaser, if such
information is corrected and written notice of such correction is delivered to
the Company at least five (5) business days prior to the pertinent sale or
sales. Purchaser's obligation to indemnify the Company hereunder shall be
limited to the total amount of the proceeds received by such Purchaser for the
Shares sold pursuant to the Registration Statement.
(d) Notice of Claim and Representation. Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to sought against an indemnifying
person pursuant to this Section 7.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and such indemnifying
person shall have been notified thereof, such indemnifying person shall be
entitled to participate therein, and, to the
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<PAGE> 11
extent it shall wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified person. After notice from the indemnifying
person to such indemnified person of its election to assume the defense thereof,
such indemnifying person shall not be liable to such indemnified person for any
legal expenses subsequently incurred by such indemnified person in connection
with the defense thereof; provided, however, that if there exists or shall exist
a conflict of interest that would make it inappropriate, in the opinion of
counsel to the indemnified person, for the same counsel to represent both the
indemnified person and such indemnifying person or any affiliate or associate
thereof, the indemnified person shall be entitled to retain its own counsel at
the expense of such indemnifying person; provided, however, that no indemnifying
person shall be responsible for the fees and expenses of more than one separate
counsel for all indemnified parties under the Agreements. The failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 7.2 to the extent such
failure is not prejudicial. No indemnifying party, in the defense of any claim
or litigation, shall, except with the consent of each indemnified party, consent
to the entry of any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(e) Contribution Obligation. If the indemnification
provided for in this Section 7.2 is unavailable under state or federal law to an
indemnified person hereunder in respect to any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to herein,
then the indemnifying person, in lieu of indemnifying such indemnified person,
shall contribute to the amount paid or payable by such indemnified person as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company and the Purchaser in
connection with the untrue statements of material fact or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Purchaser shall be determined by reference to, among other things, whether the
untrue statements of material fact or omissions relate to information supplied
by the Company or by the Purchaser and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages or liabilities referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim.
The Company and Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 7.2(e) were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to herein. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
7.3 Survival. The obligations of the Company and Purchaser
under this Section 7 shall survive the payment of the Notes.
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8. Affirmative Covenants of the Company.
8.1 Board Visitation Rights. The Company shall permit one of
three designated representatives of all Purchasers of the Notes to attend
meetings of the Company's Board of Directors in a nonvoting observer capacity at
the Purchasers' own expense and shall give such representative copies of all
notices, minutes, consents, and other materials that it provides to its
directors as and when provided to its directors; provided, however, that the
Company reserves the right to exclude such representative from access to any
material or meeting or portion thereof to the extent the Company reasonably
believes upon advise of counsel that such exclusion is necessary to preserve the
attorney-client privilege. The Company will make every reasonable effort to
minimize the number and length of such exclusions. The foregoing board
visitation rights shall generally be assignable in connection with any permitted
assignment or transfer of the Notes. Notwithstanding the foregoing, or any other
provision in this Agreement to the contrary, in no event shall any
representative attending any Board Meeting be engaged in, employed by, or
otherwise affiliated with any person or entity (other than an affiliate company
of the Company) engaged in the business of designing, manufacturing or selling
hearing aid devices (the "Restricted Business") without the Company's prior
written consent.
8.2 Information Covenants.
(a) Financial Information. The Company will furnish
Purchaser:
(i) promptly after they are sent, made
available or filed, copies of all reports, proxy statements and financial
statements that the Company sends or makes available to its shareholders and,
within ten (10) days of filing, all registration statements and reports that the
Company files with the SEC, including 10-Q, 10-K and 8-K reports, or with any
other governmental authority where such registration statements and reports may
be filed;
(ii) as soon as possible, and in any event
within five (5) days after the Company has knowledge of (A) the occurrence of an
Event of Default (as defined in the Notes), or (B) any default or event of
default as defined in any other evidence of debt or under any other agreement,
indenture or other instrument under which such debt has been issued, but only if
such debt exceeds Two Million Dollars ($2,000,000) and such default or Event of
Default, or such other default or event of default is not waived on or before
ten (10) business days after it occurs, the statement of the chief executive
officer or chief financial officer of the Company setting forth details of such
default or event of default and the action which the Company proposes to take
with respect thereto;
(iii) prompt written notice of any actual or
threatened claims, litigation, suits, proceedings or disputes (whether or not
purportedly on behalf of the Company) against or affecting the Company which, if
adversely determined, would have a Material Adverse Effect (including claims,
litigation, suits, proceedings or disputes involving monetary amounts in excess
of Five Million Dollars ($5,000,000) not covered by insurance), or any material
labor controversy resulting in or threatening to result in a strike against the
Company, or any proposal by any governmental authority to acquire any of the
material assets or business of the Company, if such strike or acquisition would
have a Material Adverse Effect.
-12-
<PAGE> 13
(iv) prompt written notice of changes in the
name of the Company.
(b) Inspection Rights. The Company shall maintain
adequate books and accounts in accordance with generally accepted accounting
principles applied on a consistent basis. The Purchaser or a single
representative of the Purchasers shall have the right, at the Purchaser's
expense prior to a Default or an Event of Default (as defined in the Note) and
thereafter and during the continuance thereof, at the Company's expense, to
visit and inspect any of the properties of the Company or any of its
subsidiaries, including its and their books of account, and to take extracts
therefrom. The Purchaser shall also have the right, at the Purchaser's expense
prior to a Default or an Event of Default and thereafter and during the
continuance thereof, at the Company's expense, to visit and inspect any of the
properties of the Company or any of its subsidiaries, to discuss its and their
affairs, finances, and accounts with its and their officers, all at such
reasonable times and as often as may be reasonably requested. Notwithstanding
the foregoing, the Company or any subsidiary shall not be required at any time
pursuant to this Section 8.2(b) to disclose to any representatives of the
Purchasers (i) any manufacturing or trade secret or secret process or other data
the disclosure of which the Company reasonably believes may adversely affect its
business, or (ii) any customer data to any such Purchaser or representative of
the Purchasers engaged in a business similar to the business in which the
Company or any of its subsidiaries is engaged at such time, nor shall the
Company or any subsidiary be required at any time pursuant to this Section
8.2(b) to disclose to the Purchasers or any representative of the Purchasers any
information or data that is classified by the Government or subject to a
non-disclosure agreement in favor of any third party.
(c) Information Confidential. Purchaser acknowledges
that the information received by it pursuant hereto is confidential and for such
Purchaser's use only, and it will not use such information in violation of the
Exchange Act or reproduce, disclose, or dis seminate such information to any
other person (other than its employees or agents having a need to know the
contents of such information, and its attorneys), except in connection with the
exercise of rights under this Agreement unless (i) the Purchaser is required to
disclose such information by a governmental body, (ii) such information is or
becomes generally available to the public other than as a result of a disclosure
by the Purchasers, (iii) such information is or becomes available on a
non-confidential basis from a source other than the Company provided that such
source is not bound by a confidentiality agreement with the Company known to the
Purchasers, or (iv) such information is disclosed to any actual or prospective
assignee of the Note, provided such person has executed in favor of the Company
a confidentiality agreement containing terms substantially identical to this
section.
(d) The Company's financial statements shall be
prepared in accordance with generally accepted accounting principles applied on
a consistent basis.
8.3 Notices. The Company will furnish to the Purchaser the
notices required by Section 1(d) of the Note regarding Conversion Events (as
defined in the Note).
8.4 Security Interest. The Company acknowledges and agrees
that in the event that (1) the Company's ratio of debt to equity (as such
amounts are specified in the Company's most recent financial statements, but
provided that any change in retained earnings as a result of
-13-
<PAGE> 14
any nonrecurring and non-operating loss, expense or write-off shall not be
included in the calculation of such ratio) (the "Debt Ratio") exceeds one to
one, and (2) all Purchasers elect not to redeem the Notes as a result of such
event as provided therein, then upon the Purchasers' request it will execute and
deliver the Pledge Agreement in substantially the form attached to this
Agreement as Exhibit E (the "Pledge Agreement") and take all necessary and
appropriate action contemplated by the obligations imposed upon the Company upon
the effectiveness of such Pledge Agreement to grant to an agent appointed by the
Purchasers pursuant to a separate agreement to hold such security interest on
behalf of the Purchasers (the "Agent") a first priority security interest in the
collateral described therein. The Company hereby agrees that it will not sell,
transfer, assign, encumber, pledge or otherwise dispose of any of the assets
constituting "Pledged Collateral" as that term is defined in the Pledge
Agreement.
8.5 Repayment of Loan. The Company has repaid in full that
certain loan between the Company and Silicon Valley Bank evidenced by that
certain Loan and Security Agreement dated as of December 23, 1994.
9. Miscellaneous.
9.1 Survival of Representations and Warranties. The
representations and warranties made by the Purchaser and the Company in this
Agreement and the respective obli gations of each party, to be performed on the
terms hereof at, prior to, or after the Closing Date hereunder, shall not expire
with, or be terminated, or extinguished by, such Closing on the Closing
Date. All statements as to factual matters contained in any certificate, exhibit
or other instrument delivered by or on behalf of the Company pursuant hereto or
in connection with the transactions contemplated hereby shall be deemed to be
the representations and warranties of the Company hereunder as of the date of
such certificate or instrument.
9.2 Expenses. Whether or not the purchase and sale of the Note
contemplated by this Agreement is consummated, the Company shall, upon request,
pay all of the reasonable legal fees incurred by all Purchasers in connection
with the preparation, execution and delivery of the Agreements and the related
documents, in an amount not to exceed forty thousand dollars ($40,000.00) in the
aggregate against presentation of itemized invoices detailing services rendered.
The Company shall pay upon request against presentation of itemized invoices
detailing services rendered, all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by the Purchaser or Agent in
the enforcement or attempt to enforce any covenant of the Company under this
Agreement or any other Note Document which is not performed as and when required
by such document.
9.3 Modification; Waiver. No modification or waiver of any
provision of this Agreement shall be effective unless in writing and approved by
the Company and a majority-in-interest of the Purchasers. Upon the effectuation
of each waiver, consent, agreement of amendment or modification, the Company
promptly shall give written notice thereof to the Purchasers as provided in
Section 9.4 of this Agreement.
9.4 Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by
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<PAGE> 15
registered airmail (or certified first class mail if both the addressor and
addressee are located in the United States), postage prepaid and addressed to
the parties as follows:
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
To Purchaser:
The Mingly Corporation Limited
819 Swire House
11 Chater Road
Central
Hong Kong
Attention: Payson M. Cha
Telephone: 852-521-4473
Telecopier: 852-845-3735
or to such other single place as any single addressee shall designate by written
notice to the other addressees.
9.5 Successors and Assigns. All covenants and agreements of
the parties contained in this Agreement shall be binding upon and inure to the
benefit of their respective successors and permitted assigns. Except for an
assignment by operation of law in connection with a merger or consolidation
involving the Company, the Company may not assign or transfer any of its rights
or obligations under any Note Document without the prior written consent of
Purchaser. Any purported assignment in violation of this section shall be void.
9.6 Governing Law. This Agreement shall in all respects be
governed by the laws of the State of California, United States of America as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California without reference to rules of
conflicts of laws.
9.7 Headings. The section and paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
9.8 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
-15-
<PAGE> 16
9.9 California Qualification. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES WITH RESPECT TO SUCH SECURITIES ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
9.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
9.11 Delays or Omissions. It is agreed that no delay or
omission to exercise any rights, power, or remedy accruing to either party, upon
any breach or default of the other party under this Agreement, shall impair any
such rights, power, or remedy, nor shall it be construed to be a waiver of any
such breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. It is further agreed that any waiver, permit, consent,
or approval of any kind or character on a party's part of any breach or default
under this Agreement, or any waiver on a party's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing, and that all remedies, either
under this Agreement or by law or otherwise afforded to such party, shall be
cumulative and not alternative.
9.12 Severability. If any provision in this Agreement or any
other Note Document is found or held to be invalid or unenforceable, then the
meaning of such provision shall be construed, to the extent feasible, so as to
render the provision enforceable, and if no feasible interpretation would save
such provision, it shall be severed from the remainder of such document which
shall remain in full force and effect unless the severed provision is essential
and material to the rights or benefits received by any party. In such event, the
parties shall use their best efforts to negotiate, in good faith, a substitute,
valid and enforceable provision or agreement which most nearly effects their
intent in entering into this Agreement or such other Note Document, as
appropriate.
9.13 Indemnification. To the fullest extent permitted by law,
the Company agrees to protect, indemnify, defend and hold harmless Purchaser,
Agent and their respective directors, officers, employees, agents and any
affiliate thereof (collectively, the "Indemnitees") from and against any
liabilities, losses, damages or expenses of any kind or nature related to any
suits, claims or demands (including in respect of or for reasonable attorney's
fees and other expenses) brought by third parties arising on account of or in
connection with any matter or thing or action or failure to act by the
Indemnitees, or any of them, arising out of or relating to the Agreements, the
Notes and the purchase of the Notes, except to the extent that (a) such
liability arises from the willful misconduct or gross negligence of such
Indemnitee, or (b) the provisions of
-16-
<PAGE> 17
Section 7.2 ("Securities Indemnification") of this Agreement are applicable to
such suit, claim or demand. Upon receiving knowledge of any suit, claim or
demand asserted by a third party that an Indemnitee believes is covered by this
indemnity, such Indemnitee shall give the Company notice of the matter and an
opportunity to defend it, at the Company's sole cost and expense, with legal
counsel satisfactory to such Indemnitee, as the case may be. Such Indemnitee may
also require the Company to defend the matter. Any failure or delay of such
Indemnitee to notify the Company of any such suit, claim or demand shall not
relieve the Company of its obligations under this Section but shall reduce such
obligations to the extent of any increase in those obligations caused solely by
such reasonable failure or delay. The obligations of the Company under this
Section shall survive the payment and performance of the Notes.
