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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-21810
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AMERIGON INCORPORATED
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4318554
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5462 IRWINDALE AVENUE, IRWINDALE, CALIFORNIA 91706-2058
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 815-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, no par value
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(Title of Class)
Class A Warrants
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average bid and asked prices of such
stock as of February 26, 1999, was $2,711,469. (For purposes of this
computation, the registrant has excluded the market value of all shares of
its Common Stock reported as being beneficially owned by executive officers
and directors of the registrant; such exclusion shall not be deemed to
constitute an admission that any such person is an "affiliate" of the
registrant.)
At February 26, 1999, the registrant had issued and outstanding 2,510,089
shares of Class A Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant's definitive proxy statement for its 1999 Annual
Meeting of Shareholders to be filed with the Commission within 120 days after
the close of the registrant's fiscal year are incorporated by reference into
Part III.
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AMERIGON
ITEM 1. BUSINESS
GENERAL
Amerigon Incorporated (the "Company") is a development stage company
incorporated in California in 1991 to develop, manufacture and market
proprietary high technology automotive components and systems for sale to
automobile and other original equipment manufacturers. The Company was
founded on the premise that technology proven for use in the defense and
aerospace industries could be successfully adapted to the automotive and
transportation industries. The Company is focused on technologies that it
believes can be readily adapted to automotive needs for advanced vehicle
electronics. The Company seeks to avoid direct competition with established
automotive suppliers of commodity products by identifying market
opportunities where the need for rapid technological change gives an edge to
new market entrants with proprietary products. The Company is principally
focused on developing proprietary positions in the following technologies:
(i) thermoelectric heated and cooled seats; and (ii) radar for maneuvering
and safety.
The Company is presently working with a number of the world's largest
automotive original equipment manufacturers ("OEMs") and seat manufacturers
on pre-production and production development programs for heated and cooled
seats. In addition, the Company has sold many prototypes of its heated and
cooled seats to potential customers for evaluation and demonstration. In
December 1997, the Company received its first production order for its heated
and cooled seat product but shipments of production units in 1998 were very
small. During 1998, the Company was selected by Johnson Controls, a major
seat supplier to automotive OEMs to supply its Climate Control Seat ("CCS")
system to be installed in seat systems on one platform for a major North
American auto manufacturer starting in the 2000 model year. The Company's
radar for maneuvering and safety is in an earlier stage of development than
the heated and cooled seats. The Company has developed prototypes of the
radar product and sold them to various automotive and other companies.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's business segment information is incorporated herein by
reference from Note 16 of the Company's financial statements and related
financial information indexed on page F-1 of this report and incorporated by
reference into this report.
PRODUCTS
CLIMATE CONTROL SEAT SYSTEM
The Company's CCS system utilizes an exclusive, licensed, patented
technology, as well as two patents held by the Company, on a variable
temperature seat climate control system to improve the temperature comfort of
automobile passengers. The CCS uses one or more small thermoelectric modules,
which are solid-state devices the surfaces of which turn hot or cold
depending on the polarity of applied direct current electricity.
Heat-transfer parts attached to the modules cool or heat air that is blown
past them. The conditioned air is then circulated through ducts and pads in
the seat so that the surface of the seat grows warm or cool for the
passengers, with small quantities of conditioned air passing through the seat
to flow directly on the passengers. Each seat has individual electronic
controls to adjust the level of heating or cooling. The CCS uses
substantially less energy than conventional air conditioners by focusing the
cooling directly on the passengers through the seat, rather than cooling the
entire ambient air volume and the interior surfaces of the vehicle.
The CCS product has reached the stage where it can be mass-produced for a
particular customer. However, since each customer's seats are not the same,
and therefore have different configuration requirements, the Company must
tailor its product to meet those design criteria. A customer will provide the
Company with one of its car seats to be modified so that a CCS unit may be
installed as a prototype. The seat is then returned to the customer for
evaluation and testing. The Company has delivered prototype units to most
major automobile companies and/or seat manufacturers who sell seats to those
companies. Once the prototype is approved, further development will take
place to make the CCS product production-ready. The lengthy evaluation and
design cycles required by the major OEMs will result in a lack of high-volume
sales to these customers for approximately the next one to two years although
the Company expects to begin production at relatively low volumes in the next
twelve months. However, the Company has targeted non-OEM customers who can
quickly "design in" the CCS products and has received its first production
order from one of those customers and has delivered a very small
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number of units in 1998. The Company continues to do additional research and
development to modify the existing product with the goal of making the unit
less complex, more energy efficient and less expensive to manufacture and
install. There can be no assurance that these development programs will
result in viable products or lead to commercial production orders.
Since Amerigon's CCS system provides both heating and cooling, the Company
believes that the potential market for CCS is larger than the market for
heated seats alone. The Company also believes that the CCS concept could be
applied to seats other than those used in motor vehicles (e.g., to aircraft,
theater, and stadium seating) although the Company has not devoted any
resources to the development of such applications.
RADAR FOR MANEUVERING AND SAFETY
In January 1994, the Company obtained a non-transferable limited exclusive
license from the Regents of the University of California (Lawrence Livermore
National Laboratory) to certain "pulse-echo," "ultra-wideband" radar
technology for use in the following passenger vehicle applications:
intelligent cruise control, airbag crash systems, and occupant sensors (the
"LLNL Radar"). This type of radar sends out from one to two million short
radio impulses every second to a distance of 5 to 10 meters, each lasting a
billionth of a second. These short impulses enable the radar to operate
across a wider and lower band of radio frequency, making it less likely to
suffer from interference from other radar signals, and allowing it to
penetrate dirt, snow and ice. The Lawrence Livermore National Laboratory
("LLNL") license required the Company to achieve commercial sales (defined as
sales of non-prototype products to at least one original equipment
manufacturer) of products by the end of 1998 or the license would become
non-exclusive. The Company did not achieve this and the license is now
non-exclusive and is available to other companies.
Nevertheless, the Company intends to continue to pursue radar products with
its own radar technology which is different than the LLNL Radar. This system,
called Swept-range Wideband Radar, provides improved range information and
noise immunity compared to the LLNL Radar with a slightly higher system cost.
Swept-range Radar is intended for applications requiring more accurate range
data such as in Precision Parking, Lane Change, Safety Restraint and Active
Suspension Systems. See "Proprietary Rights and Patents - Radar for
Maneuvering and Safety."
The Company has applied its technology to develop demonstration prototypes of
a parking aid and a lane change aid. The parking aid detects a vehicle or
other object that reflects radar signals behind the automobile and provides
an audible or visual signal as the driver approaches it. The lane change aid
detects vehicles to the side of the automobile when the driver attempts to
turn or change lanes and emits an audible warning signal. The Company has
received contracts from a number of automotive manufacturers to design
evaluation prototypes for both the parking and lane change aids. These
products are now under evaluation by prospective customers. The Company's
near-term objective is to obtain further development agreements from some of
these and other prospective customers to customize the system design during
1999. No assurance can be given that the Company will obtain any such further
development agreements. See "Item 1 Risk Factors - Limited Marketing
Capabilities; Uncertainty of Market Acceptance," "Competition; Possible
Obsolescence of Technology," "Exclusive License on Heated and Cooled Seats;
Nonexclusive License on Radar Technology," and "Dependence on Acceptance by
Automobile Manufacturers and Consumers; Market Competition."
On April 2, 1998 the Company entered into a joint research project with New
Mexico State Highway and Transportation Department (NMSHTD) Research Bureau
to test the Company's radar for New Mexico's Highway Maintenance and
Construction Departments. In the project, the Company's radar was installed
in heavy construction equipment used by the department and lights and a
buzzer warn vehicle operators if an object is behind the vehicle when it is
in reverse. Detected objects include people, posts, vehicles, walls and other
structures. During a 16 week field testing, four dump trucks and a passenger
van were equipped with the Company's radar product. Two phases of the three
phase project were successfully completed in 1998 and the NMSHTD Research
Bureau approved the final phase of the project in December of 1998. The
NMSHTD operates a fleet of approximately 5,000 vehicles and successful
completion of Phase III may entail the installation of the Company's radar
product in some of those vehicles.
The Company believes it has generated interest in its radar product from
other State's Departments of Transportation. Management believes there may be
a market opportunity to equip trucks and heavy construction equipment with
its radar product as an after-market item. Because of the long design cycles
required before the Company's radar can become a feature in consumer vehicles
by sales to automobile and truck OEMs, the Company's probability of sales of
radar products in the vehicle after-market in the near term are superior than
its commercial prospects for radar product sales to OEMs.
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Several automotive OEMs are now offering ultrasonic or infrared laser
distance sensors for parking aids. The Company believes that the advantage of
its radar technology is superior performance. Competing products in the
automotive industry have utilized ultrasonic and infrared sensors which
require line of sight from the sensor to the target and installation with
outside lenses. Dirt, ice, rain, fog or snow can obstruct the function of
such systems. Although they offer reasonable accuracy at short distances,
they are comparatively range-limited and are subject to false trigger
problems due to interference with the required line of sight. The Company's
radar technology, on the other hand, is less susceptible to these
environmental conditions, and can even penetrate plastic, allowing it to be
mounted inside plastic bumpers or tail light assemblies. Although there is
currently considerable interest among automobile manufacturers for various
radar products, there is substantial competition from large and
well-established companies for these potential product opportunities, as well
as for possible industrial applications. Many of these companies have
substantially greater financial and other resources than those of the
Company. In addition, considerable research and development will be required
to develop the Company's radar technology into finished products, including
design and development of application software and antenna systems and
production engineering to reduce costs and increase reliability. No assurance
can be given that the Company will be successful in reducing costs or
increasing reliability or that the Company will be able to develop its radar
technology into finished products.
INTERACTIVE VOICE SYSTEMS (IVS-TM-)
On July 24, 1997 the Company entered into a joint venture agreement with
Yazaki Corporation to develop and market the Company's voice activated
navigation system. Under the terms of the agreement, IVS, Inc. was created
and Yazaki Corporation owns a majority interest in IVS-TM- and the Company
owns a minority interest (16% on a fully diluted basis). The Company received
$1,800,000 in cash and a note receivable for $1,000,000 in consideration for
net assets related to Amerigon's voice interactive technology totaling
approximately $89,000. In addition, the Company incurred costs of $348,000
associated with the sale. At the end of 1998, due to delays in product
development, Yazaki Corporation decided to discontinue funding for the joint
venture. IVS-TM- is exploring other financing alternatives and possible
bankruptcy proceedings. Amerigon will not provide any funds to continue IVS'
operation.
PROPOSED DISPOSITION OF ELECTRIC VEHICLE OPERATIONS
The Company was originally founded to focus on advanced automotive
technologies, including electric vehicles. The Company spent many years
developing and conducting research on electric vehicles. The Company was the
recipient of a number of federal and state government grants relating to the
development of electric vehicles. It also had research and development
contracts with commercial companies relating to electric vehicles. During
1995 and 1996, the majority of the Company's revenues were from electric
vehicle operations. However, the Company incurred substantial losses from
electric vehicle activities, including significant cost overruns on an
electric vehicle development contract. By December 31, 1997, substantially
all work had been completed on the Company's electric vehicle contracts.
By developing its own products and managing programs related to electric
vehicles (such as the Showcase Electric Vehicle Program and the Running
Chassis Program), the Company has developed a base of knowledge and expertise
concerning electric vehicles. The Company's experience has included the
ground-up design of electric vehicles and testing and integration of state of
the art components being made available for electric vehicles by other
companies. In addition, the Company has been developing an "Energy Management
System" which is a proprietary computer-based system for electric vehicles
with two functions. The first is to optimize battery charging and use based
on the age and condition of the battery to maximize vehicle range and extend
battery life. The second function is to automatically adjust the operation of
the systems of an electric vehicle to improve performance. These features of
the Energy Management System are important in electric vehicle applications
because the range of electric vehicles initially will be limited to
approximately 60 to 120 miles between charges, and because the frequency of
battery replacement may be more important in determining the cost of
operating an electric vehicle than the cost of the electricity necessary to
recharge the battery. The Company has completed initial research and
development of prototype Energy Management Systems and has installed them in
prototype vehicles.
During 1997, the Board of Directors determined to focus the Company's
activities primarily on the CCS and radar products. The Company began
actively looking for a strategic partner for the electric vehicle business to
engage in a joint venture or to provide funding for electric vehicle
operations. The Company also sought to form a joint venture to manufacture,
sell and service a small electric car in India (this effort had been ongoing
since at least 1996). During this time, the Company substantially reduced its
expenditures for electric vehicle activities but maintained key personnel in
an attempt to find a joint
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venture partner or some other means of deriving value from its electric
vehicle technologies. The Company attempted to obtain either a strategic
partner who would, among other things, provide financing for an electric
vehicle joint venture, or a purchaser for the Company's electric vehicle
assets, in each case without success. As a result, in 1998 the Board of
Directors decided to suspend funding the electric vehicle program (effective
August 1998) because it was generating continuing losses and utilizing
resources that the Board felt would be better utilized in development of the
CCS and radar products. Dr. Bell, the Company's founder and Chairman of the
Board, believed that there were still commercial opportunities worth pursuing
and agreed to temporarily fund the program personally, in return for a 15%
interest in the subsidiary in which the electric vehicle assets were to be
placed (the "EV Sub"). The 15% interest was transferred to Dr. Bell in March
of 1999. The Board approved this proposal and the Company continued to seek a
strategic partner.
In December 1998, the Company entered into a letter agreement with a group of
companies controlled by Sudarshan K. Maini (the "Maini Group") in relation to
a joint venture to produce electric vehicles in India (the "Indian JV").
Under the terms of that letter agreement, the Company will receive (i) a
minority equity position in a yet to be formed Indian company and (ii)
royalties on sales of electric vehicles by the Indian JV, both in exchange
for contribution of certain assets and technology to the Indian JV. However,
to fully launch the Indian JV, external financing for the Indian JV must be
obtained as neither the Company nor the Maini Group has committed the
necessary funding for the Indian JV.
In connection with a proposed financing for the Company which is described
more fully in "Item 7 Management's Discussion and Analysis -- Liquidity and
Capital Resources" (the "Proposed Financing"), the investors require that the
Company redeem from Dr. Bell the Class B Shares of the Company that he and/or
his affiliates will hold upon the termination of the escrow that was created
in connection with the Company's initial public offering of securities in
1993. Dr. Bell has entered into an agreement to sell to the Company those
Class B Shares in exchange for the remaining 85% equity interest in the EV
Sub, subject to the closing of the Proposed Financing and shareholder
approval of the exchange transaction (the "Exchange"). If the Exchange is
effected, the Company will have no further ownership interest in the EV Sub
but will retain the right to receive from the EV Sub payment of 85% of the
royalties which the EV Sub receives from the Indian JV, if any. The EV Sub
will have all other rights to the Company's electric vehicle technology. If
the proposed financing is completed but the shareholders do not approve of
the Exchange of the EV Sub to Dr. Bell for the Class B Shares, then the Class
B Shares will be redeemed for cash and Dr. Bell will be granted rights to
control the board of directors of the EV Sub and co-sale rights and rights of
first refusal with respect to any disposition by the Company of its interests
in the EV Sub. The investors have indicated that they do not intend to
continue funding electric vehicle operations whether or not the Company
maintains any ownership interest in the EV Sub.
GRANT FUNDED PROGRAMS
The Company has historically received grants from various sources to provide
partial support for its product development efforts. Most grants received by
the Company related to electric vehicle operations. A grant is essentially a
cost-sharing arrangement whereby the Company obtains reimbursement from the
grant agency for a portion of direct costs and reimbursable administrative
costs incurred in managing specific development programs. The Company's
grants have historically been subject to periodic audit by the granting
government authorities for the purpose of confirming, among other things,
progress in development and that grant moneys were being used and accounted
for as required by the granting authority. If, as a result of any such audit,
a granting authority were to disallow expenses submitted for reimbursement,
such authority could seek recovery of such funds from the Company. The
Company is not aware of any pending or threatened audits with respect to the
Company's grants and does not have any reason to believe that any grant
moneys have been applied in a manner inconsistent with grant requirements or
that any grant audits are otherwise warranted or likely. However, no
assurance can be given that any such audits will not be commenced in the
future or that, if commenced, any such audits would not result in an
obligation of the Company to reimburse funds to the granting authority.
Since 1992, the Company has received grants from the Advanced Research
Projects Agency of the Department of Defense, the California Energy
Commission, the Federal Transit Administration, and the Southern California
Air Quality Management District and USAID. Several of the Company's
grant-funded programs have been obtained through CALSTART, a non-profit
consortium of primarily California companies engaged in the development and
manufacture of products that benefit the environment. The Company managed the
Showcase Program, co-managed the Neighborhood Electric Vehicle Program, and
two other electric vehicle programs for CALSTART, for which the Company
recognized revenues from CALSTART of approximately $0, $389,000 and $840,000
in 1998, 1997 and 1996, respectively.
For the years ended December 31, 1998, 1997 and 1996, the Company recorded a
total of $0, $504,000 and $1,172,000, respectively, in federal and state
government grants to fund the Company's development of various of its
products, including electric vehicles. The Company has significantly reduced
its efforts to obtain any additional grants and intends to focus its efforts
on working toward production contracts for CCS and radar sensor systems.
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RESEARCH AND DEVELOPMENT
The Company's research and development activities are an essential component
of the Company's efforts to develop products for introduction in the
marketplace. The Company's research and development activities are expensed
as incurred. These expenses include direct expenses for wages, materials and
services associated with development contracts, grant program activities, and
the development of the Company's products, excluding expenses associated with
projects that are specifically funded by development contracts or grant
agreements from customers (which are classified under Direct Development
Contract and Related Grant Costs or Direct Grant Costs in the Company's
Statement of Operations). Research and development expenses do not include
any portion of general and administrative expenses.
The total amounts spent by the Company for research and development
activities in 1998, 1997 and 1996 were $3,202,000, $2,072,000 and $2,128,000,
respectively. Included in these amounts for each of such years were $43,000,
$260,000 and $298,000, respectively, in payments for license rights to
technology and minimum royalties. The Company's research and development
expenses fluctuate significantly from period to period, due both to changing
levels of research and development activity and changes in the amount of such
activities that are covered by customer contracts or grants. Where possible,
the Company would seek funding from third parties for its research and
development activities. Customer-sponsored research and development expenses
(i.e., expenses classified as Direct Development Contract and Related Grant
Costs or Direct Grant Costs on the Company's Statement of Operations) for
each of 1998, 1997 and 1996 were $1,364,000, $2,611,000 and $11,743,000,
respectively.
MARKETING AND SALES
In the automotive components industry, products typically proceed through
five stages of research and development and commercialization. Initial
research on the product concept comes first, in order to assess its technical
feasibility and economic costs and benefits, and often includes the
development of an internal prototype for the supplier's own evaluation of the
product. If the product appears feasible, a functioning prototype or
demonstration prototype is manufactured by the component supplier to
demonstrate and test the features of the product. This prototype is then
marketed to automotive companies to generate sales of evaluation prototypes
for internal evaluation by the automobile manufacturer. If the automobile
manufacturer remains interested in the product after testing initial
evaluation prototypes, it typically works with the component supplier to
refine the product and then purchase second and subsequent generation
engineering prototypes for further evaluation. Finally, the automobile
manufacturer determines to either purchase the component for a production
vehicle or terminate interest in the component.
The time required to progress through these five stages of commercialization
varies widely. Automotive companies will take longer to evaluate components
that are critical to the safe operation of a vehicle where a product failure
can result in a passenger death. Conversely, if the product is not safety
critical, the evaluation can proceed more quickly since the risk of product
liability is smaller. Another factor influencing the time required to
complete the product sales cycle relates to the required level of integration
of the component into other vehicle systems. Products that are installed by
the factory generally require a medium amount of time to evaluate since other
vehicle systems are affected and because a decision to introduce the product
into the vehicle is not easily reversed, as it is with dealer-installed
options. Products that are installed by an auto dealer take the least amount
of time to evaluate since they have little impact on other vehicle systems.
The Company's products vary in how they fit within these two factors
affecting the time required for completing the sales cycle. The CCS has a
moderate effect on other vehicle systems and would be a factory installed
item. The Company's radar system could also be factory installed and would
have a greater impact on other vehicle systems. The radar system could also
be sold as an after-market item for trucks.
The Company's ability to successfully market its CCS and radar products will
in large part be dependent upon, among other things, the willingness of
automobile manufacturers to incur the substantial expense involved in the
purchase and installation of the Company s products and systems, and,
ultimately, upon the acceptance of the Company's products by consumers. In
addition, automobile manufacturers may be reluctant to purchase key
components from a small, development-stage company with limited financial and
other resources. Even if the Company is successful in obtaining favorable
responses from automobile manufacturers, the Company may need to license its
technology to potential competitors to ensure adequate additional sources of
supply in light of automobile manufacturers' reluctance to purchase products
from a sole source supplier (particularly where the continued viability of
such supplier is in doubt, as may be the case with the Company). See "Item 1
Risk Factors Dependence on Acceptance by Automobile Manufacturers and
Consumers; Market Competition," "Competition; Possible Obsolescence of
Technology"; "Nonexclusive License on Radar Technology" and "Limited
Marketing Capabilities; Uncertainty of Market Acceptance"
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MANUFACTURING, CONTRACTORS AND SUPPLIERS
The Company currently has limited manufacturing capacity for CCS systems. The
Company intends to develop further its manufacturing capability in order to
implement its business plan, control product quality and delivery, to shorten
product development cycle times, and protect and further develop proprietary
technologies and processes. This capability could be developed internally
through the purchase or development of new equipment and the hiring of
additional personnel, or through the acquisition of companies with
established manufacturing capability. Certain members of management of the
Company have experience in establishing and managing volume production of
automobile components. There can be no assurance that the Company's efforts
to establish its manufacturing operations for any of its products will not
exceed estimated costs or take longer than expected or that other anticipated
problems will not arise that will materially adversely affect the Company's
operations, financial condition and/or business prospects. See "Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations Year Ended December 31, 1998 Compared to Year Ended December 31,
1997."
The Company has in the past engaged certain outside contractors to perform
product assembly and other production functions for the Company, and the
Company anticipates that it may desire to engage contractors for such
purposes in the future. These outside contractors include suppliers of raw
materials and components and may include sublicensees that have rights to
manufacture components for the Company's products. The Company believes that
there are a number of outside contractors that provide services of the kind
that have been used by the Company in the past and that the Company may
desire to use in the future. However, no assurance can be given that any such
contractors would agree to work for the Company on terms acceptable to the
Company or at all. The Company's inability to engage outside contractors on
acceptable terms or at all would impair the Company's ability to complete any
development and/or manufacturing contracts for which outside contractors'
services may be needed. Moreover, the Company's reliance upon third party
contractors for certain production functions will reduce the Company's
control over the manufacture of its products and will make the Company
dependent in part upon such third parties to deliver its products in a timely
manner, with satisfactory quality controls and on a competitive basis.
The Company relies on various vendors and suppliers for the components of its
products. The Company expects that it will procure these components through
purchase orders, with no guaranteed supply arrangements. While the Company
believes that there are a number of alternative sources for most of these
components, certain components, including thermoelectric devices, are only
available from a limited number of suppliers. The loss of any significant
supplier, in the absence of a timely and satisfactory alternative
arrangement, or an inability to obtain essential components on reasonable
terms or at all, could materially adversely affect the Company's business and
operations. The Company's business and operations could also be materially
adversely affected by delays in deliveries from suppliers.
PROPRIETARY RIGHTS AND PATENTS
The Company acquires developed technologies through licenses and joint
development contracts in order to optimize the Company's expenditure of
capital and time, and to adapt and commercialize such technologies in
automotive products which are suitable for mass production. The Company also
develops technologies or furthers the development of acquired technologies
through internal research and development efforts by Company engineers.
The Company has adopted a policy of seeking to obtain, where practical, the
exclusive rights to use technology related to its products through patents or
licenses for proprietary technologies or processes. The Company currently has
several license arrangements.
CCS
Pursuant to an Option and License Agreement between the Company and Feher
Design, Inc. ("Feher"), Feher has granted to the Company an exclusive
worldwide license to use three specific CCS technologies covered by patents
held by Feher. The license with respect to technology subject to a Feher
patent expires upon the expiration of the Feher patent covering the relevant
technology. The first of these three patents expires on November 17, 2008.
In addition to the aforementioned license rights to the CCS technology, the
Company holds three patents on a variable temperature seat climate control
system. The Company also has pending two additional patent applications with
respect to certain improvements to the CCS technology developed by the
Company. The Company is aware that an unrelated party filed a patent
application in Japan on March 30, 1992 with respect to technology similar to
the CCS technology. However, to
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date, this application remains subject to examination and therefore no patent
has been issued to the party filing such application. If such patent were to
issue and be upheld, it could have a material adverse effect upon the
Company's ability to sell CCS products in Japan.
RADAR FOR MANEUVERING AND SAFETY
Pursuant to a License Agreement between the Company and the Regents (the
"Regents") of the University of California (Lawrence Livermore National
Laboratory), the Regents granted to the Company a limited, exclusive license
to use certain technology covered by patents held by the Regents in the
following three passenger vehicle applications: intelligent cruise control,
air bag crash systems, and position sensors. This license required the
Company to achieve commercial sales of products by the end of 1998.
Commercial sales were defined as sales of non-prototype products to at least
one original equipment manufacturer. Since commercial sales volumes were not
achieved, the exclusivity on the license has lapsed. Although the Company
retains its license, other companies may also acquire the license and develop
products based on the technology.
The Company holds one patent on radar technology. See "Item 1 Risk Factors
Dependence on Acceptance by Automobile Manufacturers and Consumers; Market
Competition," "Time Lag From Prototype to Commercial Sales," "Special Factors
Applicable to the Automotive Industry In General," and "Competition; Possible
Obsolescence of Technology." At December 31, 1998, the Company also had
pending one additional patent application on its radar technology.
ELECTRIC VEHICLE SYSTEMS
The Company was issued a patent on a key function of the Energy Management
System and has applied for additional patents relating to such system. The
Company believes that those elements of the Energy Management System not
covered by the patent are protected as trade secrets. The Company's Energy
Management System technology is now part of the EV Sub, a subsidiary created
as a result of the Board of Director's decision in August of 1998 to suspend
funding of the electric vehicle program and Dr. Bell's resulting offer to
continue funding the electric vehicle program in return for a 15% stake in a
subsidiary to be formed which contains the electric vehicle assets. Pursuant
to the Proposed Financing, the EV Sub may be sold to Dr. Bell in exchange for
the redemption of his Class B Shares held by him or his affiliates. See
"Proposed Disposition of Electric Vehicle Operations."
GENERAL
Because of rapid technological developments in the automotive industry and
the competitive nature of the market, the patent position of any component
manufacturer is subject to uncertainties and may involve complex legal and
factual issues. Consequently, although the Company either owns or has
licenses to certain patents, and is currently processing several additional
patent applications, it is possible that no patents will issue from any
pending applications or that claims allowed in any existing or future patents
issued or licensed to the Company will be challenged, invalidated, or
circumvented, or that any rights granted thereunder will not provide adequate
protection to the Company. There is an additional risk that the Company may
be required to participate in interference proceedings to determine the
priority of inventions or may be required to commence litigation to protect
its rights, which could result in substantial costs to the Company.
The Company's potential products may conflict with patents that have been or
may be granted to competitors or others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin
manufacturing and marketing of the affected products. Any such litigation
could result in substantial cost to the Company and diversion of effort by
the Company's management and technical personnel. If any such actions are
successful, in addition to any potential liability for damages, the Company
could be required to obtain a license in order to continue to manufacture or
market the affected products. There can be no assurance that the Company
would prevail in any such action or that any license required under any such
patent would be made available on acceptable terms, if at all. Failure to
obtain needed patents, licenses or proprietary information held by others may
have a material adverse effect on the Company's business. In addition, if the
Company becomes involved in litigation, it could consume a substantial
portion of the Company's time and resources. However, the Company has not
received any notice that its products infringe on the proprietary rights of
third parties.
The Company also relies on trade secrets that it seeks to protect, in part,
through confidentiality and non-disclosure agreements with employees,
customers and other parties. There can be no assurance that these agreements
will not be breached, that the Company would have adequate remedies for any
such breach or that the Company's trade secrets will not otherwise become
known to or independently developed by competitors. To the extent that
consultants, key employees or other third parties apply technological
information independently developed by them or by others to the Company's
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proposed projects, disputes may arise as to the proprietary rights to such
information that may not be resolved in favor of the Company. The Company may
be involved from time to time in litigation to determine the enforceability,
scope and validity of proprietary rights. Any such litigation could result in
substantial cost to the Company and diversion of effort by the Company's
management and technical personnel. Additionally, with respect to licensed
technology, there can be no assurance that the licensor of the technology
will have the resources, financial or otherwise, or desire to defend against
any challenges to the rights of such licensor to its patents.
The enactment of the legislation implementing the General Agreement on Trade
and Tariffs has resulted in certain changes to United States patent laws that
became effective on June 8, 1995. Most notably, the term of patent protection
for patent applications filed on or after June 8, 1995 is no longer a period
of 17 years from the date of grant. The new term of a United States patent
will commence on the date of issuance and terminate 20 years from the
earliest effective filing date of the application. Because the time from
filing to issuance of an automotive technology patent application is often
more than three years, a 20-year term from the effective date of filing may
result in a substantially shortened term of patent protection, which may
adversely impact the Company's patent position. If this change results in a
shorter period of patent coverage, the Company's business could be adversely
affected to the extent that the duration and/or level of the royalties it may
be entitled to receive from a collaborative partner, if any, is based on the
existence of a valid patent.
COMPETITION
The automotive components and systems business is highly competitive. The
Company may experience competition directly from automobile manufacturers,
most of which have the capability to manufacture competing products. Many of
the existing and potential competitors of the Company have considerably
greater financial and other resources than the Company, including, but not
limited to, an established customer base, greater research and development
capability, established manufacturing capability and greater marketing and
sales resources. The Company also competes indirectly with related products
that do not offer equivalent features to the Company's products, but can
substitute for the Company's products, such as heated seats, ventilated seats
and ultrasonic radar products. The Company believes that its products will
compete on the basis of price, performance and quality.
CCS
The Company is not aware of any competitors that are offering systems for
both heating and active cooling of automotive car seats, although substantial
competition exists for the supply of heated-only seats and several companies
are offering a product which circulates ambient air through a seat without
active cooling. In addition Mercedes Benz has announced an option on certain
new models which combines heated seats with circulation of ambient air. It is
possible that competitors will be able to expand or modify their current
products by adding a cooling function to their seats based upon a technology
not covered by patented technology licensed to the Company. The CCS competes
indirectly with alternative methods of providing passenger climate control in
a vehicle such as heating and air conditioning systems, which are currently
available for almost all vehicles. The Company hopes to develop a market
niche for this product initially as a luxury in conventional gasoline-powered
cars and sport utility vehicles. The Company is aware that a Japanese patent
has been applied for by another entity on technology similar to the CCS
technology.
