<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -------------------------------------------------------------------------------
FORM 10-KSB
[X] Annual report under Section 13 or 14(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
Commission File Number: 000-19828
- -------------------------------------------------------------------------------
SPATIALIGHT, INC.
(Name of Small Business Issuer in its Charter)
New York 16-1363082
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9 Commercial Blvd., Suite 200, Novato, California 94949
-------------------------------------------------------
(Address of principal executive offices)
(415) 883-1693
--------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act:
None Securities registered under Section 12(g) of
the Act:
Common Stock $.01 par value
---------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the year ended December 31, 1999 aggregated
$62,000.
The aggregate market value for the Issuer's voting stock held by
non-affiliates of the Issuer based upon the $7.5625 per share closing sale price
of the Common Stock on March 14, 2000 as reported on the OTC Bulletin Board, was
approximately $110,347,538. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding common stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 14, 2000, Registrant had 18,597,244 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
SPATIALIGHT, INC.
FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
ITEM 1 Description of Business.............................................3
ITEM 2 Description of Property.............................................7
ITEM 3 Legal Proceedings...................................................7
ITEM 4 Submission of Matters to a Vote
Of Security Holders.................................................7
PART II
ITEM 5 Market for Common Equity and Related
Stockholder Matters.................................................8
ITEM 6 Management's Discussion and Analysis
Or Plan of Operation................................................9
ITEM 7 Financial Statements...............................................20
ITEM 8 Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure.............................37
PART III
ITEM 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.........37
ITEM 10 Executive Compensation.............................................39
ITEM 11 Security Ownership of Certain Beneficial Owners and Management.....41
ITEM 12 Certain Relationships and Related Transactions.....................42
ITEM 13 Exhibits and Reports on Form 8-K...................................42
</TABLE>
<PAGE> 3
PART I
This annual report on Form 10-KSB contains certain forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended, and is subject to the Safe Harbor provisions created by that statute.
In this report, the words "anticipates," "believes," "expects," "future",
"interests," and similar expressions identify forward-looking statements. Such
statements are subject to risks and uncertainties, including, but not limited
to, those discussed herein, and in particular, those contained in "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the caption "Risk Factors," that could cause actual results to
differ materially from those projected. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to publicly release the result of any
revisions to these forward-looking statements that may be needed to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events.
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
We develop and supply microdisplays that provide high resolution images
suitable for applications such as rear projection computer monitors, high
definition television and video projectors, and potential applications such as
use in wireless communication devices, portable games and digital assistants.
Our microdisplays are designed for use in end products of original equipment
manufacturers (OEMs) and therefore we work closely with prospective customers to
incorporate our microdisplays into their final products. Because our
microdisplays can be manufactured using existing silicon and liquid crystal
processes, we contract with existing manufacturers for the production of our
silicon and the assembly of the final display modules. We have patents covering
parts of our designs, however the key designs of the circuitry in the silicon,
drive electronics, and liquid crystal assembly techniques are proprietary.
Our microdisplays are high-resolution liquid crystal displays, and are
constructed with a silicon chip, a layer of liquid crystals and a glass cover
plate, in contrast to the more common construction of liquid crystals sandwiched
in between two glass plates. 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 microdisplays measure approximately one inch in diagonal, contain
large arrays of pixels and therefore can provide more content at a lower cost
than currently available displays. The image on a microdisplay 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 microdisplay applications include: large-screen
rear-projection television systems, in both standard television format (NTSC)
and High Definition Television (HDTV) formats; large-screen rear-projection
computer monitors in a variety of resolutions; video projectors for
presentations; head-mounted displays which are used for virtual reality systems,
defense, aerospace and gaming applications; and other potential applications
such as point of purchase displays, optical computing, data storage and
holographic imaging systems.
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
can to move from prototypes to production more quickly than competing
technologies offering comparable quality. By using existing manufacturing
processes we believe we can rapidly obtain economies of scale and thereby reduce
costs.
We are a corporation organized under the laws of the State of New York,
incorporated in 1989. Our executive offices are located at 9 Commercial
Boulevard, Suite 200, Novato, California 94949. Our Web site is located at
www.spatialight.com.
3
<PAGE> 4
TECHNOLOGY AND PRODUCTS UNDER DEVELOPMENT
As of December 31, 1999 we were working to ship prototype quantities of
our fifth generation display, a 1,280 x 1,024 array of pixels (a total of
1,310,720 pixels), for evaluation by our customers. Our previous technology was
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 started shipping in the fourth
quarter of 1998 in the form of developer kits, which were designed to assist
potential customers in evaluating the display technology for inclusion in their
products. To date, we have only sold small quantities of our 1,024 x 768
developer kits. On March 23, 2000 we announced that we are shipping SpatiaLight
ImagEngine 1280BC microdisplays. These products are currently being shipped to
four customers.
The technology underlying our display products utilizes the well-known
and documented manipulation of liquid crystals. A typical liquid crystal
display, as might be found in a notebook computer, basically consists (along
with other associated materials and processes) of liquid crystal material
sandwiched between two pieces of glass, polarizers, color filters, a data signal
and a light source. As the data signal is applied across the sandwich of the
liquid crystals, the electric field created by this data signal cause the liquid
crystals to twist and untwist. This twisting, combined with the polarizers,
makes each pixel change from opaque to transparent, thereby controlling either
the transmission or reflection of light from each pixel.
Departing from typical liquid crystal displays utilizing circuitry on
two pieces of glass, we design integrated circuits, which control individual
reflective pixels on a silicon substrate. This silicon substrate is manufactured
using a standard complimentary metal oxide semiconductor (CMOS) process. This
processed silicon substrate, also known as a silicon backplane, then has the
liquid crystal material and a cover glass applied to it. When the data signal is
sent to the circuitry in the silicon, the liquid crystals again twist from
opaque to transparent states. When polarizers are added and light is reflected
from the pixels on the silicon, images can be viewed directly or, using standard
optical techniques, projected into larger images on a screen.
As is common with all LCDs, the images produced are inherently black and
white. The varying of the electrical signal to each pixel produces gray scaling
(various shades of gray going from black to white). Utilizing this gray scaling,
there are three basic techniques for achieving color displays: 1) optically
combining different colors of light, 2) sequential color systems and 3) color
filters. We believe our displays can be adapted for use in all of these types of
color display processes.
The display industry has and continues to undergo rapid and significant
technological change. We expect the display technology to continue to develop
rapidly, and our success will depend significantly on our ability to attain and
maintain a competitive position. Rapid technological development may result in
actual and proposed displays, products or processes becoming obsolete before we
recoup a significant portion of related research and development, acquisition
and commercialization costs.
After we mass-produce quantities of our display, our ability to compete
will depend in part upon many factors including the quality of the display,
delivery, pricing, and technical specifications. In addition there will be
factors within and outside of our control, including customer support and the
success and timing of product introduction and distribution by our customers.
Our competitors may succeed in developing technologies and products that are
equally or more efficient than any which are being developed by us which will
render our technology, displays and other products obsolete and non-competitive.
4
<PAGE> 5
Although we have produced displays based upon our technology, we have
not yet had our display incorporated into any commercial end use application.
Delays in development may result in our introduction of our displays later than
anticipated, which may have a material adverse effect on both our financial and
competitive position. Moreover, we may never be successful in developing or
manufacturing a commercially viable display. In addition, our displays may not
be technically or commercially successful, we may not obtain suppliers or
manufacturers for adequate quantities of our displays, or we may not reach
commercially acceptable cost levels on a timely basis.
MARKETING, SALES AND DISTRIBUTION
Application and Markets
We are working with a number of international original equipment
manufacturers (OEM) to use our microdisplays in their end product applications.
Our ability to design end products for any of these markets, as well as the
ability to sell and distribute in these diverse markets is beyond the current
resources of our company. We are therefore establishing relationships with OEMs
to incorporate our displays into their products. In some instances, especially
high volume applications, we custom design our displays to fit a specific
manufacturer's need for a specific product. We will also consider licensing
large manufacturers who have the ability and desire to manufacture our displays
for use in their final products. Our displays can be incorporated into a wide
variety of products such as rear-projection televisions, rear-projection
computer monitors, video projectors, and head mounted displays.
Our strategy is to focus our abilities on original equipment design
(OED) of LCOS microdisplays, and to work closely with OEMs to market end
products utilizing our displays. We are therefore dependent upon these OEMs for
the manufacturing and marketing of end products. As of December 31, 1999, no end
products exist using our display, and there can be no assurance that any OEM
will develop or market a product incorporating our display.
We are forming alliances with corporate partners for the marketing and
distribution of products incorporating our microdisplays. We may not be
successful in forming and maintaining such alliances and our partners may not
devote adequate resources to successfully market and distribute these
anticipated products. We may not be able to enter into satisfactory agreements
and our marketing partners may not be successful in gaining market acceptance
for these anticipated products.
Manufacturing and Supply
We currently contract with manufacturers for the production of our
silicon and assembly of our displays, and are in discussions with additional
manufacturers as second sources for these functions. Our facility in Novato,
California contains a Class 1000 "clean room" which is designed principally for
research and development, prototype and pre-production assembly of our
microdisplays. We recognize the need for strict quality control of our
microdisplays manufactured in both our facility and our contract manufacturing
partners. We perform product testing, analyze the results and take actions to
refine the manufacturing process or enhance product design. We are developing
statistical quality control procedures for our contract manufacturers, in which
continual quantitative measurements of critical parameters are used as a
feedback mechanism to improve the manufacturing process.
We are working with two foundries for the production of our silicon,
United Microelectronics Corp. (UMC) in Taiwan, and Anam Semiconductor, Inc. in
Korea. The supply of silicon from these suppliers does fluctuate, and we may be
subject to problems of availability. We have also engaged the services of
Varitronix Limited in Hong Kong for the final assembly process of our displays.
5
<PAGE> 6
Any termination of a manufacturing or supply contract could have a
material adverse effect on our ability to meet our anticipated commitments to
customers while we identify and qualify replacement manufacturers. We could
become dependent on any manufacturer and any termination or cancellation of our
agreement with the manufacturer could adversely affect our ability to
manufacture our products. In anticipation of such an event, we are establishing
secondary manufacturing and supply relationships.
COMPETITION
Microdisplays are a subset of the display market. This display market
subset consists of 1) reflective microdisplays produced on silicon backplanes,
2) transmissive microdisplays and 3) emissive microdisplays. The reflective
microdisplay competition includes companies such as Colorado MicroDisplay,
Displaytech, Hughes/JVC, IBM, inVisio, Microdisplay, Three-Five Systems, and
Varitronix. These companies are all producing different forms of a liquid
crystal display on a silicon backplane. Competitors in the reflective
microdisplay market, although not using liquid crystals in the display are Texas
Instruments which is producing a micro-mechanical structure of moving mirrors on
a silicon backplane, and Silicon Light Machines which is producing a deformable
grating on a silicon backplane.
Rapid and significant technological advances have characterized the
microdisplay market. There can be no assurance that our displays will be
representative of such advances or that we will have sufficient funds to invest
in new technologies or products or processes. Although we believe that our
displays have specifications and capabilities which equal or exceed that of
commercially available LCD and Cathode Ray Tube (CRT) based display products,
the manufacturers of these products may develop further improvements of their
existing technology that would eliminate or diminish our anticipated advantage.
In addition, numerous competitors have substantially greater financial,
technical, marketing, distribution and other resources than us. We may also face
an aggressive, well financed competitive response that may include
misappropriation of our intellectual property or predatory pricing.
PATENTS AND INTELLECTUAL PROPERTY
Our ability to compete effectively with other companies will depend, in
part, on our ability to maintain the proprietary nature of our technologies. We
have been awarded five U.S. Patents and have other patent applications pending.
There can be no assurance as to the degree of protection offered by these
patents or as to the likelihood that pending patents will be issued. Our
competitors, in both the United States and foreign countries, many of which have
substantially greater resources and have made substantial investments in
competing technologies, may seek to apply for and obtain patents that will
prevent, limit or interfere with our ability to make and sell our products or
intentionally infringe our patents.
The defense and prosecution of patent suits is both costly and
time-consuming, even if the outcome is favorable to us. This is particularly
true in foreign countries. In addition, there is an inherent unpredictability
regarding obtaining and enforcing patents in foreign countries. An adverse
outcome in the defense of a patent suit could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties, or require us to cease selling our products.
We also rely on unpatented proprietary technology and there can be no
assurance that others may not independently develop the same or similar
technology or otherwise obtain access to our proprietary technology. To protect
our rights in these areas, we require all employees and technology consultants,
advisors and collaborators to enter into confidentiality agreements. However,
these agreements may not provide meaningful protection for our trade secrets,
know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. To date, we have no experience in enforcing our
confidentiality agreements.
6
<PAGE> 7
RESEARCH AND DEVELOPMENT
We incurred research and development expenses of approximately $2
million in 1999 and $1.5 million in 1998. Research and development expenses are
those costs incurred for personnel and experimental materials for the design and
development of new products. We believe that the development of new products
will be required to allow us to compete effectively and to achieve future
revenues. We currently have 12 full-time employees whose duties include research
and development. We intend to continue our product development programs,
focusing on increasing the display specifications including resolution, color,
and manufacturing processes. We believe that such developments will be required
to exploit future markets.
EMPLOYEES
As of December 31, 1999, the Company had 16 full-time and 1 part-time
employees. Full-time employment is divided among two functional areas with 12 in
research and development and 4 in finance and administration. Employees are not
represented by any collective bargaining organizations. We consider our
relations with our employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
Our headquarters are located at 9 Commercial Boulevard, Suite 200,
Novato, California. SpatiaLight occupies approximately 10,000 square feet of
office space at this location bound by a two-year lease with two options for
additional one year extensions.
ITEM 3. LEGAL PROCEEDINGS
Tony Romano and Magellin Entertainment, Inc. (Plaintiffs) filed an
action against us in San Francisco Superior Court on January 10, 2000. Directors
Michael Burney and Robert Olins were also named. The complaint relates to an
alleged engagement of Plaintiffs by SpatiaLight in January 1998 to increase
public awareness of SpatiaLight, in return for our securities. The Complaint
seeks specific performance for the transfer of an additional 75,000 shares of
stock. SpatiaLight denies the allegations in the complaint. We do not believe we
have any liability to the Plaintiffs arising from the litigation. No reserves
have been established for potential losses from the litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by us to a vote of our security holders during
the fourth quarter of fiscal 1999.
7
<PAGE> 8
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Trading in our common stock has been conducted on the over-the-counter
Bulletin Board since April 2, 1997. The common stock was previously listed on
the Nasdaq SmallCap Market trading under the symbol "SLHT" until April 1997. On
April 2, 1997 we were delisted from the Nasdaq SmallCap Market because we did
not meet certain requirements for continued listing. Because we are traded on
the over-the counter Bulletin Board, our securities may be less liquid, receive
less coverage by security analysts and news media, and generate lower prices
than might otherwise be obtained. In November 1997 we changed our stock symbol
to "HDTV". In December 1999 we filed an application with the Nasdaq to be
relisted on a Nasdaq market. Nasdaq is currently processing our application and
there can be no assurance that our application will be accepted.
The following tables sets forth, for the calendar quarters indicated,
the range of high and low quotations for the common stock, as reported by
Commodity Systems, Inc.
HDTV Common Stock
<TABLE>
<CAPTION>
1999
High Low
------------ -------------
<S> <C> <C>
First Quarter 3.25 1.34
Second Quarter 5.65 2.00
Third Quarter 3.75 2.50
Fourth Quarter 6.19 2.47
</TABLE>
<TABLE>
<CAPTION>
1998
High Low
------------ -------------
<S> <C> <C>
First Quarter 1.00 0.25
Second Quarter 1.09 0.33
Third Quarter 0.86 0.41
Fourth Quarter 1.94 0.44
</TABLE>
The quotations listed above reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not represent actual transactions.
As of March 14, 2000 there were approximately 481 holders of record of
the common shares of SpatiaLight and the price per share of our common stock was
$7.56. The common stock represents the only class of securities outstanding as
of this filing. Because many of such shares are held by brokers and institutions
on behalf of stockholders, we are unable to estimate the total number of
stockholders represented by these record holders.
To date, we have not paid a dividend on our common stock. The payment of
future dividends is subject to our earnings and financial position and such
other factors, including contractual restrictions, as the Board of Directors may
deem relevant and it is unlikely that dividends will be paid in the foreseeable
future.
8
<PAGE> 9
Over the past three years, we have issued promissory notes convertible
into common stock and warrants to purchase common stock in private placements to
raise capital for SpatiaLight. Three private placements to multiple investors
were in December 1997, November 1998 and December 1999. In the aggregate,
16,203,762 shares of common stock have been issued or are exercisable under
convertible notes or warrants to purchase common stock and subsequently
approximately 4,128,000 of these shares have been registered on Form S-3. Such
securities were issued on approximately 40 separate dates. As of March 14, 2000
SpatiaLight raised an aggregate of approximately $12,374,000 from these
issuances. In addition stock has been issued directly, in general in return for
legal or consulting services, on numerous occasions over the past three years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and related notes appearing elsewhere in this report. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including but not limited to, customer's reception of our products,
intensity of competition, quality control during manufacturing and those set
forth under "Risk Factors".
OVERVIEW
We design microdisplays that provide high resolution images suitable for
applications such as rear projection computer monitors, high definition
television and video projectors, and potential applications such as use in
wireless communication devices, portable games and digital assistants. Our
revenues through December 31, 1999 have been principally derived from the sales
of our fourth generation display developer kits, which begin shipping in the
fourth quarter of 1998. As potential customers evaluated our displays during
1999, we began development of our fifth generation display. This new display
incorporated the best specifications of our previous display, and new technical
capabilities that our potential customers wanted for incorporation in their
products. It was designed for mass production. Our fifth generation display
began shipping in the first quarter of 2000.
In January 2000 we began a conversion of our accounting system into a
fully integrated accounting and manufacturing software and hardware solution. We
initiated this change to efficiently handle the expected accounting and
manufacturing issues related with our change from our previous company focus,
which was solely research and development, to our new focus of manufacturing and
sales. This conversion will cost approximately $250,000 and we expect this
conversion to be completed in the second quarter of this year.
During 1999 our operations were constrained by an insufficient amount of
working capital and we experienced negative cash flows and net operating losses.
Our operations were funded in 1999 by the sale and exercise of warrants and by
convertible securities, which are secured by substantially all of our assets. In
the fourth quarter of 1999 management executed a plan to financially secure our
operations during 2000 with two courses of action.
The first course of action was implemented in November 1999 when we
filed two S-3 Registration Statements with the Securities and Exchange
Commission (SEC). These were declared effective on December 7, 1999. These
prospectuses relate to the offer and sale of up to 2,543,515 shares of our
common stock issuable upon exercise of warrants, with exercise prices ranging
from $0.50 to $2.8125 per share, issued to investors from June 19, 1997 to
September 15, 1999. As of March 14, 2000 we have received $3,988,512 from the
exercise of these warrants for which we have issued 1,813,515 shares of common
stock.
9
<PAGE> 10
The second course of action was also implemented in November 1999. This
was the conversion of $2,612,500 of the then existing convertible securities
into common stock and the closing of a new convertible debt financing in
December in the amount of $2,875,000, of which we have received $1,437,500 as of
December 31, 1999.
As of March 14, 2000, we have received a total of $5,426,012 from these
warrants and convertible notes, and we expect to receive an additional
$1,437,500 during the second quarter of 2000 assuming a performance target is
achieved.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the net revenue
associated with items in the Company's Consolidated Financial Statements. The
table and the discussion below should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
Years ending December 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 62,000 29,750
Cost of revenues 10,945 4,104
----------- -----------
Gross profits 51,055 25,646
Selling, general and administrative expenses 2,084,273 1,189,330
Stock-based general and administrative expenses 1,935,504 371,617
Research and development expenses 1,955,170 1,509,510
----------- -----------
Total operating expenses 5,974,947 3,070,457
Operating loss (5,923,892) (3,044,811)
Total other expense (1,483,594) (136,129)
Loss from operations before income taxes (7,407,486) (3,180,940)
----------- -----------
Income taxes 3,375 2,734
----------- -----------
Net loss $(7,410,861) (3,183,674)
=========== ===========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had $1,236,609 in cash and cash
equivalents, an increase of $766,523 over the December 31, 1998 amount of
$470,086. Our net working capital at December 31, 1999 was $319,331, as compared
to negative $3,381,358 at December 31, 1998. The increases in cash and working
capital were due to the conversion of short-term convertible notes in November
1999 and the completion of new long-term convertible notes in December 1999.
During 1999 we had negative cash flow from operations, resulting in the
need to fund ongoing operations from financing activities. Net cash used by
operating activities totaled $3,572,094 and $2,810,289 in 1999 and 1998,
respectively. Net cash that was provided by financing activities was $4,571,059
and $2,951,063 in 1999 and 1998 respectively, principally resulting from the
issuance of convertible notes, the sale of warrants, and the exercise of
warrants and options.
As of December 31, 1999, we had an accumulated deficit of $21,378,010.
We have realized significant losses in the past and expect that these losses
will slow as we start production and realize sales
10
<PAGE> 11
from this production during 2000. It is likely that we will still have losses in
2000 as we begin production. While we generated limited revenues and no profits
from operations during 1999, we expect substantial sales during 2000. The
development and commercialization of our displays will require substantial
expenditures during 2000. Consequently, we may continue to operate at a loss for
some time during 2000 and there can be no assurance that our business will
operate on a profitable basis.
We anticipate that our existing cash balances together with funds from
sales will be sufficient to meet our presently projected cash and working
capital requirements (which relate primarily to research, development and
production) for the next 12 months.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Our total revenues were $62,000 and $29,750 in 1999 and 1998
respectively. Revenues in both 1999 and 1998 were the result of sales of our
fourth generation display developer kits. Revenue from the sales of developer
kits are not indicative of the revenue we expect to realize on sales of our
displays produced in quantity. Developer kits have a higher unit price than mass
produced displays as they are custom made and require additional parts which are
not required for displays sold in quantity.
Cost of Revenues. Cost of revenues are the product costs associated with
the manufacture of display developer kits. Costs of revenues were $10,945 and
$4,104 in 1999 and 1998, respectively. Gross margins associated with the sales
of developer kits are higher and not indicative of the gross margins we expect
to realize on sales of our displays produced in quantity. Developer kits have a
higher unit cost than mass produced displays as they are custom made, require
additional parts and they require additional time and effort spent with the
customer.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $2,084,273 and $1,189,330 in 1999 and 1998,
respectively. The increase of 75% from 1998 levels is primarily due to an
increase in legal, accounting, payroll and office expenses.
Stock-based general and administrative expenses. Stock-based general and
administrative expenses were $1,935,504 and $371,617 in 1999 and 1998,
respectively. The amounts incurred relate to the valuation of common stock,
stock options, and warrants issued in exchange for consulting services provided
to us. The amounts incurred in 1998 relate to salaries and consulting expenses
paid in stock, stock options and warrants. This stock-based expense incurred
during 1999 has enabled us to obtain the necessary capital resources to support
working capital and development needs in 2000.
Research and development expenses. Research and development expense
increased from $1,509,510 to $1,955,170 or 30%, from 1998 to 1999. This increase
was due primarily to the expenses associated with the development of our fifth
generation display including parts, materials, wafer processing and additional
consulting services.
Interest income. Interest income was $10,303 and $6,786 in 1999 and
1998, respectively. The 51.8% increase in interest income in 1999 was due to
higher average cash balances during 1999 than during 1998.
Interest expense. Interest expense was $104,312 and $142,915 in 1999 and
1998 respectively. This decrease of $38,603 resulted from the conversion of
interest expense associated with certain convertible notes to equity that was
re-classified as stock-based interest expense. In addition, capital lease
obligations are nearing their termination dates, resulting in lower interest
expense in 1999.
Stock-based interest expense. Stock-based interest of $509,834 relates
to a change in the conversion price from $0.75 to $0.70 in exchange for a waiver
of covenants for certain convertible noteholders. A stock-based expense of
$601,957 relates to the valuation of interest converted into equity based on
fair market value of the stock at the time of conversion. An additional
stock-based expense of
11
<PAGE> 12
$277,794 relates to the assumption that the $24,156 of accrued interest expense
will be converted to equity based on the fair market value of the common stock
on December 31, 1999.
Loss from operations before income taxes. Losses from operations before
income taxes were $7,407,486 and $3,180,940 in 1999 and 1998, respectively. This
133% increase from 1998 to 1999 reflects the increased expenses associated with
the restructuring and reorganizing of the company since its change in management
in July of 1998 and the redirecting of the company from its previous research &
development focus to manufacturing and sales. Of the total increased loss from
operations of $4,226,546, a total of $3,325,089 of this increased loss was
stock-based interest and general expenses.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Our net revenues were $29,750 and $325,000 in 1998 and 1997
respectively. Revenues in 1998 were comprised of sales of a small number of
developer kits of our displays, while those in 1997 were revenues from a
non-recurring engineering contract.