-17-
<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed themselves or by their respective representatives thereunto duly
authorized as of the day and year first above written.
RESOUND CORPORATION
By: /s/ Paul Busse
---------------------------------
Title: Chief Financial Officer
---------------------------------
THE MINGLY CORPORATION LIMITED
By: /s/ Payson Cha
---------------------------------
Title: Managing Director
---------------------------------
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<PAGE> 19
EXHIBIT A
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A
TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OR REGULATION S OF THE
SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL TO THE
ISSUER OR SUCH OTHER COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION, OR IN
ACCORDANCE WITH THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES
AND RESTRICTING THEIR TRANSFER.
CONVERTIBLE PROMISSORY NOTE
DUE FEBRUARY 21, 2000
ReSound Corporation, a California corporation (the "Company"), for
value received, promises to pay to the order of <<Purchaser>> the principal sum
of <<Amount>> (<<Amount2>>), plus interest thereon from the date of this Note
until paid at the rate of eight percent (8%) per annum.
The principal amount of this Note and any outstanding accrued interest
thereon shall be due and payable on February 21, 2000. Interest shall be payable
on the last business day (the "Interest Payment Date") in each calendar quarter
(commencing with the calendar quarter ending March 31, 1995), and in addition,
any accrued interest shall be payable upon payment of principal or conversion of
principal. Any default in the payment of any amount not paid when due hereunder
shall bear interest at the rate of ten percent (10%) per annum from the date due
until paid. All payments by the Company under this Note shall be subject to
deduction for any applicable withholding tax as may be required by law, provided
that the Company shall not withhold such taxes to the extent that the holder of
this Note establishes the right to an exemption from withholding tax under
applicable tax laws. The Company shall provide the holder of this Note prior
notice of its intention to withhold as soon as practicable and in any event at
least 30 days prior to making any payment as to which a withholding deduction
shall be made. The Company shall provide the holder of this Note evidence of
payment of such withholding tax promptly following availability of such
evidence.
Payments of both principal and interest are to be made by wire transfer
payable to <<Purchaser>> at <<Address2>> or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America in immediately available funds.
This Note is the Note referred to in the Note Purchase Agreement, dated
as of February 21, 1995, between the Company and <<Purchaser>> (the "Note
Purchase Agreement"). Capitalized terms used herein have the meanings assigned
to those terms in the Note Purchase Agreement, unless otherwise defined herein.
<PAGE> 20
The following is a statement of the rights of the holder of this Note
and the conditions to which this Note is subject, and to which the holder
hereof, by the acceptance of this Note, agrees:
1. Conversion of Note.
(a) Conversion into Common Stock; Conversion Price. The
principal and accrued interest on this Note is convertible by the registered
holder hereof, in whole or in part, into fully paid and nonassessable shares of
the Company's Common Stock (the "Common Stock") at the Conversion Price (as
defined below) in effect at the time of conversion, determined as provided and
upon the terms set forth below, at any time on or after the earlier of (1)
February 22, 1996, (2) a Change of Control (as defined below) of the Company,
(3) the Company's Debt Ratio exceeding one-to-one, (4) acquisition by a person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) (other
than Purchasers and their affiliates) of 15% or more of the outstanding voting
stock of the Company, or (5) a merger, consolidation or combination to which the
Company is a party (regardless of whether the Company survives) in which the
shareholders of the Company immediately before the transaction do not own at
least 5/6 of the voting power in the surviving corporation immediately after the
transaction (all of the foregoing "Conversion Events," and all of the foregoing
except conversion pursuant to clause (1)(a)(1) above, "Special Conversion
Events"). This Note shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the principal
amount of this Note or a specified portion thereof by the effective Conversion
Price. The "Conversion Price" per share at which the Common Stock shall
initially be issuable upon conversion of this Note shall be $10.00; provided,
however, that such Conversion Price shall be subject to adjustment as set forth
in Section 8 of this Note. As used in this Note, the term "Change of Control"
shall mean (i) any consolidation, merger, or combination of the Company whether
or not the Company is the surviving entity, other than where shareholders of the
Company immediately prior to the closing of such consolidation, merger or
combination own at least a majority of the voting equity securities of the
successor entity immediately following such closing, or (ii) a sale, conveyance,
lease or other disposition of all or substantially all the Company's assets
(regardless of whether or not to a single entity or as an entirety).
(b) Registrations; Approvals. If any shares of Common Stock to
be reserved for the purpose of conversion of this Note require registration or
listing with, or approval of, any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or otherwise,
before such shares may be validly issued or delivered upon conversion, the
Company will, in good faith and as expeditiously as possible, at its expense,
endeavor to secure such registration, listing or approval, as the case may be.
(c) Taxes. The Company covenants that all shares of Common
Stock which may be issued upon the conversion of this Note will, upon conversion
of this Note, be fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
-2-
<PAGE> 21
(d) Notice to Holders Prior to Certain Actions. In case:
(i) the Company makes any distribution or dividend or
takes any other action that would require an adjustment in the Conversion Price
pursuant to Section 8 of this Note;
(ii) of any merger, consolidation or combination
involving the Company in which the shareholders of the Company immediately
before the transaction do not own at least 5/6 of the voting power in the
surviving corporation immediately after the transaction;
(iii) of the occurrence of any other event
constituting a Change of Control; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company:
the Company shall cause to be delivered to the holder of this Note as promptly
as possible but in any event at least 15 days prior to the applicable date
hereinafter specified, a notice stating (x) in the case of a dividend or other
distribution, the date on which a a record date is to be taken for the purpose
of such event or if a record is not to be taken, the date as of which the
holders of Common Stock of record are to be entitled to such dividend or
distribution, or (y) in the case of any other event specified above, the date on
which such event is expected to become effective or occur. In the case of any
other event that would constitute a Conversion Event, the Company shall cause
notice of the date of such event (or, if such date is not known, the date on
which, or time period within which, the Company reasonably expects such event to
occur) to be delivered to the holder of this Note as promptly as practicable but
in any event not later than five business days after the earlier of (i) the date
on which the Company discovers that such event has occurred, and (ii) the date
on which the Company discovers that such event is reasonably likely to occur
within the next 60 days.
2. Mechanics of Conversion.
(a) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of this Note. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Company shall pay cash
equal to such fraction multiplied by the then effective Conversion Price.
(b) Notice of Conversion. Before the holder of this Note shall
be entitled to convert the same or any portion thereof into shares of Common
Stock, it shall surrender this Note (or such documentation as may be required by
Section 7 hereof) at the office of the Company or of any transfer agent for this
Note, and shall give written notice to the Company at such office (on the
Conversion Form attached to this Note, or a substantial equivalent thereof) that
it elects to convert the same or a specified portion thereof, and shall state
therein its name or the name of names of its nominees in which it wishes the
certificate or certificates for shares of Common Stock to be issued. The holder
may specify in such notice that such conversion may be effective
-3-
<PAGE> 22
at a later time or immediately prior to or immediately after the occurrence of a
specified Conversion Event that has yet to occur; if no such specification is
given, such notice shall be deemed to request conversion of such Note effective
immediately prior to the close of business on the date of such surrender of this
Note together with such notice.
(c) Stock Certificates. The Company shall, as soon as
practicable thereafter, issue and deliver at such office to the holder of this
Note, or to its nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which it shall be entitled. Upon conversion
as specified in Section 2(b) above, the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date. Upon conversion of only a portion of the principal amount of this
Note the Company shall issue and deliver to, or upon the written order of, the
holder of this Note, at the expense of the Company, a new Note of denomination
in principal amount equal to the unconverted portion of this Note and bearing
interest from the last Interest Payment Date on which interest was actually paid
in full in accordance with the terms hereof.
3. Charges, Taxes and Expenses. Issuance of a certificate for shares of
Common Stock upon the conversion of this Note shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificate shall be issued in the name
of the holder of this Note or such certificates shall be issued in such name or
names as may be directed by the holder of this Note; provided, however, that in
the event certificates for shares of Common Stock (or replacement Notes) are to
be issued in a name other than the name of the holder of this Note, this Note
when surrendered for exercise or transfer shall be accompanied by the Assignment
Form attached hereto duly executed by the holder hereof; and provided further,
that upon any transfer involved in the issuance or delivery of any certificates
for shares of Common Stock or replacement Notes, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
4. Redemption.
(a) Redemption Terms.
(i) Redemption At Option Of Holder. This Note is
redeemable, in whole or in part, at the option of the holder on or after (1) the
consummation of a Change of Control of the Company, or (2) the Company's Debt
Ratio exceeding one-to-one.
(ii) Redemption At Option Of The Company. This Note
is also redeemable, in whole but not in part, at the option of the Company upon
the consummation of a Change of Control of the Company; provided, however, that
the Company simultaneously redeems all, but not less than all of its 8%
convertible promissory notes issued and outstanding concurrently with this Note;
and provided further, that if the Company elects to redeem this Note, the holder
hereof, following notice of such election, shall have the option to convert all
or any portion of this Note into Common Stock at the then applicable Conversion
Price prior to the consummation of the Change of Control of the Company. The
Company shall provide the holder
-4-
<PAGE> 23
of this Note with notice of the Company's election to redeem this Note at least
20 days prior to the date of redemption. Notwithstanding anything to the
contrary in this Note, the Company shall not have the right to prepay this Note
under this Section 4 if the Declining Premium Amount (as defined below) required
to be paid pursuant this Section in connection with such prepayment may not
legally be paid or may be subject to recovery from the holder of this Note for
any reason.
(b) Redemption Price. In the event of redemption at the
election the holder of this Note pursuant to this Section 4, the Company shall
pay to the holder of this Note an amount equal to the principal and accrued
interest outstanding under this Note. In the event of redemption at the election
the Company pursuant to this Section 4, the Company shall pay to the holder of
this Note an amount equal to the principal and accrued interest then outstanding
under this Note plus the product of (i) the principal then outstanding under
this Note, multiplied by (ii) the Declining Premium Amount (as defined below).
(c) Definitions. The term "Declining Premium Amount" shall
equal, as of the dates indicated, the following:
<TABLE>
<CAPTION>
Date of Redemption of this Note Declining Premium Amount
------------------------------- ------------------------
Pursuant to this Section 4
--------------------------
<S> <C>
Prior to February 21, 1996 0.80
On or after February 21, 1996, but before 0.70
February 21, 1997
On or after February 21, 1997, but before 0.60
February 21, 1998
On or after February 21, 1998, but before 0.50
February 21, 1999
On or after February 21, 1999 0.40
</TABLE>
5. No Rights as Shareholder. This Note does not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company
prior to the conversion hereof.
6. Exchange and Registry of Note. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this Note. This Note may be surrendered for exchange,
transfer or conversion, in accordance with its terms, at such office or agency
of the Company, and the Company shall be entitled to rely in all respects, prior
to written notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (provided
that the written indemnity of the original holder hereof is deemed to be
sufficient indemnity), and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon
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<PAGE> 24
surrender and cancellation of this Note, if mutilated, the Company will make and
deliver a new Note which shall carry the same rights to interest (unpaid and to
accrue) carried by this Note so that there will not be any loss or gain of
interest on this Note, stating that such Note is issued in replacement of this
Note, making reference to the original date of issuance of this Note (and any
successors hereto) and dated as of such cancellation, in lieu of this Note.
8. Dilution.
(a) General Conversion Price Adjustment. The Conversion Price
per share and the number of shares issuable upon conversion hereunder are
subject to adjustment from time to time after the issuance of this Note such
that the holder hereof will obtain the benefit of any adjustment, offer or other
rights provided to the Company's shareholders as if the holder hereof had been a
shareholder of the Company commencing on the date of issuance of this Note
(including adjustments for any stock splits, stock dividends, other
distributions and the like). By way of example, and not by way of limitation,
the Conversion Price shall be adjusted in the following manner:
(i) If, after the date of this Note, the Company
shall issue additional shares of Common Stock, by reason of the declaration or
payment of any dividend on the Common Stock payable in Common Stock, or by
reason of a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock) the Conversion Price of this Note in
effect immediately prior to such declaration or subdivision shall, concurrently
with the effectiveness of such declaration or subdivision, be proportionately
decreased.
(ii) In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Conversion Price of this Note in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(iii) In the case of any merger of the Company with
or into another corporation or the conveyance of all or substantially all of the
assets of the Company to another corporation in which the shareholders of the
Company are to receive cash, securities or other consideration for their shares,
this Note shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the corporation deliverable upon conversion of this Note would have
been entitled upon such merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the Company's Board of Directors) shall be made in
the application of the provisions herein set forth with respect to the rights
and interests thereafter of the holder of this Note, to the end that the
provisions set forth herein (including all provisions with respect to changes in
and other adjustments of the Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of this Note. If the Common
Stock is changed into any other class or classes of securities, whether by
capital reorganization, reclassification or otherwise, the Conversion Price
shall be adjusted based on substantially the same principles.
-6-
<PAGE> 25
(iv) If the Company shall, by dividend or otherwise,
distribute to holders of Common Stock any cash, securities (including rights or
warrants), evidences of indebtedness or other assets or property not otherwise
covered elsewhere in this Section 8, the Conversion Price shall be adjusted by
multiplying the Conversion Price in effect immediately prior to the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which is the current market price per share of Common
Stock on the date fixed for such determination less the fair market value
(determined not later than the date of such distribution in good faith by
resolution of the Board of Directors of the Company) of the portion of the
distribution applicable to one share of Common Stock, and the denominator of
which is such current market price per share of Common Stock.