RADAR FOR MANEUVERING AND SAFETY
The potential market for automotive radar has attracted many aerospace
companies who have developed a variety of radar technologies. A few
automotive OEMs are now offering ultrasonic or infrared laser distance
sensors for parking aids. These companies have far greater technical,
financial and other resources than the Company does. While the Company
believes that its licensed radar technology has competitive advantages which
are protected by intellectual property rights in the applications the Company
is developing, it is possible that the market will not accept the Company's
radar products or that competitors will find ways to offer similar products
without infringing on the Company's intellectual property rights.
EMPLOYEES
As of December 31, 1998, the Company had 44 employees and 5 outside
contractors. None of the Company's employees are subject to collective
bargaining agreements. The Company considers its employee relations to be
satisfactory.
RISK FACTORS
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THE COMPANY'S SECURITIES ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. PRIOR TO MAKING AN INVESTMENT DECISION, CURRENT AND
PROSPECTIVE INVESTORS IN THE COMPANY'S SECURITIES SHOULD GIVE CAREFUL
CONSIDERATION TO, AMONG OTHER THINGS, THE RISK FACTORS SET FORTH BELOW. THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
REFERENCE IS MADE IN PARTICULAR TO THE DESCRIPTION OF THE COMPANY'S PLANS AND
OBJECTIVES FOR FUTURE OPERATIONS, ASSUMPTIONS UNDERLYING SUCH PLANS AND
OBJECTIVES AND OTHER FORWARD-LOOKING STATEMENTS INCLUDED IN THIS SECTION,
"ITEM 1 BUSINESS," "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," AND IN OTHER PLACES IN THIS REPORT.
SUCH STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY
SUCH AS "MAY," "WILL" "EXPECT" "BELIEVE," "ESTIMATE," "ANTICIPATE" "INTEND,"
"CONTINUE," OR SIMILAR TERMS, VARIATIONS OF SUCH TERMS OR THE NEGATIVE OF
SUCH TERMS. SUCH STATEMENTS ARE BASED ON MANAGEMENT'S CURRENT EXPECTATIONS
AND ARE SUBJECT TO A NUMBER OF FACTORS AND UNCERTAINTIES WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE
FORWARD-LOOKING STATEMENTS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE
COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS,
CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED. FACTORS
WHICH COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN
THE FORWARD-LOOKING STATEMENTS INCLUDE THOSE SET FORTH BELOW.
DEVELOPMENT STAGE COMPANY
The Company's proposed future operations are subject to numerous risks
associated with establishing new businesses, including, but not limited to,
availability of capital, unforeseeable expenses, delays and complications, as
well as specific risks of the industry in which the Company competes. There
can be no assurance that the Company will be able to market any product on a
commercial scale, achieve profitable operations or remain in business. To
date, the Company's first developed product, the interactive voice navigation
system was not commercially successful. See "Item 1 Business" herein. The
Company was formed in April 1991 and its principal products are still in the
development or pre-production stage. The likelihood of the success of the
Company must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with
establishing a new business, including, without limitation, uncertainty as to
market acceptance of the Company's products, marketing problems and expenses,
competition and changes in business strategy. There can be no assurance that
the Company will be successful in its proposed business activities.
Moreover, the Company's radar systems are in various stages of
prototype/pre-production development and will require the expenditure of
significant funds for further development and testing in order to commence
commercial sales. No assurance can be given that the Company will obtain the
funds necessary to pay for such further development of its products or that,
if such funds are obtained, the Company will be successful in resolving all
technical problems relating to its products or in developing the technology
used in its prototypes into commercially viable products. The Company does
not expect to generate significant revenues from the sale of seat or radar
products for at least 12 months, and no assurance can be given that such
sales will ever materialize. Further, there can be no assurance that any of
the Company's products, if successfully developed, will be capable of being
produced in commercial quantities at reasonable costs or will be successfully
marketed and distributed. See "Limited Marketing Capabilities; Uncertainty of
Market Acceptance."
SUBSTANTIAL OPERATING LOSSES SINCE INCEPTION
The Company has incurred substantial operating losses since its inception. At
December 31, 1998 and 1997, the Company had accumulated deficits since
inception of $36,305,000 and $28,601,000, respectively. See "Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company's accumulated deficits are attributable to the costs
of developmental and other start-up activities, including the industrial
design, development and marketing of the Company's products and a significant
loss incurred on a major electric vehicle development contract. The Company
has continued to incur losses due to continuing expenses without significant
revenues or profit margins on the sale of products, and expects to incur
significant losses for the foreseeable future
PROPOSED FINANCING; CHANGE OF CONTROL
On March 29, 1999, the Company entered into a Securities Purchase Agreement
with Westar Capital II LLC and Big Beaver Investments LLC (the "Investors")
pursuant to which the Investors will invest $9 million in the Company in
return for 9,000 shares of a Series A Preferred Stock (which are convertible
into Class A Common Stock at an initial conversion price of $1.675 per common
share) and Contingent Warrants. The Contingent Warrants are exercisable only
to the extent certain other warrants to purchase Class A Common Stock are
exercised, and then only in an amount that will enable the Investors to
maintain the same percentage interest in the Company that they have in the
Company after the initial investment (on an as converted basis). In
connection with this transaction, the Investors would obtain the right to
elect a majority of the
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Company's directors as well as rights of first refusal to provide additional
financing for the Company and registration rights. In addition, based upon
the Company's existing capitalization and the proposed terms of the Series A
Preferred Stock, immediately following the proposed investment, the Investors
would have approximately 74% of the Company's common equity (on an as
converted basis, excluding options and warrants). Completion of the proposed
financing is subject to a number of conditions, including shareholder
approval, which the Company intends to seek at the 1999 Annual Shareholders
Meeting. There can be no assurance that the proposed equity financing will be
completed.
Concurrent with the execution of the Securities Purchase Agreement, an
affiliate of the Investors provided a secured credit facility (the "Bridge
Loan") to the Company for up to $1.2 million which bears interest at 10% per
annum and matures on the earlier of September 30, 1999 or the completion of
the equity financing. As additional consideration for the Bridge Loan, the
Company issued detachable five year warrants to purchase 300,000 shares of
Class A Common Stock at $1.03 per share, subject to adjustment. The bridge
warrants will be cancelled upon the completion of the equity investment with
the Investors. The Bridge Loan is secured by a lien on virtually all of the
Company's assets. The Bridge Loan is necessary to allow the Company to
continue operations pending the closing of the equity financing, although the
amount of the Bridge Loan may not be adequate even if fully drawn. Further,
there are numerous conditions to making each borrowing under the Bridge Loan.
NEED FOR ADDITIONAL FINANCING
The Company has experienced negative cash flow from operations since its
inception and has expended, and expects to continue to expend, substantial
funds to continue its development efforts. The Company has not generated and
does not expect to generate in the near future sufficient revenues from the
sales of its principal products to cover its operating expenses.
Notwithstanding the proposed financing described above, the Company will
require additional financing through bank borrowings, debt or equity
financing or otherwise to finance its planned operations. If additional funds
are not obtained when needed, the Company will be required to significantly
curtail its activities, dispose of one or more of its technologies and/or
cease operations and liquidate. If and when the Company is able to commence
commercial volume production of its heated and cooled seat or radar products,
the Company will incur significant expenses for tooling product parts and to
set up manufacturing and/or assembly processes. No assurance can be given
that such alternate funding sources can be obtained or will provide
sufficient, or any, financing for the Company.
PROPOSED DISPOSITION OF ELECTRIC VEHICLE OPERATIONS
In 1998, the Board of Directors decided to suspend funding the electric
vehicle program (effective August 1998) because it was generating continuing
losses and utilizing resources that the Board felt would be better utilized
in development of the CCS and radar products. Dr. Bell, the Company's founder
and Chairman of the Board, believed that there were still commercial
opportunities worth pursuing and agreed to fund the program personally, in
return for a 15% interest in the EV Sub. The Board approved this proposal and
the Company continued to seek a strategic partner.
In December 1998, the Company entered into a letter agreement with the Maini
Group in relation to the Indian JV. Under the terms of that letter agreement,
the Company will receive (i) a minority equity position in a yet to be formed
Indian company and (ii) royalties on sales of electric vehicles by the Indian
JV, both in exchange for contribution of certain assets and technology to the
Indian JV. However, to fully launch the Indian JV, external financing for the
Indian JV must be obtained as neither the Company nor the Maini Group has
committed the necessary funding for the Indian JV.
In connection with the proposed financing for the Company which is described
above and in "Item 7 Management's Discussion and Analysis -- Liquidity and
Capital Resources", the Investors require that the Company redeem from Dr.
Bell the Class B Shares of the Company that he and/or his affiliates will
hold upon the termination of the escrow that was created in connection with
the Company's initial public offering of securities in 1993. Dr. Bell has
entered into a Share Exchange Agreement to sell to the Company those Class B
Shares in exchange for the remaining 85% equity interest in the EV Sub,
subject to the closing of the proposed financing and shareholder approval of
the exchange transaction. If the exchange is effected, the Company will have
no further ownership interest in the EV Sub but will retain the right to
receive from the EV Sub payment of 85% of the royalties which the EV Sub
receives from the Indian JV, if any. The EV Sub will have all other rights to
the Company's electric vehicle technology. If the proposed financing is
completed but the shareholders do not approve of the sale of the EV Sub to
Dr. Bell for the Class B Shares, then the Class B Shares will be redeemed for
cash and Dr. Bell will be granted rights to control the board of directors of
the EV Sub and co-sale rights and rights of first refusal with respect to any
disposition by the Company of its interests in the EV Sub. The investors have
indicated that they do no intend to continue funding electric vehicle
operations whether or not the Company maintains any ownership interest in the
EV Sub. See "Business--Proposed Disposition of Electric Vehicle Operations."
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DEPENDENCE ON ACCEPTANCE BY AUTOMOBILE MANUFACTURERS AND CONSUMERS; MARKET
COMPETITION
The Company's ability to successfully market its CCS and radar products will
in large part be dependent upon the willingness of automobile manufacturers
to incur the substantial expense involved in the purchase and installation of
the Company's products and systems, and, ultimately, upon the acceptance of
the Company's products by consumers. The Company's potential customers may be
reluctant to modify their existing automobile models, where necessary, to
incorporate the Company's products. In addition, automobile manufacturers may
be reluctant to purchase key components from a small, development-stage
company with limited financial and other resources. The Company's ability to
successfully market its seats and radar products will also be dependent in
part upon its ability to persuade automobile manufacturers that the Company's
products are sufficiently unique that they cannot be obtained elsewhere. See
"Competition; Possible Obsolescence of Technology" and "Exclusive Licenses on
Heated and Cooled Seats;" "Potential Loss of Exclusivity of License on Radar
for Maneuvering and Safety." There can be no assurance that the Company will
be successful in this effort. Furthermore, in the event the Company is
successful in obtaining favorable responses from automobile manufacturers,
the Company may need to license its technology to potential competitors to
ensure adequate additional sources of supply in light of automobile
manufacturers' reluctance to purchase products from a sole source supplier
(particularly where the continued viability of such supplier is in doubt, as
may be the case with the Company).
EXCLUSIVE LICENSE ON HEATED AND COOLED SEATS; NON-EXCLUSIVE LICENSE ON RADAR
TECHNOLOGY
In 1997, the Company negotiated with the licensor of the CCS technology an
exclusive license for the manufacture and sale of licensed products for
installation or use in automobiles, trucks, buses, vans and recreational
vehicles. As part of the agreement, all intellectual property developed by
Amerigon related to variable temperature seats is owned by Amerigon but such
licensor will have the right to license Amerigon's technology on a
non-exclusive basis for use other than in automobiles, trucks, buses, vans
and recreational vehicles.
The Company's license from LLNL for one type of the Company's radar
technology became non-exclusive as of December 31, 1998. The lack of
exclusivity means that the Company has reduced intellectual property
protection for technology developed from this license and faces possible
competition from other companies which can acquire this license from LLNL.
See "Item 1 Business Proprietary Rights and Patents."
LIMITED PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company believes that patents and proprietary rights have been and will
continue to be important in enabling the Company to compete. There can be no
assurance that any patents will be granted or that the Company's or its
licensors' patents and proprietary rights will not be challenged or
circumvented or will provide the Company with any meaningful competitive
advantages or that any pending patent applications will issue. Furthermore,
there can be no assurance that others will not independently develop similar
products or will not design around any patents that have been or may be
issued to the Company or its licensors. Failure to obtain patents in certain
foreign countries may materially adversely affect the Company's ability to
compete effectively in certain international markets. The Company is aware
that an unrelated party filed a patent application in Japan on March 30, 1992
with respect to certain improvements to the CCS technology developed by the
Company.
The Company holds current and future rights to licensed technology through
licensing agreements requiring the payment of minimum royalties. The Company
has prepaid all royalties for the fiscal year ending December 31, 1999, but
if the Company were unable to pay such royalties or otherwise breached these
license agreements, the Company would lose its rights to the licensed
technology. This would materially and adversely affect the Company's business.
The Company also relies on trade secrets that it seeks to protect, in part,
through confidentiality and non-disclosure agreements with employees,
customers and other parties. There can be no assurance that these agreements
will not be breached, that the Company would have adequate remedies for any
such breach or that the Company's trade secrets will not otherwise become
known to or independently developed by competitors. To the extent that
consultants, key employees or other third parties apply technological
information independently developed by them or by others to the Company's
proposed projects, disputes may arise as to the proprietary rights to such
information which may not be resolved in favor of the Company. The Company
may be involved from time to time in litigation to determine the
enforceability, scope and validity of proprietary rights. Any such litigation
could result in substantial cost to the Company and diversion of effort by
the Company's management and technical personnel. Additionally, with respect
to licensed technology, there can be no assurance that the licensor of the
technology will have the resources, financial or otherwise, or desire to
defend against any
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challenges to the rights of such licensor to its patents.
LIMITED MANUFACTURING EXPERIENCE
To date, the Company has been engaged in only limited manufacturing in small
quantities, and there can be no assurance that the Company's efforts to
establish its manufacturing operations for any of its products will not
exceed estimated costs or take longer than expected or that other
unanticipated problems will not arise which will materially adversely affect
the Company's operations, financial condition and/or business prospects. The
Company has already experienced significant delays and cost overruns in
connection with its electric vehicle contracts. Automobile manufacturers
demand on-time delivery of quality products, and some have required the
payment of substantial financial penalties for failure to deliver components
to their plants on a timely basis. Such penalties, as well as costs to avoid
them, such as working overtime and overnight air freighting parts that
normally are shipped by other less expensive means of transportation, could
have a material adverse effect on the Company's business and financial
condition. Moreover, the inability to meet demand for the Company's products
on a timely basis would materially adversely affect the Company's reputation
and prospects.
LIMITED MARKETING CAPABILITIES; UNCERTAINTY OF MARKET ACCEPTANCE
Because of the sophisticated nature and early stage of development of its
products, the Company will be required to educate potential customers and
successfully demonstrate that the merits of the Company's products justify
the costs associated with such products. In certain cases, however, the
Company will likely encounter resistance from customers reluctant to make the
modifications necessary to incorporate the Company's products into their
products or production processes. In some instances, the Company may be
required to rely on its distributors or other strategic partners to market
its products. The success of any such relationship will depend in part on the
other party's own competitive, marketing and strategic considerations,
including the relative advantages of alternative products being developed
and/or marketed by any such party. There can be no assurance that the Company
will be able to market its products properly so as to generate meaningful
product sales.
TIME LAG FROM PROTOTYPE TO COMMERCIAL SALES
The sales cycle in the automotive components industry is lengthy and can be
as long as six years or more for products that must be designed into a
vehicle, since some companies take that long to design and develop a car.
Even when selling parts that are neither safety-critical nor highly
integrated into the vehicle, there are still many stages that an automotive
supply company must go through before achieving commercial sales. The sales
cycle is lengthy because an automobile manufacturer must develop a high
degree of assurance that the products it buys will meet customer needs,
interface as easily as possible with the other parts of a vehicle and with
the automobile manufacturer's production and assembly process, and have
minimal warranty, safety and service problems. The Company has delivered
prototype units of CCS systems to most of the major automotive and seat
companies and been selected by a major seat supplier to automotive OEMs to
supply CCS to be installed on one platform for a major North American auto
manufacturer. However, no assurance can be given that the achievement of any
of these milestones will result in production orders or that such orders, if
obtained, will be received in the near future.
SPECIAL FACTORS APPLICABLE TO THE AUTOMOTIVE INDUSTRY IN GENERAL
The automobile industry is cyclical and dependent on consumer spending. The
Company's future sales may be subject to the same cyclical variations as the
automotive industry in general. There have been recent reports of declines in
sales of automobiles on a worldwide basis, and there can be no assurance that
continued or increased declines in automobile production would not have a
material adverse effect on the Company's business or prospects. Additionally,
automotive customers typically reserve the right to unilaterally cancel
contracts completely or to require unilateral price reductions. Although they
generally reimburse companies for actual out-of-pocket costs incurred with
respect to the particular contract up to the point of cancellation, these
reimbursements typically do not cover costs associated with acquiring general
purpose assets such as facilities and capital equipment, and may be subject
to negotiation and substantial delays in receipts by the Company. Any
unilateral cancellation of, or price reduction with respect to, any contract
that the Company may obtain could reduce or eliminate any financial benefits
anticipated from such contract and could have a material adverse effect on
the Company's financial condition and results of operations.
COMPETITION; POSSIBLE OBSOLESCENCE OF TECHNOLOGY
The automotive component industry is subject to intense competition.
Virtually all of the Company's competitors are substantially larger in size,
have substantially greater financial, marketing and other resources than the
Company, and have more extensive experience and records of successful
operations than the Company. Competition extends to attracting and
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retaining qualified technical and marketing personnel. There can be no
assurance that the Company will successfully differentiate its products from
those of its competitors, that the marketplace will consider the Company's
current or proposed products to be superior or even comparable to those of
its competitors, or that the Company can succeed in establishing
relationships with automobile manufacturers. Furthermore, no assurance can be
given that competitive pressures faced by the Company will not adversely
affect its financial performance. Due to the rapid pace of technological
change, the Company's products may even be rendered obsolete by future
developments in the industry. The Company's competitive position would be
adversely affected if it were unable to anticipate such future developments
and obtain access to the new technology.
DEPENDENCE ON KEY PERSONNEL; NEED TO RETAIN TECHNICAL PERSONNEL
The Company's success will depend to a large extent upon the continued
contributions of Lon E. Bell, Ph.D., Chief Executive Officer, Chairman of the
Board of Directors and the founder of the Company, and Richard A. Weisbart,
President and Chief Operating Officer and a Director. The Company has
obtained key-person life insurance coverage in the amount of $2,000,000 on
the life of Dr. Bell. Neither Dr. Bell nor Mr. Weisbart is bound by an
employment agreement with the Company. The loss of the services of Dr. Bell,
Mr. Weisbart or any of the Company's executive personnel could materially
adversely affect the Company. The success of the Company will also depend, in
part, upon its ability to retain qualified engineering and other technical
and marketing personnel. There is significant competition for technologically
qualified personnel in the geographical area of the Company's business and
the Company may not be successful in recruiting or retaining sufficient
qualified personnel.
RELIANCE ON MAJOR CONTRACTORS; RISKS OF INTERNATIONAL OPERATIONS
The Company has in the past engaged certain outside contractors to perform
product assembly and other production functions for the Company, and the
Company anticipates that it may desire to engage contractors for such
purposes in the future. The Company believes that there are a number of
outside contractors that provide services of the kind that have been used by
the Company in the past and that the Company may desire to use in the future.
However, no assurance can be given that any such contractors would agree to
work for the Company on terms acceptable to the Company or at all. The
Company's inability to engage outside contractors on acceptable terms or at
all would impair the Company's ability to complete any development and/or
manufacturing contracts for which outside contractors' services may be
needed. Moreover, the Company's reliance upon third party contractors for
certain production functions will reduce the Company's control over the
manufacture of its products and will make the Company dependent in part upon
such third parties to deliver its products in a timely manner, with
satisfactory quality controls and on a competitive basis.
Furthermore, the Company may engage contractors located in foreign countries.
Accordingly, the Company will be subject to all of the risks inherent in
international operations, including work stoppages, transportation delays and
interruptions, political instability, foreign currency fluctuations, economic
disruptions, the imposition of tariffs and import and export controls,
changes in governmental policies and other factors which could have an
adverse effect on the Company's business. See also "Risk of Foreign Sales."
POTENTIAL PRODUCT LIABILITY
The Company's business will expose it to potential product liability risks
which are inherent in the manufacturing, marketing and sale of automotive
components. In particular, there may be substantial warranty and liability
risks associated with critical safety components of the Company's products.
If available, product liability insurance generally is expensive. While the
Company presently has $2,000,000 of product liability coverage, there can be
no assurance that it will be able to obtain or maintain such insurance on
acceptable terms with respect to other products the Company may develop, or
that any insurance obtained will provide adequate protection against any
potential liabilities when and if high volume production begins, the Company
expects to purchase additional insurance coverage. In the event of a
successful claim against the Company, a lack or insufficiency of insurance
coverage could have a material adverse effect on the Company's business and
operations.
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since its
inception and, by reason of its present financial status and its contemplated
financial requirements, does not anticipate paying any cash dividends in the
foreseeable future. It is anticipated that significant additional financing
will be necessary to fund the Company's long-term operations.
FLUCTUATIONS IN QUARTERLY RESULTS; POSSIBLE VOLATILITY OF STOCK PRICE
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Factors such as announcements by the Company of quarterly variations in its
financial results, or unexpected losses, could cause the market price of the
Class A Common Stock of the Company to fluctuate significantly. The results
of operations in previous quarters have been partially dependent on large
grants, orders and development contracts, which may not recur in the future.
In addition, the Company's quarterly operating results may fluctuate
significantly in the future due to a number of other factors, including
timing of product introductions by the Company and its competitors,
availability and pricing of components from third parties, timing of orders,
foreign currency exchange rates, technological changes and economic
conditions generally. Development contract revenues declined significantly
because the activity on the Company's major electric vehicle development
contract substantially concluded at the end of 1996 with no replacement
contract presently scheduled to follow. See "Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations." In recent
years, the stock markets in general, and the share prices of technology
companies in particular, have experienced extreme fluctuations. These broad
market and industry fluctuations may adversely affect the market price of the
Class A Common Stock. In addition, failure to meet or exceed analysts'
expectations of financial performance may result in immediate and significant
price and volume fluctuations in the Class A Common Stock.
POTENTIAL CONFLICTS OF INTEREST
The Company leases its current facilities from Dillingham Partners, an entity
that is 60% controlled by Dr. Bell. The Company determined that the lease is
on terms no less favorable to the Company than those which could be obtained
from unaffiliated parties.
John W. Clark, a director of the Company, is a partner of Westar Capital.
Westar Capital is one of the two primary investors in the Proposed Financing.
See "Item 7 Management Discussion and Analysis - Liquidity and Capital
Resources." This transaction, combined with Mr. Clark's membership on the
Board of Directors, could give rise to conflicts of interest.
In August 1998 the Board of Directors decided to suspend funding the electric
vehicle program because it was generating continuing losses and utilizing
resources that the Board felt would be better utilized by pursuit of the CCS
and radar products. Dr. Bell agreed to fund the program personally, in return
for a 15% interest in the EV Sub, which was transferred to Dr. Bell in March
of 1999. In connection with the Proposed Financing, Dr. Bell may acquire the
remaining equity interest in the EV Sub in exchange for the Class B Shares of
the Company. This means that the Company may have no further ownership
interest in electric vehicle technology and will only have the rights to EV
Sub payment of 85% of the royalties which the EV Sub receives from the Indian
JV. This transaction is subject to conditions, including shareholder
approval. This transaction, combined with Dr. Bell's ownership of a
significant percentage of the Company's Class A Common Stock, his position as
an officer and his membership on the Board of Directors, could give rise to
conflicts of interest.
ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Series A Preferred Stock proposed to be issued to the Investors in
connection with the proposed financing will have the right to elect five of
seven members of the Board of Directors. In addition, the Series A Preferred
Stock will vote together with the shares of Class A Common Stock on any other
matter submitted to shareholders. Immediately following the closing of the
proposed financing, holders of the Series A Preferred Stock will have
approximately 74% of the voting shares of the Company and will have the
ability to approve or prevent any subsequent change in control of the Company.
In addition, the Company's Board of Directors has the authority to issue up
to 5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action
by the shareholders. The rights of the holders of Class A Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any shares of Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company.
RISK OF FOREIGN SALES
A substantial percentage of the Company's revenues to date have been from
sales to foreign countries. Accordingly, the Company's business is subject to
many of the risks of international operations, including governmental
controls, tariff restrictions, foreign currency fluctuations and currency
control regulations. However, substantially all sales to foreign countries
have been denominated in U.S. dollars. As such, the Company's historical net
exposure to foreign currency fluctuations has not been material. No assurance
can be given that future contracts will be denominated in U.S. dollars,
however.
14
<PAGE>
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters, manufacturing and research
and development facilities in leased space of approximately 40,000 square
feet in Irwindale, California. The Company's lease expires December 31, 2002.
The current monthly rent under the lease is approximately $20,000. The
Company believes that its facilities are adequate for its present
requirements. See "Item 1 -- Risk Factors - Potential Conflict of Interest."
ITEM 3. LEGAL PROCEEDINGS
On November 14, 1996, Gibbins Pattern & Plastic, Inc. ("Gibbins"), a supplier
to the Company, filed suit against the Company in Michigan state court in the
circuit court for the County of Wayne, Michigan for breach of contract, open
account/account stated, and unjust enrichment/quantum meruit. The Company
settled the case out of court during 1998.
The Company is subject to litigation from time to time in the ordinary course
of its business, but there is no current pending litigation to which the
Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 18, 1998 the Company filed a proxy statement with the Securities
and Exchange Commission and began to solicit shareholder approval of an
amendment to the Company's Articles of Incorporation which would effect a
1-for-5 reverse stock split of the Company's Class A Common Stock and
increase the effective amount of authorized but unissued Class A Common
Stock. On January 25, 1999 the Company held a special shareholders meeting
where the 1-for-5 reverse stock split was approved. 11,380,104 shares were
voted in favor of the reverse stock split, 391,845 shares were voted against
the reverse stock split, and 30,857 shares were not voted due to abstention
or broker non-vote. The reverse stock split became effective on January 26,
1999, upon the filing of an amendment to the Articles of Incorporation of the
Company, and the Company's Class A Common Stock began trading on the adjusted
basis on the Nasdaq SmallCap Market on January 28, 1999. Share information
for all periods has been retroactively adjusted to reflect the split.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock trades on the Nasdaq SmallCap Market under
the symbol ARGNA. The Company's Class A Warrants trade on the Nasdaq SmallCap
Market under the symbol ARGNW. The following table sets forth the high and
low bid prices for the Class A Common Stock as reported on the Nasdaq
SmallCap Market for each quarterly period (or part thereof) from the
beginning of the first quarter of 1997 through December 31, 1998. Such prices
reflect inter-dealer prices, without retail mark-up, markdown or commission
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1997 HIGH(1) LOW(1)
------- ------
<S> <C> <C>
1st Quarter......................... $33.75 $17.50
2nd Quarter......................... 25.65 12.50
3rd Quarter......................... 35.00 18.75
4th Quarter......................... 35.30 10.30
1998
1st Quarter......................... 14.05 5.00
2nd Quarter......................... 6.90 3.15
3rd Quarter......................... 3.60 1.25
4th Quarter......................... 5.00 .65
</TABLE>
As of March 3, 1999, there were approximately 1,775 holders of record of the
Class A Common Stock (not including beneficial owners holding shares in
nominee accounts).
The Company has not paid any cash dividends since its formation and, given
its present financial status and its anticipated financial requirements, does
not expect to pay any cash dividends in the foreseeable future. The Company
was prohibited during 1996 from paying cash dividends by the terms of its
secured bank line of credit, which was paid off using a portion of the net
proceeds of the Offering and terminated effective February 18, 1997.
15
<PAGE>
- -------------------
(1) Numbers adjusted to give effect to the 1-for-5 reverse stock split that
became effective on January 26, 1999, upon the filing of an amendment to
the Articles of Incorporation of the Company. The Company's Class A
Common Stock began trading on the adjusted basis on the Nasdaq SmallCap
Market on January 28, 1999. See "Item 4 Submission of Matters to a Vote
of Security Holders."
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues.......................................... $ 2,640 $ 7,809 $ 7,447 $ 1,308 $ 770
Net loss................................................ (4,235) (3,237) (9,997) (5,417) (7,704)
Net loss per diluted share (1) (2)...................... (6.40) (4.90) (12.30) (3.10) (4.03)
Deficit accumulated during development stage............ (9,950) (13,187) (23,184) (28,601) (36,305)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------
(IN THOUSANDS)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital......................................... $ 4,149 $ 6,481 $ (3,315) $ 8,826 $ 1,190
Total assets............................................ 7,162 8,995 3,922 10,568 2,644
Capitalized lease obligations........................... 78 68 43 41 65
</TABLE>
- -----------
(1) Excluded from the average number of common shares used to calculate net
loss per share are the 600,000 Escrowed Contingent Shares (See Note 7 to
the Financial Statements). Adoption of SFAS No. 128 "Earnings Per Share"
by the Company. No effect on previously reported per share information
occurred due to antidilution provisions of the accounting principles.
(2) Numbers adjusted to give effect to the 1-for-5 reverse stock split that
became effective on January 26, 1999, upon the filing of an amendment to
the Articles of Incorporation of the Company. The Company's Class A
Common Stock began trading on the adjusted basis on the Nasdaq SmallCap
Market on January 28, 1999. See "Item 4 Submission of Matters to a Vote
of Security Holders."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements of the Company and related notes thereto appearing
elsewhere in this report, and is qualified in its entirety by the same and by
other more detailed financial information appearing elsewhere in this report.
OVERVIEW OF DEVELOPMENT STAGE ACTIVITIES
Historically, the Company's operations during the development stage have
focused on the research and development of technologies to adapt them for a
variety of uses in the automotive industry. Although the Company licensed the
rights to these technologies from the holders of the related patents, it has
now developed its own patented or patentable technology to complement those
licenses. The Company recently lost the exclusivity on its license to certain
radar technology from LLNL, but intends to continue to pursue radar products
with its own technology In the automotive components industry, products
typically proceed through five stages of research and development and
commercialization. Initial research on the product
16
<PAGE>
concept comes first, in order to assess its technical feasibility and
economic costs and benefits, and often includes the development of an
internal prototype for the supplier's own evaluation of the product. If the
product appears feasible, a functioning prototype or demonstration prototype
is manufactured by the component supplier to demonstrate and test the
features of the product. This prototype is then marketed to automotive
companies to generate sales of evaluation prototypes for internal evaluation
by the automobile manufacturer. If the automobile manufacturer remains
interested in the product after testing initial evaluation prototypes, it
typically works with the component supplier to refine the product and then
purchase second and subsequent generation engineering prototypes for further
evaluation. Finally, the automobile manufacturer determines to either
purchase the component for a production vehicle or terminate interest in the
component. See "Item 1 Business Marketing and Sales."
