<PAGE> 1
As Filed With the Securities and Exchange Commission on November 18, 1999
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------
SPATIALIGHT, INC.
(Exact name of registrant as specified in its charter)
------------
NEW YORK 16-1363082
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9 COMMERCIAL BOULEVARD, SUITE 200
NOVATO, CALIFORNIA 94949
(415) 883-1693
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
------------
MICHAEL H. BURNEY
CHIEF EXECUTIVE OFFICER
SPATIALIGHT, INC.
9 COMMERCIAL BOULEVARD, SUITE 200
NOVATO, CALIFORNIA 94949
(415) 883-1693
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Kevin Coyle, Esq.
Gray Cary Ware & Freidenrich LLP
400 Capitol Mall, Suite 2100
Sacramento, California 95814
(916) 930-3200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time as described in the Prospectus after the effective date of this
Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [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 statement number of the earlier
effective registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================
PROPOSED MAXIMUM PROPOSED AMOUNT OF
Title of Each Class of AMOUNT TO BE OFFERING PRICE MAXIMUM REGISTRATION FEE
Securities to be REGISTERED PER SHARE AGGREGATE
Registered OFFERING
PRICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Spatialight, Inc. Common 814,015 $2.8125 (1) $2,289,417.10 $636.46
Stock shares
===============================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(g) of the Securities Act of 1933, as amended, based
upon a $2.8125 warrant exercise price and a $2.6875 average of the high
and low prices reported on the OTCBB on November 16, 1999.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED November 18, 1999
SPATIALIGHT, INC.
COMMON STOCK
814,015 Shares Issuable Upon Exercise of Warrants
This prospectus relates to the offer and sale of up to 814,015 shares of
our common stock issuable upon exercise of warrants, with exercise prices of
$2.8125 per share, issued to investors on August 5, 1999 and September 15, 1999.
Our common stock is not traded on a national securities exchange or the
Nasdaq Stock Market but is listed on the over-the-counter bulletin board under
the symbol "HDTV." On November 16, 1999, the last sale price of the common stock
as reported on the over-the-counter bulletin board was $2.687.
Our principal executive offices are located at 9 Commercial Boulevard,
Suite 200, Novato, California 94949, and our telephone number is (415) 883-1693.
----------------------------------
AN INVESTMENT IN SPATIALIGHT COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. PLEASE CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 3.
----------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THESE SECURITIES HAVE NOT BEEN QUALIFIED UNDER THE LAWS OF ANY STATE.
BEFORE MAKING ANY OFFER OR SALE OF THESE SECURITIES, SELLING STOCKHOLDERS SHOULD
CONFIRM THAT SUCH OFFER OR SALE COMPLIES WITH ALL APPLICABLE STATE SECURITIES
LAWS. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
The date of this prospectus is ____________, 1999.
1
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS ............................................................ 3
ABOUT SPATIALIGHT.......................................................... 10
USE OF PROCEEDS............................................................ 12
PLAN OF DISTRIBUTION....................................................... 13
LEGAL MATTERS.............................................................. 15
WHERE TO FIND MORE INFORMATION............................................. 16
DOCUMENTS INCORPORATED BY REFERENCE........................................ 16
</TABLE>
2
<PAGE> 4
RISK FACTORS
You should carefully consider the following risk factors, together with
the other information contained or incorporated by reference in this prospectus,
in evaluating whether to purchase shares of our common stock.
WE ARE SUBJECT TO LENGTHY DEVELOPMENT PERIODS AND PRODUCT ACCEPTANCE
CYCLES.
Our business model requires us to develop microdisplays that perform
better than existing technologies, contract with one or more third-party
manufacturers to manufacture our prototypes in bulk, and sell the resulting
displays to original equipment manufacturers that will then incorporate it into
their products. OEMs make the determination during their product development
programs whether or not to incorporate our display modules in their products.
This requires us to invest significant amounts of time and capital in designing
display modules well before our customers introduce their products incorporating
these displays and before we can be sure that we will generate any significant
sales to our customers or even recover our investment. Even if a product is
successful for a short period, competition from other sellers could limit the
length of time it is successful.
WE ARE INCURRING SUBSTANTIAL RESEARCH AND DEVELOPMENT COSTS.
We currently have over ten engineers based in California working on
prototype microdisplays. This staffing creates significant research and
development costs that may not be recouped. We have sold our current prototypes
to a number of companies that have indicated they may be willing to incorporate
them into products if they could buy such displays in volume. As we begin the
process of working with third parties to manufacture our designs in volume, we
are continuing to use our engineers to develop subsequent generations of our
microdisplays. As a result, our overhead is expected to increase.
THE MICRODISPLAYS WE HAVE DEVELOPED MAY NOT BE MASS-PRODUCED EASILY.
We need to work closely with our manufacturing sources to commence
volume production of our current prototype. Problems in implementing volume
production or lower than expected manufacturing yields could significantly and
adversely affect us because delays could lead our potential customers to seek
other sources and because we will have incurred costs for the silicon the
company that assembles our displays uses in the microdisplay manufacturing
process.
We currently obtain silicon backplanes from the Far East. Some Asian
countries are subject to earthquakes and typhoons. Unless we obtain a second
source, any disruption or termination of our silicon manufacturing operations in
Taiwan or air transportation with the Far East could adversely affect our
operations.
We are negotiating a contract with a facility in Hong Kong to assemble
the silicon backplanes with electronic components to create microdisplays.
Because this relationship is new we anticipate that technical issues in the
manufacturing process will need to be resolved. The design and manufacture of
LCDs and display modules are highly complex processes that are sensitive to a
wide variety of factors, including the level of contaminants in the
manufacturing
3
<PAGE> 5
environment, impurities in the materials used, and the performance of personnel
and equipment. Contract manufacturers do not guarantee their manufacturing
yields. In addition, the complexity of manufacturing processes will increase
along with increases in the sophistication of our display modules. Low
manufacturing yields or delivery problems could adversely affect our operating
results.
A MARKET FOR OUR PRODUCTS MAY NOT DEVELOP.
Various target markets for our micro-displays, including projectors,
monitors, high-definition televisions, and portable micro-displays, are
uncertain, may be slow to develop, or could utilize competing technologies.
High-definition television has only recently become available to consumers, and
widespread market acceptance is uncertain. In addition, the commercial success
of the portable micro-display market is uncertain. Gaining acceptance in this
market may prove difficult because of the radically different approach of
micro-displays to the presentation of information. In order for us to succeed,
not only must we sell to those manufacturers that produce end-products
micro-displays that are better and cheaper than the alternatives they would
otherwise use, but also, the manufacturers themselves must develop products that
are successful commercially. Our failure to sell to manufacturers or the failure
of the ultimate target markets to develop as we expect will impede our
anticipated growth.
OUR DISPLAYS MAY NOT SUCCEED COMMERCIALLY.
Our microdisplays may not be accepted by a widespread market. Even if we
successfully mass-produce a display that is used in a retailed product, our
customers may determine not to introduce or may terminate products utilizing the
technology for a variety of reasons, including the following:
o superior technologies developed by our competitors;
o price considerations;
o lack of anticipated or actual market demand for the products; and
o difficulties in inducing companies to begin using our product.
WE DO NOT HAVE LONG-TERM PURCHASE COMMITMENTS FROM OUR PROSPECTIVE
CUSTOMERS.
Our prospective customers have not yet provided us with firm or
long-term volume purchase commitments. Although we have begun to negotiate with
our customers, we currently do not have any contracts with our customers.
Because we have no firm, long-term volume purchase commitments we do not have
clear order lead times or bases for inventory allocations. In addition, our
prospective customers can cancel purchase commitments or reduce or delay orders
at any time. The cancellation, delay, or reduction of customer commitments could
result in our holding excess and obsolete inventory or having unabsorbed
manufacturing overhead. Our sales to customers in the electronics industry,
which is subject to severe competitive pressures, rapid technological change,
and product obsolescence, increases our inventory and overhead risks.
4
<PAGE> 6
WE DEPEND ON THE MARKET ACCEPTANCE OF THE PRODUCTS OF OUR CUSTOMERS.
We do not sell any products to end-users. Instead, we design and
manufacture various product solutions that our customers incorporate into their
products. As a result, our success depends almost entirely upon the widespread
market acceptance of our customers' products. Any significant slowdown in the
demand for our customers' products would adversely affect our business.
Our dependence on the success of the products of our customers exposes
us to a variety of risks, including our needs to do the following:
o maintain customer satisfaction with our design and
manufacturing services;
o match our design and manufacturing capacity with customer
demand and to maintain satisfactory delivery schedules;
o anticipate customer order patterns, changes in order mix,
and the level and timing of orders that we can meet; and
o adjust to the cyclical nature of the industries and
markets we serve.
Our failure to address these risks may cause us to lose sales or for
sales to decline.
WE FACE INTENSE COMPETITION.
We serve intensely competitive industries that are characterized by
price erosion, rapid technological change, and competition from major domestic
and international companies. This intense competition could result in pricing
pressures, lower sales, reduced margins, and lower market share. Some of our
competitors have greater market recognition, larger customer bases, and
substantially greater financial, technical, marketing, distribution and other
resources than we possess. As a result, they may be able to introduce new
products and respond to customer requirements more quickly than we can.
Our competitive position could suffer if one or more of our customers
decide to design and manufacture their own display modules, to contract with our
competitors, or to use alternative technologies. In addition, our customers
typically develop a second source. Second source suppliers may win an increasing
share of a program by competing primarily on price rather than on design.
Our ability to compete successfully depends on a number of factors, both
within and outside our control. These factors include the following:
o our success in designing and manufacturing new display
technologies;
o our ability to address the needs of customers;
5
<PAGE> 7
o the quality, performance, reliability, features, ease of use,
pricing, and diversity of our display products;
o foreign currency fluctuations, which may cause a foreign
competitor's products to be priced significantly lower than our
displays;
o the quality of our customer services;
o the efficiency of our production sources;
o the rate at which customers incorporate our displays into their
own products; and
o products or technologies introduced by our competitors.
THE ELECTRONICS INDUSTRY IS CYCLICAL.
The electronics industry has experienced significant economic downturns
at various times, characterized by diminished product demand, accelerated
erosion of average selling prices, and production over-capacity. In addition,
the electronics industry is cyclical in nature. We may experience substantial
period-to-period fluctuations in future operating results because of general
industry conditions or events occurring in the general economy.
WE MUST FINANCE THE GROWTH OF OUR BUSINESS AND THE DEVELOPMENT OF NEW
PRODUCTS.
To remain competitive, we must continue to make significant investments
in research and development, equipment and facilities. Our failure to generate
sales to offset our costs would adversely affect our ability to continue
operating.
We anticipate the need for additional equity or debt financing to
provide for the capital expenditures required to maintain our research and
development and to move to production. We cannot predict the timing or amount of
any such capital requirements at this time. If such financing is not available
on satisfactory terms, we may be unable to expand our business at the rate
desired and our operating results may suffer. Equity financing could result in
additional dilution to existing stockholders. Debt financing increases expenses,
must be repaid regardless of operating results, and is secured against our
assets, potentially leaving fewer resources available for the repayment of
equity holders.
OUR OPERATING RESULTS ARE NEGATIVE AND SUBJECT TO FLUCTUATIONS.
We have not achieved profits in the past five years and have experienced
cash shortages. As a result, our auditors have noted in past reports that there
is doubt about our ability to continue as a going concern. We will need to
achieve substantial sales to support our cost structure before we can begin to
recoup our operating losses and accumulated deficit. Any progress toward
profitability may not be steady and may be subject to significant periodic or
seasonal quarterly fluctuations due to factors including the following:
o introductions of displays and market acceptance of new or new
generations of displays;
6
<PAGE> 8
o timing of expenditures in anticipation of future orders;
o changes in our cost structure;
o availability of labor and components;
o pricing and availability of competitive products and services;
o the timing of orders;
o the volume of orders relative to the capacity we can contract to
produce;
o evolution in the life cycles of customers' products; and
o changes or anticipated changes in economic conditions.
Accordingly, you should not rely on the results of past periods as an
indication of our future performance. It is likely that in some future period,
our operating results may be below expectations of public market analysts or
investors. If this occurs, our stock price may drop.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The market price of our common stock has been extremely volatile,
reflecting reported losses, receipt of additional financing and changes to
management. The trading price of our common stock in the future could continue
to be subject to wide fluctuations in response to various factors, including the
following:
o quarterly variations in our operating results;
o actual or anticipated announcements of technical innovations or
new product developments by us or our competitors;
o changes in analysts' estimates of our financial performance;
o general conditions in the electronics industry; and
o worldwide economic and financial conditions.
In addition the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices for many
high-technology companies and that often have been unrelated to the operating
performance of these companies. These broad market fluctuations and other
factors may adversely affect the market price of our common stock.
OUR COMMON STOCK MAY NOT BE LIQUID.
We are currently traded on the over-the-counter bulletin board. Our stockholders
may find that it is more difficult to sell our capital stock than shares listed
on an exchange or a national market. State securities law qualification
exemptions that apply to shares listed on
7
<PAGE> 9
exchanges and national markets do not apply to shares of our stock. The trading
volume of our shares may be limited in part due to the marketability of our
stock. Any swing in the price of our stock may be magnified into a material
reduction in price because relatively few buyers may be available to purchase
our stock.
SALES OF LARGE NUMBERS OF SHARES COULD ADVERSELY AFFECT THE PRICE OF OUR
COMMON STOCK.
Many of our outstanding shares are freely tradeable without restrictions
or further registration. Sales of substantial amounts of common stock by our
stockholders, or even the potential for such sales, may affect the market price
of our common stock and could impair our ability to raise capital through the
sale of our equity securities.
WE DEPEND ON KEY PERSONNEL.
Our development and operations depend substantially on the efforts and
abilities of our senior management and technical personnel. The competition for
qualified management and technical personnel is intense. The loss of services of
one or more of our key employees or the inability to add key personnel could
have a material adverse affect on us. We do not have any fixed-term agreements
with, or key person life insurance covering, any officer or employee.
WE MUST PROTECT OUR INTELLECTUAL PROPERTY.
We believe that our continued success depends in part on protecting our
proprietary technology. Third parties could claim that we are infringing their
patents or other intellectual property rights. In the event that a third party
alleges that we are infringing its rights, we may not be able to obtain licenses
on commercially reasonable terms from the third party, if at all, or the third
party may commence litigation against us. The failure to obtain necessary
licenses or other rights or the institution of litigation arising out of such
claims could materially and adversely affect us.
We rely on a combination of patent law, trade secret law, attempts to
limit disclosure of our confidential information and contractual provisions to
protect our intellectual property. Trade secret laws and contractual provisions
afford only limited protection. We face risks associated with our intellectual
property, including the following:
o pending patent applications may not be issued;
o patents issued to us may be challenged, invalidated, or
circumvented;
o unauthorized parties may obtain and use information that we
regard as proprietary despite our efforts to protect our
proprietary rights;
o others may independently develop similar technology or design
around any patents issued to us;
8
<PAGE> 10
o intellectual property laws may not protect our intellectual
property;
o effective protection of intellectual property rights may be
limited or unavailable in some foreign countries, such as China,
in which we may operate.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL TRADE AND CURRENCY EXCHANGE.
Political and economic conditions abroad may adversely affect the
foreign manufacture and sale of our displays. Protectionist trade legislation in
either the United States or foreign countries, such as a change in the current
tariff structures, export or import compliance laws, or other trade policies,
could adversely affect our ability to manufacture or sell displays in foreign
markets and to purchase materials or equipment from foreign suppliers.
SHORTAGES OF COMPONENTS AND MATERIALS MAY DELAY OR REDUCE OUR SALES AND
INCREASE OUR COSTS.
Our inability to obtain sufficient quantities of components and other
materials necessary to produce our displays could result in reduced or delayed
sales or lost orders. Any delay in or loss of sales could adversely impact our
operating results. We obtain many of the materials we use in the manufacture of
our displays from a limited number of foreign suppliers, particularly suppliers
located in the Far East, and we do not have long-term supply contracts with any
of them. As a result, we are subject to economic instability and currency
fluctuations in these countries as well as to increased costs, supply
interruptions, and difficulties in obtaining materials. Our customers also may
encounter difficulties or increased costs in obtaining from others the materials
necessary to produce their products into which our product solutions are
incorporated.
WE MUST EFFECTIVELY MANAGE OUR GROWTH.
The failure to manage our growth effectively could adversely affect our
operations. Our ability to manage our planned growth effectively will require us
to:
o enhance our operational, financial, and management systems;
o expand our facilities and equipment; and
o successfully hire, train, and motivate additional employees,
including technical staff.
As we expand our overhead and selling expenses will increase. We also
may be required to increase staffing and purchase capital equipment. Customers,
however, generally do not commit to firm production schedules for more than a
short time in advance. Any increase in expenditures in anticipation of future
sales that do not materialize would adversely affect our profitability.
9
<PAGE> 11
OUR BUSINESS MAY BE AFFECTED BY "YEAR 2000" PROBLEMS.
Many existing computer programs and databases use only two digits to
identify a year in the date field. For example, 99 would represent 1999. These
programs and databases were designed and developed without considering the
impact of the upcoming millennium. Consequently, date sensitive computer
programs may interpret the date "00" as 1900 rather than 2000. If not corrected,
many computer systems could fail or create erroneous results in 2000. Failure of
our systems, or in the systems of our vendors or customers, could have a
significant adverse effect on our business.
WE COULD BE LIABLE IN CONNECTION WITH PRODUCT LIABILITY CLAIMS.
Product liability claims may be asserted against us in the event that
the use of our products, or products which incorporate our products, are alleged
to cause injury or other adverse effects. Our product liability insurance may
not be adequate to protect us against potential claims. As a result a successful
claim against us could materially affect our financial stability. In addition,
our reputation may be affected by product liability claims regardless of the
merit or eventual outcome of the claim.
WE DO NOT PAY CASH DIVIDENDS.
We have never paid any cash dividends on our common stock and do not
anticipate that we will pay cash dividends in the near term. Instead, we intend
to apply earnings to the expansion and development of our business.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information contained in this prospectus
concerning our future, proposed and anticipated activities; certain trends with
respect to our revenue, operating results, capital resources, and liquidity or
with respect to the markets in which we compete or the electronics industry in
general; and other statements contained in this prospectus regarding matters
that are not historical facts are forward-looking statements, as such term is
defined under applicable securities laws. Forward-looking statements, by their
very nature, include risks and uncertainties, many of which are beyond our
control. Accordingly, actual results may differ, perhaps materially, from those
expressed in or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include those discussed under "Risk
Factors."
10
<PAGE> 12
ABOUT SPATIALIGHT
We design and seek to commercialize displays that can provide
high-resolution images suitable for computer, video and other applications but
that can be manufactured using existing processes for typical silicon and liquid
crystal displays. Our displays are miniature, high-resolution active matrix
liquid crystal displays, consisting of liquid crystals mounted directly on
silicon chips. These displays are also known as and commonly referred to as
Liquid Crystal Displays (LCD), Active Matrix Liquid Crystal Displays (AMLCD),
Liquid Crystal on Silicon (LCOS), and Spatial Light Modulators (SLM).
Our micro-displays, although smaller than 1" in diagonal, contain large
arrays of pixels and therefore can provide more content at a lower cost than
currently available displays. The tiny image on a micro-displays can be
projected onto a screen or other surface for individual or group viewing or used
in a portable application that is viewed through a magnifying device similar to
a viewfinder. Potential near-term micro-displays applications include use in
office projection equipment, rear projection high-definition televisions, and
computer monitors.
Our current technology is a fourth generation 0.9-inch diagonal display,
with a 1,024 x 768 array of pixels (a total of 786,432 pixels). This product is
now shipping in the form of developer kits, which are designed to assist other
companies to evaluate the display technology for inclusion in their products. To
date, we have only sold small quantities of our developer kits to customers who
are evaluating our displays for use in their products. We are currently
developing our fifth generation display, a 1280 x 1024 array of pixels (a total
of 1,310,720 pixels), although quantities are not yet available for evaluation.
Our technology uses liquid crystals and silicon chips. An advantage of
these materials is that processes for working with them are already known, so we
may be able to move from prototypes to mass production more quickly than
competing technologies offering comparable quality. By using existing
manufacturing processes we believe we can obtain economies of scale and thereby
reduce costs.
We are a corporation organized under the laws of the State of New York.
Our executive offices are located at 9 Commercial Boulevard, Suite 200, Novato,
California 94949.
11
<PAGE> 13
USE OF PROCEEDS
The 814,015 shares offered by this prospectus consist of shares issuable
to institutional and individual accredited investors in connection with warrants
granted in two privately placed equity financings. A warrant was issued to
Jonathan Brooks on August 5, 1999 in connection with these financings. The
remaining warrants described in this prospectus were issued on September 15,
1999. The warrants issued to our investors on August 5, 1999 and September 15,
1999 for an aggregate of 814,015 shares have an aggregate exercise price of
$2,052,562.50, or $2.8125 per share.
If the warrants are exercised, we will receive proceeds in the form of
the exercise price. We expect to use such proceeds, if any, for working capital.
12
<PAGE> 14
PLAN OF DISTRIBUTION
The warrants being registered hereunder have already been issued.
13
<PAGE> 15
A provision contained in the warrants provided that we would file a
registration statement under the Securities Act covering the shares issuable
upon exercise of the warrants described above . In addition, the warrants
require Spatialight to use its best efforts to qualify the shares under such
state securities laws as warrantholders reasonably request and maintain
compliance with federal and state securities laws until all the shares issuable
upon exercise of the warrants have been sold. The effectiveness of the
registration statement of which this prospectus is a part addresses only federal
securities law obligations. We have not been requested to qualify the issuance
or sale of the shares in any state. However, as a result of Section 18(b)(4) of
the Securities Act, state law will not prohibit, limit, or impose conditions on
the offer or sale of these shares if the stockholder is not an underwriter.
Nonetheless, states may require notice filings under Section 18(c) of the
Securities Act. Stockholders selling their shares and any broker-dealers or
agents that participate with such stockholders in sales of the shares may be
deemed to be "underwriters" within the meaning of the Securities Act. In such
case selling stockholders will be required to coordinate with Spatialight to
assure compliance with applicable state securities laws and notice requirements.
Commissions received by broker-dealers or agents and any profit on the resale of
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
14
<PAGE> 16
LEGAL MATTERS
The legality of the shares offered by this prospectus is being passed
upon by Gray Cary Ware & Freidenrich LLP, Sacramento, California.
15
<PAGE> 17
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. These reports, proxy statements and other
information filed with the SEC may be inspected and copied at the SEC Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549.
You may obtain information about the operation of the SEC Public
Reference Room by calling 1-800-SEC-0330. You can also inspect this material
free of charge at a Web site maintained by the SEC at http://www.sec.gov.
Finally, you can also inspect reports and other information concerning
Spatialight at the offices of the National Association of Securities Dealers,
Inc., Market Listing Section, 1735 K Street, N.W., Washington, D.C. 20006.
Spatialight common stock is not traded on a national securities exchange or The
Nasdaq Stock Market but are listed on the over-the-counter bulletin board under
the symbol "HDTV." Spatialight's Internet web site is located at
http://www.spatialight.com.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with them which means that we can disclose important information to you by
referring you to these documents. The information incorporated by reference is
an important part of this prospectus and information we later file with the SEC
will automatically update and supersede this information. The following
documents filed by us with the SEC (File No.