(v) For the purpose of any computation under Section
8(a)(iv) of the current market price per share of Common Stock on a specified
date, such price shall be deemed to be the average closing price per share of
Common Stock for the twenty consecutive trading days prior to the date in
question. The date immediately prior to the date on which the Common Stock
trades "ex" dividend or "ex" rights (i.e., without the right to receive the
dividend or distribution), rather than the record date, shall be deemed to be
the date for determining shareholders entitled to receive such dividend or
distribution.
(vi) If the rights issued under the Company's
Preferred Shares Rights Agreement dated July 5, 1994 (the "Rights"), are
separated from the Common Stock in accordance with the provisions of the Rights
Agreement such that the holder of this Note would thereafter not be entitled to
receive any such Rights in respect to the Common Stock issuable upon conversion,
the Conversion Price will be adjusted to reflect the Rights using the same
principles set forth above in Section 8(a)(iv) as if the Rights had been
distributed on the separation date; provided that if such Rights expire,
terminate or are redeemed by the Company, the Conversion Price shall then be
readjusted to be the Conversion Price which would then be in effect if such
separation had not occurred. In lieu of any such adjustment, Borrower may amend
the Rights Agreement to provide that upon conversion of this Note the holder
thereof will receive, in addition to the Common Stock issuable upon such
conversion, the Rights that would have attached to such shares of Common Stock
if the Rights had not become separated from the Common Stock pursuant to the
provisions of the Rights Agreement.
(vii) In case the Company or any of its subsidiaries
shall make a tender offer for all or any portion of the Common Stock in which
the price paid per share of Common Stock exceeds the closing price per share of
Common Stock as of the date on which such offer expires, the Conversion Price
shall be adjusted by multiplying the Conversion Price in effect on such
expiration date by a fraction, the numerator of which is the number of shares of
Common Stock outstanding (including any tendered shares) on such expiration date
multiplied by the current market price per share of Common Stock on the trading
day next succeeding the expiration date, and the denominator shall be the sum of
(x) the fair market value (determined in good faith by resolution of the Board
of Directors of the Company) of the aggregate consideration payable to
shareholders in such offer and (y) the product of the number of shares of Common
Stock outstanding (less any shares purchased in the offer) on the expiration
date and the current market price per share of Common Stock on the trading day
next succeeding the expiration date.
-7-
<PAGE> 26
(e) Authorized Shares. The Company covenants that during the
period the Note is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the conversion of this Note. The Company further covenants that its
issuance of this Note shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of the Company's Common Stock upon the
conversion of this Note.
(f) Notice of Adjustment. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for this Note, the Company at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the holder of this Note a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request at any time of the holder of this Note, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price of at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of this Note.
(g) Good Faith. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Note and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of this Note against impairment.
9. Events of Default.
(a) The occurrence or existence of any one or more of the
following shall constitute an "Event of Default" hereunder:
(i) The Company shall fail to make any payment of
principal or interest on this Note within five (5) days of when due;
(ii) Any representation or warranty of the Company
under this Note, the Note Purchase Agreement or the other Note Documents is
false or misleading when made or deemed made;
(iii) The breach of any covenant of the Company under
this Note, the Note Purchase Agreement or the other Note Documents which is not
cured by the Company within ten (10) days after notice thereof in writing, or
within fifteen (15) days after the Company should have known of such breach;
(iv) An "Event of Default," as defined in any of the
other Notes shall occur;
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<PAGE> 27
(v) Any default under any indebtedness of the Company
in excess of $2,000,000 shall occur and not be cured by the Company within ten
(10) days after notice thereof in writing;
(vi) Any default in the Loan Agreement dated December
7, 1994 by and among the Company, ReSound Hortechnologie GmbH, ReSound Horgerate
GmbH and Bank Austria Aktiengessellschaft shall occur and not be cured by the
Company within ten (10) days after notice thereof in writing;
(vii) A final judgment or final judgments for the
payment of money, which individually or in the aggregate exceed $5,000,000,
shall be rendered against the Company and the same shall remain undischarged for
a period of thirty (30) days during which execution shall not be effectively
stayed;
(viii) Any judgment, writ, assessment, warrant of
attachment, execution, levy or similar process shall be issued or levied against
80% or more of the assets of the Company and such judgment, writ, assessment,
warrant of attachment, execution, levy or similar process shall not be released,
stayed, vacated or otherwise dismissed within ten (10) days after issue or levy;
(ix) If a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Company in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and such decree or order shall remain unstayed and in effect for a
period of thirty (30) consecutive days; or
(x) If the Company shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of the Company or for any substantial part of
its property, or shall make any general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due or shall take any
corporate action in furtherance of any of the foregoing.
(b) Remedies. Upon the occurrence or existence of any Event of
Default (other than an Event of Default referred to in Section 9(a)(ix) or (x))
and at any time thereafter during the continuance of such Event of Default, the
holder hereof may, by written notice to the Company, declare the principal and
accrued interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note Purchase
Agreement to the contrary notwithstanding. Upon the occurrence or existence of
any Event of Default described in Section 9(a)(ix) or (x), immediately and
without notice, the principal and accrued interest outstanding hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the Notes to the contrary
notwithstanding. In addition to
-9-
<PAGE> 28
the foregoing remedies, upon the occurrence or existence of any Event of
Default, the holder hereof may exercise any right, power or remedy permitted to
it by law, either by suit in equity or by action at law, or both.
10. Miscellaneous.
(a) Issue Date. The provisions of this Note shall be construed
and shall be given effect in all respect as if it had been issued and delivered
by the Company on earlier of the date hereof or the date of issuance of any Note
for which this Note is issued in replacement. This Note shall be binding upon
any successors or assigns of the Company. This Note shall in all respects be
governed by the laws of the State of California, United States of America as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California without reference to rules of
conflicts of laws.
(b) Restrictions. The holder hereof acknowledges that the
Common Stock acquired upon the conversion of this Note may have restrictions
upon its resale imposed by state and federal securities laws.
(c) Registration Rights. The shares of Common Stock issuable
upon conversion of this Note are covered by certain registration rights set
forth in Section 7 of the Note Purchase Agreement pursuant to which this Note
was issued by the Company.
(d) Assignment. The holder may assign this Note in whole or in
part; provided however, that (i) such assignment is made in compliance with all
applicable securities laws, (ii) such assignment is made in minimum amounts of
not less than $1,000,000 of principal amount due under this Note (or if less,
the remaining principal balance hereof), and (iii) this Note shall not be
assignable to any person or entity engaged in the business of designing,
manufacturing or selling hearing aid devices (the "Restricted Business") without
the Company's prior written consent. Except for an assignment by operation of
law in connection with a merger or consolidation involving the Company, the
Company may not assign or transfer any of its rights or obligations under this
Note or any other Note Document without the prior written consent of the holder
of this Note. Any purported transfer of this Note in violation of this Section
10(d) shall be void.
(e) Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by registered airmail (or certified first
class mail if both the addressor and addressee are located in the United
States), postage prepaid and addressed to the parties as follows:
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<PAGE> 29
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
To Holder:
<<Purchaser>>
<<Address>>
Telephone: <<Phone>>
Telecopier: <<Fax>>
or to such other single place as any single addressee shall designate by written
notice to the other addressees.
(g) Enforcement. The Company shall pay all reasonable fees and
expenses, including reasonable attorneys' fees, incurred by the note holder in
the enforcement of any of the Company's obligations hereunder not performed when
due. The Company hereby waives notice of presentment, demand, protest or notice
of any kind.
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<PAGE> 30
IN WITNESS WHEREOF, the Company has caused this Note to be executed by
its officer thereunto duly authorized.
Dated: February ____, 1995
RESOUND CORPORATION
By:
------------------
Title:
------------------
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<PAGE> 31
NOTICE OF CONVERSION
To: RESOUND CORPORATION
(1) The undersigned hereby elects to convert $____________ in principal
amount of this Note into shares of Common Stock of ReSound Corporation (or into
such other securities as this Note is convertible pursuant to the terms hereof)
pursuant to the terms of the attached Note, and tenders herewith the Note,
together with all applicable transfer taxes, if any.
Such conversion is to be effective (complete one only):
/ / immediately prior to the close of business on the
date of receipt of this Notice by the Company
/ / other (specify):
If no specification is given, such conversion shall be
effective immediately prior to the close of business on the date of receipt of
this Notice by the Company.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Address)
(3) Please reissue a Note representing the unconverted balance of this
Note, if any, in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Address)
(4) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
- ------------------------------------ -----------------------------------
(Date) (Signature)
<PAGE> 32
ASSIGNMENT FORM
(To assign the foregoing note, execute
this form and supply required information.
Do not use this form to convert the note.)
FOR VALUE RECEIVED, an interest corresponding to _____% of the unpaid
principal amount of the foregoing Note and all rights evidenced thereby are
hereby assigned to
(Please Print)
whose address is
(Please Print)
Dated: ________________________, 19___.
Holder's Signature: ______________________________
Holder's Address: ______________________________
______________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Note, without alteration or enlargement or any change
whatever.
<PAGE> 33
EXHIBIT B
SCHEDULE OF EXCEPTIONS
Set forth below are the confidential exceptions to the
representations and warranties made by ReSound Corporation (the "Company") in
Section 3 of the Note Purchase Agreement (the "Agreement") dated February 21,
1995. Unless specifically designated otherwise, capitalized terms used herein
shall have the same meanings given them in the Agreement. Each exception applies
to the section numbers indicated below.
Section 3.2 ("Authority; No Conflict; Required Filings and Consents")
1. The issuance of shares of the Company's Common Stock upon conversion
of the Notes may require the filing of a Form 10-C with the SEC, depending on
the number of shares of the Company's Common Stock outstanding at the time of
such conversion.
2. If requested by the Purchasers pursuant to Section 7 of the
Agreement, the Company will be required to file a Registration Statement with
the SEC for the sale of the shares of Common Stock issuable upon conversion of
the Notes.
3. The Company is a party to a Loan and Security Agreement with Silicon
Valley Bank dated December 23, 1994 (the "Bank Agreement"). The Bank Agreement
provides for a single loan advance to the Company in the aggregate principal
amount of $5,000,000, which advance has been made and repaid in full. Pursuant
to the Bank Agreement, Silicon Valley Bank has acquired a first priority
security interest in all of the Company's assets, including without limitation,
all of its goods, equipment, inventory, contract rights, general intangibles,
accounts, documents, cash, deposit accounts and securities. The Company expects
Silicon Valley Bank to file a termination statement with respect to such
security interest, although such event may not take place prior to the Closing
4. Section 5.2 ("Ownership of Newco") of the Shareholder Agreement
between the Company and ReHear, Ltd. dated July 19, 1994 precludes the Company
from transferring, assigning, hypothecating or in any way alienating any of the
securities of RSND Asia Limited owned by the Company. If executed, the Pledge
Agreement will create a first priority security interest in such securities.
Section 3.4 ("Undisclosed Liabilities")
The Company is the defendant in a lawsuit filed in January 1993 in the
United States District Court, Northern District of California, by a partnership
consisting of two individuals. The plaintiff alleged that the Company's use of
certain electrically erasable programmable read only memory ("EEPROM") and
related architecture incorporated in its hearing devices infringed the
plaintiff's U.S. patent. The trial in this matter commenced on January 3, 1995,
and a verdict in favor of the plaintiff (including on the issues of willful
infringement) was entered on January 26, 1995. Plaintiff was awarded damages in
the amount of two and one-half percent of sales of the
<PAGE> 34
affected products, which the Company estimates to be approximately $2,700,000
based on estimated sales of such products through 1994. The Plaintiff has asked
the Court to increase the award based upon the jury's findings that the
infringement was willful.
The Company is the defendant in a lawsuit filed in September 1993 in
the United States District Court, District of Minnesota, by Minnesota Mining and
Manufacturing Company (3M) alleging that the Company's hearing devices and
programming systems infringe the claims of three patents owned by the plaintiff.
The patents include claims directed to methods and apparatus used in programming
hearing devices. The complaint also alleges false advertising, product
disparagement, and related claims and seeks damages in an unspecified amount and
an injunction prohibiting the Company from infringing the patents and from
competing unfairly with plaintiff. The Company has filed an answer to the
plaintiff's complaint, denying the claims made concerning alleged patent
infringement, false advertising, product disparagement and related claims, as
well as any damages related to such claims. Since the suit was filed, a fourth
patent has been added to the suit, but 3M has indicated that another patent will
be dropped from the suit. The Company has counterclaimed for a declaration that
all the patents in the suit are invalid and not infringed.
The Company is the defendant in a lawsuit filed in August 1994 in the
U.S. District Court for the District of New Jersey by an individual, Paul
Yanick. Mr. Yanick originally claimed infringement of four patents but has
dropped one of the patents from the suit, as well as, other claims, through the
filing of an amended complaint. The company does not believe that it infringes
any of the patents in suit and believes that the patents in suit are invalid.
The Company has been named as a defendant, along with its senior
officers, directors and others, in a lawsuit filed on June 24, 1994 in the
United States District Court for the Northern District of California. The case
is a class action, filed on behalf of all purchasers of the Company's common
stock between March 29, 1993 and March 18, 1994. The complaint alleges that the
defendants violated Section l0(b) of the 1934 Securities Exchange Act by making
false and misleading statements about the Company's business and future
prospects, which had the effect of artificially inflating the price of the
Company's common stock. The Company believes plaintiffs' allegations to be
without merit.