As development of the Company's products proceeds, the Company seeks to
generate revenues from the sale of prototypes, then from specific development
contracts, pre-production orders and, ultimately, production orders. The
Company received its first production order in December 1997 and during 1998
the Company was selected to supply its CCS system to be installed in seat
systems for one platform of a major North American auto manufacturer starting
in the 2000 model year. The Company is continuing its efforts to obtain
commitments and orders from large equipment manufacturers. Development
contracts are from customers interested in developing a particular use or
project using the Company's technologies and are generally longer term
activities (from six months to one year) involving, in some cases,
pre-production orders of larger quantities of the product for final testing
by the customer before submitting a production order. Revenues have been
obtained in the past as grant funding from government agencies interested in
promoting the technologies for specific tasks or projects, as well as
development funds from prototype sales to customers, help offset the
development expenses overall.
The Company received no funds to offset its development expenses from any
funding source in 1991 and, in 1992, secured its first outside grant totaling
$1,900,000. In 1993, the Company sold $188,000 in prototypes of its
developing technology adaptations and, in addition, recorded $2,101,000 in
grant revenue. In 1994, the sale of prototypes increased and the Company
recorded its first development contract revenues, increasing revenues from
these sources to $1,336,000. Grant revenues became less important as a source
of total revenues, decreasing in 1994 to 49% of total revenues from 92% in
1993. In late 1994, the Company entered into the Samsung contract, from which
revenues of $4,040,000, $5,328,000, and $533,000 were recorded in 1995, 1996
and 1997, respectively. In addition, the Company recorded revenues from two
grants related to the development of the electric vehicle technology in 1995
and 1996 of $1,872,000 and $840,000, respectively. The Company's activity on
the Samsung contract diminished during the fourth quarter of 1996 and
substantially concluded at the end of the year. No replacement revenue was
scheduled for 1997 or 1998. In addition, in 1996, the Company substantially
completed work relating to the two electric vehicle grants, with no
replacement grants scheduled to follow. As of December 31, 1998, the Company
had no development contracts in place except for contracts to build prototype
systems. The Company has no efforts to obtain any additional grants and has
focused its efforts on working toward production contracts for Climate
Control Seat ("CCS") systems and radar sensor systems. See "Item 1 Risk
Factors Dependence on Grants; Government Audits of Grants."
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED
DECEMBER 31, 1997
Total revenues for the year ended December 31, 1998 ("1998") decreased by
$538,000, or approximately 41%, to $770,000, from $1,308,000 for the year
ended December 31, 1997 ("1997"). The decline was primarily due to the
completion of certain development contracts in 1997 and a reduced level of
development contract activity in 1998.
During 1998, development continued on CCS and the Company's radar system,
some of which was funded by development contracts. Development contract
revenue relating to the Company's CCS and radar products decreased to
$752,000 in 1998, a decline of $529,000, or approximately 41% from the
$1,281,000 in such revenue recorded for 1997. The decrease in 1998
principally reflects the Company's completion in 1997 of work on several
development contracts. The Company is not seeking to obtain new grants and
continues to focus its efforts on working toward production contracts for CCS
and radar sensor systems.
Direct development contract and related grant costs decreased to $1,364,000
in 1998 from $2,586,000 in 1997, primarily due to decreased activity in the
Company's electric vehicle program in 1997 and the end of allocating
administrative expenses to this category.
Research and development expenses increased by $1,130,000 or approximately
55%, in 1998 to $3,202,000 from $2,072,000 in 1997. These expenses represent
research and development expenses for which no development contract or grant
funding has been obtained. The increase was due to an increase in headcount,
tooling expenditures, prototype materials and consulting.
17
<PAGE>
Selling, general and administrative ("SG&A") expenses decreased by $373,000,
or approximately 8%, in 1998 to $4,098,000 from $4,471,000 in 1997. The
decrease in 1998 was primarily due to the reduction in salaries and wages
related to reduced headcount and the nonrecurrence of costs related to IUS
joint venture activities in 1997.
Net interest income totaled $238,000 and $406,000 in 1998 and 1997,
respectively. Interest income decreased due to a decline in cash balances as
a result of those funds being used in operations.
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
Total revenues for the year ended December 31, 1997 ("1997") decreased by
$6,139,000, or approximately 82% to $1,308,000, from $7,447,000 for the year
ended December 31, 1996 ("1996"). Approximately $533,000, or nearly 41% of
1997 total revenues were derived from the Samsung contract and related
grants, which is a decrease of approximately $5,635,000 when compared to
1996, when $6,168,000, or nearly 83% of total revenues were related to the
Samsung contract and other grants. The Company completed work on the Samsung
contract and the related grants in 1997. No replacement contract or
replacement grants are scheduled to follow or expected to be obtained.
During 1997, development continued on CCS and the Company's radar system,
some of which was funded by development contracts. Development contract
revenue relating to the Company's CCS, radar and IVS-TM- products decreased
to $748,000 in 1997, a decline of $199,000, or approximately 21% from the
$947,000 in such revenue recorded for 1996. The decrease in 1997 principally
reflects the lack of commercial sales of IVS-TM- products as well as the
Company's completion in 1996 of work on several development contracts
relating to the IVS-TM- products not replaced in 1997 with new contracts. The
Company began selling IVS-TM- products in 1995. The total revenue recognized
for the IVS-TM- products in 1997 was $10,000, compared with $363,000 in 1996.
On July 24, 1997, the Company entered into a joint venture agreement with
Yazaki Corporation to form a new entity to develop and market the IVS-TM-
products. Under the terms of the agreement, Yazaki Corporation owns a
majority interest and the Company owns a minority interest of IVS, Inc. -TM-.
As part of the transaction, the Company received $1,800,000 in cash and a
note receivable for $1,000,000 in consideration for net assets related to
Amerigon's voice interactive technology totaling approximately $89,000. In
addition, the Company incurred costs of $348,000 associated with the sale.
$1,800,000 was paid through July 1997 and $971,000 was paid in July 1998.
Revenues from, grants other than electric vehicle-related grants decreased by
$305,000, or approximately 92% to $27,000 in 1997 from $332,000 in 1996.
Revenue from electric vehicle development contracts decreased $5,183,000 or
approximately 97% in 1997 to $145,000 from $5,328,000 in 1996. The Company
completed the Samsung contract in 1997. Related electric vehicle grant
revenues totaled $389,000 in 1997, a decrease of $451,000, or approximately
54%, from the $840,000 in such revenues recorded for 1996. The reduction in
these grant revenues reflects the completion of the Samsung contract as
discussed above.
Direct development contract and related grant costs decreased to $2,586,000
in 1997 from $11,533,000 in 1996, primarily due to decreased activity in the
Company's electric vehicle program in 1997, particularly in connection with
the Samsung contract and related grants. The Company also recorded changes to
operations in 1996, included in the total direct development contract and
related grant costs, for the ultimate estimated loss at completion of the
contract of approximately $1,900,000. Direct development costs related to
commercial sales of IVS-TM- decreased in 1997 to $55,000 from $490,000 in
1996 primarily due to weak demand on IVS-TM- products and the sale of the
Company's IVS-TM- technology to Yazaki Corporation.
Direct grant costs in 1997 declined by $185,000, or approximately 88%, to
$25,000 from $210,000 in 1996. These costs are related to the projects for
which grant revenues are reported. The decrease in 1997 reflects the decline
in grant project activities in which the Company was engaged during 1997.
Grant costs as a percentage of grant revenues of $27,000 and $332,000 were
93% and 63% in 1997 and 1996, respectively.
Research and development expenses declined by $56,000, or approximately 3%,
in 1997 to $2,072,000 from $2,128,000 in 1996. These expenses represent
research and development expenses for which no development contract or grant
funding has been obtained. Expenses of research and development projects that
are specifically funded by development contracts from customers are
classified under direct development contract and related grant costs or
direct grant costs.
Selling, general and administrative ("SG&A") expenses increases by
$1,061,000, or approximately 31%, in 1997 to $4,471,000 and development
expenses from $3,410,000 in 1996. The increase in 1997 was primarily due to
the fact that fewer SG&A expenses were allocated to development contracts.
The Company also incurred costs related to the IVS-TM- joint venture and
costs associated with locating strategic partners for the electric vehicle
program. Direct and indirect overhead
18
<PAGE>
expenses included in SG&A that are associated with development contracts are
allocated to such contracts.
Interest expense incurred totaled $71,000 and $211,000 in 1997 and 1996,
respectively. For 1997, interest expense represents charges incurred in
conjunction with a bank line of credit obtained to finance work on the
Samsung electric vehicle contract, the Bridge Financing, and the loan from
the Company's Chief Executive Officer and principal shareholder. These loans
were repaid upon the completion of the Company's Follow-on Public Offering in
February 1997. Interest income increased to $477,000 in 1997 from $48,000 in
1996 as a result of higher cash balances maintained in investments purchased
during 1997 with proceeds from the Company's secondary offering. Net interest
income (expense) was $406,000 in 1997 compared with ($163,000) in 1996. Also,
the net loss of the Company was partially offset by the gain on disposal of
assets due to the joint venture with Yazaki Corporation. See "Note 15."
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had working capital of $1,190,000. On March
29, 1999 the Company entered into a Securities Purchase Agreement with Westar
Capital LLC and Big Beaver Investments LLC (the "Investors") pursuant to
which the Investors will invest $9 million in the Company in return for 9,000
shares of Series A Preferred Stock which are convertible into Class A Common
Stock and warrants that are exercisable only to the extent certain other
warrants to purchase Class A Common Stock are exercised and then only in an
amount that will enable the Investors to maintain the same percentage
interest in the Company that they have in the Company after the initial
investment on a fully converted basis. This transaction is subject to a
number of conditions, including shareholder approval, which the Company
intends to seek at the 1999 Annual Shareholders Meeting. Concurrent with the
execution of the Securities Purchase Agreement, an affiliate of the Investors
provided a secured bridge loan to the Company for up to $1.2 million which
bears interest at 10% per annum and matures upon the earlier of September 30,
1999 or the completion of the equity financing and contains detachable
warrants for 300,000 shares of Class A Common Stock which will be cancelled
upon the completion of the equity investment. The bridge loan is necessary to
allow the Company to continue operations pending the closing of the equity
financing, although the amount of the bridge loan may not be adequate even if
fully drawn. Further, there are numerous conditions to making each borrowing
under the bridge loan. No assurance can be given that the proposed financing
will be completed. The Company's principal sources of operating capital have
been the proceeds of its various financing transactions and, to a lesser
extent, revenues from grants, development contracts and sale of prototypes to
customers.
Cash and cash equivalents decreased by $4,370,000 in 1998 primarily due to a
net loss of $7,704,000. Operating activities used $7,227,000, which was
primarily a result of the net loss of $7,704,000 and repayment of $287,000 of
outstanding balances to vendors, and reductions of deferred revenues of
$53,000, reductions of accounts receivable of $60,000 and an increase in
accrued liabilities of $164,000. Investing activities provided $2,922,000, of
which $2,400,000 was from the selling of short-term investments along with
$971,000 from a receivable from sale of assets, offset by $449,000 related to
the purchase of property and equipment. Financing activities used $65,000
for repayment of capital leases.
The Company requires immediate financing and expects to incur losses for the
foreseeable future due to the continuing cost of its product development and
marketing activities. To fund its operations, the Company will need immediate
financing from sources outside the Company before it can achieve
profitability from its operations. While the Company has just secured a loan
for up to $1.2 million and entered into an agreement for a $9 million equity
investment as described above there can be no assurance that the proposed
equity financing will be consummated or even if it is, that additional
financing will not need to be obtained. The Company does not anticipate that
the proceeds from the proposed financing will be sufficient to meet the
Company's operating needs beyond a year. At or before that time, the Company
will need additional financing or will be unable to continue operations.
There is no assurance that additional financing can be secured. The Company's
focus is to bring products to market and achieve revenues based upon its
available resources. The Company continues to pursue the market introduction
of its CCS and radar based sensor device, both for the automotive
marketplace. If and when the Company is able to commence commercial volume
production of its heated and cooled seat or radar products, the Company will
incur significant expenses for tooling product parts and to set up
manufacturing and/or assembly processes. The Company also expects to require
significant capital to fund other near-term production engineering and
manufacturing, as well as research and development and marketing, of these
products. The Company does not intend to pursue any more significant grants
or development contracts to fund operations and therefore is highly dependent
on its current working capital sources. Should the Company not obtain
additional equity and/or debt financing immediately, the Company will be
required to significantly curtail its development activities, dispose of one
or more of its technologies and/or cease operations and liquidate. There can
be no assurance that either of these sources is available.
YEAR 2000 IMPACT
19
<PAGE>
An issue affecting Amerigon and others is the ability of many computer
systems and applications to process the Year 2000 and beyond ("Y2K"). To
address this problem, in 1998, Amerigon initiated a Y2K program to manage the
Company's overall Y2K compliance effort. A team of internal staff is managing
the program with assistance of some outside consultants. The team's
activities are designed to ensure that there are no material adverse effects
on the Company.
The Company is in the assessment phase of its internal information services
computer systems associated with the Year 2000. The Company is currently
assessing Year 2000 issues related to its non-information technology systems
used in product development, engineering, manufacturing and facilities.
The Company is also working with its significant suppliers and financial
institutions to ensure that those parties have appropriate plans to address
Y2K issues where their systems interface with the Company's systems or
otherwise impact its operations. The Company has communicated in writing with
all of its principal suppliers to confirm their status in regards to Y2K
issues. The Company is assessing the extent to which its operations are
vulnerable should those organizations fail to properly remedy their computer
systems. The Company does not anticipate that potential Year 2000 issues at
the customer level will have a material adverse effect on its ability to
conduct normal business.
The Company's Y2K program is well under way and, based on the results of its
assessment to date is expected to be complete by mid-1999. While the Company
believes its planning efforts are adequate to address its Year 2000 concerns,
there can be no assurance that the systems of other companies on which the
Company's systems and operations rely will be converted on a timely basis and
will not have a material adverse effect on the Company. The Company has not
identified a need to develop an extensive contingency plan for
non-remediation issues at this time. The need for such a plan is evaluated on
an ongoing basis as part of the Company's overall Year 2000 initiative.
Based on the Company's assessment to date, the costs of the Year 2000
initiative (which are expensed as incurred) are estimate to be approximately
$20,000.
The cost of the project and the date on which the Company believes it will
complete its Year 2000 initiative are forward-looking statements and are
based on management's best estimate, according to information available
through the Company's assessments to date. However, there can be no assurance
that these estimates will be achieved, and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and
cost of personnel trained in this area, the retention of these professions,
the ability to locate and correct all relevant computer codes, and similar
uncertainties. At present, the Company has not experienced any significant
problems in these areas.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's investment portfolio consists of cash equivalents with no
significant market risk. The Company places its investments in debt
instruments of the U. S. government and in high-quality corporate issuers. As
stated in its policy, the Company seeks to ensure the safety and preservation
of its invested funds by limiting default risk and market risk. The Company
has no investments denominated in foreign country currencies and therefore is
not subject to foreign exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information required to be
filed hereunder are indexed on page F-1 of this report and are incorporated
herein by reference.
20
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
information contained under the captions entitled "Election of Directors,"
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive proxy statement to be filed with the
Commission in connection with the Company's 1999 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information contained under the captions entitled "Executive Compensation,"
"Executive Compensation Table," "Report of the Compensation Committee on
Executive Compensation," "Compensation Committee Interlocks and Insider
Participation," "Option Grant Table," "Aggregate Options Exercised and
Year-End Values," and "Performance Graph" in the Company's definitive proxy
statement to be filed with the Commission in connection with the Company's
1999 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information contained under the caption entitled "Security Ownership of
Certain Beneficial Owners and Management" and "Escrow Shares" in the
Company's definitive proxy statement to be filed with the Commission in
connection with the Company's 1999 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information contained under the caption entitled "Certain Transactions" in
the Company's definitive proxy statement to be filed with the Commission in
connection with the Company's 1999 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements.
The following financial statements of the Company and report
of independent accountants are included in Item 8 of this
Annual Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements. F-7
</TABLE>
2. Financial Statement Schedule.
The following Schedule to Financial Statements is included
herein:
Schedule II-- Valuation and Qualifying Accounts, together with
the report of independent accountants thereon.
3. Exhibits.
21
<PAGE>
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1.1 Amended and Restated Articles of Incorporation (the "Articles")
of the Company (1)
3.1.2 Certificate of Amendment of Articles filed with the California
Secretary of State on December 5, 1996 (3)
3.1.3 Certificate of Amendment of Articles filed with the California
Secretary of State on January 26, 1999
3.2 Amended and Restated Bylaws of the Company (3)
4.1.1 Form of Warrant Agreement among the Company, the Underwriter and
U.S. Stock Transfer Corporation as Warrant Agent (3)
4.2 Form of Warrant Certificate for Class A Warrant (3)
4.3 Form of Specimen Certificate of Company's Class A Common Stock (1)
4.4 Escrow Agreement among the Company, U.S. Stock Transfer
Corporation and the shareholders named therein (1)
10.1 1993 Stock Option Plan, together with Form of Incentive Stock
Option Agreement and Nonqualified Stock Option Agreement (1)
10.4 Form of Underwriter's Unit Purchase Option (3)
10.5.1 Stock Option Agreement ("Bell Stock Option Agreement"),
effective May 13, 1993, between Lon E. Bell and Roy A. Anderson (3)
10.5.2 List of omitted Bell Stock Option Agreements with Company directors (3)
10.6 Form of Indemnity Agreement between the Company and each of its
officers and directors (1)
10.7 License Agreement, dated as of January 20, 1994, by and between
the Company and the Regents of the University of California,
together with a letter from the Regents to the Company dated
September 19, 1996 relating thereto (3)**
10.7.1 Termination of Limited Exclusive License Agreement dated as of
June 1998 between the Company and the Regents of the University
of California
10.7.2 Limited Nonexclusive License Agreement dated as of June 1998
between the Company and the Regents of the University of
California
10.8 Option and License Agreement dated as of November 2, 1992
between the Company and Feher Design, Inc. (1)
10.9 Shareholders Agreement, dated May 13, 1993, by and among the
Company and the shareholders named therein (1)
10.10 Stock Purchase Agreement and Registration Rights Agreement
between the Company and Fidelity Copernicus Fund, L.P. and
Fidelity Galileo Fund, L.P., dated December 29, 1995 (2)
10.11 Stock Purchase Agreement and Registration Rights Agreement
between the Company and HBI Financial Inc., dated December 29, 1995 (2)
10.13 Joint Venture Agreement between Yazaki Corporation and Amerigon
Incorporated, dated July 22, 1997 (5)
10.14 Amendment to Option and License Agreement between Amerigon and
Feher Design dated September 1, 1997 (6)
10.15 Standard Lease dated January 1, 1998 between Amerigon and
Dillingham Partners (6)
10.16 Letter Agreement dated December 16, 1998 between the Company and
Sudarshan K. Maini
10.17 Securities Purchase Agreement dated March 29, 1999 by and among
the Company, Westar Capital II LLC and Big Beaver Investments LLC
10.18 Credit Agreement dated March 29, 1999 between the Company and
Big Star Investments LLC
10.19 Security Agreement dated March 29, 1999 between the Company and
Big Star Investments LLC
10.20 Patent and Trademark Security Agreement dated March 29, 1999
between the Company and Big Star Investments LLC
10.21 Bridge Warrant dated March 29, 1999
10.22 Share Exchange Agreement dated March 29, 1999 between the
Company and Lon E. Bell
21 List of Subsidiaries
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Price Waterhouse LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
During the quarter ended December 31, 1998, the Company filed no
Current Reports on Form 8-K.
- -------------------
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2, as amended, File No. 33-61702-LA, and
incorporated by reference.
22
<PAGE>
(2) Previously filed as an exhibit to the Company's Current Report on Form
8-K filed January 5, 1996 and incorporated by reference.
(3) Previously filed as an exhibit to the Company Registration Statement on
Form S-2, as amended, File No. 333-17401, and incorporated by
reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form
8-K, event date June 16, 1997, and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Current Report on Form
8-K, event date July 22, 1997, and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form
10-K for the period ended December 31, 1997, and incorporated herein by
reference.
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants................................... F-2
Balance Sheets...................................................... F-3
Statements of Operations............................................ F-4
Statements of Shareholders' Equity.................................. F-5
Statements of Cash Flows............................................ F-6
Notes to Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Amerigon Incorporated (a Development Stage Enterprise)
In our opinion, the financial statements listed in the index appearing under
Item(a)(1) and (2) present fairly, in all material respects, the financial
position of Amerigon Incorporated (a Development Stage Enterprise) at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, and
for the period from April 23, 1991 (inception) to December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations and has a significant accumulated deficit. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 2. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Costa Mesa, California
March 23, 1999
F-2
<PAGE>
AMERIGON INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................................... $ 6,037 $ 1,667
Short-term investments......................................................................... 2,400 -
Accounts receivable less allowance of $80 in 1997 and $101 in 1998.............................. 255 174
Receivable due from joint venture partner (Note 15) ........................................... 1,000 -
Inventory, primarily raw materials.............................................................. 35 105
Prepaid expenses and other current assets....................................................... 196 136
----------- ---------
Total current assets......................................................................... 9,923 2,082
Property and equipment, net (Note 4)............................................................... 645 562
----------- ---------
Total assets................................................................................. $ 10,568 $ 2,644
----------- ---------
----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................. $ 650 $ 363
Deferred revenue................................................................................. 97 44
Accrued liabilities (Note 4)..................................................................... 350 485
----------- ---------
Total current liabilities..................................................................... 1,097 892
Long-term portion of capital lease (Note 13)........................................................ 41 26
Commitments and contingencies (Notes 10 and 13)
Shareholders' equity: (Notes 7, 8 and 9)
Preferred stock, no par value; 1,000 shares authorized, none issued and
outstanding Common stock:
Class A - no par value; 8,000 shares authorized, 1,910 issued and outstanding
in 1997 and 1998 (additional 600 shares held in escrow)....................................... 28,149 28,149
Class B - no par value, 600 shares authorized, none issued and outstanding.......................
Contributed capital.............................................................................. 9,882 9,882
Deficit accumulated during development stage..................................................... (28,601) (36,305)
----------- ---------
Total shareholders' equity ................................................................... 9,430 1,726
----------- ---------
Total liabilities and shareholders' equity.................................................... $ 10,568 $ 2,644
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
AMERIGON INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FROM
APRIL 23,
1991
(INCEPTION)
TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
---------------------------------- -----------
1996 1997 1998 1998
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product ............................................. $ - $ - $ 18 $ 18
Development contracts and related grants............. 7,115 1,281 752 17,962
Grants............................................... 332 27 - 6,183
-------- -------- -------- ---------
Total revenues.................................... 7,447 1,308 770 24,163
-------- -------- -------- ---------
Costs and expenses:
Product ............................................. $ - - 48 $ 48
Direct development contract and related grant costs.. 11,533 2,586 1,364 22,268
Direct grant costs................................... 210 25 - 4,757
Research and development............................. 2,128 2,072 3,202 14,061
Selling, general and administrative, including
reimbursable administrative costs................. 3,410 4,471 4,098 22,356
-------- -------- -------- ---------
Total costs and expenses.......................... 17,281 9,154 8,712 63,490
-------- -------- -------- ---------
Operating loss.......................................... (9,834) (7,846) (7,942) (39,327)
Interest income......................................... 48 477 255 1,298
Interest expense........................................ (211) (71) (17) (299)
Gain on disposal of assets ............................. - 2,363 - 2,363
-------- -------- -------- ---------
Operating loss before extraordinary item................ (9,997) (5,077) (7,704) (35,965)
Extraordinary loss from extinguishment of indebtedness.. - (340) - (340)
-------- -------- -------- ---------
Net loss................................................ $ (9,997) $ (5,417) $ (7,704) $ (36,305)
-------- -------- -------- ---------
-------- -------- -------- ---------
Based and diluted net loss per share before
extraordinary item................................... $ (12.31) $ (2.88) $ (4.03)
Base and diluted net loss per share..................... $ (12.31) $ (3.08) $ (4.03)
-------- -------- --------
-------- -------- --------
Weighted average number of shares outstanding........... 812 1,758 1,910
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
AMERIGON INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Deficit
Preferred Common Stock Accum.
Stock Class A Class B During
--------------- --------------- --------------- Contrib. Devel.
Shares Amount Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 23, 1991 (Inception)....... - $ - 200 $ 100 - $ - $ - $ - $ 100
Contributed capital-founders' services
provided without compensation.... - - - - - - 111 - 111
Net loss............................... - - - - - - - (616) (616)
---- ---- ----- ------- --- ---- ------ ------- -------
Balance at December 31, 1991................ - - 200 100 - - 111 (616) (405)
Transfer of common stock to employee by
principal shareholder for services...... - - - - - - 150 - 150
Contributed capital-founders' services
provided without compensation........... - - - - - - 189 - 189
Net loss.................................. - - - - - - - (1,459) (1,459)
---- ---- ----- ------- --- ---- ------ ------- -------
Balance at December 31, 1992................ - - 200 100 - - 450 (2,075) (1,525)
Issuance of common stock (public
offering)............................... - - 460 11,534 - - - - 11,534
Options granted by principal shareholder
for services............................ - - - - - - 549 - 549
Contribution of notes payable to
contributed capital..................... - - - - - - 2,102 - 2,102
Net loss.................................. - - - - - - - (3,640) (3,640)
---- ---- ----- ------- --- ---- ------ ------- -------
Balance at December 31, 1993................ - - 660 11,634 - - 3,101 (5,715) 9,020
Compensation recorded for variable
plan stock option....................... - - - - - - 1 - 1
Net loss.................................. - - - - - - - (4,235) (4,235)
---- ---- ----- ------- --- ---- ------ ------- -------
Balance at December 31, 1994................ - - 660 11,634 - - 3,102 (9,950) 4,786
Private placement of common stock......... - - 150 5,636 - - 1 - 5,637
Compensation recorded for variable
plan stock option ...................... - - - - - - 12 - 12
Net loss.................................. - - - - - - - (3,237) (3,237)
---- ---- ----- ------- --- ---- ------ ------- -------
Balance at December 31, 1995................ - - 810 17,270 - - 3,115 (13,187) 7,198
Exercise of stock options................. - - 4 160 - - - - 160
Repurchase of common stock................ - - - (15) - - - - (15)
Expenses of sale of stock................. - - - (94) - - - - (94)
Net loss.................................. - - - - - - - (9,997) (9,997)
---- ---- ----- ------- --- ---- ------ ------- -------
Balance at December 31, 1996................ - - 814 17,321 - - 3,115 (23,184) (2,748)
Issuance of common stock (public
offering)............................... - - 1,096 10,828 - - 6,617 - 17,445
Conversion of Bridge Debentures into
Class A Warrants........................ - - - - - - 150 - 150
Net loss.................................. - - - - - - - (5,417) (5,417)
---- ---- ----- ------- --- ---- ------ ------- -------
Balance at December 31, 1997................ - - 1,910 28,149 - - 9,882 (28,601) 9,430
Net loss ................................. - - - - - - - (7,704) (7,704)
---- ---- ----- ------- --- ---- ------ ------- -------
Balance at December 31, 1998................ - $ - 1,910 $28,149 - $ - $9,882 $(36,305) $ 1,726
---- ---- ----- ------- --- ---- ------ ------- -------
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
AMERIGON INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FROM
APRIL 23,1991
(INCEPTION) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------------- --------------
1996 1997 1998 1998
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss................................................. $ (9,997) $ (5,417) $ (7,704) $ (36,305)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization......................... 357 162 582 1,656
Provision for doubtful accounts....................... 80 - 21 211
Stock option compensation............................. - - - 712
Gain from sale of assets.............................. - (2,363) - (2,363)
Contributed capital-founders' services provided
without cash compensation........................... - - - 300
Change in operating assets and liabilities:
Accounts receivable................................. (216) 933 60 (385)
Unbilled revenue.................................... 311 1,157 - -
Inventory........................................... 223 (35) (70) (125)
Prepaid expenses and other current assets........... 217 548 60 (136)
Accounts payable.................................... 444 (1,265) (287) 15
Deferred revenue.................................... 60 (57) (53) 44
Accrued liabilities................................. 7 (133) 164 550
-------- -------- -------- ---------
Net cash used in operating activities................. (8,514) (6,470) (7,227) (35,826)
-------- -------- -------- ---------
Investing activities:
Purchase of property and equipment................... (182) (302) (449) (2,195)
Proceeds from sale of assets......................... - 2,800 - 2,800
Receivable from sales of assets...................... - (1,000) - (1,000)
Proceeds from receivable from sale of assets......... - - 971 971
Short term investments............................... - (2,400) 2,400 -
-------- -------- -------- ---------
Net cash provided by (used in) investing activities.. (182) (902) 2,922 576
-------- -------- -------- ---------
Financing activities:
Proceeds from sale of common stock, net.............. (94) 17,595 - 34,772
Proceeds from exercise of stock options.............. 160 - - 160
Repurchase of common stock........................... (15) - - (15)
Borrowing under line of credit....................... 5,180 - - 6,280
Repayment of line of credit.......................... (3,993) (1,187) - (6,280)
Repayment of capital lease........................... (25) (2) (65) (102)
Proceeds from Bridge Financing ...................... 3,000 - - 3,000
Repayment of Bridge Financing........................ - (3,000) - (3,000)
Proceeds from note payable to shareholder............ 200 250 - 450
Repayment of note payable to shareholder............. - (450) - (450)
Contributed to capital............................... - - - 2,102
-------- -------- -------- ---------
Net cash provided by (used in) financing activities.. 4,413 13,206 (65) 36,917
-------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents. (4,283) 5,834 (4,370) 1,667
Cash and cash equivalents at beginning of period..... 4,486 203 6,037 -
-------- -------- -------- ---------
Cash and cash equivalents at end of period........... $ 203 $ 6,037 $ 1,667 $ 1,667
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
NOTE 1 -- THE COMPANY
Amerigon Incorporated (the "Company" or "Amerigon") is a development stage
enterprise, which was incorporated in California on April 23, 1991, primarily
to develop, manufacture and market proprietary, high technology automotive
components and systems for gasoline-powered and electric vehicles.