Cost of Revenues. Cost of revenues represented product costs associated
with the production of display developer kits. Costs of revenue were $4,104 and
$0 in 1998 and 1997, respectively. There were no product sales in 1997.
Selling, general and administrative expenses. Selling, general and
administrative costs were $1,437,714 and $1,794,852 in 1998 and 1997,
respectively. The decrease of 20% from 1997 levels was due primarily to
non-recurring legal fees in 1997.
Research and development expenses. Research and development costs
decreased $348,160, or 19%, from 1997 to 1998. The decrease was due primarily to
the acquisition of SpatiaLight of California, Inc. (SOC) in 1997.
Stock-based general and administrative expenses. Stock-based general and
administrative expenses incurred in 1998 relate to salaries and consulting
expenses paid in stock, stock options, and warrants. No such expenses were
incurred in 1997.
Interest income. Interest income was $6,786 and $18,821 in 1998 and
1997, respectively. The decrease in interest income in 1998 was principally due
to lack of investments during the year.
Interest expense. Interest expenses were $142,915 and $12,186 for 1998
and 1997, respectively. This increase was primarily due to convertible notes
issued during 1998.
Loss from operations before income taxes. Losses from operations were
$3,180,940 and $3,320,887 in 1998 and 1997, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to adopt SFAS No. 133 in fiscal 2001 in accordance with SFAS No 137,
which delays the required implementation of SFAS No. 133 for one year.
12
<PAGE> 13
RISK FACTORS
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.
WE MAY EXPERIENCE DIFFICULTIES MASS-PRODUCING MICRODISPLAYS.
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 we will have already incurred the costs for the
materials used in the microdisplay manufacturing process. These problems could
cause delays that might lead our potential customers to seek other sources.
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.
Our silicon backplanes are assembled in Hong Kong with electronic
components to create microdisplays. Because our assembly contract is relatively
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 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.
13
<PAGE> 14
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 microdisplay market is uncertain. Gaining acceptance in this
market may prove difficult because of the radically different approach of
microdisplays to the presentation of information. In order for us to succeed,
not only must we sell to those manufacturers that produce end-products
microdisplays 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 basis 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.
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;
14
<PAGE> 15
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;
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.
15
<PAGE> 16
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. 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;
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.
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. Other companies have found similar volatility correlates with class
action securities law suits. 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 public announcements regarding our business developments;
o changes in analysts' estimates of our financial performance;
16
<PAGE> 17
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. 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 tradable 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 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;
17
<PAGE> 18
o others may independently develop similar technology or design around
any patents issued to us;
o intellectual property laws may not protect our intellectual property;
and
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.
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.
18
<PAGE> 19
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.
19
<PAGE> 20
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
SpatiaLight, Inc.:
We have audited the accompanying consolidated balance sheet of SpatiaLight, Inc.
and Subsidiary (the Company) as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
represent fairly, in all material respects, the consolidated financial position
of SpatiaLight, Inc. and Subsidiary as of December 31, 1999, and the results of
their operations and cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
March 25, 2000
20
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of SpatiaLight, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of SpatiaLight, Inc.
and subsidiary (the "Company") as of December 31, 1998, and the related
consolidated statements of operations, stockholders' capital deficiency, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 9 to the
consolidated financial statements, successful completion of the Company's
development program and ultimately, the attainment of profitable operations, is
dependent on future events including obtaining adequate financing, successful
launching of the commercial production and distribution of its products and
achieving a level of sales adequate to support the Company's cost structure. As
further discussed in Note 9 to the consolidated financial statements, the
Company's recurring losses from operations and stockholders' capital deficiency
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 9. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ DELOITTE AND TOUCHE LLP
- ---------------------------
Deloitte and Touche LLP
San Francisco, California
March 24, 1999
21
<PAGE> 22
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,236,609 470,086
Accounts receivable 0 30,492
Inventories 5,036 18,296
Other current assets 93,417 0
------------ ------------
Total current assets 1,335,062 518,874
Property and equipment, net 321,853 221,498
Other assets 22,670 187,204
------------ ------------
Total assets $ 1,679,585 927,576
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 286,741 466,031
Short term notes payable 0 3,337,508
Accrued expenses and other liabilities 728,990 96,693
------------ ------------
Total current liabilities 1,015,731 3,900,232
Noncurrent liabilities
Convertible notes 1,216,337 0
Long term capital lease obligations 9,605 25,420
------------ ------------
Total liabilities 2,241,673 3,925,652
Commitments and contigencies
Stockholders' equity (deficit):
Common stock, $.01 par value:
40,000,000 shares authorized;
16,635,818 and 11,413,501 shares issued and outstanding
in 1999 and 1998 respectively 166,359 114,135
Additional paid-in capital 20,649,563 10,854,938
Accumulated deficit (21,378,010) (13,967,149)
------------ ------------
Total stockholders' (deficit) (562,088) (2,998,076)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 1,679,585 927,576
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 62,000 29,750
Cost of revenues 10,945 4,104
------------ ------------
Gross profits 51,055 25,646
Selling, general and administrative expenses 2,084,273 1,189,330
Stock-based general and administrative expenses 1,935,504 371,617
Research and development expenses 1,955,170 1,509,510
------------ ------------
Total operating expenses 5,974,947 3,070,457
Operating loss (5,923,892) (3,044,811)
Other income (expense):
Interest income 10,303 6,786
Interest expenses (104,312) (142,915)
Stock-based interest expense (1,389,585) 0
------------ ------------
Total other expense (1,483,594) (136,129)
------------ ------------
Loss from operations before income taxes (7,407,486) (3,180,940)
Income tax expense 3,375 2,734
------------ ------------
Net loss $ (7,410,861) (3,183,674)
============ ============
Net loss per share - basic and diluted $ (0.57) (0.34)
============ ============
Weighted average shares used in computing net loss per share - basic
and diluted 12,964,597 9,450,926
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY (DEFICIT)
---------- ------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1998 9,201,111 $92,011 $9,477,395 $(10,783,475) $(1,214,069)
Issuance of common stock, net 2,212,390 22,124 976,180 - 998,304
Issuance of warrants - - 231,035 - 231,035
Issuance of stock options - - 7,070 - 7,070
Common stock subscribed - - 163,258 - 163,258
Net loss - - - (3,183,674) (3,183,674)
---------- ------- ---------- ---------- ---------
Balance December 31, 1998 11,413,501 114,135 10,854,938 (13,967,149) (2,998,076)
Issuance of common stock 223,287 2,233 106,668 - 108,901
Sale of warrants - - 2,013,046 - 2,013,046
Net loss - - - (7,410,861) (7,410,861)
Conversion of convertible notes 3,674,991 36,750 2,575,750 - 2,612,500
Conversion of interest on convertible
notes 247,626 2,477 1,173,736 - 1,176,213
Issuance of warrants-convertible notes - - 1,437,500 - 1,437,500
Issuance of warrants-consulting services - - 1,077,036 - 1,077,036
Issuance of Class A, B and C warrants- - - 861,736 - 861,736
consulting services
Exercise of stock options and warrants 1,076,413 10,764 549,153 - 559,917
---------- ------- ---------- ---------- ---------
Balance December 31, 1999 16,635,818 166,359 20,649,563 (21,378,010) (562,088)
========== ======= ========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,410,861) (3,183,674)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 296,465 82,798
Stock-based general and administrative expense 1,935,504 371,617
Stock-based interest expense 1,389,585 0
Changes in operating assets and liabilities:
Accounts receivable 30,492 (30,492)
Inventories 13,260 (18,296)
Other current assets (93,417) 7,253
Accounts payable (179,290) (203,516)
Accrued expenses and other current liabilities 446,168 164,021
----------- ----------
Net cash used by operating activities (3,572,094) (2,810,289)
Cash flows from investing activities:
Purchase of property and equipment (232,442) (86,312)
----------- ----------
Net cash used in investing activities (232,442) (86,312)
Cash flows from financing activities:
Payments on capital lease obligations (30,281) (28,060)
Payments on line of credit 0 (250,000)
Proceeds from issuance of convertible notes with warrants attached 1,437,500 0
Proceeds from issuance of convertible notes 590,876 3,229,123
Proceeds from sales of warrants 2,013,046 0
Proceeds from exercise of warrants and options 559,918 0
----------- ----------
Net cash provided by financing activities 4,571,059 2,951,063
Net increase in cash 766,523 54,462
Cash at beginning of period 470,086 415,624
----------- ----------
Cash at end of period $ 1,236,609 470,086
=========== ==========
Supplemental disclosure of cash flow information:
Income taxes paid during the period $ 1,600 1,600
Interest paid during the period $ 7,579 50,150
Non cash financing activities:
Warrants issued in conjunction with convertible notes and loan
extensions 0 153,447
Common stock issued upon conversion of notes $ 2,612,500 662,667
See accompanying notes to consolidated financial statements.
</TABLE>
25
<PAGE> 26
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - SpatiaLight, Inc. (SpatiaLight or the Company)
and its subsidiary SpatiaLight of California, Inc. (SOC) are in the business of
designing high-resolution microdisplays, which measure one inch in diagonal and
basically consist of liquid crystals and a glass cover on top of a silicon chip.
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). These displays are designed
in a manner that can provide high-resolution images suitable for applications
such as computer monitors, high definition television, video projectors and
other applications while utilizing the existing manufacturing processes of
typical silicon and liquid crystal displays to obtain economies of scale and
thereby reduce costs. To date, the Company has only sold sample quantities of
its displays to customers who are evaluating the displays for use in their
products.
The address and telephone number of the Company's principal executive
offices are 9 Commercial Boulevard, Suite 200, Novato, California 94949, (415)
883-1693. The Company was organized under the laws of the State of New York in
1989 under the name of Sayett Acquisition Company, Inc.; it subsequently changed
is name to Sayett Group and in June 1996 changed its name to SpatiaLight, Inc.
The Company has a wholly owned subsidiary named SpatiaLight of California, Inc.
Principles of Consolidation - The consolidated financial statements
include the accounts of SpatiaLight, Inc. (SI), and its wholly owned subsidiary
SpatiaLight of California, Inc. (SOC). All inter-company accounts and
transactions have been eliminated upon consolidation.
Estimates - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires that
management make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents - Cash equivalents include money market securities
stated at cost, which approximate market value.
Inventories - Inventories in 1999 and 1998 are stated at the lower of
cost or market and consist primarily of developer kits and their components.
Property and Equipment - Property and equipment are recorded at cost
while repairs and maintenance costs are expensed in the period incurred.
Depreciation and amortization of property and equipment is calculated on a
straight-line basis over the estimated useful lives of the assets, generally 3
years for computer equipment and building improvements and 7 years for office
furniture and equipment.
Revenue Recognition - Revenue is generally recognized at the time that
product is shipped provided that collectability is probable.
Income Taxes - The Company utilizes the asset and liability method of
accounting for income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using
26
<PAGE> 27
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (Continued)
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. A valuation
allowance is recorded to reduce deferred tax assets to an amount whose
realization is more likely than not. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Research and Development - Research and development costs are charged to
expense when incurred.
Financial Instruments - The Company's financial instruments include cash
and cash equivalents and debt. At December 31, 1999 and 1998 the fair values of
cash and cash equivalents and debt issued without equity components,
approximated their financial statement carrying amounts. For debt issued with
equity instruments attached, little or no value has been assigned to the debt
and the fair value of the debt on a stand-alone basis is not easily
determinable.
Stock-based Compensation - The Company accounts for its stock-based
compensation arrangements using the intrinsic value method pursuant to APB
Opinion No. 25. As such, compensation expense is recorded when, on the date of
grant, the fair value of the underlying common stock exceeds the exercise price
for stock options or the purchase price for issuances or sales of common stock.
Pursuant to SFAS No. 123, the Company discloses the proforma effects of using
the fair value method of accounting for stock-based compensation arrangements.
Impairment of Long-lived Assets and Long-lived Assets to be Disposed of
- - The Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less cost to sell.
Loss per Common Share - Basic loss per common share excludes dilution
and is computed by dividing loss attributable to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
loss per common share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Common share equivalents are excluded from the computation in
loss periods, as their effect would be antidilutive.
Recently Issued Accounting Standards -In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
defines derivatives, requires that all derivatives be carried at fair value, and
provides for hedge accounting when certain conditions are met. SFAS No. 133 is
effective for the Company in fiscal 2000. Although the Company has not fully
assessed the implications of SFAS No. 133, the Company does not believe that
adoption of this statement will have a material impact on the Company's
financial position or results of operation.
Reclassifications. Certain prior year amounts have been reclassified
in order to conform to current years presentation.
27
<PAGE> 28
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (Continued)
2. ISSUANCE OF SECURITIES
In December 1999, the Company issued warrants to purchase 821,429 shares
of common stock in conjunction with the issuance of $2,875,000 of convertible
notes. These convertible notes bear an interest rate of 6%, are convertible into
common stock at $3.50 per share, and are due on June 30, 2001. As of December
31, 1999 the Company received the first installment of $1,437,500. The second
installment of $1,437,500 will be received upon achievement of a performance
target. No conversions have taken place as of December 31, 1999.
The warrants attached to these notes were all issued in December 1999.
They are exercisable at any time by the lenders until June 30, 2002 at an
exercise price of $3.50 per share. No warrants have been exercised as of
December 31, 1999. A value of $1,437,500 was assigned to the warrants using the
Black-Scholes option-pricing model and the following assumptions; stock price
$6.00, exercise price $3.50, contractual term 2.5 years, volatility 114%,
risk-free interest rate 6% and a dividend yield of 0. The total cash received
from the issuance of the notes of $1,437,500 under this model is less than the
value associated with the warrants. Therefore, a value of $1,437,500 has been
assigned to the warrants and as a discount on the notes. This amount is being
recognized as interest expense over the term of the note at an annual rate of
approximately 1,230%. Interest expense related to this discount was
insignificant in 1999, and is expected to be $3,615 in 2000 and $1,433,885 in
2001, unless the debt is converted into equity at an earlier date.
During 1999 the Company sold warrants to purchase 2,315,283 shares of
the Company's common stock and received cash of $2,013,046. The purchase price
of the warrants ranged from $.67 to $1.07 with exercise prices ranging from
$1.87 to $2.81. If all the warrants are exercised, the aggregate proceeds will
be approximately $4,377,000.
During 1999, the Company issued warrants to purchase 693,000 shares of
common stock in exchange for services rendered to the Company. These warrants
have exercise prices ranging from $0.83 to $3.50. A value of $1,077,036 was
assigned to the warrants, using the Black-Scholes option-pricing model and the
following assumptions: volatility 114%, risk free interest rate 6.0%, a dividend
yield of 0, contractual terms of 1.25 to 3.0 years and the stock price on the
dates of each issuance. This expense was recorded as stock-based general and
administrative expense.
Also during 1999, the Company issued 1,076,413 shares of common stock
upon the exercise of its stock options and warrants. A total of 268,700 employee
stock options, which vested during 1997 and 1998, were exercised at grant prices
ranging from $0.25 to $0.81. In addition, 779,000 warrants were exercised at
prices ranging from $0.50 to $0.83. These warrants were issued in 1997 and 1998.
Total cash received from the exercise of these options and warrants was $165,457
and $394,460, respectively. In addition, two warrants totaling 28,713 shares,
issued during 1997 and 1998 were exercised under a "cashless" provision of the
warrant.
In addition, in 1999, 39,973 shares of common stock were issued to
satisfy $108,901 of payables to employees and vendors.
During each of the first three-quarters of 1999 and the last quarter of
1998, the Company issued tranches of 100,000 Class A, 100,000 Class B and
100,000 Class C warrants to a consultant with exercises prices of $1.50, $2.00,
and $2.50, respectively. The Class A warrant is immediately exercisable and
allows the holder to purchase shares of the Company's common stock at an
exercise price of $1.50 per share. Upon exercise of the Class A warrant, a Class
B warrant will be issued by the Company to purchase shares of the Company's
common stock at an exercise price of $2.00 per share. The Class B warrant will
be exercisable from the date the Class A warrant is exercised until 2001. Upon
exercise of the Class B warrant, a Class C
28
<PAGE> 29
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (Continued)
warrant will be issued by the Company to purchase shares of the Company's common
stock at an exercise price of $2.50 per share. The Class C warrant will be
exercisable from the date the Class B warrant is exercised until 2002. The
warrants issued to the consultant are fully vested, and were issued in tranches
of 100,000 Class A, 100,000 Class B and 100,000 Class C in exchange for services
rendered during the quarters for advising the Company as to feasible capital
structures and assisting in identifying appropriate capital sources. An
independent valuation firm has determined the fair values of the Class A, Class
B and Class C warrants issued in 1999 on each of the issue dates and the Company
has recorded the total fair value of $861,736 as consulting expense. In the year
ended December 31, 1998, $60,584 was recorded as consulting expense
In 1998 the Company issued 120,000 Class A, 120,000 Class B, and 120,000
Class C warrants to a consultant with exercise prices of $1.50, $2.00, and
$2.50, respectively. The Class A warrant is immediately exercisable and allows
the holder to purchase shares of the Company's common stock at an exercise price
of $1.50 per share. Upon exercise of the Class A warrant, a Class B warrant will
be issued by the Company to purchase shares of the Company's common stock at an
exercise price of $2.00 per share. The Class B warrant will be exercisable from
the date the Class A warrant is exercised until 2001. Upon exercise of the Class
B warrant a Class C warrant will be issued by the Company to purchase shares of
the Company's common stock at an exercise price of $2.50 per share. The Class C
warrant will be exercisable from the date the Class B warrant is exercised until
2002. The warrants issued to the consultant are fully vested, and were issued in
exchange for services rendered during 1998 for advising the Company as to
feasible capital structures and assisting in identifying appropriate capital
sources. A value of $66,217 was assigned to the warrants, using the
Black-Scholes option-pricing model and the following assumptions: stock price
$0.75, historical volatility 140%, risk free interest rate 5.32%, a dividend
yield of 0, and contractual terms of 1.25 to 3.0 years. This expense was
recorded as a cost of obtaining financing.
In 1998 the Company issued 364,700 shares of common stock to satisfy
approximately $220,000 of payables to vendors for expenses incurred in 1997.
In 1998 the Company also issued a warrant to purchase 20,000 shares of
common stock with an exercise price of $1.50 per share in exchange for legal
services. The warrants expire in the year 2000. A value of $6,932 was assigned
to the warrants, using the Black-Scholes option-pricing model and the following
assumptions: stock price $0.75, historical volatility 170%, risk free interest
rate 4.26%, a dividend yield of 0, and a contractual term of one year.
In December 1998 the Company issued warrants to purchase 76,000 shares
of common stock with exercise prices ranging from $.50 to $0.67 in exchange for
note extensions. A value of $93,246 was assigned to the warrants, using the
Black-Scholes option-pricing model and the following assumptions: stock price
$1.72, volatility 174%, risk free interest rate 4.52%, a dividend yield of 0,
and a contractual term of one year. In addition, in January 1998 the Company
issued a warrant to purchase 8,000 shares of common stock with an exercise price
of $.832 in exchange for a note extension. A value of $4,057 was assigned to the
warrants, using the Black-Scholes option-pricing model and the following
assumptions: stock price $.8125, volatility 176%, risk free interest rate 5.51%,
a dividend yield of 0, and a contractual term of one year. These warrants were
amortized to cost of financing over the one-year expected life of the warrants.
In 1998 the Company issued 86,000 shares of common stock as compensation
to an employee. The issuance was recorded as $21,500 of salary expense. Also,
45,000 shares of common stock were issued to vendors for consulting expenses at
a value of $22,825.
29
<PAGE> 30
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (Continued)
3. NOTES PAYABLE
Short-term convertible notes totaling $3,281,952 were issued during
1998. The notes accrued interest at 6% and had a maturity date of December 31,
1999. The notes were convertible into the Company's common stock at $0.50 and
$0.70 per share. Of the total convertible notes, $2,012,500 of the notes
originally were convertible into the Company's common stock at $0.75 per share.
In September 1999 the Company agreed to reduce the conversion price of these
notes from $0.75 to $0.70 resulting in stock-based interest expense of $509,834
The reduction in conversion price was done in exchange for a waiver of certain
covenants of these convertible notes. The notes were secured by substantially
all of the assets of the Company. In February 1999, the Company issued
additional notes of $590,876 to the existing short-term note holders under the
same terms and conditions in exchange for cash. In November 1999, the note
holders converted these notes and the 1998 notes totaling $2,021,624 plus
accrued interest into 3,922,617 shares of common stock. Total principal and
interest converted was $2,612,500 and $1,176,213, respectively.
Convertible notes at December 31, 1999 relate to a note from Argyle
Capital Management Corporation, a company affiliated with Robert Olins, a
Director of the Company. The outstanding principal as of December 31, 1999 is
$1,188,000. These convertible notes accrue interest at 6% and both principal and
interest are convertible at $0.50 per share and are secured by substantially all
assets of the Company. These notes were originally due on December 31, 1999 and
have been extended until June 30, 2001 under the same terms. In September 1999,
upon a demand from Argyle Capital Management Corporation, the accumulated
interest was converted into 240,886 shares of the Company's common stock. The
Company valued this stock based upon a market price of $2.70 on the date of the
conversion and issuance, and has recorded a stock-based interest expense of
$601,957 in 1999 and $48,443 of interest expense in 1998. In addition, the
Company has assumed that the accrued interest expense at a rate of 6%, from
September 1999 to December 31, 1999 will be converted into 48,312 shares of
common stock. Using the December 31, 1999 closing price for the Company's common
stock of $5.75 to value such shares, the Company has recorded a stock-based
interest expense of $277,794 and accrued this on the balance sheet.
In 1998 convertible notes totaling $550,000 were converted into
1,716,610 shares of common stock. Conversion costs of $183,816 related to the
discounted conversion rate were recorded in costs of obtaining financing.
A short-term note of $55,000 was issued during 1998. The borrowing was
made to provide working capital, and accrued interest at 10% per annum. The note
was due on February 27, 1998 and was extended indefinitely in exchange for 8,000
warrants to purchase the Company's common stock at an exercise price of $0.83
per share. The warrants expire in 2000. The note was paid in the first quarter
of 1999.
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Office furniture and fixtures $ 165,319 97,119
Machinery and equipment 464,627 360,719
Building and improvements 60,334 0
--------- --------
690,280 457,838
Less accumulated depreciation 368,427 236,340
$ 321,853 221,498
========= ========
</TABLE>
30
<PAGE> 31
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (Continued)
Included in fixed assets at December 31, 1999 and 1998 is equipment
acquired under capital leases of $133,640 and $133,640 respectively with
accumulated depreciation of $92,364 and $65,682, respectively. The Company
incurred depreciation expense of $132,087 and $82,798 at December 31, 1999 and
1998, respectively.
The following is a summary of the future lease obligations as of
December 31, 1999:
<TABLE>
<CAPTION>
Year ended December 31: Capital Operating
------- ---------
<S> <C> <C>
2000 $18,485 $212,620
2001 6,431 209,258
2002 4,824 61,481
------- --------
Total minimum lease payments $29,740 $483,359
------- --------
Less amount representing interest 4,320
-------
Present value of net minimum capital lease payments 25,420
Less current installments under capital leases 15,815
-------
Obligations under capital leases, excluding current
installments $ 9,605
=======
</TABLE>
Rent expense related to operating leases for the years ended December
31, 1999 and 1998 was $202,465 and $91,587, respectively.