Section 3.6 ("Capitalization")
On July 5, 1994, the Company declared a dividend distribution of one
Preferred Share Purchase Right (a "Right") on each outstanding share of the
Company's Common Stock. Each Right will entitle shareholders to buy one
one-thousandth of a share of the Company's Series A Participating Preferred
Stock at an exercise price of $50.00. The Rights will become exercisable at the
close of business on the tenth day (or such later date as may be determined by a
majority of Continuing Directors, as defined in the Preferred Shares Rights
Agreement dated as of July 5, 1994) after a person or group announces the
acquisition of 15% or more of the Company's Common Stock or announces
commencement of a tender offer or exchange offer, the consummation of which
would result in ownership by the person or group of 30% or more of the Common
Stock. The Company will be entitled to redeem the Rights at $0.01 per Right at
any time prior to the close of business on the tenth day (or such later date as
may be determined by a majority of the Continuing Directors) following
acquisition by a person or group of 15% or more
-2-
<PAGE> 35
of the Company's Common Stock. The dividend distribution was made on July 20,
1994. The rights will expire on July 5, 2004.
If, prior to redemption or exchange of the Rights, a person or group
acquires 15% or more of the Company's Common Stock (other than pursuant to a
tender offer which is made for all the outstanding shares of Common Stock of the
Company and approved by a majority of the Continuing Directors after determining
that the offer is both adequate and otherwise in the best interests of the
Company and its shareholders), each Right not owned by a holder of 15% or more
of the Common Stock will entitle its holder to purchase, at the Right's then
current exercise price, that number of shares of Common Stock of the Company
(or, in certain circumstances as determined by the Board, cash, other property
or other securities) having a market value at that time of twice the Right's
exercise price. If, after the tenth day following acquisition by a person or
group of 15% or more of the Company's Common Stock, the Company sells more than
50% of its assets or earning power or is acquired in a merger or other business
transaction, the acquirer must assume the obligations under the Rights and each
Right not owned by a holder of 15% or more of the Common Stock will entitle its
holder to purchase, at the Right's then current exercise price, that number of
shares of Common Stock of the acquirer having a market value at that time of
twice the Right's exercise price. At any time after a person or group acquires
15% or more of the Company's Common Stock and prior to the acquisition by the
acquirer of 50% or more of the outstanding Common Stock, the Board of Directors
of the Company may exchange the Rights (other than those owned by the acquirer
or its affiliates) for Common Stock of the Company at an exchange ratio of one
share of Common Stock per Right.
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<PAGE> 36
EXHIBIT C
February 21, 1995
Cagen Holdings Limited
819 Swire House
11 Chater Road
Central
Hong Kong
The Mingly Corporation Limited
820 Swire House
11 Chater Road
Central
Hong Kong
Charter Ventures II, L.P.
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Ladies and Gentlemen:
We have acted as counsel for ReSound Corporation, a California
corporation (the "Company") in connection with the several Note Purchase
Agreements by and among the Company and Cagen Holdings Limited, The Mingly
Corporation Limited and Charter Ventures II, L.P. (each a "Purchaser," and
collectively, the "Purchasers") dated as of February 21, 1995 (each a "Note
Purchase Agreement," and collectively, the "Note Purchase Agreements"), and the
Company's Convertible Promissory Notes in the aggregate principal amount of U.S.
$10,000,000 dated as of February 21, 1995 issued to the Purchasers pursuant to
the Note Purchase Agreements (the "Notes," and collectively with the Note
Purchase Agreements, the Pledge Agreement and the Distribution Agreement
Amendment the "Transaction Documents"). Unless defined herein, capitalized terms
have the meaning given them in the Note Purchase Agreements.
In rendering this opinion, we have made such legal and factual
examinations and inquiries as we have deemed advisable or necessary for the
purpose of rendering this opinion. In addition, we have examined originals or
copies of documents, corporate records and other writings which we consider
relevant for the purposes of this opinion. In such examination we have assumed
the genuineness of all signatures on original documents, the conformity to
original documents of all copies submitted to us and the due execution and
delivery of all documents, other than by the
<PAGE> 37
Company, where due execution and delivery are a prerequisite to the
effectiveness thereof. In making our examination of documents executed by
entities other than the Company, we have assumed that each other entity had the
power to enter into and perform all its obligations thereunder and we also have
assumed the due authorization by each such other entity of all requisite
actions.
Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or belief, it is intended to
signify that in the course of our representation of the Company in connection
with the transactions referred to in the first paragraph hereof, no information
has come to our attention that would give us actual knowledge of the existence
or absence of such facts. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Company.
In rendering the opinion set forth in paragraph (a) below, (i) in order
to determine in which states qualification is appropriate, we have assumed that
qualification may be required only in those states in which the Company owns or
leases real property, maintains offices or has employees, and we have relied on
the Company's listing of those states without independent verification on the
Certificate of Paul Busse, Senior Vice President, Finance and Administration and
Chief Financial Officer of the Company (the "Management Certificate"), and (ii)
as to the qualification and good standing of the Company in the states so
identified in such Management Certificate, we have relied exclusively on
certificates of public officials, although we have not obtained tax good
standing certificates (other than a California franchise tax certificate for the
Company) and no opinion is provided with respect to tax good standing (other
than with respect to the Company in California).
In rendering the opinion in paragraph (e) below, we have reviewed and
are providing an opinion only with respect to the Transaction Documents,
judgments and orders set forth in the Management Certificate.
In rendering the opinion expressed in paragraphs (g) and (h) below, we
have assumed and express no opinion with respect to the following: (a) that the
representations and warranties of the Purchasers set forth in the Note Purchase
Agreements are true and complete; and (b) the accuracy and completeness of the
information provided by the Company to the Purchasers in connection with such
offer and sale. We have also assumed the accuracy of, and have relied upon, the
Company's representations to us that the Company has made no offer to sell the
Notes by means of any "general solicitation," as defined in Regulation D under
the Securities Act or the "publication of any advertisement" (as defined under
the California Corporate Securities Act of 1968, as amended, and the regulations
thereunder) and that no offer or sale of the Notes has been made or will be made
in any states other than California.
The opinions hereinafter expressed are subject to the following further
qualifications:
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<PAGE> 38
(i) We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than California or the federal law of the United States of
America are applicable to the Transaction Documents or the transactions
contemplated thereby;
(ii) We express no opinion as to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, usury or other similar laws
relating to or affecting the rights of creditors generally, including, without
limitation, laws relating to fraudulent transfers or conveyances, preferences
and equitable subordination;
(iii) Our opinions are qualified by the limitations imposed by
general principles of equity upon the availability of equitable remedies or the
enforcement of provisions of the Transaction Documents; and the effect of
judicial decisions which have held that certain provisions are unenforceable
when their enforcement would violate the implied covenant of good faith and fair
dealing, or would be commercially unreasonable, or where their breach is not
material;
(iv) We express no opinion regarding the enforceability of any
security interest, collateral assignment, or similar interest granted by the
Company to secure its obligations under the Notes or the existence or perfection
of any such security interest, collateral assignment, or similar interest;
(v) Our opinion is based upon current statutes, rules,
regulations, cases and official interpretive opinions, and it covers certain
items that are not directly or definitively addressed by such authorities;
(vi) The effect of judicial decisions which may permit the
introduction of extrinsic evidence to modify the terms or the interpretation of
the Transaction Documents;
(vii) The enforceability of provisions of the Transaction
Documents which purport to establish evidentiary standards or to make
determinations conclusive;
(vii) The enforceability of provisions of the Transaction
Documents which purport to establish particular courts as the forum for the
adjudication of any controversy relating to the Transaction Documents;
(ix) The enforceability of provisions of the Transaction
Documents expressly or by implication waiving broadly or vaguely stated rights,
or waiving rights granted by law where such waivers are against public policy;
(x) The enforceability of provisions of the Transaction
Documents providing that rights or remedies are not exclusive, that every right
or remedy is cumulative, or that the election of a particular remedy or remedies
does not preclude recourse to one or more other remedies;
-3-
<PAGE> 39
(xi) We express no opinion as to compliance with applicable
antifraud statutes, rules or regulations of applicable state and federal laws
concerning the issuance or sale of securities; and
(xii) Provisions in the Transaction Documents purporting to
provide for indemnification and contribution under certain circumstances may be
unenforceable.
Based on our examinations of the Transaction Documents, subject to the
foregoing qualifications and the limitations, qualifications, assumptions and
covenants set forth in Exhibit B (the "Disclosure Schedule") attached to the
Note Purchase Agreement, we are of the opinion that:
(a) The Company is a corporation duly organized and existing under the
laws of the State of California, and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in each state in which the
failure to be so qualified would have a material adverse effect on the Company.
(b) The Company has the requisite corporate power and authority to
execute and deliver the Transaction Documents, to sell and issue the Notes, to
issue the Common Stock issuable upon conversion of the Notes and to carry out
and perform its obligations under the terms of the Transaction Documents.
(c) All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of the Transaction Documents by the Company, the authorization,
sale, issuance and delivery of the Notes (and the Common Stock, issuable upon
conversion thereof) and the performance of all of the Company's obligations
under the Transaction Documents has been taken. The shares of Common Stock,
issuable upon conversion of the Notes have been duly and validly authorized and
reserved and, when issued in compliance with the provisions of the Notes will be
validly issued, fully paid and nonassessable. The Notes, the Note Purchase
Agreements and the Distribution Agreement Amendment have been duly and validly
executed and delivered by the Company and, constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms.
(e) The execution, delivery and performance of and compliance with the
Transaction Documents, and the issuance of the Notes and the Common Stock,
issuable upon conversion thereof, have not resulted and will not result in any
material violation of, or conflict with, or constitute a material default under,
and have not resulted and will not result in any material violation of, or
conflict with, or constitute a material default under (i) the Company's Articles
of Incorporation or Bylaws, or (ii) any statute, rule or regulation or any
judgment or order known to us of Federal or California law to which the Company
is a party, or by which the Company is bound.
-4-
<PAGE> 40
(f) To our knowledge, there are no actions, suits, proceedings or
investigations pending or threatened against the Company, or its properties
before any court or governmental agency that questions the validity of the
Transaction Documents or any action taken or to be taken in connection
therewith.
(g) No consent, approval or authorization of or designation,
declaration or filing with, any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of the
Transaction Documents, or the offer, sale or issuance of the Notes (and the
Common Stock, issuable upon conversion thereof), or the consummation of any
other transaction contemplated by the Transaction Documents, except the notice
filing required by Section 25102(f) of the California Corporate Securities Law
of 1968, as amended and except for any filings necessary to perfect the security
interest to be granted under the Pledge Agreement.
(h) The offer, sale and issuance of the Notes and the issuance of the
Common Stock, to be issued upon conversion thereof, constitute transactions
exempt from the registration requirements of Section 5 of the Securities Act and
exempt from the qualification requirements of the California Corporate
Securities Law of 1968, as amended.
This opinion is furnished to you pursuant to Section 5.6 of the Note
Purchase Agreements and is solely for your benefit and may not be relied on by,
nor may copies be delivered to, any other person without our prior written
consent. We assume no obligation to inform you of any facts, circumstances,
events or changes in the law that may hereafter be brought to our attention that
may alter, affect or modify the opinion expressed herein.
Sincerely,
VENTURE LAW GROUP,
A Professional Corporation
-5-
<PAGE> 41
EXHIBIT D
FIRST AMENDMENT TO INTERNATIONAL DISTRIBUTOR AGREEMENT
This First Amendment (the "Amendment") to the International Distributor
Agreement by and between ReSound Corporation, a California corporation
("ReSound") and RSND Asia, Limited, a British Virgin Islands corporation ("RSND
Asia") dated as of July 19, 1994 (the "Agreement") is made as of February ____,
1995. Unless specifically designated otherwise, capitalized terms used herein
shall have the same meanings given them in the Agreement.
In consideration of the mutual promises contained herein, and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereby agree as follows:
1. Section 2(b). Section 2(b) of the Agreement is hereby amended to
include the following sentence at the end of such section:
"Notwithstanding the foregoing provisions of this Section
2(b), in the event that there is a foreclosure on the Pledged
Collateral (as defined in the Pledge Agreement (the "Pledge
Agreement") attached as Exhibit E to the Manufacturer's Note
Purchase Agreements entered into with certain other parties
dated February ____, 1995) pursuant to the terms of such
Pledge Agreement, then the Distributor shall thereafter be
entitled to distribute the Products in the Territory and in
each other country in which Distributor then has distribution
rights hereunder on an exclusive basis, regardless of
Distributor's achievement or non-achievement of the Minimum
Sales Commitment."
2. Effect of Amendment. Except as amended as set forth above, the
Agreement shall continue in full force and effect.
3. Miscellaneous. This Amendment may be executed in counterparts, and
shall be governed by California law.
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date set forth above.
RESOUND CORPORATION RSND ASIA, LIMITED
By: By:
---------------------------- ------------------------------
Title: Title:
---------------------------- ------------------------------
RESOUND, LIMITED
By:
------------------------------
Title:
------------------------------
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<PAGE> 43
EXHIBIT E
PLEDGE AGREEMENT
This Pledge Agreement, dated as of ___________, _____, is executed by
ReSound Corporation, a California corporation ("ReSound") in favor of
______________________, a _____________ as agent (in such capacity, the "Agent")
for the holders of ReSound's convertible promissory notes in the aggregate
principal amount of U.S. $10,000,000 (each a "Note," and collectively the
"Notes") issued pursuant to the several Note Purchase Agreements (each a "Note
Purchase Agreement," and collectively, the "Note Purchase Agreements") dated
February 21, 1995 by and among ReSound and The Mingly Corporation Limited, Cagen
Holdings Limited and Charter Ventures II, L.P. (each a "Note Holder," and
collectively, the "Note Holders").
RECITALS
A. Pursuant to the Note Purchase Agreements, the Note Holders have
purchased the Notes.