000-19828) are incorporated in this prospectus by reference:
o Annual Report on Form 10-KSB for the year ended December 31,
1998, filed on March 31, 1999;
o Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999, filed on May 17, 1999;
o Current Report on Form 8-K, filed on May 21, 1999;
o Current Report on Form 8-K, filed on June 14, 1999;
o Quarterly Report on Form 10-QSB for the quarter ended June 30,
1999, filed on August 16, 1999;
o Quarterly Report on Form 10-QSB for the quarter ended September
30, 1999, filed on November 12, 1999;
o The description of Spatialight's Common Stock contained in
Spatialight's Registration Statement on Form 8-A filed with the
Commission on February 5, 1992, effective on February 7, 1992,
under Section 12 of the Exchange Act, including any amendment or
report filed for the purpose of updating that description.
We also incorporate by reference all documents and reports filed by us
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 after the date of this
16
<PAGE> 18
prospectus. We will provide free of charge to each person, including any
beneficial owner, to whom this prospectus is delivered, upon written or oral
request, a copy of any or all of the documents incorporated by reference in this
prospectus. Please direct such requests to Investor Relations, Spatialight,
Inc., 9 Commercial Boulevard, Suite 200, Novato, California 94949. Our telephone
number is (415) 883-1693.
17
<PAGE> 19
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. THE
INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF THE DATE OF THIS PROSPECTUS.
DELIVERY OF THIS PROSPECTUS AFTER THE DATE INDICATED BELOW DOES NOT MEAN THAT
THE INFORMATION IS STILL CORRECT.
SPATIALIGHT, INC.
COMMON STOCK
814,015 SHARES SUBJECT TO WARRANTS
PROSPECTUS
_______________, 1999
- --------------------------------------------------------------------------------
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fees and Nasdaq
filing fee.
<TABLE>
<CAPTION>
To be Paid
By The
Registrant
----------
<S> <C>
SEC Registration Fee $ 636.46
Accounting fees and expenses $ 7,000
Legal fees and expenses $ 11,000
Miscellaneous expenses $ 2,000
-----------
Total.............................................. $ 20,636.46
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation of the Registrant, filed
November 6, 1991 (the "Restated Certificate"), provides in relevant part at
paragraph 7, that
The directors of the corporation shall not be personally liable to the
corporation or its shareholders for damages for any breach of duty in
such capacity occurring after the adoption of the provisions authorized
in this certificate of incorporation, provided, however, that the
provisions contained herein shall not eliminate such directors'
liability if a judgment or other final adjudication adverse to the
director establishes that (i) the director's acts or omissions were in
bad faith or involved intentional misconduct or a knowing violation of
the law; (ii) that the director personally gained a financial profit or
other advantage to which the director was not legally entitled; or (iii)
that the directors' acts violated the provisions of Section 719 of the
New York Business Corporation Law.
Sections 721 through 726 of the New York Business Corporations Law (the
BCL) provide the statutory basis for the indemnification by a corporation of its
officers and directors when such officers and directors have acted in good
faith, for a purpose reasonably believed to be in the best interests of the
corporation, and subject to specified limitations set forth in the BCL.
II-1
<PAGE> 21
As authorized by Article V of the Registrant's By-Laws, directors and
officers of the Registrant, and certain Registrant employees, have been availed
of the broadest scope of permissible indemnification coverage consistent with
the BCL. Article V of the Registrant's By-Laws provide as follows:
5.1 INDEMNIFICATION. The Corporation shall indemnify (a) any person made
or threatened to be made a party to any action or proceeding by reason of the
fact that he, his testator or intestate, is or was a director or officer of the
Corporation and (b) any director or officer of the Corporation who served any
other company in any capacity at the request of the Corporation, in the manner
and to the maximum extent permitted by the Business Corporation Law of New York,
as amended from time to time; and the Corporation may, in the discretion of the
Board of Directors, indemnify all other corporate personnel to the extent
permitted by laws.
5.2 AUTHORIZATION. The provisions for indemnification set forth in
Section 5.1 hereof shall not be deemed to be exclusive. The Corporation is
hereby authorized to further indemnify its directors or officers in the manner
and to the extent set forth in (i) a resolution of the shareholders, (ii) a
resolution of the directors, or (iii) an agreement providing for such
indemnification, so long as such indemnification shall not be expressly
prohibited by the provisions of the Business Corporation Law of New York.
See also the undertakings set out in response to Item 17 herein.
II-2
<PAGE> 22
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
3.2 Bylaws (1)
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
10.1 1991 Employee Stock Option Plan and Form of Stock Option Agreement
thereunder (2)
10.2 1993 Nonstatutory Employee Stock Option Plan and Form of Stock Option
Agreement thereunder (3)
10.3 1993 Nonstatutory Directors Stock Option Plan (4)
10.4 1999 Stock Option Plan
10.5 Form of Convertible Secured Loan Agreement, dated as of
November 1998, between Spatialight and the eighteen lenders
listed on Exhibit A to such form
10.6 Form of Security Agreement, dated as of November 1998,
between Spatialight and the eighteen lenders listed on
Exhibit A to such form
10.7 Form of Intercreditor Agreement, dated as of November 1998, among
Spatialight, Argyle Capital Management Corporation, Jerry Whitlock, Mansour
Rasnavad, Network Finance Incorporated, Farhad Azima and the eighteen
lenders listed on Exhibit A to such form
10.8 Form of Registration Rights Agreement, dated as of November
1998, between Spatialight and the eighteen lenders listed on
Exhibit A to such form
10.14 Standard Office Lease, dated February 22, 1999, between Dennis A. and Susan
Johann Gilardi and SpatiaLight, Inc. (5)
23.1 Consent of Deloitte & Touche LLP, independent auditors
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included in the Signature Page contained in Part II of
the Registration Statement)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to Exhibit 4.2 of the Registrant's
Registration Statement on Form S-1, as amended filed on February 13,
1992.
(2) Incorporated by reference to Exhibit 10.1 of the Registrant's
Registration Statement on Form S-1 filed on February 13, 1992.
(3) Incorporated by reference to Exhibit 10.23 of the Registrant's annual
report on Form 10-KSB for the year ended December 31, 1993.
II-3
<PAGE> 23
(4) Incorporated by reference to Exhibit 10.24 of the Registrant's annual
report on Form 10-KSB for the year ended December 31, 1993.
(5) Incorporated by reference to Exhibit 10.22 of the Registrant's Report on
Form 10-QSB filed on May 17, 1999.
ITEM 17. UNDERTAKINGS.
A. 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:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained
in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
II-4
<PAGE> 24
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, 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.
C. The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are
not set forth in the prospectus, to deliver, or cause to be delivered to
each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
D. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or proceeding)
is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
E. The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Novato, State of California on November 18, 1999.
SPATIALIGHT, INC.
By: /s/ Michael H. Burney
----------------------------------
Michael H. Burney
Chief Executive Officer,
Treasurer and Director
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael H. Burney and Fred R. Hammett and
each of them, as his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form
S-3, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorney-in-facts and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael H. Burney Chief Executive Officer, November 18, 1999
- -------------------------------- Treasurer and Director
Michael H. Burney (Principal Executive, Financial
and Accounting Officer)
/s/ Fred R. Hammett President November 18, 1999
- --------------------------------
Fred R. Hammett
/s/ Robert A. Olins Director November 18, 1999
- --------------------------------
Robert A. Olins
</TABLE>
II-6
<PAGE> 26
<TABLE>
<S> <C> <C>
/s/ Lawrence J. Matteson Director November 18, 1999
- --------------------------------
Lawrence J. Matteson
/s/ Steven F. Tripp Director November 18, 1999
- --------------------------------
Steven F. Tripp
</TABLE>
II-7
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
3.2 Bylaws (1)
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
10.1 1991 Employee Stock Option Plan and Form of Stock Option Agreement
thereunder (2)
10.2 1993 Nonstatutory Employee Stock Option Plan and Form of Stock Option
Agreement thereunder (3)
10.3 1993 Nonstatutory Directors Stock Option Plan (4)
10.4 1999 Stock Option Plan
10.5 Form of Convertible Secured Loan Agreement, dated as of
November 1998, between Spatialight and the eighteen lenders
listed on Exhibit A to such form
10.6 Form of Security Agreement, dated as of November 1998,
between Spatialight and the eighteen lenders listed on
Exhibit A to such form
10.7 Form of Intercreditor Agreement, dated as of November 1998, among
Spatialight, Argyle Capital Management Corporation, Jerry Whitlock, Mansour
Rasnavad, Network Finance Incorporated, Farhad Azima and the eighteen
lenders listed on Exhibit A to such form
10.8 Form of Registration Rights Agreement, dated as of November
1998, between Spatialight and the eighteen lenders listed on
Exhibit A to such form
10.14 Standard Office Lease, dated February 22, 1999, between Dennis A. and Susan
Johann Gilardi and SpatiaLight, Inc. (5)
23.1 Consent of Deloitte & Touche LLP, independent auditors
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included in the Signature Page contained in Part II of
the Registration Statement)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to Exhibit 4.2 of the Registrant's
Registration Statement on Form S-1, as amended filed on February 13,
1992.
(2) Incorporated by reference to Exhibit 10.1 of the Registrant's
Registration Statement on Form S-1 filed on February 13, 1992.
(3) Incorporated by reference to Exhibit 10.23 of the Registrant's annual
report on Form 10-KSB for the year ended December 31, 1993.
<PAGE> 28
(4) Incorporated by reference to Exhibit 10.24 of the Registrant's annual
report on Form 10-KSB for the year ended December 31, 1993.
(5) Incorporated by reference to Exhibit 10.22 of the Registrant's Report on
Form 10-QSB filed on May 17, 1999.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
SAYETT GROUP, INC.
Under Section 807 of the
Business Corporation Law
The undersigned Chairman and Secretary of Sayett Group, Inc., in
accordance with Section 807 of the Business Corporation Law, do hereby certify:
A. The name of the corporation is Sayett Group, Inc. The name under
which the corporation was incorporated is Sayett Acquisition Company, Inc.
B. The date the certificate of incorporation was filed by the
Department of State is September 27, 1989.
C. The certificate of incorporation, as amended heretofore, is
further amended to increase the aggregate number of shares which the
corporation shall have authority to issue by 10,000,000 shares par value $.01.
D. The text of the certificate of incorporation, as amended
heretofore, is hereby restated as further amended to read in full as herein set
forth:
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
SAYETT GROUP, INC.
UNDER SECTION 402 OF THE
BUSINESS CORPORATION LAW
1. The name of the corporation is Sayett Group, Inc.
2. The purposes for which the corporation is to be formed are:
(a) To purchase, receive by way of gift, subscribe for, invest in,
and in all other ways acquire, import, lease, possess, maintain, handle on
consignment, own, hold for investment or otherwise use, enjoy, exercise,
operate, manage, conduct, perform, make, borrow, contract in respect of, trade
and deal in, sell, exchange, let, lend, export, mortgage, pledge, deed in
trust, hypothecate, encumber, transfer, assign and in all other ways dispose
of, develop, invent, improve, equip, repair, alter, fabricate, assemble, build,
construct, operate, manufacture, plant, cultivate, produce, market, and in all
other ways (whether like or unlike any of the foregoing), deal in and with
property of every kind and character, real, personal, or mixed, tangible or
intangible, wherever situated and however held, including, but not limited to,
money, credits, choses in action, securities, stocks, bonds, warrants, script,
certificates, debentures, mortgages, notes, commercial paper, and other
obligations and evidences of interest in or indebtedness of any person, firm or
corporation, foreign or domestic, or of any government or subdivision or agency
thereof, documents of title, and accompanying rights, and every other kind and
character of personal property, real property (improved or unimproved), and the
products and avails thereof, and every character of interest therein and
appurtenance thereto, including, but not limited to, mineral, oil, gas and
water rights, all or a part of any going business and its incidents,
franchises, subsidies, charters, concessions, grants, rights, powers, or
privileges, granted or conferred by any government or subdivision or agency
thereof, and any interest in or part of any of the foregoing, and to exercise
in respect thereof all of the rights, powers, privileges, and immunities of
individual owners or holders thereof.
(b) To hire and employ agents, servants and employees, to enter into
agreements of employment and collective bargaining agreements, and to act as
agent, contractor, factor, or otherwise, either alone or in company with others.
(c) To promote or aid in any manner, financially or otherwise, any
person, firm, association or corporation.
(d) To let concessions to others to do any of the things that this
corporation is empowered to do, and to enter into, make, perform and carry out,
contract
<PAGE> 3
and arrangements of every kind and character with any person, firm,
association, or corporation, or any government or authority or subdivision or
agency thereof.
(e) To carry on any business whatsoever that this corporation may
deem proper or convenient in connection with any of the foregoing purposes, or
that it may deem calculated, directly or indirectly, to improve the interests of
this corporation, and to have and to exercise all powers conferred by the laws
of the State of New York on corporations formed under the laws pursuant to which
and under which this corporation is formed, as such laws are now in effect or
may at any time hereafter be amended, and to do any and all things hereinabove
set forth to the same extent and as fully as natural persons might or could do,
either alone or in connection with other persons, firms, associations, or
corporations, and in any part of the world.
The foregoing statement of purposes shall be construed as a statement of
both purposes and powers, shall be liberally construed in aid of the powers of
this corporation, and the powers and purposes stated in each clause shall,
except where otherwise stated, be in nowise limited or restricted by any term
or provision of any other clause, and shall be regarded not only as independent
purposes, but the purposes and powers stated shall be construed distributively
as each object expressed, and the enumeration as to specific powers shall not
be construed as to limit in any manner the aforesaid general powers, but are in
furtherance of, and in addition to and not in limitation of said general powers.
3. The office of the corporation shall be located in the County of
Monroe, State of New York.
4. The aggregate number of shares which the corporation shall have
authority to issue is twenty million (20,000,000) shares of one class only,
which shares are of the par value of one cent ($.01) per share.
5. The Secretary of State is designated as agent of the corporation,
upon whom process against it may be served, and the post office address to
which the Secretary of State shall mail a copy of any process against it served
upon him is: The Corporation, 17 Tobey Village Office Park, Pittsford, New York
14534.
6. No shareholder of this corporation shall have any preemptive right to
acquire any shares or other securities convertible into or carrying options or
warrants to purchase shares of the corporation. Shares authorized by the
certificate of incorporation, or by an amended certificate, and convertible
securities may at any time be issued, optioned or otherwise disposed of by the
corporation, pursuant to the direction of its board of directors, to such
persons and upon such terms as may seem proper and advisable to such board,
without first offering to existing shareholders such shares or convertible
securities.
<PAGE> 4
7. The directors of the corporation shall not be personally
liable to the corporation or its shareholders for damages for any breach of duty
in such capacity occurring after the adoption of the provisions authorized in
this certificate of incorporation, provided, however, that the provisions
contained herein shall not eliminate such directors' liability if a judgment
or other final adjudication adverse to the director establishes that (i) the
director's acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of the law; (ii) that the director personally
gained a financial profit or other advantage to which the director was not
legally entitled; or (iii) that the directors' acts violated the provisions of
Section 719 of the New York Business Corporation Law.
<PAGE> 5
E. The foregoing amendment and restatement of the certificate of
incorporation was authorized by vote of the board of directors of the
corporation, followed by the unanimous written consent of the holders of all
outstanding shares entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned have executed this certificate
and affirm the truth of the statements herein set forth under penalty of perjury
this 22nd day of October, 1991.
/s/ Raymond L. Bauch
-------------------------------
Raymond L. Bauch,
Chairman and Chief Executive Officer
/s/ John L. Bolane
-------------------------------
John L. Bolane,
Secretary
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SAYETT GROUP, INC.
Under Section 805 of the Business Corporation Law
The undersigned, being the President and Secretary of Sayett Group, Inc.,
does hereby certify as follows:
1. The name of the Corporation is Sayett Group, Inc. The name under which
the Corporation was formed was Sayett Acquisition Company, Inc.
2. The Certificate of Incorporation was filed by the Department of State
on September 27, 1989.
3. The name of the Corporation is hereby changed to SPATIALIGHT, INC.
Therefore, paragraph (1) of the Certificate of Incorporation is hereby amended
to read in its entirety as follows:
"(1) The name of the Corporation is: "SPATIALIGHT, INC."
4. The above amendment to the Certificate of Incorporation was authorized
by vote of the Board of Directors followed by vote of the holders of a majority
of all outstanding shares entitled to vote thereon at a meeting of shareholders.
IN WITNESS WHEREOF, this Certificate has been subscribed this 17th day of
May, 1996 by the undersigned who affirm that the statements made herein are true
under the penalties of perjury.
/s/ WILLIAM E. HOLLIS
----------------------------------
William E. Hollis, President
/s/ ALAN S. LOCKWOOD
----------------------------------
Alan S. Lockwood, Secretary
<PAGE> 7
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
SPATIALIGHT, INC.
Under Section 805 of the Business Corporation Law
--------------
The undersigned, being the President and Secretary of SPATIALIGHT, INC.,
do hereby certify as follows:
FIRST: The name of the Corporation is SPATIALIGHT, INC. The name under
which the Corporation was formed was Sayett Acquisition Company,
Inc.
SECOND: The Certificate of Incorporation was filed by the Department of
State on September 27, 1989.
THIRD: The amendment of the Restated Certificate of Incorporation
effected by this Certificate of Amendment is as follows: To
increase the aggregate number of shares which the Corporation
shall have authority to issue by authorizing 20,000,000
additional shares, par value of $.01 per share and of the same
class as the presently authorized shares.
FOURTH: To accomplish the foregoing amendment, Article Four (4) of the
Restated Certificate of Incorporation relating to the aggregate
number of shares which the Corporation is authorized to issue,
the par value thereof, and the classes into which the shares are
divided, is hereby stricken out in its entirety, and the
following new Article is substituted in lieu thereof:
"(4) The aggregate number of shares which the
corporation shall have authority to issue is forty
million (40,000,000) shares of one class only, which
shares are of the par value of one cent ($.01) per
share."
FIFTH: The above amendment to the Restated Certificate was authorized by
vote of the Board of Directors followed by vote of the holders of
a majority of all outstanding shares entitled to vote thereon at
a meeting of shareholders.
<PAGE> 8
IN WITNESS WHEREOF, this Restated Certificate has been subscribed this
21 day of July, 1999, by the undersigned who affirm that the statements made
herein are true under the penalties of perjury.
/s/ FRED R. HAMMETT, PRESIDENT
-----------------------------------------
Fred R. Hammett, President
/s/ MICHAEL BURNEY, SECRETARY
-----------------------------------------
Michael Burney, Secretary
<PAGE> 1
EXHIBIT 5.1
November 18, 1999
Securities and Exchange Commission
450 Fifth Street, N.W
Washington, D.C. 20549
RE: SPATIALIGHT, INC.
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
As legal counsel for Spatialight, Inc., a New York corporation (the "Company"),
we are rendering this opinion in connection with the preparation and filing of a
registration statement on Form S-3 (the "Registration Statement") relating to
the registration under the Securities Act of 1933, as amended, of 814,015 shares
of Common Stock (the "Shares") issuable upon exercise of warrants issued by the
Company on August 5, 1999 and September 15, 1999.
We have examined such instruments, documents and records as we deemed relevant
and necessary for the basis of our opinion herein after expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the 814,015 Shares
issuable upon exercise of the warrants, when issued in accordance with the terms
of the warrants, will be, duly authorized, validly issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement referred to above and the use of our name wherever it
appears in said Registration Statement.
This opinion is to be used only in connection with the issuance of the Shares
while the Registration Statement is in effect.
Respectfully submitted,
/s/ GRAY CARY WARE & FREIDENRICH LLP
GRAY CARY WARE & FREIDENRICH LLP
<PAGE> 1
EXHIBIT 10.4
SPATIALIGHT, INC.
1999 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. This SpatiaLight, Inc. 1999 Stock Option
Plan (the "PLAN") is hereby established effective as of June 21, 1999.
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until
the earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the earlier of the date
the Plan is adopted by the Board or the date the Plan is duly approved by the
stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
(d) "COMPANY" means SpatiaLight, Inc., a New York
corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(f) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.
1
<PAGE> 2
(g) "DISABILITY" means the inability of the
Optionee, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of the Optionee's position with the Participating
Company Group because of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company and, with respect to any Incentive
Stock Option granted to such person, who is an employee for purposes of Section
422 of the Code; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
purposes of the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the
value of a share of Stock or other property as determined by the Board, in its
discretion, or by the Company, in its discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, the Stock is listed on
a national or regional securities exchange or market system, the Fair Market
Value of a share of Stock shall be the closing price of a share of Stock (or the
mean of the closing bid and asked prices of a share of Stock if the Stock is so
quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap
Market or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
discretion.
(ii) If, on such date, there is no public
market for the Stock, the Fair Market Value of a share of Stock shall be as
determined by the Board in good faith without regard to any restriction other
than a restriction which, by its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option
intended to be (as set forth in the Option Agreement) and which qualifies as an
incentive stock option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
2
<PAGE> 3
(n) "OPTION" means a right to purchase Stock
(subject to adjustment as provided in Section 4.2) pursuant to the terms and
conditions of the Plan. An Option may be either an Incentive Stock Option or a
Nonstatutory Stock Option.
(o) "OPTION AGREEMENT" means a written agreement,
including any related form of stock option grant agreement, between the Company
and an Optionee setting forth the terms, conditions and restrictions of the
Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "OPTIONEE" means a person who has been granted
one or more Options.
(q) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any
point in time, all corporations collectively which are then Participating
Companies.
(t) "PRIOR PLAN OPTIONS'" means the stock options
granted under the Company's 1991 Stock Option Plan, 1993 Nonstatutory Employee
Stock Option Plan and 1993 Outside Director Stock Option Plan that were
outstanding on the date that the Board approved the Plan.
(u) "RULE 16B-3" means Rule 16b-3 under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
(v) "SECTION 162(m)" means Section 162(m) of the
Code.
(w) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(x) "SERVICE" means an Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Optionee's Option Agreement. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon
3
<PAGE> 4
the corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its discretion,
shall determine whether the Optionee's Service has terminated and the effective
date of such termination.
(y) "STOCK" means the common stock of the Company,
as adjusted from time to time in accordance with Section 4.2.
(z) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
(aa) "TEN PERCENT OWNER OPTIONEE" means an Optionee
who, at the time an Option is granted to the Optionee, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan or of any
Option shall be determined by the Board, and such determinations shall be final
and binding upon all persons having an interest in the Plan or such Option.
3.2 AUTHORITY OF OFFICERS. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, determination or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
determination or election.
3.3 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.4 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time
or times at which, Options shall be granted and the number of shares of Stock to
be subject to each Option;
(b) to designate Options as Incentive Stock Options
or Nonstatutory Stock Options;
4
<PAGE> 5
(c) to determine the Fair Market Value of shares of
Stock or other property;
(d) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option
Agreement;
(f) to amend, modify, extend, cancel, renew, reprice
or otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines
and policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
3.5 COMMITTEE COMPLYING WITH SECTION 162(m). If a
Participating Company is a "publicly held corporation" within the meaning of
Section 162(m), the Board may establish a Committee of "outside directors"
within the meaning of Section 162(m) to approve the grant of any Option which
might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the limit on employee remuneration
deductible for income tax purposes pursuant to Section 162(m).