Amerigon's activities through December 31, 1998, include (1) obtaining the
rights to the basic technology underlying the climate control seat system,
certain radar applications and the interactive voice navigation system; (2)
obtaining financing from grants and other sources and conducting development
programs related to electric vehicles and its other products; (3) marketing
of these development stage products to automotive companies and their
suppliers; (4) completing the development, in December 1995, of the audio
navigation system; and (5) completing the development in April 1998, of the
climate control seats and selling of the first commercial units. Amerigon
completed a joint venture for its interactive navigation system (Note 15),
and plans to focus continuing development activities on its Climate Control
Seat and radar systems. The Company is in the process of formalizing a joint
venture for its electric vehicle systems.
The Company augmented the expenditure of its own funds on research and
development by seeking and obtaining various grants and contracts with
potential customers which support the development of its products and related
technologies.
NOTE 2 -- BASIS OF PRESENTATION
BASIS OF PRESENTATION
The Company has suffered recurring losses and negative cash flows from
operations since inception and has a significant accumulated deficit.
Consequently, in order to fund continuing operations and complete product
development, the Company will need to raise additional financing. In this
regard, on March 23, 1999, the Board of Directors approved a proposed
financing transaction with an investor group to raise additional equity
financing and obtain a bridge loan (Note 17). The equity financing, as
currently contemplated, will require shareholder approval. Management
believes that the proceeds from the equity financing and bridge loan will be
sufficient to meet the Company's projected working capital needs through at
least the end of 1999. The outcome of such efforts to raise working capital
cannot be assured. As such, there is substantial doubt about the Company's
ability to continue as a going concern.
The Company's financial statements have been prepared on the basis of
accounting principles applicable to a going concern. Accordingly, they do not
include any adjustments relating to the recoverability of the carrying amount
of recorded assets or the amount of liabilities that might result from the
outcome of these uncertainties.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of all financial instruments, comprising cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and
capital leases, approximate fair value because of the short maturities of
these instruments.
USE OF ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STATEMENT OF CASH FLOWS
All investments with original maturities of less than 90 days are considered
cash equivalents. Cash paid for interest totaled $211,000, $71,000 and
$17,000 in 1996, 1997 and 1998, respectively. Capital lease obligations
incurred totaled $0, $23,000 and $50,000 in 1996, 1997 and 1998, respectively.
F-7
<PAGE>
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentration of credit
risk consist primarily of cash equivalents and accounts receivable. Cash
equivalents are invested in the U. S. Treasury securities and money market
account of a major U.S. financial services company and the risk is considered
limited. The risk associated with accounts receivable is limited by the large
size and creditworthiness of the Company's commercial customers and the
federal and California government agencies providing grant funding.
INVESTMENTS
As of December 31, 1997, short-term investments to be held to maturity
included U. S. Treasury securities of $1,414,000 and commercial paper of
$986,000 with scheduled maturities of less than one year. The amortized cost,
which includes accrued interest, approximates fair value.
INVENTORY
Inventory, other than inventoried purchases relating to development
contracts, is valued at the lower of cost, based on the first-in, first-out
basis, or market. Inventory related to development contracts is stated at
cost, and is removed from inventory when used in the development project.
PROPERTY AND EQUIPMENT
Property and equipment, including additions and improvements, are recorded at
cost. Expenditures for repairs and maintenance are charged to expense as
incurred. When property or equipment is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts.
Gains or losses from retirements and disposals are recorded as other income
or expense. Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. Management does not believe that
there are any material impairments at December 31, 1997 and 1998.
Property and equipment are depreciated over their estimated useful lives
ranging from three to five years. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the term of the lease.
Depreciation and amortization are computed using the straight-line method.
DEVELOPMENT CONTRACT REVENUES
The Company has had a series of fixed-price development contracts, which
included (1) specific engineering and tooling services to prepare the
Company's products and the related manufacturing processes for commercial
sales to certain original equipment manufacturers ("OEMs"); (2) the
development of complete electric vehicle systems (Note 11); and (3) prototype
products developed during the research and development process, some of which
are sold to third parties for evaluation purposes. Revenue is recognized on
development contracts using the percentage of completion method or, in the
case of short duration contracts, when the prototype or service is delivered.
Revenues earned are recorded on the balance sheet as Unbilled Revenue until
billed. All amounts received from customers in advance of the development
effort are reflected on the balance sheet as Deferred Revenue until such time
as the contracted work is performed.
GRANT REVENUES
Revenue from government agency grants and other sources pursuant to cost
reimbursement and cost-sharing arrangements (Note 12) is recognized when
reimbursable costs have been incurred. Billings on the Company's grant
programs are generally subject to the Company achieving certain milestones or
complying with billing schedules designated in the grant agreements.
Accordingly, delays between the time reimbursable grant costs are incurred
and then ultimately billed may occur. Grant revenues earned are recorded on
the balance sheet as Unbilled Revenue until billed.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development activities are expensed as incurred. These amounts
represent direct expenses for wages, materials and services associated with
development contracts, grant program activities and the development of the
Company's products. Research and development expenses associated with
projects that are specifically funded by development contracts or
F-8
<PAGE>
grant agreements from customers are classified under Direct Development
Contract and Related Grant Costs or Direct Grant Costs in the Statement of
Operations. All other research and development expenses that are not
associated with projects that are not specifically funded by development
contracts or grants from customers are classified under Research and
Development. Research and development excludes any overhead or administrative
costs.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock based compensation in accordance with
Accounting Principles Board Opinion No. 25 and related interpretations. The
disclosures required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), have been included in
Note 9.
INCOME TAXES
Income taxes are determined under guidelines prescribed by Financial
Accounting Standards Board Statement No. 109 ("SFAS 109"), "Accounting for
Income Taxes." Under the liability method specified by SFAS 109, deferred tax
assets and liabilities are measured each year based on the difference between
the financial statement and tax bases of assets and liabilities at the
applicable enacted federal and state tax rates. A valuation allowance is
provided for the portion of net deferred tax assets considered unlikely to be
realized (Note 5).
NET LOSS PER SHARE
Under the provisions of SFAS 128, "Earnings per Share," basic earnings per
share ("Basic EPS") is computed by dividing net loss available to common
shareholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share ("Diluted EPS") gives effect to
all dilutive potential common shares outstanding during a period. In
computing Diluted EPS, the treasury stock method is used in determining the
number of shares assumed to be purchased from the conversion of common stock
equivalents.
Because their effects are anti-dilutive, net loss per share for the years
ended December 31, 1996, 1997 and 1998 does not include the effect of 1)
52,230, 73,731 and 168,426, respectively, of stock options outstanding
related to the 1993 and 1997 Stock Option Plans with a weighted average
exercise price of $47.34, $18.87 and $11.95, respectively; 2) 137,139,
118,768 and 118,442, respectively, of stock options outstanding related to
the Bell Options with a weighted average exercise price of $15.51, $13.22 and
$13.25, respectively; and 3) 52,951, 1,471,751 and 1,471,751, respectively,
of warrants to purchase outstanding shares of Class A Common Stock with
exercise prices ranging from $ 25.00 to $48.35 per share.
NOTE 4 -- DETAILS OF CERTAIN FINANCIAL STATEMENT COMPONENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
------- -------
<S> <C> <C>
PREPAID EXPENSES AND OTHER ASSETS:
Advances to vendors.......................................... $ 133 $ 104
Prepaid insurance ........................................... 63 32
------- -------
$ 196 $ 136
------- -------
------- -------
PROPERTY AND EQUIPMENT:
Equipment.................................................... $ 767 $ 1,000
Computer equipment........................................... 596 663
Leasehold improvements....................................... 214 225
Production tooling........................................... 142 330
------- -------
1,719 2,218
Less: accumulated depreciation and amortization................. (1,074) (1,656)
------- -------
$ 645 $ 562
------- -------
------- -------
ACCRUED LIABILITIES:
Accrued salaries............................................. $ 171 $ 201
Accrued vacation............................................. 124 171
Other accrued liabilities.................................... 55 113
------- -------
$ 350 $ 485
------- -------
------- -------
</TABLE>
NOTE 5 -- INCOME TAXES
There are no assets or liabilities for income taxes, nor income tax expense
included in the financial statements because the Company has losses since
inception for both book and tax purposes. As of December 31, 1998, the
Company has net operating loss carry forwards for federal and state purposes
of $31,791,000 and $14,737,000 respectively, and has generated
F-9
<PAGE>
tax credits from certain research and development activities of $522,000 and
$356,000 for federal and state purposes, respectively. Federal net operating
loss carry forwards and tax credits expire from 2008 through 2012 and state
net operating loss carry forwards expire from 1999 through 2002. The use of
such net operating loss carry forwards would be limited in the event of a
change in control of the Company. In 1993, the Company elected to be taxed as
a C corporation for both federal and state income tax purposes. Prior to that
time, the Company was not subject to federal taxation and was subject to
state taxation at a reduced rate (2.5%).
Temporary differences between the financial statement and tax bases of assets
and liabilities are primarily attributable to net operating loss and tax
credit carry forwards, depreciation, deferred revenue and accrued compensated
absences. A valuation allowance of $12,610,000 has been provided for the
entire amount of the deferred tax .
NOTE 6 -- EXTRAORDINARY LOSS
In connection with the repayment of debt financing obtained in 1996, the
Company recorded a non-cash charge in 1997 of $340,000 resulting from the
elimination of the remaining unamortized portion of the deferred debt
issuance costs.
NOTE 7 -- COMMON STOCK
The Class A and Class B Common Stock are substantially the same on a
share-for-share basis, except that holders of outstanding shares of Class B
Common Stock will be entitled to receive dividends and distributions upon
liquidation at a per share rate equal to five percent of the per share rate
received by holders of outstanding shares of Class A Common Stock. The Class
B Common Stock is neither transferable nor convertible and is subject to
cancellation under certain circumstances.
FOLLOW-ON PUBLIC OFFERING OF CLASS A COMMON STOCK AND CLASS A WARRANTS
On February 18, 1997, the Company completed a public offering of 17,000 units
(the "Units"), each consisting of 56 shares of Class A Common Stock and 56
Class A Warrants to purchase, at $25.00 per share, an equal number of Class A
Common Stock, resulting in the issuance of 952,000 shares of Class A Common
Stock and 952,000 Class A Warrants. In addition, on March 7, 1997, the
underwriter exercised an option to purchase an additional 2,550 Units or
142,800 shares of Class A Common Stock and 142,800 Class A Warrants to cover
over allotments. Proceeds to the Company, net of expenses, were approximately
$17,445,000. Fees to the underwriter included an option until February 12,
2002, to purchase 340 Units ( the "Unit Purchase Option") at 145% of the
price to the public. The Unit Purchase Option is not exercisable by the
underwriter until February 12, 2000.
ESCROW AGREEMENT
Prior to the effective date of the June 1993 initial public offering of the
Company's common stock, 600,000 shares of the Company's Class A Common Stock
("Escrowed Contingent Shares") were deposited into escrow by the then
existing shareholders in proportion to their then current holdings. These
shares are not transferable (but may be voted) and will be released from
escrow in the event the Company attains certain goals including prescribed
earnings levels (which have been adjusted for the December 29, 1995 private
placement and for the February 1997 follow-on public offering) during the
period through December 31, 1998.
The Company did not achieve the goals and, as such, on April 30, 1999, all
shares held in Escrow will automatically be exchanged for shares of Class B
Common Stock, which will then be released from Escrow.
NOTE 8 -- STOCK WARRANTS
In connection with the Company's June 1993 initial public offering of its
common stock, the Company issued to the underwriters warrants to purchase
through June 9, 1998, 40,951 shares of Class A Common Stock at $48.35 per,
share as adjusted for anti-dilution provisions in the warrant agreements as a
result of the December 29, 1995 private placement of Common Stock and the
February 7, 1997 Follow-on Public Offering. The Company issued to third
parties warrants to purchase 12,000 shares of Class A Common Stock at $51.25
per share as a financial advisory fee in connection with the private
placement completed on December 29, 1995. These warrants expire on December
28, 2000. None of the warrants have been exercised as of December 31, 1998.
In connection with debt financing obtained in 1996 and the follow-on public
offering completed in 1997 (Note 7), the
F-10
<PAGE>
Company has warrants outstanding to issue 324,000 and 1,094,800 shares of
Class A Common Stock, respectively. Each Class A Warrant entitles the
registered holder thereof to purchase, at any time until February 12, 2002,
one share of the Company's Class A Common Stock at an exercise price of
$25.00, subject to adjustment. Commencing February 12, 1998, the Company may,
upon 30 days' written notice, redeem each Class A Warrant in exchange for
$.25 per Class A Warrant, provided that before any such redemption, the
closing bid price of the Class A Common Stock as reported by the Nasdaq
SmallCap Market or the closing bid price on any national exchange (if the
Company's Class A Common Stock is listed thereon) shall have, for 30
consecutive days ending within 15 days of the date of the notice of
redemption, averaged in excess of $43.75 (subject to adjustment in the event
of any stock splits or other similar events). As of December 31, 1998, the
Company has not exercised this option and none of these warrants have been
exercised.
NOTE 9 -- STOCK OPTIONS
1993 AND 1997 STOCK OPTION PLANS
Under the Company's 1997 and 1993 Stock Option Plans (the "Plans"), as
amended in June 1995, 150,000 and 110,000 shares, respectively of the
Company's Class A Common Stock are reserved for issuance, pursuant to which
officers and employees of the Company as well as other persons who render
services to or are otherwise associated with the Company are eligible to
receive qualified ("incentive") and/or non-qualified stock options.
The Plans, which expire in April 2007 and 2003, respectively, are
administered by the Board of Directors or a stock option committee designated
by the Board of Directors. The selection of participants, allotment of
shares, determination of price and other conditions are determined by the
Board of Directors or stock option committee at its sole discretion, in order
to attract and retain personnel instrumental to the success of the Company.
Incentive stock options granted under both Plans are exercisable for a period
of up to 10 years from the date of grant at an exercise price which is not
less than the fair market value of the Common Stock on the date of the grant,
except that the term of an incentive stock option granted under the Plans to
a shareholder owning more than 10% of the voting power of the Company on the
date of grant may not exceed five years and its exercise price may not be
less than 110% of the fair market value of the Common Stock on the date of
the grant.
OPTIONS GRANTED BY PRINCIPAL SHAREHOLDER ("BELL OPTIONS")
Dr. Lon E. Bell, the chairman and principal shareholder of the Company, has
granted options to purchase shares of his Class A Common Stock, 75% of which
were Escrowed Contingent Shares. The holder of these options could exercise
the portions of his options related to Escrowed Contingent Shares only upon
release of these shares from escrow as Class A Common Stock. The option
holder had no right to purchase Class B Common Stock should such shares have
been released. Accordingly, no such shares are available for purchase by the
holder of the option (Note 7).
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
1993 AND 1997 STOCK OPTION PLANS BELL OPTIONS
-------------------------------- ------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995................ 62,998 $ 46.60 163,571 $ 14.70
Granted......................................... 6,980 51.80 2,500 51.90
Canceled........................................ (12,813) 52.90 (13,932) 27.00
Exercised....................................... (4,000) 40.00 (16,753) 5.75
------- ------- ------- -------
Outstanding at December 31, 1996................ 53,165 47.20 135,386 12.00
Granted......................................... 115,880 17.50 - -
Canceled........................................ (53,408) 46.10 (13,305) 33.45
Exercised....................................... - - (2,313) 5.75
------- ------- ------- -------
Outstanding at December 31, 1997................ 115,637 18.45 119,768 13.55
Granted......................................... 120,995 6.15 - -
Canceled........................................ (33,462) 13.15 (1,346) 5.75
Exercised....................................... - - -
------- ------- ------- -------
Outstanding at December 31, 1998................ 203,170 $ 11.95 118,422 $ 13.25
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable stock options for the 1993 and 1997 Stock Option Plans as of
December 31, 1998:
F-11
<PAGE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------------------------------- -------------------------
WEIGHTED- WEIGHTED-
WEIGHTED-AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ----------------- ----------- ---------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$3.05 - 6.50 74,220 9.4 $ 3.60 - $ -
11.40 - 18.15 114,000 8.7 15.95 65,998 17.10
20.15 - 21.90 14,123 8.5 21.10 8,255 20.95
48.75 - 56.25 827 6.5 54.76 720 54.58
------- ------
203,170 74,973
------- ------
------- ------
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable stock options for the Bell Option Plan as of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------------------------------- -------------------------
WEIGHTED- WEIGHTED-
WEIGHTED-AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ----------------- ----------- ---------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$5.75 81,822 4.2 $ 5.75 9,017 $ 5.75
30.00 36,600 4.4 30.00 2,337 30.00
------- ------
118,422 11,354
------- ------
------- ------
</TABLE>
The Company accounts for these plans under APB Opinion No. 25. Had
compensation expense for these plans been determined consistent with SFAS
123, the Company's net loss and net loss per share would have been increased
to the pro forma amounts in the following table. The pro forma compensation
costs may not be representative of that to be expected in future years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net Loss
As reported......................... $ (5,417) $ (7,704)
Pro Forma........................... (6,136) (7,929)
Basic and diluted loss per share
As reported......................... $ (3.08) $ (4.03)
Pro Forma........................... (3.49) (4.15)
</TABLE>
The fair value of each stock option grant has been estimated pursuant to SFAS
123 on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1993 AND 1997 STOCK OPTION PLANS BELL OPTION PLAN
--------------------------------- ---------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Risk free interest rates............... 6% 6% 6% 6%
Expected dividend yield................ none none none none
Expected lives......................... 4.3 yrs. 4.3 yrs. 4.3 yrs. 4.3 yrs.
Expected volatility.................... 55% 60% 55% 60%
</TABLE>
The weighted average grant date fair values of options granted under the 1993
Stock Option Plan during 1997 and 1998 were $17.90 and $6.26, respectively.
No options were granted under the Bell Option Plan during 1997 and 1998.
NOTE 10 -- LICENSES
CLIMATE CONTROL SEAT SYSTEM. In 1992, the Company obtained the worldwide
license to manufacture and sell technology for a Climate Control Seat system
to individual automotive OEMs. Under the terms of the license agreement,
royalties are
F-12
<PAGE>
payable based on cumulative net sales and do not require minimum payments.
The Company has recorded royalty expense under this license agreement of
$8,500, $18,000 and $43,000 in 1996, 1997 and 1998, respectively.
RADAR SYSTEM. In January 1994, the Company entered into a license agreement
for exclusive rights in certain automotive applications to certain radar
technology. Royalties are required to be paid based on cumulative net sales
and are subject to minimum annual royalties beginning in 1995. The minimum
royalty payments for 1996 and 1997 were $100,000 and $150,000 respectively,
and were expensed as Research and Development. The exclusivity portion of
this Licensing Agreement was not renewed in 1998 and minimum royalty payments
are no longer required.
NOTE 11 -- MAJOR CONTRACTS
In December 1994, the Company entered into contracts with two Asian
manufacturing companies to produce approximately 50 aluminum chassis
passenger electric vehicle systems. These contracts, together with 1995
additions, were valued at approximately $9,600,000 and were completed in
fiscal year 1997. The Company received $4,193,000 and $1,487,000 in 1996 and
1997, respectively. For the years ended December 31, 1996 and 1997, the
Company recognized revenue of $5,328,000 and $145,000, respectively, from
this contract.
NOTE 12 -- GRANTS
Grant funding received by the Company are essentially cost sharing
arrangements whereby the Company obtains reimbursement from the funding
source for a portion of direct costs and reimbursable administrative expenses
incurred in managing specific programs related to the technologies utilized
in the Company's products. The Company is obligated to provide specified
services and to undertake specified activities under its arrangement with the
funding sources for these programs.
Grant funding received in 1996 and 1997 of $840,000 and $389,000
respectively, related to CALSTART, Inc., a not-for-profit consortium of
public and private entities (Note 14) which was organized to support programs
designed to promote the development of advanced transportation including the
advancement of electric vehicles. The Company did not receive any grant
funding in 1998.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company leases its facility in Irwindale, California for $20,000 per
month under an agreement which expires December 31, 2002. Rent expense under
all of the Company's operating leases was $595,000, $415,000 and $266,000 for
1996, 1997 and 1998, respectively. Future minimum lease payments under this
lease are $240,000 in 1999, 2000, 2001 and 2002.
The Company has entered into certain office and computer equipment leases
under long-term lease arrangements which are reported as capital leases. The
terms of the leases range from three to five years with interest rates
ranging from 11.8% to 19.7%. Future minimum lease payments under these
capital leases are $45,000, $13,000, $6,000 and $6,000, respectively, for
years ending December 31, 1999, 2000, 2001 and 2002 of which $6,000
represents total interest to be paid and $39,000 was included in accounts
payable at December 31, 1998.
NOTE 14 -- RELATED PARTY TRANSACTIONS
Dr. Bell, Chairman of the Board and the principal shareholder of the Company,
co-founded CALSTART (Note 12) in 1992, served as its interim President, and
for the last five years has served on CALSTART's Board of Directors and is a
member of its Executive Committee. Included in accounts receivable at
December 31, 1997 and 1998 was a receivable owed to the Company from CALSTART
of $153,000 and $41,000, respectively, relating primarily to amounts withheld
from payments made by CALSTART under several grant programs. In addition, in
December 1995, the Company signed a thirteen-month lease with CALSTART for a
24,000 square foot manufacturing and office facility located in Alameda,
California for an advance payment of $450,000 and $11,000 per month. The
lease expired in 1997.
The Company leases its current facilities from a partnership which is
controlled by Dr. Bell. The Company believes that the terms of the lease are
at least as favorable as those that could be obtained from other lessors.
F-13
<PAGE>
NOTE 15 -- JOINT VENTURE AGREEMENT
On July 24, 1997, the Company entered into a joint venture agreement with
Yazaki Corporation ("Yazaki") to develop and market the Company's Interactive
Voice System (IVS-TM-), a voice activated navigation system. Under the terms
of the agreement, the Company received $1,800,000 in cash and a note
receivable for $1,000,000 in consideration for the net assets related to
Amerigon's voice interactive technology totaling $89,000. In addition, the
Company incurred costs of $348,000 associated with the sale. In 1998, the
Company received approximately $971,000 in payment of the remaining
$1,000,000 noted above. The $971,000 is net of approximately $29,000 of prior
year navigation system related expenses owed by Amerigon to IVS.
On December 16, 1998, the Company entered into a Letter Agreement with a
group of Companies controlled by Sudaishan K. Maini (the "Maini Group") to
develop and market the Company's electric vehicle systems ("EV"). Under the
terms of the Letter Agreement, the Company would receive a 25% interest in a
company to be formed as well as received royalties in exchange for
contribution of certain assets and technology to the joint venture. The
Company's net book value of such assets was nil at December 31, 1998. This
agreement will be assigned to a subsidiary to be formed by the Company
(Note 17).
NOTE 16 -- SEGMENT REPORTING
In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" which requires the Company to disclose
certain segment information used by management for making operating decisions
and assessing the performance of the Company. Essentially, management
evaluates the performance of its segments based primarily on operating
results before depreciation and selling, general and administrative costs.
Such accounting policies used are the same as those described in Note 3.
The Company's reportable segments are as follows:
- - CLIMATE CONTROL SEATS (CCS) - variable temperature seat climate control
system designed to improve the temperature comfort of automobile
passengers.
- - RADAR - radar-based sensing system that detects objects that reflects radar
signals near the automobile and provides an audible or visual signal as the
driver approaches the object.
- - ELECTRIC VEHICLE SYSTEMS (EV) - design and development of electric vehicles
and related components. The Company is currently in the process of
formalizing a joint venture for its electric vehicles systems (Note 15).
- - INTERACTIVE VOICE NAVIGATION (IVS-TM-) - voice recognition technology
incorporating proprietary features and computer systems which allows the
driver to receive directions to their destination while driving their
vehicle. In 1997, the Company entered into a joint venture agreement
whereby all related assets were sold (Note 15).
The table below presents information about the reported revenues and
operating loss of Amerigon for the years ended December 31, 1998, 1997 and
1996 (in thousands). Asset information by reportable segment is not reported,
since management does not produce such information.
<TABLE>
<CAPTION>
RECONCILING AS
CCS RADAR EV IVS-TM- ITEMS REPORTED
------- ------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998
Revenue $ 396 $ 329 $ 45 $ - $ - $ 770
Operating loss (2,844) (455) (545) - (1)(4,098) (7,942)
1997
Revenue 451 135 611 111 - 1,308
Operating loss (978) (702) (1,194) (501) (1)(4,471) (7,846)
1996
Revenue 258 311 6,168 710 7,447
Operating loss (17) (378) (4,904) (1,125) (1)(3,410) (9,834)
</TABLE>
(1) Represents selling, general and administrative costs of $3,053,000,
$4,309,000 and $3,516,000, respectively, including
F-14
<PAGE>
depreciation expense of $357,000, $162,000 and $482,000, respectively,
for years ended December 31, 1998, 1997 and 1996.
Revenue information by geographic area (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1996 1997 1998
----------------- ---------------- -----------------
<S> <C> <C> <C>
United States - Commercial $ 598 $ 211 $ 58
United States - Government 1,700 416 103
Asia 5,114 556 461
Europe 35 125 148
----------------- ---------------- -----------------
Total Revenues $ 7,447 $ 1,308 $ 770
----------------- ---------------- -----------------
----------------- ---------------- -----------------
</TABLE>
In 1998, three customers, two foreign (CCS) and one government (Radar)
represented 12%, 30% and 13% of the Company's sales. In 1997, three
customers, one foreign and one government (EV) and one foreign (CCS/Radar)
represented 11%, 30% and 19% of the Company's sales. In 1996, two customers,
one foreign and one government (EV) represented 63% and 15% of the Company's
sales.
NOTE 17--SUBSEQUENT EVENTS
On January 28, 1999, the Company effected a 1 for 5 reverse stock split.
Share information for all periods has been retroactively adjusted to reflect
the split.
On March 23, 1999, the Company's Board of Directors agreed to form a
subsidiary to hold the Company's electric vehicle systems ("EV") operations
(Note 15). Pursuant to discussions held among the Company's Board of
Directors and Dr. Bell, Chairman of the Board and a significant shareholder
of the Company, the Company agreed to sell to Dr. Bell a 15% interest in the
EV subsidiary for $88,000. The Board of Directors also approved a proposal to
sell to Dr. Bell its remaining 85% interest in the EV subsidiary in exchange
for all of his Class B Common Stock (to be released from escrow April 30,
1999) in order to satisfy a condition of the proposed financing described
below. The Class B Common Stock will be cancelled. The sale of the remaining
interest in the EV subsidiary is subject to shareholder approval. The net
assets of the EV operation were nil at December 31, 1998.
On March 23, 1999, the Board of Directors approved a proposed financing
transaction (the "Financing") with an investor group. Under the terms of the
Financing the Company will issue 9,000 shares of Series A Preferred Stock and
Warrants to purchase up to 1,651,180 shares of Class A Common Stock in
exchange for $9,000,000. The Series A Preferred Stock will initially be
convertible into 5,373,134 shares of Class A Common Stock. The Financing is
subject to shareholder approval. It is anticipated that an affiliate of the
investor group will extend up to $1,200,000 in loans bearing interest at 10%
per annum which is due and payable upon the earlier of the closing of the
Financing or September 30, 1999. The affiliate will also receive warrants to
purchase 300,000 shares of Class A Common Stock.
F-15
<PAGE>
AMERIGON INCORPORATED
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS
BEGINNING OF COSTS AND OTHER FROM BALANCE AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
----------- ------------ ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 31, 1996............... $ 100 $ 80 $ - $ (100) $ 80
Year Ended December 31, 1997 .............. 80 - - - 80
Year Ended December 31, 1998............... 80 27 - (6) 101
ALLOWANCE FOR DEFERRED INCOME TAX ASSETS
Year Ended December 31,1996................ 3,919 3,242 - - 7,161
Year Ended December 31, 1997 .............. 7,161 2,118 - - 9,279
Year Ended December 31,1998................ 9,279 2,726 - - 12,005
</TABLE>
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERIGON INCORPORATED
By: /s/ Lon E. Bell
------------------
Lon E. Bell, Ph.D.
CHIEF EXECUTIVE OFFICER
AND
CHAIRMAN OF THE BOARD
March 29, 1999
--------------------
(Date)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Lon E. Bell Chief Executive Officer and Chairman of the Board March 29, 1999
-----------------------------
Lon E. Bell, Ph. D.
/s/ Richard A. Weisbart President and Chief Operating Officer March 29, 1999
-----------------------------
Richard A. Weisbart
/s/ Roy A. Anderson Director March 29, 1999
-----------------------------
Roy A. Anderson
/s/ John W. Clark Director March 29, 1999
-----------------------------
John W. Clark
/s/ Michael R. Peevey Director March 29, 1999
-----------------------------
Michael R. Peevey
/s/ Scott O. Davis Chief Financial Officer and Secretary March 29, 1999
-----------------------------
Scott O. Davis
</TABLE>
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
AMERIGON INCORPORATED
Lon E. Bell and Scott O. Davis certify that:
1. They are the duly elected and acting Chairman of the Board and
Secretary, respectively, of Amerigon Incorporated, a California corporation (the
"Corporation").
2. Article III, paragraph (1) of the Corporation's Amended and
Restated Articles of Incorporation is amended to read as follows:
"(1) The total number of shares which the Corporation is authorized
to issue is 25,600,000, of which 20,000,000 shall be Class A Common
Stock, without par value, 600,000 shall be Class B Common Stock,
without par value, and 5,000,000 shall be Preferred Stock, without par
value.
On the effective date of the filing of this Amendment to the Amended
and Restated Articles of Incorporation (the "Effective Date"), the
Class A Common Stock of the Corporation will be reverse split on a
one-for-five basis so that each share of Class A Common Stock issued
and outstanding immediately prior to the Effective Date shall
automatically be converted into and reclassified as one-fifth a share
of Class A Common Stock (the "Reverse Split"). No fractional shares
will be issued by the Corporation as a result of the Reverse Split.
In lieu thereof, each shareholder whose shares of Class A Common Stock
are not evenly divisible by five will receive an amount of cash equal
to the average of the last sale price of the pre-split Class A Common
Stock, as reported on the NASDAQ Small Cap Market (or other market on
which the Class A Common Stock is trading) for the ten trading days
immediately preceding the Effective Date."
3. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the Board of Directors of the
Corporation.
4. The Corporation has only shares of Class A Common Stock
outstanding. The foregoing amendment has been duly approved by the required
vote of shareholders in accordance with Section 902 of the California General
Corporation Law; the total number of outstanding shares of the Corporation is
12,550,445; the number of shares voting in favor of the amendment equaled or
exceeded the vote required; and the percentage vote required was more than 50%
of the outstanding shares.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
<PAGE>
Executed at Irwindale, California, on January 25, 1999.