B. Agent has been appointed as agent for the Note Holders pursuant to
that certain [Insert name of agreement appointing Agent] dated as of __________,
_____ between Agent and the Note Holders.
C. Pursuant to the terms of the Note Purchase Agreements ReSound is
obligated to enter into this Pledge Agreement with the Agent on behalf of the
Note Holders.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, ReSound hereby agrees with Agent as follows:
1. Definitions and Interpretation. Unless otherwise defined herein, all
other capitalized terms used herein and defined in the Note Purchase Agreements
shall have the respective meanings given to those terms in the Note Purchase
Agreements, and all terms defined in the California Uniform Commercial Code (the
"UCC") shall have the respective meanings given to those terms in the UCC.
2. The Pledge. To secure the Obligations as defined in Section 3
hereof, ReSound hereby pledges and assigns to, and grants to, Agent, acting on
behalf of the Note Holders, a security interest in, all of ReSound's right,
title and interest, whether now existing or hereafter arising from the following
property (collectively, the "Pledged Collateral"):
(a) All of the shares of RSND Asia Limited (the "Issuer")
owned by ReSound (the "Shares") and any additional shares of Issuer hereafter
acquired by ReSound, including shares issued upon exercise of the Pledged
Warrants (as defined below) (collectively, the "Pledged Shares");
<PAGE> 44
(b) All warrants to purchase shares of Issuer owned by
ReSound, and any additional warrants, options or other rights to purchase shares
of Issuer hereafter acquired by ReSound (collectively the "Pledged Warrants");
(c) All dividends (including cash dividends), other
distributions (including stock redemption proceeds), or other property,
securities or instruments, in respect of or in exchange for the Pledged Shares
or the Pledged Warrants, whether by way of dividends, stock dividends,
recapitalizations, mergers, consolidations, split-ups, combinations or exchanges
of shares or warrants or otherwise;
(d) All of ReSound's rights under that certain Shareholder
Agreement dated as of July 19, 1994, as amended from time to time, between
ReSound and ReHear Investments, Ltd. (the "Shareholder Agreement") and that
certain Share and Warrant Purchase Agreement dated as of July 19, 1994, between
ReSound and Issuer; and
(e) All proceeds of the foregoing (the "Proceeds").
3. Security for Obligations. The obligations secured by this Pledge
Agreement (the "Obligations") shall mean the aggregate principal, interest,
fees, expenses and other amounts, due or to become due, now existing or
hereafter arising, under the Notes, the Note Purchase Agreements, this Pledge
Agreement or any other document, instrument or agreement issued or delivered in
connection herewith or therewith.
4. Delivery of Pledged Collateral. All certificates or instruments
representing or evidencing the Pledged Collateral shall be delivered to Agent
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Agent.
5. Representations and Warranties. ReSound hereby represents and
warrants as follows:
(a) Issuance of Pledged Shares, Etc. The Pledged Shares have
been duly authorized and are validly issued and are fully paid and
non-assessable, and except as set forth in the Shareholder Agreement, the
Pledged Shares and the Pledged Warrants are owned by ReSound free and clear of
any and all liens, pledges, encumbrances or charges, and ReSound has not
optioned or otherwise agreed to sell, hypothecate, pledge, or otherwise encumber
or dispose of the Pledged Shares.
(b) Security Interest. The pledge of the Pledged Collateral
creates a valid security interest in the Pledged Collateral, which security
interest is a perfected and first priority security interest, securing the
payment of the Obligations and the obligations hereunder.
(c) Restatement of Representations and Warranties. On and as
of the date any property becomes Pledged Collateral, the foregoing
representations and warranties shall apply to such additional Pledged
Collateral.
6. Further Assurances. ReSound agrees to cause the security interest
granted hereby to be entered on the books of Issuer in a manner sufficient to
provide notice hereof. ReSound agrees
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<PAGE> 45
that at any time and from time to time, at ReSound's expense, ReSound will
promptly execute and deliver all further instruments and documents, including
all additional Pledged Shares and Pledged Warrants, and take all further action,
that may be necessary or desirable, or that Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby and the priority thereof, or to enable Agent to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral. ReSound agrees not to surrender or lose possession of (other than to
Agent), sell, encumber or otherwise dispose of, or transfer, any Pledged
Collateral or right or interest therein and to keep the Pledged Collateral free
of all liens other than the lien granted hereby.
7. Voting Rights; Dividends; Etc.
(a) Rights Prior to an Event of Default. So long as no Event
of Default (as hereinafter defined) shall have occurred and be continuing:
(i) ReSound shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Pledged Shares or
any part thereof for any purpose not inconsistent with the terms of this Pledge
Agreement and the other Note Documents.
(ii) ReSound shall be entitled to exercise all
rights under the agreements described in Section 2(d).
(iii) ReSound shall be entitled to exercise
the Pledged Warrants pursuant to their terms at the sole discretion of ReSound.
(iv) ReSound shall be entitled to receive and
retain free and clear of the security interest of Agent hereunder any and all
dividends and interest paid in respect of the Pledged Shares, provided, however,
that any and all (A) dividends and interest paid or payable other than in cash
in respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for any Pledged Shares or
Pledged Warrants, (B) dividends and other distributions paid or payable in cash
in respect of any Pledged Shares or Pledged Warrants in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or
otherwise distributed in respect of principal of, or in redemption of, or in
exchange for, any Pledged Shares or Pledged Warrants, shall be, and shall be
forthwith delivered to Agent to hold as, Pledged Collateral and shall, if
received by ReSound, be received in trust for the benefit of Agent, be
segregated from the other property or funds of ReSound and be forthwith
delivered to Agent as Pledged Collateral in the same form as so received (with
any necessary endorsement) to be held as part of the Pledged Collateral.
(b) Rights Following an Event of Default. Upon the occurrence
and during the continuance of an Event of Default:
(i) All rights of ReSound to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to Section 7(a)(i), to exercise the contractual rights which
it would otherwise be entitled to exercise pursuant to Section 7(a)(ii), to
exercise the right to exercise the Pledged Warrants pursuant to Section
7(a)(iii), and to receive the dividends and interest payments which it would
otherwise be authorized to receive and retain pursuant to Section 7(a)(iv),
shall cease and all such rights shall thereupon become vested
-3-
<PAGE> 46
in Agent which shall thereupon have the sole right, but not the obligation, to
exercise such voting and other consensual rights and to receive and hold as
Pledged Collateral such dividends and interest payments.
(ii) All dividends and interest payments which
are received by ReSound contrary to the provisions of subparagraph (i) of this
Section 7(b) shall be received in trust for the benefit of Agent, shall be
segregated from other funds of ReSound and shall be forthwith delivered to Agent
as Pledged Collateral in the same form as so received (with any necessary
endorsement).
8. Events of Default.
(a) Event of Default. An event of default (an "Event of
Default") shall be deemed to have occurred under this Pledge Agreement in the
event that there is an "Event of Default" as defined in any of the Notes.
(b) Rights Under the UCC. In addition to all other rights
granted hereby, by the Notes, the Note Purchase Agreements and by law, Agent
shall have, with respect to the Pledged Collateral, the rights and obligations
of a secured party under the UCC.
(c) Sale of Pledged Collateral. ReSound acknowledges and
recognizes that Agent may be unable to effect a public sale of all or a part of
the Pledged Shares and Pledged Warrants and may be compelled to resort to one or
more private sales to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire the Pledged Shares and Pledged Warrants
for their own account, for investment and not with a view to the distribution or
resale thereof. ReSound acknowledges that any such private sales may be at
prices and on terms less favorable to Agent than those of public sales, and
agrees that such private sales shall be deemed to have been made in a
commercially reasonable manner and that Agent has no obligation to delay the
sale of any Pledged Shares or Pledged Warrants to permit the issuer thereof to
register it for public sale under the Securities Act of 1933, as amended, or
under any state securities law.
(d) Compliance with the Exchange Act. Upon the occurrence of
an Event of Default and at Agent's request, ReSound agrees to use ReSound's
reasonable best efforts to cause Issuer to disseminate publicly all information
required to be disseminated pursuant to the Securities Exchange Act of 1934, as
amended, if Issuer is then required to file reports under such Act, or to
otherwise make available such information as to permit the public or private
sale of the Pledged Collateral in accordance with the terms of this Pledge
Agreement. ReSound further agrees to use ReSound's reasonable best efforts to
cause Issuer to cooperate with Agent in taking whatever additional action may be
required to effect such public or private sale of the Pledged Collateral.
(e) Notice, Etc. In any case where notice of sale is required,
seven (7) days' notice shall be deemed reasonable notice. Agent may have resort
to the Pledged Collateral or any portion thereof with no requirement on the part
of Agent to proceed first against any other Person or property.
(f) Other Remedies. Upon the occurrence and during the
continuance of an Event of Default, (i) at the request of Agent, ReSound shall
assemble the Pledged Collateral not yet in Agent's possession and make available
to Agent all records relating to the Pledged Collateral at any
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<PAGE> 47
place or places specified by Agent, together with such other information as
Agent shall request concerning ReSound's ownership of the Pledged Collateral and
relationship to Issuer; and (ii) Agent or its nominee shall have the right, but
shall not be obligated, to vote or give consent with respect to the Pledged
Shares or any part thereof and to exercise ReSound's rights under the Pledged
Warrants.
9. Appointed Attorney-in-Fact.
ReSound hereby appoints Agent as ReSound's attorney-in-fact, with full
authority in the place and stead of ReSound and in the name of ReSound or
otherwise, from time to time in Agent's discretion and to the full extent
permitted by law to take any action and to execute any instrument which Agent
may deem necessary or advisable to accomplish the purposes of this Pledge
Agreement in accordance with the terms and provisions hereof, including to
receive, endorse and collect all instruments made payable to ReSound
representing any dividend, interest payment or other distribution in respect of
the Pledged Collateral or any part thereof and to give full discharge for the
same and to make any compromise or settlement, and take any action it reasonably
deems advisable, with respect to the Pledged Collateral.
ReSound hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred on Agent
hereunder are solely to protect its interests in the Pledged Collateral and
shall not impose any duty upon Agent to exercise any such powers. It is further
agreed and understood between the parties hereto that such care as Agent gives
to the safekeeping of its own property of like kind shall constitute reasonable
care of the Pledged Collateral when in Agent's possession; provided, however,
that Agent shall not be required to make any presentment, demand or protest, or
give any notice and need not take any action to preserve any rights against any
prior party or any other person in connection with the Obligations or with
respect to the Pledged Collateral. Agent shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and in no
event shall Agent or any of its officers, directors, employees or agents be
responsible to ReSound for any act or failure to act, except for gross
negligence or willful misconduct.
10. Miscellaneous.
(a) Notices. Any notice, demand or report herein required or
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the seventh day following mailing by registered airmail (or certified first
class mail if both the addressor and addressee are located in the United
States), postage prepaid and addressed to the parties as follows:
To the Company:
ReSound Corporation
220 Saginaw Drive
Seaport Center
Redwood City, CA 94063
Attention: Chief Financial Officer
Telephone: (415) 780-7800
Telecopier: (415) 367-0675
-5-
<PAGE> 48
To Agent:
________________________
________________________
________________________
To Note Holders:
Cagen Holdings Limited
819 Swire House
11 Chater Road
Central
Hong Kong
Attention: Louise Chan
Telephone: 852-522-6141
Telecopier: 852-029-0720
Charter Ventures II, L.P.
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Attention: A. Barr Dolan
Telephone: (415) 325-6953
Telecopier: (415) 325-4762
The Mingly Corporation Limited
820 Swire House
11 Chater Road
Central
Hong Kong
Attention: Payson M. Cha
Telephone: 852-521-4473
Telecopier: 852-845-3735
or to such other single place as any single addressee shall designate by written
notice to the other addressees. ReSound shall deliver all notices hereunder to
Agent and the Note Holders.
(b) Nonwaiver. No failure or delay on Agent's part in
exercising any right hereunder shall operate as a waiver thereof or of any other
right nor shall any single or partial exercise of any such right preclude any
other further exercise thereof or of any other right.
(c) Amendments and Waivers. This Pledge Agreement may not be
amended or modified, nor may any of its terms be waived, except by written
instruments signed by ReSound, Agent and any Note Holders required by the Notes
and Note Purchase Agreements. Each waiver or
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<PAGE> 49
consent under any provision hereof shall be effective only in the specific
instances for the purpose for which given.
(d) Assignments. This Pledge Agreement shall be binding upon
and inure to the benefit of Agent, the Note Holders, ReSound and their
respective successors and assigns; provided, however, that ReSound, Agent, and
the Note Holders may sell, assign and delegate their respective rights and
obligations hereunder only as permitted by the Notes and Note Purchase
Agreements.
(e) Cumulative Rights, Etc. The rights, powers and remedies of
Agent under this Pledge Agreement shall be in addition to all rights, powers and
remedies given to Agent by virtue of any applicable law, rule or regulation of
any governmental authority, the Notes, the Note Purchase Agreements, or any
other agreement, all of which rights, powers, and remedies shall be cumulative
and may be exercised successively or concurrently without impairing Agent's
rights hereunder. ReSound waives any right to require Agent to proceed against
any person or to exhaust any Pledged Collateral or to pursue any remedy in
Agent's power.
(f) Payments Free of Taxes, Etc. All payments made by ReSound
under this Pledge Agreement shall be made by ReSound free and clear of and
without deduction for any and all present and future taxes, levies, charges,
deductions and withholdings. In addition, ReSound shall pay upon demand any
stamp or other taxes, levies or charges of any jurisdiction with respect to the
execution, delivery, registration, performance and enforcement of this Pledge
Agreement. Upon request by Agent or any Note Holder, ReSound shall furnish
evidence satisfactory to Agent or such Note Holder that all requisite
authorizations and approvals by, and notices to and filings with, governmental
authorities and regulatory bodies have been obtained and made and that all
requisite taxes, levies and charges have been paid.