5
<PAGE> 6
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be 4,000,000 (the "SHARE RESERVE") and shall
consist of authorized but unissued or reacquired shares of Stock or any
combination thereof. However, the Share Reserve, determined at any time, shall
be reduced by the sum of (a) the number of shares which remain subject to
outstanding Prior Plan Options, and (b) the number of shares which have been
issued pursuant to the exercise of Prior Plan Options after the date on which
the Plan was adopted. If an outstanding Option for any reason expires or is
terminated or canceled or if shares of Stock are acquired upon the exercise of
an Option subject to a Company repurchase option and are repurchased by the
Company at the Optionee's exercise price, the shares of Stock allocable to the
unexercised portion of such Option or such repurchased shares of Stock shall
again be available for issuance under the Plan. Notwithstanding the foregoing,
at any such time as the offer and sale of securities pursuant to the Plan is
subject to compliance with Section 260.140.45 of Title 10 of the California Code
of Regulations ("SECTION 260.140.45"), the total number of shares of Stock
issuable upon the exercise of all outstanding Options (together with options
outstanding under any other stock option plan of the Company) and the total
number of shares provided for under any stock bonus or similar plan of the
Company shall not exceed thirty percent (30%) (or such other higher percentage
limitation as may be approved by the stockholders of the Company pursuant to
Section 260.140.45) of the then outstanding shares of the Company as calculated
in accordance with the conditions and exclusions of Section 260.140.45.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options, in the Section 162(m) Grant
Limit set forth in Section 5.4, and in the exercise price per share of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to an Ownership Change Event,
as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares subject to, and the exercise price per share of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 4.2 shall
be rounded down to the nearest whole number, and in no event may the exercise
price of any Option be decreased to an amount less than the par value, if any,
of the stock subject to the Option. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted
only to Employees, Consultants, and Directors. For purposes of the foregoing
sentence, "Employees," "Consultants" and "Directors" shall include prospective
Employees, prospective Consultants and prospective Directors to whom Options are
granted in connection with written offers of an
6
<PAGE> 7
employment or other service relationships with the Participating Company Group.
Eligible persons may be granted more than one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an
Employee on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences Service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portions
of such options which exceed such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
5.4 SECTION 162(m) GRANT LIMIT. Subject to adjustment as
provided in Section 4.2, no Employee shall be granted one or more Options within
any fiscal year of the Company which in the aggregate are for the purchase of
more than five hundred thousand (500,000) shares (the "SECTION 162(M) GRANT
LIMIT"). An Option which is canceled in the same fiscal year in which it was
granted shall continue to be counted against the Section 162(m) Grant Limit for
such period.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. No Option or purported Option shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock
7
<PAGE> 8
Option shall be not less than eighty-five percent (85%) of the Fair Market Value
of a share of Stock on the effective date of grant of the Option, and (c) no
Option granted to a Ten Percent Owner Optionee shall have an exercise price per
share less than one hundred ten percent (110%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option. Notwithstanding the
foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock
Option) may be granted with an exercise price lower than the minimum exercise
price set forth above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying under the provisions of
Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such
time or times, or upon such event or events, and subject to such terms,
conditions, performance criteria, and restrictions as shall be determined by the
Board and set forth in the Option Agreement evidencing such Option; provided,
however, that (a) no Option shall be exercisable after the expiration of ten
(10) years after the effective date of grant of such Option, (b) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after
the expiration of five (5) years after the effective date of grant of such
Option, (c) no Option granted to a prospective Employee, prospective Consultant
or prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company, and (d) with the
exception of an Option granted to an officer, Director or Consultant, no Option
shall become exercisable at a rate less than twenty percent (20%) per year over
a period of five (5) years from the effective date of grant of such Option,
subject to the Optionee's continued Service. Subject to the foregoing, unless
otherwise specified by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check or cash equivalent, (ii) by tender to the Company, or attestation to the
ownership, of shares of Stock owned by the Optionee having a Fair Market Value
(as determined by the Company without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company) not less than
the exercise price, (iii) by the assignment of the proceeds of a sale or loan
with respect to some or all of the shares being acquired upon the exercise of
the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "Cashless Exercise"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
8
<PAGE> 9
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender or
attestation would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company, or attestation to the ownership, of shares of Stock unless such
shares either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. The Company reserves,
at any and all times, the right, in the Company's sole and absolute discretion,
to establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(iii) PAYMENT BY PROMISSORY NOTE. No
promissory note shall be permitted if the exercise of an Option using a
promissory note would be a violation of any law. Any permitted promissory note
shall be on such terms as the Board shall determine at the time the Option is
granted. The Board shall have the authority to permit or require the Optionee to
secure any promissory note used to exercise an Option with the shares of Stock
acquired upon the exercise of the Option or with other collateral acceptable to
the Company. Unless otherwise provided by the Board, if the Company at any time
is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but
not the obligation, to deduct from the shares of Stock issuable upon the
exercise of an Option, or to accept from the Optionee the tender of, a number of
whole shares of Stock having a Fair Market Value, as determined by the Company,
equal to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock until the Participating
Company Group's tax withholding obligations have been satisfied by the Optionee.
9
<PAGE> 10
6.5 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier
termination of the Option as otherwise provided herein, an Option shall be
exercisable after an Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service
with the Participating Company Group is terminated because of the Disability of
the Optionee, the Option, to the extent unexercised and exercisable on the date
on which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer period of time as determined by the
Board, in its discretion) after the date on which the Optionee's Service
terminated, but in any event no later than the date of expiration of the
Option's term as set forth in the Option Agreement evidencing such Option (the
"OPTION EXPIRATION DATE").
(ii) DEATH. If the Optionee's Service with
the Participating Company Group is terminated because of the death of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee's
legal representative or other person who acquired the right to exercise the
Option by reason of the Optionee's death at any time prior to the expiration of
six (6) months (or such longer period of time as determined by the Board, in its
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within
thirty (30) days (or such longer period of time as determined by the Board, in
its discretion) after the Optionee's termination of Service.
(iii) OTHER TERMINATION OF SERVICE. If the
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within thirty (30) days (or such
longer period of time as determined by the Board, in its discretion) after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.5(a) is prevented by the
provisions of Section 11 below, the Option shall remain exercisable until thirty
(30) days (or such longer period of time as determined by the Board, in its
discretion) after the date the Optionee is notified by the Company that the
Option is exercisable, but in any event no later than the Option Expiration
Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.5(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
10
<PAGE> 11
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 GENERAL. Unless otherwise provided by the Board at the
time the Option is granted, an Option shall comply with and be subject to the
terms and conditions set forth in the standard forms of Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
7.2 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 7 either in connection with the grant
or amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and conditions
of any such new, revised or amended standard form or forms of Option Agreement
are not inconsistent with the terms of the Plan.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company: (i)
the direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, a
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of
a Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Change in
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock
11
<PAGE> 12
subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Change in Control nor exercised as
of the date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control. Notwithstanding the
foregoing, shares acquired upon exercise of an Option prior to the Change in
Control and any consideration received pursuant to the Change in Control with
respect to such shares shall continue to be subject to all applicable provisions
of the Option Agreement evidencing such Option except as otherwise provided in
such Option Agreement.
9. PROVISION OF INFORMATION.
At least annually, copies of the Company's balance sheet and
income statement for the just completed fiscal year shall be made available to
each Optionee and purchaser of shares of Stock upon the exercise of an Option.
The Company shall not be required to provide such information to key employees
whose duties in connection with the Company assure them access to equivalent
information.
10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
12
<PAGE> 13
12. INDEMNIFICATION.
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's stockholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's stockholders under any applicable law, regulation or rule. No
termination or amendment of the Plan may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such termination or amendment is required to enable an Option designated
as an Incentive Stock Option to qualify as an Incentive Stock Option or is
necessary to comply with any applicable law, regulation or rule.
14. STOCKHOLDER APPROVAL.
The Plan or any increase in the maximum aggregate number of
shares of Stock issuable thereunder as provided in Section 4.1 (the "AUTHORIZED
SHARES") shall be approved by the stockholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
stockholder approval of the Plan or in excess of the Authorized Shares
previously approved by the stockholders shall become exercisable no earlier than
the date of stockholder approval of the Plan or such increase in the Authorized
Shares, as the case may be.
13
<PAGE> 14
PLAN HISTORY
April 12, 1999 Board adopts Plan, with an initial maximum share reserve of
4,000,000 shares, to become effective upon the date of its
approval by the shareholders.
June 21, 1999 Shareholders approve Plan.
<PAGE> 1
Exhibit 10.5
Form of Loan Agreement
SPATIALIGHT, INC.
CONVERTIBLE SECURED LOAN AGREEMENT
CONVERTIBLE SECURED LOAN AGREEMENT dated November ___, 1998 (the
"Agreement"), by and between SPATIALIGHT, INC., a New York corporation (the
"Company") and {_____} (as "Lender").
WHEREAS, Lender together with other lenders have agreed to advance
funds to the Company in an amount not to exceed $2,000,000 (the "Convertible
Secured Loan") evidenced by certain Convertible Secured Notes of even date
herewith (the "Notes") made by the Company in favor of the lenders who are
participating in this Convertible Secured Loan (the lenders are hereinafter
referred to collectively as the "Lenders");
WHEREAS, Lender has agreed to advance ${_____} of the Convertible
Secured Loan;
WHEREAS, Lender's agreement to make such advances is conditioned upon
and subject to the provisions of this Agreement; and
WHEREAS, the Company has reserved for issuance additional shares of its
Common Stock upon the conversion of the Notes.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1
Definitions
1.1 Defined Terms. The following terms are defined as follows:
"Benefit Arrangement" means any benefit arrangement, obligation, custom
or practice, to provide benefits, other than salary, as compensation for
services rendered, other than any obligation, arrangement, custom or practice
that is a Company Benefit Plan, including, without limitation, employment or
change of control agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs and employee discounts, in each case with
respect to any present or former employees, directors or agents.
"Business Day" means any day other than a Saturday or Sunday on which
commercial banks located in New York, New York are not required or authorized by
law or executive order to close or remain closed.
<PAGE> 2
"Code" means the Internal Revenue Code of 1986 (or any successor
thereto), as amended from time to time.
"Company Benefit Arrangement" means any Benefit Arrangement sponsored
or maintained by the Company or its Subsidiaries or with respect to which the
Company or a Subsidiary has or will have any liability (whether actual,
contingent, direct or indirect) as of the Closing Date (as defined in Section 3
of this Agreement), in each case with respect to any present or former
directors, employees, or agents of the Company or the Subsidiaries.
"Company Plan" means, as of the Closing Date, any Employee Benefit Plan
for which the Company or any Subsidiary has or will have any liability (whether
actual, contingent, direct or indirect).
"Company's Knowledge" or derivations thereof means knowledge of the
members of the board of directors, and the executive officers of the Company.
"Effectiveness Period" means the period commencing on the Closing Date
and ending on the second (2nd) anniversary of the Closing Date.
"Environmental Law" means any foreign, federal, state or local statute,
regulation, ordinance or rule of common law as now or hereafter in effect in any
way relating to the protection of the environment including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. ss.ss. 9601 et seq .), the Hazardous Materials Transportation Act (49
U.S.C. App. ss.ss. 1801 et seq .), the Resource Conservation and Recovery Act
(42 U.S.C. ss.ss. 6901 et seq .), the Clean Water Act (33 U.S.C. ss.ss. 1251 et
seq the Clean Air Act (42 U.S.C. ss.ss. 7401 et seq the Toxic Substances Control
Act (15 U.S.C. ss.ss. 2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. ss.ss. 136 et seq .), and the Occupational Safety and
Health Act (29 U.S.C.ss.ss. 651 et seq.) and the regulations promulgated
pursuant thereto.
"Event of Default" shall have the meaning ascribed to it in Section 5
of the Notes.
"Hazardous Material" means any substance, material or waste that is
regulated by the United States, the foreign jurisdictions in which the Company
or its Subsidiaries conduct business, or any state or local governmental
authority including, without limitation, petroleum and its by-products,
asbestos, and any material or substance that is defined as a "hazardous waste,"
"hazardous substance," "hazardous material," "restricted hazardous waste,"
"industrial waste," "solid waste," "contaminant," "pollutant," "toxic waste" or
"toxic substance" under any provision of Environmental Law.
"Loan Document" is defined in Section 4.5 hereof.
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, adverse claim, charge, right of first refusal, easement, transfer
restriction under any shareholder or similar agreement, encumbrance or any other
restriction or limitation whatsoever.
"New Securities" means shares of Common Stock (as defined in Section
4.2 of this Agreement) of the Company and any securities or other rights
convertible or exchangeable into or exercisable for shares of Common Stock,
provided, however, "New Securities" does not include (i)
<PAGE> 3
Common Stock issued or issuable upon conversion of the Notes issued to Lenders;
(ii) securities issued by the Company as part of any public offering pursuant to
an effective registration statement under the Securities Act; (iii) equity
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company; (iv) equity securities issued to management,
directors or employees of the Company pursuant to plans and options to purchase
equity securities issued in accordance with such plans approved by the Board;
(v) securities issued in connection with any merger, acquisition or other
business combination by the Company; (vi) Common Stock issued upon the
conversion of any notes outstanding as of the date hereof to Argyle Capital
Management Corporation, or (vii) any of the Excluded Shares (as defined in
Section 4(f)(iii) of the Notes.
"Notes" is defined in Section 2.1 hereof.
"Permits" means any approvals, authorizations, consents, licenses,
permits or certificates.
"Person" means an individual, partnership, limited liability company,
corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal or leaching into the indoor
or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare of the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
"Subsidiaries" means each material corporation in which the Company
owns or controls, directly or indirectly, capital stock or other equity
interests representing at least 50% of the outstanding voting stock or other
equity interests.
SECTION 2
Issuance and Terms of Convertible Secured Note
2.1 Convertible Secured Notes. At the closing, the Company will
execute and deliver its Convertible Secured Note, in the form attached hereto as
Exhibit 1, (each a "Note", and collectively with the Notes given to the other
Lenders, the "Notes",) to the Lender, in the principal amount of ${_____}.
2.2 Funding of Convertible Secured Notes. Subject to the
provisions of this Agreement, including satisfaction of the conditions to
Lender's obligations specified in Section 2.7 hereof, the Lender agrees to
release the principal amount of the Note set forth on Exhibit 2 hereto according
to the Funds Release Schedule attached hereto as Exhibit 6. Lender shall not be
required to release the funds described in Exhibit 6 relating to the
demonstration of a fully functioning projection display unit unless and until
the Company and the Holders' Representative (as defined in that certain Note
Holders' Representative Agreement of even date herewith) mutually agree that the
Company has demonstrated a fully functioning projection display unit. In the
event the Company and the Holders'
<PAGE> 4
Representative are unable to so mutually agree, the Company and Lender agree to
submit the dispute to a third party who is an expert in the Company's
technology, and such expert's determination shall be conclusive. Anything in
this Agreement, the Note or any other Loan Document (as defined in Section 4.5
of this Agreement) to the contrary notwithstanding, the Lender shall not be
required to advance any funds hereunder at any time when an Event of Default
exists under this Agreement, the Note, or any other Loan Document, or an event
has occurred or a condition has arisen which, if not cured during any applicable
cure period, will constitute an Event of Default. The obligations of the Lender
to advance any funds hereunder shall forever cease and terminate, in the event
that any Event of Default occurs under this Agreement, the Note, or any other
Loan Document, which is not cured within any applicable cure period provided in
such instrument.
2.3 Use of Proceeds. The Company agrees to use all of the funds
advanced hereunder to pay transaction costs and for working capital purposes.
2.4 Security Agreement. At the Closing, the Company shall execute
and deliver to Lender a Security Agreement in the form attached hereto as
Exhibit 3. Lender may record the executed Security Agreement in the U.S. Patent
and Trademark Office, the U.S. Copyright Office, with any Secretary of State, or
as otherwise appropriate to protect the interests of Lender.
2.5 Intercreditor Agreement. This Agreement is being entered into
by the Lender together with the other Lenders in reliance upon that certain
Intercreditor Agreement between the Lender and Argyle Capital Management
Corporation, a copy of which is attached hereto as Exhibit 4. This Agreement
shall have no force or effect unless or until the said Intercreditor Agreement
is executed by all parties thereto.
2.6 Registration Rights Agreement. At the Closing, the parties
shall enter into a Registration Rights Agreement in the form attached hereto as
Exhibit 5.
2.7 Conditions of Lender's Obligations. The obligation of Lender
to advance funds at the Closing and at any time thereafter under the terms of
this Agreement is subject to the fulfillment of the following conditions:
(a) No Misrepresentation. The representations and
warranties of the Company under this Agreement shall be deemed to have been made
again at the Closing and on the date of any release of funds thereafter and
shall then be true and correct in all material respects.
(b) Compliance with Agreement. The Company shall have
performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it on
or before the Closing Date.
(c) No Default. There shall not exist an Event of Default
or any event or condition which, with the giving of notice or lapse of time or
both, would constitute an Event of Default.
(d) Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under applicable
state securities laws shall have been obtained for the lawful execution,
delivery and performance of this Agreement, including without limitation the
offer and sale of the Notes.
<PAGE> 5
(e) Closing Documents Delivered by the Company. The
Company shall have delivered to each Lender all of the following documents:
(i) an Officer's Certificate, dated the date of
the Closing, stating that the conditions specified in Subsections (a), (b) and
(c) of this Section 2.7 and have been fully satisfied;
(ii) certified copies of the resolutions duly
adopted by the Company's Board of Directors authorizing the execution, delivery
and performance of this Agreement, the other Loan Documents, the issuance and
sale of the Notes and the consummation of all other transactions contemplated by
this Agreement; and
(iii) copies of the Company's Articles of
Incorporation, with all amendments thereto, and the Company's Bylaws, with all
amendments thereto, each as in effect at the Closing and each certified as a
complete and correct copy by an officer of the Company.
(f) Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions, shall be reasonably
satisfactory in form and substance to each Lender and its special counsel.
(g) Waiver. Any condition specified in this Section 2.7
may be waived if consented to by each Lender; provided that no such waiver will
be effective against any Lender unless it is set forth in a writing executed by
such Lender.
SECTION 3
Closing
The closing of the transactions contemplated in this Agreement (the
"Closing") shall be held at the Company's offices located at 8-C Commercial
Boulevard, Novato, CA 94949 on the date which this Agreement is executed by all
parties, or on such other date or at such other place as Lender and the Company
shall mutually agree (the date of the Closing being referred to herein as the
"Closing Date").
SECTION 4
Representations and Warranties of the Company
The Company hereby represents and warrants as of the date hereof as follows:
4.1 Organization. Good Standing and Qualification. Each of the
Company and its Subsidiaries (i) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
(ii) has all requisite power and authority to own its properties and carry on
its business, (iii) is duly qualified to transact business and is in good
standing in all jurisdictions where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified would not, and reasonably could not be
expected to, have a material adverse effect on the business, operations, assets,
financial condition, results of operations or business prospects of the Company
and its Subsidiaries (a
<PAGE> 6
"Material Adverse Effect"). The Company has the corporate power and authority
and is in possession of all material franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders to
(i) own, lease and operate its properties and to carry on its business as now
being conducted and (ii) execute and deliver this Agreement and the documents
and instruments contemplated hereby and to consummate the transactions
contemplated hereby.
4.2 Capitalization.
(a) The authorized capital stock of the Company consists
of 20,000,000 shares of common stock, par value $.01 per share ("Common Stock")
of which not more than 11,498,501 shares are issued and outstanding. There are
no shares of preferred stock authorized or outstanding. The Company has reserved
for issuance 2,666,666 shares of Common Stock upon conversion of the Notes.
Except as set forth on Schedule 4.2 hereto, there are no outstanding securities
of the Company convertible into or evidencing the right to purchase or subscribe
for any shares of Common Stock, there are no outstanding or authorized options,
warrants, calls, subscriptions, rights, commitments or any other agreements of
any character obligating the Company to issue any shares of its Common Stock or
any securities convertible into or evidencing the right to purchase or subscribe
for any shares of such stock, and there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of Common
Stock of the Company. No outstanding options, warrants or other securities
exercisable for or convertible into shares of Common Stock require anti-dilution
adjustments by reason of the consummation of the transactions contemplated
hereby.
(b) The issued and outstanding shares of Common Stock are
duly authorized, validly issued, fully paid and nonassessable. The shares of
Common Stock issuable upon conversion of the Notes of the Company, when issued
(i) will be validly issued, fully paid and nonassessable, (ii) will be free and
clear of all Liens and (iii) assuming that the representations of Lender in
Section 5 hereof are true and correct, will be issued in compliance with all
applicable federal and state securities laws.
4.3 Subsidiaries. Schedule 4.3 sets forth a complete and accurate
list of all Subsidiaries of the Company, showing (as to each such Subsidiary)
the date of its incorporation and the jurisdiction of its incorporation. The
Company is the sole stockholder of each Subsidiary. The outstanding shares of
capital stock of each Subsidiary are validly issued, fully paid, and
nonassessable and all such shares represented as being owned by the Company are
owned by it, free and clear of all Liens, other than Liens held by Argyle
Capital Management Corporation and the Lenders. There are no outstanding
securities of any Subsidiary convertible into or evidencing the right to
purchase or subscribe for any shares of capital stock of any Subsidiary, there
are no outstanding or authorized options, warrants, calls, subscriptions,
rights, commitments or any other agreements of any character obligating any
Subsidiary to issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or subscribe for any shares
of such stock, and there are no agreements or understanding with respect to the
voting, sale, transfer or registration of any shares of capital stock of any
Subsidiary.
4.4 Partnerships and LLCs. The Company is not a party to, and does
not hold, any equity interests in any partnership, limited partnership or
limited liability company of any kind.
4.5 Authorization. The Company has all requisite corporate power
and authority to execute and deliver this Agreement and each agreement, document
or instrument adopted, entered
<PAGE> 7
into or delivered in connection herewith (the "Loan Documents") and to perform
its obligations hereunder and thereunder. The execution, delivery and
performance of the Agreement and the transactions contemplated hereby and
thereby and the issuance and sale of the Notes have been duly authorized by all
necessary corporate action on the part of the Company. Each Loan Document has
been duly and validly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the extent that rights to
indemnification and contribution under this Agreement may be limited by federal
or state securities laws or public policy relating thereto.
4.6 Consents. Except as set forth in Schedule 4.6, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority or other Person on the part of the Company is required in
connection with the valid execution and delivery by the Company of the Loan
Documents to which it is a party, or the consummation by the Company of the
transactions contemplated by the Loan Documents to which it is a party.
4.7 Absence of Litigation. Except as set forth in Schedule 4.7 and
outstanding accounts payable, there are no claims, actions, suits, proceedings
or investigations pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries, or any properties or rights of
the Company or its Subsidiaries, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, that could
reasonably be expected to have a Material Adverse Effect. The Company has no
knowledge of any unasserted claim, the assertion of which is likely and which,
if asserted, would be reasonably likely to have a Material Adverse Effect.