/s/ Lon E. Bell
------------------------------------
Lon E. Bell
/s/ Scott O. Davis
------------------------------------
Scott O. Davis
2
<PAGE>
TERMINATION OF
LIMITED EXCLUSIVE LICENSE AGREEMENT
FOR
ULTRA-WIDEBAND (UWB) IMPULSE RADAR-BASED
TECHNOLOGY
FOR AUTOMOTIVE FIELD OF USE
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
AMERIGON, INCORPORATED
LLNL CASE NO. TL-796-94
LAWRENCE LIVERMORE NATIONAL LABORATORY
UNIVERSITY OF CALIFORNIA
P.O. BOX 808, L-795, LIVERMORE, CA 94550
INDUSTRIAL PARTNERSHIPS AND COMMERCIALIZATION
JUNE, 1998
<PAGE>
TERMINATION OF
LICENSE AGREEMENT NO. TL-796-94
FOR ULTRA-WIDEBAND (UWB)
IMPULSE RADAR-BASED TECHNOLOGY
FOR AUTOMOTIVE FIELD OF USE
BETWEEN THE REGENTS of the University of (Licensor) and Amerigon,
Incorporated (Licensee).
WHEREAS, Licensee desires to terminate the subject Limited Exclusive
License and replace it with a Non Exclusive License;
WHEREAS, Licensor desires to terminate TL-796-94 and to replace it with a
separate Non Exclusive License covering the Transportation Field of Use;
NOW THEREFORE, in consideration and mutual covenants contained herein, the
parties hereto agree as follows:
1. Subject to the following changes in the subject agreement and the
simultaneous execution of a Non Exclusive License for the transportation
field of use covering the Ultra-Wideband Impulse Radar-Base Technology
Licensee and Licensor hereby terminate the subject agreement under Article
11, effective ___________________, 1998.
2. Based on the termination of the license and it's replacement with a Non
Exclusive License, the 90 day requirement for notice in Article 11 and all
future minimum annual fees under part C in Exhibit 2 are waived including
$200,000 which was due January 1, 1998.
1
<PAGE>
IN WITNESS WHEREOF, both THE REGENTS and the LICENSEE have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year hereinafter written.
AMERIGON, INCORPORATED THE REGENTS OF THE UNIVERSITY, OF CALIFORNIA
By: /s/ LON E. BELL By:
----------------------------- ------------------------------------
(Signature) (Signature)
Name: Lon E. Bell Name:
---------------------------- ------------------------------------
Title: CEO Title:
---------------------------- ------------------------------------
Date signed: July 20, l998 Dated signed:_________________________, 1998
2
<PAGE>
LIMITED NONEXCLUSIVE
LICENSE AGREEMENT
FOR
MICROPOWER ULTRA-WIDEBAND IMPULSE RADAR
FOR TRANSPORTATION
FIELD OF USE
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
AMERIGON, INCORPORATED
LLNL CASE NO. TL-1556-98
LAWRENCE LIVERMORE NATIONAL LABORATORY
UNIVERSITY OF CALIFORNIA
P.O. BOX 808, L-795, LIVERMORE, CA 94550
INDUSTRIAL PARTNERSHIPS AND COMMERCIALIZATION
JUNE, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. LICENSE GRANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4. ROYALTIES AND PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5. DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
6. PROGRESS AND ROYALTY REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. LIFE OF THE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10. TERMINATION BY THE REGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 13
11. TERMINATION BY LICENSEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. DISPOSITION OF LICENSED PRODUCT(S) ON HAND UPON TERMINATION . . . . . . . . . 14
13. PATENT PROSECUTION AND MAINTENANCE. . . . . . . . . . . . . . . . . . . . . . 15
14. USE OF NAMES AND TRADEMARKS AND NONDISCLOSURE AGREEMENT . . . . . . . . . . . 17
15. LIMITED WARRANTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
16. PATENT INFRINGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17. WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18. ASSIGNABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 20
20. LATE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
21. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
22. GOVERNING LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
23. PATENT MARKING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
24. GOVERNMENT APPROVAL OR REGISTRATION . . . . . . . . . . . . . . . . . . . . . 24
25. EXPORT CONTROL LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
26. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
27. U.S. COMPETITIVENESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
28. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
EXHIBIT A -"THE REGENTS' LICENSED PATENT(S)\ . . . . . . . . . . . . . . . . . . . 28
EXHIBIT B - LICENSE FEES AND ROYALTY RATE. . . . . . . . . . . . . . . . . . . . . 31
EXHIBIT C - FIELD OF USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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i
<PAGE>
LIMITED NONEXCLUSIVE LICENSE AGREEMENT FOR
MICROPOWER ULTRA-WIDEBAND IMPULSE RADAR
FOR TRANSPORTATION FIELD OF USE
This Agreement is by and between THE REGENTS of the University of California
(hereinafter referred to as "THE REGENTS"), a corporation organized and
existing under the laws of the State of California, and having its statewide
administration address at 300 Lakeside Drive, Oakland, California 94612-3550,
and Amerigon, Incorporated, a corporation organized and existing under the
laws of the State of California and having its principal place of business at
5462 Irwindale Avenue, Irwindale, CA 91706-2058 (hereinafter referred to as
"LICENSEE"). Both THE REGENTS and LICENSEE are hereinafter jointly referred
to as the "Parties". Upon THE REGENTS receipt of LICENSEE's payment of the
License Issue Fee described in Exhibit B (LICENSE FEES AND ROYALTY RATE),
this Agreement is effective from the date of execution by the last signing
party ("Effective Date"). This Agreement and the resulting license is
subject to overriding obligations to the Federal Government pursuant to the
provisions of THE REGENTS' Contract No. W-7405-ENG-48 with the United States
Department of Energy (DOE) for the operation of the Lawrence Livermore
National Laboratory ("LLNL") and DOE's grant of patent rights to THE REGENTS.
1. BACKGROUND
1.1 The development of the Licensed Patents (as later defined herein) was
sponsored in part by the U.S. Department of Energy ("DOE") and, as a
consequence, this Agreement and the resulting license is subject to
overriding obligations to the Federal Government pursuant to the
provisions of the applicable contract and/or regulations.
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1
<PAGE>
1.2 THE REGENTS is desirous that the Licensed Patents be developed and
utilized to the fullest extent so that the benefits can be enjoyed by
the general public, and is willing to grant a nonexclusive license
thereunder.
1.3 LICENSEE has represented to THE REGENTS to induce THE REGENTS to enter
into this Agreement, that LICENSEE is experienced in the development,
production, manufacture, marketing and sale of products similar to
the "Licensed Product(s)" (as later defined herein), and that it
shall commit itself to utilizing THE REGENTS' Licensed Patents
commercially so that public benefit and royalty income to THE
REGENTS shall result therefrom; and
1.4 LICENSEE represents Licensed Product(s) or part thereof shall be
integrated into stand alone/end use products by LICENSEE and not
sold by the LICENSEE in any other form, such as electronic chips or
circuit boards independent of an integrated stand alone or end use
product except for complete functioning circuit boards sold as end
products less enclosures to original equipment manufacturers.
1.5 LICENSEE desires to obtain a limited nonexclusive license under THE
REGENTS' Licensed Patents upon the terms and conditions hereinafter set
forth.
THEREFORE the parties agree as follows:
2. DEFINITIONS
2.1 "Affiliate(s)" of a party means any entity which, directly or indirectly,
controls such party, is controlled by such party or is under common control
with such party;
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2
<PAGE>
"control" for these purposes being defined as the actual, present
capacity to elect a majority of the directors of such Affiliate, or
if not, the capacity to elect at least half of the members that control
at least fifty percent (50%) of the outstanding stock or other
voting rights entitled to elect directors; provided, however, that
in any country where the local law shall not permit foreign equity
participation of a majority, then an "Affiliate" shall include any
company in which LICENSEE shall own or control, directly or
indirectly, the maximum percentage of such outstanding stock or
voting rights permitted by local law. Each reference to LICENSEE
herein shall be meant to include its Affiliate(s).
2.2 "Field of Use" shall mean the applications of the Licensed Product(s) as
listed in Exhibit C (FIELD OF USE), which is attached hereto.
2.3 "Licensed Patent(s)" means the United States patents and corresponding
foreign patents enumerated in Exhibit A ("THE REGENTS' LICENSED
PATENT(S)") attached to this Agreement. Licensed Patents shall not
include improvement patents, continuations in part applications,
patents and certificates of addition and utility models and patents
which may issue thereupon.
2.4 A "Licensed Product" shall mean any and all products and methods which:
(a) is covered in whole or in part by an issued, unexpired claim or a
pending claim contained in THE REGENTS' Licensed Patent(s) in the
Territory and/or
(b) which employ or are produced by the practice of the inventions
claimed in issued patents of the Licensed Patents and/or
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3
<PAGE>
(c) employ or are produced by the practice of the invention claimed in
THE REGENTS Licensed Patent(s) whose manufacture, use or sale would
constitute, but for the license granted to LICENSEE pursuant to this
Agreement, an infringement of any claim in THE REGENTS' Licensed
Patents.
2.5 "Net Sales" shall mean LICENSEE's billings for Licensed Product(s)
produced hereunder, less the sum of the following:
(a) discounts allowed in amounts customary in the trade;
(b) sales taxes, customs and tariff duties, and/or use taxes which are
directly imposed and are with reference to particular sales;
(c) outbound transportation prepaid or allowed;
(d) amounts allowed or credited on returns; and
(e) with respect to foreign sales, LICENSEE may reduce the Net Sales by
any value-added taxes imposed by the government of such countries
before computing the royalties due.
Net Sales shall not include sales to the U.S. Government. No deductions
shall be made for commissions paid to individuals whether they be with
independent sales agencies or regularly employed by LICENSEE and on its
payroll, or for cost of collections. Licensed Product(s) shall be
considered "sold" when billed out or invoiced.
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4
<PAGE>
2.6 "Net Selling Price" as used in this Agreement for the purpose of computing
royalties shall mean gross invoice selling price of the Licensed Product,
less the deductions under section 2.5. Net Selling Price to the U.S.
Government shall be reduced by the amount of the royalty payment.
2.7 "Territory": Worldwide
3. LICENSE GRANT
3.1 Subject to the terms of this Agreement, THE REGENTS hereby grants to the
LICENSEE a nontransferable, nonexclusive, royalty-bearing license
under THE REGENTS' Licensed Patents to make, have made, use, lease,
and sell the Licensed Product(s) in the Territory as limited by
Article 13 (PATENT PROSECUTION AND MAINTENANCE) for the
Field-of-Use set forth under Article 2.2 for the term set forth
under Article 8 (LIFE OF THE AGREEMENT), unless sooner terminated
according to the terms hereof.
The license granted hereunder shall not be construed to confer any rights
upon the LICENSEE by implication, estoppel, or otherwise as to any
technology or know-how not specifically set forth herein.
The LICENSEE is not licensed to make, have made, use, lease or sell
electronic chips, separate components or circuit boards covered by or
derived from THE REGENTS Licensed Patent(s) or Licensed Product(s) to
others independent of an integrated stand alone or end use Licensed
Product except for complete functioning circuit boards sold as end
products less enclosures to original equipment manufacturers.
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5
<PAGE>
Any license granted hereunder shall be subject to the prior license
retained by the Federal Government which consists of a non-exclusive,
nontransferable, irrevocable, paid-up license to practice THE REGENTS
Licensed Patent(s) for or on behalf of the United States throughout the
world.
3.2 The parties acknowledge that the Federal Government has certain march-in
rights to THE REGENTS' Licensed Patent(s) in accordance with 35 USC 203.
3.3 No rights to sublicense are granted under this license Agreement.
4. ROYALTIES AND PAYMENTS
4.1 The license issue fee and royalty rate for the license that is the subject
of this Agreement shall be in accordance with this Article 4.
4.2 Royalties and fees due hereunder shall accrue and be paid to THE REGENTS
according to this Article 4 and the attached Exhibit B (LICENSE FEES AND
ROYALTY RATE), which is incorporated herein.
4.3 Where Licensed Product(s) are not sold, but are otherwise disposed of or
used, the Net Selling Price of such products and/or processes for
the purposes of computing royalties shall be the selling price at
which products of similar kind and quality, sold in similar
quantities, are currently being offered for sale by the LICENSEE.
Where such products are not currently being offered for sale by the
LICENSEE, the Net Selling Price of products otherwise disposed of
or used, for the purpose of computing royalties, shall be the
average selling price at which products of similar kind and
quality, sold in similar
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6
<PAGE>
quantities, are then currently being offered for sale by other
manufacturers. Where such products are not currently sold or offered
for sale by others, then the Net Selling Price, for the purpose
of computing royalties, shall be the LICENSEE's cost of manufacture
determined by LICENSEE's customary accounting procedures, plus the
LICENSEE's standard mark-up. The LICENSEE shall keep track of Licensed
Product(s) used internally by the LICENSEE for process development, test,
demonstration, prototype samples for the purpose of creating customer
interest or acceptance, or Licensed Product(s) manufactured but unsold and
unused but these shall not be subject to royalty payments until otherwise
used.
4.4 Under this Agreement, Licensed Product(s) shall be considered to be sold
when invoiced, or if not invoiced, when delivered for use or lease to a
third party or use by LICENSEE not excluded above, except that upon
expiration of all Licensed Patents covering such Licensed Product(s), or
upon any termination of license, all shipments made on or prior to the day
of such expiration or termination which have not been billed out prior
thereto shall be considered as sold (and therefore subject to royalty).
Royalties paid on Licensed Product(s) which are not accepted by the
LICENSEE's customer shall be credited to the LICENSEE.
4.5 The LICENSEE shall pay to THE REGENTS a minimum annual royalty as defined
in Exhibit B (LICENSE FEE AND ROYALTY RATE). This minimum annual royalty
shall be paid to THE REGENTS by January 1 of each year and shall be
credited against the earned royalty due and owing for that calendar year.
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7
<PAGE>
4.6 The LICENSEE shall pay to THE REGENTS an earned royalty, as defined in the
attached Exhibit B (LICENSE FEE AND ROYALTY RATE), on all Licensed
Product(s) sold or used by the LICENSEE.
4.7 Earned royalties for Licensed Product(s) sold under this Agreement in any
country in the Territory shall accrue to THE REGENTS for the duration of
THE REGENTS' Licensed Patent(s) in the United States.
4.8 Earned royalties accruing to THE REGENTS shall be paid to THE REGENTS by
February 28, May 31, August 31, and November 30. Each payment to THE
REGENTS will be for any and all royalties which accrued to THE REGENTS
within the most recently completed calendar quarter, less any credits for
minimum royalties paid per Article 4.5 above.
4.9 All monies due THE REGENTS shall be payable in United States funds
collectible at par in San Francisco, California. When Licensed Product(s)
are sold for monies other than United States dollars, the earned royalties
will first be determined in the foreign currency of the country in which
Licensed Product(s) were sold and then converted into equivalent United
States Funds. The exchange rate will be that established by the Bank of
America in New York, New York on the last business day of the reporting
period and will be quoted in the Continental terms methods of quoting
exchange rates (local currency per U.S. dollar). The LICENSEE shall be
responsible for all bank transfer charges.
4.10 If at any time legal restrictions prevent the prompt remittance by the
LICENSEE of part or all royalties due with respect to any country outside
the United States where a
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8
<PAGE>
Licensed Product is sold, the LICENSEE shall have the right and option
to make such payments by depositing the amount thereof in local
currency to THE REGENTS' account in a bank or other depository in such
country.
4.11 No royalties shall be collected or paid hereunder on Licensed Product(s)
distributed to or used by the United States Government, including any
agency thereof and the amount charged for such sales to the United States
Government will be reduced by an amount equal to the royalty otherwise due
THE REGENTS.
4.12 Notwithstanding any other provision of this Agreement, no royalty payments
are due or payable on any products not covered by outstanding patent
filing(s) or then currently valid Licensed Patent(s).
5. DUE DILIGENCE
5.1 The LICENSEE, upon execution of this Agreement, shall diligently proceed
with the development, manufacture and sale of Licensed Product(s)
and shall earnestly and diligently endeavor to market the same
within a reasonable time after execution of this Agreement and in
quantities sufficient to meet the market demands, and to comply
with the minimum royalties specified in part C of Exhibit B
(LICENSE FEE AND ROYALTY RATE). LICENSEE is solely responsible for
designing, developing, engineering and commercializing the Licensed
Product(s).
5.2 The LICENSEE shall be entitled to exercise prudent and reasonable business
judgment in meeting its due diligence obligations in accordance with this
Agreement.
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9
<PAGE>
5.3 The LICENSEE shall demonstrate a continuing effort to market the Licensed
Product(s) to meet market demands following the LICENSEE's first offer of
Licensed Product(s) for sale.
6. PROGRESS AND ROYALTY REPORTS
6.1 Prior to the first sale of Licensed Product(s) anywhere in the world,
the LICENSEE shall submit a progress report covering the LICENSEE's
activities related to the development and testing of the Licensed
Product(s). After the first such sale and/or commercial use, the
LICENSEE shall submit a quarterly royalty report by February 28,
May 31, August 31, and November 30 of each calendar year for the
most recently completed calendar quarter, giving such particulars
of the business conducted by the LICENSEE under this Agreement as
shall be pertinent to a royalty accounting hereunder. These shall
include at least the following:
(a) number of Licensed Product(s) in each application manufactured and
sold or otherwise subject to royalty payments under Article 4
(ROYALTIES AND PAYMENTS) by country;
(b) the gross sales, net sales and Net Selling Price of Licensed
Product(s) sold by LICENSEE during the most recently completed
calendar quarter;
(c) the royalties, in U.S. dollars, payable hereunder with respect to
such sales;
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10
<PAGE>
(d) with each report submitted, the LICENSEE shall pay to THE REGENTS the
royalties due and payable under this Agreement. If no royalties shall
be due, the LICENSEE shall so report.
6.2 On or before the one-hundred-twentieth (120th) day following the close
of the LICENSEE's fiscal year, the LICENSEE shall provide THE
REGENTS with the LICENSEE's certified financial statements for the
preceding fiscal year including, at a minimum, a Balance Sheet and
an Operating Statement, which are to be protected as proprietary
information and not disseminated to other parties.
6.3 If no sale or use of Licensed Product(s) has been made during any
reporting period, a statement to that effect shall be required in
the royalty report filed for that period.
7. BOOKS AND RECORDS
7.1 The LICENSEE shall keep books and records accurately showing all Licensed
Product(s) developed, manufactured, used, and/or leased and/or sold or
otherwise disposed of under the terms of this Agreement. Such books and
records shall be preserved for at least five (5) years from the date of the
royalty payment to which they pertain and shall be open to inspection by
representatives or agents of THE REGENTS at all reasonable times, provided
that reasonable notice is given.
7.2 The fees and expenses incurred by THE REGENTS' representatives or agents to
perform an examination of the royalty reports shall be borne by THE
REGENTS. However, if an error in royalties accounting of more than five
percent (5%) of the total royalties due for
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11
<PAGE>
any year is discovered, then the fees and expenses incurred by THE
REGENTS' examination shall be borne by LICENSEE.
8. LIFE OF THE AGREEMENT
8.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this
Agreement shall be in force from the Effective Date and shall
remain in force for the life of the last-to-expire issued patent of
the Licensed Patent(s) licensed under this Agreement. As patents
expire, Licensed Product(s) covered by an expired patent but not by
other Licensed Patent(s) will not be subject to further royalty
payments.
8.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:
Article 7 Books and Records
Article 13 Patent Prosecution and Maintenance
Article 14 Use of Names and Trademarks
Article 19 Indemnification and Insurance
Article 25 Export Control Laws
9. DISPUTES
9.1 The Parties shall attempt to jointly resolve all disputes (such joint
resolution may include non-binding arbitration) arising from this
Agreement. If the Parties are unable to jointly resolve a dispute
within a reasonable time, then the Parties or either of them shall
have the right to commence proceedings in a court of competent
jurisdiction. U.S. Federal law
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12
<PAGE>
is to govern the Agreement to the extent there is such law. To the
extent that there is no applicable U.S. Federal law, this Agreement and
performance thereunder shall be governed by the law of the State of
California without reference to that State's conflicts of law provisions.
10. TERMINATION BY THE REGENTS
10.1 The right to terminate this Agreement, if exercised by THE REGENTS,
supersedes the rights granted in Article 3 (LICENSE GRANT). If the
LICENSEE should fail to perform any material term or covenant of this
Agreement, THE REGENTS may give written notice of such default
("Notice of Default") to the LICENSEE. If the LICENSEE should fail
to remedy with satisfaction and tangible evidence that the
deficiency has been cured within sixty (60) days of the effective
date of such Notice of Default, THE REGENTS shall have the right to
terminate this Agreement and the licenses granted herein by a
second written notice ("Notice of Termination"). If Notice of
Termination is sent to the LICENSEE, this Agreement shall
automatically terminate on the effective date of such notice. The
LICENSEE's failure to pay any royalty or other fee by the date required
under Exhibit B (LICENSE FEE AND ROYALTY RATE) shall be considered
to be a material breach subject to termination of the license.
Termination of this Agreement shall not relieve the LICENSEE of any
obligation or liability accrued hereunder prior to such termination, or
rescind any payments due or paid to THE REGENTS hereunder prior to
the time such termination becomes effective. Such termination shall
not affect, in any manner, any rights of THE REGENTS arising under
this Agreement prior to such termination.
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<PAGE>
11. TERMINATION BY LICENSEE
11.1 The LICENSEE shall have the right at any time to terminate this
Agreement by giving notice in writing to THE REGENTS. Termination
of this Agreement by the LICENSEE shall be effective ninety (90)
days from the effective date of such notice. Any termination of
this Agreement shall not affect the rights and obligations set
forth in Article 8.2.
12. DISPOSITION OF LICENSED PRODUCT(S) ON HAND UPON TERMINATION
12.1 Upon termination of this Agreement for any reason other than expiration
of Licensed Patent(s), LICENSEE shall provide THE REGENTS, within
forty-five (45) days following the effective date of termination,
with a written inventory of all Licensed Product(s) in process of
manufacture or in stock, and shall dispose of such Licensed
Product(s) within one hundred and twenty (120) days of the
effective date of termination, provided, however, that the sales of
all such Licensed Product(s) shall be subject to the terms of this
Agreement.
13. PATENT PROSECUTION AND MAINTENANCE
13.1 THE REGENTS shall at its sole discretion pursue and maintain the Licensed
Patent(s) using counsel of its choice, and such Licensed Patents will
be held in the name of THE REGENTS. THE REGENTS shall have the
exclusive rights to control the prosecution of the Licensed Patents.
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<PAGE>
13.2 THE REGENTS may, at its sole discretion, amend any patent application to
include claims requested by the LICENSEE to reasonably protect the
products contemplated to be sold or methods used under this Agreement.
13.3 The cost of preparing, filing, prosecuting and maintaining the United
States Licensed Patents enumerated in Exhibit A ("THE REGENTS' LICENSED
PATENT(S)") shall be borne by THE REGENTS.
13.4 If LICENSEE wishes to obtain foreign license rights on certain specified
Licensed Patent(s), then LICENSEE shall request and pay for, as
provided in this Article 13, the REGENTS' patent protection in
those foreign countries if available. LICENSEE must notify THE
REGENTS immediately following the effective date of this license of
its decision to request these license rights. The notice concerning
foreign filing shall be in writing and must identify the countries
desired. The absence of such a notice to THE REGENTS shall be
considered as an election not to desire such foreign license
rights. THE REGENTS shall provide LICENSEE with an estimate of the
foreign filing costs and may request an up front payment prior to
pursuing such foreign filing. THE REGENTS may at its sole
discretion then obtain patent protection on the specified Licensed
Patents in foreign countries if available. Such foreign-filed
patents shall be held in the name of THE REGENTS and shall be
obtained using counsel of THE REGENTS' choice. Estimates of patent
charges to be shared are defined in Article 13.5 and the REGENTS
may request an up front payment.
13.5 The preparation, filing, and prosecution of foreign patent applications,
as well as the maintenance of the resulting patents, shall be at
the shared expense of all royalty paying
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15
<PAGE>
Licensees to the Licensed Patents that have requested and been granted
such foreign license rights. THE REGENTS shall invoice LICENSEE for
payment of its share of costs for foreign patent application preparation,
filing, prosecution, and maintenance. If such payment is not received
within ninety (90) days, such foreign license rights shall be
automatically excluded from this license agreement. Any overpayments
by LICENSEE for foreign patent filing and maintenance costs resulting
from sharing of such costs by other Licensees shall be credited
towards LICENSEE's future foreign patent cost obligations.
13.6 LICENSEE's obligation to underwrite and to pay its share of patent
prosecution costs shall continue for so long as this Agreement remains in
effect, unless LICENSEE terminates its obligations with respect to any
given patent application or patent upon ninety (90) days written notice to
THE REGENTS. THE REGENTS will use its best efforts to curtail patent costs
when such notice is received from LICENSEE. THE REGENTS may continue
prosecution and/or maintenance of such application(s) or patent(s) at its
sole discretion. In that event, LICENSEE shall have no further rights or
licenses thereunder.
13.7 THE REGENTS shall have the right to file patent applications at its own
expense in any country in which LICENSEE has not elected to desire
patent rights, and such applications and resultant patents shall
not be subject to this Agreement. Such foreign patent rights shall
be excluded from this Agreement.
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<PAGE>
14. USE OF NAMES AND TRADEMARKS AND NONDISCLOSURE AGREEMENT
14.1 Nothing contained in this Agreement shall be construed as conferring any
right to use in advertising, publicity or other promotional activities any
name, trade name, trademark, or other designation of either party hereto
(including any contraction, abbreviation, or simulation of any of the
foregoing). The use of the name "LLNL" or "The Regents of the University
of California" or the name of any University of California campus is
expressly prohibited.
It is understood that THE REGENTS shall be free to release to the
inventors the terms and conditions of this Agreement upon request
of the inventors. If such release is made, THE REGENTS shall
request that the inventors not disclose such terms and conditions
to others. It is further understood that should a third party
inquire whether a license to Licensed Patents is available, THE
REGENTS may disclose the existence of this Agreement and the extent
of the grant in Article 3 (LICENSE GRANT) to such third party, but
shall not disclose the terms of this Agreement or the name of The
LICENSEE, except where THE REGENTS is required to release
information under either the California Public Records Act or other
applicable law.
15. LIMITED WARRANTY
15.1 THIS LICENSE AND THE ASSOCIATED REGENTS' INTELLECTUAL PROPERTY RIGHTS IS
PROVIDED WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO
REPRESENTATION OR
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WARRANTY THAT THE REGENTS' INTELLECTUAL PROPERTY RIGHTS,
LICENSED PATENT(S) LICENSED PRODUCT(S) WILL NOT INFRINGE ANY PATENT OR
OTHER PROPRIETARY RIGHT.
15.2 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE
USE OF THE REGENTS' INTELLECTUAL PROPERTY RIGHTS, LICENSED
PATENT(S) OR LICENSED PRODUCT(S).
15.3 NEITHER THE UNITED STATES DEPARTMENT OF ENERGY, NOR ANY OF ITS EMPLOYEES,
MAKES ANY WARRANTY, EXPRESS OR IMPLIED, OR ASSUMES ANY LEGAL LIABILITY OR
RESPONSIBILITY FOR THE ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY
INFORMATION, APPARATUS, OR PRODUCT DISCLOSED, OR REPRESENTS THAT ITS USE
WOULD NOT INFRINGE PRIVATELY OWNED RIGHTS.
15.4 Nothing in this Agreement shall be construed as:
15.4a A warranty or representation by THE REGENTS as to the validity
or scope of any of THE REGENTS' Licensed Patents;
15.4b A warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this
Agreement is, or will be, free from infringement of patents of
third parties;
15.4c Any obligation to bring or prosecute actions or suits against
third parties for
- -------------------------------------------------------------------------------
18
<PAGE>
patent infringement;
15.4d Conferring by implication, estoppel or otherwise any license or
rights under any patents to THE REGENTS other than Licensed
Patent(s) as defined herein, regardless of whether such patents
are dominant or subordinate to Licensed Patent(s); or
15.4e An obligation to furnish any know-how except copies of patents.
16. PATENT INFRINGEMENT
16.1 In the event that LICENSEE shall learn of any substantial infringement of
any Licensed Patent(s) under this Agreement, LICENSEE shall call THE
REGENTS' attention thereto in writing and shall provide THE REGENTS with
reasonable evidence of such infringement.
17. WAIVER
17.1 It is agreed that no waiver by either party hereto of any breach or default
of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any subsequent and/or similar breach or default.
18. ASSIGNABILITY
18.1 This Agreement is binding upon and shall inure to the benefit of THE
REGENTS, its successors and assigns, but shall be personal to LICENSEE and
not assignable by the LICENSEE.
19
<PAGE>
19. INDEMNIFICATION AND INSURANCE
19.1 The LICENSEE agrees to indemnify, hold harmless and defend THE REGENTS, and
DOE, their officers, employees, and agents; the inventors of the inventions
disclosed in the patents and patent applications in Licensed Patent(s)
against any and all claims, suits, losses, damage, costs, fees, and
expenses resulting from or arising out of exercise of this license. The
LICENSEE shall pay any and all costs incurred by THE REGENTS in enforcing
this indemnification, including reasonable attorney fees. The LICENSEE
shall be solely liable for the LICENSEE's infringement of patents
exclusively licensed to other Licensees as described in Article 2.2 and as
listed in Section IV of Exhibit C (FIELD OF USE) and shall indemnify, hold
harmless, and defend THE REGENTS and DOE, their officers employees and
agents under this Article 19 for any such acts of this infringement.
19.2 The LICENSEE, at its sole cost and expense, shall insure its activities in
connection with this Agreement to fulfill LICENSEE's indemnification
obligation under this Article 19 and obtain, keep in force and maintain
insurance with an insurance company acceptable to THE REGENTS, which
acceptance shall conform to reasonable business standards, as follows: A
minimum level of two million dollars ($2,000,000) of Comprehensive or
Commercial Form General Liability Insurance (including contractual
liability and products liability).
The coverages referred to in this Article 19 shall not in any way limit the
liability of LICENSEE. LICENSEE shall furnish THE REGENTS with certificates
of insurance, including renewals, evidencing compliance with all
requirements at least thirty (30) days
20
<PAGE>
prior to the first commercial sale, or distribution of Licensed Product.
19.2a If such insurance is written on a claims-made form, coverage
shall provide for a retroactive date of placement prior to or
coinciding with the effective date of this License Agreement.