5. INCOME TAXES
Income taxes for the year ended December 31, are comprised of the following:
<TABLE>
<CAPTION>
Current Deferred Total
-------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1999
Federal $ 0 0 0
State 3,375 0 3,375
-------- ------- ------
Total 3,375 0 3,375
======== ======= ======
Year ended December 31, 1998
Federal 0 0 0
State 2,734 0 2,734
-------- ------- ------
Total $ 2,734 0 2,734
======== ======= ======
</TABLE>
31
<PAGE> 32
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (Continued)
Income tax expense (benefit) differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to pretax losses from operations as a result
of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Computed "expected" tax expense (benefit) $(2,599,108) (1,081,520)
Permanent differences (533,736) 63,862
Losses for which no benefit has been recognized 3,132,844 1,017,658
State tax expense, net of federal income tax benefit 3,375 2,734
----------- ---------
Total tax expense (benefit) $ 3,375 2,734
=========== =========
</TABLE>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31 is
presented below:
<TABLE>
<CAPTION>
1999 1998
-------------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 7,469,178 3,996,850
Equity investment losses 99,865 537,764
Accrued expenses 27,952 119,503
Research and development credits 486,762 338,790
Other 45,311 222,139
-------------- ----------
Gross deferred tax assets 8,129,068 5,215,046
Valuation allowance (8,129,068) (5,215,046)
-------------- ----------
Net deferred tax assets 0 0
-------------- ----------
Deferred tax liabilities
Gross deferred tax liabilities 0 0
-------------- ----------
Net deferred tax assets (liabilities) $ 0 0
============== ==========
</TABLE>
The valuation allowance for deferred tax assets as of December 31,1999
was $8,129,068. The net change in the total valuation allowance was $2,914,022
and $1,420,878 for the years ending December 31, 1999 and 1998, respectively. As
of December 31, 1999, the Company had net-operating loss carryforwards of
approximately $19,200,000 for federal and $13,300,000 for state tax purposes,
respectively, which begin to expire in 2005 for federal and have already begun
to expire for state. In addition, as of December 31, 1999, the Company had
research and development carryforwards of approximately $331,000 for federal,
which will begin to expire in 2008 and $239,000 for state tax purposes, which
will carryforward indefinitely.
Under the provisions of the Internal Revenue Code, should substantial
changes in the Company's ownership occur, the utilization of net operating loss
carryforwards may be limited.
Deferred tax assets resulting from net operating losses attributable to
stock option exercises and warrant issuances will result in a $611,000 credit to
additional paid-in capital when realized.
32
<PAGE> 33
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (CONTINUED)
6. STOCKHOLDERS' EQUITY
Stock Option Plans - The Company has four Stock Option Plans (the Plans)
primarily for employees, consultants and directors. The Plans authorize the
issuance of options to purchase up to 4,000,000 shares of the Company's common
stock. The Plans provide for options which may be issued as nonqualified or
qualified incentive stock options under Section 422A of the Internal Revenue
Code of 1986, as amended.
Under the 1991 and 1993 Employee Stock Option Plans, the Company may
grant options to purchase up to 1,915,000 shares of common stock to employees at
prices not less than 85% of fair market value for non-statutory stock options.
These options expire 10 years from the date of grant and become vested and
exercisable 50% in year one and 50% in year two.
Under the 1993 Non-Employee Directors' Stock Option Plan non-employee
directors of the Company are granted options to purchase 25,000 shares of common
stock at the fair market value at the date of grant. These options expire 10
years from the date of grant and become vested and exercisable 50% in year one
and 50% in year two. The total number of shares authorized under the Plan is
85,000.
At the last shareholders' meeting on June 21, 1999, the shareholders
approved a new stock option plan, the 1999 Stock Option Plan. Under the 1999
Stock Option Plan, the Company may grant options to employees, consultants and
directors of the Company to purchase up to 2,000,000 shares of the Company's
common stock as either non-statutory stock options or incentive stock options.
These options expire 10 years from the date of grant and become vested and
exercisable 50% in year one and 50% in year two.
Options under the Plans are granted at the discretion of the Board of
Directors/Compensation Committee. All options granted through 1999 have been
granted at fair market value.
The following is a status of the options under the Plans and a summary
of the changes in options outstanding during 1999 and 1998:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Price
------------ ----------------
<S> <C> <C>
Outstanding January 1, 1998 1,355,000 $ 0.80
Options granted 1,620,000 $ 0.60
Options canceled (1,320,000) $ 0.67
--------- --------
Outstanding, December 31, 1998 1,655,000 $ 0.70
Options granted 1,487,500 $ 5.36
Options exercised (268,700) $ 0.62
Options canceled 0 -
--------- --------
Outstanding, December 31, 1999 2,873,800 $ 2.71
========= =======
</TABLE>
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, (SFAS No. 123) requires the disclosure of pro forma net loss and
loss per share had the Company adopted the fair value method as of the beginning
of fiscal 1995. Under SFAS No. 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values.
33
<PAGE> 34
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (Continued)
The Company's calculations were made using the Black-Scholes
option-pricing model with the following weighted average assumptions: expected
life 24 months in 1999 and 36 months in 1998, historical volatility 114% in 1999
and 112% in 1998, and risk-free interest rates of 5.875% in 1999, 5.18% in 1998.
No dividends are expected for the term of the options. The Company's
calculations are based on a multiple option valuation approach and forfeitures
are recognized as they occur. If the computed fair values of the 1999 and 1998
awards had been amortized to expense over the vesting period of the awards,
proforma net loss would have been as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998
----------- ----------
<S> <C> <C>
Net loss, as reported $(7,410,861) (3,183,674)
Pro forma net loss $(7,831,425) (3,325,463)
Net loss per share - basic and diluted (0.57) $(0.34)
Pro forma net loss per share - basic and diluted (0.60) (0.35)
</TABLE>
Options exercisable as of December 31, 1999 and 1998 totaled
approximately 1,056,300 and 267,500 options at a weighted average exercise price
of $0.66 and $1.35 respectively.
Additional information regarding options outstanding as of December 31,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------- -----------
Weighted
Remaining Average Weighted Weighted
Range of Outstanding Contractual Average Average
Exercise at December Life Exercise Number Exercise
Prices 31, 1999 (Yrs.) Price Exercisable Price
----------- --------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$5.01-6.00 1,127,500 10.0 $5.75 0 $0.00
$3.01-4.00 25,000 9.5 $3.81 12,500 $3.81
$2.01-3.00 10,000 3.7 $3.00 10,000 $3.00
$0.25-1.00 1,711,300 8.4 $0.67 1,033,800 $0.66
--------- ---------
2,873,800 1,056,300
========= =========
</TABLE>
At December 31, 1999, 1,126,200 shares were available for future grants
under the Plans.
34
<PAGE> 35
SPATIALIGHT INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 1999 AND 1998 (Continued)
Diluted net loss per share does not include the effect of the following
potential common shares at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Shares issuable under stock options 2,873,800 1,655,000
Shares issuable pursuant to warrants to purchase common stock 6,724,712 2,827,000
Shares of convertible notes on an "as if converted" basis 2,876,714 6,051,000
</TABLE>
The weighted average exercise price of stock options outstanding was
$2.71 and $.70 as of December 31, 1999 and 1998, respectively. The weighted
average exercise price of warrants was $2.22 and $.87 as of December 31, 1999
and 1998, respectively.
7. SEGMENT INFORMATION
The Company's chief operating decision-maker is the Chief Executive
Officer. The chief operating decision-maker reviews only financial information
prepared on a basis substantially consistent with the accompanying financial
statements of operations. Therefore, the Company has determined that it operates
in a single business segment. The Company's revenue for 1999 and 1998 consisted
of sales of developer kits. All assets are located in the United States.
8. LEGAL PROCEEDINGS
Tony Romano and Magellin Entertainment, Inc. (Plaintiffs) filed an
action against the Company in San Francisco Superior Court on January 10, 2000.
Directors Michael Burney and Robert Olins were also named. The complaint relates
to an alleged engagement of Plaintiffs by SpatiaLight in January 1998 to
increase public awareness of SpatiaLight, in return for the Company's
securities. The Complaint seeks specific performance for the transfer of an
additional 75,000 shares of stock. The Company denies the allegations in the
complaint. The Company does not believe it has any liability to the Plaintiffs
from the litigation. No reserves have been established for potential losses from
the litigation.
9. 1998 GOING CONCERN UNCERTAINTY
During 1998, the Company's operations were constrained by an
insufficient amount of working capital and the Company continued to experience
negative cash flows and net operating losses. Successful completion of the
Company's development program and ultimately, the attainment profitable
operations, is dependent on future events including obtaining adequate
financing, successful launching of the commercial production and distribution of
its products and achieving a level of sales adequate to support the Company's
cost structure. Operations were funded by loans and convertible notes, which
were secured by substantially all of the assets of the Company. Recurring
operating losses and the accumulated deficit raised substantial doubt about the
Company's ability to continue as a going concern, as of December 31, 1998.
Management addressed these concerns by raising additional capital.
The Company anticipates that its existing cash balances together with
funds from sales will be sufficient to meet its presently projected cash and
working capital requirements (which relate primarily to research, development
and production) for the next 12 months.
10. SUBSEQUENT EVENT
During the first quarter of 2000, 1,899,015 of the warrants outstanding
at December 31, 1999 were exercised. Cash received from the exercise of the
warrants totaled $4,178,792.
35
<PAGE> 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Michael H. Burney 47 Director, Chief Executive Officer, Treasurer,
Secretary
Fred R. Hammett 58 President
Lawrence J. Matteson 60 Director
Robert A. Olins 43 Director
Miles L. Scott 49 Vice President Manufacturing/Engineering
Steven F. Tripp 31 Director
</TABLE>
All Directors serve for terms of one year and until their successors are
duly elected. All of our officers have employment contracts for a one-year
period which are extendable for subsequent one year periods.
36
<PAGE> 37
MICHAEL H. BURNEY, Director since June 1996, and Chief Executive
Officer, Treasurer and Secretary since July 1998, is also the Founder, Chairman
and CEO of Chronomotion Imaging, a private R & D company developing a patented
process for producing Volumetric Visualizations using electronic holography
since 1995. Mr. Burney was the Vice President Treasury for Packard Bell
Electronics from 1990 to 1995 and he was a member of the General Management
Consulting / Financial Services Group of Ernst & Young from 1987 to 1990. Mr.
Burney has received 3 U.S. patents and 15 international patents on the
electronic holography process, which is the basis of Chronomotion's intellectual
property. Mr. Burney received his BA from Pomona College and his MBA from
University of Southern California.
FRED R. HAMMETT, President since July 1998, was previously with
ExperTeam during 1997 and 1998, which is an organization providing professional
business resources to companies in growth or change phases. From 1996 to 1997
Mr. Hammett was President and Chief Operating Officer for Infinitron Research
International, Inc. From 1994 to 1996 Mr. Hammett was Vice President, Sales and
Marketing for UniCAD, Inc., and before that Regional Manager for Quad Design, a
Viewlogic Company. In addition to his 18 years in marketing, sales and
management positions at Hewlett Packard, he has worked with two successful
turnarounds and four successful startups. Mr. Hammett attended the Electronic
and Communications School of the US Air Force and studied economics and math at
the University of New Mexico.
LAWRENCE J. MATTESON, Director since 1991, served as Chairman of the
Board from May 1995 to June 1997. He currently is an executive professor of
business policy at the William E. Simon Graduate School of Business
Administration, University of Rochester. Mr. Matteson was Senior Vice President
and General Manager, Electronic Imaging for Kodak until December 1991. Mr.
Matteson began his career with Kodak in 1965 as a research engineer and has
worked at Kodak in various positions continuously from that date until December
1991. He holds degrees in engineering and an MBA from the University of
Rochester Graduate School of Business.
ROBERT A. OLINS, Director since February 1998. Mr. Olins has served as
President of Argyle Capital Management Corporation during the past fifteen
years. Argyle Capital Management Corporation is a private investment advisory
company.
MILES L. SCOTT, Vice President Manufacturing/Engineering since
October 1998, has been the Vice President of Operations and Director of
Development at New Interconnection and Packaging Technologies (NIPT) from 1997
to 1998. Mr. Scott was also Program Manager and Senior Process Engineer with
Silicon Mountain Design, where he developed, fabricated and commercialized
silicon based CCD cameras and displays from 1995 to 1997. Before that position,
Mr. Scott was the Principal Engineer and Business Development Leader for
Teledyne Brown Engineering from 1991 to 1995. Mr. Scott was also a Founder and
Chief Engineer for Optical Transformations, and worked at the MIT Lincoln Labs
as part of his 19 years with the U.S. Air Force. Mr. Scott has productized
high-speed CCD cameras, Liquid Crystal Displays (LCD), and analog micro-lens
arrays through Micro-machining techniques. Mr. Scott received his BS in
Electrical Engineering from the University of Utah.
STEVEN F. TRIPP, Director since June 1999, is President and CEO of
KnoWare, Inc. since 1998. KnoWare is a privately held software development
company focused on Internet based check image and check fraud detection software
for financial institutions. Mr. Tripp was Owner and Vice President of Document
Solutions from 1990 to 1998. Mr. Tripp has worked in the software development
industry for 10 years with a primary focus on digital imaging.
37
<PAGE> 38
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors, executive officers and persons who beneficially own more
than 10% of our Common Stock to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities.
Executive officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish us with copies of all Section 16(a) reports they
file. To our knowledge, based solely on a review of the copies of such reports
furnished to us for fiscal 1999, all executive officers, directors and greater
than 10% shareholders filed the required Section 16(a) reports in a timely
manner except that Michael H. Burney, Fred R. Hammett, Lawrence J. Matteson and
Miles L. Scott filed Forms 3 for the first time in 1999, despite being subject
to reporting requirements in previous years and Michael H. Burney, Fred R.
Hammett and Steven Tripp each filed one Form 4 one month late.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
the fiscal year ended December 1999 to the Company's Chief Executive Officer and
other executive officers of the Company who received total salary and bonuses in
excess of $100,000 during 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS(#)
--------------------------- ---- ------ ---------------
<S> <C> <C> <C>
Michael H. Burney, CEO, Treasurer, Secretary 1999 $200,000 500,000(1)
515,000
1998 $63,654
Fred R. Hammett, President 1999 $197,115 250,000(1)
1998 55,000 250,000
Miles L. Scott, Vice President, Engineering/ 1999 $100,000 125,000(1)
Manufacturing 1998 16,346 125,000
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION
NAME GRANTED (#) FISCAL YEAR BASE PRICE ($/SH) DATE
------------------ ------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
Michael H. Burney 500,000(1) 40.4% $5.75 12/31/09
Fred R. Hammett 250,000(1) 20.2% $5.75 12/31/09
Miles L. Scott 125,000(1) 10.1% $5.75 12/31/09
</TABLE>
(1) Standard options granted under the Company's stock option plans vest over a
two-year period, 50% each year. These stock option grants vest over a three-year
period and are subject to the optionee meeting specific performance targets.
38
<PAGE> 39
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options to
purchase common stock granted to the Company's named executive officers
including: (i) the number of shares of common stock purchased upon exercise of
options in the fiscal year ending December 31, 1999; (ii) the net value realized
upon such exercise; (iii) the number of unexercised options outstanding at
December 31, 1999; and (iv) the value of such unexercised options at December
31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
DECEMBER 31, 1999 OPTION VALUES
<TABLE>
<CAPTION>
(iv)
Value of
(iii) Unexercised
(i) Number of In-the-Money
Shares Unexercised options at
Acquired (ii) Options at Dec. Dec. 31, 1999
on Value 31, 1999(#) ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Michael H. Burney 17,500 $86,469 257,500/750,000 $1,291,250/$1,250,000
Fred R. Hammett 95,000 182,093 30,000/375,000 $150,000/$625,000
Miles L. Scott 0 0 62,500/187,500 $312,500/$312,500
</TABLE>
COMPENSATION OF DIRECTORS
Non-management directors are paid $500.00 for each board meeting
attended. Directors who are also full-time employees are not paid Directors'
fees. Robert Olins has waived his non-management Director's fee of $500.00 per
board meeting. In December 1998, Larry Matteson received a grant of 250,000
options with an exercise price of $0.75 under the Company's Stock Option Plans
for service as a director of the Company.
EMPLOYMENT CONTRACTS
We are party to an employment agreement with Michael H. Burney to serve
as Chief Executive Officer, Treasurer and Secretary, which is in effect through
December 31, 2000, with optional one year extensions. As currently in effect,
the agreement provides for a salary of $220,000, a signing bonus of $15,000, and
a grant of Incentive Stock Options to purchase 500,000 shares of common stock
vesting over a three year period depending upon the achievement of performance
criteria, and the reimbursement of moving expenses.
We are also party to an employment agreement with Fred R. Hammett to
serve as President, which is in effect through December 31, 2000, with optional
one year extensions. As currently in effect, the agreement provides for a salary
of $210,000, a signing bonus of $15,000, and a grant of Incentive Stock Options
to purchase 250,000 shares of common stock vesting over a three year period
depending upon the achievement of performance criteria, and the reimbursement of
moving expenses.
We are also party to an employment agreement with Miles L. Scott to
serve as Vice President Engineering/ Manufacturing, which is in effect through
December 31, 2000, with optional one-year extensions. As currently in effect,
the agreement provides for a salary of $175,000 and a grant of Incentive Stock
Options to purchase 125,000 shares of common stock vesting over a three year
period depending upon the achievement of performance criteria, and the
reimbursement of moving expenses.
39
<PAGE> 40
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's capital stock, as of December 31, 1999
based upon a total of 16,635,818 shares outstanding, (i) by each person who is
known by the Company to own beneficially more than 5% of the Company's capital
stock, (ii) by each of the executive officers mentioned in the tables under
"Executive Compensation" and by each of the Company's directors, and (iii) by
all officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (1)
---------------- -------------------- ----------
<S> <C> <C>
Argyle Capital Management Corporation... 2,436,812(1) 12.78
Robert A. Olins
14 East 82nd
New York, New York 10028
Sabotini, Ltd........................... 2,060,000(2) 11.02
C/O Wychwood Trust Ltd.
1 Castle St.
Castletown
Isle of Man, British Isles
Raymond L. Bauch........................ 1,696,350 9.25
14 Office Drive Park, Suite 1
Palm Coast, FL 32137
Jalcanto, Ltd. ......................... 1,267,500(3) 7.08
C/O Wychwood Trust Ltd.
1 Castle St.
Castletown
Isle of Man, British Isles
Michael H. Burney....................... 289,127(4) 1.71
9 Commercial Blvd., Suite 200
Novato, CA 94949
Fred R. Hammett......................... 30,000(5) *
9 Commercial Blvd., Suite 200
Novato, CA 94949
Miles L. Scott.......................... 62,500(6) *
9 Commercial Blvd., Suite 200
Novato, CA 94949
Lawrence J. Matteson.................... 142,500(7) *
9 Commercial Blvd., Suite 200
Novato, CA 94949
Steven F. Tripp......................... 142,857 *
9 Commercial Blvd., Suite 200
Novato, CA 94949
All directors and officers as a group 666,984 3.85
(6 persons)
</TABLE>
* Represents less than 1%
40
<PAGE> 41
(1) Includes 2,424,312 shares beneficially owned subject to conversion of
principal and interest of convertible notes held by Argyle Capital
Management Corporation, of which Mr. Olins is President and over which Mr.
Olins exercises voting control. Also includes 12,500 shares subject to
outstanding stock options held by Mr. Olins that are exercisable within 60
days of December 31, 1999.
(2) Based solely upon information filed in a Schedule 13D by the named
shareholder. To the Company's knowledge, Shaun F. Cairns and Paul A. Bell
are the sole directors of the named shareholder. As such, Mr. Cairns and/or
Mr. Bell may be deemed to be the beneficial owner(s) of the shares of the
Company's Common Stock held by the named shareholder. Includes 992,500
shares subject to warrants exercisable within 60 days of December 31, 1999.
(3) Based solely upon information filed in a Schedule 13D by the named
shareholder. To the Company's knowledge, Shaun F. Cairns and Paul A. Bell
are the sole directors of the named shareholder. As such, Mr. Cairns and/or
Mr. Bell may be deemed to be the beneficial owner(s) of the shares of the
Company's Common Stock held by the named shareholder. Includes 200,000
shares subject to warrants exercisable within 60 days of December 31, 1999.
(4) Includes 257,500 shares subject to options exercisable within 60 days of
December 31, 1999.
(5) Includes 30,000 shares subject to options exercisable within 60 days of
December 31, 1999.
(6) Includes 62,500 shares subject to options exercisable within 60 days of
December 31, 1999.
(7) Includes 142,500 shares subject to options exercisable within 60 days of
December 31, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In various transactions in 1998 Argyle Capital Management Corporation, a
company affiliated with Robert Olins, a Director of the Company, purchased
convertible notes of the Company in the outstanding principal amount of
$1,188,000. These convertible notes accrue interest at 6% and are convertible at
$0.50 per share. These notes were originally due on December 31, 1999 and have
been extended until June 30, 2001 on the same terms.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation
3.2* Bylaws
10.1* 1991 Employee Stock Option Plan and Form of Stock Option Agreement
thereunder
10.2* 1993 Nonstatutory Employee Stock Option Plan and Form of Stock
Option Agreement thereunder
10.3* 1993 Nonstatutory Directors Stock Option Plan
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
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<S> <C>
10.9 Form of Convertible Secured Loan Agreement, dated as
of December 1, 1999, between SpatiaLight, and the
twenty-two lenders listed on Exhibit A to such form
10.10 Form of Security Agreement, dated as of December 1,
1999, between SpatiaLight, and the twenty-two lenders
listed on Schedule A to such form
10.11 Form of Registration Rights Agreement, dated as of
December 1, 1999, between SpatiaLight, and the
twenty-two lenders listed on Exhibit A to such form
10.12 Form of Agreement and Warrant to Purchase Common
Shares, dated as of December 1, 1999, between
SpatiaLight, and the twenty-two lenders listed on the
Exhibit A of Convertible Secured Loan Agreement
10.13 Form of Convertible Secured Note, dated as of December
1, 1999, between SpatiaLight, and the twenty-two
lenders listed on Exhibit A of the Convertible Secured
Loan Agreement
10.14* Standard Office Lease, dated February 22, 1999, between Dennis A.
and Susan Johann Gilardi and SpatiaLight, Inc.
10.15 Employment Agreement between the Company and Michael H. Burney dated
December 31, 1999
10.16 Employment Agreement between the Company and Fred R. Hammett dated
December 31, 1999
10.17 Employment Agreement between the Company and Miles L. Scott dated
December 31, 1999
23.1 Consent of Deloitte & Touche LLP, independent auditors
23.2 Consent of KPMG, independent auditors
24.1* Power of Attorney (included in the Signature Page contained in Part
II of the Registration Statement)
27 Financial Data Schedule
</TABLE>
* Previously filed.
42
<PAGE> 43
In accordance with section 13 or 15(d) with the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 14th day of April 2000.
SPATIALIGHT, INC.
By: /s/ MICHAEL H. BURNEY
----------------------------------
Michael H. Burney
Chief Executive Officer, Treasurer, Secretary,
and Director (Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL H. BURNEY
- ---------------------------------
Michael H. Burney Chief Executive Officer, April 14, 2000
Treasurer, Secretary and Director
(Principal Executive, Financial
& Accounting Officer)
/s/ LAWRENCE J. MATTESON Director April 14, 2000
- ---------------------------------
Lawrence J. Matteson
/s/ ROBERT A. OLINS Director April 14, 2000
- ---------------------------------
Robert A. Olins
/s/ STEVEN F. TRIPP Director April 14, 2000
- ---------------------------------
Steven F. Tripp
</TABLE>
43
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation
3.2* Bylaws
10.1* 1991 Employee Stock Option Plan and Form of Stock Option Agreement
thereunder
10.2* 1993 Nonstatutory Employee Stock Option Plan and Form of Stock
Option Agreement thereunder
10.3* 1993 Nonstatutory Directors Stock Option Plan
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
10.9 Form of Convertible Secured Loan Agreement, dated as
of December 1, 1999, between SpatiaLight, and the
twenty-two lenders listed on Exhibit A to such form
10.10 Form of Security Agreement, dated as of December 1,
1999, between SpatiaLight, and the twenty-two lenders
listed on Schedule A to such form
10.11 Form of Registration Rights Agreement, dated as of
December 1, 1999, between SpatiaLight, and the
twenty-two lenders listed on Exhibit A to such form
10.12 Form of Agreement and Warrant to Purchase Common
Shares, dated as of December 1, 1999, between
SpatiaLight, and the twenty-two lenders listed on the
Exhibit A of Convertible Secured Loan Agreement
10.13 Form of Convertible Secured Note, dated as of December
1, 1999, between SpatiaLight, and the twenty-two
lenders listed on Exhibit A of the Convertible Secured
Loan Agreement
10.14* Standard Office Lease, dated February 22, 1999, between Dennis A.
and Susan Johann Gilardi and SpatiaLight, Inc.
10.15 Employment Agreement between the Company and Michael H. Burney dated
December 31, 1999
10.16 Employment Agreement between the Company and Fred R. Hammett dated
December 31, 1999
10.17 Employment Agreement between the Company and Miles L. Scott dated
December 31, 1999
23.1 Consent of Deloitte & Touche LLP, independent auditors
23.2 Consent of KPMG, independent auditors
24.1* Power of Attorney (included in the Signature Page contained in Part
II of the Registration Statement)
27 Financial Data Schedule
</TABLE>
* Previously filed.