4.8 Insurance. The Company and its Subsidiaries maintain adequate
insurance with respect to their respective businesses and such policies of
insurance are in full force and effect and the Company and its Subsidiaries are
not in violation of and are in compliance with all material requirements and
provisions thereof. The Company and its Subsidiaries have not been refused any
insurance coverage sought or applied for, and the Company has no reason to
believe that it will be unable to renew its existing insurance coverage upon
terms at least as favorable as those presently in effect, other than possible
increases in premiums that do not result from any act or omission of the Company
or its Subsidiaries.
4.9 Patents and Trademarks. The Company and its Subsidiaries have
sufficient title and ownership of (or rights under license agreements to use)
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
proprietary rights and processes ("Intellectual Property") necessary for the
conduct of their businesses in the ordinary course. Other than the security
interest granted to Argyle Capital Management Corporation in all of the
Corporation's Collateral (as such term is defined in the Security Agreement and
the security interest granted to the Lenders), there are no outstanding options,
licenses or agreements of any kind relating to the foregoing, nor is the Company
or any of its Subsidiaries bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, proprietary rights or processes of any
other Person. A list of all patents, trademarks, service marks, trade names
<PAGE> 8
and copyrights owned by the Company or any of its Subsidiaries is set forth on
Schedule 4.9(a). Except as set forth on Schedule 4.9(b), since January 1, 1997,
the Company has not received any written or oral communications alleging that
the Company or any of its Subsidiaries has violated or, by conducting its
business as proposed, would violate any of the patents (including pending patent
applications), trademarks, service marks, trade names, copyrights, trade
secrets, proprietary rights or processes of any other Person, nor is the Company
aware of any such violations. The Company is not aware of any infringements or
threatened infringements of the Intellectual Property.
4.10 Compliance with Other Instruments and Legal Requirements.
(a) None of the Company or any of its Subsidiaries is in
violation or default of any provisions of its certificate of incorporation,
by-laws, or comparable organizational documents. None of the Company or any of
its Subsidiaries is in violation or default in any material respect under any
provision, instrument, judgment, order, writ, decree, contract or agreement to
which it is a party or by which it is bound or of any provision of any federal,
state or local statute, rule or regulation applicable to the Company or any of
its Subsidiaries (including, without limitation, any law, rule or regulation
relating to protection of the environment and the maintenance of safe and
sanitary premises). The execution, delivery and performance of each Loan
Document and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree,
contract or agreement, or require any consent, waiver or approval thereunder, or
constitute an event that results in the creation of any Lien upon any assets of
the Company or any of its Subsidiaries except as created by the Loan Documents.
(b) The Company and its Subsidiaries have all Permits of
all governmental entities required to conduct their respective businesses as
proposed to be conducted, except to the extent that the failure to have such
Permits would not, and reasonably could not be expected to, have a Material
Adverse Effect.
4.11 Material Agreements; Action. Except as set forth on Schedule
4.11, there are no material contracts, agreements, commitments, understandings
or proposed transactions to which the Company or any of its Subsidiaries is a
party or by which it is bound regarding: (i) any of their respective officers,
directors, stockholders or partners; (ii) the sale of any of the assets of the
Company or any of its Subsidiaries other than in the ordinary course of
business; (iii) covenants of the Company or any of its Subsidiaries not to
compete in any line of business or with any Person in any geographical area or
covenants of any other Person not to compete with the Company or any of its
Subsidiaries in any line of business or in any geographical area; (iv) the
acquisition by the Company or any of its Subsidiaries of any operating business
or the capital stock of any other Person; (v) the borrowing of money; or (vi)
the license or grant of any interest in any of the Intellectual Property or
other material proprietary right to or from the Company or any of its
Subsidiaries except as created by the Loan Documents. To the Company's
knowledge, all such agreements are in full force and effect and are the legal,
valid and binding obligation of the Company or its Subsidiaries, enforceable
against them in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
<PAGE> 9
4.12 Disclosure. To the best of the Company's knowledge, neither
this Agreement nor any of the Loan Documents nor any exhibit hereto, nor any
certificate, or instrument furnished to Lender or its counsel in connection with
the transactions contemplated by this Agreement, when read together, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they are made, not
misleading.
4.13 Registration Rights. Except as set forth in Schedule 4.13, the
Company has not granted or agreed to grant any registration rights, including
piggyback registration rights, to any Person.
4.14 Property. None of the Company or its Subsidiaries owns real
property or interest in real property. The Company and its Subsidiaries have
good and marketable title to all material properties and assets, and the Company
and its Subsidiaries have good title to all of its leasehold interests in each
case subject to no Liens other than those set forth in Schedule 4.14.
4.15 Environmental Matters.
(a) the operations of each of the Company and its
Subsidiaries are in compliance in all material respects with all applicable
Environmental Laws and all Permits issued pursuant to Environmental Laws or
otherwise;
(b) each of the Company and its Subsidiaries has obtained
all Permits required under all applicable Environmental Laws necessary to
operate its business;
(c) neither the Company nor any of its Subsidiaries is
the subject of any outstanding written order, agreement or arrangement with any
governmental authority or Person respecting (i) Environmental Laws, (ii)
Remedial Action or (iii) any Release or threatened Release of a Hazardous
Material;
(d) none of the Company or any of its Subsidiaries has
received any written communication alleging either or both that the Company or
any of its Subsidiaries may be in violation of any Environmental Law, or any
Permit issued pursuant to Environmental Law, or may have any liability under any
Environmental Law;
(e) none of the Company or any of its Subsidiaries has
any known current contingent liability in connection with any Release of any
Hazardous Materials into the indoor or outdoor environment;
(f) there are no investigations of the business,
operations, or currently or previously owned, operated or leased property of the
Company or any of its Subsidiaries pending or, to the Company's Knowledge,
threatened that could lead to the imposition of any liability pursuant to
Environmental Law; and
(g) there is not located at any property leased or
operated by the Company or any of its Subsidiaries any (i) underground storage
tanks, (ii) asbestos containing material in a friable condition or (iii)
equipment containing polychlorinated biphenyls.
<PAGE> 10
4.16 Company SEC Reports and Financial Statements.
(a) Lender has received true and complete copies of all
periodic reports, statements and other documents that the Company has filed with
the Securities and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934 (the "Exchange Act") since January 1, 1996 (collectively, the
"Company SEC Reports"), each in the form (including exhibits and any amendments
thereto) required to be filed with the SEC. As of their respective dates, and
except as set forth on Schedule 4.16 hereto, each of the Company's SEC Reports
(i) complied in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act,
and the rules and regulations promulgated thereunder, respectively, (ii) were
filed in a timely manner, and (iii) to the best of the Company's knowledge, 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
therein, in light of the circumstances under which they were made, not
misleading. None of the Subsidiaries is required to file any forms, reports or
other documents with the SEC.
(b) Each of the audited consolidated financial statements
of the Company (including any related notes and schedules thereto) included (or
incorporated by reference) in its Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996, and, to the best of the Company's knowledge, each
of the un-audited consolidated financial statements of the Company (including
any related notes and schedules thereto) include (or incorporated by reference)
in its Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997
and in its Form 10-Q for the period ending March 30, 1998 (and for the period
ending June 30, 1998 if filed prior to Closing), are accurate and complete and
fairly present, and in conformity with the SEC's Regulation S-B, the
consolidated financial position of the Company and its consolidated subsidiaries
as of its date and the consolidated results of operations and changes in
financial position for the period then ended.
4.17 Changes. Except as set forth on Schedule 4.17, since December
31, 1997:
(a) to the best of the Company's knowledge, there have
not been any events or circumstances that could reasonably be expected to have a
Material Adverse Effect;
(b) none of the Company nor any of its Subsidiaries has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock or equity interests,
(ii) except as set forth on Schedule 4. 17, incurred any indebtedness for money
in excess of $100,000, (iii) made any loans or advances to any Person, other
than ordinary advances for travel expenses not exceeding $5,000, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights for consideration
in excess of $5,000 in any one transaction or series of related transactions;
and
(c) Company has not issued any options, warrants or other
securities convertible into shares of Common Stock.
4.18 Indebtedness. Neither the Company nor any of its Subsidiary
has any outstanding indebtedness or is a guarantor or is otherwise contingently
liable for any indebtedness except as disclosed on the balance sheet of the
Company dated September 30, 1998 in the Company's Form 10-Q (the "Balance
Sheet"). There exists no material default under the provisions of any instrument
<PAGE> 11
evidencing any Senior Secured Obligations or Subordinate Secured Obligations, as
each such term is defined in that certain Intercreditor Agreement dated even
herewith) or of any agreement relating thereto. The current outstanding
principal balance due to Argyle Capital Management Corporation is no more than
$1,188,000, and interest accrued and unpaid on such debt as of June 30, 1998 is
not more than $32,000.
4.19 Employee Benefit Plans.
(a) Schedule 4.19(a) contains a complete and accurate
list of all Company Plans and Company Benefit Arrangements. Schedule 4.19(a)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(b) Schedule 4.19(b) hereto sets forth an accurate list,
as of the date hereof, of all officers, directors, and key employees of the
Company and lists all employment agreements with such officers, directors, and
key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus, and other compensation respectively) of each such
Person as of the date hereof.
(c) The Company has not declared or paid any bonus
compensation in contemplation of the transactions contemplated by this
Agreement.
4.20 Taxes. All federal, state, local and foreign tax returns,
reports and statements, or extensions required by law to be filed by the Company
and its Subsidiaries have bean filed with the appropriate governmental agencies
in all jurisdictions in which such returns, reports and statements are required
to be filed and all such returns, reports and statements or extensions are true,
complete and correct in all respects. All taxes, charges and other impositions
due and payable by the Company and its Subsidiaries have been paid in full on a
timely basis except where contested in good faith and by appropriate proceedings
if adequate reserves therefor have been established on the books and records of
the Company or Subsidiary in accordance with GAAP consistently applied. The
Company has not received notice of any audit or of any proposed deficiencies
from any governmental authority, and no controversy with respect to taxes of any
type is pending or threatened. Except for routine filing extensions granted as a
matter of right under applicable law, none of the Company or any of its
Subsidiaries has executed or filed with the Internal Revenue Service or any
other governmental authority any agreement or other document extending, or
having the effect of extending, the period of assessment or collection of any
taxes, charges or other impositions.
4.21 No Brokers or Finders. Except as set forth in Schedule 4.21,
no Person has, or as a result of the transactions contemplated herein will have,
any right or valid claim against the Company for any commission, fee or other
compensation as a finder or broker or in any similar capacity.
4.22 Interested Party Transactions. Except as disclosed on Schedule
4.22, no officer, director or shareholder of the Company or any affiliate or
"associate" (as such term is defined in Rule 405 of the Commission under the
Securities Act) of any such Person or the Company has or has had, either
directly or indirectly, (a) an interest in any Person which (i) furnishes or
sells services or products which are furnished or sold or are proposed to be
furnished or sold by the Company, or (ii) purchases from or sells or furnishes
to, or proposes to purchase from, sell to or furnish to, the
<PAGE> 12
Company any goods or services, or (b) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected.
4.23 Securities Laws. Assuming the accuracy and completeness of the
representations and warranties of the Lenders under the Agreement, the offer and
sale of the Notes are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration or qualification requirements of all applicable state securities
laws.
4.24 Absence of Undisclosed Liabilities. Neither the Company nor
any of its Subsidiaries has any obligation or liability (whether accrued,
absolute, contingent, liquidated or otherwise, including without limitation any
tax liabilities due or to become due), which are not fully disclosed and
adequately provided for in the Balance Sheet, or fully disclosed on Schedules to
this Agreement, except current liabilities incurred and obligations under
agreements entered into in the usual and ordinary course of business since the
date of the Balance Sheet, none of which (individually or in the aggregate) is
material to the business, properties, financial condition or results of
operations of the Company and its Subsidiaries, and contingent liabilities that
are not (individually or in the aggregate) material to the business, properties,
financial condition or results of operations of the Company and its
Subsidiaries.
4.25 Employees. To the Company's knowledge, no officer or key
employee of the Company or any Subsidiary has any plans to terminate his or her
employment with the Company or such Subsidiary and no employee of the Company or
any Subsidiary is in violation of any term of any employment contract, or
nondisclosure agreement, non-competition agreement, or any other obligation,
contract or agreement or any restrictive covenant relating to the right of any
such employee to be employed by the Company or such Subsidiary or relating to
the use of trade secrets or proprietary information of others, and the
employment of the employees of the Company or any Subsidiary does not subject
the Company or any Subsidiary to any liability arising by reason of any such
contract, agreement or restrictive covenant or by reason of trade secret or
unfair competition laws. The Company and each Subsidiary has complied in all
material respects with all laws relating to employment or labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and payment of Social Security and other taxes.
SECTION 5
Representations, Warranties and Covenants of the Lender
Each Lender severally hereby represents and warrants to and agrees with
the Company, as to itself only, as follows:
5.1 Accredited Investor; Investment. Lender is an accredited
investor within the definition of Regulation D promulgated under the Securities
Act. Lender has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of the transactions
contemplated herein. Lender is acquiring its respective Note for investment
purposes only, for its own account and not with a view to, or for resale in
connection with, any distribution thereof in violation of applicable law.
<PAGE> 13
5.2 Risk. Lender acknowledges that it, he or she is aware that the
Company is currently insolvent and has not had any revenues and has sustained
losses for the past several years. The Lender further acknowledges that (x)
there can be no assurance that the Company will have sufficient funds to repay
all or any portion of the loan being borrowed hereunder, (y) that the collateral
securing the loan will have sufficient value to repay the loan or (z) that the
securities into which the loan may be converted will have any value. Lender
further confirms that the Company has made available to the Lender the
opportunity to ask questions of and receive answers from the Company concerning
the Company and the activities of the Company.
5.3 Authorization. Lender represents that it has all requisite
power and authority to enter into and perform its obligations under the Loan
Documents to which it is a party. Assuming the due authorization, execution and
delivery of the Loan Documents by each other party thereto, each Loan Document
to which Lender is a party constitutes a valid and binding obligation of Lender,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity) and except to the
extent that rights to indemnification and contribution under this Agreement may
be limited by federal or state securities laws or public policy relating
thereto.
5.4 Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority or other Person on the part of
Lender is required in connection with the valid execution and delivery by Lender
of the Loan Documents to which it is a party, or the consummation by Lender of
the transactions contemplated by the Loan Documents to which it is a party,
except for such filings as have been made prior to the Closing.
5.5 Brokers' Fees. No broker, finder, investment banker or other
Person is entitled to any brokerage fee, finder's fee or other commission in
connection with the transactions contemplated by this Agreement and based upon
arrangements made by Lender.
5.6 Restrictive Legends. Lender understands that the common shares
to be issued upon conversion of the Convertible Secured Note (the "Conversion
Share"), shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such stock
certificates) until such time as the sale of the Conversion Shares have been
registered under the Securities Act as contemplated hereunder:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT",) OR ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH.
If Lender desires to sell or otherwise dispose of all or any part of such common
shares under an exemption from registration under the Securities Act, and if
requested by the Company, such Lender
<PAGE> 14
shall deliver to the Company an opinion of counsel, which may be counsel for the
Company, that such exemption is available.
SECTION 6
Covenants of the Company
6.1 Information. After the Closing Date and until the later to
occur of the date (the "Cessation Date") on which the Notes are fully repaid or
converted, the Company will send each Lender the information specified in this
Section 6.1:
(a) Shareholders Information. Any and all materials which
the Company sends to the holders of its Common Shares shall be sent to each
Lender on the same date on which it is sent to such shareholders.
(b) Quarterly Financial Statements. As soon as available,
but in any event no later than forty-five (45) days after the end of each fiscal
quarter (other than the fourth fiscal quarter of the Company), the unaudited
consolidated balance sheet of the Company and its Subsidiaries as at the end of
each such quarter and the related unaudited consolidated statements of income
and cash flows of the Company and its Subsidiaries for such quarter and for the
elapsed period in such fiscal year, all in reasonable detail and stating in
comparative form the figures as of the end of and for the comparable periods of
the preceding fiscal year. All such financial statements shall be prepared in
accordance with the GAAP on a consistent basis throughout the periods reflected
therein except as stated therein and shall be accompanied by a certificate of
the Company's president or chief financial officer to such effect.
(c) Other Reports and Statements. Promptly (but in any
event within ten (10) days after any distribution to its stockholders generally,
to its directors or to the financial community of an annual report, definitive
proxy statement, registration statement or other similar report or
communication, and promptly (but in any event within ten (10) days) after any
filing by the Company with the SEC or with any national securities exchange or
market system, of any publicly available annual or periodic or special report or
proxy statement or registration statement, a copy of such report or statement
and copies of all press releases and other statements made available generally
by the Company to the public concerning material developments in the Company's
business, shall be sent to each Lender.
6.2 Preemptive Rights. If at any time after the Closing Date and
prior to the Cessation Date, the Company shall propose to issue or sell New
Securities or enters into any contracts, commitments, agreements, understandings
or arrangements of any kind relating to the issuance or sale of any New
Securities, then each Lender shall have the right to purchase that number of New
Securities at the same price and on the same terms proposed to be issued or sold
by the Company so that such Lender would after the issuance and sale of all such
New Securities, hold the same proportional interest of the then outstanding
shares of Common Stock (assuming that any outstanding securities or other
rights, including the Notes, convertible or exchangeable into Common Stock have
been converted or exchanged) as was held by such Lender immediately prior to
such issuance and sale (the "Proportionate Percentage").
<PAGE> 15
The Company shall give each Lender written notice of its intention to
issue and sell New Securities, describing the type of New Securities, the price
and the general terms and conditions upon which the Company proposes to issue
the same. Each Lender shall have ten (10) Business Days from the giving of such
notice to agree to purchase all (or any part) of its Proportionate Percentage of
New Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
If Lenders fail to exercise in full such right within ten (10) Business
Days, the Company shall have one hundred twenty-five (125) days thereafter to
sell the New Securities in respect of which Lenders' rights were not exercised,
at a price and upon general teens and conditions no more favorable to the buyers
thereof than specified in the Company's notice to Lenders pursuant to this
Section. If the Company has not sold the New Securities within such one hundred
twenty-five (125) day period, the Company shall not-thereafter issue or sell any
New Securities, except by giving Lenders the right to purchase their
Proportionate Percentage in the manner provided above.
6.3 Negative Covenants. (a) Prior to the date on which the Notes
are paid in full, the Company shall not, without the prior written consent of
each Lender:
(i) Incur any debt for borrowed money, or grant any
security interest which is senior to, or pari passu with, the Convertible
Secured Note;
(ii) Declare or pay any dividend on its Common Stock;
(iii) Redeem for cash any securities issued by the Company;
(iv) Directly or indirectly, consummate any merger,
consolidation or other reorganization (other than a reorganization or merger
solely for the purpose of a change in the state of incorporation of the Company
and a merger of Spatialight of California, Inc. with and into the Company), or
the sale, lease or other transfer of all or substantially all of its assets; or
(v) Issue any options, warrants, or other securities to
any officer or director of the Company, except for an issuance under the 1993
Employee Stock Option Plan, as amended and the 1993 Directors Stock Option Plan.
(b) Prior to the Cessation Date, the Company shall not,
without the prior written consent of each Lender:
(i) issue any security which is preferred in dividends or
in liquidation to the Common Stock, which is not convertible into Common Stock;
or
(ii) issue any preferred stock, convertible debenture or
other security which is preferred in dividends to the Common Stock, which is
intended to, or can reasonably be expected to pay the purchaser of such security
an annual preferred yield of greater than ten percent per annum, on the issue
price of such security.
6.4 Board Member & Sit-In Rights. All of the Lenders, acting as a
group, at its option, shall have the right to nominate one candidate at the next
election of the board of directors of the Company, who shall be included in the
Company's slate of directors in all proxy materials sent to
<PAGE> 16
Company's shareholders. At any time that the Lenders do not have a
representative on the Company's board of directors, (a) the Lenders acting as a
group shall be permitted to select one representative ("the Representative") to
attend meetings of the board of directors of the Company, and to consult with
and advise management of the Company on significant business issues and
management will make itself available to meet with the Representative regularly
during each year at the Company's facilities at mutually agreeable times for
such consultation and advice; provided, however, that nothing in this paragraph
shall be construed to require the Company or its management to follow any such
consultation or advice; and (b) the Representative, upon reasonable notice to
Company, may inspect the Company's facilities, books and records at reasonable
times and intervals, provided, however, that such access shall be subject to (i)
the provisions of Section 6.1(d) of this Agreement and (ii) the Representative's
and execution of a confidentiality agreement the form and substance of which is
similar to the confidentiality agreement executed by Company's directors. The
Representative shall be provided the same notice of director's meetings that the
Company's directors receive. So long as the Lenders have the right provided in
this Section 6.4, all materials which the Company distributes to its members of
the board of directors will be distributed to the Representative if the Lenders
do not have a representative on the board of directors. A Lender who requests
information from the Representative (a "Requesting Lender") hereby acknowledges
that it is aware of the restrictions imposed by federal and state securities
laws on a person possessing material nonpublic information about a company. In
this regard, a Requesting Lender hereby agrees that while it is in possession of
material nonpublic information with respect to the Company and its subsidiaries,
such Requesting Lender will not purchase or sell any securities of the Company,
or communicate such information to any third party, in violation of any such
laws. Such Requesting Lender also agrees that, if requested by the Company, such
Requesting Lender will cause any of its representatives, consultants or advisors
who have been or may become apprised of any material nonpublic information about
the Company to give a written undertaking to the same effect to the Company. The
rights provided in this Section 6.4 shall remain in full force and effect as
long as any amounts remain due on the Note.
6.5 Loss, Theft or Destruction of Notes. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note and, in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation, upon surrender and cancellation of any Note, the Company
will make and deliver, in lieu of such lost, stolen, destroyed or mutilated
Note, a new Note of like tenor and unpaid principal amount and dated as of the
date to which interest has been paid on the unpaid principal amount of the Note
so lost, stolen, destroyed or mutilated, or, if no interest shall have been paid
thereon, then dated as of the date of the Note so lost, stolen, destroyed or
mutilated.
SECTION 7
Indemnification
7.1 Indemnification by Company. The Company agrees to indemnify
and hold harmless each Lender and its respective partners, co-investors,
officers, directors, employees, agents, consultants, attorneys and advisers
(each, a "Lender Indemnified Party"), from and against any and all actual
losses, claims, damages, liabilities, costs and expenses (including, without
limitation, environmental liabilities, costs and expenses and all reasonable
fees, expenses and disbursements of counsel), joint or several (hereinafter
collectively referred to as a "Loss" or "Losses"), which may be incurred by or
asserted or awarded against any Lender Indemnified Party in connection with or
<PAGE> 17
in any manner arising out of or relating to any investigation, litigation or
proceeding or the preparation of any defense with respect thereto, arising out
of or in connection with or relating to this Agreement, the other Loan Documents
or the transactions contemplated hereby or thereby, any breach of any
representation, warranty or covenant made by the Company in this Agreement, any
use made or proposed to be made with the proceeds of Lender's respective Note
pursuant to this Agreement, or any Intellectual Property, whether or not such
investigation, litigation or proceeding is brought by the Company, any of its
Subsidiaries, shareholders or creditors, but excluding therefrom any Losses
arising out of resulting from (i) the gross negligence or willful misconduct of
an Lender Indemnified Party, (ii) any violation by an Lender Indemnified Party
of any law, governmental regulation or court order applicable to it or (iii) the
breach by an Lender Indemnified Party of any provision of this Agreement or any
of the other Loan Documents.