19.2b LICENSEE shall maintain the general liability insurance specified
herein during (a) the period that the Licensed Product or
Licensed Method is being commercially distributed or sold (other
than for the purpose of obtaining regulatory approvals) by the
LICENSEE or by an affiliate, or agent of the LICENSEE and (b) a
reasonable period thereafter, but in no event less than one (1)
year. LICENSEE's failure to maintain this liability insurance
shall be considered a material breach of this license Agreement.
19.3 Insurance coverage as required under Article 19.2 above, shall:
19.3a Provide for a thirty-(30)-day, advance written notice to THE
REGENTS of cancellation or of any modification.
19.3b Indicate that DOE, The Regents of the University of California
and its officers, employees, students, and agents, have been
endorsed thereon as additional insureds.
19.3c Include a provision that the coverages will be primary and will
not participate with, nor will be excess over, any valid and
collectible insurance or program of self-insurance carried or
maintained by THE REGENTS.
21
<PAGE>
19.4 The provisions of this Article 19 shall survive the term of this Agreement.
20. LATE PAYMENTS
20.1 In the event royalty payments or fees are not received by THE REGENTS when
due, the LICENSEE shall pay to THE REGENTS interest charges at the rate of
five percent (5%) plus the rate of interest that is charged by the San
Francisco Federal Reserve Bank to member banks twenty-five (25) days prior
to the date the payment was due.
21. NOTICES
21.1 Any royalty payment, royalty report, notice or other communication required
or permitted to be given to either party hereto shall be in writing and
shall be deemed to have been properly given and to be effective on (a) the
date of delivery if delivered in person, or (b) the fifth (5th) day after
mailing if mailed by first-class certified mail, postage paid, to the
respective addresses given below, or to such other address as shall be
designated by written notice given to the other party as follows:
22
<PAGE>
In the case of the LICENSEE: AMERIGON, INCORPORATED
5462 Irwindale Avenue
Irwindale, CA 91706-2058
Phone: (626) 815-7400
Fax: (626) 815-7401
Attention: President
In the case of THE REGENTS:
All correspondence, original
progress reports, and royalty
reports: Lawrence Livermore National Laboratory
Industrial Partnerships & Commercialization
P.O. Box 808, L-795
7000 East Ave.
Livermore, CA 94550
Attention: Director, IPAC
Facsimile: (510) 423-8988
Payments and copies of
corresponding royalty reports: Lawrence Livermore National Laboratory
P.O. Box 5517
Livermore, CA 94550
22. GOVERNING LAWS
22.1 This Agreement shall be interpreted and construed in accordance with
Federal laws and the laws of the State of California, USA, as modified by
the provisions of University of California/DOE Contract No. W-7405-ENG-48,
without regard to the doctrine of the conflict of laws.
23
<PAGE>
23. PATENT MARKING
23.1 When Licensed Product(s) are made, used and/or sold under Licensed
Patent(s), the LICENSEE agrees to mark all Licensed Product(s), and their
containers, in accordance with the applicable patent marking laws.
24. GOVERNMENT APPROVAL OR REGISTRATION
24.1 If this Agreement or any associated transactions is required by the law of
any nation or be either approved or registered with any governmental
agency, LICENSEE will assume all legal obligations to do so. LICENSEE will
notify THE REGENTS if it becomes aware that this Agreement is subject to a
United States or foreign government reporting or approval requirement.
LICENSEE will make all necessary filings and pay all costs including fees,
penalties, and all other out-of-pocket costs associated with such reporting
or approval process.
25. EXPORT CONTROL LAWS
25.1 The LICENSEE shall observe and comply with all applicable United States and
foreign laws and regulations with respect to the International Traffic in
Arms Regulations (ITAR), and the Export Administration Regulations.
26. FORCE MAJEURE
26.1 No failure or omission by THE REGENTS or the LICENSEE in the performance of
any obligation under this Agreement shall be deemed a breach of this
Agreement or create any liability if the same shall arise from any cause or
causes beyond the control of THE
24
<PAGE>
REGENTS or the LICENSEE including, but not limited, to the following:
Acts of God, acts or omissions of any government or agency thereof,
compliance with requirements, rules, regulations, or orders of any
governmental authority or any office, department, agency, or
instrumentality thereof, fire, storm, flood, earthquake, accident, acts
of the public enemy, war rebellion, insurrection, riot, sabotage,
invasion, quarantine, restriction, transportation embargoes, or failures
or delays in transportation.
27. U.S. COMPETITIVENESS
27.1 The LICENSEE agrees that any and all products produced by practice of the
inventions disclosed in the Licensed Patents anywhere in the world
including, but not limited to, Licensed Product(s) for applications, use,
or sale shall be designed and manufactured substantially in the United
States and that the LICENSEE is not Licensed to make, have made, use and/or
lease the Licensed Product(s) anywhere in the world, including (country of
Licensee), except for the Field of Use set forth under Article 2.2.
28. MISCELLANEOUS
28.1 The headings of the several sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the
meaning or interpretation of this Agreement.
28.2 This Agreement will be binding upon the Parties when it has been executed
by each of the Parties hereto as of the date of execution by the last
signing Party and contingent on THE REGENTS receipt of the Issue Fee
described in Exhibit B (LICENSE FEES AND ROYALTY RATE).
25
<PAGE>
28.3 No amendment or modification hereof shall be valid or binding upon the
Parties unless made in writing and signed on behalf of each Party.
28.4 This Agreement embodies the entire understanding of the Parties and shall
supersede all previous communications, representations, or understandings,
either oral or written, between the Parties relating to the subject matter
hereof.
28.5 In case any of the provisions contained in this Agreement shall be held to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provisions
hereof, but this Agreement shall be construed as if such invalid or illegal
or unenforceable provisions had never been contained herein.
28.6 This Agreement and the exchange of technical information between the
parties pursuant to it are covered by the existing Mutual Nondisclosure
Agreement between the parties.
28.7 NO AGENCY: Neither party named herein shall in any way be considered an
agent of the other.
IN WITNESS WHEREOF, both THE REGENTS and the LICENSEE have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year hereinafter written.
AMERIGON, INCORPORATED THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By: /s/ LON E. BELL
---------------------------
(Signature)
By:_______________________________
(Signature)
26
<PAGE>
Name: /s/ LON E. BELL Name:___________________________
Title: CEO Title:____________________________
Date signed: July 20, 1998 Date signed: _______________, 1998
27
<PAGE>
EXHIBIT A -"THE REGENTS' LICENSED PATENT(S)"
The Licensed Patents are as follows:
IL-909lA, "Ultra-Wideband Receiver," (U.S. Patent No. 5,345,471), issued on
9/6/94, by Thomas Edward McEwan
IL-909lB, "Ultra-Wideband Receiver," (CIP of IL-909lA, U.S. Patent No.
5,523,760), issued on 6/4/96, by Thomas Edward McEwan
IL-9092, "Ultra-Wideband Radar Motion Sensor,"(U.S. Patent No. 5,361,070),
issued on 11/1/94, by Thomas Edward McEwan
IL-9197, "Impulse Radar Stud Finder," (CIP of IL 9091A, U.S. Patent No.
5,457,394), issued on 10/10/95, by Thomas Edward McEwan
IL-9318, "Two Terminal Micropower Radar Sensors," (U.S. Patent No.
5,465,094), issued on 11/7/95, by Thomas Edward McEwan
IL-9426, "Electromagnetic Hidden Object Detector," (CIP of IL- 9197, U.S.
Patent No. 5,512,834), issued on 4/30/96, by Thomas Edward McEwan
IL-9514, "Range-gated field disturbance sensor with range-sensitivity
compensation," (U.S. Patent No. 5,521,600), issued on 5/28/96, by Thomas
Edward McEwan
IL-9515, "Micropower RF Transponder," (U.S. Patent Application), by Thomas
Edward McEwan
28
<PAGE>
IL-9516, "Time-of-Flight Radio Location System," (CIP of IL-9197 which is CIP
of 9091A, U.S. Patent No. 5,510,800), issued on 4/23/96, by Thomas Edward
McEwan
IL-9547, "Electronic Multi-Purpose Material Level Sensor," (U.S. Patent No.
5,609,059), dated 3/11/97, by Thomas Edward McEwan
IL-9567, "Short Range, Ultra-Wideband Radar with High Resolution Swept Range
Gate," (CIP of IL-9516, U.S. Patent Application), by Thomas Edward McEwan
IL-9567B, "Short Range, Ultra-Wideband Radar with High Resolution Swept Range
Gate with Damped Transmit and Receive Cavities," (CIP of IL-9567, U.S. Patent
Application), by Thomas Edward McEwan
IL-9595, "Range Gated Strip Proximity Sensor," (U.S. Patent No. 5,581,256),
dated 12/3/96, by Thomas Edward McEwan
IL-9613, "Micropower Material Sensor," (U.S. Patent Application), by Thomas
Edward McEwan
IL-9648, "Phase-Coded, Micro-Power Impulse Radar Motion Sensor," (U.S. Patent
No. 5,519,400), dated 5/21/96, by Thomas Edward McEwan
IL-9649, "Light Beam Range Finder," (CIP of IL-9567, U.S. Patent
Application), by Thomas Edward McEwan
IL-9650, "Narrow Field Electromagnetic Sensor System and Method," (CIP of
IL-9516, U.S. Patent No. 5,576,627), dated 11/19/96, by Thomas Edward McEwan
29
<PAGE>
IL-9727, "Short Range Radio Locator System," (CIP of IL-9516, U.S. Patent No.
5,589,838), dated 12/31/96, by Thomas Edward McEwan
IL-9772, "Precision Digital Pulse Phase Generator," (U.S. Patent No.
5,563,605), issued on 10/8/96, by Thomas Edward McEwan
IL-9779, "Window-Closing Safety System," (CIP of IL-9547, U.S. Patent
Application), by Thomas Edward McEwan
IL-9797, "Ultra-Wideband Directional Sampler," (CIP of IL-909lB, U.S. Patent
No. 5,517,198), issued on 5/14/96, by Thomas Edward McEwan
IL-9798, "High Accuracy Electronic Materials Level Sensor," (CIP of IL-9547,
U.S. Patent No. 5,610,611), dated 3/11/97, by Thomas Edward McEwan
IL-9340, "Body Monitoring and Imaging Apparatus and Method," (U.S. Patent No.
5,573,012), issued on 11/12/96, by Thomas Edward McEwan (ADDITIONAL TO
MEDICAL AND VOICE RECOGNITION FIELDS OF USE ONLY)
30
<PAGE>
EXHIBIT B - LICENSE FEES AND ROYALTY RATE
NOTICE
This Exhibit B contains financial and commercial information deemed Business
Confidential and the parties hereby agree not to use or to disclose the terms
agreed to herein to any third party without the express written consent of
the other party hereto except to those necessary to enable the parties to
perform under this Agreement or as may be required by THE REGENTS' contract
with the U.S. Department of Energy under the same restrictions.
In accordance with Article 4 ROYALTIES AND PAYMENTS:
A. The LICENSEE shall pay THE REGENTS a License Issue Fee of ONE-HUNDRED
THOUSAND AND NO/100 DOLLARS ($100,000) payable within ten (10) days of
final execution by both parties of this Agreement. The License Issue Fee
is nonrefundable.
B. As a further consideration for this license, the LICENSEE shall pay to THE
REGENTS an earned royalty fee based upon the following formula or thirty
cents ($.30) per unit of Licensed Product whichever is greater:
<TABLE>
<CAPTION>
Cumulative Net Sales of Licensed Product(s)/Systems
Incorporating the Licensed Patent(s) Earned Royalty Fee
- --------------------------------------------------- ------------------
<S> <C>
0 to $5,000,000 5%
over $5,000,000-$15,000,000 4%
over $15,000,000 3%
</TABLE>
C. The LICENSEE shall pay THE REGENTS a non refundable fully-creditable (only
against the same year's earned royalty) minimum annual royalty according to
the
31
<PAGE>
following schedule for the life of any license granted under this
Agreement, beginning on:
<TABLE>
<CAPTION>
MINIMUM ANNUAL FEE TO
MAINTAIN A NON-EXCLUSIVE LICENSE
- --------------------------------
<S> <C>
$25,000 January 1,1999
$25,000 January 1st of every year
thereafter during license term
</TABLE>
32
<PAGE>
EXHIBIT C - FIELD OF USE
APPLICATION UNDER THE FIELD OF USE LICENSED HEREIN:
I. The "Field-of-Use" Licensed under this license shall mean the Field of Use
of the Licensed Patents and the Licensed Product(s) for:
TRANSPORTATION
II. This License excludes the following fields of use for all Licensed Patents
and Licensed Product(s):
a. medical;
b. voice recognition equipment;
c. security and energy conservation;
d. residential, commercial, and industrial automation;
e. entertainment;
f. material evaluation;
g. tools;
h. communications;
i. underground detection;
j. buried military mine and ordnance detection;
k. military, other than buried mine and ordnance detection;
l. radar camera;
m. other fields of use not expressly listed in Section I or expressly
excluded in Sections II, III, or IV of this exhibit.
III. The LICENSEE is not licensed to make, have made, use, lease or sell
electronic chips, separate components or circuit boards covered by or
derived from THE REGENTS Licensed Patents or Licensed Product(s) to others
independent of an integrated stand alone or end use Licensed Product except
for complete functioning circuit boards sold as
33
<PAGE>
end products less enclosures to original equipment manufacturers.
IV. The following field of use listed in paragraph A below and described in the
specific patents and patent applications listed in paragraph B (referenced
from "Exhibit A" "THE REGENTS" LICENSED PATENT(S)") has been previously
exclusively licensed and is specifically excluded from the Field of Use:
A* The following Fields of Use have been previously exclusively licensed to
another Licensee:
a) Construction tool application as a hand-held and self-contained wall,
ceiling and floor scanner without video or computer imaging capability
or tie-in, except for video or computer imaging capability having 128
lines of resolution or less, for locating hidden objects within
eighteen (18) inches of the scanner, including, but not limited to,
between-wall studs; joints and other structural and nonstructural
members made from wood, metal, and other materials; also including,
but not limited to, pipes, conduit, reinforcing steel, and electrical
wires.
b) Construction tool application as a hand-held and self-contained
scanner without video or computer imaging capability or tie-in, except
for video or computer imaging capability having 128 lines of
resolution or less, for locating buried objects in concrete and soil
at various depths, including, but not limited to, pipes, wires, sewer
lines, drainage systems, and pipelines.
B. IL-909lA, IL-909lB, IL-9092, IL-9197, IL-9318, IL-9426, IL-9516, IL-9567,
IL-9567B, IL-9469, IL-9650, IL-9727, IL-9797.
34
<PAGE>
*All applications not specifically set forth above, under this part IV.B
were not previously licensed including, but not limited to, law
enforcement, military, security, medical, and all other industrial,
consumer and commercial applications.
35
<PAGE>
AMENDMENT ONE TO
STANDARD LIMITED NONEXCLUSIVE LICENSE AGREEMENT
FOR
MICROPOWER ULTRA-WIDEBAND IMPULSE RADAR
FOR
TRANSPORTATION
FIELD OF USE
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
AMERIGON, INCORPORATED
LLNL CASE NO. TL-1556-98
LAWRENCE LIVERMORE NATIONAL LABORATORY
UNIVERSITY OF CALIFORNIA
P.O. BOX 808, L-795, LIVERMORE, CA 94550
INDUSTRIAL PARTNERSHIPS AND COMMERCIALIZATION
JUNE, 1998
<PAGE>
AMENDMENT ONE TO
LIMITED NONEXCLUSIVE LICENSE AGREEMENT
FOR
MICROPOWER IMPULSE RADAR
BETWEEN
AMERIGON, INCORPORATED
AND
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
LLNL CASE NO. TL-1556-98
This Amendment (this "Amendment") to the Limited Nonexclusive License
Agreement is entered into as of this ______ day of _________________, 1998
(the "Effective Date") by and between The Regents of the University of
California, a corporation organized and existing under the laws of the State
of California, and having its statewide administration address at 300
Lakeside Drive, Oakland, California 94612-3550, U.S.A. ("THE REGENTS"), and
Amerigon, Incorporated, a corporation duly organized under the laws of
California and having its registered place of business at 5462 Irwindale
Avenue, Irwindale, CA 91706-2058 ("LICENSEE").
RECITALS
WHEREAS, the parties desire to enter into that certain Limited
Nonexclusive License Agreement, dated as of even date herewith (the "License
Agreement"), for the grant of certain rights to LICENSEE with respect to THE
REGENTS' Micropower Wideband Impulse Radar technology following termination
of Licensee's Limited Exclusive License No. TL-796-94; and
WHEREAS, the parties desire to amend the Regent's Standard License
Agreement pursuant to the terms and conditions set forth in this Amendment,
which the parties have agreed shall be executed at the same time as the
License Agreement and shall be attached to and incorporated by reference in
the License Agreement;
2
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree to the following terms and conditions,
which set forth the rights, duties, and obligations of the parties:
AGREEMENT
1. CONTINUATION OF PROVISIONS
Except as expressly modified by this Amendment, all terms, conditions and
provisions of the License Agreement shall continue in full force and effect
as set forth in the License Agreement. Except as otherwise modified or
defined herein, all capitalized terms in this Amendment have the same
meanings as set forth in the License Agreement. In the event of any
inconsistency or conflict between the License Agreement and this Amendment,
the terms, conditions and provisions of this Amendment shall govern and
control.
2. EXHIBIT A
The following Licensed Patents are deleted because they were not included
in Licensee's previous License No. TL-796-94 or Amendment thereto.
IL-9514
IL-9515
IL-9547
IL-9595
IL-9613
IL-9648
IL-9772
IL-9779
IL-9798
IL-9340
3
<PAGE>
3. EXHIBIT B
3.1 Delete the entire language under Part A and replace it with the
following:
A. The Standard License Issue Fee to be paid by Licensee of
One-Hundred Thousand and no/100 Dollars ($100,000) is waived
because this license replaces a previous Limited Exclusive
License held by Licensee under which an issue fee was paid.
3.2 Delete the entire language under Paragraph C and replace it with the
following:
A. The Licensee shall pay THE REGENTS a non refundable fully-
creditable (only against the same year's earned royalty) minimum
annual royalty according to the following schedule for the life
of any license granted under this Agreement, beginning on:
<TABLE>
<CAPTION>
Minimum Annual Fee to Payment
Maintain a Non-Exclusive License Due Date
--------------------------------- --------
<S> <C>
0 January 1, 1999
0 January 1, 2000
0 January, 1, 2001
0 January 1, 2002
0 January 1, 2003
$25,000 January 1st of every year
thereafter
</TABLE>
4
<PAGE>
4. MISCELLANEOUS
4.1 BACKGROUND, DUE DILIGENCE, PROGRESS AND ROYALTY REPORTS. The extent
of Licensee's commitment to develop, manufacture and sell "Licensed
Product(s)" under Sections 1.3, 5 and 6 shall be solely based upon
Licensee's good business judgement. Royalty reporting requirements are
deferred until after the first sale or commercial use of LICENSE
PRODUCT(S)".
4.2 Under Article 6.2 a quantitative summary of the business of LICENSEE
under the subject license for each fiscal year signed by a corporate
officer will fulfill the requirement of Article 6.2 in lieu of a
certified financial statement including a Balance Sheet and Operating
Statement. An officer of Licensee shall provide a copy of its public
Annual Report to Licensor upon request.
4.3 INCORPORATION BY REFERENCE. Except as otherwise modified herein, the
provisions of Section 28 ("Miscellaneous") of the License Agreement
are incorporated by reference into this Amendment.
4.4 ENTIRE AGREEMENT. In Section 28.4 of the License Agreement, after the
word "Agreement" shall be inserted the following: ", including,
without limitation, the Exhibits and the Amendment to this Agreement,
which are attached hereto and incorporated herein by this reference,".
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by duly authorized representatives of the parties as of the
Effective Date.
LICENSEE: LICENSOR:
AMERIGON, INCORPORATED THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA
By: /s/ LON E. BELL By:
----------------------------- --------------------------------
(Signature) (Signature)
Name: Lon E. Bell Name:
--------------------------- -------------------------------
Title: CEO Title:
--------------------------- -------------------------------
Date: July 20, 1998 Date:
--------------------------- -------------------------------
6
<PAGE>
LETTER AGREEMENT
This Letter Agreement entered into this 16th day of December, 1998 at
Bangalore, between:
SUDARSHAN K.MAINI, an Indian citizen, having his address at Maini Sadan,
Lavelle Road, Bangalore, acting for himself and
MAINI MATERIALS MOVEMENT PVT.LTD., a company incorporated and registered
under the Companies Act, 1956 and having its registered office at 122
Bommasandra Industrial Estate, Bangalore, and
MAINI PRECISION PRODUCTS PVT.LTD., a company incorporated and registered
under the Companies Act, 1956 and having registered office at B-59 Peenya
Industrial Estate, Bangalore,
HEREINAFTER COLLECTIVELY REFERRED TO AS "MAINI" (which expression shall
unless be repugnant to the context or meaning thereof be deemed to include
their successors in interest and permitted assigns) of THE FIRST PART.
AND
Amerigon Incorporated, a company incorporated under the laws of the United
States of America, having is principal place of business at 5462, Irwindale
Avenue, California, 91706, U.S.A., HEREINAFTER REFERRED TO AS "AMERIGON",
(which expression shall unless it be repugnant to the context or meaning
thereof, be deemed to include its successors in interest and permitted
assigns) of THE SECOND PART.
This letter sets forth our agreement with respect to the formation,
capitalization and operation of a proposed joint venture company ("NEWCO") which
will design,
1
<PAGE>
manufacture, test, distribute, sell, and service ROAD WORTHY (as defined
below) electric powered vehicles (collectively, the "PRODUCTS") in India, Sri
Lanka, Bangladesh, Pakistan, Nepal, Myanmar, Seychelles and the Maldives
(collectively, the "TERRITORY") utilizing technology owned by Amerigon
Incorporated ("AMERIGON"). ROAD WORTHY vehicles shall mean cars, vans,
trucks, busses, 3-wheel and 2-wheel electric vehicles for on-road use, but
excluding industrial, construction, agricultural, golf and other non-road
vehicle types.
Our understanding includes the following terms and conditions to be
incorporated in DEFINITIVE AGREEMENTS:
1. BACKGROUND.
(a) Amerigon has developed, designed and tested preproduction
prototypes of an electric powered automobile known as the "REVA" (the
"REVA") and has manufactured REVA vehicles is small quantities. Amerigon
owns a variety of technology relevant to the design and manufacturing of
electric automobiles, including a patented energy management system.
Amerigon owns certain tooling for pre-production of the REVA and has
considerable production know-how. Amerigon will license its technology and
know-how for Road Worthy electric vehicles to Newco which will include:
(1) exclusive rights to manufacture and sell the REVA in the Territory, (2)
exclusive license to all of Amerigon's patents related to its Energy
Management System, Climate Control Seat System and Electric Vehicle Safety
Systems for all electric vehicles manufactured in the Territory and (3)
exclusive license to all of
2
<PAGE>
Amerigon's current and future electric vehicle technology in connection
with the manufacture and sale of electric vehicles in the Territory.
(b) Sudarshan K. Maini, acting for himself, Maini Materials
Movement (an Indian corporation) and Maini Precision Products, Pvt. Ltd.
(collectively "Maini") manufactures and assembles precision automotive
components, castings and granite tiles. In addition, Maini designs,
manufactures, sells and services in-plant material handling equipment
including electric tow tractors, pallet trucks, stackers and dock levelers.
Maini has also been involved in various aspects of the REVA project
including market research, vehicle design, vendor development, part
costing, homologation and testing. Maini has land, buildings, equipment,
infrastructure, capital and management expertise that would be valuable to
launching Newco and desires to have an equity stake in Newco. Maini may
include as investors in such members of his family and also such companies
or bodies corporate owned and controlled by Maini and nominated by him to
be participants in Newco.
(c) Chetan Maini ("CM") has been an employee of Amerigon and the
program manager for the REVA project for over four years. He is also the
son of Sudarshan Maini. It is anticipated that CM will initially serve as
the Managing Director of Newco.
(d) It is contemplated that Newco will be jointly owned by
Amerigon, Maini, CM, David Bell, Bob Marcellini and one or more additional
investors (the "INVESTORS") who have yet to be determined.
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2. FORMATION OF NEWCO.
(a) Newco will be an Indian Private Limited Company registered
under the Company Act. Maini and Amerigon shall take the necessary steps
for registration of Newco. If legally available, the name of the new
company will be "REVA Electric Car Company Private Limited". Mutually
acceptable charter and bylaw documents shall be prepared and shall give
effect to the terms agreed upon between Maini and Amerigon in conformity
with the terms hereof. Maini shall take responsibility for securing
additional investors and Amerigon shall assist Maini in the process.
(b) The principal business purposes of Newco will be (i) the
design, manufacture, assembly and testing of the Product(s) throughout the
Territory, (ii) marketing, distributing and selling the Product(s)
throughout the Territory, (iii) servicing the Product(s) sold throughout
the Territory, (iv) developing technology related to electric vehicles, (v)
establishing a manufacturing facility as further described in the mutually
agreed upon outline of the Operating Plan attached hereto as SCHEDULE A and
(vi) engaging in such other activities as may be incidental or necessary to
the foregoing.
3. CAPITALIZATION OF NEWCO
(a) The parties will seek to capitalize Newco as described in
SCHEDULE B attached hereto. Amerigon's capital contribution to Newco
shall consist of (1) the license to Newco of its electric vehicle ("EV")
technology on an exclusive basis for the manufacture, distribution, sale
and servicing of the
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<PAGE>
Products in the Territory, (2) the contribution in-kind of certain
tangible assets (electric vehicles and manufacturing kits as set forth
on SCHEDULE A), and (3) those other assets described in SCHEDULE A
attached hereto. Maini's capital contribution will consist of (1) the
homologation certification including sales tax and road tax
exemptions/concessions, (2) market research and studies for the REVA,
(3) supplier information and test results and (4) cash and in-kind
capital contribution as described in SCHEDULE A attached hereto and
shall be made at the times and in the manner specified in SCHEDULE A
hereto. CM, Bob Marcellini and David Bell will each receive equity as
set forth on SCHEDULE B in the form of a restricted stock grant for
services rendered in the past and future. Such restricted stock will be
non-transferable until vested. 30% of such stock for each will vest
immediately and the remainder will vest in equal monthly amounts over a
three year period from the formation of Newco or earlier upon such
person completing providing services to Newco as specified in the
SCHEDULE A. Failure to provide services as contemplated by the
Operating Plan will result in a forfeiture of the restricted stock
grant. In addition, US$2.67 million is intended to be raised from
Investors. A portion of the equity (4.5%) will be reserved for future
issuance for purposes including a stock option plan (which may not
exceed 2% of the total capital), raising additional capital, and
issuance to employees in exchange for salary reduction (for such
purpose, at a price of 50% of the then fair market value of the equity).
Except as set forth in the preceding sentence, all future non-cash
contributions shall be valued at fair market value or other mutually
agreeably valuation method.
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(b) The charter documents of Newco will contain effective
prohibitions on Maini and CM individually or collectively having 50% or
greater ownership of Newco or having the right to appoint a majority of the
members or the Board of Directors of Newco. It is understood that if at
start-up we do not have all the investors, and hence there exists
unclassified shares, Maini Group and CM will not be allowed to purchase
additional shares such that their cumulative ownership in the company
exceeds 50%. Notwithstanding the previous sentences, under the following
conditions Maini and CM, collectively or individually can be allowed to
have greater than 50% ownership and consequently rights to appoint a
majority of the Board of Directors: (1) if Amerigon sells more than half
of its initial equity holding in Newco to Maini or any other third party,
excluding transfers to persons as required by contracts existing on the
date hereof, (2) if future additional financing is required and approved by
the Board of Directors, and Amerigon or other investors do not invest
additional funds to maintain their proportionate ownership, and Maini
provides financing and obtains a 50% or greater ownership interest in
Newco, (3) per section 6(c), if a third party sells its interest in Newco,
and Maini participates in such a sale that its ownership exceeds 50% and
(4) if financial guarantees are required as per section 13(c), then the
resultant compensation for providing such guarantees may result in Maini
and CM owning greater than 50%.
(c) No party to Newco shall have any obligation to contribute
additional capital to Newco unless agreed upon by such party.
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4. NEWCO GOVERNANCE.
(a) Newco shall have a Board of Directors (the "BOARD")
consisting of not more than fifteen (15) directors, with at least one
director to be selected by each of Maini, Amerigon and the Investors. The
Board will also have outside directors. One director shall be the Managing
Director of Newco. The Managing Director shall be appointed by the mutual
consent of Amerigon and Maini and shall be a professionally qualified
person. The Managing Director shall serve at the pleasure of the Board of
Directors and be appointed upon such terms and conditions as the parties
may mutually agree upon. Chetan Maini shall be the first Managing Director
of the company. The Chairman of the Board shall be a director appointed by
Maini and the Vice-Chairman shall be a director appointed by Amerigon. The
term of each of the other directors, except the Chairman, shall be for
three (3) years. A director appointed by a particular party may be
replaced at any time by such party upon notice to the other parties. Any
replacement director shall be satisfactory to the other parties. A
director may be removed only by the party appointing such director or by a
majority vote of the other directors, but only for cause (e.g. breach of
fiduciary duty or malfeasance). In the event that the number of directors
is increased, the number of directors a party will appoint in general will
be proportionate to its ownership interest in Newco. For every Amerigon
director, Amerigon will and for every Maini director, Maini may, appoint an
alternate director resident in India, approved by the Board of Directors of
Newco as required by The Companies Act of India. The
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<PAGE>
attendance of at least one Amerigon director of his alternate and at
least one Maini director or his alternate shall constitute a quorum.
(b) Except for the actions described in the immediately
succeeding sentence or as may otherwise be agreed upon, all actions of
Newco require the affirmative vote of a majority of the directors present
and voting at the meeting. Certain actions (including without limitation
amendments or changes to the charter documents of Newco, liquidation or
winding-up of Newco, merger of Newco with another entity, sale or transfer
of all or substantially all of the business or of certain key assets of
Newco, changes in capital structure of Newco, recapitalization,
restructuring or stock reclassification of Newco, issuance of additional
equity interests in Newco, admittance of new investors or shareholders into
Newco, amendment of the Operating Plan, borrowing of monies or granting of
loans to third parties, undertaking any substantial expansion of Newco
operations, any related party transactions, declaration of dividends, etc.)
will be regarded as Reserved Matters. Reserved Matters required (i) at
lease one affirmative vote from each of Amerigon and Maini and (ii) the
approval of at least 75% of the directors constituting a quorum.