<PAGE> 1
EXHIBIT 10.9
CONVERTIBLE SECURED LOAN AGREEMENT
This CONVERTIBLE SECURED LOAN AGREEMENT (the "Agreement") dated as of
December 1, 1999, is made by and between SPATIALIGHT, INC., a New York
corporation (the "Company") and the parties listed on Exhibit A hereto (each, a
"Lender").
WHEREAS, Lender together with other lenders have agreed to advance
funds to the Company in an aggregate amount not to exceed $2,875,000 (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'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 shares of its Common
Stock issuable upon the conversion of the Notes into Common Stock.
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
"Closing" is defined in Section 3 hereof.
"Closing Date" is defined in Section 3 hereof.
"Code" means the Internal Revenue Code of 1986 (or any successor
thereto), as amended from time to time.
"Conversion Shares" is defined in Section 5.6 hereof.
"Common Stock" is defined in Section 4.2(a) hereof.
"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, 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
executive officers and members of the board of directors of the Company.
"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. Sections 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. App. Sections 1801 et seq.), the Resource Conservation and Recovery Act
(42 U.S.C. Sections 6901 et seq.), the Clean Water Act (33 U.S.C. Sections 1251
et seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Sections 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sections 136 et seq.), and
the Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.) and the
regulations promulgated pursuant thereto.
"Event of Default" shall have the meaning ascribed to it in Section 4
of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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
2
<PAGE> 3
hazardous waste," "industrial waste," "solid waste," "contaminant,"
"pollutant," "toxic waste" or "toxic substance" under any provision of
Environmental Law.
"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.
"Loan Document" is defined in Section 4.5 hereof.
"Material Adverse Effect" is defined in Section 4.1 hereof.
"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) Common Stock issued or
issuable upon conversion of the Notes or Non-transferable Warrants 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 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; (vii) any of the Excluded Shares (as defined in Section 4(f)(iii)
of the Notes; or (viii) Common Stock or warrants to purchase Common Stock in an
amount not to exceed 250,000 shares of Common Stock which may be issued by the
Company in satisfaction of outstanding accounts payable.
"Non-transferable Warrants" is defined in Section 2.1 hereof.
"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;
3
<PAGE> 4
"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.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" means all material corporations 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 Notes and Non-transferable Warrants
2.1 Notes and Non-transferable Warrants. At the Closing, the Company
will execute and deliver to each Lender (a) a Note, in the form attached hereto
as Exhibit B, (each a "Note", and collectively with the Notes given to the other
Lenders in the aggregate amount of $2,875,000, the "Notes",) and (b) a
Non-transferable Warrant, in the form attached hereto as Exhibit C, to purchase
one share of Common Stock for each share that the Note is convertible into,
assuming a $3.50 conversion price (so that if a Lender made a loan of $350,000,
such Lender would received a Non-transferable Warrant to purchase 100,000 shares
of Common Stock). The Non-transferable Warrant will be exercisable by the Lender
until June 30, 2002, at an exercise price of $3.50 per share of Common Stock.
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 A hereto according to the Funds Release
Schedule attached hereto as Exhibit D. Anything in this Agreement, the Note or
any other Loan Document 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.
4
<PAGE> 5
2.4 Security Agreement. At the Closing (as defined in Section 3 of this
Agreement), the Company shall execute and deliver to Lender a Security Agreement
in the form attached hereto as Exhibit E (the "Security Agreement"). 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 (a copy of which is attached hereto as Exhibit F) among
the Lender, the Company, Argyle Capital Management Corporation and the
additional parties set forth on Schedule B to the Intercreditor Agreement. This
Agreement shall have no force or effect unless or until the said Intercreditor
Agreement is executed by Lender, the Company and Argyle Capital Management
Corporation.
2.6 Registration Rights Agreement. At the Closing, the parties shall
enter into a Registration Rights Agreement in the form attached hereto as
Exhibit G.
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 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 and required to be filed before the issuance of securities
shall have been obtained for the lawful execution, delivery and performance of
this Agreement, including without limitation the offer and sale of the Notes.
(e) Closing Documents Delivered by the Company. The Company
shall have delivered to each Lender all of the following documents:
5
<PAGE> 6
(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 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 9 Commercial
Boulevard, Suite 200, 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
6
<PAGE> 7
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 or results of operations of the Company and its Subsidiaries (a
"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
40,000,000 shares of common stock, par value $.01 per share ("Common Stock") of
which not more than 13,288,258 shares are issued and outstanding as of September
30, 1999. There are no shares of preferred stock authorized or outstanding. The
Company has reserved for issuance 1,650,000 shares of Common Stock upon
conversion of the Notes and exercise of the Non-transferable Warrants. 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 and exercise of the
Non-transferable Warrants, 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
7
<PAGE> 8
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 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 and the
Non-transferable Warrants 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 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 for outstanding accounts payable or
as set forth in Schedule 4.7, 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.
8
<PAGE> 9
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. The Company and its Subsidiaries are not
in violation of, and to the Company's knowledge, are in compliance with all
material requirements and provisions of such insurance. 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 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, 1998,
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 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,
9
<PAGE> 10
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).
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
10
<PAGE> 11
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
material 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 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.
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 Exchange Act since
January 1, 1998 (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, each of the Company's SEC Reports (i)
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and regulations
11
<PAGE> 12
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, 1998, and, to the best of the Company's knowledge, each
of the unaudited consolidated financial statements of the Company in its Forms
10-Q for the periods ending March 31, 1999, June 30, 1999, and September 30,
1999, 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 September 30,
1999:
(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 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)
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 Subsidiaries 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, 1999 in the Company's Form 10-Q (the "Balance
Sheet"). There exists no material default under the provisions of any instrument
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 September 30,
1999 is not more than $10,000.
12
<PAGE> 13
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 been 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
and after adequate reserves therefor have been established on the books and
records of the Company or Subsidiary in accordance with generally accepted
accounting principles ("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 promulgated
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 Company any
13
<PAGE> 14
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
14
<PAGE> 15
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.
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. Lenders are
residents of the states listed on Schedule 5.4.
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 Note (the "Conversion Shares"), shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer
15
<PAGE> 16
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 shall deliver to the Company an opinion of
counsel, which may be counsel for the Company, that such exemption is available.
5.7 Receipt of Information. Lender has reviewed all periodic reports,
statements and other documents that the Company and its principal shareholders
have filed with the Securities and Exchange Commission (the "SEC") under the
Exchange Act since January 1, 1998, which filings are incorporated by reference
into the information provided by the Company to Lender.
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
into equity of the Company, 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 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.
16
<PAGE> 17
(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").
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 terms 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:
17
<PAGE> 18
(i) Incur any debt for borrowed money, or grant any security
interest which is senior to, or pari passu with, the 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;
(v) Issue any options, warrants, or other securities to any
officer or director of the Company, except for an issuance under the 1991 Stock
Option Plan, the 1993 Employee Stock Option Plan, as amended, the 1993 Directors
Stock Option Plan, and the 1999 Stock Option Plan; or
(vi) Incur any indebtedness in excess of currently outstanding
debt, the $2,875,000 loan contemplated hereby and $2,125,000 in financing on
terms substantially similar to the loan contemplated hereby, without the prior
written consent of the Lenders representing more than 75% of the outstanding
debt.
(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 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.
18
<PAGE> 19
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 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,
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 A.
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
19
<PAGE> 20
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.
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) Lenders representing more than half of the
outstanding debt, provided however, that no amendment, modification, supplement
or waiver adverse to a Lender will be binding upon a Lender that has not agreed
to such provision.
8.2 Notice. Any notice or communication given under this Agreement will
be in writing and be hand delivered, mailed by registered or certified mail,
postage prepaid, delivered by facsimile or electronic mail (with a telephonic
confirmation or confirmation) or by overnight courier as follows:
(i) If to Lender, as set forth next to such Lender's name on
Exhibit A hereto;
(ii) If to the Company to:
Spatialight, Inc.
9 Commercial Boulevard, Suite 200
Novato, CA 94949-5759
Attn: Michael H. Burney
20
<PAGE> 21
Facsimile: (415) 883-3363
or at such other address as hereafter will be furnished in writing by the
addressed party to the other party. Delivery by hand will be deemed given when
personally delivered; delivery by registered or certified mail will be deemed
given three (3) business days after the same is posted; delivery by facsimile or
electronic mail will be deemed given when received; and delivery by overnight
courier will be deemed given the first business day following the date of timely
deposit with such courier.
8.3 Survival of Representations and Warranties. All representations and
warranties made in, pursuant to or in connection with this Agreement shall
survive the execution, delivery and closing of this Agreement, and the issuance
of the 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 of Provisions. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
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 Note. The Company may not assign
its rights or delegate its obligations under this Agreement without the prior
written consent of the other parties hereto. 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. This Agreement will be deemed to be a contract made
under the laws of the State of New York, and for all purposes will be construed
in accordance with the laws of said state, without regard to principles of
conflicts of law.
21
<PAGE> 22
8.8 Headings. The headings in this Agreement are for the convenience of
reference only and will not affect the construction of this Agreement.
8.9 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.
8.10 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.
(Signatures to follow on the next page)
22
<PAGE> 23
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: /s/ MICHAEL H. BURNEY
---------------------------
Name: Michael H. Burney
Its: Chief Executive Officer
<PAGE> 24
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ JIMMIE H. HARVEY, M.D.
- --------------------------
Jimmie H. Harvey, M.D.
BIRMINGHAM HEMATOLOGY AND ONCOLOGY ASSOCIATES,
SLB FLEX PROTOTYPE P/S PLAN DTD 10-17-85
By: /s/ JIMMIE H. HARVEY, M.D.
----------------------------
Jimmie H. Harvey, M.D.
<PAGE> 25
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
HILLIARD LIMITED PARTNERSHIP
By: /s/ NEAL MARCOUX
------------------------
GENERAL PARTNER
<PAGE> 26
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ DAVID A. TWIFORD
- ------------------------
David A. Twiford
<PAGE> 27
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ PAUL KLISTER
- ------------------------
Paul Klister
<PAGE> 28
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ MARCIA K. TRIPP
- ---------------------------
Marcia K. Tripp
WAYNE P. TRIPP TRUST
By: /s/ MARCIA K. TRIPP, TTE
-------------------------
Marcia K. Tripp, Trustee
STEVEN F. TRIPP TRUST
By: /s/ MARCIA K. TRIPP, TTE
-------------------------
Marcia K. Tripp, Trustee
LISA MARIE TRIPP TRUST
By: /s/ MARCIA K. TRIPP, TTE
-------------------------
Marcia K. Tripp, Trustee
<PAGE> 29
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ ROBERT E. WOODS
- -------------------
Robert E. Woods
<PAGE> 30
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ ROBERT J. WEYERS
- ------------------------------------
Robert J. Weyers
/s/ JEFFREY J. WEYERS
- ------------------------------------
Jeffrey J. Weyers
/s/ RONALD A. WEYERS
- ------------------------------------
Ronald A. Weyers
WEYERS FAMILY LIMITED
PARTNERSHIP
By: /s/ RONALD A. WEYERS
---------------------------------
RONALD A. WEYERS, GENERAL PARTNER
<PAGE> 31
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ LLEW ANN KING
- ------------------------------------
Llew Ann King
MATTHEW A. KING CHARITABLE REMAINDER
UNITRUST, DTD 5/29/97
By: /s/ MATTHEW A. KING, TRUSTEE
---------------------------------
AGT C.T. WILLIAMS, TUA 11/1/76 FBO MATTHEW A. KING
By: /s/ EQUITABLE TRUST COMPANY
---------------------------------
<PAGE> 32
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ ROBERT O. ROLFE
- -----------------------
Robert O. Rolfe
<PAGE> 33
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ JOHN W. EAKIN
- -----------------------
John W. Eakin
<PAGE> 34
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
/s/ JEFFERSON R. COBB
- -----------------------
Jefferson R. Cobb
<PAGE> 35
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
BRYAN B. STARR, SR.
By: /s/ BRYAN B. STARR
--------------------------
<PAGE> 36
[COUNTERPART SIGNATURE PAGE TO
CONVERTIBLE SECURED LOAN AGREEMENT]
PERFORMANCE FUTURES PSP DTD 1-1-93
By: /s/ BRYAN B. STARR, JR., TRUSTEE
----------------------------------
<PAGE> 37
EXHIBIT A
LENDERS
<TABLE>
<CAPTION>
Name Loan Amount Address
---- ----------- -------
<S> <C> <C>
Jimmie H. Harvey, M.D. $250,000 3741 E. Fairway Drive
Birmingham, AL 35213
Fax: 205-599-3408
Hilliard Limited Partnership $100,000 Attn: Dan Hilliard
2555 S. Trillium
Green Bay, WI 54313
Fax: 920-490-2710
David A. Twiford $75,000 871 Ridgeway Loop, #107
Memphis, TN 38120
Fax: 901-684-1237
Paul Klister $50,000 1308 East Shade Tree Lane
Appleton, WI 54915
Fax: 920-830-6640
Marcia K. Tripp $225,000 35 Indian Forest Road
Indian Springs, AL 35124
Fax: 205-402-0873
Wayne P. Tripp Trust, Marcia $250,000 35 Indian Forest Road
K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Steven F. Tripp Trust, Marcia $250,000 35 Indian Forest Road
K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Lisa Marie Tripp Trust, $175,000 35 Indian Forest Road
Marcia K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Robert E. Woods $250,000 922 10th Street SW
Alabaster, AL 35007
Weyers Family Limited $100,000 500 AMS Court
Partnership Green Bay, WI 54313
Fax: 920-434-5811
Robert J. Weyers $100,000 500 AMS Court
Green Bay, WI 54313
Fax: 920-434-5811
Jeffrey J. Weyers $100,000 500 AMS Court
Green Bay, WI 54313
Fax: 920-434-5811
Ronald A. Weyers $100,000 500 AMS Court
Green Bay, WI 54313
Fax: 920-434-5811
</TABLE>
<PAGE> 38
<TABLE>
<S> <C> <C>
Llew Ann King $100,000 6600 Murray Lane
Brentwood, TN
37027 Fax:
615-376-4127
Matthew A. King Charitable $37,500 Agent: Jack Nuismer
Remainder Unitrust DTD 5/29/97 Raymond James Financial
Services
2103 Crestmoor Road
Nashville, TN 37215
Fax: 615-292-7317
Agt. C.T. Williams, $37,500 Agent: Kirk Scobey
TUA 11/1/76 SunTrust Equitable Trust
FBO Matthew A. King Co.
Account 10830 800 Nashville City Center
Nashville, TN
37219 Fax:
615-780-9327
Robert O. Rolfe $150,000 J.C. Bradford Company
330 Commerce Street
Nashville, TN 37201
Fax: 615-271-1422
John W. Eakin $175,000 520 Jackson Boulevard
Nashville, TN 37205
Fax: 615-298-6609
Jefferson R. Cobb $100,000 204 Aspen Meadow Drive
Edwards, CO 81632
Fax: 970-926-0474
Bryan B. Starr, Sr. $50,000 c/o Healthcare Realty Mgmt
1400 Urban Center Dr.#400
Birmingham, AL 35242
Fax: 205-969-0104
Performance Futures PSP $50,000 1400 Urban Center Dr.#415
DTD 1/1/93 FBO Bryan B. Birmingham, AL 35242
Starr, Jr. Fax: 205-969-0104
Birmingham Hematology and $150,000 790 Montclair Road
Oncology Associates, SLB Flex Suite 100
Prototype P/S Plan DTD Birmingham, AL 35213
10/27/85 FBO Jimmie H.
Harvey, M.D.
</TABLE>
<PAGE> 39
EXHIBIT B
Promissory Note
<PAGE> 40
EXHIBIT C
Warrant
<PAGE> 41
EXHIBIT D
Funds Release Schedule
<TABLE>
<CAPTION>
Percentage of
Event Funds Released
----- --------------
<S> <C>
- Closing 50%
- Binding purchase orders for the Company's
1280DV and/or 1280 BC products exceeding 50,000 units
for delivery over the succeeding twelve (12) month period. 50%
</TABLE>
<PAGE> 42
EXHIBIT E
Security Agreement
<PAGE> 43
EXHIBIT F
Intercreditor Agreement
<PAGE> 44
EXHIBIT G
Registration Rights Agreement
<PAGE> 45
Schedule 4.2
Capitalization
Outstanding Warrants
1. Amended and Restated Warrant to purchase 792,500 shares of Common Stock of
the Company, par value $.01 per share (hereinafter "Common Shares") dated June
19, 1997, registered in the name of Sabotini Limited.
2. Warrant to purchase 200,000 Common Shares dated June 19, 1997, registered in
the name of Sabotini Limited.
3. Warrant to purchase 200,000 Common Shares dated June 19, 1997, registered in
the name of Jalcanto Limited.
4. Warrant to purchase 425,000 Common Shares dated May 5, 1999, in the name of
Jalcanto Limited.
5. Warrant to purchase 375,000 Common Shares dated November 30, 1998, registered
in the name of Dr. Lawrence Jaeger.
6. Warrant to purchase 3,000 Common Shares dated March 29, 1999, in the name of
Rebecca T. Loomis.
7. Warrant to purchase 6,500 Common Shares dated September 15, 1997, in the name
of James R. Gaddis.
8. Warrant to purchase 8,000 Common Shares dated December 17, 1998, in the name
of James R. Gaddis.
9. Warrant to purchase 42,500 Common Shares dated November 30, 1998, registered
in the name of 721192 Alberta Ltd.
10. Warrant to purchase 300,000 Common Shares to dated May 13, 1999, in the name
of Hartwell Davis.
11. Warrant to purchase 40,000 Common Shares dated October 22, 1999, in the name
of Jonathan Brooks.
12. Warrant to purchase 300,000 Common Shares dated August 5, 1999, in the name
of Jonathan Brooks.
<PAGE> 46
13. Warrant to purchase 30,000 Common Shares dated July 9, 1999, in the name of
Thomas Wedige.
14. Warrant to purchase 230,165 Common Shares dated September 15, 1999, in the
name of Third Point Partners L.P.
15. Warrant to purchase 103,440 Common Shares to be dated September 15, 1999, in
the name of Third Point Offshore Fund Ltd.
16. Warrant to purchase 84,215 Common Shares dated September 15, 1999, in the
name of Point West International Investments Ltd.
17. Warrant to purchase 50,065 Common Shares dated September 15, 1999, in the
name of Banzai Partners L.P.
18. Warrant to purchase 46,130 Common Shares dated September 15, 1999, in the
name of Protection II.
19. Warrant to purchase 20,000 Common Shares dated October 31, 1998, in the name
of Gray Cary Ware & Freidenrich LLP.
20. Warrant to purchase 100,000 Class A, 100,000 Class B, and 100,000 Class C
shares of Common Stock dated November 1, 1998 in the name of JRT Investments,
Inc. Class B warrants are not exercisable until Class A warrants are exercised.
Class C warrants are not exercisable until Class B warrants are exercised.
21. Warrant to purchase 100,000 Class A, 100,000 Class B, and 100,000 Class C
shares of Common Stock dated March 1, 1999 in the name of JRT Investments, Inc.
Class B warrants are not exercisable until Class A warrants are exercised. Class
C warrants are not exercisable until Class B warrants are exercised.
22. Warrant to purchase 100,000 Class A, 100,000 Class B, and 100,000 Class C
shares of Common Stock dated June 1, 1999 in the name of JRT Investments, Inc.
Class B warrants are not exercisable until Class A warrants are exercised. Class
C warrants are not exercisable until Class B warrants are exercised.
23. Warrant to purchase 100,000 Class A, 100,000 Class B, and 100,000 Class C
shares of Common Stock dated July 1, 1999 in the name of JRT Investments, Inc.
Class B warrants are not exercisable until Class A warrants are exercised. Class
C warrants are not exercisable until Class B warrants are exercised.
24. Warrant to purchase 120,000 Class A, 120,000 Class B, and 120,000 Class C
shares of Common Stock dated August 17, 1998 in the name of Farhad Azima. Class
B warrants are not exercisable until Class A warrants are exercised. Class C
warrants are not exercisable until Class B warrants are exercised.
<PAGE> 47
25. Warrant to purchase 60,000 shares of Common Stock in the name of Lawrence
Jaeger.
26. Contractual commitment to issue a warrant to purchase 746,268 shares of
Common Stock in the name of Jalcanto Limited.
27. Warrant granted to address the contractual claim described in Schedule 4.21
below.
Options
1. As of September 30, 1999, options to purchase 1,821,300 Common Shares have
been granted to employees under the 1991 Stock Option Plan, 1993
Employee/Director Stock Option Plan, and the 1999 Stock Option Plan.
Convertible Debt
As of September 30, 1999, the Company's notes payable to Argyle Capital
Management Corporation in the aggregate principal amount of $1,188,000 are
convertible into 2,376,000 Common Shares at a conversion price of fifty cents
($.50) per Common Share.
Registration Rights
Certain holders of the equity listed above have registration rights. The Company
filed two registration statements on Form S-3, one for holders with registration
rights, and one voluntarily, to be effective in December 1999.
Additional Shares
2,917,051 shares have been issued between September 30, 1999 and December 2,
1999.
<PAGE> 48
Schedule 4.3
Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Date of Incorporation Incorporation
------------------ --------------------- ---------------
<S> <C> <C>
Spatialight of California, Inc. December 4, 1992 California
</TABLE>
<PAGE> 49
Schedule 4.9
Patents and Trademarks
PATENTS
<TABLE>
<CAPTION>
PATENT FILING
NO. TITLE DATE INVENTOR ASSIGNEE
--- ----- ---- -------- --------
<S> <C> <C> <C> <C>
5,396,261 Polysilicon Gate Bus With 03/07/95 W.A. Hastings Spatialight of
Interspersed Buffers For Driving a III(1) California,
Row of Pixels in an Active Matrix Inc.
Liquid Crystal Display
5,396,262 Polysilicon Gate Bus with 03/07/95 W.A. Hastings Spatialight of
Interspersed Buffers for Driving a III(1) California,
Row of Pixels in an Active Matrix Inc.
Liquid Crystal Display
5,365,355 Light Blocking Pixel Enhancement 11/15/94 W.A. Hastings Spatialight of
and Photocurrent Reduction in III(1) California,
Active Matrix Liquid Crystal Inc.
Displays
5,784,038 Color Projection System Employing 07/21/98 Dean Irwin(1) Spatialight of
Dual Monochrome Liquid Crystal California,
Displays with Misalignment Inc.
Correction
5,903,248 Active Matrix Display Having Pixel 05/11/99 Dean Irwin SpatiaLight,
Driving Circuits With Integrated Inc.
Charge Pumps
</TABLE>
PATENT APPLICATIONS
<TABLE>
<CAPTION>
APPLICATION FILING
SERIAL NO. TITLE DATE INVENTOR
<S> <C> <C> <C>
08/734,230 Technique for Driving Dot-Matrix 10/21/96 Dean Irwin
Liquid Crystal Displays by Phase
Shifting a Front Electrode Voltage
One-Half a Refresh Cycle
</TABLE>
TRADEMARKS
- --------
(1) Assigned to Spatialight of California, Inc. (formerly WAH-III Technology
Corporation)
<PAGE> 50
<TABLE>
<CAPTION>
ISSUE OWNER OF
NO. TITLE DATE RECORD
--- ----- ---- ------
<S> <C> <C> <C>
2,041,178 Liquid Crystal Displays and Liquid 02/25/97 SpatiaLight of
Crystal Light Modulations California, Inc.
2,006,653 Remote Controllers in the Audio 10/08/96 Sayett Group, Inc.
Visual Field
2,018,018 Video or Computer Controlled 11/19/96 Sayett Group, Inc.
Projectors
</TABLE>
TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
TRADEMARK
APPLICATION FILING OWNER OF
NO. TITLE DATE RECORD
----------- ----- ------ ---------
<S> <C> <C> <C>
75/625,235 SPATIALIGHT IMAGENGINE 01/21/99 SpatiaLight, Inc.
75/716,246 DISPLASIC 05/27/99 SpatiaLight, Inc.
</TABLE>
<PAGE> 51
Schedule 4.11
Material Agreements
(i) Notes in the aggregate principal amount of $1,188,000 are outstanding and
payable to Argyle Capital Management Corporation whose President is a director
of the Company and a lender.
(iii) Non-competition agreements with William E. Hollis, L. John Loomis and Dean
Irwin, all former officers and directors of the Company.