7.2 Indemnification by Lender. Each Lender severally agrees to
indemnify and hold harmless the Company and its respective officers, directors,
employees, agents, consultants, attorneys and advisers (each, a "Company
Indemnified Party"), from and against any and all Losses, which may be incurred
by or asserted or awarded against any Company Indemnified Party in connection
with or in any manner arising out of or relating to any investigation,
litigation or proceeding or the preparation of any defense with respect thereto,
arising out of or in connection with or relating to any breach of any
representation, warranty or covenant made by such Lender in this Agreement.
Notwithstanding the foregoing, no Lender shall be liable under this Section 7.2
for an amount in excess of that Lender's principal as set forth on Exhibit B.
7.3 Notice of Claim. An indemnified party shall give written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification within ten (10) days after the discovery by such parties of any
matters giving arise to a claim for indemnification pursuant to this Section 7,
provided that 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, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action or claim is
brought against any indemnified party, the indemnifying party shall be entitled
to participate in and, unless in the reasonable good faith judgment of the
indemnified party a conflict of interest between such indemnified party and the
indemnifying party may exist in respect of such action or claim, to assume that
defense thereof, with counsel satisfactory to the indemnified party and after
notice from the indemnifying party to the indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. In any event, unless and until the indemnifying party elects in
writing to assume and does so assume the defense of any such action or claim the
indemnified party's costs and expenses arising out of the defense, settlement or
compromise of any such action or claim shall be Losses subject to
indemnification hereunder. If the indemnifying party elects to defend any such
action or claim, then the indemnified party shall be entitled to participate in
such defense with counsel of its choice at its sole cost and expense. The
indemnifying party shall not be liable for any settlement of any action or claim
effected without its written consent. Anything in this Section 7 to the contrary
notwithstanding, the indemnifying party shall not, without the indemnified
party's prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof that imposes any future obligation on
the indemnified party or that does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party, a
release from all liability in respect of such claim.
<PAGE> 18
SECTION 8
Miscellaneous
8.1 Amendment: Waiver. Neither this Agreement nor any provision
hereof may be amended, modified, supplemented or waived, except by a written
instrument executed by (i) the Company and (ii) each of the Lenders.
8.2 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing and delivered in
Person, transmitted by facsimile transmission (fax) or sent by registered or
certified mail (return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such other address has
such party may notify to the other parties in writing:
(a) if to the Company:
SpatiaLight, Inc.
8-C Commercial Boulevard
Novato, CA 94949
Attn: Michael H. Burney
Facsimile No.: (415)883-3363
(b) if to a Lender:
To the address listed next to each such Lender on
Exhibit B hereto.
A notice or communication will be effective (i) if delivered in Person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three (3) business
days after dispatch.
8.3 Survival of Representation, Warranties and Covenants. All
representations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution, delivery and closing of this Agreement,
any investigation at any time made by or on behalf of any Lender, and the
issuance of the Convertible Secured Note for a period of two (2) years;
provided, however, that the representations and warranties made in Section 4.15
(Environmental) and 4.20 (Taxes) shall survive the applicable statutory period
of limitations with respect to any liabilities covered thereby.
8.4 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
8.5 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors and assigns of the parties hereto, including, without limitation,
each transferee of all or any portion of the Convertible Secured Note.
<PAGE> 19
No party hereto may assign its rights or delegate its obligations under this
Agreement without the prior written consent of the other parties hereto;
provided, however, a Lender may assign its rights and delegate its obligations
under this Agreement upon the Company's prior written consent which consent will
not be unreasonably withheld. The Parties agree that, among other reasons, it
will be reasonable for the Company to withhold such consent if the proposed
assignee is a competitor to the Company.
8.6 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 subject matter hereof and
thereof and supersede and cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters, acceptances, understandings,
contracts and communications, whether verbal or written, among the parties
hereto and thereto or their respective agents with respect to or in connection
with the subject matter hereof.
8.7 Choice of Law, Venue and Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
without regard to principles of conflict of laws.
8.8 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument. Execution and delivery by facsimile
shall constitute good and valid execution and delivery unless and until replaced
or substituted by an original executed instrument.
8.9 No Third-Party Beneficiaries. Nothing in this Agreement will
confer any third party beneficiary or other rights upon any Person (specifically
including any employees of the Company and its Subsidiaries) or entity that is
not a party to this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
SpatiaLight, Inc., a New York corporation
By:
------------------------------------------
Name: Michael H. Burney
Its: Authorized Signatory
Lender:
--------------------------------------
{_____}
<PAGE> 20
EXHIBIT A
Schedule of Lenders
<TABLE>
<CAPTION>
Lender Number of Shares Investment Amount
- ------ ---------------- -----------------
<S> <C> <C>
Ronald A. Weyers 111,110.67 $83,333.00
Jeffrey J. Weyers 111,110.67 $83,333.00
Robert J. Weyers 111,110.67 $83,333.00
Matthew A. King 50,000.00 $37,500.00
Robert O. Rolfe 66,666.67 $50,000.00
John W. Eakin 33,333.33 $25,000.00
Bryan B. Starr, Sr. 33,333.33 $25,000.00
Bryan B. Starr, Jr. 33,333.33 $25,000.00
Robert E. Woods 66,666.67 $50,000.00
Marcia K. Tripp 133,333.33 $100,000.00
Wayne Patrick Tripp Trust 66,666.67 $50,000.00
Lisa Marie Tripp Trust 66,666.67 $50,000.00
Steven Francis Tripp 133,333.33 $100,000.00
FBO Jimmie H. Harvey, M.D. 166,666.67 $125,000.00
Birmingham Hematology & Oncology Associates, SLB
Flex Prototype P/S Plan DTD 10-17-85
Jimmie H. Harvey, M.D. 166,666.67 $125,000.00
Hilliard Limited Partnership 200,000.00 $150,000.00
Dan Hilliard 133,333.33 $100,000.00
Wallace J. Hilliard Flint Trust 133,333.33 $100,000.00
Paul Klister 33,333.33 $25,000.00
Jefferson R. Cobb 100,000.00 $75,000.00
</TABLE>
<PAGE> 1
Exhibit 10.6
Form of Security Agreement
SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated as of November ___ , 1998 ("Security
Agreement"), is made by SPATIALIGHT, INC., a New York corporation, and by
SPATIALIGHT OF CALIFORNIA, INC., a California corporation (Spatialight, Inc.,
and Spatialight of California, Inc. are hereinafter referred to collectively as
"Grantor"), in favor of Steven F. Tripp, as collateral agent for the lenders
listed on Schedule A annexed hereto (collectively the "Lenders"), as now
existing and as hereafter amended from time to time (Steven F. Tripp in his
capacity as collateral agent hereunder, and together with his successors and
assigns in such capacity, is hereinafter referred to as "Secured Party").
RECITALS
WHEREAS, Grantor and Lenders have entered into one or more Convertible
Secured Loan Agreements, dated of even date herewith (as the same may be
amended, modified, supplemented or renewed from time to time herein individually
and collectively called the "Loan Agreements"), pursuant to which the Lenders
have severally agreed to lend to Grantor an aggregate principal sum of up to
$2,000,000, and Grantor, to evidence its indebtedness to the Lenders under the
Loan Agreements, has executed and delivered to the Lenders its Convertible
Secured Notes, dated of even date herewith (herein collectively called the
"Notes"), in the aggregate principal amount of $2,000,000 to mature on December
31, 1998, (subject to extension by Grantor to December 31, 1999) said Notes
being payable to the order of the respective Lenders, bearing interest at the
rate provided for therein and containing provisions for payment of attorney's
fees and acceleration of maturity in the event of default, as therein set forth;
WHEREAS, as a condition precedent to the making of the loans under the
Loan Agreements, Grantor is required to execute and deliver this Security
Agreement; and
WHEREAS, Grantor has duly authorized the execution, delivery and
performance of this Security Agreement.
NOW, THEREFORE, in order to induce the Lenders to make the loans
provided for under the terms of the Loan Agreements and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Grantor hereby represents,
warrants, covenants and agrees as follows:
1. Defined Terms. When used in this Security Agreement the
following terms shall have the following meanings (such meanings being equally
applicable to both the singular and plural forms of the terms defined):
"Collateral" shall have the meaning assigned to such term in Section 2
of this Security Agreement.
"Contracts" means all contracts, undertakings, franchise agreements or
other agreements in or under which Grantor now holds or hereafter acquires any
right, title or interest, including, without
<PAGE> 2
limitation, with respect to an Account, any agreement relating to the terms of
payment or the terms of performance thereof.
"Copyright License" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right in or to any
Copyright or Copyright registration (whether Grantor is the licensee or the
licensor thereunder) including, without limitation, licenses pursuant to which
Grantor has obtained the exclusive right to use a copyright owned by a third
party.
"Copyrights" means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof
or any other country; (b) registrations, applications, recordings and
proceedings in the United States Copyright Office or in any similar office or
agency of the United States, any State thereof or any other country; (c) any
continuations, renewals or extensions thereof; (d) any registrations to be
issued in any pending applications; (e) prior versions of works covered by
copyright and all works based upon, derived from or incorporating such works;
(f) income, royalties, damages, claims and payments now and hereafter due and/or
payable with respect to copyrights, including, without limitation, damages,
claims and recoveries for past, present or future infringement; (g) rights to
sue for past, present and future infringements of any copyright; and (b) any
other rights corresponding to any of the foregoing rights throughout the world.
"Event of Default" means any "Event of Default" as defined in the
Notes;
"License" means any Copyright License, Patent License, Trademark
License or other license of intellectual property rights or interests now held
or hereafter acquired by Grantor.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Patent License" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right with respect to any
invention on which a Patent is in existence (whether Grantor is the licensee or
the licensor thereunder).
"Patents" means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
any other country, all registrations and recordings thereof and all applications
for letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
Sates, any State thereof or any other country; (b) all reissues, divisions,
continuations, renewals, continuations-in-part or extensions thereof; (c) all
petty patents, divisionals and patents of addition; and (d) all patents to issue
in any such applications; (e) income, royalties, damages, claims and payments
now and hereafter due and/or payable with respect to patents, including, without
limitation, damages, claims and recoveries for past, present or future
infringement; and (f) rights to sue for past, present and future infringements
of any patent.
"Secured Obligations" means (a) the obligation of Grantor to repay the
Lenders all of the unpaid principal amount of, and accrued interest on
(including any interest that accrues after the commencement of bankruptcy), any
amounts due pursuant to the Notes; (b) the obligations of Grantor to pay any
fees, costs and expenses of the Lenders under the Notes, and under Section 6.2
<PAGE> 3
hereof; and (c) all other indebtedness, liabilities and obligations of Grantor
to the Lenders, whether now existing or hereafter incurred, and whether created
under, arising out of or in connection with any written agreement or otherwise.
"Trademark License" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right in and to any
Trademark or Trademark registration (whether Grantor is the licensee or the
licensor thereunder).
"Trademarks" means any of the following in which Grantor now holds or
hereafter acquires any interest: (a) any trademarks, trade names, corporate
names, company names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof and any applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United Sates
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country (collectively, the "Marks"); (b)
any reissues, extensions or renewals thereof; (c) the goodwill of the business
symbolized by or associated with the Marks; (d) income, royalties, damages,
claims and payments now and hereafter due and/or payable with respect to the
Marks, including, without limitation, damages, claims and recoveries for past,
present or future infringement; and (e) rights to sue for past, present and
future infringements of the Marks.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
In addition, the following terms shall be defined terms having the
meaning set forth for such terms in the UCC: "Account Debtor"; "Accounts";
"Chattel Paper"; "Deposit Accounts"; "Documents"; "Equipment"; "Financial
Assets"; "Fixtures"; "General Intangibles"; "Instruments"; "Inventory";
"Investment Property"; "Proceeds". Each of the foregoing defined terms shall
include all of such items now owned, or hereafter acquired, by Grantor.
Unless otherwise defined herein, in the Loan Agreements or in the
Notes, all capitalized terms used herein shall have the respective meanings
given to them in the UCC.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations, Grantor
hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to
Secured Party for the ratable benefit of the holders of the Secured Obligations,
and hereby grants to Secured Party for the ratable benefit of the holders of the
Secured Obligations, a security interest in all of Grantor's right, title and
interest in, to and under the following, whether now owned or hereafter acquired
(all of which being collectively referred to herein as the "Collateral"):
<PAGE> 4
(a) All Accounts of Grantor;
(b) All Chattel Paper of Grantor,
(c) All Contracts of Grantor,
(d) All Deposit Accounts of Grantor,
(e) All Documents of Grantor,
(f) All Equipment of Grantor;
(g) All Financial Assets of Grantor;
(h) All Fixtures of Grantor;
(i) All General Intangibles of Grantor, including,
without limitation, all Copyrights, Patents, Trademarks, Licenses, designs,
drawings, technical information, marketing plans, customer lists, trade secrets,
proprietary or confidential information, inventions (whether or not patentable),
procedures, know-how, models and data;
(j) All Instruments of Grantor;
(k) All Inventory of Grantor;
(1) All Investment Property of Grantor,
(m) All property of Grantor held by Secured Party, or any
other party for whom Secured Party is acting as agent hereunder, including,
without limitation, all property of every description now or hereafter in the
possession or custody of or in transit to Secured Party or such other party for
any purpose, including, without limitation, safekeeping, collection or pledge,
for the account of Grantor, or as to which Grantor may have any right or power;
(n) All other goods and personal property of Grantor,
wherever located, whether tangible or intangible, and whether now owned or
hereafter acquired, existing, leased or consigned by or to Grantor; and
(o) To the extent not otherwise included, all Proceeds of
each of the foregoing and all accessions to, substitutions and replacements for
and rents, profits and products of each of the foregoing, as well as all
payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral.
3. Rights of Secured Party; Collection of Accounts.
3.1 Performance of Contracts and Licenses.
Notwithstanding anything contained in this Security Agreement to the contrary,
Grantor expressly agrees that it shall remain liable under each of its Contracts
and each of its Licenses to observe and perform all the conditions and
<PAGE> 5
obligations to be observed and performed by it thereunder and that it shall
perform all of its duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such Contract or License. Secured
Party shall not have any obligation or liability under any Contract or License
by reason of or arising out of this Security Agreement or the granting to
Secured Party of a lien therein or the receipt by Secured Party of any payment
relating to any Contract or License pursuant hereto, nor shall Secured Party be
required or obligated in any manner to perform or fulfill any of the obligations
of Grantor under or pursuant to any Contract or License, or to make any payment,
or to make any inquiry as to the nature or the sufficiency of any payment
received by it or the sufficiency of any performance by any party under any
Contract or License, or to present or file any claim, or to take any action to
collect or enforce any performance or the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
3.2 Collection of Accounts. Secured Party authorizes
Grantor to collect its Accounts, provided that such collection is performed in a
prudent and businesslike manner, and Secured Party may, upon the occurrence and
during the continuation of any Event of Default and without notice, limit or
terminate said authority at any time. Upon the occurrence and during the
continuance of any Event of Default, at the request of Secured Party, Grantor
shall deliver all original and other documents evidencing and relating to the
performance of labor or service which created such Accounts, including, without
limitation, all original orders, invoices and shipping receipts.
3.3 Notification to Third Parties. Secured Party may at
any time, upon the occurrence and during the continuance of any Event of
Default, after due notice to Grantor of its intention to do so, notify Account
Debtors of Grantor, parties to the Contracts of Grantor, obligors in respect of
Instruments of Grantor and obligors in respect of Chattel Paper of Grantor that
the Accounts and the right, title and interest of Grantor in and under such
Contracts, Instruments and Chattel Paper have been assigned to Secured Party and
that payments shall be made directly to Secured Party. Upon the request of
Secured Party, Grantor shall so notify such Account Debtors, parties to such
Contracts, obligors of such Instruments and obligors in respect of such Chattel
Paper. Upon the occurrence and during the continuance of any Event of Default,
Secured Party may, in its name or in the name of others, communicate with such
Account Debtors, parties to such Contracts, obligors in respect of such
Instruments and obligors in respect of such Chattel Paper to verify with such
parties, to Secured Party's satisfaction, the existence, amount and terms of any
such Accounts, Contracts, Instruments or Chattel Paper.
4. Representations and Warranties. Grantor, to its knowledge,
hereby represents and warrants as of the date hereof that:
4.1 Title. Except for the security interest granted to
Secured Party under this Security Agreement, and except as set forth on Schedule
4.1 hereto: (a) Grantor is the sole legal and equitable Owner of each item of
the Collateral in which it purports to grant a security interest hereunder,
having good and marketable title thereto, free and clear of any and all Liens;
and (b) no effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral exists, except such as may have been filed by Grantor in favor
of Secured Party pursuant to this Security Agreement.
4.2 Security Interest. This Security Agreement creates a
legal and valid security interest on and in all of the Collateral in which
Grantor now has rights. Upon the making of the
<PAGE> 6
required filings, Secured Party will have a fully perfected security interest
for the ratable benefit of the holders of the Secured Obligations in all of the
Collateral in which Grantor now has rights. This Security Agreement will create
a legal and valid and fully perfected security interest in the Collateral in
which Grantor later acquires rights, when Grantor acquires those rights and
makes additional filings to be made with the United States Copyright and/or
Patent and Trademark Office as are necessary to perfect Secured Party's security
interest in subsequent ownership rights and interests of Grantor in Copyrights,
Patents, Trademarks and Licenses.
4.3 Location of Collateral. Grantor's chief executive
office, principal place of business and the place where the Grantor maintains
its records concerning the Collateral are presently located at the address set
forth on the signature page hereof. The Collateral is presently located at such
address and at such additional addresses set forth on Schedule 4.3 attached
hereto.
4.4 List of Intellectual Property. All Copyrights,
Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses
now owned, held or in which Grantor otherwise has any interest are listed on
Schedule 4.4 attached hereto.
4.5 Intellectual Property Collateral. With respect to the
Copyrights, Patents, Trademarks and Licenses granted to Secured Party hereunder
(the "Intellectual Property Collateral"), the loss, impairment or infringement
of which might have a materially adverse effect on the financial condition,
operation, assets, business, properties or prospects of the Grantor:
(a) such Intellectual Property Collateral is
subsisting and has not been adjudged invalid or unenforceable, in whole or in
part;
(b) Grantor has made all necessary filings and
recordations to protect its interest in such Intellectual Property Collateral;
(c) Grantor is the Owner of the entire and
unencumbered right, title and interest in and to such Intellectual Property
Collateral and no claim has been made that the use of such Intellectual Property
Collateral does or may violate the asserted rights of any third party;
(d) Grantor has performed and will continue to
perform acts and has paid and will continue to pay all required fees and taxes
to maintain each and every item of Intellectual Property Collateral in full
force and effect throughout the world, as applicable.
(e) There are in full force and effect
confidentiality and noncompetition agreements between Grantor and its current
and former employees prohibiting the unauthorized disclosure or dissemination of
any information relating to the Intellectual Property Collateral, as well as
enforceable intellectual property ownership agreements between Grantor and its
current employees.
(f) Grantor will continue to take all reasonable
measures to protect against any unauthorized disclosure or dissemination of
information relating to the Intellectual Property Collateral by its current and
future employees.
4.6 Authorization, Approval, Etc. Except as set forth on
Schedule 4.6 hereto, no authorization, approval or other action by, and no
notice to or filing with, any governmental
<PAGE> 7
authority or regulatory body is required either (a) for the grant by the Grantor
of the security interest granted hereby or for the execution, delivery, and
performance of this Security Agreement by the Grantor, or (b) for the perfection
of or the exercise by the Secured Party of its rights and remedies hereunder.
4.7 Compliance with Laws. Except as set forth on Schedule
4.7 hereto, the Grantor is in compliance with the requirements of all applicable
laws (including, without limitation, the provisions of the Fair Labor Standards
Act), rules, regulations and orders of every governmental authority, the
non-compliance with which might materially adversely affect the business,
properties, assets, operations, condition (financial or otherwise) or prospects
of the Grantor or the value of the Collateral or the worth of the Collateral as
collateral security.
4.8 List of Investment Property. All investment property
now owned, held or in which Grantor otherwise has any interest is listed on
Schedule 4.8 attached hereto.
4.9 No Conditions Precedent. There are no conditions
precedent to the effectiveness of this Security Agreement that have not been
satisfied or waived.
5. Covenants. Grantor covenants and agrees with Secured Party
that from and after the date of this Security Agreement and until the Secured
Obligations have been performed and paid in full:
5.1 Disposition of Collateral. Grantor shall not sell,
lease, transfer or otherwise dispose of any of the Collateral, or attempt to
contract to do so without the consent of the Secured Party, other than (a) the
sale of Inventory, (b) the granting of nonexclusive Licenses and (c) the
disposal of worn-out or obsolete Equipment, all in the ordinary course of
Grantor's business.
5.2 Relocation of Business or Collateral. Grantor shall
not relocate its chief executive office, principal place of business or its
records, or allow the relocation of any Collateral (except as allowed pursuant
to Section 5.1 immediately above) from such address(es) provided to Secured
Party pursuant to Section 4.3 above without twenty (20) days prior written
notice to Secured Party.
5.3 No Liens on Collateral. Grantor shall not, directly
or indirectly, create, permit or suffer to exist, and shall defend the
Collateral against and take such other action as is necessary to remove, any
Lien on the Collateral, except (i) the Lien granted to Secured Party under this
Security Agreement, and (ii) the Liens described on Schedule 4.1 hereto.
5.4 Insurance. Maintain insurance policies insuring the
Collateral against loss or damage from such risks and in such amounts and forms
and with such companies as are customarily maintained by businesses similar to
Grantor.
5.5 Taxes, Assessments. Etc. Grantor shall pay promptly
when due all property and other taxes, assessments and government charges or
levies imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Equipment, Fixtures, or Inventory, except to the extent
the validity thereof is being contested in good faith and adequate reserves are
being maintained in connection therewith.
<PAGE> 8
5.6 Maintenance of Records. Grantor shall keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral.
5.7 Registration of Intellectual Property Rights. Grantor
shall promptly register or cause to be registered (to the extent not already
registered) the most recent version of any Copyright and any Copyright License
and any Patent, Patent License, Trademark or Trademark License, which,
individually or in the aggregate, is material to the conduct of Grantor's
business, with the United States Copyright Office or Patent and Trademark
Office, applicable, including, without limitation, in all such cases the filing
of applications for renewal, affidavits of use, affidavits of noncontestability
and opposition and interference and cancellation proceedings. Grantor shall
register or cause to be registered with the United States Copyright Office or
Patent and Trademark Office, as applicable, those additional rights and
interests developed or acquired by Grantor, after the date of this Security
Agreement, including, without limitation, any additions to the rights and
interests of Grantor listed on Schedule 4.4 hereto, prior to the sale or
licensing of any product containing such rights and interests.