(g) Partial Invalidity. If any provision in this Pledge
Agreement is found or held to be invalid or unenforceable, then the meaning of
such provision shall be construed, to the extent feasible, so as to render the
provision enforceable, and if no feasible interpretation would save such
provision, it shall be severed from the remainder of such document which shall
remain in full force and effect unless the severed provision is essential and
material to the rights or benefits received by any party. In such event, the
parties shall use their best efforts to negotiate, in good faith, a substitute,
valid and enforceable provision or agreement which most nearly effects their
intent in entering into this Pledge Agreement.
(h) Governing Law. This Pledge Agreement shall be governed by
and construed in accordance with the laws of the State of California without
reference to conflicts of law rules (except to the extent governed by the UCC).
(i) Counterparts. This Pledge Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
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<PAGE> 50
IN WITNESS WHEREOF, ReSound has caused this Pledge Agreement to be
executed as of the day and year first above written.
RESOUND CORPORATION
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Acknowledged:
[Agent]
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
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<PAGE> 1
RESOUND CORPORATION
COMMON STOCK PURCHASE AGREEMENT
JUNE 14, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. SALE OF STOCK...................................................... 1
2. CLOSING............................................................ 1
3. REPRESENTATIONS AND WARRANTIES OF COMPANY.......................... 2
3.1 Existence; Good Standing; Compliance with Law.................. 2
3.2 Authority; No Conflict; Required Filings and Consents.......... 2
3.3 Confidential Offering Memorandum; SEC Documents................ 3
3.4 Undisclosed Liabilities........................................ 3
3.5 Complete Copies of Materials................................... 4
3.6 Capitalization................................................. 4
3.7 Litigation..................................................... 4
3.8 Patents and Trademarks......................................... 4
3.9 Purchaser Agreements........................................... 4
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER........................ 4
4.1 Company Affairs; Purchaser's Account; Accredited Investor...... 4
4.2 Unregistered Securities........................................ 5
4.3 Holding Period; Legends........................................ 5
4.4 Rule 144....................................................... 5
4.5 No Market...................................................... 5
4.6 Registration of Sale........................................... 5
5. CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT THE CLOSING........... 6
5.1 Representations and Warranties, Performance of Obligations..... 6
5.2 Stock Certificates............................................. 6
5.3 Corporate Documents............................................ 6
5.4 Opinion of Counsel to the Company.............................. 6
5.5 Consents, Permits, and Waivers................................. 6
5.6 Purchase Permitted by Applicable Law........................... 6
5.7 Completion of 3M Acquisition................................... 6
5.8 Minimum Proceeds............................................... 6
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING............. 6
6.1 Purchase Price................................................. 7
6.2 Representations and Warranties................................. 7
6.3 Consents, Permits and Waivers.................................. 7
6.4 Purchase Permitted by Applicable Law........................... 7
6.5 Minimum Proceeds............................................... 7
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
7. LEGENDS............................................................ 7
8. REGISTRATION RIGHTS................................................ 7
8.1 Shelf Registration............................................ 7
8.2 Company Registration.......................................... 8
8.3 Form S-3 Registration......................................... 8
8.4 Underwriting Requirements..................................... 9
8.5 Delay of Registration......................................... 9
8.6 Suspension of Effectiveness................................... 9
8.7 Company Obligations........................................... 10
8.8 Securities Indemnification.................................... 11
8.9 Survival...................................................... 13
9. MISCELLANEOUS...................................................... 13
9.1 Governing Law................................................. 13
9.2 Entire Agreement; Enforcement of Rights....................... 13
9.3 Severability.................................................. 13
9.4 Construction.................................................. 13
9.5 Notices....................................................... 14
9.6 Survival of Representations and Warranties.................... 14
9.7 Counterparts.................................................. 14
9.8 Successors and Assigns........................................ 17
9.9 Headings...................................................... 17
9.10 Delays or Omissions........................................... 17
9.11 Legal Fees.................................................... 17
</TABLE>
<PAGE> 4
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of
June 14, 1996 by and between ReSound Corporation, a California corporation (the
"Company"), and the prospective purchaser identified on the signature page
hereof ("Purchaser").
RECITALS
The Purchaser desires to purchase from the Company, and the Company
desires to sell to the Purchaser, shares of the Company's Common Stock, par
value $.01 per share, (the "Common Stock"), in the private offering (the
"Offering") contemplated by that certain Confidential Offering Memorandum dated
April 23, 1996 (such Memorandum, together with any amendments thereof or
supplements or addenda thereto, is hereinafter referred to as the "Memorandum").
This Agreement is one of several identical agreements each of even date herewith
related to the purchase and sale of Common Stock in the Offering. The Purchaser,
together with all other purchasers in the Offering, are referred to herein
collectively as the "Purchasers."
AGREEMENT
In consideration of the mutual promises contained in this Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. SALE OF STOCK. Subject to the terms and conditions hereof, on the
Closing Date (as defined below) the Company will issue and sell to Purchaser,
and Purchaser agrees to purchase from the Company, that number of shares of
Common Stock (the "Shares") as equals the aggregate investment amount committed
for the purchase of Common Stock hereunder, as set forth on the signature page
hereof (the "Payment"), divided by the average closing price per share of Common
Stock as quoted on the NASDAQ National Market for the five (5) trading day
period ended June 14, 1996, multiplied by 0.89.
2. CLOSING.
2.1 Within five (5) business days following the date of this
Agreement (the "Escrow Funding Date"), Purchaser will transmit the Payment by
wire transfer to a segregated interest-bearing escrow account (the "Escrow
Account") established by the Company with First Trust of California, N.A., as
escrow agent (the "Escrow Agent"), pursuant to the terms of an Escrow Agreement
by and among the Company, the Escrow Agent and the Purchasers (the "Escrow
Agreement"). The Purchaser understands that the Payment will be held in the
Escrow Account, and will be distributed to the Company at a Closing (defined in
Section 2.2 below) to be held immediately prior to the completion of the
acquisition (the "3M Acquisition") by the Company of certain assets from
Minnesota Mining and Manufacturing Company ("3M"). In the event that the Company
has not satisfied all conditions to closing set forth in Section 5 hereof within
twenty-one (21) calendar days following the Escrow Funding Date, then the
Payment will be
<PAGE> 5
returned to the Purchaser. In either case, any and all interest accrued on the
Payment in the Escrow Account will be returned to the Purchaser.
2.2 The closing of the purchase and sale of the Shares hereunder
(the "Closing") shall be held at the offices of Venture Law Group, 2800 Sand
Hill Road, Menlo Park, California as contemplated in Section 2.1 above, (the
"Closing Date"). At the Closing, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by Purchaser (which shall be
issued in Purchaser's name) against disbursement of the Payment from the Escrow
Account to the Company's account.
3. REPRESENTATIONS AND WARRANTIES OF COMPANY. Except as set forth in
the SEC Documents (as defined in Section 3.3 below), the Company hereby makes
the following representations and warranties to Purchaser as of the Closing
Date:
3.1 EXISTENCE; GOOD STANDING; COMPLIANCE WITH LAW. The Company and
each of its subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation. The
Company and each of its subsidiaries is duly licensed or qualified to do
business as a foreign corporation and is in good standing under the laws of each
other jurisdiction in which the character of the properties owned or leased by
it therein or in which the transaction of its business makes such qualification
necessary, except for jurisdictions in which the failure to be so qualified or
to be in good standing would not have a Material Adverse Effect (as defined
below). The Company has all requisite corporate power and authority to own its
properties and carry on its business as now conducted. As used in this
Agreement, the term "Material Adverse Effect" shall mean any change or effect
that is materially adverse to (a) the business, assets (including intangible
assets), financial condition, results of operations or prospects of the Company
and its subsidiaries, taken as a whole, (b) the ability of the Company to pay or
perform its obligations under the Transaction Documents (as defined below), or
(c) the rights and remedies of the Purchaser under the Transaction Documents. As
used in this Agreement, the term "Transaction Documents" shall mean this
Agreement and all other documents, instruments and agreements executed or
delivered in connection with transactions contemplated by this Agreement or such
specified Transaction Documents.
3.2 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The
Company has all requisite corporate power and authority to enter into the
Transaction Documents and to consummate the transactions contemplated hereby.
The execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes, and the other
Transaction Documents when executed and delivered will constitute, valid and
binding obligations of the Company, legally enforceable in accordance with their
terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application relating to or affecting
enforcement of creditors' rights or as limited by the effect of general
principles of equity upon the availability of equitable remedies. The Shares to
be issued hereunder will be duly authorized and validly issued, fully paid and
nonassessable. The execution and delivery of the Transaction Documents does not,
and the consummation of the transactions contemplated hereby and thereby,
including the issuance of the Shares, will not, conflict with, or result in any
violation
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of, or default (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any material
obligation or to loss of a material benefit under (i) any provision of the
Articles of Incorporation or Bylaws of the Company, or (ii) any mortgage,
indenture, lease, or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental entity is required by or with respect to the Company in
connection with the execution and delivery of the Transaction Documents by the
Company or the consummation by the Company of the transactions contemplated
hereby and thereby, including the issuance of the Shares, except (i) such
consents, approvals, orders, authorizations, registration, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country, and (ii) such other consents, authorizations, filings,
approvals and registrations that if not obtained or made would not have a
Material Adverse Effect.
3.3 CONFIDENTIAL OFFERING MEMORANDUM; SEC DOCUMENTS. The Company has
furnished, or made available to counsel for Purchaser, a true and complete copy
of (i) the Memorandum and (ii) each statement, report, registration statement
and definitive proxy statement filed by the Company with the Securities and
Exchange Commission ("SEC") since January 1, 1995 (the "SEC Documents"), which
are all the documents (other than preliminary material) that the Company was
required to file with the SEC since such date. As of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act of 1933, as amended (the "Securities Act"). The Memorandum does
not, and as of their respective filing dates the SEC Documents did not, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein not misleading in light of the circumstances under which they were made,
except, with respect to the SEC Documents, to the extent corrected by a
subsequently filed SEC Document. The financial statements of the Company
included in the SEC Documents (the "Company Financial Statements") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present the consolidated financial position of the
Company and its subsidiaries as of the dates thereof and the consolidated
results of operations, shareholders' equity and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal, recurring audit
adjustments). Except as disclosed in the SEC Documents, or except as
contemplated by this Agreement or on account of the transactions contemplated
hereby, since March 31, 1996, there has not been any material adverse change in
the results of operations, financial condition, assets, business or prospects of
the Company and its subsidiaries taken as a whole.
3.4 UNDISCLOSED LIABILITIES. The Company does not have any
liabilities, either accrued, absolute, contingent or otherwise, of a nature
required to be reflected in a balance sheet or related notes prepared in
accordance with generally accepted accounting principles consistently applied
which are not reflected or provided for in the Company Financial Statements,
except those
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arising after March 31, 1996 that are in the ordinary course of business and
that, in the aggregate, would not have a Material Adverse Effect.
3.5 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of each document that has been requested by
Purchaser or representatives of Purchaser.
3.6 CAPITALIZATION. The Company has authorized capital stock of
50,000,000 shares of Common Stock, $0.01 par value, and 2,000,000 shares of
Preferred Stock, $0.01 par value, of which 50,000 shares have been designated
Series A Participating Preferred Stock and 54,055 shares have been designated
Series B Preferred Stock. As of the close of business on March 31, 1996,
15,690,203 shares of Common Stock, no shares of Series A Participating Preferred
Stock, and 54,055 shares of Series B Preferred Stock were issued and
outstanding. There are no outstanding rights, warrants, options, subscriptions,
agreements, or commitments giving anyone any right to require the Company to
sell or issue any capital stock or other securities, except as disclosed in the
SEC Documents. All outstanding securities of the Company were issued in
compliance with applicable federal and state securities laws.
3.7 LITIGATION. There is no action, suit, investigation or
proceeding pending, or to the knowledge of the Company, threatened against or
affecting the Company or any of its properties or rights, by or before any
court, arbitrator or administrative or governmental body, which would, if
determined adversely to the Company, have a Material Adverse Effect.
3.8 PATENTS AND TRADEMARKS. The Company has sufficient title and
ownership of all patents, trademarks, servicemarks, tradenames, copyrights,
tradesecrets, information, proprietary rights and processes (collectively, the
"Proprietary Rights") necessary to conduct its business as presently conducted
without any conflict with or infringement of the rights of others, which
conflict or infringement would have a Material Adverse Effect. The Company has
not received any communications alleging that the Company has violated the
Proprietary Rights of any other person or entity, which violation would have a
Material Adverse Effect.
3.9 PURCHASER AGREEMENTS. The Company has entered into a separate
Common Stock Purchase Agreement with each Purchaser in the Offering. Each of
such Common Stock Purchase Agreements is identical to this Agreement, except
with respect to any information provided by or concerning the relevant purchaser
thereunder.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. In connection with the
purchase of the Shares, Purchaser represents to the Company as follows:
4.1 COMPANY AFFAIRS; PURCHASER'S ACCOUNT; ACCREDITED INVESTOR.
Purchaser is aware of the Company's business affairs and financial condition,
has reviewed the Memorandum, has had sufficient opportunity to ask questions of
and receive answers from representatives of the Company and has acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire the Shares. Purchaser is purchasing the Shares for
investment for Purchaser's own account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the meaning of the
Securities Act. Purchaser is
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<PAGE> 8
an "accredited investor" as such term is defined in Rule 501(a) of Regulation D
under the Securities Act and has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
investing in the Shares, including a complete loss of its investment.
4.2 UNREGISTERED SECURITIES. Purchaser understands that the Shares
have not been registered under the Securities Act by reason of a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Purchaser's investment intent as expressed herein.