(c) The Board shall appoint the officers of the Newco, which
shall include a Managing Director, a Chief Operating Officer, a Chief
Financial Officer and a Secretary. The same person may hold more than one
officer position. Officers shall serve at the pleasure of the Board and
may be removed by the Board at any time. The Board shall meet on a regular
basis (not less frequently than quarterly) and, in the first two years
after the formation of the JV,
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<PAGE>
management shall have monthly meetings and subsequent telephonic
conference calls with the members of the Board to discuss Newco's
operations and progress relative to the Operating Plan. The shareholders
of Newco shall meet at least once per year at a time and place to be
determined by the Board. All Board members are to be notified on the
agenda to be discussed at the board meeting, at least one week prior to
the board meeting unless mutually agreed upon in writing by Amerigon and
Maini.
(d) Newco shall maintain true and accurate accounts and records
in accordance with generally accepted accounting principles in India
consistently applied. Subject to Indian law, Maini, Amerigon and the
Investors shall be provided with monthly, quarterly and annual financial
reports, which shall include income statements, balance sheets and cash
flow statements. Maini, Amerigon and the Investors shall also receive from
Newco projected cash flow reports, sales and marketing reports, production
and quality control reports, annual budgets, business plans and such other
information and reports as may be agreed upon and at such times as may be
agreed upon Newco shall hire an internationally recognized "Big Five"
independent accounting firm, satisfactory to Amerigon and Maini, to audit
the annual financial statements. Such auditor's report shall be supplied
to all shareholders. The books and records of Newco shall be accessible to
the Maini, Amerigon and the Investors and their representatives.
9
<PAGE>
(e) It is understood that section 4(a), 4(b), 4(c) and 4(d) may
possibly need to be modified to conform to existing company laws in India.
It is anticipated that such changes will not significantly alter the
content of the above.
5. TRANSACTIONS BETWEEN NEWCO AND AMERIGON OR MAINI OR OTHERS.
(a) Concurrently with formation and capitalization of Newco,
Amerigon will enter into a royalty bearing license (the "EV LICENSE") with
Newco pursuant to which Amerigon will license Amerigon's EV technology on
an exclusive basis in the Territory. Newco will have no right to
sublicense and no rights to the EV technology outside the Territory;
provided, however, that with Amerigon's prior written consent, which will
not be unreasonably withheld, Newco may manufacture products in the
Territory for export outside the Territory in order to fulfill commitments
given to the Indian government and outlined in the Operating Plan
(currently, 15%-20% of vehicles manufactured). The parties recognize that
Amerigon retains all rights to the technology outside the Territory and may
limit or restrict Newco's exports of finished products incorporating the
technology. Amerigon intends to enter into additional joint ventures with
other parties outside the Territory and may grant to such parties exclusive
rights which would prevent Newco from exporting products to certain areas.
Prior to making any significant investments to modify the REVA for export
outside the Territory, Newco will consult with Amerigon to determine
appropriate terms and conditions on such exports to assure minimum export
time period and volume. Newco will pay Amerigon royalties of 5% on
domestic sales and 8% on export sales for a period of 5 years (commencing
with the first year of operating profit, which the
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<PAGE>
parties anticipate to be year 3). Royalty payments will be calculated
per the Indian Industrial Policy. Royalties will be paid no less
frequently than annually and once a quarter in the 3rd, 4th and 5th year
of royalty payment, and the EV License will contain other customary
terms and conditions acceptable to Amerigon. If in year 3 Newco has an
operating profit but would have a net loss if it paid Amerigon the
required royalty, Newco will have an option to defer payment of such
part of the royalty for year 3 as would cause it to have a net loss and
pay such portion of the royalty the following year, without interest.
(b) Amerigon will enter into an exclusive, royalty-free,
non-transferable license with Newco to manufacture and sell Amerigon's
proprietary Climate Control Seat system ("CCS") in the Territory, but
only for electric vehicles manufactured in the Territory (the "CCS
LICENSE"). the CCS License will contain other terms and conditions
acceptable to Amerigon. In connection with the CCS License, Newco will
send one engineer to visit Amerigon's offices to learn more about the
CCS for the purpose of integrating it into the REVA. It is anticipated
that this process would take about 6 weeks. It is also anticipated that
Newco will select one of Amerigon's existing CCS models for integration
into the REVA. If Newco desires to purchase finished CCS modules from
Amerigon, Amerigon will supply them, regardless of quantity ordered, at
the same price that Amerigon charges its principal customer for the same
model. If Newco assembles CCS units in the Territory but desires to
purchase parts from Amerigon, Amerigon will attempt to supply Newco with
parts and will charge Newco cost plus 10% (plus all applicable taxes,
duties, etc.), FOB Amerigon's
11
<PAGE>
facility in Irwindale, California. All sales of products will be made
pursuant to Amerigon's standard terms and conditions of sale. If Newco
desires to manufacture the CCS in the Territory, Amerigon will cooperate
with Newco and provide technical assistance; provided, however, that
Newco will reimburse Amerigon for all direct costs associated with such
assistance.
(c) Except as otherwise provided herein, all services, parts,
components, supplies and other materials and services provided to Newco by
Amerigon or Maini or any other owner of Newco shall be valued at prevailing
world market rates or such other mutually acceptable valuation method. All
agreements, contracts or other arrangements between Newco and Maini,
Amerigon, the Investors or any other third party shall be at arms-length
and the valuation of the services or goods subject to such agreements,
contracts or arrangements shall be at fair market value or such other
valuation method unanimously approved by the Board. Any non-fair market
value valuation is subject to independent verification by independent
accountants approved by the Board.
(d) Upon the formation of Newco, Newco will be responsible to
complete all design and development activity to take the REVA to
production. All technology developed by Newco will belong to Newco.
(e) Newco shall be formed and capitalized and the Technology
License Agreement between Amerigon and Newco shall be concluded latest by
31st March 1999.
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<PAGE>
6. TRANSFER OF SHARES; SHAREHOLDER PROTECTION.
(a) No shareholder may sell, assign, pledge, offer, transfer or
otherwise dispose of or encumber any shares of Newco or any title or rights
to such shares in Newco owned by such shareholder without the prior written
consent of the Board of Newco and by each of Amerigon and Maini; PROVIDED
that Amerigon or Maini may transfer its shares to third parties in
accordance with its presently existing contractual commitments and provided
that such commitments are made known in advance to the Board of Newco.
Notwithstanding anything contained in clause (b) of paragraph 3, in the
event of a permitted transfer of shares of Newco, such permitted transferee
may be required to enter into an agreement, in form and substance
satisfactory to Newco, with Newco and the non-transferring shareholders
whereby such permitted transferee agrees to take the place of the
transferring shareholder with respect to, and to be bound as a party to,
the joint venture agreement and to assume such of the rights and
obligations of the transferring shareholder. All permitted transfers shall
be subject to terms and conditions agreed upon by the parties to Newco.
(b) In the event the Newco must raise additional funds, per
Indian Company Laws, all shareholders will have preemptive rights to
subscribe for pro rata and purchase additional shares and contribute
additional capital to maintain its then existing ownership interest in
Newco. Such pre-emptive rights shall be on terms and conditions agreed
upon by Amerigon and Maini in the definitive agreements.
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<PAGE>
(c) Amerigon and Maini shall have the right to participate, pro
rata, with respect to the any sale by any party of its interest in Newco.
In the event that the Board of Newco has approved a sale of Newco, each
shareholder shall be required to participate in such sale and sell its
shares of Newco on the terms approved by the Board.
7. LIQUIDITY.
The definitive agreements shall include reasonable
provisions for Amerigon, Maini and the Investors to sell and/or obtain
liquidity with respect to their investment in Newco after a five to ten
year holding period. Subject to approval of the Indian Foreign Investment
Promotion Board and any other Indian governmental authority, possible
provisions include (i) the right to participate in public offerings by
Newco, (ii) the right to require Newco or the other shareholders of Newco
to purchase their equity interests in Newco (which may be satisfied by a
down payment and payments over time), and (iii) the right to cause a sale
of Newco.
8. DEFINITIVE AGREEMENTS.
The definitive agreements shall contain terms, conditions,
representations, warranties, covenants and indemnities customary and
appropriate for a transaction of the type contemplated, including those
summarized herein.
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<PAGE>
9. EXPENSES.
Each party shall bear its own expenses in connection with the
preparation, negotiation and execution of this letter agreement (except the
Newco will reimburse Amerigon for travel expenses related to the execution of
this letter agreement). Following execution of this letter agreement, all
expenses related to Newco and which are approved by CM (such approval not to
be unreasonably withheld), including its formation, registration, preparation
of definitive documentation, travel expenses, and other expenses directly
related to the business of Newco (including planning, organization, kiting,
technical development, etc.) shall be borne by Newco. If initially expended
by a party hereto, such expenses will be reimbursed by Newco promptly (but in
no event later than two weeks) upon such party submitting appropriate
documentation; provided, however, that the first reimbursement to Amerigon
may take up to four weeks because of the time needed to obtain the required
government approvals to transfer funds. However, if any party shall require
separate legal advice, such expenses will be borne by such party and not
Newco. Until Newco is formed and capitalized, Maini will reimburse such
expenses and provide all monetary payments on behalf of Newco, which shall be
treated as capital contributions to Newco by Maini. The parties hereto
recognize that projected expenses in the U.S. by Amerigon and the key
employees relating to Newco are approximately $115,000 for the first three
months following execution hereof.
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<PAGE>
10. CONFIDENTIALITY.
Each party hereto shall agree to keep confidential certain
confidential information obtained by it in connection with this agreement,
any related agreements or the management and operation of Newco, except as
otherwise required by law.
11. DISPUTE RESOLUTION.
Any disagreement, dispute, controversy or claim (a "DISPUTE")
arising out of or relating to Newco, this agreement or any related
agreements, the obligations of the shareholders of Newco or the parties to
this agreement, shall be resolved first through friendly consultations among
the parties in dispute and if such Dispute is not resolved through friendly
consultations, then through binding arbitration conducted by the
International Chamber of Commerce (Paris), in accordance with its
International Arbitration Rules. The arbitral panel shall consist of a
single arbitrator who is independent of the shareholders and such arbitration
shall be conducted in London, England, or any other location agreed to in
writing by the parties. The language to be used in the arbitration shall be
English, although documentary evidence may be in other languages. The
decision of the arbitration panel shall be final and binding on all the
shareholders and may be entered in any court having jurisdiction and enforced
against the shareholders. The arbitration provisions shall not preclude in
any way a shareholder from seeking or obtaining preliminary or injunctive or
other equitable relief from a court of competent jurisdiction. If the
subject matter of the Dispute relates to the infringement or misappropriation
of copyrights, patents, trade secrets or other proprietary rights, the party
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<PAGE>
alleging such infringement or misappropriation may elect to institute an
action in a court of competent jurisdiction without using the arbitration
provisions set forth herein.
12. GOVERNING LAW.
This letter and the legal relations between the parties shall be
governed by the law of India.
13. GENERAL.
(a) Upon execution of this document, Amerigon shall not solicit
or engage in negotiations with any entity other than Maini for the purpose
of such entity becoming an operating partner (in place of Maini) in a joint
venture to produce electric vehicles in the Territory; provided, however,
that this shall not restrict Amerigon from having discussions with possible
investors in Newco consistent with terms hereof.
(b) Amerigon shall use commercially reasonable efforts to
retrieve all information Amerigon has provided to various parties in India
regarding the REVA project, such as KPMG, SIL, BEML, C&L and others, and to
cause such parties to maintain the confidentiality of such information.
(c) As per the Operating Plan, it is anticipated that Newco will
require additional funds in year 2001. However, Newco may need additional
funds before 2001 to cover unforeseen circumstances. It is recognized that
if such funding is sought from financial institutions that require
guarantees, all promoter and shareholders in Newco holding more than 5% of
equity in Newco may be
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<PAGE>
requested to provide such guarantees to the financial institutions.
Promoters and shareholders with more than 5% equity in Newco that
provide such guarantees will receive fair compensation, for every time
such a guarantee in undertake, in the form of additional stock (maximum
of 2% of the guarantee amount) for taking on the additional liability
associated with such financial guarantees. In addition, in order to
prevent dilution to smaller shareholders in Newco, the parties will
consider offering to them the opportunity to provide financial
guarantees and to receive the same proportionate compensation therefor
as is given to the larger shareholders.
(d) If any party hereto breaches or fails to perform its
obligations under this letter agreement, it shall be liable to the other
party for such party's actual damages, in addition to any other rights it
may have. Furthermore, Amerigon's obligations under Section 5(a) and 5(b)
hereof are conditioned upon continued compliance and performance by Maini
of its obligations hereunder. The license under Section 5(a) and 5(b)
shall not be affected by a breach by Amerigon and will survive such breach
by Amerigon. The obligation of Amerigon hereunder shall survive and be
otherwise unaffected by any change of control or merger transactions.
(e) This letter agreement shall be binding upon and inure to the
benefit of each party and its respective successors and permitted assigns,
and nothing herein, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever.
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(f) This letter agreement constitutes and contains the entire
agreement concerning the subject matter hereof between the parties and may
only be amended or superceded by a written agreement signed by both
parties. This letter agreement supercedes and replaces all prior
negotiations and all agreements proposed or otherwise, whether written or
oral, concerning the subject matter hereof. This is a fully integrated
agreement.
(g) The responsibility to prepare all legal documents will be
Newco's and such documents will be prepared in India.
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<PAGE>
IN WITNESS WHEREOF, THE PARTIES HEREUNTO HAVE AFFIXED THEIR RESPECTIVE HANDS
AND SEALS, THE DATE AND YEAR, FIRST HEREINABOVE WRITTEN.
SIGNED AND DELIVERED
ON BEHALF OF:
AMERIGON INCORPORATED ("AMERIGON")
By Mr. Lon E. Bell
/s/ LON E. BELL
Name: Lon E. Bell
Designation: Chairman and Chief Executive Officer
SIGNED AND DELIVERED TO
MR. SUDARSHAN K. MAINI
ON BEHALF OF:
HIMSELF AND
MAINI MATERIALS MOVEMENT PVT.LTD.
MAINI PRECISION PRODUCTS PVT. LTD.
(COLLECTIVELY "MAINI")
BY: MR. SUDARSHAN K. MAINI
/s/ SUDARSHAN K. MAINI
Name: Sudarshan K. Maini
Designation: Chairman
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<PAGE>
SCHEDULE A
OPERATING PLAN
I) AMERIGON'S CONTRIBUTION
Amerigon shall transfer all of its right, title and interest (for the
Territory only) in and to the following as it exists on the date hereof to
Newco as part of its capital contribution:
1. All CAD models, drawings, electrical schematics for the REVA design
2. All software and hardware information for the REVA's EMS
3. Test reports, REVA specific test software, test results etc.
4. Database of all information about suppliers, part cost, weight, build
level, BOM, etc.
5. All interior and exterior concept sketches related to REVA design
6. Exterior pictures and masters of the REVA
7. REVA 1/4 scale mold
8. 5 complete vehicles (yellow, green, 2 white and red). Amerigon will
transfer least arrangements with CALSTART (for the REVA used in Alameda)
and WINROCK (for the 2 REVA's used in Delhi. The Newco will keep one
vehicle at all times at Amerigon.
9. 3 aluminum running chassis and 16 vehicle kits
10. Prototype tooling and fixtures for the REVA including all body, chassis,
interior, door frame, seats.
11. Electric Vehicle Test equipment used by the REVA program: IPS bench tester
(including dedicated computer), date acquisition, harness tester, specific
electronic testing and assembly tools.
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12. All specific equipment including computers for assembly, programming,
debugging and testing of the EMS and IPS for the REVA.
13. Library of all books, magazines, technical papers and supplier catalogs
related to REVA.
14. Miscellaneous EV equipment that is required by the REVA Program. This
would include floor chargers, motors, controllers, spare parts, etc.
OTHER
SPACE REQUIREMENTS: It is anticipated that approximately 4-6 months of
design effort will be required in the US prior to transferring the
information to India. To allow smooth continuation of the program,
Amerigon will allow Newco, the continued use of the current EV office,
infrastructure (computers, phones, fax, etc.) and shop space for a period
of 6 months. The EMS development for the REVA may continue for 2
additional months and would require a small work place for 2-3 people and
shop space to test the vehicle. During this period, Amerigon will bear all
expenses related to rent, utilities, etc., but not any marginal out of
pocket costs (e.g. phone charges).
COMPUTERS: Amerigon will allow Newco use of IDEAS and CATIA stations that
originally belong to the REVA program for a period of 6 months. In
addition, Amerigon will transfer 1 CATIA computer station and 1 IDEAS
computer station with all software and accessories of Newco, if permitted
by the terms of the software licenses.
EMPLOYEES: To enable the program to continue smoothly, Amerigon will
continue to employ Chetan Maini, Todd Cameron, Ellen Morris and Dudley
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<PAGE>
Hurter for a period of 4-6 months on its payroll. Newco will reimburse
Amerigon for all direct employee costs including benefits (20% of base
salary). Amerigon will be liable for all previously accrued vacation cost
and severance costs. If the period exceeds 6 months, Amerigon and Newco
will need to re-discuss this issue. Amerigon will also allow the use of
Steve Griffin for the EV program on a priority basis. It is anticipated
that Newco will require his services for 8-10 hrs a week. David Bell is
key to the proper execution of the REVA's electrical system and EMS and
hence the technical success of the program. Upon signing of the MOU, David
Bell will be immediately allowed to work on the REVA Program for a minimum
of 25% of his time. It is understood that it would take David Bell
approximately 10 weeks to transition the radar program responsibility to
another person. It is expected that his time commitment to the REVA
program will gradually increase to 75% by the end of 10 weeks, and to 100%
in less than 18 weeks. Amerigon will do its best to make sure that this
happens. During this period, Amerigon will continue to employ David Bell
and be reimbursed by Newco for his direct costs including benefits.
II) MAINI'S CONTRIBUTION
1. Indian component costing and supplier information and quotations
2. Marketing studies, research including all results of India 2010 Exhibition
3. Test results including Shaker tests conducted at ARAI, safely tests and
road tests in Bangalore
4. Homologation and roadworthiness certification for the earlier REVA
prototype
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5. Transfer of employees to the JV, that are currently employed by the Maini
Group and that worked on the REVA program.
6. US $ 1 million in new cash. A significant portion will be invested in
Indian Rupees.
7. Land, buildings and infrastructure for the first 3 years. Sufficient land
and building space would be provided so as to accommodate the production
per the current business plan. This would work out to approximately 1000
cars per single shift. Infrastructure support would include use of Maini
group's current power and generator system, water, security, canteen
services, etc. The JV will pay monthly costs for all utility services such
as power, water, etc. to Maini Group. Where costs are difficult to
determine, a fair market value will be assessed.
8. Maini Group will provide the JV a 15 acre plot of land in Malur, for
production expansion. Although the business plan required the use of the
additional land in 2001, it is free to use it prior to that for the
expansion of its manufacturing facilities.
9. Maini group will assist in hiring required personnel operations,
engineering, vendor development, purchasing, administration, vehicle
assembly, accounting, etc. Maini Group will also transfer a few people
from its other divisions to the JV, so as to provide the JV with a start-up
team. This would include people with experience in operations, planning
and vendor development.
10. Maini Group will allow the JV the use of its Pro-E computer stations for
production development of the REVA. In addition, it will provide
engineering support required to go to production on a actual cost basis.
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11. Maini Group will be responsible for arranging any additional initial
financing required to get into production as per the current business plan.
III) TIME AND MANNER OF CONTRIBUTION
Subject to government approvals, all in-kind contributions by Maini and
Amerigon shall be made before March 31st 1999 or no later than 3 weeks after
the formation of Newco, whichever occurs earlier.
Cash commitments by Maini and other investors are laid out in the table
below. It is anticipated that all the investors will be finalized prior to
March 31st 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Q1-99 Q2-99 Q3-99 Q4-99 Q1-2000 TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MAINI 160 160 300 230 150 1000
- --------------------------------------------------------------------------------
INVESTORS 870 670 670 460 2670
- --------------------------------------------------------------------------------
TOTAL 160 1030 970 900 610 3670
- --------------------------------------------------------------------------------
</TABLE>
All amounts are in thousands of US dollars
Conversion rate assumed at Rs 42.5 equals US $1
IV) EMPLOYEE STOCK PLAN
Per the operating plan it is anticipated that the services David Bell will be
required to transfer all the technology related to the EMS, IPS as well as the
entire REVA electrical system. It is anticipated that David Bell will need to
spend 2-4 months in India and that his task will be completed by September 1999.
It is anticipated that Chetan Maini and Bob Marcellini would assist the Newco to
productionise the REVA and that their efforts would be required for a maximum
period of 3 years.
5
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The definitive agreements will contain detail clauses that better define the
time periods of vesting and commitments of Chetan Maini, Bob Marcellini and
David Bell that allow vesting of their respective options.
V) KEY HIGHLIGHTS OF THE IMPLEMENTATION PLAN
A. PROJECT SCHEDULE AND START-UP PLAN
A summary of the project schedule and key milestones is shown below. Based
on finalizing financing by the end of December 1998, production will commence
by February 1, 2000. The critical path item is testing which is a 1-year
period for the prototype vehicles and 3-month period for pre-production
vehicles. This is essential to ensure that the quality and reliability of
the vehicle is to the highest standards.
The start-up plan would include detail project planning supported by a key
person in India. Simultaneously, an organizing and operating team in India
will be formed. In the US, the focus on the first 3 months will be data
compilation, shipping of kits, and working on key long term items - body
panels, transmission and electrical system.
The production design effort will be for 5 months and all tools and fixtures
should be completed by October 1999, giving 2 months for tooling verification
and pilot production run.
B. ORGANIZATION AND STAFFING PLAN
For the first year (prior to production), the JV would employ a team of 55
people as shown in the table below. The proposed organization chart is shown
as two phases:
6
<PAGE>
Phase One for initial start-up and Phase Two as the company matures. Maini
Group will be able to transfer a skeleton staff of 15 people for start-up
that are ideally suited for the project. The remaining to be hired. The
company will recruit 8-10 people who have previously worked on the REVA
project. The recruitment process will take 2-4 months. Work using the
skeleton team will start prior to that. Candidates who potentially fit the
roles of key managers have been identified and will be recruited.
In addition to regular employees, 4 consultants are required to assist in the
body development, interior surfacing and suspension optimization. Parametric
Technologies (creators of Pro-E software and consultants with extensive
automotive experience) have assured the company that they can provide all
required support.
7
<PAGE>
AMERIGON INCORPORATED
SECURITIES PURCHASE AGREEMENT
MARCH 29, 1999
<PAGE>
TABLE OF CONTENTS
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ARTICLE I. PURCHASE AND SALE OF STOCK AND WARRANTS . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Series A Preferred Stock and Warrants.. . . . 1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . 2
2.1 Organization, Good Standing and Qualification. . . . . . . . . . . 2
2.2 Capitalization and Voting Rights.. . . . . . . . . . . . . . . . . 2
2.3 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Valid Issuance of Preferred and Class A Common Stock.. . . . . . . 3
2.6 Consents.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Offering.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Proprietary Information Agreements.. . . . . . . . . . . . . . . . 5
2.10 Patents and Trademarks.. . . . . . . . . . . . . . . . . . . . . . 5
2.11 Compliance with Other Instruments. . . . . . . . . . . . . . . . . 5
2.12 Agreements; Action. Except as set forth on the Disclosure
Schedules: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.13 Related-Party Transactions.. . . . . . . . . . . . . . . . . . . . 7
2.14 SEC Documents and Financial Statements.. . . . . . . . . . . . . . 7
2.15 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.16 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.17 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.18 Environmental and Safety Laws. . . . . . . . . . . . . . . . . . . 9
2.19 Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Current Public Information.. . . . . . . . . . . . . . . . . . . . 9
2.22 No General Solicitation. . . . . . . . . . . . . . . . . . . . . . 9
2.23 No Integrated Offering.. . . . . . . . . . . . . . . . . . . . . . 9
2.24 Corporate Documents. . . . . . . . . . . . . . . . . . . . . . . .10
2.25 Title to Property and Assets.. . . . . . . . . . . . . . . . . . .10
2.26 Foreign Corrupt Practices. . . . . . . . . . . . . . . . . . . . .10
2.27 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.28 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . .10
2.29 Labor Agreements and Actions.. . . . . . . . . . . . . . . . . . .11
2.30 Year 2000 Compliance.. . . . . . . . . . . . . . . . . . . . . . .11
2.31 Computer and Communication Infrastructure. . . . . . . . . . . . .11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS . . . . . . . .12
3.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.2 Purchase Entirely for Own Account. . . . . . . . . . . . . . . . .12
3.3 Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . .12
3.4 Restricted Securities. . . . . . . . . . . . . . . . . . . . . . .12
3.5 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
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ARTICLE IV. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. . . . . . . . .13
4.1 Representations and Warranties.. . . . . . . . . . . . . . . . . .13
4.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
4.3 Compliance Certificate.. . . . . . . . . . . . . . . . . . . . . .13
4.4 Qualifications.. . . . . . . . . . . . . . . . . . . . . . . . . .13
4.5 Shareholder Approval.. . . . . . . . . . . . . . . . . . . . . . .13
4.6 Certificate of Determination.. . . . . . . . . . . . . . . . . . .13
4.7 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . .13
4.8 Proceedings and Documents. . . . . . . . . . . . . . . . . . . . .14
4.9 No Material Adverse Effect.. . . . . . . . . . . . . . . . . . . .14
4.10 Proceeding or Litigation.. . . . . . . . . . . . . . . . . . . . .14
4.11 Opinion of Company Counsel.. . . . . . . . . . . . . . . . . . . .14
4.12 Redemption.. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.13 Investors' Rights Agreement. . . . . . . . . . . . . . . . . . . .14
4.14 Board of Directors.. . . . . . . . . . . . . . . . . . . . . . . .15
4.15 Loan Documents.. . . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE V. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. . . . . . . .15
5.1 Representations and Warranties.. . . . . . . . . . . . . . . . . .15
5.2 Payment of Purchase Price. . . . . . . . . . . . . . . . . . . . .15
5.3 Qualifications.. . . . . . . . . . . . . . . . . . . . . . . . . .15
5.4 Shareholder Approval.. . . . . . . . . . . . . . . . . . . . . . .15
5.5 Investment Representation. . . . . . . . . . . . . . . . . . . . .15
5.6 Credit Agreement.. . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE VI. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . .16
6.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . .16
6.2 Access to Information. . . . . . . . . . . . . . . . . . . . . . .17
6.3 Other Discussions; Break Up Arrangement. . . . . . . . . . . . . .18
6.4 Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . .19
6.5 Shareholders' Meeting. . . . . . . . . . . . . . . . . . . . . . .19
6.6 Public Disclosure. . . . . . . . . . . . . . . . . . . . . . . . .19
6.7 Reasonable Efforts.. . . . . . . . . . . . . . . . . . . . . . . .19
6.8 Board of Directors.. . . . . . . . . . . . . . . . . . . . . . . .19
6.9 Bridge Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
6.10 Notification of Certain Matters. . . . . . . . . . . . . . . . . .20
6.11 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE VII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .20
7.1 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
7.2 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . .20
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . .21
7.4 Titles and Subtitles.. . . . . . . . . . . . . . . . . . . . . . .21
7.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
</TABLE>
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7.6 Finder's Fee.. . . . . . . . . . . . . . . . . . . . . . . . . . .21
7.7 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
7.8 Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . .22
7.9 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . .22
7.10 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
7.11 Aggregation of Stock.. . . . . . . . . . . . . . . . . . . . . . .22
7.12 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . .22
7.13 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . .22
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
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SCHEDULE A Schedule of Investors
SCHEDULE B Disclosure Schedules
EXHIBIT A Certificate of Determination
EXHIBIT B Contingent Common Stock Purchase Warrants
EXHIBIT C Investors' Rights Agreement
EXHIBIT D Opinion of Counsel for the Company
EXHIBIT E Share Exchange Agreement
EXHIBIT F Credit Agreement
EXHIBIT G Articles of Incorporation
EXHIBIT H Bylaws
</TABLE>
iv
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made on the 29th day of March,
1999, by and among Amerigon Incorporated, a California corporation (the
"Company"), and the investors listed on SCHEDULE A hereto (each, an "Investor"
and collectively, the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE I.
PURCHASE AND SALE OF STOCK AND WARRANTS
1.1 SALE AND ISSUANCE OF SERIES A PREFERRED STOCK AND WARRANTS.
(a) The Company shall adopt and file with the Secretary of State
of California on or before the Closing (as defined below) the Certificate of
Determination of Rights, Preferences and Privileges of the Series A Preferred
Stock in the form attached hereto as EXHIBIT A (the "Certificate of
Determination").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally, to purchase at the Closing and the Company agrees to
sell and issue to each Investor at the Closing, (i) that number of shares of
Company's Series A Preferred Stock, no par value ("Series A Preferred Stock"),
which is convertible into the Company's Class A Common Stock, no par value
("Class A Common Stock") and (ii) Warrants (the "Warrants") to purchase that
number of shares Class A Common Stock (the "Warrant Shares") set forth opposite
each Investor's name on SCHEDULE A hereto for the purchase price set forth
thereon. The Warrants will be subject to the terms and conditions set forth in
the form of Contingent Common Stock Purchase Warrants attached hereto as EXHIBIT
B (the "Stock Purchase Warrants"). The Series A Preferred Stock being purchased
hereunder, the Class A Common Stock issuable upon conversion of such Series A
Preferred Stock, the Warrants and the Warrant Shares are collectively referred
to herein as the "Securities."
1.2 CLOSING.
The purchase and sale of the Series A Preferred Stock and the
Warrants being purchased hereunder shall take place at the offices of
O'Melveny & Myers LLP, 400 South Hope Street, Los Angeles, California 90071,
at 10:00 A.M., on June 2, 1999, or at such other time and place as the
Company and the Investors mutually agree upon orally or in writing (which
time and place are designated as the "Closing"). At the Closing, the Company
shall deliver to each Investor a certificate representing the Series A
Preferred Stock and duly executed Stock Purchase Warrants representing the
Warrants that such Investor is purchasing against payment of the purchase
price therefor by bank cashier's check, wire transfer, cancellation of
indebtedness or any combination thereof. In the event that payment by an
Investor is made, in whole or in part, by cancellation of indebtedness, then
such Investor shall surrender to the Company for cancellation at the Closing
any evidence of such indebtedness or shall execute an instrument of
cancellation in form and substance acceptable to the Company. In addition,
at the Closing the Company shall deliver to any Investor choosing to pay any
part of the purchase price of the
<PAGE>
Series A Preferred Stock and Warrants by cancellation of indebtedness, a
check in the amount of any interest accrued on such indebtedness through the
Closing.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the disclosure schedules to this Agreement (the
"Disclosure Schedules"), each such schedule being numbered to correspond to the
section of this Agreement to which it applies, the Company hereby represents and
warrants to each Investor that:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has the requisite corporate power to own
its properties and carry on its business as presently conducted. The Company
is duly qualified to transact business and is in good standing in each
jurisdiction in which it has employees, maintains offices, leases or owns
real property or is otherwise required to be so qualified, except where the
failure to be so qualified would not have a Material Adverse Effect (as
defined below). For purposes of this Agreement, "Material Adverse Effect"
shall mean any event, circumstance or condition pertaining to the Company's
business, assets, liabilities or operations that, individually or in the
aggregate, is, or could reasonably be expected to be, materially adverse to
the business, operations, assets or liabilities (including without limitation
contingent liabilities), employee relationships, customer or supplier
relationships, prospects, projected results of operations or cash flow for
the years ending December 31, 1999, 2000 or 2001, or the condition (financial
or otherwise) of the Company.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of
the Company consists, or will consist immediately prior to the Closing, of:
(a) PREFERRED STOCK. 5,000,000 shares of Preferred Stock, no
par value (the "Preferred Stock"), of which 9,000 shares have been designated
Series A Preferred Stock and up to all of which will be sold pursuant to this
Agreement. The rights, privileges and preferences of the Series A Preferred
Stock will be as stated in the Company's Certificate of Determination. No other
series of Preferred Stock has been designated and, except for the shares of
Series A Preferred Stock being sold pursuant to this Agreement, no shares of
Preferred Stock are, or will be at the Closing, outstanding.