5.8 Notification Regarding Changes in Intellectual
Property. Grantor shall promptly advise Secured Party of any subsequent
ownership right or interest of the Grantor in or to any Copyright, Patent,
Trademark or License not specified on Schedule 4.4 hereto and hereby authorizes
and appoints Secured Party as Grantor's attorney-in-fact to modify or amend such
Schedule, as necessary, to reflect any addition or deletion to such ownership
rights.
5.9 Defense of Intellectual Property. Grantor shall (a)
protect, defend, and maintain the validity and enforceability of the Copyrights,
Patents and Trademarks, (b) use its best efforts to detect infringements of the
Copyrights, Patents and Trademarks and promptly advise Secured Party in writing
of material infringements detected and (c) not allow any Copyrights, Patents, or
Trademarks to be abandoned, forfeited, or dedicated to the public without the
written consent of Secured Party.
5.10 Further Assurances; Reimbursement. At any time and
from time to time, upon the written request of Secured Party, and at the sole
expense of Grantor, Grantor shall promptly and duly execute and deliver any and
all such further instruments and documents and take such action as Secured Party
may reasonably deem necessary or desirable to obtain the full benefits of this
Security Agreement, including, without limitation, facilitating the filing of
UCC-1 Financing Statements in all applicable jurisdictions and this Security
Agreement (and any amendment hereto) with the United States Copyright Office
and/or Patent and Trademark Office, as applicable. Grantor agrees to reimburse
Secured Party, upon demand, for any payment made or any expense incurred by
Secured Party in making any such filings or for the discharge of any taxes,
liens, or other encumbrances at any time levied or placed on the Collateral or
any part thereof or any other payment made by Secured Party for the maintenance
and preservation of the Collateral. Grantor agrees that a carbon or photostatic
copy of this Security Agreement may be filed as a financing statement in any
public office.
<PAGE> 9
6. Rights and Remedies Upon Default.
6.1 General. Upon the occurrence of any Event of Default
and while such Event of Default is continuing, Secured Party may exercise in
addition to all other rights and remedies granted to it under this Security
Agreement, all rights and remedies of a secured party under the UCC.
6.2 Right to Fees, Costs and Expenses. Grantor also
agrees to pay all fees, costs and expenses of Secured Party, including, without
limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder, including, without
limitation, in any litigation, bankruptcy, or insolvency proceedings.
6.3 Priorities Upon Disposition of Collateral. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Secured Party in the following order of
priorities:
(a) First, to Secured Party in an amount
sufficient to pay in full the reasonable costs of Secured Party in connection
with such sale, disposition or other realization, including all fees, costs,
expenses, liabilities and advances incurred or made by Secured Party in
connection therewith, including, without limitation, reasonable attorneys' fees;
(b) Second, to the Lenders in an amount equal to
the then unpaid Secured Obligations; and
(c) Finally, upon payment in full of the Secured
Obligations, to Grantor or its representatives, in accordance with the UCC or as
a court of competent jurisdiction may direct.
7. Secured Party Appointed Attorney-in-fact. Grantor hereby
appoints Secured Party the Grantor's attorney-in-fact, with full authority in
the place and stead of the Grantor and in the name of the Grantor or otherwise,
from time to time in the Secured Party's discretion, upon the occurrence and
during the continuance of an Event of Default, to take any action and to execute
any instrument which the Secured Party may deem necessary or advisable to
accomplish the purposes of this Security Agreement, including, without
limitation:
(a) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for moneys due and to
become due under or in connection with the Collateral;
(b) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper, in connection therewith; and
(c) to file any claims or take any action or institute
any proceedings which Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of the
Secured Party with respect to any of the Collateral.
8. Indemnity. Grantor agrees to defend, indemnify and hold
harmless Secured Party, and its officers, employees, attorney, agents, members,
and each person who controls any of the foregoing against (a) all obligations,
demands, claims and liabilities claimed or asserted by any
<PAGE> 10
other party in connection with the transactions contemplated by this Security
Agreement and (b) all losses or expenses in any way suffered, incurred or paid
by Secured Party as a result of or in any way arising out of, following or
consequential to transactions between Secured Party and Grantor, whether under
this Security Agreement or otherwise (including, without limitation, reasonable
attorneys' fees and expenses), except for losses arising from or out of Secured
Party's gross negligence or willful misconduct.
9. Limitation on Secured Party's Duty in Respect of Collateral.
Secured Party shall be deemed to have acted reasonably in the custody,
preservation, and disposition of any of the Collateral if it takes such action
as Grantor requests in writing, but failure to comply with any such request
shall not in itself be deemed a failure to act reasonably and no failure of
Secured Party to do any act not so requested shall be deemed a failure to act
reasonably.
10. Reinstatement. This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of creditors or should a trustee
or receiver be appointed for all or any significant part of Grantor's property
and assets and shall continue to be effective or be reinstated, as the case may
be, if at any time payment and performance of the Secured Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount or
must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference," "fraudulent conveyance" or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
11. Miscellaneous.
11.1 No Waiver; Cumulative Remedies. Secured Party shall
not by any act, delay, omission or otherwise be deemed to have waived any of its
respective rights or remedies hereunder, nor shall any single or partial
exercise of any right or remedy hereunder on any one occasion preclude the
further exercise thereof or the exercise of any other right or remedy. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently and are not exclusive of any rights and remedies provided
by law.
11.2 Entire Agreement. This Security Agreement constitutes
the entire agreement between the parties relating to the subject matter hereof.
None of the terms or provisions of this Security Agreement may be waived,
altered, modified or amended except by an instrument in writing, duly executed
by Grantor and Secured Party.
11.3 Termination of this Security Agreement. Subject to
Section 10 hereof, this Security Agreement shall terminate upon the payment and
performance in full of the Secured Obligations, at which time all rights to the
Collateral shall revert to Grantor. Upon such a termination, the Secured Party
shall, at Grantor's sole expense, execute and deliver to Grantor such documents
as the Grantor shall reasonably request to evidence such termination.
11.4 Successors and Assigns. This Security Agreement and
all obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, any
<PAGE> 11
future holder of any of the indebtedness and their respective successors and
assigns. No sales of participations, other sales, assignments, transfers or
other dispositions of any agreement governing or instrument evidencing the
Secured Obligations or any portion thereof or interest therein shall in any
manner affect the Lien granted to Secured Party hereunder.
11.5 Headings. Section headings used in this Security
Agreement are for convenience of reference only, and shall not affect the
construction of this Security Agreement.
11.6 Severability. Wherever possible each provision of
this Security Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
11.7 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
with the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument. Execution and delivery by facsimile
shall constitute good and valid execution and delivery unless and until replaced
or substituted by an original executed instrument.
11.8 Governing Law. In all respects, including all matters
of construction, validity and performance, this Security Agreement and the
Secured Obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, excluding
conflicts of laws principles.
11.9 Collateral Agent. Pursuant to the terms of a Note
Holders' Representative Agreement by and among the Lenders dated of even date
herewith, the Lenders have designated Steven F. Tripp to act as their collateral
agent hereunder, and the Lenders have reserved the right to designate or elect a
successor person or entity to serve as their collateral agent and as Secured
Party under this Security Agreement. Upon the appointment or designation of a
successor to serve as collateral agent for the Lenders hereunder, such successor
shall thereupon succeed to and become vested with all the rights, powers and
privileges of the Secured Party hereunder as collateral agent for the Lenders.
Lenders or the Secured Party shall notify Grantor of the designation or election
of any such person or entity to serve as the successor of the Secured Party
hereunder.
<PAGE> 12
IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
<TABLE>
<S> <C>
Spatialight, Inc., a New York corporation Address of Spatialight, Inc., a Grantor:
By: Spatialight, Inc.
-------------------------------------- 8-C Commercial Blvd.
Michael H. Burney Novato, CA 94949
Chief Executive Officer
Spatialight of California, Inc., Address of Spatialight of California, Inc.,
a California corporation a Grantor:
By: Spatialight of California, Inc.
-------------------------------------- 8-C Commercial Blvd.
Michael H. Burney Novato, CA 94949
Chief Executive Officer
</TABLE>
<PAGE> 13
EXHIBIT A
Schedule of Lenders
<TABLE>
<CAPTION>
Lender Number of Shares Investment Amount
- ------ ---------------- -----------------
<S> <C> <C>
Ronald A. Weyers 111,110.67 $83,333.00
Jeffrey J. Weyers 111,110.67 $83,333.00
Robert J. Weyers 111,110.67 $83,333.00
Matthew A. King 50,000.00 $37,500.00
Robert O. Rolfe 66,666.67 $50,000.00
John W. Eakin 33,333.33 $25,000.00
Bryan B. Starr, Sr. 33,333.33 $25,000.00
Bryan B. Starr, Jr. 33,333.33 $25,000.00
Robert E. Woods 66,666.67 $50,000.00
Marcia K. Tripp 133,333.33 $100,000.00
Wayne Patrick Tripp Trust 66,666.67 $50,000.00
Lisa Marie Tripp Trust 66,666.67 $50,000.00
Steven Francis Tripp 133,333.33 $100,000.00
FBO Jimmie H. Harvey, M.D. 166,666.67 $125,000.00
Birmingham Hematology & Oncology Associates, SLB
Flex Prototype P/S Plan DTD 10-17-85
Jimmie H. Harvey, M.D. 166,666.67 $125,000.00
Hilliard Limited Partnership 200,000.00 $150,000.00
Dan Hilliard 133,333.33 $100,000.00
Wallace J. Hilliard Flint Trust 133,333.33 $100,000.00
Paul Klister 33,333.33 $25,000.00
Jefferson R. Cobb 100,000.00 $75,000.00
</TABLE>
<PAGE> 1
Exhibit 10.7
Form of Intercreditor Security Agreement
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (this "Intercreditor Agreement" or this
"Agreement") is made as of the _______day of November, 1998, by and among
SPATIALIGHT, INC., a New York corporation (the "Borrower"), ARGYLE CAPITAL
MANAGEMENT CORPORATION, a Delaware corporation (when acting on its own behalf,
"Argyle"), each of the Persons listed on Schedule A annexed hereto, as now
existing and as hereafter amended from time to time, each of whom has executed a
counterpart of this Intercreditor Agreement (the Lenders listed on Schedule A
are hereinafter sometimes referred to as the "November Lenders"), and each of
the Persons listed on Schedule B annexed hereto, each of whom has executed a
counterpart of this Intercreditor Agreement by and through his or its duly
authorized agent, Argyle (the Lenders listed on Schedule B are hereinafter
sometimes referred to as the "August Lenders").
Recitals
WHEREAS, Argyle and the Borrower have entered into (i) that certain
Promissory Note dated January 23, 1998 in the principal amount of $150,000, (ii)
that certain Secured Promissory Note dated February 24, 1998 in the principal
amount of $350,000, (iii) that certain Secured Promissory Note dated March 18,
1998 in the principal amount of $50,000, (iv) that certain Secured Promissory
Note dated March 27, 1998 in the principal amount of $20,000, (v) that certain
Secured Promissory Note dated April 3, 1998 in the principal amount of $70,000,
(vi) that certain Secured Promissory Note dated April 17, 1998 in the principal
amount of $90,000, (vii) that certain Secured Promissory Note dated May 1, 1998
in the principal amount of $89,000, (viii) that certain Secured Promissory Note
dated May 15, 1998 in the principal amount of $85,000, (ix) that certain Secured
Promissory Note dated May 29, 1998 in the principal amount of $76,500, (x) that
certain Extension Agreement, dated May 20, 1998, extending the maturity dates of
each of the notes identified in (ii) through (viii) above to September 18, 1998,
and (xi) such other notes executed and delivered by the Borrower to Argyle
evidencing indebtedness to Argyle prior to the date hereof (collectively, the
"Subordinated Notes"), bearing interest at the rate provided for therein and
containing provisions for payment and acceleration of maturity in the event of
default as therein set forth, pursuant to which Argyle agreed to make certain
loans and financial accommodations to the Borrower (collectively, the
"Subordinated Loans"). The Subordinated Notes are secured by that certain
Security Agreement dated February 24, 1998 from the Borrower to Argyle (the
"Subordinated Security Agreement"), pursuant to which the Borrower has granted
to Argyle a first priority perfected security interest in and lien on certain of
the Borrower's property and assets as more fully described in the Subordinated
Security Agreement (the "Argyle Collateral");
WHEREAS, Argyle has certain rights to convert the Subordinated Loans
into equity of the Borrower and certain registration rights upon such conversion
under and pursuant to (i) that certain Letter Agreement dated March 31, 1998
between Argyle and the Borrower, (ii) that certain Letter Agreement dated April
30, 1998 between Argyle and the Borrower and (iii) that certain Letter Agreement
dated May 15, 1998 between Argyle and the Borrower (collectively, the
"Conversion Agreements", and, together with the Subordinated Notes and the
Subordinated Security Agreement, and all other mortgages, security agreements,
financing statements, documents, certificates and instruments relating to,
arising out of; or in any way connected therewith or any of the transactions
<PAGE> 2
contemplated thereby are hereinafter collectively referred to as the
"Subordinated Loan Documents");
WHEREAS, the Borrower and the August Lenders have entered or intend to
enter into one or more Convertible Secured Loan Agreements (as the same may be
amended, modified, supplemented or renewed from time to time, the "August Loan
Agreements"), pursuant to which the August Lenders have agreed to lend to the
Borrower up to $1,000,000, and the Borrower to evidence its indebtedness to the
August Lenders under the August Loan Agreements, has executed and delivered to
the August Lenders its Convertible Secured Notes (the "August Notes"), in the
aggregate principal amount of up to $1,000,000 (the "August Loan"), to mature on
December 31, 1998 (subject to extension, under certain circumstances, by the
Borrower to December 31, 1999) and the August Notes being payable to the order
of the August Lenders, bearing interest at the rate provided for therein and
containing provisions for payment and acceleration of maturity in the event of
default, as therein set forth. The August Notes are or shall be secured by one
or more Security Agreements (whether one or more, the "August Security
Agreements"), from the Borrower in favor of the respective August Lenders,
pursuant to which the Borrower has granted or shall grant to the August Lenders
a perfected security interest in and lien on certain of the Borrower's property
and assets as more fully described in the August Security Agreements (the
"August Collateral"). (The August Loan Agreements, the August Notes and the
August Security Agreements, together with all other mortgages, security
agreements, financing statements, documents, certificates and instruments
relating to, arising out of, or in any way connected therewith or any of the
transactions contemplated thereby are hereinafter collectively referred to as
the "August Loan Documents");
WHEREAS, the Borrower and the November Lenders have entered or intend
to enter into one or more Convertible Secured Loan Agreements (as the same may
be amended, modified, supplemented or renewed from time to time, the "November
Loan Agreements"), pursuant to which the November Lenders have agreed to lend to
the Borrower up to $2,000,000, and the Borrower to evidence its indebtedness to
the November Lenders under the November Loan Agreements, has executed and
delivered or shall execute and deliver to the November Lenders its Convertible
Secured Notes (the "November Notes"), in the aggregate principal amount of up to
$2,000,000 (the "November Loan"), to mature on December 31, 1998 (subject to
extension, under certain circumstances, by the Borrower to December 31, 1999)
with the November Notes being payable to the order of the November Lenders,
bearing interest at the rate provided for therein and containing provisions for
payment and acceleration of maturity in the event of default, as therein set
forth. The November Notes are or shall be secured by one or more Security
Agreements (whether one or more, the "November Security Agreements"), from the
Borrower in favor of the respective November Lenders, pursuant to which the
Borrower has granted or shall grant to the November Lenders a perfected security
interest in and lien on certain of the Borrower's property and assets as more
fully described in the November Security Agreements (the "November Collateral").
(The November Loan Agreements, the November Notes and the November Security
Agreements, together with all other mortgages, security agreements, financing
statements, documents, certificates and instruments relating to, arising out of;
or in any way connected therewith or any of the transactions contemplated
thereby are hereinafter collectively referred to as the "November Loan
Documents");
WHEREAS, the November Lenders have required as an absolute condition
precedent to the execution and delivery of the November Loan Documents that
their respective obligations shall be equally and ratably secured by a first
prior and perfected lien on and security interest in the November Collateral
shared pari passu as provided herein with the lien and security interest in the
<PAGE> 3
Argyle Collateral held by Argyle and with the lien and security interest in the
August Collateral held by the August Lenders, to the extent such liens and
security interests are perfected and enforceable (the November Collateral, the
Argyle Collateral and the August Collateral are referred to collectively as the
"Collateral") and that the payment obligations of the Borrower to Argyle under
and pursuant to the Subordinated Loan Documents shall be junior and subordinate
to the payment obligations of the Borrower under the November Loan Documents as
set forth herein. (The November Notes and the August Notes are hereinafter
collectively referred to as the "Senior Notes"; the November Loan and the August
Loan are hereinafter collectively referred to as the "Senior Loan"; the November
Security Agreement and the August Security Agreements are hereinafter
collectively referred to as the "Senior Security Agreements"; the November Loan
Documents and the August Loan Documents are hereinafter collectively referred to
as the "Senior Loan Documents"; and the November Lenders and the August Lenders
are hereinafter sometimes collectively referred to as the "Senior Lenders"); and
WHEREAS, the parties desire to enter into this Intercreditor Agreement
in order to set forth certain provisions and understandings concerning their
respective obligations.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and agreed, each of parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms shall have the meanings in
this Agreement assigned to them in this Section:
"Agent" shall have the meaning given such term in Section 3.6(a).
"Agreement" shall mean this Intercreditor Agreement as amended or
modified in accordance with the terms hereof.
"Business Day" shall mean any day other than (i) a Saturday or a
Sunday, or (ii) a day on which commercial banks located in New York, New York
are required or authorized by law or executive order to close or remain closed.
"Collateral" shall have the meanings set forth in the Recitals hereof.
"Conversion Agreements" shall have the meaning set forth in the
Recitals hereof
"Default" shall mean any event or condition, the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"Enforcement Action" shall have the meaning given such term in Section
3.6 (a) hereof.
"Event of Default" shall mean an "Event of Default" as such term is
defined in the Subordinated Loan Documents and the Senior Loan Documents.
<PAGE> 4
"Insolvency Event" shall have the meaning given to such term in Section
3.2(a) hereof
"Person" shall mean an individual, corporation, partnership, limited
liability company, estate, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
"Senior Loan Documents" shall have the meaning set forth in the
Recitals hereof; and shall include such agreement as amended or modified in
accordance with its terms and in accordance with the terms hereof.
"Senior Secured Obligations" shall mean the indebtedness, obligations
and liabilities of the Borrower to the Senior Lenders under the Senior Loan
Documents (including, but not limited to, all unpaid principal of, premium, if
any, and accrued and unpaid interest on the Senior Notes), whether now existing
or hereafter arising, joint or several, direct or indirect, absolute or
contingent, due or to become due, matured or unmatured, liquidated or
unliquidated, arising by contract, operation of law or otherwise and all
obligations of the Borrower to the Senior Lenders arising out of any
modification, amendment, increase, extension, refinancing or refunding of any of
the foregoing obligations.
"Subordinated Loan Documents" shall have the meaning set forth in the
Recitals hereof; and shall include such agreement as amended or modified in
accordance with its terms and in accordance with the terms hereof
"Subordinated Secured Obligations" shall mean the indebtedness,
obligations and liabilities of the Borrower to Argyle under the Subordinated
Loan Documents (including, but not limited to, all unpaid principal of, premium,
if any, and accrued and unpaid interest on the Subordinated Notes) and the
Conversion Agreements, whether now existing or hereafter arising, joint or
several, direct or indirect, absolute or contingent, due or to become due,
matured or unmatured, liquidated or unliquidated, arising by contract, operation
of law or otherwise, and all obligations of the Borrower to Argyle arising out
of any modification, amendment, increase, extension, refinancing or refunding of
any of the foregoing obligations.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ARGYLE
SECTION 2.1 Representations and Warranties. Argyle represents and
warrants to the Senior Lenders as follows:
(a) Argyle has delivered to the Senior Lenders true, correct and
complete copies of all documents evidencing and securing the Subordinated
Secured Obligations.
(b) The aggregate principal amount of all Subordinated Secured
Obligations outstanding on the date hereof is $1,188,000.
(c) Argyle is duly authorized to act as agent of the August Lenders for
purposes of executing this Intercreditor Agreement and binding the August
Lenders to the same and for purposes of carrying out the transactions
contemplated hereby.
<PAGE> 5
ARTICLE III
SUBORDINATION TO SENIOR SECURED OBLIGATIONS
SECTION 3.1 Subordination of Payment.
(a) General Notwithstanding anything in the Subordinated Loan Documents
to the contrary, Argyle agrees and covenants that the Subordinated Secured
Obligations are and shall be subordinate in right of payment to the Senior
Secured Obligations. Each of the Senior Lenders agrees that his or its
respective rights to payments from Borrower on the Senior Secured Obligations
shall be pari passu with the other Senior Lenders. The Senior Secured
Obligations shall not be deemed to have been paid in full until the Senior Loan
Documents shall have been terminated as provided therein and the Senior Lenders
shall each have received payment in full of the Senior Secured Obligations in
cash or equity as provided for in the Senior Loan Documents.
(b) Subordination of Payment. Until the Senior Secured Obligations have
been paid in full, the payment of the Subordinated Secured Obligations shall be
postponed and subordinated to the payment of all of the Senior Secured
Obligations except that the Subordinated Secured Obligations can be converted in
whole or in part into equity of the Borrower at any time in accordance with the
Subordinated Loan Documents. Except as provided in the immediately preceding
sentence, Argyle shall accept no payments or other distributions whatsoever on
account of the Subordinated Secured Obligations under and pursuant to the
Subordinated Loan Documents, nor shall any property or assets of the Borrower be
applied to the purchase or acquisition or retirement of any of the Subordinated
Secured Obligations.
(c) Conversion of Subordinated Secured Obligations and Senior Secured
Obligations. To the extent Argyle converts its Subordinated Secured Obligations
in whole into equity of the Borrower or any Senior Lender converts its Senior
Note in whole into equity of the Borrower, this Agreement as it pertains to
Argyle or such Senior Lender shall be terminated and deemed null and void and of
no further force or effect provided, however, that Argyle or such Senior Lender
shall have executed and delivered to the Borrower, at the Borrower's sole
expense, such documents as the Borrower shall reasonably request to evidence the
termination of its respective security interest in the Collateral held by Argyle
or such Senior Lender.
SECTION 3.2 Priority and Payment Over of Proceeds in Certain Events.
(a) Insolvency or Dissolution of the Borrower. Upon any payment or
distribution of all or any of the assets or securities of the Borrower of any
kind or character, whether in cash, property or securities, upon any
dissolution, winding up, liquidation, reorganization, arrangement, adjustment,
protection, relief or composition of the Borrower or its debts, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership,
arrangement, reorganization, relief or other proceedings, or upon an assignment
for the benefit of creditors or any other marshaling of the assets and
liabilities of the Borrower or otherwise (any such event being an "Insolvency
Event"), all Senior Secured Obligations shall first be paid in full before
Argyle shall be entitled to receive any payment of the Subordinated Secured
Obligations. Upon the occurrence of any Insolvency Event, any payment or
distribution of assets or securities of the Borrower of any kind or character,
whether in cash, property or securities, to which Argyle would be entitled,
shall be made by the Borrower or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
<PAGE> 6
directly to or for application (in the case of cash) to or as collateral (in the
case of non-cash property or securities) for the payment in full of all Senior
Secured Obligations.