(v) As of December 2, 1999, the Company has the following outstanding debt:
<TABLE>
<CAPTION>
Payee Amount
----- ------
<S> <C>
Argyle Capital Management Corporation $1,188,000
</TABLE>
(vi) A perfected security interest and lien on all of the Company's assets,
including but not limited to Accounts, Chattel Paper, Contacts, Deposit
Accounts, Equipment, Financial Assets, Fixtures, General Intangibles, including
Copyrights, Patents and Trademarks, Licenses, Instruments and Investment
Property was granted to Argyle Capital Management Corporation ("Argyle") to
secure the Company's debt to Argyle.
(vii) The agreements referenced on Schedule 4.22 below.
<PAGE> 52
Schedule 4.13
Registration Rights
Registration Rights were granted to Jalcanto Limited, Sabotini Limited,
Lawrence Jaeger and 721192 Alberta Ltd. covering the Common Shares into which
the Warrants held by them may be exercised.
Registration Rights were granted to Argyle Capital Management
Corporation covering the Common Shares into which the Company's debt may be
converted.
The Company filed two registration statements on Form S-3, to be
effective December 1999, covering an aggregate of 814,015 and 1,729,500 shares
of Common Stock issuable upon exercise of warrants, respectively.
<PAGE> 53
Schedule 4.14
Property
A perfected security interest and lien on all of the Company's assets,
including but not limited to Accounts, Chattel Paper, Contacts, Deposit
Accounts, Equipment, Financial Assets, Fixtures, General Intangibles, including
Copyrights, Patents and Trademarks, Licenses, Instruments and Investment
Property was granted to Argyle Capital Management Corporation ("Argyle") to
secure the Company's debt to Argyle.
<PAGE> 54
Schedule 4.17
Changes
For Section 4.17(b)(ii), please see debt already scheduled on Schedule
4.11 (v). For Section 4.17(c), please see Schedule 4.2.
<PAGE> 55
Schedule 4.19
Employee Benefit Plans
(a) 1991 Stock Option Plan
1993 Employee Stock Option Plan, as amended 1993 Directors Stock Option
Plan, as amended 1999 Stock Option Plan Delta Dental Blue Shield of
California - CPIC Life Insurance Blue Shield of California - Major
Medical Merrill Lynch - 401k standardized Profit Sharing Plan Hartfort
Insurance Travel Plan
(b)
<TABLE>
<CAPTION>
Name Title Compensation Arrangement
---- ----- ------------------------
<S> <C> <C>
Michael H. Burney Director and CEO, No employment agreement, compensation
Treas. & Secretary at the rate of $200,000 per annum
Fred R. Hammett President No employment agreement, compensation
at the rate of $200,000 per annum
Miles L. Scott Vice President, No employment agreement, compensation
Engineering/ at the rate of $100,000 per annum
Manufacturing
Steven F. Tripp Director Outside director fee of $500 per meeting
Lawrence J. Matteson Director
Robert A. Olins Director Outside director fee waived
</TABLE>
In addition to the compensation arrangements listed above all of the Company's
officers and directors hold options to acquire Common Stock of the Company
issued under stock option plans adopted by the Company.
<PAGE> 56
Schedule 4.21
Brokers or Finders
Capital Strategies Advisors, Inc. will be granted a warrant to purchase 50,000
shares of Common Stock of the Company upon the closing of the transactions
contemplated hereby.
Another party who knows both the Company and the Lenders has claimed the right
to a finder's fee or warrant from the Company relating to the transactions
contemplated hereby. The Company is working to address this potential claim.
<PAGE> 57
Schedule 4.22
Interested Party Transactions
Chronomotion Imaging Applications, Inc. ("Chronomotion"), a California
corporation controlled by the Company's Chief Executive Officer, has entered
into discussions with the Company to license the Company's technology for use in
Chronomotion's electronic holography products and to utilize the Company's
expertise to held develop a liquid crystal display optimized for Chronomotion's
electronic holography products. Any agreement would be subject to the approval
of the respective Boards of Chronomotion and the Company.
Robert Olins and Steven Tripp, directors of the Company, individually or
through affiliates, hold convertible debt or equity in the Company. Further
information regarding these holdings is available through publicly available
Schedule 13D filings.
<PAGE> 1
EXHIBIT 10.10
SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated as of December 1, 1999 ("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") for Jimmie H. Harvey, as collateral agent (Jimmie H. Harvey in his
capacity as collateral agent hereunder, and together with his successors and
assigns in such capacity, is hereinafter referred to as "Secured Party") in
favor of the lenders listed on Schedule A annexed hereto, as now existing and as
hereafter amended from time to time (the "Lenders").
RECITALS
WHEREAS, Grantor and the 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 $2,875,000, 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 $2,875,000 to mature
on or before June 30, 2001 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, for 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.
<PAGE> 2
"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 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 (h) 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
2
<PAGE> 3
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
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
3
<PAGE> 4
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"):
(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,
4
<PAGE> 5
(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 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
5
<PAGE> 6
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 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
6
<PAGE> 7
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, except as
set forth on Schedule 4.5:
(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 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.
7
<PAGE> 8
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 exceeding $10,000 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, (c) the disposal of
worn-out or obsolete Equipment, all in the ordinary course of Grantor's business
and (d) the granting of a security interest of equal priority to the security
interest granted hereunder to one or more lenders loaning Grantor an aggregate
of $2,125,000.
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. Grantor shall 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.
8
<PAGE> 9
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.
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. Grantor may take
into account the factors set forth on Schedule 5.7 hereto in assessing the
materiality of intellectual property for purposes of this Section 5.7.
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
9
<PAGE> 10
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.
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 reasonable 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
10
<PAGE> 11
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 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
11
<PAGE> 12
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 and the
Intercreditor Agreement of even date herewith constitute 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 and to any other secured parties with rights
to the Collateral equal or subordinate to the rights of Secured Party. 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 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. The headings in this Security Agreement are for
the convenience of reference only and will not affect the construction of this
Security Agreement.
11.6 Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
12
<PAGE> 13
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 Jimmie H. Harvey 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.
(Signatures to follow on the next page)
13
<PAGE> 14
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.
Spatialight, Inc., a New York corporation Address of Spatialight, Inc., a
Grantor:
By: /s/ MICHAEL H. BURNEY Spatialight, Inc.
----------------------------- 9 Commercial Blvd., Suite 200
Michael H. Burney Novato, CA 94949
Chief Executive Officer
Spatialight of California, Inc., Address of Spatialight of
California, a California corporation Inc., a Grantor:
By: /s/ MICHAEL H. BURNEY Spatialight of California, Inc.
----------------------------- 9 Commercial Blvd., Suite 200
Michael H. Burney Novato, CA 94949
Chief Executive Officer
<PAGE> 15
FOR THE LENDERS:
/s/ JIMMIE H. HARVEY
- ------------------------
Jimmie H. Harvey, as Collateral Agent
<PAGE> 16
SCHEDULE A
LENDERS
<TABLE>
<CAPTION>
Name Loan Amount Address
---- ----------- -------
<S> <C> <C>
Jimmie H. Harvey, M.D. $250,000 3741 E. Fairway Drive
Birmingham, AL 35213
Fax: 205-599-3408
Hilliard Limited Partnership $100,000 Attn: Dan Hilliard
2555 S. Trillium
Green Bay, WI 54313
Fax: 920-490-2710
David A. Twiford $75,000 871 Ridgeway Loop, #107
Memphis, TN 38120
Fax: 901-684-1237
Paul Klister $50,000 1308 East Shade Tree Lane
Appleton, WI 54915
Fax: 920-830-6640
Marcia K. Tripp $225,000 35 Indian Forest Road
Indian Springs, AL 35124
Fax: 205-402-0873
Wayne P. Tripp Trust, $250,000 35 Indian Forest Road
Marcia K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Steven F. Tripp Trust, $250,000 35 Indian Forest Road
Marcia K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Lisa Marie Tripp Trust, $175,000 35 Indian Forest Road
Marcia K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Robert E. Woods $250,000 922 10th Street SW
Alabaster, AL 35007
Weyers Family Limited $100,000 500 AMS Court
Partnership Green Bay, WI 54313
Fax: 920-434-5811
Robert J. Weyers $100,000 500 AMS Court
Green Bay, WI 54313
Fax: 920-434-5811
Jeffrey J. Weyers $100,000 500 AMS Court
Green Bay, WI 54313
Fax: 920-434-5811
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
Ronald A. Weyers $100,000 500 AMS Court
Green Bay, WI 54313
Fax: 920-434-5811
Llew Ann King $100,000 6600 Murray Lane
Brentwood, TN 37027
Fax: 615-376-4127
Matthew A. King $37,500 Agent: Jack Nuismer
Charitable Remainder Raymond James Financial
Unitrust DTD 5/29/97 Services
2103 Crestmoor Road
Nashville, TN 37215
Fax: 615-292-7317
Agt. C.T. Williams, $37,500 Agent: Kirk Scobey
TUA 11/1/76 SunTrust Equitable Trust
FBO Matthew A. King Co.
Account 10830 800 Nashville City Center
Nashville, TN
37219 Fax:
615-780-9327
Robert O. Rolfe $150,000 J.C. Bradford Company
330 Commerce Street
Nashville, TN 37201
Fax: 615-271-1422
John W. Eakin $175,000 520 Jackson Boulevard
Nashville, TN 37205
Fax: 615-298-6609
Jefferson R. Cobb $100,000 204 Aspen Meadow Drive
Edwards, CO 81632
Fax: 970-926-0474
Bryan B. Starr, Sr. SEP IRA $50,000 c/o Healthcare Realty Mgmt
1400 Urban Center Dr.#400
Birmingham, AL 35242
Fax: 205-969-0104
Performance Futures PSP $50,000 1400 Urban Center Dr.#415
DTD 1/1/93 FBO Bryan B. Birmingham, AL 35242
Starr, Jr. Fax: 205-969-0104
Birmingham Hematology and $150,000 790 Montclair Road
Oncology Associates, SLB Flex Suite 100
Prototype P/S Plan DTD Birmingham, AL 35213
10/27/85 FBO Jimmie H.
Harvey, M.D.
</TABLE>
17
<PAGE> 18
Schedule 4.1
Existing Liens
<TABLE>
<CAPTION>
SECURED PARTY DESCRIPTION
------------- -----------
<S> <C>
Newcourt Leasing (formerly AT&T Capital) Office Furniture
Colonial Pacific Leasing Fluke Combiscope
Colonial Pacific Leasing Office Furniture
GF Funding (formerly Granite Financial) Office Furniture
Hewlett Packard HP logic analyzer
Hewlett Packard HP 750 Plotter
Hewlett Packard Training on logic analyzer
Hewlett Packard HP logic scope
Hewlett Packard HP timing logic card & pattern generator
Argyle Capital Management Corporation Security interest covering all of the
assets of the Company
</TABLE>
18
<PAGE> 19
Schedule 4.3
Location of Collateral
SpatiaLight, Inc.
9 Commercial Blvd., Suite 200
Novato, CA 94949
19
<PAGE> 20
Schedule 4.4
List of All Intellectual Property
PATENTS
<TABLE>
<CAPTION>
PATENT FILING
NO. TITLE DATE INVENTOR ASSIGNEE
------ ----- ------ -------- --------
<S> <C> <C> <C> <C>
5,396,261 Polysilicon Gate Bus With 03/07/95 W.A. Hastings Spatialight of
Interspersed Buffers For Driving a III(1) California,
Row of Pixels in an Active Matrix Inc.
Liquid Crystal Display
5,396,262 Polysilicon Gate Bus with 03/07/95 W.A. Hastings Spatialight of
Interspersed Buffers for Driving a III(1) California,
Row of Pixels in an Active Matrix Inc.
Liquid Crystal Display
5,365,355 Light Blocking Pixel Enhancement and 11/15/94 W.A. Hastings Spatialight of
Photocurrent Reduction in Active III(1) California,
Matrix Liquid Crystal Displays Inc.
5,784,038 Color Projection System Employing 07/21/98 Dean Irwin(1) Spatialight of
Dual Monochrome Liquid Crystal California,
Displays with Misalignment Correction Inc.
5,903,248 Active Matrix Display Having Pixel 05/11/99 Dean Irwin SpatiaLight,
Driving Circuits With Integrated Inc.
Charge Pumps
</TABLE>
PATENT APPLICATIONS
<TABLE>
<CAPTION>
APPLICATION FILING
SERIAL NO. TITLE DATE INVENTOR
----------- ----- ------ --------
<S> <C> <C> <C>
08/734,230 Technique for Driving Dot-Matrix 10/21/96 Dean Irwin
Liquid Crystal Displays by Phase
Shifting a Front Electrode Voltage
One-Half a Refresh Cycle
</TABLE>
TRADEMARKS
<TABLE>
<CAPTION>
TRADEMARK ISSUE OWNER OF
NO. TITLE DATE RECORD
--------- ----- ---- ------
<S> <C> <C> <C>
2,041,178 Liquid Crystal Displays and Liquid 02/25/97 SpatiaLight of
Crystal Light Modulations California, Inc.
2,006,653 Remote Controllers in the Audio 10/08/96 Sayett Group, Inc.
Visual Field
2,018,018 Video or Computer Controlled 11/19/96 Sayett Group, Inc.
Projectors
</TABLE>
- --------
(1) Assigned to Spatialight of California, Inc. (formerly WAH-III Technology
Corporation)
20
<PAGE> 21
Schedule 4.4 (cont.)
TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
TRADEMARK
APPLICATION FILING OWNER OF
NO. TITLE DATE RECORD
----------- ----- ------ -------
<S> <C> <C> <C>
75/625,235 SPATIALIGHT IMAGENGINE 01/21/99 SpatiaLight, Inc.
75/716,246 DISPLASIC 05/27/99 SpatiaLight, Inc.
</TABLE>
21
<PAGE> 22
Schedule 4.5
Intellectual Property Collateral
Although the Company has noncompetition agreements in place, these agreements
may not be enforceable under California law.
At any time the Company may have intellectual property which could be
copyrighted, for which it does not have registered copyrights and which it is
not taking steps to register throughout the world.
The Company makes a determination whether to patent its intellectual property
from time to time based upon cost-benefit analyses, taking into account factors
such as cost and the length of time a patent is anticipated to give it a
competitive advantage and does not patent all intellectual property which
theoretically could be patented.
22
<PAGE> 23
Schedule 4.7
Compliance with Laws
None
23
<PAGE> 24
Schedule 4.8
Investment Property
None
24
<PAGE> 25
Schedule 5.7
Registration of Intellectual Property
The Company makes a determination whether and where to file patents, trademarks
or copyrights upon its intellectual property from time to time based upon
cost-benefit analyses, taking into account factors such as cost and the
anticipated competitive advantage generated by a filing and does not file
patents, trademarks or copyrights for all intellectual property which
theoretically could be protected.
At any time the Company may have intellectual property which could be
copyrighted, for which it does not have registered copyrights and which it is
not taking steps to register throughout the world.
<PAGE> 1
EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of December 1, 1999 (the
"Agreement") is made between SpatiaLight, Inc., a New York corporation (the
"Company") and the parties set forth on Exhibit A hereto.
ARTICLE I
CERTAIN DEFINITIONS
1.1 "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.
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 Eight Hundred Seventy-Five
Thousand Dollars ($2,875,000) 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 and (c) in
each of case (a) or (b) 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
<PAGE> 2
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.
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 Statement" 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.
2
<PAGE> 3
ARTICLE 2
RESALE REGISTRATION
The Company hereby agrees to file a registration statement permitting
the sale of the Eligible Securities by the Stockholders to the public under the
Securities Act not later than 90 days after the earlier of the Mandatory
Conversion Date (as such term is defined in Section 3(a)(ii) of the Convertible
Note or the date on which more than fifty (50%) percent of the aggregate
principal of the series of Convertible Notes have been converted into equity
(the "Converted Securities") ("Resale Registration Statement"). The Company
shall have the right to include in any such Resale Registration Statement 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. Notwithstanding
the foregoing, the Company's obligation to file a Resale Registration Statement
with respect to any shares of Common Stock issued on conversion of any
Convertible Notes shall terminate and become null and void once such shares are
permitted to be sold under Rule 144 or any successor provision of the Securities
Act.
ARTICLE 3
DEMAND REGISTRATION
3.1 Requests for Registration. At any time after the earlier of (a)
June 30, 2001 and (b) one year after an automatic conversion described in
Section 3(a)(ii) of the Convertible Notes, 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 Form S-3 or
a successor thereto 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 (a) the aggregate offering value of
the Eligible Securities requested to be registered in any such registration
equals at least $1,000,000 and (b) Form S-3 is available for such offering by
the Stockholders. A registration shall not count as a permitted Demand
Registration until it has become effective (unless the Demand
3
<PAGE> 4
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, provided, however, that
no consent of the Selling Stockholders shall be needed to include securities as
to which Argyle Capital Management Corporation ("Argyle") has a piggy-back
registration right. 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 are held by Argyle or 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 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
4
<PAGE> 5
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-3 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. All Stockholders proposing to distribute Eligible
Securities through the offering shall (together with the Company) enter into an
underwriting agreement in customary form with the selected investment banker(s)
and manager(s).
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 15 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
5
<PAGE> 6
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 or
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 written consent
of the holders of a majority of the Eligible Securities included therein, file
or cause to be effected any other registration for
6
<PAGE> 7
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. No Stockholder shall have any right
to restrain or otherwise delay registration under Articles 2 through 4.
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 120-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 120-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
(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
7
<PAGE> 8
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.
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 conduct or omission 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 Statement, 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
8
<PAGE> 9
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 Statement, until the earlier of (x) the
second 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 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
9
<PAGE> 10
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;
(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;
(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; and
(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.
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
10
<PAGE> 11
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 Indemnification by the Company. 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, to the extent permitted by law, 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 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 Indemnification by Selling Stockholders. The Selling Stockholders
agree severally and not jointly to indemnify and hold harmless, to the extent
permitted by law, (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 (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 Selling Stockholders will
promptly reimburse each such Person for any legal or
11
<PAGE> 12
any other expenses reasonably incurred by such Person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding, 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 Qualification. 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 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
12
<PAGE> 13
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. Any notice or communication given under this Agreement
will be in writing and be hand delivered, mailed by registered or certified
mail, postage prepaid, delivered by facsimile or electronic mail (with a
telephonic confirmation or confirmation) or by overnight courier as follows:
If to a Stockholder, to the address set forth on Exhibit A;
If to the Company to:
Spatialight, Inc.
9 Commercial Boulevard, Suite 200
Novato, CA 94949-5759
Attn: Michael H. Burney
Facsimile: (415) 883-3363
or at such other address as hereafter will be furnished in writing by the
addressed party to the other party. Delivery by hand will be deemed given when
personally delivered; delivery by registered or certified mail will be deemed
given three (3) business days after the same is posted; delivery by facsimile or
electronic mail will be deemed given when received; and delivery by overnight
courier will be deemed given the first business day following the date of timely
deposit with such courier.
10.5 Headings. The headings in this Agreement are for the convenience
of reference only and will not affect the construction of this Agreement.
13
<PAGE> 14
10.6 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
10.7 Governing Law. This Agreement will be deemed to be a contract made
under the laws of the State of New York, and for all purposes will be construed
in accordance with the laws of said state, without regard to principles of
conflicts of law.
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 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.
(Signatures to follow)
14
<PAGE> 15
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: /s/ MICHAEL H. BURNEY
--------------------------------
Michael H. Burney
Chief Executive Officer
<PAGE> 16
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ JIMMIE H. HARVEY, M.D.
- --------------------------
Jimmie H. Harvey, M.D.
BIRMINGHAM HEMATOLOGY AND ONCOLOGY ASSOCIATES,
SLB FLEX PROTOTYPE P/S PLAN DTD 10-17-85
By: /s/ JIMMIE H. HARVEY, M.D.
---------------------------
Jimmie H. Harvey, M.D.
<PAGE> 17
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
HILLIARD LIMITED PARTNERSHIP
By: /s/ NEAL MARCOUX
------------------------
Neal Marcoux
<PAGE> 18
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ DAVID A. TWIFORD
- ------------------------
David A. Twiford
<PAGE> 19
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ PAUL KLISTER
- ------------------------
Paul Klister
<PAGE> 20
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ MARCIA K. TRIPP
- --------------------------------
Marcia K. Tripp
WAYNE P. TRIPP TRUST
By: /s/ MARCIA K. TRIPP, TTE
-----------------------------
Marcia K. Tripp, Trustee
STEVEN F. TRIPP TRUST
By: /s/ MARCIA K. TRIPP, TTE
-----------------------------
Marcia K. Tripp, Trustee
LISA MARIE TRIPP TRUST
By: /s/ MARCIA K. TRIPP, TTE
-----------------------------
Marcia K. Tripp, Trustee
<PAGE> 21
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ ROBERT E. WOODS
- ---------------------
Robert E. Woods
<PAGE> 22
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ ROBERT J. WEYERS
- -----------------------------
Robert J. Weyers
/s/ JEFFREY J. WEYERS
- -----------------------------
Jeffrey J. Weyers
/s/ RONALD A. WEYERS
- -----------------------------
Ronald A. Weyers
WEYERS FAMILY LIMITED
PARTNERSHIP
By: /s/ RONALD A. WEYERS
---------------------------
RONALD A. WEYERS,
GENERAL PARTNER
<PAGE> 23
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ LLEW ANN KING
- ------------------------------------
Llew Ann King
MATTHEW A. KING CHARITABLE REMAINDER
UNITRUST, DTD 5/29/97
By: /s/ MATTHEW A. KING, TRUSTEE
---------------------------------
Matthew A. King, Trustee
AGT C.T. WILLIAMS, TUA 11/1/76 FBO MATTHEW A. KING
By: /s/ EQUITABLE TRUST COMPANY
---------------------------------
Equitable Trust Company
<PAGE> 24
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ ROBERT O. ROLFE
- -----------------------
Robert O. Rolfe
<PAGE> 25
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ JOHN W. EAKIN
- -----------------------
John W. Eakin
<PAGE> 26
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
/s/ JEFFERSON R. COBB
- -----------------------
Jefferson R. Cobb
<PAGE> 27
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
BRYAN B. STARR, SR.
By: /s/ BRYAN B. STARR
--------------------------
<PAGE> 28
[COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
PERFORMANCE FUTURES PSP DTD 1-1-93
By: /s/ BRYAN B. STARR, JR., TRUSTEE
-----------------------------------
<PAGE> 29
EXHIBIT A
PARTIES
<TABLE>
<CAPTION>
Name Loan Amount Address
---- ----------- -------
<S> <C> <C>
Jimmie H. Harvey, M.D. $250,000 3741 E. Fairway Drive
Birmingham, AL 35213
Fax: 205-599-3408
Hilliard Limited Partnership $100,000 Attn: Dan Hilliard
2555 S. Trillium
Green Bay, WI 54313
Fax: 920-490-2710
David A. Twiford $75,000 871 Ridgeway Loop, #107
Memphis, TN 38120
Fax: 901-684-1237
Paul Klister $50,000 1308 East Shade Tree Lane
Appleton, WI 54915
Fax: 920-830-6640
Marcia K. Tripp $225,000 35 Indian Forest Road
Indian Springs, AL 35124
Fax: 205-402-0873
Wayne P. Tripp Trust, $250,000 35 Indian Forest Road
Marcia K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Steven F. Tripp Trust, $250,000 35 Indian Forest Road
Marcia K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Lisa Marie Tripp Trust, $175,000 35 Indian Forest Road
Marcia K. Tripp, Trustee Indian Springs, AL 35124
Fax: 205-402-0873
Robert E. Woods $250,000 922 10th Street SW
Alabaster, AL 35007
Weyers Family Limited $100,000 500 AMS Court
Partnership Green Bay, WI 54313
Fax: 920-434-5811
Robert J. Weyers $100,000 500 AMS Court
Green Bay, WI 54313
Fax: 920-434-5811
Jeffrey J. Weyers $100,000 500 AMS Court
Green Bay, WI 54313
Fax: 920-434-5811
Ronald A. Weyers $100,000 500 AMS Court
</TABLE>
<PAGE> 30
<TABLE>
<S> <C> <C>
Green Bay, WI 54313
Fax: 920-434-5811
Llew Ann King $100,000 6600 Murray Lane
Brentwood, TN 37027
Fax: 615-376-4127
Matthew A. King $37,500 Agent: Jack Nuismer
Charitable Remainder Raymond James Financial
Unitrust DTD 5/29/97 Services
2103 Crestmoor Road
Nashville, TN 37215
Fax: 615-292-7317
Agt. C.T. Williams, $37,500 Agent: Kirk Scobey
TUA 11/1/76 SunTrust Equitable Trust
FBO Matthew A. King Co.