4.3 HOLDING PERIOD; LEGENDS. Purchaser further acknowledges and
understands that the Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser understands that the certificate evidencing
the Shares will be imprinted with a legend which prohibits the transfer of the
Shares unless they are registered or such registration is not required in the
opinion of counsel for the Company.
4.4 RULE 144. Purchaser is aware of the provisions of Rule 144,
promulgated under the Securities Act, which in substance, permits limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including, among other things: (a) the resale occurring not less than two years
after the party has purchased, and made full payment for, within the meaning of
Rule 144, the Shares to be sold; and, in the case of an affiliate, or of a
non-affiliate who has held the Shares less than three years, (b) the
availability of certain public information about the Company, (c) the sale being
made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as such term is defined under the
Exchange Act), and (d) the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable. Purchaser further acknowledges that payment for the Shares with a
promissory note is not deemed payment unless such note is secured by assets
other than the Shares.
4.5 NO MARKET. Purchaser further understands that at the time
Purchaser wishes to sell the Shares there may be no public market upon which to
make such a sale, and that, even if such a public market then exists the Company
may not be satisfying the current public information requirements of Rule 144,
and that, in such event, Purchaser will be precluded from selling the Shares
under Rule 144 even if the two-year minimum holding period had been satisfied.
4.6 REGISTRATION OF SALE. Purchaser further understands that in the
event all of the applicable requirements of Rule 144 are not satisfied,
registration under the Securities Act, compliance with Regulation A or some
other registration exemption will be required; and that, notwithstanding the
fact that Rule 144 is not exclusive, the staff of the SEC has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and their respective
brokers who participate in such transactions do so at their own risk.
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<PAGE> 9
5. CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT THE CLOSING.
Purchaser's obligation to purchase the Shares shall be subject to each of the
following conditions having been fulfilled to Purchaser's reasonable
satisfaction on or before the Closing Date:
5.1 REPRESENTATIONS AND WARRANTIES, PERFORMANCE OF OBLIGATIONS. The
representations and warranties made by the Company in Section 3 shall be true
and correct on the Closing Date with the same effect as though made on and as of
such date; there shall not have been a Material Adverse Effect prior to the
Closing Date; and the Company shall have performed all actions, met all
conditions and satisfied all obligations required to be performed or satisfied
by it under this Agreement on or prior to the Closing Date.
5.2 STOCK CERTIFICATES. The Company shall have issued to Purchaser a
stock certificate evidencing the number of Shares purchased by Purchaser.
5.3 CORPORATE DOCUMENTS. The Company shall have delivered to
Purchaser such evidence of the Company's good standing and its authorization of
this Agreement and the other Transaction Documents as Purchaser or its counsel
shall reasonably request.
5.4 OPINION OF COUNSEL TO THE COMPANY. Purchaser shall have received
from Venture Law Group, counsel for the Company, an opinion letter addressed to
it, dated the Closing Date, reasonably satisfactory in form and content, to the
Purchaser and its counsel. In rendering the opinion called for under this
Section 5.4, counsel may rely as to factual matters on certificates of public
officials and officers of the Company.
5.5 CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained
any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
5.6 PURCHASE PERMITTED BY APPLICABLE LAW. The purchase of the Shares
on the Closing Date shall not be prohibited by any applicable law or
governmental regulation.
5.7 COMPLETION OF 3M ACQUISITION. The Company shall have certified
to the Purchaser in writing that (i) all of the conditions precedent to the
Company's obligation to complete the 3M Acquisition have been satisfied and (ii)
the completion of the 3M Acquisition will result in the dismissal of all pending
actions, suits, proceedings or claims brought by 3M against the Company.
5.8 MINIMUM PROCEEDS. An aggregate of at least $25 million shall
have been deposited in the Escrow Account by prospective purchasers in the
Offering, and all conditions to the disbursement of such funds to the Company
shall have been satisfied or waived.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligation of the Company to issue and sell to Purchaser the Shares to be issued
and sold hereunder shall be subject to the following conditions, any of which
may be waived by the Company, having been fulfilled on or before the Closing
Date:
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<PAGE> 10
6.1 PURCHASE PRICE. Purchaser shall have delivered to the Company
payment of the purchase price for the Shares by check or wire transfer to the
Company's account.
6.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Purchaser in Section 4 hereof shall be true and correct on
the Closing Date with the same effect as though made on and as of such date.
6.3 CONSENTS, PERMITS AND WAIVERS. The Company shall have obtained
any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
6.4 PURCHASE PERMITTED BY APPLICABLE LAW. The purchase of the Shares
on the Closing Date shall not be prohibited by any applicable law or
governmental regulation.
6.5 MINIMUM PROCEEDS. An aggregate of at least $25 million shall
have been deposited in the Escrow Account by prospective purchasers in the
Offering, and all conditions to the disbursement of such funds to the Company
shall have been satisfied or waived.
7. LEGENDS. The certificate or certificates representing the Shares
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933."
(b) Any legend required to be placed thereon by the California
Commissioner of Corporations or by any other applicable state securities law.
8. REGISTRATION RIGHTS.
8.1 SHELF REGISTRATION.
(a) The Company shall use its best efforts to file, and cause
the SEC to declare effective, a "shelf" registration statement on Form S-3 (the
"Registration Statement") under Rule 415 under the Securities Act covering the
resale by Purchaser of the Shares, not later than ninety (90) days following the
Closing Date. The Company will promptly: (A) notify Purchaser when the
Registration Statement is declared effective; and (B) notify Purchaser of any
stop-order or similar proceeding by the SEC or any state securities authority.
(b) If the Company is able to secure the effectiveness of a
Registration Statement pursuant to Section 8.1(a) above, the Company shall
promptly prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in
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connection therewith as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement and, keep the Registration Statement effective until the
earlier of (i) the date upon which all of the Shares have been sold pursuant
thereto or (ii) the second anniversary of the Closing Date.
8.2 COMPANY REGISTRATION. If, at any time during the two (2) year
period following the termination or withdrawal of the Registration Statement,
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Purchasers) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan or a
registration relating solely to the sale of securities to participants in a
Company stock plan or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Purchaser written notice of such registration. Upon the written request of each
Purchaser given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 9.4, the Company shall, subject to the
provisions of Section 8.4, cause to be registered under the Securities Act all
of the Shares that each such Purchaser has requested to be registered.
8.3 FORM S-3 REGISTRATION. If, at any time during the one (1) year
period following the termination or withdrawal of the Registration Statement,
the Company shall receive from any Purchaser or Purchasers a written request or
requests that the Company effect a registration on Form S-3 (or any successor to
Form S-3 or any similar short-form registration statement) and any related
qualification or compliance with respect to all or a part of the Shares owned by
such Purchaser or Purchasers, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Purchasers; and
(b) as soon as practicable, effect such registration, which, at
the request of any Purchaser, shall be an underwritten registration with the
underwriter(s) to be reasonably satisfactory to the Company and Purchasers
holding a majority of the Shares to be registered, and all such qualifications
and compliances as may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Purchaser's Shares as are
specified in such request, together with all or such portion of the Shares of
any other Purchaser or Purchasers joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to this Section 8.3: (i) if Form S-3 is not available for such offering by the
Purchasers; (2) if the Purchasers, (A) propose to sell Shares representing less
than twenty-five (25%) percent of the Shares sold in the Offering or (B)
together with the holders of any other securities of the Company entitled to
inclusion of such registration, propose to sell Shares and such other securities
(if any) at an aggregate price to the public (net of any underwriters' discounts
or commissions) of less than $10,000,000; (3) if the Company shall furnish to
the Purchasers a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form
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<PAGE> 12
S-3 Registration to be effected at such time, in which event the Company shall
have the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Purchaser or Purchasers under this Section 8.3; provided, however, that the
Company shall not utilize this right more than once in any twelve (12) month
period; (4) if the Company has already effected one registration on Form S-3 for
the Purchasers pursuant to this Section 8.3; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) promptly prepare and file with the SEC such amendments and
supplements to the registration statement and prospectus used in connection
therewith as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement and keep such registration statement effective for a
period of up to one hundred twenty (120) days or until the distribution
contemplated in the registration statement has been completed.
8.4 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 8.2 to include any of the Purchasers' Shares
in such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize the
success of the offering by the Company. If the total amount of securities,
including Shares, requested by stockholders to be included in such offering
exceeds the amount of securities to be sold other than by the Company that the
underwriters determine in their sole discretion is compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Shares, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling stockholders according to the total amount of securities requested to be
included therein owned by each selling stockholder or in such other proportion
as shall mutually be agreed to by such selling stockholders).
8.5 DELAY OF REGISTRATION. No Purchaser shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 8.
8.6 SUSPENSION OF EFFECTIVENESS. Purchaser acknowledges that there
may occasionally be times when the Company may be required to suspend the use of
the prospectus forming part of a registration statement filed under Section 8.1
or Section 8.3 above until such time as an amendment to registration statement
has been filed by the Company and declared effective by the SEC, until such
prospectus is supplemented or amended to comply with the Securities Act, or
until such time as the Company has filed an appropriate report with the SEC
pursuant to the Exchange Act. The Company agrees to use diligent efforts to
avoid suspensions of the use of such prospectus and to limit the periods of such
suspensions to the shortest time possible. Purchaser hereby covenants that it
will not sell any Shares pursuant to any such prospectus during the period
commencing at the time at which the Company gives Purchaser notice of the
suspension of the use of such prospectus and ending at the time the Company
gives Purchaser
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notice that the Purchaser may thereafter effect sales pursuant to such
prospectus, as the same may have been supplemented or amended. In the event of
any suspension of use of a registration statement pursuant to this subsection,
the time period during which the Company is obligated to maintain the
effectiveness of such registration statement pursuant to this Agreement shall be
tolled for the duration of the period during which use of such registration
statement was suspended.
8.7 COMPANY OBLIGATIONS.
(a) The Company shall (i) use its best efforts to list the
Shares for trading on any national securities exchange on which the Common Stock
may be traded from time to time and (ii) provide a transfer agent, registrar and
CUSIP number with respect to Shares registered pursuant to this Section 8.
(b) The Company shall furnish to Purchaser, with respect to the
Shares registered pursuant to this Section 8, such number of copies of
prospectuses and preliminary prospectuses and supplements in conformity with the
requirements of the Securities Act and such other documents as Purchaser may
reasonably request, in order to facilitate the public sale or other disposition
of all or any of the Shares by Purchaser.
(c) The Company shall use its best efforts to register or
qualify the Shares registered pursuant to this Section 8 under such other
securities or blue sky laws of such jurisdictions as Purchaser shall reasonably
request and do any and all other acts or things which may be necessary or
desirable to enable Purchaser to consummate the public sale or other disposition
in such jurisdictions, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or file
a general consent to service of process in any such jurisdictions.
(d) With a view to making available to the Purchaser the
benefits of Rules 144 and 144A promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit Purchaser to
sell Shares to the public without registration, the Company hereby covenants and
agrees, so long as Purchaser owns any Shares to use its best efforts to: (i)
make and keep public information available, as those terms are understood and
defined in Rule 144; (ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and (iii) furnish to Purchaser (A) a written statement by the
Company that it has complied with the reporting requirements of the Securities
Act and the Exchange Act, and (B) such other information as may be reasonably
requested in order to avail Purchaser of any rule or regulation of the SEC that
permits the selling of the Shares without registration. The Company further
covenants and agrees, so long as the Purchaser owns any Shares, to use its best
efforts to deliver to the Purchaser copies of all SEC Documents, promptly
following the filing thereof with the SEC.
(e) The Company shall bear all reasonable expenses in connection
with any registration completed under this Section 8, other than (i)
underwriter's commissions or
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discounts, transfer taxes, and fees and expenses, if any, of underwriter's
counsel or (ii) the fees and expenses of more than one counsel for all selling
Purchasers.
(f) The rights contemplated in this Section 8 will automatically
be assigned to each permitted transferee of shares, other than a transferee in a
transaction registered under the Securities Act pursuant to this Section 8 or
exempt from registration pursuant to Rule 144 or Rule 144A under the Securities
Act, and the provisions of Section 8 hereof shall apply to such transferee as if
such transferee were the Purchaser hereunder. In the event that it is necessary,
in order to permit a transferee of any shares to resell such shares pursuant to
the Registration Statement, to amend the Registration Statement to name such
transferee, the transferee shall, upon written notice to the Company, be
entitled to have the Company make such amendment as soon as reasonably
practicable.
8.8 SECURITIES INDEMNIFICATION.
(a) For the purposes of this Section 8.8, the term "Registration
Statement" shall include any final prospectus, exhibit, supplement or amendment
included in a Registration Statement, and any document incorporated by reference
in any registration statement filed pursuant to this Section 8. As used in this
Section 8.8, the term "untrue statement" shall include any untrue statement or
alleged untrue statement, or any omission or alleged omission to state in the
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) The Company agrees to indemnify and hold harmless Purchaser,
its officers, directors, partners, advisors, each person controlling Purchaser
within the meaning of Section 15 of the Securities Act, each underwriter, if
any, and each person controlling any such underwriter within the meaning of
Section 15 of the Securities Act, from and against any and all expenses, losses,
claims, damages or liabilities (or actions, proceedings or settlements in
respect thereof) to which such persons may become subject (under the Securities
Act or otherwise) insofar as such losses, claims, damages or liabilities (or
actions, proceedings or settlements in respect thereof) arise out of, or are
based upon, any untrue statement of a material fact contained in the
Registration Statement, or arise out of any failure by the Company to fulfill
any undertaking included in the Registration Statement or arise out of any
violation by the Company of the Securities Act or the Exchange Act or any rule
or regulation thereunder applicable to the Company with respect to the
Registration Statement and relating to action or inaction required of the
Company, and will reimburse Purchaser, its officers, directors, partners,
advisors, each person controlling Purchaser, each underwriter, and each person
controlling any such underwriter, for any legal and other expenses reasonably
incurred in connection with investigating and defending or settling any such
expense, claim, loss, damage or liability; provided, however, that the Company
shall not be liable in any such case to the extent that such expense, loss,
claim, damage or liability arises out of, or is based upon, an untrue statement
made in a Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of Purchaser specifically
for inclusion in such Registration Statement, or any untrue statement in any
prospectus that is corrected in any subsequent prospectus that was delivered to
Purchaser at least five (5) business days prior to the pertinent sale.