(b) Demand for or Acceleration of Payment of Subordinated Secured
Obligations. In the event that the Subordinated Secured Obligations are declared
due and payable or the maturity thereof is accelerated for any reason, then and
in such event, the Senior Lenders shall be entitled to receive payment equally
and ratably in full of all amounts due or to become due on or in respect of the
Senior Secured Obligations (whether or not a Default has occurred under the
Senior Loan Documents or such Senior Secured Obligations are, or have been
declared to be, due and payable prior to the date on which it otherwise would
have become due and payable) before Argyle shall be entitled to receive any
payment of the Subordinated Secured Obligations.
(c) Application of Proceeds. All amounts owing with respect to the
Senior Secured Obligations shall be equally and ratably secured with the
Subordinated Secured Obligations, to the extent perfected and enforceable, by a
first prior and perfected lien on and security interest in the Collateral
without distinction as to whether some Senior Secured Obligations or
Subordinated Secured Obligations are then due and payable and other Senior
Secured Obligations or Subordinated Secured Obligations are not then due and
payable. Upon any realization upon the Collateral, the parties each covenant and
agree that the proceeds thereof shall be applied (1) first, to any amounts owing
to the Senior Lenders relating to any Enforcement Actions; (2) second, equally
and ratably to the payment of all amounts of interest outstanding which
constitute the Senior Secured Obligations and Subordinated Secured Obligations
according to the aggregate amounts of such interest then owing to the holders of
such Senior Secured Obligations and such Subordinated Secured Obligations,
respectively; (3) third, equally and ratably to all amounts of principal
outstanding under the Senior Secured Obligations and the Subordinated Secured
Obligations according to the aggregate amounts of such principal then owing to
the holders of such Senior Secured Obligations and Argyle, respectively; (4)
fourth, equally and ratably to other amounts then due to the holders of the
Senior Secured Obligations and Argyle (including fees, expenses and premiums, if
any) with amounts prorated, if necessary, based on the aggregate amounts thereof
then owing to such holders; and (5) fifth, the balance, if any, shall be
returned to the Borrower or such other Persons as are entitled thereto.
(d) Certain Payments Held in Trust. In the event that, notwithstanding
the foregoing provisions prohibiting such payment or distribution, Argyle shall
have received any payment or distribution in respect of the Subordinated Secured
Obligations contrary to such provisions, then and in such event such payment or
distribution shall be received and held in trust for the Senior Lenders and
shall be paid over or delivered to the Senior Lenders for application (in the
case of cash) to or as collateral (in the case of non-cash property or
securities) for the equal and ratable payment or prepayment of all Senior
Secured Obligations in full.
SECTION 3.3 Suspension of Remedies. Until the Senior Secured
Obligations have been paid in full as provided for in the Senior Loan Documents,
Argyle shall not (i) ask, demand, or sue for any payment, distribution or any
other remedy in respect of the Subordinated Secured Obligations, or (ii)
commence, or join with any other creditor (other than the Senior Lenders) in
commencing, any Insolvency Event.
<PAGE> 7
SECTION 3.4. Subordination of Liens.
(a) General. Argyle agrees that its security interest and liens on the
Collateral are equal and ratable with the security interest and liens of the
Senior Lenders, and Argyle further agrees that until payment in full of the
Senior Secured Obligations as provided for in the Senior Loan Documents, (i)
Argyle shall not take any action to enforce any security interest or lien upon
the Collateral under and pursuant to the Subordinated Loan Documents, and (ii)
to the extent any conflict arises between the Senior Loan Documents and the
Subordinated Loan Documents, the provisions of the Senior Loan Documents shall
prevail.
(b) No Contest. Each of Argyle and the Senior Lenders agrees that it
will not at any time contest the validity, perfection, priority or
enforceability of the security interests and liens granted by the Borrower to
any other party to this Agreement.
(c) Rights of Argyle Not to be Impaired. The provisions of this
Agreement relating to the priority of payments are solely for the purpose of
defining the relative rights of the Senior Lenders on the one hand and Argyle on
the other hand and nothing herein shall impair, as between the Borrower and
Argyle, the obligations of the Borrower with respect to the Subordinated Loan
Documents which are unconditional and absolute.
SECTION 3.5 Rights of Senior Lenders Not to be Impaired. No right of
the Senior Lenders to enforce subordination as herein provided shall at any time
in any way be prejudiced or impaired by any act or failure to act in good faith
by any of the Senior Lenders, or by any noncompliance by the Borrower, with the
terms, provisions and covenants herein.
SECTION 3.6 Actions to Effectuate Subordination.
(a) Authorization to Agent to Act. Upon the occurrence of an event
described in Section 3.2(a) or an Event of Default under the Senior Loan
Documents, the November Lenders hereby appoint Steven F. Tripp (the "Agent"),
who is hereby irrevocably authorized and empowered (in his own name or in the
name of any of the November Lenders or otherwise), (i) to initiate any suit,
injunction or other equitable relief, claim, demand or action of any kind
whatsoever with respect to any effort to realize on the Collateral pursuant to
any of the Subordinated Loan Documents, the November Loan Documents or
otherwise, (ii) to file claims and proofs of claim and take such other action
(including, without limitation, voting the Subordinated Secured Obligations or
enforcing any security interest or other lien securing payment of the
Subordinated Secured Obligations) as he may deem necessary or advisable with
respect to the exercise or enforcement of any of the rights or interests in
respect of the Subordinated Secured Obligations and the Senior Secured
Obligations held by the November Lenders (any such act being an "Enforcement
Action"). The Agent will promptly notify Argyle of the exercise of any
Enforcement Action but the failure to give such notice shall not invalidate any
such exercise. Argyle shall refrain from, directly or indirectly, taking, filing
or pursuing any Enforcement Action of any kind whatsoever. (Pursuant to one or
more separate intercreditor agreements by and among the August Lenders and
Argyle, the August Lenders have authorized Argyle to act as agent on their
behalf under similar circumstances, and the Agent hereunder shall have no
obligation or authority to act on behalf of the August Lenders.)
Neither the Agent nor any company with which he is affiliated, nor any
of the directors, officers, agents or employees of such company shall be liable
for any action taken or omitted to be
<PAGE> 8
taken by him or them under or in connection with this Agreement in the absence
of his or their own gross negligence or willful misconduct. Without limitation
of the generality of the foregoing, the Agent (1) may treat the payee of any
Note as the holder thereof until the Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
the Agent; (2) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by him and
shall not be liable for any action taken or omitted to be taken in good faith by
him in accordance with the advice of such counsel, accountants, or experts; (3)
makes no warranty or representations to any Senior Lender and shall not be
responsible to any Senior Lender for any statements, warranties, or
representations made in or in connection with this Agreement other than those
statements, warranties or representations made by himself as the holder of
certain Senior Secured Obligations; (4) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants,
or conditions of this Agreement on the part of the Borrower, or to inspect the
property (including the books and records) of the Borrower; (5) shall not be
responsible to any Senior Lender for the due execution, legality, validity,
enforceability, genuineness, perfection, sufficiency, or value of this Agreement
or any other instrument or document furnished pursuant thereto; and (6) shall
incur no liability under or in respect of this Agreement by acting upon any
notice, consent, certificate, or other instrument or writing (which may be sent
by telegram, telex, or facsimile transmission) believed by him to be genuine and
signed or sent by the proper party or parties.
The November Lenders agree to indemnify the Agent (to the extent not
reimbursed by the Borrower) ratably according to the respective amounts of their
commitments, and the Borrower jointly and severally agrees to indemnify the
Agent, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of this Agreement or any
action taken or omitted by the Agent under this Agreement, provided that no
November Lender shall be liable for any portion of any of the foregoing
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each November Lender agrees to reimburse the Agent
(to the extent not reimbursed by the Borrower) promptly upon demand for its
ratable share of any out-of-pocket expenses (including counsel fees) incurred by
the Agent in connection with the preparation, administration, or enforcement of,
or legal advice in respect of rights or responsibilities under, this Agreement.
The Agent may resign at any time by giving at least sixty (60) days'
prior written notice thereof to the November Lenders and the Borrower and may be
removed at any time with or without cause by a vote of the November Lenders
holding a majority of the amount of the Senior Secured Obligations held by the
November Lenders. Upon any such resignation or removal, the November Lenders
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the November Lenders, and shall have accepted such
appointment, within thirty (30) days after the retiring Agent's giving of notice
of resignation or the November Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the November Lenders, appoint a successor
Agent. Upon the acceptance of any appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from his duties and obligations under this
Agreement. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this document shall inure to the benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
<PAGE> 9
(b) Argyle to Take Certain Actions. Argyle shall duly and promptly take
such action as the Agent may request (i) to collect the Subordinated Secured
Obligations for account of the Senior Lenders and to file appropriate claims or
proofs of claim in respect of the Subordinated Secured Obligations, (ii) to
execute and deliver to the Agent such powers of attorney, assignments or other
instruments as the Agent may request in order to enable it to enforce any and
all claims with respect to, and any security interests and other liens securing
payment of, the Subordinated Secured Obligations, (iii) to collect and receive
any and all payments or distributions that may be payable or deliverable upon or
with respect to the Subordinated Secured Obligations and (iv) to effectuate any
other provision hereof.
(c) Lender to Take Certain Actions. Each November Lender shall duly and
promptly take such action as the Agent may request (i) to collect the Senior
Secured Obligations for account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of the Senior Secured Obligations, (ii) to
execute and deliver to the Agent such powers of attorney, assignments or other
instruments as the Agent may request in order to enable it to enforce any and
all claims with respect to, and any security interests and other liens securing
payment of, the Senior Secured Obligations, (iii) to collect and receive any and
all payments or distributions that may be payable or deliverable upon or with
respect to the Senior Secured Obligations and (iv) to effectuate any other
provision hereof.
SECTION 3.7 Subrogation. When all Senior Secured Obligations then
outstanding have been paid in full and the Senior Lenders' obligations to extend
credit under all Senior Loan Documents have been terminated, Argyle shall be
subrogated to the rights of the holders of Senior Secured Obligations to receive
payments or distributions of assets of the Borrower that would be deemed payable
on the Senior Secured Obligations until the Subordinated Secured Obligations
shall be paid in full. For the purposes of such subrogation, no payments or
distributions to the holders of Senior Secured Obligations of any cash, property
or securities to which Argyle would be entitled except for the provisions of
this Agreement, and no payment over pursuant to the provisions of this Agreement
to the holders of Senior Secured Obligations by Argyle, shall, as between the
Borrower and their creditors other than the holders of Senior Secured
Obligations, on one hand, and Argyle on the other hand, be deemed to be a
payment by the Borrower to or on account of Senior Secured Obligations.
SECTION 3.8 Subordination Legend, Further Assurances. Argyle will cause
the Subordinated Notes and each other instrument now or hereafter held by it or
him evidencing the Subordinated Secured Obligations to be endorsed with the
following legend:
"The indebtedness evidenced by this instrument is subordinated to the
prior payment in full of certain Senior Secured Obligations (as defined
in the Intercreditor Agreement hereinafter referred to) pursuant to,
and to the extent provided in, that certain Intercreditor Agreement
dated November ___, 1998, by and among SPATIALIGHT, INC., a New York
corporation (the "Borrower"), ARGYLE CAPITAL MANAGEMENT CORPORATION, a
Delaware corporation, and the Senior Lenders (as defined therein).
This instrument may not be offered, sold or otherwise transferred until
the purchaser, assignee or transferee has become a party to and bound
by such Intercreditor Agreement."
<PAGE> 10
Argyle will further mark its books of account in such a manner as shall be
effective to give proper notice of the effect of this Intercreditor Agreement.
ARTICLE IV
COVENANTS
SECTION 4.1 Covenants of Argyle. Argyle hereby covenants and agrees
with the Senior Lenders that, unless the Senior Lenders shall otherwise agree in
writing, prior to the termination of the Senior Loan Documents and payment in
full of the Senior Secured Obligations:
(a) Argyle will not cancel or otherwise discharge any of the
Subordinated Secured Obligations (except for conversion into equity of the
Borrower as permitted by Article III or upon payment in full thereof to the
extent permitted by Article III).
(b) Argyle will not sell, assign, pledge, encumber or otherwise dispose
of any of the Subordinated Secured Obligations held by it unless such sale,
assignment, pledge, encumbrance or disposition is made expressly subject to this
Agreement.
(c) Argyle will not permit the terms of any of the Subordinated Secured
Obligations held by it to be amended or modified in such a manner as to have any
adverse effect upon the rights or interest of any Senior Lender hereunder.
(d) Argyle will not take additional security for the payment of any
Subordinated Secured Obligations or any other obligation of the Borrower to
Argyle or any August Lender, or obtain a lien, security interest or other charge
or encumbrance of any nature whatsoever against the Borrower's property, whether
now owned or hereafter acquired, without first giving ten (10) days notice to
the Senior Lenders confirming that such additional security constitutes
Collateral as defined in, and governed by, this Agreement.
(e) Argyle will extend the maturity date of the Subordinated Notes to
the later of (i) December 31, 1998 or (ii) the maturity date of the Senior
Notes, as extended from time to time under and pursuant to the terms thereof.
(f) Argyle will decrease the interest rate on the Subordinated Notes to
the rate of six percent (6%) per annum.
(g) Argyle agrees to provide to the Agent, within 10 days after the
execution of this Agreement, (i) a copy of each Subordinated Note and each other
instrument now or hereafter held by it evidencing the Subordinated Secured
Obligations reflecting the addition of the legend required by Section 3.8 of
this Agreement, and (ii) an amendment or modification to each Subordinated Note
reflecting the decrease in the interest rate on the Subordinated Notes to the
rate of six percent (6%) per annum as required by Section 4.1(f) of this
Agreement. Argyle further agrees to provide the Agent with copies of any and all
modifications or amendments to the Subordinated Loan Documents promptly upon the
execution thereof.
(h) Argyle will not extend any credit to the Borrower in excess of
$1,188,000 that is secured by the Collateral or any other property or assets of
the Borrower.
<PAGE> 11
(i) At any time and from time to time, upon the written request of the
Senior Lenders, Argyle and each of the August Lenders shall promptly and duly
execute and deliver any and all such further instruments and documents and take
such action as Senior Lenders may reasonably deem necessary or desirable to
obtain the full benefits of this Agreement.
SECTION 4.2 Covenants of the Senior Lenders. The Senior Lenders hereby
covenant and agree with each other and with Argyle as follows:
(a) The August Lenders will not extend any credit to the Borrower in
excess of $1,000,000 (i.e. collectively with respect to extensions of credit by
the August Lenders) that is secured by the Collateral or any other property or
assets of the Borrower. Each of the August Lenders represents and warrants that
the outstanding indebtedness owing to him or it by the Borrower as of the date
of this Agreement is accurately set forth beside his or its name on Schedule B
annexed hereto.
(b) The November Lenders will not extend any credit to the Borrower in
excess of $2,000,000 (i.e. collectively with respect to extensions of credit by
the November Lenders) that is secured by the Collateral or any other property or
assets of the Borrower. Each of the November Lenders represents and warrants
that the outstanding indebtedness owing to him or it by the Borrower as of the
date of this Agreement is accurately set forth beside his or its name on
Schedule A annexed hereto.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Amendments, etc. No amendment or waiver of any provision of
this Agreement or consent to any departure by Argyle herefrom shall in any event
be effective unless the same shall be in writing and signed by the Senior
Lenders, and then such waiver or consent shall be effective only in the specific
instance and the specific purpose for which given.
SECTION 5.2 Expenses. Argyle agrees to pay, on demand, to the Senior
Lenders the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Agent or any Senior Lender may incur
in connection with the exercise or enforcement of any of the Senior Lenders'
rights, remedies or interests hereunder against Argyle to the extent Argyle
breaches any of the covenants or provisions contained in this Agreement.
SECTION 5.3 Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by another, or whenever any of the parties desires to give or
serve upon another any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be delivered in person (or by personal delivery,
delivery service or overnight courier service) with receipt acknowledged, or
telecopied with receipt acknowledged, or sent by certified mail, return receipt
requested, postage prepaid, addressed as hereafter set forth, or mailed by
registered mail, return receipt requested, postage prepaid, addressed as
follows:
<PAGE> 12
If to the Borrower: Spatialight, Inc.
8-C Commercial Boulevard
Novato, California 94949
Attention: Michael H. Burney
(415) 883-1693
(415) 883-3363 (Fax)
If to Argyle: Argyle Capital Management Corporation
14 East 82nd Street
New York, NY 10028
212-517-7313
212-517-4031 (Fax)
If to any November
Lender: At the address set forth for
such Lender on Schedule A
annexed hereto
If to Agent: Steven F. Tripp
2021 Brook Highland Ridge
Birmingham, AL 35242
205-991-3375
205-991-3376 (Fax)
If to any August
Lender: c/o Argyle Capital Management Corporation
14 East 82nd Street
New York, NY 10028
212-517-7313
212-517-4031 (Fax)
or at such other address or facsimile number as may be substituted by notice
given as herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which
personally delivered, in person, by delivery service or by overnight courier
service, with receipt acknowledged, or the date of the telecopy transmission,
with receipt acknowledged or three (3) Business Days after the same shall have
been deposited in the United States mail. Failure or delay in delivering copies
of any notice, demand, request, consent, approval, declaration or other
communication to persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, approval, declaration
or other communication. A copy of any notice sent by telecopier shall be sent by
personal delivery or courier service. Delivery of said notice shall be deemed to
have been made on the earlier of receipt of the telecopy notice or the copy of
said notice sent by personal delivery or courier service.
SECTION 5.4 Governing Law. This Agreement shall be governed by, and
construed in accordance with the internal laws of the State of New York.
<PAGE> 13
SECTION 5.5 Invalidity. In the event that any provision hereof shall be
deemed to be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Agreement shall be construed as
not containing such provision, but only as to such jurisdictions where such law
or interpretation is operative, and the invalidity of such provision shall not
affect the validity of any remaining provision hereof; and any and all other
provisions hereof which are otherwise lawful and valid shall remain in full
force and effect.
SECTION 5.6 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY, TO
THE FULLEST EXTENT PERMITTED BY LAW, WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT
UNDER OR IN CONNECTION WITH THIS AGREEMENT.
SECTION 5.7 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument. Execution and delivery by facsimile shall constitute good and valid
execution and delivery unless and until replaced or substituted by an original
executed instrument.
IN WITNESS WHEREOF, the parties have executed this Intercreditor
Agreement as of the date set forth above.
SPATIALIGHT, INC., a New York corporation
By:
--------------------------------------
Michael H. Burney
Chief Executive Officer
ARGYLE CAPITAL MANAGEMENT CORPORATION,
a Delaware corporation
By:
--------------------------------------
Robert A. Olins, President
THE AUGUST LENDERS:
JERRY WHITLOCK, an individual
By: ARGYLE CAPITAL MANAGEMENT CORPORATION,
a Delaware corporation, as agent
By:
--------------------------------------
Robert A. Olins, President
MANSOUR RASNAVAD, an individual
By: ARGYLE CAPITAL MANAGEMENT CORPORATION,
a Delaware corporation, as agent
By:
--------------------------------------
Robert A. Olins, President
<PAGE> 14
NETWORK FINANCE INCORPORATED,
a _____________________corporation,
By: ARGYLE CAPITAL MANAGEMENT CORPORATION,
a Delaware corporation, as agent
By:
--------------------------------------
Robert A. Olins, President
FARHAD AZIMA, an individual
By: ARGYLE CAPITAL MANAGEMENT CORPORATION,
a Delaware corporation, as agent
By:
--------------------------------------
Robert A. Olins, President
THE NOVEMBER LENDERS:
[Signature lines of Filing Persons omitted]
ACCEPTED AND AGREED TO:
- -----------------------------------------
Steven F. Tripp, as Agent
<PAGE> 15
EXHIBIT A
Schedule of Lenders
<TABLE>
<CAPTION>
Lender Number of Shares Investment Amount
- ------ ---------------- -----------------
<S> <C> <C>
Ronald A. Weyers 111,110.67 $83,333.00
Jeffrey J. Weyers 111,110.67 $83,333.00
Robert J. Weyers 111,110.67 $83,333.00
Matthew A. King 50,000.00 $37,500.00
Robert O. Rolfe 66,666.67 $50,000.00
John W. Eakin 33,333.33 $25,000.00
Bryan B. Starr, Sr. 33,333.33 $25,000.00
Bryan B. Starr, Jr. 33,333.33 $25,000.00
Robert E. Woods 66,666.67 $50,000.00
Marcia K. Tripp 133,333.33 $100,000.00
Wayne Patrick Tripp Trust 66,666.67 $50,000.00
Lisa Marie Tripp Trust 66,666.67 $50,000.00
Steven Francis Tripp 133,333.33 $100,000.00
FBO Jimmie H. Harvey, M.D. 166,666.67 $125,000.00
Birmingham Hematology & Oncology Associates, SLB
Flex Prototype P/S Plan DTD 10-17-85
Jimmie H. Harvey, M.D. 166,666.67 $125,000.00
Hilliard Limited Partnership 200,000.00 $150,000.00
Dan Hilliard 133,333.33 $100,000.00
Wallace J. Hilliard Flint Trust 133,333.33 $100,000.00
Paul Klister 33,333.33 $25,000.00
Jefferson R. Cobb 100,000.00 $75,000.00
</TABLE>
<PAGE> 1
Exhibit 10.8
Form of Registration Rights Agreement
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of November ___, 1998 (the
"Agreement") between SpatiaLight, Inc., a New York corporation (the "Company"),
and {_____}, a Lender.
ARTICLE I
CERTAIN DEFINITIONS
1.1 "Business Day" means any day on which the Nasdaq National Market is
open for trading.
1.2 "Closing Date" means the date of closing of the loan transaction
contemplated by the Convertible Note.
1.3 "Common Stock" means the common stock, par value $.01 per share, of
the Company, any security of the Company now outstanding or hereafter issued by
it which is convertible or exchangeable into Common Stock and any shares of
capital stock of the Company hereafter authorized which is not limited to a
fixed sum or percentage of par or stated value in respect to the rights of their
holders to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Company.
1.4 "Convertible Notes" means the Company's 6% Convertible Secured
Notes in an aggregate not to exceed Two Million ($2,000,000) Dollars in favor of
Lender and the other Lenders participating in the Convertible Secured Loan.
1.5 "Demand Registration" has the meaning set forth in Paragraph 3.1.
1.6 "Eligible Securities" means all or any portion of the shares of
Common Stock issuable or issued (a) upon the conversion of any Convertible Note,
(b) in payment of any amount of interest due on any Convertible Note, (c) upon
the conversion of any notes outstanding as of the date hereof to Argyle Capital
Management Corporation, and (d) in each of case (a), (b) or (c), all other
securities issued with respect thereto by reason of dividends, stock splits,
combinations or similar transactions. Securities shall cease to be Eligible
Securities for all purposes of this Agreement when (i) a registration statement
with respect to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) such securities are permitted to be sold
pursuant to Rule 144(k) (or any successor provision to such Rule) under the
Securities Act, (iii) such securities shall have been otherwise transferred
pursuant to an applicable exemption under the Securities Act, new certificates
for such securities not bearing a legend restricting further transfer shall have
been delivered by the Company and such securities shall be freely transferable
to the public without registration under the Securities Act, or (iv) a written
opinion of counsel of the Company addressed to the Stockholder owning such
securities to the effect that such securities may be sold without registration
under the Securities Act has been delivered to such Stockholder.