Account 10830 800 Nashville City Center
Nashville, TN
37219 Fax:
615-780-9327
Robert O. Rolfe $150,000 J.C. Bradford Company
330 Commerce Street
Nashville, TN 37201
Fax: 615-271-1422
John W. Eakin $175,000 520 Jackson Boulevard
Nashville, TN 37205
Fax: 615-298-6609
Jefferson R. Cobb $100,000 204 Aspen Meadow Drive
Edwards, CO 81632
Fax: 970-926-0474
Bryan B. Starr, Sr. SEP IRA $50,000 c/o Healthcare Realty Mgmt
1400 Urban Center Dr.#400
Birmingham, AL 35242
Fax: 205-969-0104
Performance Futures PSP $50,000 1400 Urban Center Dr.#415
DTD 1/1/93 FBO Bryan B. Birmingham, AL 35242
Starr, Jr. Fax: 205-969-0104
Birmingham Hematology and $150,000 790 Montclair Road
Oncology Associates, SLB Flex Suite 100
Prototype P/S Plan DTD Birmingham, AL 35213
10/27/85 FBO
Jimmie H. Harvey, M.D.
</TABLE>
<PAGE> 1
EXHIBIT 10.12
THE SECURITY EVIDENCED BY THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, EXCEPT AS EXPLICITLY PROVIDED HEREIN.
Agreement and Warrant to Purchase<<Number_of_Shares>>Common Shares
Spatialight, Inc.
(December __, 1999)
This Agreement and Non-Transferrable Warrant (the "Warrant") certifies that, for
value received, <<Name>>, the registered holder hereof (the "Warrantholder") is
entitled to purchase from Spatialight, Inc., a New York corporation with its
principal office at 9 Commercial Boulevard, Suite 200, Novato, California 94949
(the "Company") <<Number_of_Shares>> shares of Common Stock of the Company (the
"Shares") at or before 5:00 p.m. Eastern Standard Time on June 30, 2002, at the
purchase price per share of $3.50 (the "Warrant Price"), subject to the
following terms and conditions. The number of Shares purchasable upon exercise
of this Warrant and the Warrant Price per Share shall be subject to adjustment
from time to time as set forth herein.
1. Consideration for Warrant.
This Warrant has been issued in consideration of a loan provided to the
Company by Warrantholder, the receipt of which is hereby acknowledged.
2. Exercise.
(a) This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form as attached hereto duly completed
and executed, together with payment of the Warrant Price at the
principal office of the Company. Payment of the Warrant Price may be
made in cash, by wire transfer, by check or pursuant to the provisions
of Section 2(b) below. Upon surrender of the Warrant and payment of such
Warrant Price as aforesaid, the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of
the Warrantholder and in such name or names as the Warrantholder may
designate a certificate or certificates for the number of full Shares so
purchased upon the exercise of the Warrant, together with Fractional
Warrants, as provided in Section 7 hereof, in respect of any fractional
Shares otherwise issuable upon such surrender. Such certificate or
certificates shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become a holder
of record of such Shares as of the date of the surrender of the Warrant
and the payment of the Warrant Price, as aforesaid, notwithstanding that
the certificates representing the Shares shall not actually have been
delivered or that the stock transfer books of the Company shall then be
closed. In the event that the Warrant is exercised in respect of less
than all of the Shares specified herein at any time prior to the
Termination Date, a new Warrant evidencing the remaining Shares will be
issued by the Company.
1
<PAGE> 2
The Company shall pay any and all transfer taxes or similar charges
which may become due upon exercise of the Warrant.
(b) Notwithstanding any provisions herein to the contrary, so long as
and to the extent that this Warrant may be exercised, in lieu of
exercising the Warrant for cash, the holder may elect to receive shares
of Common Stock equal to the value (as determined below) of this Warrant
(or the portion thereof being exercised). The holder may make the
election described in this Section 2(b) by surrendering this Warrant,
delivering a notice of election under this provision and providing the
other documents referenced in Section 2(a), following the procedures set
forth in such section. In such event the Company shall issue (i) within
thirty (30) days a new Warrant substantially in the form hereof
representing the number of Shares with respect to which this Warrant
shall not then have been exercised and (ii) a number of Shares computed
using the following formula:
Y (A-B)
X =
---------
A
Where X = the number of Shares to be issued,
Y = the portion of the Warrant being exercised,
A = the fair market value of one share of Common Stock (at the
date of such calculation), and
B = the Warrant Price.
For purposes of the above calculation, fair market value of one
share of Common Stock shall be determined by the Board in good faith;
provided, however, that where there exists a public market for the
Company's Common Stock at the time of such exercise, fair market value
shall mean the average over the preceding ten trading days (or such
fewer number of days as such public market has existed) of the average
of the high and low prices on the over-the-counter market as reported by
the National Association of Securities Dealers Automated Quotation
("Nasdaq") system, or if the Common Stock of the Company is then traded
on a national securities exchange or the Nasdaq Stock Market, the
average over the preceding ten (10) trading days (or such fewer number
of days as the Common Stock has been so traded) of the closing sale
prices on the principal national securities exchange or the Nasdaq
market on which it is so traded.
2
<PAGE> 3
3. Reservation of Shares.
On or after the date of this Warrant, the Company will reserve from its
authorized and unissued shares of Common Stock a sufficient number of
shares to provide for the issuance of Shares upon the exercise of this
Warrant. Every transfer agent for the securities of the company issuable
upon the exercise of the Warrant will be irrevocably authorized and
directed at all times to reserve such number of authorized Shares and
other securities as shall be requisite for such purpose. The Company
will keep a copy of this Warrant on file with every transfer agent for
the securities of the Company issuable upon the exercise of the Warrant.
The Company will supply such transfer agent with duly executed stock and
other certificates for such purpose.
4. Further Obligations of Company.
4.1. The Company covenants and agrees that all Shares which may be
delivered upon exercise of this Warrant shall, upon delivery, be
fully paid and non-assessable, and be free from all taxes, liens
and charges with respect to the purchase thereof hereunder, and
without limiting the generality of the foregoing, the Company
covenants and agrees that it shall from time to time take all
such actions as may be necessary to assure that the par value per
share of the Common Stock is at all times equal to or less than
the then current Warrant Price per share of the Shares issuable
pursuant to this Warrant.
4.2. If the Warrantholder claims that this Warrant has been mutilated,
lost, destroyed or wrongfully taken, the Company shall issue and
deliver to the Warrantholder a replacement Warrant provided that
the requirements of Section 8-405 of the New York Uniform
Commercial Code has been met and, if this Warrant has been
mutilated, that it is surrendered to the Company.
5. Registration.
The Warrant shall be registered on the books of the Company when issued
and shall be transferable only on the books of the Company maintained at
its principal office in Novato, California, or wherever its principal
executive offices may then be located, upon delivery thereof duly
endorsed by the Warrantholder or its duly authorized attorney or
representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. This Warrant shall not be
transferable in whole or in part unless the Company pre-approves such
transfer in writing, provided, however, that the Company shall
pre-approve reasonable transfers made for estate planning purposes. Upon
any registration or approved transfer, the Company shall execute and
deliver a new Warrant or Warrants to the person or persons entitled
thereto.
3
<PAGE> 4
6. Adjustment of Warrant Price and Number of Shares.
6.1. General. The number of Shares purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as
follows:
6.1.1. In case the Company shall, with regard to its Common Stock
(or securities convertible into or exchangeable for Common
Stock) (A) pay a dividend in Common Stock or make a
distribution in Common Stock, (B) subdivide its
outstanding shares of Common Stock into a greater number
of shares, (C) combine its outstanding shares of Common
Stock into a smaller number of shares, or (D) issue by
reclassification of its Common Stock or other securities
of the Company, the number of Shares purchasable upon
exercise of the Warrant immediately prior thereto shall be
adjusted so that the Warrantholder shall be entitled to
receive the kind and number of Shares or other securities
of the Company which it would have owned or would have
been entitled to receive after the happening of any of the
events described above, had the Warrant been exercised
immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made
pursuant to this subsection shall become effective
immediately after the effective date of such event
retroactive to the record date, if any, for such event.
6.1.2. No adjustment in the number of Shares purchasable
hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent in
the aggregate number of Shares then purchasable upon the
exercise of the Warrant; provided however, that any
adjustments which by reason of this Section 6.1.2 are not
required to be made immediately shall be carried forward
and taken into account in any subsequent adjustment.
6.1.3. Whenever the number of Shares purchasable upon the
exercise of the Warrant is adjusted as herein provided,
the Warrant Price payable upon exercise of the Warrant
shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, of
which the numerator shall be the number of Shares
purchasable upon the exercise of the Warrant immediately
prior to such adjustment, and of which the denominator
shall be the number of shares so purchasable immediately
thereafter.
6.1.4. Whenever the number of Shares purchasable upon the
exercise of this Warrant or the Warrant Price is adjusted
as herein provided, the Company shall cause to be promptly
mailed to the Warrantholder in accordance with the
provisions of Section 9 hereof, notice of such adjustment
or adjustments and a certificate of a firm of independent
public accountants
4
<PAGE> 5
selected by the Board of Directors of the Company (who may
be the regular accountants employed by the Company)
setting forth the number of Shares purchasable upon the
exercise of the Warrant and the Warrant Price after such
adjustment, a brief statement of the facts requiring such
adjustment, and the computation by which such adjustment
was made.
6.1.5. For the purpose of this Section 6.1, the term "Common
Stock" shall mean (A) the class of shares designated as
the Common Stock of the Company at the date of this
Warrant, or (B) any other class of shares resulting from
successive changes or reclassifications of such Common
Stock including changes in a par value, or from par value
to no par value, or from no par value to par value. In the
event that at any time, as a result of an adjustment made
pursuant to this Section 6, the Warrantholder shall become
entitled to purchase any shares of the Company other than
shares of Common Stock, thereafter the number of such
other shares so purchasable upon exercise of the Warrant
and the Warrant Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 6.
6.2. No Adjustment of Dividends. Except as provided in Section 6.1, no
adjustment in respect of dividends shall be made during the term
of the Warrant or upon the exercise of the Warrant.
6.3. Preservation of Purchase Rights upon Reorganization,
Reclassification, Consolidation, Merger, etc. In case of any
capital reorganization or reclassification of the Common Stock of
the Company, or in case of any consolidation of the Company with
or merger of the Company into another corporation or in case of
any sale or conveyance to another person of the property, assets
or business of the Company as an entirety or substantially as an
entirety, the Company or such successor or purchaser, as the case
may be, shall execute with the Warrantholder an agreement that
the Warrantholder shall have the right thereafter upon payment of
the Warrant Price in effect immediately prior to such action to
purchase upon exercise of the Warrant the kind and amount of
shares and other securities and property which it would have
owned or have been entitled to receive after the happening of
such reorganization or reclassification, consolidation, merger,
sale or conveyance had the Warrant been exercised immediately
prior to such action. In the event of a merger described in
Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended, in which the Company is the surviving corporation, the
right to purchase Shares under the Warrant shall terminate on the
date of such merger and thereupon the Warrant shall become null
and void but only if the controlling corporation shall agree to
substitute for the Warrant its warrant which entitles the holder
thereof to purchase upon its exercise the kind and amount of
shares and other securities and property which it would have
owned or had been entitled to receive has the Warrant been
5
<PAGE> 6
exercised immediately prior to such merger. The adjustments
required by this Section 6.3 shall be effected in a manner which
shall be as nearly equivalent as may be practicable to the
adjustments provided for elsewhere in this Section 6. The
provisions of this Section 6.3 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
6.4. Statement on Warrants; Legends. Irrespective of any adjustments
in the Warrant Price or the number or kind of Shares purchasable
upon the exercise of the Warrant, the Warrant certificate or
certificates theretofore or thereafter issued may continue to
express the same price and number and kind of Shares as are
stated in this initially issued Warrant. The Company may at any
time place legends referencing any applicable securities law
restrictions on certificates representing the Shares. Holder
shall, at the request of the Company, promptly present to the
Company any and all certificates representing the Shares in order
to carry out the provisions of this Section.
7. Fractional Shares.
The Company shall not be required to issue fractional Shares on the
exercise of the Warrant. If any fraction of a Share would, except for
the provisions of this Section 7, be issuable on the exercise of the
Warrant (or specified portion thereof), the Company shall issue to the
Warrantholder a fractional Warrant entitling Warrantholder, upon
surrender with other fractional Warrants aggregating one or more full
Shares, to purchase such full Shares. If fractional Warrants do not
aggregate a full Share, their value (over and above their exercise
price) shall be paid in full in cash upon exercise to the exercising
Warrantholder.
8. No Rights as Shareholder; Notices to Warrantholder.
Nothing contained in this Warrant shall be construed as conferring upon
the Warrantholder or its transferees any rights as shareholder of the
Company, including the right to vote, receive dividends, or consent as a
shareholder in respect of any meeting of shareholders for the election
of directors of the Company or any other matter. However, the Company
shall be required to give notice in writing to the Warrantholder of any
meeting of shareholders of the Company or any proposed consent of the
shareholders as provided in Section 9 hereof at least twenty (20) days
prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the shareholders entitled to any
relevant dividend, distribution, subscription rights or other rights or
for the determination of shareholders entitled to vote at any such
meeting or as to which any consent is requested. Such notice shall
specify such record date or the date of closing the transfer books, as
the case may be.
6
<PAGE> 7
9. Notices.
Any notice pursuant to this Warrant by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly
given if delivered by hand or if mailed by certified mail, return
receipt requested, postage prepaid, addressed as follows:
9.1. If to the Warrantholder -- addressed to:
<<Name>>
<<Street_Address>>
<<City_State_Zip>>
9.2. If to the Company -- addressed to:
Spatialight, Inc.
9 Commercial Boulevard, Suite 200
Novato, California 94949
or to such other address as any such party may designate by notice to the other
party. Notices shall be deemed given at the time they are delivered personally
or three days after they are mailed in the manner set forth above.
10. Successors.
All the covenants and provisions of this Warrant by or for the benefit
of the Company or the Warrantholder shall bind and inure to the benefit
of their respective successors and assigns hereunder.
11. Merger or Consolidation of the Company.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
person, unless the provisions of Section 6.3 are complied with.
12. Applicable Law.
This Warrant shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance
with the laws of said State applicable to contracts made and to be
performed entirely within such State, without regard to principles of
conflicts of law.
13. Counterparts.
This Warrant may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and
the same instrument.
7
<PAGE> 8
14. Further Assurances.
From time to time after the Closing, the Company shall promptly execute
and deliver to each Warrantholder such further agreements and assurances
as the Warrantholder may reasonably request in order to vest and confirm
ownership of the Shares and the Warrants in the Warrantholder and to
effectuate the purposes, terms and conditions of this Agreement. Each
party hereto may evidence its execution and delivery hereof by facsimile
delivery of an original signature page at or prior to closing, which
facsimile shall be deemed to be an original for all purposes.
15. Headings.
The headings in this Warrant are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Warrant.
16. Indemnification.
The Company shall indemnify and hold each Investor harmless from and
against any loss, damage or expense which may result from (i) the
inaccuracy or falsity of any representation or warranty of Company
hereunder, or (ii) the failure of Company to fulfill its covenants
hereunder.
17. Warrantholder Representation.
The Warrantholder represents that (a) this Warrant is acquired for the
Warrantholder's own account and not with a view to or for sale in
connection with any distribution of the Warrant and (b) the
Warrantholder is an "accredited investor" as defined in Regulation D
promulgated under the Act.
8
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers and the corporate seal hereunto fixed.
(corporate seal) SPATIALIGHT, INC.
Attest:
By:
- --------------------------- --------------------------------------
Michael H. Burney
Chief Executive Officer
Holder represents that Holder is familiar with the terms and provisions of this
Warrant Agreement and hereby accepts the Warrant subject to all of the terms and
provisions thereof.
Date:
---------------------------- -----------------------------------------
<<Name>>
9
<PAGE> 10
Attachment I
PURCHASE FORM
TO. Spatialight, Inc.
1. The undersigned hereby elects to purchase ________________ shares of the
Common Stock of Spatialight, Inc., pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price in full, together
with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below.
- ----------------------------------
(Name)
- ----------------------------------
(Address)
- ----------------------------------
(Name of Warrant Holder)
- ----------------------------------
(Date)
By:
--------------------------------
Title:
----------------------------
(Name of purchaser, and title and
signature of authorized person)
10
<PAGE> 11
Attachment 2
INVESTMENT REPRESENTATION STATEMENT
Shares of the Common Stock of
Spatialight, Inc.
In connection with the purchase of the above-listed securities, the undersigned
hereby represents to Spatialight, Inc. (the "Company") as follows
(a) The shares of Common Stock and other securities, if any, to be received upon
the exercise of the Warrant (the "Securities") will be acquired for investment
for its own account, not as a nominee or agent, and not with a view to the sale
or distribution of any part thereof, and the undersigned has no present
intention of selling, granting participation in or otherwise distributing the
same, but subject, nevertheless, to any requirement of law that the disposition
of its property shall at all times be within its control. By executing this
Statement, the undersigned further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participations to such person or to any third person, with
respect to any Securities issuable upon exercise of this warrant.
(b) The undersigned understands that the Securities issuable upon exercise of
the Warrant at the time of issuance may not be registered under the Securities
Act of 1933, as amended (the "Act"), and applicable state securities laws, on
the ground that the issuance of such securities is exempt pursuant to Section
4(2) of the Act and state law exemptions relating to offers and sales not by
means of a public offering, and that the Company's reliance on such exemptions
is predicated on the undersigned's representations set forth herein.
(c) The undersigned agrees that in no event will it make a disposition of any
Securities acquired upon the exercise of the Warrant unless and until it shall
have furnished the Company with an opinion of counsel satisfactory to the
Company and Company's counsel to the effect that (A) appropriate action
necessary for compliance with the Act and any applicable state securities laws
has been taken or an exemption from the registration requirements of the Act and
such laws is available, and (B) that the proposed transfer will not violate any
of said laws
(d) The undersigned acknowledges that an investment in the Company is highly
speculative and represents that it is able to fend for itself in the
transactions contemplated by this Statement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investments, and has the ability to bear the economic risks
(including the risk of a total loss) of its investment. The undersigned
represents that it has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which it considered necessary to verify the accuracy of or to
amplify the Company's disclosures, and has had all questions which have been
asked by it satisfactorily answered by the Company.
11
<PAGE> 12
(e) The undersigned acknowledges that the Securities issuable upon exercise of
the Warrant must be held indefinitely unless subsequently registered under the
Act or an exemption from such registration is available. The undersigned is
aware of the provisions of Rule 144 promulgated under the Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than one year after
a party has purchased and paid for the security to be sold, the sale being
through a "broker's transaction" or in transactions directly with "market
makers" (as provided by Rule 144(f)) and the number of shares being sold during
any three-month period not exceeding specified limitations.
Dated:
-------------------------
- --------------------------------
(Signature)
- --------------------------------
(Typed or Printed Name)
- --------------------------------
(Title)
2
<PAGE> 13
Attachment 3
NOTICE OF CASHLESS EXERCISE
TO. Spatialight, Inc.
1. The undersigned hereby elects to acquire ________________ shares of the
Common Stock of Spatialight, Inc., pursuant to the terms of the attached
Warrant, by conversion of ___________ percent (___%) of the Warrant.
2. Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below.
- ----------------------------------
(Name)
- ----------------------------------
(Address)
- ----------------------------------
(Name of Warrant Holder)
- ----------------------------------
(Date)
By:
-------------------------------
Title:
----------------------------
(Name of purchaser, and title and
signature of authorized person)
<PAGE> 1
EXHIBIT 10.13
THIS CONVERTIBLE SECURED NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND IS A RESTRICTED SECURITY AS THAT TERM IS
DEFINED IN RULE 144 UNDER THE ACT. THIS CONVERTIBLE SECURED NOTE MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE REASONABLE SATISFACTION OF THE COMPANY.
CONVERTIBLE SECURED NOTE
No. ____________ San Francisco, California
$______________ December __, 1999
FOR VALUE RECEIVED, Spatialight, Inc., a corporation organized and
existing under the laws of the State of New York (the "Company"), hereby
promises to pay to <<Name>> ("Payee") the principal sum of $<<Amount_Invested>>,
or so much thereof as shall have been funded in accordance with the Convertible
Secured Loan Agreement dated of even date herewith, among the Company, Payee and
Others (the "Loan Agreement") on the earlier of June 30, 2001, the first
business day ninety days after the removal or resignation of Robert Olins from
the board of directors of the Company, or such earlier or later date as this
Note shall become due by lapse of time, acceleration, extension, conversion of
the outstanding principal amount hereof into equity, or otherwise, as provided
herein (the "Maturity Date"), with interest on the principal sum hereof, as set
forth below in Paragraph 1. This Note is one of a series of Convertible Secured
Notes ("Convertible Notes") issued on the date hereof pursuant to the Loan
Agreement in an aggregate principal amount not to exceed Two Million Eight
Hundred Seventy-Five Thousand Dollars ($2,875,000) (the "Convertible Note
Series").
1. Payment of Interest. This Note will bear interest at the rate of six
percent (6%) per annum. Interest shall be payable on the Maturity Date. At the
option of the Payee, subject to applicable securities laws and upon notice
received by the Company within ten (10) days of the Maturity Date, any interest
due and payable hereunder, shall be paid by the issuance of common stock of the
Company having a Market Value equal to the amount of interest due hereunder. For
purposes of the preceding sentence, the term "Market Value" shall mean the
average closing public trading price for such common stock for (i) the ten (10)
previous trading days, if at least five (5) trades have occurred during such ten
trading days, or if not, (ii) the previous ten (10) trades. Interest shall be
calculated on the basis of actual days elapsed over a 365 day year. On the first
business day after the Company receives a Payee's notice of an election to
receive interest payable hereunder in the form of common stock of the Company,
and not before, such Payee shall be deemed to be a stockholder of record of the
Company. The Company shall issue certificates representing such common stock
within a reasonable time of a Payee's election. Subject to Section 3(a)(ii),
Payees that have not timely notified the Company of an election to receive
interest in stock shall receive a payment from the Company representing such
outstanding interest on the eleventh day following the Maturity Date.
<PAGE> 2
2. Repayment of Principal. Payment on the principal balance of this Note
will be made on the Maturity Date. The Company shall have no right to prepay any
portion of this Note, except the mandatory conversion right provided in Section
3(a)(ii).
3. Conversion Rights.
(a) Conversion.
(i) Voluntary Conversion. Payee may at any time and from
time to time, at Payee's option, before the Maturity Date (including during any
period between the removal or resignation of Robert Olins from the Company's
board of directors and the business day ninety days thereafter), subject to the
terms and conditions hereinafter set forth, convert all or part of the unpaid
principal balance of this Note into fully paid and nonassessable shares of
common stock, $.01 par value, of the Company (the "Common Shares"), at the
Conversion Price (as hereinafter defined in effect on the Conversion Date (as
hereinafter defined)). Accrued and unpaid interest on this Note is not subject
to conversion pursuant to this Paragraph 3.
(ii) Mandatory Conversion. In the event the principal
balance has not been converted into equity under Paragraph 3(a)(i) above, all of
the unpaid principal and the outstanding interest of this Note shall be
automatically converted into Common Shares upon the earlier to occur of the
following: (A) the date after which (i) the Common Stock of the Company has
attained a price in excess of $7.00 per share for twenty (20) consecutive
trading days (the "Elevated Price Period") and (ii) the Company has binding
purchase orders for the Company's 1280DV and/or 1280BC product for over 50,000
units over the succeeding twelve (12) month period, or (B) the date ("Product
Sales Date") on which binding purchase orders for the Company's 1280DV and/or
1280BC product exceeds 100,000 units for delivery over the succeeding twelve
(12) month period. The conversion shall take place on the fifth (5th) business
day succeeding the Elevated Price Period or the Product Sales Date (the
"Mandatory Conversion Date"), the rights of Payee in and to repayment of the
principal of this Note in cash will cease as of the Mandatory Conversion Date,
and Payee will thereafter be deemed to be the record holder of the Common Shares
issuable to Payee upon conversion. Payee will use commercially reasonable
efforts to surrender the Note to the Company within ten (10) days of receipt of
notice of the Mandatory Conversion Date. In any event, a Payee must surrender
his or her Note to the Company prior to receiving any payment of interest.