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(c) Purchaser agrees to indemnify and hold harmless the Company
(and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act, each officer of the Company who signs the Registration
Statement and each director of the Company) from and against any losses, claims,
damages or liabilities (including reasonable legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim) to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement of a material fact contained in the Registration Statement on the
effective date thereof if such untrue statement was made in reliance upon and in
conformity with written information furnished by or on behalf of Purchaser
specifically for inclusion in the Registration Statement; provided, however,
Purchaser shall not be liable in any such case to the extent that such loss,
claims, damage or liability arises out of, or is based upon, an untrue statement
made in reliance upon and in conformity with written information furnished by or
on behalf of Purchaser, if such information is corrected and written notice of
such correction is delivered to the Company at least five (5) business days
prior to the pertinent sale or sales. Purchaser's obligation to indemnify the
Company hereunder shall be limited to the total amount of the proceeds received
by Purchaser for the Shares sold pursuant to the Registration Statement.
(d) Promptly after receipt by any indemnified person of a notice
of a claim or the beginning of any action in respect of which indemnity is
sought against an indemnifying person pursuant to this Section 8.8, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein, and,
to the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; provided, however,
that if there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the indemnified person, for the same
counsel to represent both the indemnified person and such indemnifying person or
any affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel for all indemnified parties under
this Agreement. The failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 8.8 to the extent such failure is not prejudicial. No indemnifying
party, in the defense of any claim or litigation, shall, except with the consent
of each indemnified party, consent to the entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation.
(e) If the indemnification provided for in this Section 8.8 is
unavailable under state or federal law to an indemnified person hereunder in
respect to any losses, claims,
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damages or liabilities (or actions or proceedings in respect thereof) referred
to herein, then the indemnifying person, in lieu of indemnifying such
indemnified person, shall contribute to the amount paid or payable by such
indemnified person as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative fault of the Company
and Purchaser in connection with the untrue statements of material fact or
omissions which resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and Purchaser shall be determined by reference to, among other things,
whether the untrue statements of material fact or omissions relate to
information supplied by the Company or by Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages or liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company and Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 8.8(e) were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to herein. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8.9 SURVIVAL. The obligations of the Company and Purchaser under
this Section 8 shall survive the payment for the Shares.
9. MISCELLANEOUS
9.1 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
9.2 ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the Company
and sixty-six and two-thirds percent (66 2/3%) in interest of the Purchasers.
9.3 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (x) such
provision shall be excluded from this Agreement, (y) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (z) the
balance of the Agreement shall be enforceable in accordance with its terms.
9.4 CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly,
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<PAGE> 17
this Agreement shall be deemed to be the product of all of the parties hereto,
and no ambiguity shall be construed in favor of or against any one of the
parties hereto.
9.5 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax, one (1) business day after being deposited with a
commercial courier that guarantees next day delivery, or three (3) business days
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, and addressed to the party to be notified at such party's
address as set forth on the signature page hereof or as subsequently modified by
written notice.
9.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by Purchaser and the Company in this Agreement and the
respective obligations of each party, to be performed on the terms hereof at,
prior to, or after the Closing Date hereunder, shall not expire with, or be
terminated, or extinguished by, such Closing on the Closing Date.
9.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
FOR CALIFORNIA RESIDENTS ONLY: THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
FOR CONNECTICUT RESIDENTS ONLY: THE UNDERSIGNED ACKNOWLEDGES THAT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36B-16 OF THE
CONNECTICUT UNIFORM SECURITIES ACT AND ARE OFFERED AND SOLD PURSUANT TO AN
EXEMPTION THEREFROM. THE SECURITIES CANNOT BE SOLD OR TRANSFERRED UNLESS THEY
ARE REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE CONNECTICUT UNIFORM
SECURITIES ACT OR SOLD IN A TRANSACTION WHICH IS EXEMPT UNDER SAID ACT.
FOR FLORIDA RESIDENTS ONLY: THE UNDERSIGNED ACKNOWLEDGES THAT THE
FLORIDA SECURITIES ACT REQUIRES AND THE ISSUER HEREBY AGREES THAT THE
UNDERSIGNED SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE OF AN OFFER TO
ACQUIRE THESE SECURITIES FOR A PERIOD OF THREE (3) BUSINESS DAYS FOLLOWING HIS
EXECUTION OF AN AGREEMENT RELATING TO THE ACQUISITION OF SUCH SECURITIES AND
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<PAGE> 18
PAYMENT THEREFOR. IF THE UNDERSIGNED SHOULD DETERMINE TO WITHDRAW HIS ACCEPTANCE
OF THE OFFER TO INVEST IN THE ISSUER, HE MAY DO SO WITHOUT ANY LIABILITY
WHATSOEVER. TO ACCOMPLISH THIS WITHDRAWAL, THE UNDERSIGNED NEED ONLY SEND A
LETTER OR TELEGRAM TO THE ISSUER INDICATING HIS INTENTION TO WITHDRAW. SUCH
LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE
AFOREMENTIONED THIRD BUSINESS DAY. IF THE UNDERSIGNED SENDS A LETTER, IT PRUDENT
TO SEND IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS
RECEIVED AND TO EVIDENCE THE TIME WHEN IT WAS MAILED. SHOULD THE REQUEST BE MADE
ORALLY, WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE
REQUESTED.
FOR ILLINOIS RESIDENTS ONLY: THE UNDERSIGNED ACKNOWLEDGES THAT THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE ILLINOIS SECURITIES ACT AND ARE
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION THEREFROM. THE SECURITIES CANNOT
BE SOLD OR TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THE ILLINOIS SECURITIES
ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
FOR INDIANA RESIDENTS ONLY: THE UNDERSIGNED ACKNOWLEDGES THAT SALES
OF THESE SECURITIES IN THE STATE OF INDIANA WILL BE MADE IN RELIANCE UPON THE
EXEMPTION PROVIDED IN SECTION 23-2-1-2(B)(10) OF THE INDIANA SECURITIES ACT.
SUCH SECURITIES MUST BE HELD INDEFINITELY UNLESS THEY ARE SUBSEQUENTLY
REGISTERED UNDER SAID ACT OR UNLESS, IN THE OPINION OF COUNSEL OF THE ISSUER, A
SALE OR TRANSFER MAY BE MADE WITHOUT REGISTRATION THEREUNDER.
FOR MASSACHUSETTS RESIDENTS ONLY: WITH RESPECT TO ACCREDITED
INVESTORS WHO ARE NATURAL PERSONS, THE INVESTMENT MUST BE SUITABLE AND IS
PRESUMED SUITABLE IF THE INVESTMENT DOES NOT EXCEED 25 PERCENT OF THE INVESTOR'S
INDIVIDUAL NET WORTH OR NET WORTH COMBINED WITH SPOUSE, EXCLUSIVE OF PRINCIPAL
RESIDENCE AND FURNISHINGS.
WITH RESPECT TO NON-ACCREDITED INVESTORS, THE INVESTMENT MUST BE
SUITABLE AND IS PRESUMED SUITABLE IF EITHER OF THE FOLLOWING CONDITIONS ARE MET:
(1) THE INVESTMENT DOES NOT EXCEED 10 PERCENT OF THE INVESTOR'S INDIVIDUAL NET
WORTH OR NET WORTH COMBINED WITH SPOUSE, EXCLUSIVE OF PRINCIPAL RESIDENCE AND
FURNISHINGS, OR (2) (A) THE INVESTOR, EITHER ALONG OR WITH A PURCHASER
REPRESENTATIVE, HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE PROSPECTIVE
INVESTMENT AND (B) THE INVESTMENT DOES NOT EXCEED 25 PERCENT OF THE
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<PAGE> 19
INVESTOR'S INDIVIDUAL NET WORTH OR NET WORTH COMBINED WITH SPOUSE, EXCLUSIVE OF
PRINCIPAL RESIDENCE AND FURNISHINGS.
FOR PENNSYLVANIA RESIDENTS ONLY: THE UNDERSIGNED IS AWARE OF THE
FACT THAT SALES OF THESE SECURITIES IN THE COMMONWEALTH OF PENNSYLVANIA WILL BE
MADE IN RELIANCE UPON THE EXEMPTION PROVIDED IN SECTION 203(D) OF THE
PENNSYLVANIA SECURITIES ACT. THE UNDERSIGNED AGREES NOT TO SELL THE SECURITIES
WITHIN TWELVE (12) MONTHS FROM THE DATE OF PURCHASE, EXCEPT IN ACCORDANCE WITH
WAIVERS ESTABLISHED BY RULE OR ORDER OF THE COMMISSIONER. THE UNDERSIGNED ALSO
AGREES THAT THE CERTIFICATE EVIDENCING THE SECURITIES WILL BEAR THE FOLLOWING
LEGEND:
EACH PENNSYLVANIA RESIDENT WHO PURCHASED THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAS AGREED NOT TO SELL THESE SECURITIES FOR A PERIOD OF
TWELVE (12) MONTHS AFTER THE DATE OF PURCHASE, EXCEPT IN ACCORDANCE WITH WAIVERS
ESTABLISHED BY RULE OR ORDER OF THE COMMISSIONER.
PURSUANT TO SECTION 207 OF THE PENNSYLVANIA SECURITIES ACT OF 1972,
EACH PENNSYLVANIA RESIDENT WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED
FROM REGISTRATION BY SECTION 203(D) OF THE 1972 ACT, DIRECTLY FROM THE ISSUER OR
AN AFFILIATE OF THE ISSUER SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE
WITHOUT INCURRING ANY LIABILITY TO THE SELLER, UNDERWRITER (IF ANY) OR ANY OTHER
PERSON WITHIN TWO (2) BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF
HIS WRITTEN BINDING CONTRACT OF PURCHASE OR, IN THE CASE OF A TRANSACTION IN
WHICH THERE IS NO BINDING CONTRACT OF PURCHASE, WITHIN TWO (2) BUSINESS DAYS
AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED.
FOR TEXAS RESIDENTS ONLY: THE UNDERSIGNED IS AWARE OF THE FACT THE
SALES OF THESE SECURITIES IN THE STATE OF TEXAS WILL BE MADE IN RELIANCE UPON
THE EXEMPTION PROVIDED IN SECTION 5.1 OF THE SECURITIES ACT OF TEXAS. SUCH
SECURITIES MUST BE HELD INDEFINITELY UNLESS THEY ARE SUBSEQUENTLY REGISTERED
UNDER SAID ACT OR UNLESS, IN THE OPINION OF COUNSEL OF THE ISSUER, A SALE OR
TRANSFER MAY BE MADE WITHOUT REGISTRATION THEREUNDER. THE UNDERSIGNED AGREES
THAT ANY CERTIFICATE EVIDENCING THE SECURITIES WILL BEAR A LEGEND RESTRICTING
THE TRANSFER THEREOF CONSISTENT WITH THE FOREGOING AND THAT A NOTATION WILL BE
MADE IN THE RECORDS OF THE ISSUER RESTRICTING THE TRANSFER OF ANY OF THE
SECURITIES IN A MANNER CONSISTENT WITH THE FOREGOING.
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<PAGE> 20
9.8 SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
9.9 HEADINGS. The section and paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
9.10 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any rights, power, or remedy accruing to either party, upon any breach
or default of the other party under this Agreement, shall impair any such
rights, power, or remedy, nor shall it be construed to be a waiver of any such
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. It is further agreed that any waiver, permit, consent,
or approval of any kind or character on a party's part of any breach or default
under this Agreement, or any waiver on a party's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing, and that all remedies, either
under this Agreement or by law or otherwise afforded to such party, shall be
cumulative and not alternative.
9.11 LEGAL FEES. If the Closing is completed, the Company shall pay,
promptly following the Closing, the reasonable fees and out-of-pocket expenses
of one counsel for all of the Purchasers in the Offering.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
RESOUND CORPORATION
By:__________________________________________
Title:_______________________________________
ADDRESS: 220 Saginaw Drive,
Seaport Centre
Redwood City, CA 94063
PURCHASER:
_____________________________________________
Name of Corporation, Partnership, Trust or
Individual
By:__________________________________________
Name:________________________________________
Title:_______________________________________
Address:_____________________________________
_____________________________________________
_____________________________________________
Payment Amount $____________________________
Tax ID No.: _________________________________
SIGNATURE PAGE TO THE COMMON STOCK PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 5.1
[Letterhead]
August 14, 1996
ReSound Corporation
220 Saginaw Drive, Seaport Centre
Redwood City, CA 94063
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 (the
"Registration Statement") to be filed by you with the Securities and Exchange
Commission (the "Commission") in connection with the registration under the
Securities Act of 1933, as amended, of a total of 4,575,420 shares of your
Common Stock (the "Shares") to be sold by selling stockholders of the Company.
As your counsel in connection with this transaction, we have examined the
proceedings taken and are familiar with the proceedings proposed to be taken by
you in connection with the sale and issuance of the Shares.
It is our opinion that, upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and in any amendment thereto.
Very truly yours,
VENTURE LAW GROUP,
A Professional Corporation
/s/ Venture Law Group