<PAGE> 2
1.7 "Person" means an individual, a partnership (general or limited),
limited liability company, corporation, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
1.8 "Piggyback Registration" has the meaning set forth in Paragraph
4.1.
1.9 The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the SEC a registration
statement in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement.
1.10 "Registration Expenses" shall mean all expenses, other than
Selling Expenses (as defined below), incurred by the Company in complying with
this Agreement, including, without limitation, all registration, qualification
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel, accountants and other experts employed by the Company, blue sky fees
and expenses, the expense of any special audits incident to or required by any
such registration and the expenses contemplated by Paragraph 6.3.
1.11 "Resale Registration" shall have the meaning set forth in Article
2.
1.12 "SEC" means the Securities and Exchange Commission.
1.13 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the relevant time.
1.14 "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered on
behalf of the Stockholders.
1.15 "Selling Stockholder" means any Stockholder selling Eligible
Securities registered pursuant to Article 2, 3 or 4 hereof.
1.16 "Stockholder" means any person holding Eligible Securities to whom
the rights under this Agreement have been transferred in accordance with
Paragraph 10.3.
ARTICLE 2
RESALE REGISTRATION
The Company hereby agrees to file under the Securities Act not later
than 90 days after the Company has delivered the audited financial statements
referred to in Section 5(i) of the Convertible Note, a registration statement on
any appropriate registration form to register all Eligible Securities ("Resale
Registration"). The Company shall have the right to include in any such Resale
Registration any other securities of the Company, including, but not limited to,
any securities of the Company (the "Earlier Securities") desired to be
registered by persons or entities also having registration rights granted by the
Company.
<PAGE> 3
ARTICLE 3
DEMAND REGISTRATION
3.1 Requests for Registration. At any time after December 31, 1999, the
holders of at least a majority of the Eligible Securities then deemed
outstanding may, on not more than one occasion during the term of this
Agreement, request registration on an appropriate registration form under the
Securities Act of all or part of their Eligible Securities for purposes of
conducting an underwritten offering thereof. Any registration requested pursuant
to this Paragraph 3.1 is referred to herein as a "Demand Registration." The
request for a Demand Registration shall specify the approximate number of
Eligible Securities requested to be registered and the anticipated per share
price range for such offering.
3.2 Notice to Other Holders. Within ten days after receipt of a request
for a Demand Registration, the Company shall give written notice thereof to all
the other holders of Eligible Securities then deemed outstanding. Each of the
other holders shall have the right, within 15 Business Days after the delivery
of such notice, to request that the Company include all or a portion of such
holder's Eligible Securities in such Demand Registration.
3.3 Permitted Demand Registrations. The Stockholders shall be entitled
to request the Demand Registration only if the aggregate offering value of the
Eligible Securities requested to be registered in any such registration equals
at least $500,000. A registration shall not count as a permitted Demand
Registration until it has become effective (unless the Demand Registration has
not become effective due solely to the fault of the holders requesting such
registration).
3.4 Priority on Demand Registrations. The Company shall not include in
any Demand Registration any securities that are not Eligible Securities without
the prior written consent of the Selling Stockholders of at least a majority of
the Eligible Securities included in such registration. If the managing
underwriters in a Demand Registration advise the Company in writing that in
their opinion the number of Eligible Securities and, if permitted hereunder,
other securities requested to be included in such offering, exceeds the number
of Eligible Securities and other securities, if any, which can be sold in an
orderly manner in such offering within a price range acceptable to the Selling
Stockholders of a majority of the Eligible Securities initially requesting
registration, the Company shall include in such registration, first, the number
of Eligible Securities requested to be included by Selling Stockholders that
initially requested such registration which in the opinion of such underwriters
can be sold in an orderly manner within the price range of such offering, pro
rata among such Selling Stockholders on the basis of the amount of Eligible
Securities owned by each such Selling Stockholder, second, the number of
Eligible Securities requested to be included by Selling Stockholders that
elected to participate in such registration pursuant to Section 3.2 which in the
opinion of such underwriters can be sold in an orderly manner within the price
range of such offering, pro rata among such Selling Stockholders on the basis of
the amount of Eligible Securities owned by each such Selling Stockholder, and
third, the number of securities that are not Eligible Securities that the
Selling Stockholders agreed to include in such registration as provided above
which in the opinion of such underwriters can be sold in an orderly manner
within the price range of such offering, pro rata among such the Persons holding
such securities on the basis of the amount of such securities owned by each such
Person.
3.5 Deferral of Registration Demand in the Event of Company Offering.
In the event that prior to the time a Demand Registration is requested the
Company has in good faith commenced the
<PAGE> 4
preparation of a registration statement for an underwritten offering of its
securities (a "Company Offering") and the managing underwriter delivers a
written opinion (a "Transaction Deferral Opinion") to the requesting
Stockholders stating, in its good faith opinion, that the proposed offering
pursuant to the Demand Registration will materially and adversely affect the
Company Offering, then the Company will be permitted to defer the filing of the
registration statement pursuant to the Demand Registration until the earliest of
(a) the abandonment of the Company Offering, (b) 90 days after receipt by the
requesting Stockholders of the Transaction Deferral Opinion (unless the Company
Offering has become effective on or prior to such 90th day) and (c) if the
Company Offering has become effective on or prior to such 90th day, 120 days
after the effective date of the Company Offering (or such shorter period as may
be requested by the managing underwriter for the Company Offering). The Company
will not be permitted to defer a Demand Registration pursuant to this Paragraph
3.5 more than once in any 12-month period. If the Company defers any
registration statement pursuant to this Paragraph 3.5 and the requesting
Stockholders determine not to proceed with such registration on or prior to the
end of the permitted deferral period, the registration shall not be counted as a
permitted Demand Registration hereunder. Notwithstanding the foregoing, if a
Demand Registration is made within 60 days prior to the end of the Company's
then current fiscal year and such registration is to be effected other than on
Form S-2 or other comparable form for the registration of securities, the
Company will have the right to delay the filing of a registration statement for
150 days or until the Company receives its audited financial statements for such
fiscal year, whichever occurs first.
3.6 Restrictions on Registration. The Company shall not be obligated to
effect any Demand Registration within 120 days after the effective date of a
registration involving an underwritten public offering by the Company and in
which the Stockholders were given piggyback rights pursuant to Article 4 and in
which there was no reduction in the number of Eligible Securities requested to
be included. The Company may postpone for up to 120 days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company's board of directors determines in its reasonable good faith judgment
that such Demand Registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer, reorganization or similar transaction;
provided that in such event, the Stockholders initially requesting such Demand
Registration shall be entitled to withdraw such request and, if such request is
withdrawn, the Demand Registration shall not count as a Demand Registration
hereunder. The Company may delay a Demand Registration hereunder only once in
any twelve-month period.
3.7 Selection of Underwriters. The holders of a majority of the
Eligible Securities initially requesting registration hereunder shall have the
right to select the investment banker(s) and manager(s) to administer the
offering, if any, subject to the Company's approval which shall not be
unreasonably withheld.
<PAGE> 5
ARTICLE 4
PIGGYBACK REGISTRATION
4.1 Right to Piggyback. Commencing on the date hereof, whenever the
Company proposes to register any of its securities under the Securities Act for
an underwritten public offering (other than pursuant to a Demand Registration)
and the registration form to be used may be used for the registration of
Eligible Securities (a "Piggyback Registration"), the Company shall give prompt
written notice (in any event within three Business Days after its receipt of
notice of any exercise of demand registration rights other than under this
Agreement) to all holders of Eligible Securities then deemed outstanding of its
intention to effect such a registration and shall include in such registration
all Eligible Securities with respect to which the Company has received written
requests for inclusion therein within 15 Business Days after delivery of the
Company's notice. Notwithstanding the foregoing, the Company shall not be
required to effect any registration of Eligible Securities under this Paragraph
4.1 incidental to the registration of any of its securities in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans.
4.2 Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company will include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the Eligible
Securities requested to be included in such registration, pro rata among the
holders of such Eligible Securities on the basis of the number of shares owned
by each such holder, and (iii) third, other securities requested to be included
in such registration.
4.3 Priority on Secondary Registrations. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration, the Company shall include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration, (ii) second, the Eligible Securities requested to be included in
such registration, pro rata among the holders of such Eligible Securities on the
basis of the number of shares owned by each such holder, and (iii) third, other
securities requested to be included in such registration.
4.4 Selection of Underwriters. If any Piggyback Registration is an
underwritten secondary registration on behalf of the holders of the Company's
securities, the selection of investment banker(s) and manager(s) for the
offering must be reasonably acceptable to the holders of a majority of the
Eligible Securities included in such Piggyback Registration. Such approval will
be assumed unless notice to the contrary is given by the holders of a majority
of the Eligible Securities included in such Piggyback Registration to the
Company within ten days of such holders' receipt of notice of selection by the
Company.
4.5 Other Registrations. If the Company has previously filed a
registration statement with respect to Eligible Securities pursuant to Article 3
or pursuant to this Article 4 and if such previous registration has not been
withdrawn or abandoned, the Company shall not, without the prior
<PAGE> 6
written consent of the holders of a majority of the Eligible Securities included
therein, file or cause to be effected any other registration for the
underwritten offering, issue or sale of any of its equity securities or
securities convertible or exchangeable into or exercisable for its equity
securities under the Securities Act (except on Form S-8 or any successor form),
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of at least 120 days has elapsed from the effective
date or earlier withdrawal of such previous registration.
4.6 Determination Not to Register or to Delay Registration. If at any
time after giving written notice of its intention to register any securities as
to which the Stockholders shall have the rights provided in this Article 4 and
prior to the effective date of the registration statement with respect thereto,
the Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to the Stockholders and, thereupon, (i) in the case
of a determination not to register, the Company shall be relieved of its
obligation to register any Eligible Securities in connection with such
registration and (ii) in the case of a determination to delay such registration,
the Company shall be permitted to delay registration of any Eligible Securities
requested to be included in such registration for the same period as the delay
in registering the other securities proposed to be registered by the Company,
but, in either such case, without prejudice to the rights of the holders of
Eligible Securities under Articles 2 and 3.
ARTICLE 5
HOLDBACK AGREEMENTS
5.1 Holdback by Stockholders. Each Stockholder shall not effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the five business days prior to and, if
required by the underwriter, the 90-day period (or such shorter period as the
underwriters managing the registered public offering may permit) beginning on
the effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration in which Eligible Securities are included (except as part
of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
5.2 Holdback by Company. In connection with any underwritten
registration, the Company (i) shall not effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the five business days prior to and
during the 90-day period (or such longer period as may be requested by the
underwriters managing the registered public offering) beginning on the effective
date of any underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form), unless the underwriters
managing the registered public offering otherwise agree, and (ii) shall use its
reasonable best efforts to cause each holder of at least 5% (on a fully-diluted
basis) of its Common Stock, or any securities convertible into or exchangeable
or exercisable for Common Stock, purchased from the Company at any time after
the date of this Agreement (other than in a registered public offering or
pursuant to stock options granted under a stock option plan primarily for
employees, officers or directors) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
<PAGE> 7
ARTICLE 6
REGISTRATION EXPENSES
6.1 Registration Expenses. All Registration Expenses in connection with
any registration pursuant to this Agreement shall be borne by the Company
whether or not it has become effective and whether or not such registration has
counted as the permitted Demand Registrations (unless such registration does not
become effective due solely to the fault of the Selling Stockholders requesting
such registration). The Company shall, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Company are then listed or on
the NASD automated quotation system.
6.2 Selling Expenses. The Selling Stockholders shall be responsible for
all Selling Expenses relating to Eligible Securities registered on behalf of the
Selling Stockholders.
6.3 Fees and Disbursements of Stockholders' Counsel. In connection with
the Resale Registration, the Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Eligible Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Eligible Securities initially
requesting such registration.
6.4 Allocation of Certain Expenses. To the extent Registration Expenses
are not required to be paid by the Company, each holder of securities included
in any registration hereunder shall pay those Registration Expenses allocable to
the registration of such holder's securities so included, and any Registration
Expenses not so allocable shall be borne by all sellers of securities included
in such registration in proportion to the aggregate selling price of the
securities to be so registered.
ARTICLE 7
REGISTRATION PROCEDURES
7.1 Registration and Qualification. The Company shall, (i) pursuant to
Article 2 and (ii) whenever the Stockholders have requested that any Eligible
Securities be registered pursuant to this Agreement, use its reasonable best
efforts to effect the registration and the sale of such Eligible Securities in
accordance with the intended method of disposition thereof, and pursuant thereto
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to such Eligible Securities and use its reasonable best
efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall furnish to the
counsel selected by the holders of a majority of the Eligible
Securities covered by such registration statement copies of all such
documents proposed to be filed, for review by such counsel for a period
of at least three business days after its receipt thereof) and keep the
registration statement continuously effective under the Securities Act
(i) in the case of the Resale Registration, until the earlier of (X)
the fifth anniversary of the Closing Date and (Y) such date as of which
all Eligible Securities shall cease to be Eligible Securities and (ii)
in the case of the Demand
<PAGE> 8
Registration and any Piggyback Registration, for a period of not less
than one year (or such shorter period as may be required until all of
the Eligible Securities so registered have been sold);
(b) notify each Selling Stockholder of the effectiveness of
each registration statement filed hereunder and prepare and file with
the SEC such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for the period described in
subparagraph (a) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the Selling Stockholders set forth
in such registration statement;
(c) furnish to each Selling Stockholder such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Eligible Securities owned by Selling Stockholders;
(d) use its reasonable best efforts to register or qualify
such Eligible Securities under such other securities or blue sky laws
of such jurisdictions as any Selling Stockholder reasonably requests
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Stockholder to consummate
the disposition in such jurisdictions of the Eligible Securities owned
by such Selling Stockholder; provided, however, that the Company shall
not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(e) notify each Selling Stockholder, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such
Selling Stockholder, the Company will prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers
of such Eligible Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) as soon as practicable after the Common Stock shall be
eligible for listing on the Nasdaq National Market or, failing that,
the Nasdaq SmallCap Market, use all reasonable efforts to cause all
such Eligible Securities to be listed on the Nasdaq National Market or
the Nasdaq SmallCap Market, as the case may be;
(g) provide a transfer agent and registrar for all such
Eligible Securities not later than the effective date of such
registration statement;
<PAGE> 9
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other
reasonable actions as the holders of a majority of the Eligible
Securities being sold or the underwriters, if any, reasonably request
in order to expedite or facilitate the disposition of such Eligible
Securities (including effecting a stock split or a combination of
shares);
(i) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC;
(j) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or
suspending the qualification of any common stock included in such
registration statement for sale in any jurisdiction, the Company shall
use its reasonable best efforts promptly to obtain the withdrawal of
such order;
(k) use its reasonable best efforts to cause such Eligible
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary to enable the sellers thereof to consummate the
disposition of such Eligible Securities; and
7.2 Furnishing Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Eligible Securities of any Selling Stockholder that such Selling
Stockholder shall furnish to the Company such information regarding itself, the
Eligible Securities held by it and the intended method of disposition of such
securities as shall be required to effect the registration of such Selling
Stockholder's Eligible Securities.
7.3 Underwriting. In the event that any registration pursuant to this
Agreement shall involve, in whole or in part, an underwritten offering, the
Company may require Eligible Securities to be included in such underwriting on
the same terms and conditions as shall be applicable to the Common Stock being
sold through underwriters under such registration. In such case, the holders of
Eligible Securities on whose behalf Eligible Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement.
ARTICLE 8
INDEMNIFICATION
8.1 In the event of any registration of any Eligible Securities
hereunder, the Company hereby agrees to indemnify and hold harmless each
Stockholder and, to the extent applicable, its directors and officers, its
partners, its trustees and each Person who controls any of such Persons against
any losses, claims, damages, liabilities and expenses, joint or several, to
which such Person may be subject under the Securities Act or otherwise insofar
as such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any final prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company
<PAGE> 10
will promptly reimburse each such Person for any legal or any other expenses
reasonably incurred by such Person in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding; provided that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any final
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Selling Stockholders
expressly for use in the registration statement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of a
Selling Stockholder or any such Person and shall survive the transfer of such
securities by the Selling Stockholders.
8.2 The Selling Stockholders agree severally and not jointly to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Paragraph 8.1 of this Article 8) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement,
and each Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement in or omission from such
registration statement, any final prospectus included therein, or any amendment
or supplement thereto, but only to the extent that such statement or omission
was made in reliance upon and in conformity with written information furnished
by such Selling Stockholders to the Company expressly for use in the
registration statement; provided that the obligation to indemnify and the
contribution obligation set forth in Article 9 hereof will be limited to the
gross proceeds received by such holder from the sale of Eligible Securities.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling Person and shall survive the transfer of the registered
securities by the Selling Stockholders and the expiration of this Agreement.
8.3 Indemnification similar to that specified in the preceding
subdivisions of this Article 8 (with appropriate modifications) shall be given
by the Company and the Selling Stockholders with respect to any required
registration or other qualification of such Eligible Securities under any
federal or state law or regulation of governmental authority other than the
Securities Act.
ARTICLE 9
CONTRIBUTION
Subject to the limitation on indemnification and contribution set forth
in Section 8.2 of Article 8, if the indemnification provided for in Article 8
hereof is unavailable to a party entitled to indemnification in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the Company on the one hand and
of the Selling Stockholders on the other in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or expenses
as well as any other relevant equitable considerations. The relative fault of
the Company on the one hand and of the Selling Stockholders on the other shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Selling Stockholders, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The indemnity and contribution obligations of each indemnifying party
<PAGE> 11
set forth herein shall be in addition to any liability or obligation such
indemnifying party may otherwise have to any indemnified party, including under
this Agreement.
ARTICLE 10
MISCELLANEOUS
10.1 No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into nor shall it, on or after the date hereof, enter into, any
agreement with respect to its capital stock that is inconsistent with the rights
granted to the Stockholders herein or otherwise conflicts with the provisions
hereof.
10.2 Modification and Amendment. This Agreement may not be changed,
modified, discharged or amended, except by an instrument signed by the
Stockholders owning at least 50% of the Eligible Securities.
10.3 Transfer of Registration Rights. The obligation of the Company to
register Eligible Securities granted to Selling Stockholders hereunder may be
assigned to one or more transferees or assignees of Selling Stockholders, as the
case may be, in connection with any transfer or assignment in a private
transaction of Eligible Securities. Any transfer of registration rights pursuant
to this Section shall be effective upon receipt by the Company of written notice
from a Selling Stockholder transferring Eligible Securities (i) stating the name
and address of the transferee, (ii) the number of Eligible Securities
transferred and (iii) the date of transfer, which notice shall be accompanied by
an agreement of the transferee stating that all of the terms and provisions of
this Agreement will be binding upon and enforceable against such transferee.
10.4 Notices All notices, requests, demands, consents and other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and delivered by hand, by overnight courier delivery
service, facsimile transmission or by certified mail, return receipt requested,
postage prepaid. Notices shall be deemed given when actually received, which
shall be deemed to be not later than the next Business Day if sent by overnight
courier or facsimile transmission or after five Business Days if sent by mail.
Notice to Stockholders shall be made to the address listed on the stock transfer
records of the Company. Notice to the Company shall be made to the Company's
principal executive offices at 8-C Commercial Boulevard, Novato, California
94949, or such other address for which the Company has given written notice to
the Stockholder.
10.5 Captions. The captions or headings in this Agreement are for
convenience and reference only, and in no way define, describe, extend or limit
the scope or intent of this Agreement.
10.6 Severability. If any clause, provision or section of this
Agreement shall be invalid or unenforceable, the invalidity or unenforceability
of such clause, provision or section shall not affect the enforceability or
validity of any of the remaining clauses, provisions or sections hereof to the
extent permitted by applicable law.
10.7 Governing Law. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of New York, without reference to
its rules as to conflicts or choice of laws.
<PAGE> 12
10.8 Entire Agreement. This Agreement constitutes the entire agreement
and understanding among the parties and supersedes any prior understandings
and/or written or oral agreements among them respecting the subject matter
herein.
10.9 Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same instrument. Execution and delivery by facsimile shall constitute
good and valid execution and delivery unless and until replaced or substituted
by an original executed instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the day and year first above written.
SPATIALIGHT, INC.
By
---------------------------------
Michael H. Burney
Authorized Signatory
Lender:
-----------------------------------
{_____}
<PAGE> 13
EXHIBIT A
Schedule of Lenders
<TABLE>
<CAPTION>
Lender Number of Shares Investment Amount
- ------ ---------------- -----------------
<S> <C> <C>
Ronald A. Weyers 111,110.67 $83,333.00
Jeffrey J. Weyers 111,110.67 $83,333.00
Robert J. Weyers 111,110.67 $83,333.00
Matthew A. King 50,000.00 $37,500.00
Robert O. Rolfe 66,666.67 $50,000.00
John W. Eakin 33,333.33 $25,000.00
Bryan B. Starr, Sr. 33,333.33 $25,000.00
Bryan B. Starr, Jr. 33,333.33 $25,000.00
Robert E. Woods 66,666.67 $50,000.00
Marcia K. Tripp 133,333.33 $100,000.00
Wayne Patrick Tripp Trust 66,666.67 $50,000.00
Lisa Marie Tripp Trust 66,666.67 $50,000.00
Steven Francis Tripp 133,333.33 $100,000.00
FBO Jimmie H. Harvey, M.D. 166,666.67 $125,000.00
Birmingham Hematology & Oncology Associates, SLB
Flex Prototype P/S Plan DTD 10-17-85
Jimmie H. Harvey, M.D. 166,666.67 $125,000.00
Hilliard Limited Partnership 200,000.00 $150,000.00
Dan Hilliard 133,333.33 $100,000.00
Wallace J. Hilliard Flint Trust 133,333.33 $100,000.00
Paul Klister 33,333.33 $25,000.00
Jefferson R. Cobb 100,000.00 $75,000.00
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Spatialight, Inc. on Form S-3 of our report dated March 24, 1999 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to a going concern issue), appearing in the Annual Report on Form 10-KSB of
Spatialight, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
San Francisco, California
November 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 394,706
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 25,924
<CURRENT-ASSETS> 458,176
<PP&E> 641,246
<DEPRECIATION> 329,860
<TOTAL-ASSETS> 810,314
<CURRENT-LIABILITIES> 4,124,459
<BONDS> 0
0
0
<COMMON> 132,564
<OTHER-SE> 14,265,799
<TOTAL-LIABILITY-AND-EQUITY> 810,314
<SALES> 20,500
<TOTAL-REVENUES> 20,500
<CGS> 5,473
<TOTAL-COSTS> 5,473
<OTHER-EXPENSES> 1,456,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,454
<INCOME-PRETAX> 1,492,551
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,492,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,492,551
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