(b) Method of Conversion. To convert the outstanding principal or
interest under Section 3(a)(i) or Section 1 hereunder into Common Shares, Payee
must surrender this Note to the Company during usual business hours at the
Company's principal office at 9 Commercial Blvd., Suite 200, Novato, California
94949 (or at such other location designated in a written notice given by the
Company to Payee), accompanied by a written conversion notice substantially in
the form attached hereto as Annex I (the "Written Conversion Notice") duly
executed by Payee or its attorney duly authorized in writing. Any such
conversion will be deemed to have been made upon the later of the day that this
Note is surrendered, accompanied by the Written Conversion Notice, the day which
Payee first has a right to convert the amount in question into equity, or if
such date is not a business day, the next succeeding business day (the
2
<PAGE> 3
"Conversion Date"). The rights of Payee in and to the portion of this Note so
converted will cease as of the Conversion Date and Payee will thereafter be
deemed to be the record holder of the Common Shares issuable to Payee upon
conversion. Any partial conversion of principal and interest must be in
multiples of One Hundred Thousand Dollars ($100,000) unless otherwise agreed by
the Company.
(c) Conversion Price. The conversion price (the "Conversion
Price") at which Common Shares will initially be issuable upon conversion of
this Note will be Three and 50/100 Dollars ($3.50) per Common Share. The
Conversion Price will be subject to adjustment as provided in Paragraph 3(f)
below.
(d) Delivery of Certificates; Remainder Note. As promptly as
practicable after a Conversion Date or Mandatory Conversion Date, the Company
will deliver or cause to be delivered to Payee one or more certificates
representing the number of fully paid and nonassessable Common Shares into which
this Note has converted, determined by dividing the principal amount to be
converted hereunder by the Conversion Price. In the event of a partial
conversion before the Maturity Date, the Company will reissue a Note to Payee in
the form hereof in the amount of the remaining principal balance of this Note
and all accrued and unpaid interest on the remaining principal balance of the
Note will remain outstanding and will be payable in accordance with Paragraph 1
hereof. No fractional shares shall be issued upon conversion of this Note; but
in lieu thereof Company shall pay in cash the amount not converted into equity.
(e) No Dividend Adjustment. If the Company pays cash dividends on
Common Shares before a Conversion Date and Payee thereafter elects to convert
amounts hereunder, no adjustment shall be made to the number of shares issuable
to Payee.
(f) Adjustment of Conversion Price. The Conversion Price will be
subject to adjustment from time to time as follows:
(i) Common Shares Issued at Less Than the Effective
Conversion Price. If the Company issues any Common Shares other than Excluded
Shares (as defined below) (the "Additional Common Shares") without consideration
or for a consideration per share less than the Conversion Price in effect
immediately prior to such issuance (the "Effective Conversion Price"), the
Conversion Price shall be reduced to a Price determined by multiplying the
Effective Conversion Price by a fraction (A) the numerator of which shall be the
sum of (1) the number of Common Shares outstanding immediately prior to such
issuance (including the Common Shares issuable upon the conversion of any notes
outstanding as of the date hereof to Argyle Capital Management Corporation) plus
(2) the number of Common Shares that the aggregate consideration received by the
Company for the total number of Additional Common Shares so issued would
purchase at such Effective Conversion Price and (B) the denominator of which
shall be the number of Common Shares outstanding immediately prior to such
issuance (including the Common Shares issuable upon the conversion of any notes
outstanding as of the date hereof to Argyle Capital Management Corporation) plus
the number of Additional Common Shares so issued. For purposes of this
Subparagraph 3(f), the term "Common Shares" shall mean,
3
<PAGE> 4
collectively, all Common Shares of the Company, and any security of the Company
now outstanding or hereafter issued by the Company which is convertible or
exchangeable into any class of Common Shares.
(ii) Certain Adjustment Factors. For the purposes of any
adjustment of the Conversion Price pursuant to subparagraph (f)(i) above, the
following provisions shall be applicable:
(A) Cash. In the case of the issuance of Common
Shares for cash, the amount of the consideration received by the Company shall
be deemed to be the amount of the cash proceeds received by the Company for such
Common Shares before deducting therefrom (y) any discounts, commissions, taxes
or other expenses allowed, paid or incurred by the Company for any underwriting
or otherwise in connection with the issuance and sale thereof and (z) any amount
paid or payable for accrued interest or accrued dividends; and
(B) Consideration Other Than Cash. In the case of
the issuance of Common Shares (other than upon the conversion of shares of
capital shares or other securities of the Company) for consideration in whole or
in part other than cash, including securities acquired in exchange therefor
(other than securities by their terms so exchangeable), the consideration other
than cash shall be deemed to be the fair value thereof (as determined by the
Board of Directors of the Company, whose determination shall be reasonable),
irrespective of any accounting treatment; provided that such fair value as
determined by the Board of Directors shall not exceed the aggregate Market Value
of the Common Shares being issued as of the date the Board of Directors
authorizes the issuance of such Common Shares; and
(C) Options and Convertible Securities. In the case
of the issuance of (x) options, warrants or other rights to purchase or acquire
Common Shares (whether or not exercisable immediately following such issuance),
other than 12,500,000 Common Shares, as equitably adjusted, to be reserved for
issuance under an equity incentive or similar plan of the Company, (y)
securities by their terms convertible into Common Shares or exchangeable for
Common Shares immediately following such issuance, or (z) options, warrants or
rights to purchase such convertible or exchangeable securities (whether or not
exercisable immediately following such issuance):
(1) the aggregate maximum number of Common
Shares deliverable upon exercise of such options, warrants or other rights to
purchase or acquire Common Shares shall be deemed to have been issued at the
time such options, warrants or other rights become exercisable and for a
consideration equal to the consideration (determined in the manner provided in
clauses (A) and (B) above), if any, received by the Company upon the issuance of
such options, warrants or other rights plus the minimum purchase price provided
in such options, warrants or other rights for the Common Shares covered thereby;
(2) the aggregate maximum number of Common
Shares deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options, warrants or other
rights to purchase or acquire such convertible or exchangeable securities and
the subsequent conversion or exchange thereof, shall
4
<PAGE> 5
be deemed to have been issued at the time such securities become convertible or
exchangeable or such options, warrants or other rights become exercisable and
for a consideration equal to the consideration, if any, received by the Company
for any such securities and related options, warrants or other rights (excluding
any cash received on account of accrued interest or accumulated dividends), plus
the additional consideration, if any, to be received by the Company upon the
conversion or exchange of such securities and the exercise of any related
options, warrants or other rights (the consideration in each case to be
determined in the manner provided in clauses (A) and (B) above);
(3) on any change in the number of Common
Shares deliverable upon exercise of any such options, warrants or rights or
conversion or exchange of such convertible or exchangeable securities or any
change in the consideration to be received by the Company upon such exercise,
conversion or exchange, including, but not limited to, a change resulting from
any subdivision, split-up, combination or reclassification thereof, the
Conversion Price as then in effect shall forthwith be readjusted to such
Conversion Price as would have been obtained had an adjustment been made upon
the issuance of such options, warrants or rights not exercised prior to such
change, or of such convertible or exchangeable securities not converted or
exchanged prior to such change, upon the basis of such change;
(4) on the expiration or cancellation of any
such options, warrants or other rights, or the termination of the right to
convert or exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon such becoming exercisable,
convertible or exchangeable, such Conversion Price shall forthwith be readjusted
to such Conversion Price as would have been obtained had an adjustment been made
upon such options, warrants or other rights becoming exercisable or securities
becoming convertible or exchangeable on the basis of the issuance of only the
number of Common Shares actually issued upon the exercise of such options,
warrants or other rights, or upon the conversion or exchange of such securities;
and
(5) if the Conversion Price shall have been
adjusted upon such options, warrants or other rights becoming exercisable or
such convertible or exchangeable securities becoming convertible or
exchangeable, no further adjustment of the Conversion Price shall be made for
the actual issuance of Common Shares upon the exercise, conversion or exchange
thereof.
(iii) Excluded Shares. "Excluded Shares" shall mean (A)
any shares issued to all holders of the Company's Common Shares pursuant to a
stock dividend, subdivision or split-up of such shares; (B) issuances pursuant
to awards granted for up to 2,000,000 Common Shares, as equitably adjusted,
under an equity incentive or similar plan of the Company; (C) issuances upon the
conversion of this Note or any other Convertible Note, or any Convertible Note
reissued upon conversion, in part, of the outstanding principal on this Note or
on any other Convertible Note reissued upon conversion; (D) issuances upon the
exercise of the notes, warrants or other securities listed on Schedule 4.2 of
the Loan Agreement.
5
<PAGE> 6
(iv) Stock Dividends: Stock Splits, etc. If the number of
Common Shares outstanding is increased by a stock dividend payable in Common
Shares or by a subdivision or split-up of Common Shares, then immediately after
the record date fixed for the determination of holders of Common Shares entitled
to receive such stock dividend or the effective date of such subdivision or such
split-up, as the case may be, the Conversion Price shall be appropriately
adjusted so that Payee will be entitled to receive the number of Common Shares
of the Company which Payee would have owned immediately following such action
had all of the unpaid principal of this Note been converted immediately prior
thereto.
(v) Combination of Shares. If the number of Common Shares
outstanding is decreased by a combination of the outstanding Common Shares,
immediately after the effective date of such combination, the Conversion Price
shall be appropriately increased so that Payee will be entitled to receive the
number of Common Shares of the Company which Payee would have owned immediately
following such action had all of the unpaid principal of this Note been
converted immediately prior thereto.
(vi) Reorganizations, Etc. In the case of any capital
reorganization of the Company, any reclassification of Common Shares, the
consolidation of the Company with or the merger of the Company with or into any
other entity (other than a reorganization or merger solely for the purpose of a
change in the state of incorporation of the Company) or the sale, lease or other
transfer of all or substantially all of the assets of the Company to any other
person or entity, all or part of the unpaid principal of this Note will after
such capital reorganization, reclassification, consolidation, merger, sale,
lease or other transfer be convertible into the number of shares of capital
shares or other securities or property to which the Common Shares issuable (at
the time of such capital reorganization, reclassification, consolidation,
merger, sale, lease or other transfer) upon conversion of this Note would have
been entitled upon such capital reorganization, reclassification, consolidation,
merger, sale, lease or other transfer. The subdivision or combination of Common
Shares issuable upon conversion of this Note into a greater or lesser number of
Common Shares (whether with or without par value) shall not be deemed to be a
reclassification of the Common Shares of the Company for the purposes of this
clause (vi).
(vii) Evidence of Indebtedness or Assets. In case the
Company shall declare a distribution payable in securities of any other
individual, corporation, partnership, association, trust or other entity or
organization, including any government or political subdivision or any agency or
instrumentality thereof ("Person"), evidences of indebtedness issued by the
Company or other Persons or assets (excluding cash dividends or dividends
payable solely in Common Shares) then, in each such case, Payee shall be
entitled to receive a proportionate share of any such distribution as if the
entire unpaid principal of this Note had been converted into Common Shares as of
the record date for the determination of holders entitled to receive such
distribution.
(viii) Rounding of Calculations: Minimum Adjustment. All
calculations under this subparagraph (f) shall be made to the nearest cent or to
the nearest one-hundredth (1/100th) of a share, as the case may be. Any
provision of this Paragraph 3 to the contrary
6
<PAGE> 7
notwithstanding, no adjustment in the Conversion Price shall be made if the
amount of such adjustment would be less than one cent ($0.01), but any such
amount shall be carried forward and an adjustment with respect thereto shall be
made at the time of, and together with, any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate one cent ($0.01) or more.
(ix) Applicable Adjustment. In any case in which two or
more separate provisions of this subparagraph (f) shall require an adjustment to
the Conversion Price, the applicable adjustment shall be the largest adjustment
lowering the Conversion Price resulting from the application of any and all
appropriate provisions of this subparagraph (f) to such event.
(g) Statement Regarding Adjustments. Whenever the Conversion
Price is adjusted as herein provided, the Company shall compute the adjusted
Conversion Price in accordance with this Paragraph 3 and shall prepare a
certificate signed by the Treasurer of the Company setting forth the adjusted
Conversion Price and the facts requiring such adjustment, and such certificate
shall forthwith be delivered to Payee.
(h) Return/Cancellation. This Note, when surrendered for
conversion as herein provided in this Paragraph 3, (i) will be cancelled and no
longer deemed to be outstanding if the entire outstanding principal balance of
this Note is converted, and all rights with respect to this Note will forthwith
cease and terminate, except the right of Payee to receive Common Shares, or (ii)
will be reissued if less than the entire outstanding principal balance of this
Note is converted into equity and a new convertible note evidencing the
remaining principal balance of this Convertible Note will be reissued.
(i) Reservation of Shares. The Company will at all times reserve
and keep available, free from preemptive rights, out of its treasury shares or
its authorized but unissued Common Shares, for the purpose of effecting the
conversion of this Note, the full number of shares of Common Shares then
deliverable upon the conversion of this Note.
(j) Valid Issuance. The Company hereby covenants that all Common
Shares that may be issued upon conversion of this Note will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
upon issuance, and that the Company will take no action which will cause a
contrary result including, without limitation, any action which would cause the
Conversion Price to be less than the par value of the Common Shares.
(k) Legends. Each certificate for Common Shares issued upon the
conversion of this Note will be stamped or otherwise imprinted with a legend in
substantially the following form:
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.
7
<PAGE> 8
The foregoing legend will be removed from the certificates representing Common
Shares, upon receipt of an opinion of counsel satisfactory to the Company that
transfer of the shares would comply with applicable securities laws.
4. Events of Default. The following events shall be deemed an event of
default under this Note (each, an "Event of Default"):
(a) Failure to Pay. A failure in the payment of any installment
of interest or principal on this Note or any part thereof on the date the same
is due which failure continues uncured for a period of at least ten (10) days;
(b) Cross-Default. A failure in the payment of any interest or
principal on any other obligation of the Company owed to the Senior Lenders (as
such term is defined in that certain Intercreditor Agreement of even date
herewith) on the date the same is due which failure continues uncured for a
period of least ten (10) days;
(c) Voluntary Bankruptcy. The Company (i) admits in writing its
inability to pay its debts as they come due, or makes a general assignment for
the benefit of its creditors; (ii) commences any case, proceeding or other
action seeking reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeks appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its property; or (iii) takes any corporate action to
authorize any of the actions set forth above in this Paragraph (4)(c);
(d) Insolvency Proceedings. Any case, proceeding or other action
against the Company is commenced seeking to have an order for relief entered
against the Company as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of the Company or its debts
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, and
such case, proceeding or other action remains undismissed for a period of ninety
(90) days;
(e) Material Breach of Note. The Company breaches, in a material
respect, or fails to perform any material provision or covenant of this Note
(other than the payment of any installment of interest on this Note or any part
thereof on the date the same is due, which event is provided for in Paragraph
4(a)), which breach or failure to perform is not cured within fifteen (15) days
of receipt of written notice thereof from Payee to the Company;
(f) Breach of Loan Agreement. The Company breaches, in a material
respect, or fails to perform any material covenant, condition or other provision
of the Loan Agreement, or of any other Loan Document (as defined in the Loan
Agreement), which breach or failure to perform is not cured within fifteen (15)
days of receipt of written notice thereof from Payee to the Company;
8
<PAGE> 9
(g) Adverse Change. Any change in the Company's financial
condition or operations (including, without limitation, a change to the
continued validity of all patents and trademarks described in Schedule 4.9(a) to
the Loan Agreement) which: (a) has or reasonably could be expected to have any
material adverse effect upon the validity or enforceability of any material
provision of this Note, the Loan Agreement, or any other Loan Document (as
defined in the Loan Agreement); (b) is or could reasonably be expected to be
material and adverse to the condition (financial or otherwise) or business
operations of the Company; (c) materially impairs or could reasonably be
expected to materially impair the value of any or all of the Collateral (as
defined in the Security Agreement) or the priority of Payee's security interest
in the Collateral; or (d) materially impairs, or could reasonably be expected to
materially impair the ability of Payee to enforce any of its legal remedies
pursuant to this Note, the Loan Agreement, or any Loan Document.
Upon the occurrence of an Event of Default, at the election of the
Payee, which election shall be exercised by written notice to the Company, the
entire aggregate principal amount of this Note will become immediately due and
payable, together with all accrued and unpaid interest thereon. Notwithstanding
the foregoing, upon the occurrence of an Event of Default specified in Sections
4(c) and 4(d), the entire aggregate principal amount of this Note, together with
all accrued and unpaid interest thereon, shall immediately and without notice
become due and payable without action of any kind on Payee's part. The Company
shall give prompt written notice to the Payee of the occurrence of any Event of
Default hereunder, and of any event which with the giving of notice or the
passage of time or both would become an Event of Default hereunder.
5. Notice of Liquidating Event. At least thirty (30) days prior to any
dissolution, liquidation or winding up of the affairs of the Company, whether
voluntary or involuntary, (each a "Liquidation Event"), the Company shall give
written notice to Payee of the proposed Liquidation Event. Payee, at its option
may convert this Note effective upon the occurrence of the Liquidation Event (or
such earlier date as Payee requests), which conversion shall be subject to the
Closing of the transaction that constitutes the Liquidation Event. If Payee does
not so convert this Note, all principal under this Note, together with accrued
and unpaid interest thereon, may be prepaid in full upon the occurrence of the
Liquidation Event. In the case of any consolidation or merger of the Company
with another entity, or the sale of all or a substantially part of its assets to
another entity, or any reorganization or reclassification of the common stock or
other equity securities of the Company, then, as a condition of such
consolidation, merger, sale, reorganization or reclassification, lawful and
adequate provision shall be made whereby the Payee shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of common stock immediately theretofore
purchasable hereunder on conversion of this Note, such shares of stock,
securities or assets as may (by virtue of such consolidation, merger, sale,
reorganization or reclassification) be issued or payable with respect to or in
exchange for a number of outstanding shares of common stock equal to the number
of shares of common stock immediately theretofore so purchasable hereunder had
such consolidation, merger, sale, reorganization or reclassification not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Payee to the end that the provisions hereof
shall thereafter be applicable as nearly as may be, in relation to
9
<PAGE> 10
any shares of stock, securities or assets thereafter deliverable upon conversion
of this Note. The Company shall not effect any such consolidation, merger or
sale, unless prior to or simultaneously with the consummation thereof, the
successor entity (if other than the Corporation) resulting from such
consolidation or merger or the entity purchasing such assets shall assume by
written instrument executed and mailed or delivered to the Payee, the obligation
to deliver to the Payee such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Payee may be entitled to receive.
6. Security. The full amount of this Note is secured by certain
collateral (the "Collateral") identified and described as security therefor in
the Security Agreement of even date herewith (the "Security Agreement") executed
and delivered by the Company. The Company shall not, directly or indirectly,
create, permit, or suffer to exist, and shall defend the Collateral against and
take such other action is necessary to remove, any lien on or in the Collateral,
or in any portion thereof, except as permitted pursuant to the Security
Agreement.
7. Notice. Any notice or communication given under this Note will be in
writing and be hand delivered, mailed by registered or certified mail, postage
prepaid, delivered by facsimile or electronic mail (with a telephonic
confirmation or confirmation) or by overnight courier as follows:
(i) If to Payee:
<<Name>>
<<Street_Address>>
<<City_State_Zip>>
(ii) If to the Company to:
Spatialight, Inc.
9 Commercial Boulevard, Suite 200
Novato, CA 94949-5759
Attn: Michael H. Burney
Facsimile: (415) 883-3363
or at such other address as hereafter will be furnished in writing by the
addressed party to the other party. Delivery by hand will be deemed given when
personally delivered; delivery by registered or certified mail will be deemed
given three (3) business days after the same is posted; delivery by facsimile or
electronic mail will be deemed given when received; and delivery by overnight
courier will be deemed given the first business day following the date of timely
deposit with such courier.
8. Waiver; Modification in Writing. No failure or delay on the part of
Payee in exercising any right, power or remedy hereunder will operate as a
waiver thereof, nor will any single or partial exercise of any such right, power
or remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to Payee at law, in
equity or otherwise. Any provision of this Note may be waived by or on behalf of
Payee,
10
<PAGE> 11
and this Note may be amended, provided such waiver or amendment is approved and
signed by the Company and Payee. Notwithstanding anything to the contrary
herein, at any time before this Note comes due Payee shall have a right to waive
the early maturity of this Note due to the removal or resignation of Robert
Olins from the board of directors, and Company shall consent to a written waiver
of such early maturity.
9. Governing Law. This Note will be deemed to be a contract made under
the laws of the State of New York, and for all purposes will be construed in
accordance with the laws of said state, without regard to principles of
conflicts of law.
10. Severability of Provisions. Any provision of this Note which is
prohibited or unenforceable in any jurisdiction will, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
11. Assignment. The Payee may assign all or any portion of this Note
without the consent of the Company to persons who deliver to the Company
documentation reasonably satisfactory to it evidencing that they meet the
following criteria: at the time of the assignment of all or any portion of the
Note and at the Maturity Date such person (a) (i) will have acquired the
securities for investment and not with a view to distribution and (ii)
acknowledges that such securities will not be registered under the Securities
Act or applicable state securities laws and may have to be held indefinitely
unless they are subsequently registered or qualified under such laws; (b) either
(i) has a pre-existing personal or business relationship with the Corporation or
its executive officers, or (ii) by reason of such person's business or financial
experience has the capacity to protect such person's own interests in connection
with the transaction; and (c) is an accredited investor as that term is defined
in Regulation D promulgated under the Securities Act. The Company shall not
assign any of their respective rights or obligations in respect of this Note
without the prior written consent of the Payee.
12. Headings. The headings in this Note are for the convenience of
reference only and will not affect the construction of this Note.
IN WITNESS WHEREOF, this Note is executed by a duly authorized officer
of each of the undersigned as of the date and year first above written.
SPATIALIGHT, INC.
By:
-------------------------------------
Michael H. Burney
Chief Executive Officer
11
<PAGE> 12
ANNEX I
NOTICE OF CONVERSION
TO: Spatialight, Inc.
(1) The undersigned hereby elects to convert $______________ of the
outstanding balance under the Secured Convertible Note (the "Note") attached
hereto into __________ shares of Common Stock of Spatialight, Inc., pursuant to
Section 3(a)(i) of the attached Secured Convertible Note, and tenders herewith
the Note for [partial] cancellation [and reissuance in the amount of
$____________ pursuant to Section 3(c)].
(2) In exercising its conversion rights, the undersigned hereby confirms
and acknowledges that such person (a) (i) has acquired the securities for
investment and not with a view to distribution and (ii) acknowledges that such
securities will not be registered under the Securities Act or applicable state
securities laws and may have to be held indefinitely unless they are
subsequently registered or qualified under such laws; (b) either (i) has a
pre-existing personal or business relationship with the Corporation or its
executive officers, or (ii) by reason of such person's business or financial
experience has the capacity to protect such person's own interests in connection
with the transaction; and (c) is an accredited investor as that term is defined
in Regulation D promulgated under the Securities Act.
(3) Please issue a certificate representing said shares of Common Stock
in the name of the undersigned:
-----------------------------
(Name)
- ---------------------------- -----------------------------
(Date) (Signature)
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
SpatiaLight, Inc. a New York Corporation (the "Company") and Michael H. Burney
("Burney") as of December 31, 1999 (the "Effective Date").
1. POSITION AND DUTIES:
1.1 The Company has employed Burney in the positions of Chief
Executive Officer, Treasurer and Secretary since July 1, 1998. In
these positions, Burney has and will continue to report to the
Company's Board of Directors. Burney also agrees to continue to
serve as Treasurer and Secretary until suitable replacements can
be found. It is expected that the positions of Treasurer and/or
Secretary will be re-assigned to new personnel in the near
future.
1.2 Burney agrees to devote his time, energy and skill to his duties
at the Company. These duties shall be commensurate and consistent
with that of the Chief Executive Officer as well as any other
duties that may be assigned to Burney from time to time. The
Company and Burney acknowledge that Burney has an interest in
Chronomotion Imaging Applications, Inc. ("Chronomotion") and will
be devoting some of his time to Chronomotion.
2. COMPENSATION:
2.1 Base Salary: Burney will be paid an annual salary of $220,000,
less applicable withholding, in accordance with the Company's
normal payroll procedures. Burney's salary will be reviewed by
the Board of Directors (the "Board") on approximately an annual
basis, and may be subject to increase adjustment based upon
various factors including, but not limited to Burney's
performance and the Company's profitability.
2.2 Signing Bonus: Immediately upon execution of this Agreement, the
Company shall provide Burney with a signing bonus in the amount
of Fifteen Thousand Dollars ($15,000.00) (the "Signing Bonus").
2.3 Performance Bonus Plan: Burney will be eligible to participate in
the Company's performance bonus plan (the "Bonus Plan"), and this
bonus will be governed by the terms of the Company's standard
Bonus Plan in
<PAGE> 2
effect at the time. Any executive bonus plan shall be at the
discretion of the compensation committee.
2.4 Equity Stake: The Board has approved the issuance to Burney of an
option to purchase a total of 500,000 shares of the Company's
common stock (the "Options") in accordance with Company's Stock
Option Plan (the "Plan"). The Plan provides that fifty (50)
percent of the options vest on May 8, 1999 and the remaining
fifty (50) percent of the options vest on May 7, 2000. Upon the
execution of this Agreement the Options shall be amended to
provide that in the event of a Change of Control of the Company,
all of the options issued pursuant to the Options shall become
fully vested as of the date of the Change of Control. In the
event of Burney's death all Options shall become fully vested as
of that date, and ownership shall be held by Burney's
beneficiary. On December 31, 1999 the Board granted an additional
500,000 options which will vest over a 3 year period based upon
performance milestones set and agreed upon by the Compensation
Committee of the Board and Burney.
2.5 Additional Provisions. The Options shall be amended to contain,
the following additional provisions: (i) in the event of a Change
of Control (as defined below) of the Company, all of the unvested
shares shall become vested immediately prior to the Change in
Control. For purposes of this Agreement, a "Change of Control"
shall mean an "Ownership Change Event" (as defined below) or a
series of related Ownership Change Events (collectively, the
"Transaction") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately
after 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.
For purpose of this Agreement, an "Ownership Change Event" shall
be deemed to have occurred if any of the following occurs with
respect to the Company:
<PAGE> 3
(a) The direct, indirect sale, exchange, merger or
consolidation 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;
(b) The sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(c) A liquidation or dissolution of the Company.
2.6 Benefits: Burney will be entitled to participate in all of the
Company's benefit plans, as those plans may change from time to
time, on the same terms as all other employees of the Company.
2.7 Vacation: Burney is granted four (4) weeks of paid vacation
yearly.
2.8 Life Insurance: The Company will obtain insurance for Burney in
the amount of three (3) times his annual salary with proceeds
going to his beneficiary in the event of his death.
2.9 Relocation Expenses: The Company acknowledges that it has
reimbursed Burney for the reasonable expenses associated with the
relocation of his home to the San Francisco Bay Area. These
relocation expenses included but were not limited to the
following:
(i) the costs associated with packing and moving Burney's
personal belongings to the Bay Area;
(ii) the non-recurring closing costs associated with each of
the sale of Burney's current home in Santa Monica and the
purchase of a home in the Bay Area (including real estate
commission on the sale of Burney's home in Santa Monica
and "points", provided that no payment for "points" were
used to reduce Burney's mortgage principal), and
(iii) Two house hunting trips for Burney and his spouse
including expenses for meals and lodging, not to exceed
$1,000.00.
3. TERMINATION
3.1 Terms: Burney's employment with the Company pursuant to this
Agreement is subject to the provisions regarding termination set
forth in Sections 3.2 and 3.3 and may be terminated by Burney or
the Company at any time. In the event that either party elects to
terminate this Agreement benefits shall be provided as set forth
in Sections 3.2 and 3.3.
<PAGE> 4
3.2 Voluntary Termination: In the event Burney voluntarily resigns
from his employment with the Company, Burney shall be entitled to
no compensation or benefits from the Company other than those
earned under paragraph 2 above, through the date of this
termination.
3.3 Involuntary Termination: In the event of the termination of
Burney's employment by the Company for the reasons set forth
below, Burney shall be entitled to the following:
a. Termination for Cause: If Burney's employment is
terminated by the Company for cause as defined below,
Burney shall be entitled to no compensation or benefits
from the Company other than those earned under paragraph
2, through the date of Burney's termination.
For the purposes of this Agreement, a termination "for cause"
occurs if Burney's' employment is terminated for any of the
following reasons:
(1) theft, dishonesty, or falsification of any
employment or Company records;
(2) conviction of a felony or any act involving
moral turpitude;
(3) consistent poor performance, as determined by
the Board;
(4) improper disclosure of the Company's
confidential or proprietary information;
(5) any intentional act by Burney that has a
material detrimental effect on the Company's
reputation or business;
(6) Any material breach of this Agreement, which
breach, if curable, is not cured within thirty
(30) days following written notice of such
breach from the Company.
b. Termination for Other Than Cause: If Burney's employment
is terminated by the Company for any reason other than
cause, Burney shall be entitled to continuation of
Burney's salary and all other benefits, including, but not
limited to, vesting in all stock options, for nine months
following the termination of Burney's employment.
4. TERM OF EMPLOYMENT: Burney's employment by the Company as set forth herein
shall commence on the date of this agreement and shall continue thereafter for a
period of 1 year unless and otherwise terminated pursuant to provisions of
Section 3 above. Notwithstanding the foregoing, the term shall be automatically
renewed upon the same terms and conditions contained herein, for consecutive
periods of one year each upon expiration of the immediately preceding term
unless and until either party elects not to so renew this agreement by
delivering written notice to the other party not less than 30 days prior to the
end of the term. In the event of a "Change of Control" of the Company,
<PAGE> 5
outlined in Sections 2.4 and 2.5, the terms of this Employment Agreement shall
remain in effect.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of Burney's
employment with the Company, Burney has signed the Company's proprietary
information and assignment of inventions agreement and Burney has and agrees to
continue to comply with the terms of that agreement.
6. DISPUTE RESOLUTION: In the event of any dispute or claim relating to or
arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimination), Burney and the Company agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Francisco, California in accordance with its
National Employment Dispute Resolution rules, as those rules are currently in
effect (and not as they may be modified in the future). Burney acknowledges by
accepting this arbitration provision he is waiving any right to a jury trial in
the event of such a dispute. Provided, however, that this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of trade secrets or proprietary information.
7. ATTORNEYS' FEES: The prevailing party shall be entitled to recover from the
losing party it's attorney's fees and costs incurred in any action brought to
enforce any right arising out of this Agreement.
8. INTERPRETATION: This Agreement shall be interpreted in accordance with and
governed by the laws of the State of California.
9. ASSIGNMENTS: In view of the personal nature of the services to be performed
Under this Agreement by Burney, Burney shall not have the right to assign or
transfer any of his obligations under this Agreement.
10. ENTIRE AGREEMENT: This Agreement, along with any agreements referred to in
paragraph 2, relating to stock options, and paragraph 5, relating to proprietary
information and assignment of inventions, sets forth the entire agreement
between Burney and the Company regarding the terms and conditions of Burney's
employment, and supersedes all prior negotiations, representations or agreements
between Burney and the Company regarding Burney's employment, whether written or
oral.
<PAGE> 6
11. REPRESENTATIONS: Burney acknowledges that he is not relying, and has not
relied, on any promise, representation or statement made by or on behalf of the
Company that is not set forth in this Agreement.
12. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by Burney and an authorized member of the
Board.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
SPATIALIGHT, INC.
By: /s/ MICHAEL H. BURNEY By: /s/ ROBERT OLINS
-------------------------------- ---------------------------------
Michael H. Burney Robert Olins, Director
By: /s/ STEVEN TRIPP
---------------------------------
Steven Tripp, Director
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
SpatiaLight, Inc. a New York Corporation (the "Company") and Fred R. Hammett
("Hammett") as of December 31, 1999 (the "Effective Date").
1. POSITION AND DUTIES:
1.1 The Company has employed Hammett in the position of President
since July 1, 1998. In this position, Hammett has and will
continue to report to the Company's Chief Executive Officer.
1.2 Hammett agrees to devote his time, energy and skill to his duties
at the Company. These duties shall be commensurate and consistent
with that of the President as well as any other duties that may
be assigned to Hammett from time to time. The Company and Hammett
acknowledge that Hammett will be devoting some of his time to
Chronomotion Imaging Applications, Inc. ("Chronomotion").
2. COMPENSATION:
2.1 Base Salary: Hammett will be paid an annual salary of $210,000,
less applicable withholding, in accordance with the Company's
normal payroll procedures. Hammett's salary will be reviewed by
the Board of Directors (the "Board") on approximately an annual
basis, and is subject to an increase adjustment based upon
various factors including, but not limited to Hammett's
performance and the Company's profitability.
2.2 Signing Bonus: Immediately upon execution of this Agreement, the
Company shall provide Hammett with a signing bonus in the amount
of Fifteen Thousand Dollars ($15,000.00) (the "Signing Bonus").
2.3 Performance Bonus Plan: Hammett will be eligible to participate
in the Company's performance bonus plan (the "Bonus Plan"), and
this bonus will be governed by the terms of the Company's
standard Bonus Plan in effect at the time. Any executive bonus
plan shall be at the discretion of the compensation committee.
2.4 Equity Stake: The Board has approved the issuance to Hammett of
an option to purchase a total of 250,000 shares of the Company's
common stock (the "Options") in accordance with Company's Stock
Option Plan
<PAGE> 2
(the "Plan"). The Plan provides that fifty (50) percent of the
options vest on May 8, 1999 and the remaining fifty (50) percent
of the options vest on May 7, 2000. Upon the execution of this
Agreement the Options shall be amended to provide that in the
event of a Change of Control of the Company, all of the options
issued pursuant to the Options shall become fully vested as of
the date of the Change of Control. In the event of Hammett's
death all Options shall become fully vested as of that date, and
ownership shall be held by Hammett's beneficiary. On December
31, 1999 the Board granted an additional 250,000 options which
will vest over a 3-year period based upon performance milestones
set and agreed upon by the Compensation Committee of the Board
and Hammett.
2.5 Additional Provisions. The Options shall be amended to contain,
the following additional provisions: (i) in the event of a Change
of Control (as defined below) of the Company, all of the unvested
shares shall become vested immediately prior to the Change in
Control. For purposes of this Agreement, a "Change of Control"
shall mean an "Ownership Change Event" (as defined below) or a
series of related Ownership Change Events (collectively, the
"Transaction") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately
after 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.
For purpose of this Agreement, an "Ownership Change Event" shall
be deemed to have occurred if any of the following occurs with
respect to the Company:
(a) The direct, indirect sale, exchange, merger or
consolidation 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;
(b) The sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
<PAGE> 3
(c) A liquidation or dissolution of the Company.
2.6 Benefits: Hammett will be entitled to participate in all of the
Company's benefit plans, as those plans may change from time to
time, on the same terms as all other employees of the Company.
2.7 Vacation: Hammett is granted four (4) weeks of paid vacation
yearly.
2.8 Life Insurance: The Company will obtain insurance for Hammett in
the amount of three (3) times his annual salary with proceeds
going to his beneficiary in the event of his death.
2.9 Relocation Expenses: The Company acknowledges that it has
reimbursed Hammett for the reasonable expenses associated with
the relocation of his home to the San Francisco Bay Area. These
relocation expenses included but were not limited to the
following:
(i) the costs associated with packing and moving Hammett's
personal belongings to the Bay Area;
(ii) the non-recurring closing costs associated with each of
the sale of Hammett's current home in Carlsbad and the
purchase of a home in the Bay Area (including real
estate commission on the sale of Hammett's home in
Carlsbad and "points", provided that no payment for
"points" were used to reduce Hammett's mortgage
principal), and
(iii) Two house hunting trips for Hammett and his spouse
including expenses for meals and lodging, not to exceed
$1,000.00.
3. TERMINATION
3.1 Terms: Hammett's employment with the Company pursuant to this
Agreement is subject to the provisions regarding termination set
forth in Sections 3.2 and 3.3 and may be terminated by Hammett or
the Company at any time. In the event that either party elects to
terminate this Agreement benefits shall be provided as set forth
in Sections 3.2 and 3.3.
3.2 Voluntary Termination: In the event Hammett voluntarily resigns
from his employment with the Company, Hammett shall be entitled
to no compensation or benefits from the Company other than those
earned under paragraph 2 above, through the date of this
termination.
3.3 Involuntary Termination: In the event of the termination of
Hammett's employment by the Company for the reasons set forth
below, Hammett shall be entitled to the following:
<PAGE> 4
a. Termination for Cause: If Hammett's employment is
terminated by the Company for cause as defined below,
Hammett shall be entitled to no compensation or benefits
from the Company other than those earned under paragraph
2, through the date of Hammett's termination.
For the purposes of this Agreement, a termination "for cause"
occurs if Hammett's' employment is terminated for any of the
following reasons:
(1) theft, dishonesty, or falsification of any
employment or Company records;
(2) conviction of a felony or any act involving
moral turpitude;
(3) consistent poor performance, as determined by
the Board;
(4) improper disclosure of the Company's
confidential or proprietary information;
(5) any intentional act by Hammett that has a
material detrimental effect on the Company's
reputation or business;
(6) Any material breach of this Agreement, which
breach, if curable, is not cured within thirty
(30) days following written notice of such
breach from the Company.
b. Termination for Other Than Cause: If Hammett's employment
is terminated by the Company for any reason other than
cause, Hammett shall be entitled to continuation of
Hammett's salary and all other benefits, including, but
not limited to, vesting in all stock options, for
nine-months following the termination of Hammett's
employment.
4. TERM OF EMPLOYMENT: Hammett's employment by the Company as set forth herein
shall commence on the date of this agreement and shall continue thereafter for a
period of 1 year unless and otherwise terminated pursuant to provisions of
Section 3 above. Notwithstanding the foregoing, the term shall be automatically
renewed upon the same terms and conditions contained herein, for consecutive
periods of one year each upon expiration of the immediately preceding term
unless and until either party elects not to so renew this agreement by
delivering written notice to the other party not less than 30 days prior to the
end of the term. In the event of a "Change of Control" of the Company, outlined
in Sections 2.4 and 2.5, the terms of this Employment Agreement shall remain in
effect.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of Hammett's
employment with the Company, Hammett has signed the Company's proprietary
information and assignment of inventions agreement and Hammett has and agrees to
continue to comply with the terms of that agreement.
<PAGE> 5
6. DISPUTE RESOLUTION: In the event of any dispute or claim relating to or
arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimination), Hammett and the Company agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Francisco, California in accordance with its
National Employment Dispute Resolution rules, as those rules are currently in
effect (and not as they may be modified in the future). Hammett acknowledges by
accepting this arbitration provision he is waiving any right to a jury trial in
the event of such a dispute. Provided, however, that this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of trade secrets or proprietary information.
7. ATTORNEYS' FEES: The prevailing party shall be entitled to recover from the
losing party it's attorney's fees and costs incurred in any action brought to
enforce any right arising out of this Agreement.
8. INTERPRETATION: This Agreement shall be interpreted in accordance with and
governed by the laws of the State of California.
9. ASSIGNMENTS: In view of the personal nature of the services to be performed
Under this Agreement by Hammett, Hammett shall not have the right to assign or
transfer any of his obligations under this Agreement.
10. ENTIRE AGREEMENT: This Agreement, along with any agreements referred to in
paragraph 2, relating to stock options, and paragraph 5, relating to proprietary
information and assignment of inventions, sets forth the entire agreement
between Hammett and the Company regarding the terms and conditions of Hammett's
employment, and supersedes all prior negotiations, representations or agreements
between Hammett and the Company regarding Hammett's employment, whether written
or oral.
11. REPRESENTATIONS: Hammett acknowledges that he is not relying, and has not
relied, on any promise, representation or statement made by or on behalf of the
Company that is not set forth in this Agreement.
12. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by Hammett and an authorized member of the
Board.
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
SPATIALIGHT, INC.
By: /s/ FRED R. HAMMETT By: /s/ ROBERT OLINS
-------------------------------- ---------------------------------
Fred R. Hammett Robert Olins, Director
By: /s/ STEVEN TRIPP
---------------------------------
Steven Tripp, Director
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
SpatiaLight, Inc. a New York Corporation (the "Company") and Miles L. Scott
("Scott") as of December 31, 1999 (the "Effective Date").
1. POSITION AND DUTIES:
1.1 The Company has employed Scott in the position of Vice President
Manufacturing/Engineering since October 15, 1998. In this
position, Scott has and will continue to report to the Company's
President.
1.2 Scott agrees to devote his time, energy and skill to his duties
at the Company. These duties shall be commensurate and consistent
with that of the Vice President Manufacturing/Engineering as well
as any other duties that may be assigned to Scott from time to
time. The Company and Scott acknowledge that Scott will be
devoting some of his time to Chronomotion Imaging Applications,
Inc. ("Chronomotion").
2. COMPENSATION:
2.1 Base Salary: Scott will be paid an annual salary of $175,000,
less applicable withholding, in accordance with the Company's
normal payroll procedures. Scott's salary will be reviewed by the
Board of Directors (the "Board") on approximately an annual
basis, and is subject to an increase adjustment based upon
various factors including, but not limited to Scott's performance
and the Company's profitability.
2.2 Performance Bonus Plan: Scott will be eligible to participate in
the Company's performance bonus plan (the "Bonus Plan"), and this
bonus will be governed by the terms of the Company's standard
Bonus Plan in effect at the time. Any executive bonus plan shall
be at the discretion of the compensation committee.
2.3 Equity Stake: The Board has approved the issuance to Scott of an
option to purchase a total of 125,000 shares of the Company's
common stock (the "Options") in accordance with Company's Stock
Option Plan (the "Plan"). The Plan provides that fifty (50)
percent of the options vest on November 6, 1999 and the remaining
fifty (50) percent of the options vest on
<PAGE> 2
November 5, 2000. Upon the execution of this Agreement the
Options shall be amended to provide that in the event of a Change
of Control of the Company, all of the options issued pursuant to
the Options shall become fully vested as of the date of the
Change of Control. In the event of Scott's death all Options
shall become fully vested as of that date, and ownership shall be
held by Scott's beneficiary. On December 31, 1999 the Board
granted an additional 125,000 options which will vest over a
3-year period based upon performance milestones set and agreed
upon by the Compensation Committee of the Board and Scott.
2.4 Additional Provisions. The Options shall be amended to contain,
the following additional provisions: (i) in the event of a Change
of Control (as defined below) of the Company, all of the unvested
shares shall become vested immediately prior to the Change in
Control. For purposes of this Agreement, a "Change of Control"
shall mean an "Ownership Change Event" (as defined below) or a
series of related Ownership Change Events (collectively, the
"Transaction") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately
after 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.
For purpose of this Agreement, an "Ownership Change Event" shall
be deemed to have occurred if any of the following occurs with
respect to the Company:
(a) The direct, indirect sale, exchange, merger or
consolidation 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;
(b) The sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(c) A liquidation or dissolution of the Company.
<PAGE> 3
2.5 Benefits: Scott will be entitled to participate in all of the
Company's benefit plans, as those plans may change from time to
time, on the same terms as all other employees of the Company.
2.6 Vacation: Scott is granted four (4) weeks of paid vacation
yearly.
2.7 Life Insurance: The Company will obtain insurance for Scott in
the amount of three (3) times his annual salary with proceeds
going to his beneficiary in the event of his death.
2.8 Relocation Expenses: The Company shall reimburse Scott for the
reasonable expenses associated with the relocation of his home to
the San Francisco Bay Area. To the extent practicable, the
Company will directly pay the individuals or companies providing
the services described herein. These relocation expenses shall be
limited to 25% of annual salary.
3. TERMINATION
3.1 Terms: Scott's employment with the Company pursuant to this
Agreement is subject to the provisions regarding termination set
forth in Sections 3.2 and 3.3 and may be terminated by Scott or
the Company at any time. In the event that either party elects to
terminate this Agreement benefits shall be provided as set forth
in Sections 3.2 and 3.3.
3.2 Voluntary Termination: In the event Scott voluntarily resigns
from his employment with the Company, Scott shall be entitled to
no compensation or benefits from the Company other than those
earned under paragraph 2 above, through the date of this
termination.
3.3 Involuntary Termination: In the event of the termination of
Scott's employment by the Company for the reasons set forth
below, Scott shall be entitled to the following:
a. Termination for Cause: If Scott's employment is terminated
by the Company for cause as defined below, Scott shall be
entitled to no compensation or benefits from the Company
other than those earned under paragraph 2, through the
date of Scott's termination.
For the purposes of this Agreement, a termination "for cause"
occurs if Scott's' employment is terminated for any of the
following reasons:
(1) theft, dishonesty, or falsification of any
employment or Company records;
(2) conviction of a felony or any act involving
moral turpitude;
(3) consistent poor performance, as determined by
the Board;
<PAGE> 4
(4) improper disclosure of the Company's
confidential or proprietary information;
(5) any intentional act by Scott that has a material
detrimental effect on the Company's reputation
or business;
(6) Any material breach of this Agreement, which
breach, if curable, is not cured within thirty
(30) days following written notice of such
breach from the Company.
b. Termination for Other Than Cause: If Scott's employment is
terminated by the Company for any reason other than cause,
Scott shall be entitled to continuation of Scott's salary
and all other benefits, including, but not limited to,
vesting in all stock options, for nine-months following
the termination of Scott's employment.
4. TERM OF EMPLOYMENT: Scott's employment by the Company as set forth herein
shall commence on the date of this agreement and shall continue thereafter for a
period of 1 year unless and otherwise terminated pursuant to provisions of
Section 3 above. Notwithstanding the foregoing, the term shall be automatically
renewed upon the same terms and conditions contained herein, for consecutive
periods of one year each upon expiration of the immediately preceding term
unless and until either party elects not to so renew this agreement by
delivering written notice to the other party not less than 30 days prior to the
end of the term. In the event of a "Change of Control" of the Company, outlined
in Sections 2.4 and 2.5, the terms of this Employment Agreement shall remain in
effect.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of Scott's
employment with the Company, Scott has signed the Company's proprietary
information and assignment of inventions agreement and Scott has and agrees to
continue to comply with the terms of that agreement.
6. DISPUTE RESOLUTION: In the event of any dispute or claim relating to or
arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimination), Scott and the Company agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Francisco, California in accordance with its
National Employment Dispute Resolution rules, as those rules are currently in
effect (and not as they may be modified in the future). Scott acknowledges by
accepting this arbitration provision he is waiving any right to a jury trial in
the event of such a dispute. Provided, however, that this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of trade secrets or proprietary information.
<PAGE> 5
7. ATTORNEYS' FEES: The prevailing party shall be entitled to recover from the
losing party it's attorney's frees and costs incurred in any action brought to
enforce any right arising out of this Agreement.
8. INTERPRETATION: This Agreement shall be interpreted in accordance with and
governed by the laws of the State of California.
9. ASSIGNMENTS: In view of the personal nature of the services to be performed
Under this Agreement by Scott, Scott shall not have the right to assign or
transfer any of his obligations under this Agreement.
10. ENTIRE AGREEMENT: This Agreement, along with any agreements referred to in
paragraph 2, relating to stock options, and paragraph 5, relating to proprietary
information and assignment of inventions, sets forth the entire agreement
between Scott and the Company regarding the terms and conditions of Scott's
employment, and supersedes all prior negotiations, representations or agreements
between Scott and the Company regarding Scott's employment, whether written or
oral.
11. REPRESENTATIONS: Scott acknowledges that he is not relying, and has not
relied, on any promise, representation or statement made by or on behalf of the
Company that is not set forth in this Agreement.
12. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by Scott and an authorized member of the
Board.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
SPATIALIGHT, INC.
By: /s/ MILES L. SCOTT By: /s/ ROBERT OLINS
-------------------------------- ---------------------------------
Miles L. Scott Robert Olins, Director
By: /s/ STEVEN TRIPP
---------------------------------
Steven Tripp, Director
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following Registration
Statements of SpatiaLight, Inc. and subsidiary of our report dated March 24,
1998 (which expresses an unqualified opinion and includes an explanatory
paragraph relating to substantial doubt about the Company's ability to continue
as a going concern) appearing in the Annual Report on Form 10-KSB of
SpatiaLight, Inc. and subsidiary for the year ended December 31, 1998:
Registration Statement Nos. 33-82410 on Form S-3/S-8 and 333-17105 on Form S-8
/s/ DELOITTE AND TOUCHE LLP
- -------------------------
Deloitte and Touche LLP
San Francisco, California
April 10, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Nos. 33-82410; 333-17105; 333-91259) or our report dated March 25, 2000
relating to SpatiaLight, Inc.'s 1999 consolidated financial statements which
report appears in Form 10-KSB.
/s/ KPMG LLP
- --------------------------
KPMG LLP
San Francisco, California
March 25, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,236,909
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 5,036
<CURRENT-ASSETS> 1,335,062
<PP&E> 690,280
<DEPRECIATION> (368,427)
<TOTAL-ASSETS> 1,679,585
<CURRENT-LIABILITIES> 286,741
<BONDS> 0
0
0
<COMMON> 166,359
<OTHER-SE> 20,649,563
<TOTAL-LIABILITY-AND-EQUITY> 1,679,585
<SALES> 62,000
<TOTAL-REVENUES> 62,000
<CGS> 10,945
<TOTAL-COSTS> 5,974,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,493,897
<INCOME-PRETAX> (7,407,486)
<INCOME-TAX> 3,375
<INCOME-CONTINUING> (7,410,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,410,861)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)
</TABLE>