(b) COMMON STOCK. 20,000,000 shares of Class A Common Stock,
of which 2,510,088 shares are issued and outstanding, and 600,000 shares of
Class B Common Stock, no par value ("Class B Common Stock"), none of which
are issued and outstanding as of the date hereof. The Class A Common Stock
and Class B Common Stock are together referred to herein as "Common Stock."
The holders of the Class B Common Stock and the number of shares held by such
shareholders are set forth on the Disclosure Schedules.
(c) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities.
(d) Except for (i) the conversion privileges of the Series A
Preferred Stock to be issued under this Agreement, (ii) the rights provided in
the Investors' Rights
2
<PAGE>
Agreement, (iii) currently outstanding options to purchase 210,169 shares of
Class A Common Stock granted to consultants or employees pursuant to the
Company's Stock Option Plans (the "Option Plans") listed on the Disclosure
Schedules, and (iv) the options, warrants or rights set forth on the
Disclosure Schedules, there are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock or securities
convertible into or exercisable for shares of capital stock. In addition to
the aforementioned options, the Company has reserved an additional 52,848
shares of its Class A Common Stock for purchase upon exercise of options to
be granted in the future under the Option Plans. All such shares of capital
stock issuable pursuant to the rights or agreements set forth in this Section
2.2(d) will be, upon issuance, duly and validly issued, fully paid and
nonassessable. The Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, there is no agreement or
understanding between any persons and/or entities, which affects or relates
to the voting or giving of written consents with respect to any security or
by a director of the Company.
2.3 SUBSIDIARIES. Except as set forth on the Disclosure
Schedules, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity. Except as set forth on the Disclosure Schedules, the
Company is not a participant in any joint venture, partnership, or similar
arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Stock Purchase
Warrants, and the Investors' Rights Agreement (attached hereto as Exhibit C),
the performance of all obligations of the Company hereunder and thereunder,
and the authorization (or reservation for issuance), sale and issuance of the
Series A Preferred Stock and the Warrants being sold hereunder, the Class A
Common Stock issuable upon conversion of the Series A Preferred Stock and the
Warrant Shares has been taken or will be taken prior to the Closing. This
Agreement, the Stock Purchase Warrants, and the Investors' Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable
in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally,
and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
2.5 VALID ISSUANCE OF PREFERRED AND CLASS A COMMON STOCK. The
Series A Preferred Stock that is being purchased by the Investors hereunder
is duly authorized and, when issued, sold and delivered in accordance with
the terms of this Agreement for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and will be free of
liens, claims, and encumbrances of the Company and of restrictions on
transfer, other than restrictions on transfer under applicable state and
federal securities laws. The Class A Common Stock issuable upon conversion
of the Series A Preferred Stock purchased under this Agreement is duly
authorized and reserved for issuance and, upon issuance in accordance with
the terms of the Certificate of Determination, will be duly and validly
issued, fully paid and nonassessable and will be free of liens, claims and
encumbrances of the Company and of restrictions on transfer, other than
restrictions on transfer under applicable state and federal securities laws.
The Warrants are duly authorized and, upon issuance in accordance with the
terms of this Agreement,
3
<PAGE>
will be validly issued, fully paid and nonassessable, and will be free of
liens, claims and encumbrances of the Company and of restrictions on
transfer, other than restrictions on transfer under applicable state and
federal securities laws. The Warrant Shares are duly authorized and reserved
for issuance, and, upon exercise of the Warrants in accordance with the terms
thereof, will be validly issued, fully paid and nonassessable, and will be
free of liens, claims, and encumbrances of the Company and of restrictions on
transfer, other than restrictions on transfer under applicable state and
federal securities laws.
2.6 CONSENTS. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated
by this Agreement, except for: (i) the filing of a Notice of Transaction
pursuant to Section 25102(f) of the California Corporate Securities Law of
1968, as amended, and the rules thereunder, which filing will be effected
within the time prescribed by law; (ii) the filing of a Form D pursuant to
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"), which filing will be effected within the required statutory period;
(iii) the filing and distribution of a proxy statement pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") with respect to the special meeting of shareholders to be held to
approve this Agreement and the transactions and agreements contemplated
hereby; (iv) such other filings required pursuant to applicable federal and
state securities laws and blue sky laws, which filings will be effected
within the required statutory period; (v) the approval of this Agreement and
the transactions and agreements contemplated hereby by the requisite vote of
the Company's shareholders; (vi) the consents set forth on the Disclosure
Schedules; and (vii) the filing of an Application for the Listing of
Additional Shares with Nasdaq.
2.7 OFFERING. Subject to the truth and accuracy of each Investor's
representations set forth in Section 3 of this Agreement, the offer, sale and
issuance of the Series A Preferred Stock and the Warrants as contemplated by
this Agreement are exempt from the registration requirements of the
Securities Act , and the qualification or registration requirements of
applicable state securities laws. Neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that would cause
the loss of such exemptions.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending, or to the Company's knowledge, currently threatened
against the Company, except as which individually or in the aggregate would
not have a Material Adverse Effect. The Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. Except as set forth on the
Disclosure Schedules, there is no material action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
2.9 PROPRIETARY INFORMATION AGREEMENTS. Each employee, officer
and consultant of the Company has executed a proprietary information and
inventions agreement in the form set forth on the Disclosure Schedules. The
Company, after reasonable investigation, is not aware that any of its
employees, officers or consultants is in violation thereof, and the Company
will use its best efforts to prevent any such violation.
4
<PAGE>
2.10 PATENTS AND TRADEMARKS. The Company owns or licenses from
another person all inventions, patents, patent rights, computer software,
trademarks, trademark rights, service marks, service mark rights, trade
names, trade name rights and copyrights (collectively, the "Intellectual
Property") necessary for its business as presently conducted without any
conflict with or infringement of the valid rights of others and the lack of
which could materially and adversely affect the operations or condition,
financial or otherwise, of the Company, and the Company has not received any
notice of infringement upon or conflict with the asserted rights of others.
The Disclosure Schedules contain a complete list of all such patents, patent
rights, registered trademarks, registered service marks, registered
copyrights, all agreements related to the foregoing, and all agreements
pursuant to which the Company licenses Intellectual Property from or to a
third party (excluding "shrink wrap" license agreements relating solely to
off the shelf software which is not material to the Company's business). All
Intellectual Property owned by the Company is owned free and clear of all
liens, adverse claims, encumbrances, or restrictions, except for restrictions
contained in the terms of the licenses listed in the Disclosure Schedules.
All Intellectual Property licensed by the Company is the subject of a license
agreement which is legal, valid, binding and enforceable and in full force
and effect. The consummation of the transactions contemplated hereby will
not result in the termination or impairment of the Company's ownership of, or
right to use, any Intellectual Property. The Company has a valuable body of
trade secrets, including know-how, concepts, business plans, and other
technical data (the "Proprietary Information") for the development,
manufacture and sale of its products. The Company has the right to use the
Proprietary Information free and clear of any rights, liens, encumbrances or
claims of others. The Company is not aware, after reasonable investigation,
that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his or her best efforts to
promote the interests of the Company or that would conflict with the
Company's business.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement, the Investors' Rights Agreement, and the
Stock Purchase Warrants by the Company, the performance by the Company of its
obligations under the Certificate of Determination, and the consummation by
the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance and reservation for issuance, as applicable,
of the Series A Preferred Stock being sold pursuant hereto, the Class A
Common Stock issuable upon the conversion of such Series A Preferred Stock,
the Warrants and the Warrant Shares) will not (i) result in a violation of
the Company's Articles of Incorporation or Bylaws, or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture
or instrument to which the Company or any of its properties is subject, or
result in a violation of any material law, rule, regulation, order, judgment
or decree (including U.S. federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected. The Company is not in violation of its Articles of
Incorporation, Bylaws or other organizational documents, or of any judgment,
order, writ, decree, law, rule or regulation to which the Company or its
properties is subject. The Company is not in default (and no event has
occurred which, with notice or lapse of time or both, would put the Company
in default) under, nor has there occurred any event giving others (with
notice or lapse of time or both) any rights of
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termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company is a party or any of
its properties is subject. The Company is not in violation of the listing
requirements of the Nasdaq Small Cap market ("NASDAQ") and does not
reasonably anticipate that the Class A Common Stock will be delisted by
NASDAQ for the foreseeable future.
2.12 AGREEMENTS; ACTION. Except as set forth on the Disclosure
Schedules:
(a) there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates
or any affiliate thereof, other than the agreements explicitly contemplated
hereby.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to the Company, in excess of $50,000,
other than obligations of, or payments to, the Company arising from purchase or
sale agreements entered into in the ordinary course of business, (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company, other than licenses arising from the purchase of "off the
shelf" or other standard products, or (iii) provisions restricting the
development, manufacture or distribution of the Company's products or services.
(c) Since the date of the most recent audited balance sheet
provided to the Investors by the Company, the Company has not (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, (ii) incurred any indebtedness for
money borrowed or any other liabilities individually in excess of $50,000, (iii)
made any loans or advances to any person, other than ordinary advances for
travel expenses, or guaranteed the obligations of any person, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(d) There are no other agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that are material to the conduct
of the Company's business.
(e) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.13 RELATED-PARTY TRANSACTIONS. Except as set forth in the
Disclosure Schedules, no employee, officer or director of the Company or
member of his or her immediate family is indebted to the Company, nor is the
Company indebted (or committed to make loans or extend or guarantee credit)
to any of them. To the best of the Company's knowledge, none of such persons
has any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company,
except that employees, officers or directors of the
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Company and members of their immediate families may own less than 5% of the
outstanding stock of one or more publicly traded companies that may compete
with the Company. Except as set forth on the Disclosure Schedules, no
employee, officer or director of the Company or member of his or her
immediate family is directly or indirectly interested in any material
contract with the Company.
2.14 SEC DOCUMENTS AND FINANCIAL STATEMENTS. Since January 1,
1997, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act (all of the foregoing and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, with amendments read together
with underlying documents, are referred to herein as the "SEC Documents").
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles, consistently applied, during the periods
involved and fairly and accurately present in all material respects the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the most recent audited balance sheet provided to the Investors by
the Company, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent
to the date of such financial statements and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
Except as disclosed in such financial statements, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
2.15 CHANGES. Except as set forth on the Disclosure Schedules,
since December 31, 1998 there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Company's
financial statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results or business of the Company;
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(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company;
(e) any amendment to or termination of a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or
agreement with any employee; or
(g) any agreement or commitment by the Company to do any of the
things described in this Section 2.15.
2.16 TAX RETURNS. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it and such tax returns
are true and correct in all material respects. In addition, (i) the Company
has not requested any extension of time within which to file any tax returns
in respect of any fiscal year which have not since been filed and no request
for waivers of the time to assess any taxes are pending or outstanding, (ii)
no claim for taxes has become a lien against the property of the Company or
is being asserted against the Company other than liens for taxes not yet due
and payable, (iii) no audit of any tax return of the Company is being
conducted by a tax authority, (iv) no extension of the statute of limitations
on the assessment of any taxes has been granted to, by or applied for by, the
Company and is currently in effect, and (v) there is no agreement, contract
or arrangement to which the Company is a party that may result in the payment
of any amount that would not be deductible by reason of Sections 280G, 162 or
404 of the Internal Revenue Code.
2.17 PERMITS. The Company has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business
("Permits"). The Company is not in default under any of such Permits. The
Disclosure Schedules set forth an accurate and complete list of all such
Permits.
2.18 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in
violation of any applicable material statute, law or regulation relating to
the environment or occupational health and safety, and no material
expenditures are or will be required in order to comply with any such
existing statute, law or regulation.
2.19 DISCLOSURE. The Company has fully provided each Investor with
all the information that such Investor has requested for deciding whether to
purchase the Series A Preferred Stock and Warrants and all information that
the Company believes is reasonably necessary to enable such Investor to make
such decision. This Agreement (including all the Exhibits and Schedules
hereto read together with the SEC documents) does not contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements herein or therein not misleading in light of the circumstances
under which they were made.
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2.20 REGISTRATION RIGHTS. Except as set forth on the Disclosure
Schedules and the rights granted pursuant to the Investors' Rights Agreement,
the Company has not granted or agreed to grant any registration rights,
including piggyback rights, to any person or entity.
2.21 CURRENT PUBLIC INFORMATION. The Company is currently eligible
to register the resale of its Class A Common Stock on a registration
statement on Form S-3 under the Securities Act.
2.22 NO GENERAL SOLICITATION. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby (if any) nor any person acting for the Company, or any
such distributor, has conducted any "general solicitation," as such term is
defined in Regulation D, with respect to any of the Securities being offered
hereby.
2.23 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers
to buy any security under circumstances that would require registration of
the Securities being offered hereby under the Securities Act.
2.24 CORPORATE DOCUMENTS. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the
form of which amendments has been approved by the Investors), the Articles of
Incorporation and Bylaws of the Company are in the form attached hereto as
EXHIBIT G and EXHIBIT H, respectively.
2.25 TITLE TO PROPERTY AND ASSETS. The property and assets the
Company owns are owned by the Company free and clear of all mortgages, liens,
loans and encumbrances, except (i) as reflected in the Company's financial
statements included in the SEC Documents, (ii) for mechanic's, workmen's,
repairmen's, warehousemen's, carrier's or similar liens arising or incurred
in the ordinary course of business and which, individually or in the
aggregate, are not material, and (iii) for statutory liens for the payment of
current taxes that are not yet delinquent. With respect to the property and
assets it leases, the Company is in compliance with such leases and holds a
valid leasehold interest free of any liens, claims or encumbrances, subject
to clauses (i), (ii) and (iii) above.
2.26 FOREIGN CORRUPT PRACTICES. Neither the Company nor any
director, officer, agent, employee or other person acting on behalf of the
Company has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision
of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or domestic government official or employee.
2.27 INSURANCE. The Disclosure Schedules set forth a complete and
accurate list of all insurance policies maintained by the Company and a
summary of the coverage provided by such policies.
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2.28 EMPLOYEE BENEFIT PLANS. The Disclosure Schedules set forth a
complete and accurate list of all employment contracts, deferred compensation
agreements, bonus plans, incentive plans, profit sharing plans, retirement
agreements or other agreements, plans or arrangements relating to
compensation or benefits provided to the Company's employees. The Company
has complied in all material respects with all applicable state and federal
equal employment opportunity and other laws related to employment and the
agreements, plans and arrangements set forth on the Disclosure Schedules.
The Disclosure Schedules contain a complete and accurate list of all of the
Company's employees, their current rates of compensation, date of hire, and
job title.
2.29 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the Company's
knowledge, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving
the Company pending, or to the Company's knowledge, threatened, that could
have a material adverse effect on the assets, properties, financial
condition, operating results or business of the Company, nor is the Company
aware of any labor organization activity involving its employees. The
Company is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the Company nor
does the Company have a present intention to terminate the employment of any
of the foregoing. The employment of each officer and employee of the Company
is terminable at the will of the Company.
2.30 YEAR 2000 COMPLIANCE. All of the Company's products currently
being sold and under development and all computer software and hardware
(including microcode, firmware, system and application programs, files,
databases, computer services and microcontrollers), including those embedded
in computer and noncomputer equipment contained in the Company's products
currently being sold and under development are Year 2000 Compliant, except to
the extent that they may be used or interfaced with other software, data or
operating systems that are not Year 2000 Compliant. All of the Company's
internal computer systems are Year 2000 Compliant, except that the Company
makes no such representation with respect to off-the-shelf software that is
used in the Company's internal computer systems the failure or malfunctioning
of which would not have a material adverse effect on the Company. To its
knowledge, the Company is not relying on the products or services of any
third party whose systems are not Year 2000 Compliant. For purposes of this
Agreement, "Year 2000 Compliant" shall mean that such products and data and
information systems and any such data, information or other files or software
it uses, individually and in combination, completely and accurately record,
store, process, calculate and present data involving dates before, on or
after January 1, 2000; specifically: (i) no value for a current date will
cause any interruption in operation; (ii) date-based functionality will
behave consistently when dealing with dates before, on or after January 1,
2000; (iii) no abnormal endings or incorrect results will be produced when
working with dates before, on or after January 1, 2000; (iv) in all
interfaces and data storage, the century will be specified explicitly and
will be unambiguously derived; and (v) year 2000 will be recognized as a leap
year.
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2.31 COMPUTER AND COMMUNICATION INFRASTRUCTURE. The Company's
computer and communication infrastructure is adequate to conduct its
business as a supplier of automobile parts. The Company is in
compliance with QS9000.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents, warrants and covenants that:
3.1 AUTHORIZATION. Such Investor has full power and authority to
enter into this Agreement and the Investors' Rights Agreement, and each such
agreement constitutes its valid and legally binding obligation, enforceable
in accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief
or other equitable remedies.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Securities will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in or otherwise
distributing the same; provided, however, that such Investor may make
distributions of any such Securities to such Investor's affiliates.
3.3 ACCREDITED INVESTOR. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC")
Rule 501 of Regulation D, as presently in effect.
3.4 RESTRICTED SECURITIES. Such Investor understands that the
Securities it is purchasing under this Agreement are characterized as
"restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such Securities
may be resold without registration under the Securities Act only in certain
limited circumstances. Each Investor understands that such Investor is
acquiring certain registration rights pursuant to the Investors' Rights
Agreement with respect to the registration for resale of the Class A Common
Stock issuable upon conversion of the Series A Preferred Stock and the Class
A Common Stock issuable upon exercise of the Warrants.
3.5 LEGENDS. Such Investor understands that the certificates
evidencing the Securities may bear a legend in substantially the following
form:
"These securities have not been registered under the Securities Act of
1933, as amended (the "Act"). They may not be sold, offered for sale, pledged
or hypothecated unless (i) a registration statement is in effect with respect to
the securities or (ii) an exemption from registration is available under the
Act."
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ARTICLE IV.
CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING
The obligations of each Investor under subsection 1.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions, any or all of which may be waived with respect to an
Investor by such Investor's written consent thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied in
all material respects with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied
with by it on or before the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and
sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
4.5 SHAREHOLDER APPROVAL. The Company shall have obtained the
requisite approval of this Agreement and the transactions contemplated
hereby, including but not limited to the Investors' Rights Agreement, by its
shareholders.
4.6 CERTIFICATE OF DETERMINATION. The Company shall have filed
the Certificate of Determination with the California Secretary of State and
shall have provided evidence satisfactory to the Investors that such filing
has been made.
4.7 DUE DILIGENCE. Each of the Investors shall have received from
the Company all the information that such Investor has theretofore requested
and which such Investor believes is reasonably necessary to enable it to make
the investment decision contemplated by this Agreement.
4.8 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to the Investors and their counsel, and they shall have
received all such counterpart original and certified or other copies of such
documents as they may reasonably request.
4.9 NO MATERIAL ADVERSE EFFECT. No event, circumstance or
condition shall have occurred which has, or could reasonably be expected to
have, a Material Adverse Effect.
4.10 PROCEEDING OR LITIGATION. No restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal or
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regulatory restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
this Agreement or the transactions contemplated hereby which makes the
consummation of such transactions illegal or which otherwise prohibits the
consummation of such transactions. In the event an injunction or other order
shall have been issued, each party agrees to use its reasonable diligent
efforts to have such injunction or other order lifted.
4.11 OPINION OF COMPANY COUNSEL. Each Investor shall have received
from O'Melveny & Myers, LLP, counsel for the Company, an opinion, dated as of
the Closing, in the form attached hereto as EXHIBIT D.
4.12 REDEMPTION. The Company shall have entered into a legally
binding and enforceable agreement providing for the redemption of all
outstanding Class B Common Stock into which Class A Common Stock currently
held in escrow is converted or convertible, subject only to the prior closing
of the transaction contemplated by this Agreement, either in accordance with
the terms of the Share Exchange Agreement attached hereto as EXHIBIT E, or,
otherwise, on terms and conditions satisfactory to the Investors, in their
sole discretion.
4.13 INVESTORS' RIGHTS AGREEMENT. The Company shall have executed
and delivered to the Investors the Investors' Rights Agreement in the form
attached hereto as EXHIBIT C.
4.14 BOARD OF DIRECTORS. Resolutions shall have been adopted by
the Board of Directors to increase the authorized number of directors of the
Company to seven (7) effective as of the Closing, and all of the Company's
directors, except John Clark, Lon Bell and Richard Weisbart, shall have
tendered their resignations to be effective as of the Closing.
4.15 LOAN DOCUMENTS. No Event of Default, as that term is defined
in the Credit Agreement attached hereto as EXHIBIT F ("Credit Agreement"),
shall have occurred and remain uncured at the time of the Closing.
ARTICLE V.
CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to each Investor under this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions by the Company or that Investor, as the case may be, any or all of
which may be waived by the Company's written consent thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. Each Investor shall have delivered
the purchase price specified in Section 1.2.
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5.3 QUALIFICATIONS. All material authorizations, approvals or
permits of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Securities pursuant to this Agreement and which are set forth in
this Agreement or on the Disclosure Schedules shall be duly obtained and
effective as of the Closing.
5.4 SHAREHOLDER APPROVAL. The Company shall have obtained the
requisite approval of this Agreement and the transactions contemplated
hereby, including but not limited to the Investors' Rights Agreement, by its
shareholders.
5.5 INVESTMENT REPRESENTATION. The Company shall have obtained
from each Investor a representation that such Investor has received from the
Company all the information that such Investor has requested for deciding
whether to purchase the Series A Preferred Stock and the Warrants and all
information that such Investor believes is reasonably necessary to enable
such Investor to make such decision.
5.6 CREDIT AGREEMENT. The Lender shall have performed in all
material respects the agreements and obligations to be performed by it under
the Credit Agreement which are required to be performed prior to the Closing.
ARTICLE VI.
OTHER AGREEMENTS
6.1 CONDUCT OF BUSINESS. During the period from the date of this
Agreement and continuing until the Closing, except as expressly contemplated
or permitted by this Agreement or with the prior written consent of
Investors, which shall not be unreasonably withheld or delayed, the Company
shall carry on its business in the ordinary course consistent with past
practice. Without limiting the generality of the foregoing, except as
expressly contemplated or permitted by this Agreement, the Company shall not
without the prior written consent of Investors:
(a) declare or pay any dividends on, or make other distributions
in respect of, any of the Company's capital stock;
(b) (i) repurchase, redeem or otherwise acquire any shares of
its capital stock, or any securities convertible into or exercisable for any
shares of its capital stock, (ii) split, combine or reclassify any shares of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;
(c) amend its Articles of Incorporation, Bylaws or other similar
governing documents;
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(d) make any capital expenditures other than those which (i) are
made in the ordinary course of business or are necessary to maintain existing
assets in good repair and (ii) do not exceed $50,000 in the aggregate;
(e) enter into any new line of business;
(f) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company;
(g) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Closing not being satisfied;
(h) change its methods of accounting in effect at December 31,
1998, except as required by changes in GAAP or as concurred with by the
Company's independent auditors;
(i) (i) except as required by applicable law or as required to
maintain qualification pursuant to the Internal Revenue Code, adopt, amend, or
terminate any employee benefit plan or any agreement, arrangement, plan or
policy between the Company and one or more of its current or former directors,
officers or employees, or (ii) except for normal increases in the ordinary
course of business consistent with past practice or except as required by
applicable law, increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any
agreement as in effect as of the date hereof (including, without limitation, the
granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares);
(j) other than activities in the ordinary course of business
consistent with past practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of,
any of its material assets, properties or other rights or agreements;
(k) other than in the ordinary course of business consistent
with past practice and not in excess of $50,000 (individually or in the
aggregate), incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity;
(l) create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract, agreement
or lease for goods, services or office space to which the Company is a party or
by which the Company or its properties are bound, other than the renewal in the
ordinary course of business of any lease the term of which expires prior to the
Closing; or
(m) agree to do any of the foregoing.
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6.2 ACCESS TO INFORMATION. The Company will give Investors and
their accountants, legal counsel and other representatives full access,
during normal business hours throughout the period prior to the Closing, to
all of the properties, books, contracts, commitments and records relating to
its capital stock, business, assets and liabilities. The Company will make
available to Investors and their accountants, legal counsel and other
representatives during such period copies of all documents and all such
information concerning its affairs as Investors may reasonably request.
6.3 OTHER DISCUSSIONS; BREAK UP ARRANGEMENT.
(a) From the date hereof until the Closing, unless Investors
have given their prior written approval, none of the Company nor any of its
affiliates or representatives shall directly or indirectly, solicit, initiate,
facilitate, or encourage the submission of any other proposal for, enter into
any agreement or initiate or participate in any discussions regarding, or
furnish to any person any information or assistance with respect to, or take any
other action to facilitate the making of any proposal that constitutes or may
reasonably be expected to lead to, other business combinations or financing
transactions directly or indirectly involving the Company or its business
operations, or the acquisition, in any manner directly or indirectly, of all or
any substantial part of the business, assets, capital stock or other voting
securities of, or any other equity interest in, the Company or its business
operations by any other party. Notwithstanding the above, the Company may
respond to unsolicited written proposals or to information requests and furnish
or disclose information in response thereto if the Company's Board of Directors
determines in good faith, after consultation with legal counsel, that taking
such action is necessary in the exercise of its fiduciary obligations under
applicable law. If the Company receives any competing proposal (oral or
written), the Company shall advise Investors immediately of its terms and, if
the competing proposal is in writing, furnish Investors with a true and complete
copy thereof.
(b) If (1) the Closing does not occur (other than as a result of
a material breach of this Agreement by the Investors or the determination by the
Investors not to proceed with this transaction for failure of the condition
specified in Section 4.9 hereof) and (2) a Trigger Event (as defined below) has
occurred within twelve months from the date hereof, then the Company shall:
(i) immediately reimburse the Investors for all reasonable
out-of-pocket expenses incurred in connection with the preparation, negotiation
and performance of this Agreement up to a maximum of $150,000 (including legal,
accounting, consulting and any third party financing fees and any costs of
collection), and
(ii) immediately pay a failed transaction fee (the "Fee") to
the Investors in an amount equal to the greater of (A) 5% of the value of the
transaction constituting the Trigger Event accepted by the Board or (B)
$300,000.
(c) A "Trigger Event" means occurrence of any of the following
events: (i) any person, corporation, entity or "group" (as such term is used in
section 13(d) of the Exchange Act) (other than the Investors or any of their
affiliates) (a "Person") shall have acquired or become the beneficial owner of
more than 25% of the outstanding Class A Common Stock, or shall have been
granted any option or right (conditional or otherwise), to acquire more
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<PAGE>
than 25% of the outstanding Class A Common Stock; (ii) any Person shall have
commenced a bona fide tender offer or exchange offer for consideration the
fair market value of which is in excess of the initial Conversion Price (as
provided in the Certificate of Determination) per share for at least 25% of
the outstanding Class A Common Stock, (iii) the Company (or its Board) shall
have authorized, recommended, proposed or publicly announced its intention to
enter into any tender or exchange offer, merger, consolidation, liquidation,
dissolution, business combination, recapitalization, acquisition, or
disposition of a material amount of assets or securities or any comparable
transaction which has not been consented to in writing by the Investors; or
(iv) the shareholders of the Company fail to approve the Agreement.
6.4 PROXY STATEMENT. As promptly as practicable after the
execution of this Agreement, the Company shall prepare and file with the SEC
a proxy statement (together with all amendments thereto "Proxy Statement")
for use in connection with the Annual Meeting (as defined below). The
Company shall prepare the Proxy Statement in compliance with applicable
federal and state securities laws and with the applicable provisions of the
California General Corporations Law. As promptly as practicable after the
preparation of the Proxy Statement and the completion of the SEC's review, if
any, of such Proxy Statement, the Proxy Statement shall be mailed to the
shareholders of the Company. None of the information supplied by any party
hereto for inclusion in the Proxy Statement shall, at the date it or any
amendments or supplements thereto are mailed to the shareholders in
connection with the Annual Meeting, at the time of the Annual Meeting, or at
the Closing, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
6.5 SHAREHOLDERS' MEETING. As promptly as practicable after the
date hereof, the Company shall call and hold its annual meeting of its
shareholders for the purpose of approving this Agreement and the transactions
contemplated hereby (the "Annual Meeting"). The Company shall use its best
efforts to solicit from its shareholders proxies in favor of the approval of
this Agreement and the transactions contemplated hereby pursuant to the Proxy
Statement.
6.6 PUBLIC DISCLOSURE. Each party shall consult with the others
before issuing any press release or otherwise making any public statement or
making any other public (or non-confidential) disclosure (whether or not in
response to an inquiry) regarding the terms of this Agreement and the
transactions contemplated hereby, and shall provide to the others for review
and approval a copy of such contemplated disclosure. No party shall issue any
such press release or make any such statement or disclosure before such
review and approval by the other parties, except as such party is advised by
legal counsel is required by law.
6.7 REASONABLE EFFORTS. Each party will use its commercially
reasonable efforts to cause all conditions to the Closing to be satisfied,
including, without limitation, obtaining any of its consents necessary or
desirable in connection with the consummation of the transactions
contemplated by this Agreement.
6.8 BOARD OF DIRECTORS. The parties understand that pursuant to
the Certificate of Determination, the authorized number of directors of the
Company shall be seven, the holders of Common Stock shall be entitled to
elect two directors, and the holders of Series A Preferred Stock shall be
entitled to elect five directors. At or prior to the Closing, all of the
Company's
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<PAGE>
directors, except John Clark, Lon Bell and Richard Weisbart, shall have
resigned. The remaining directors shall fill the vacancies created by such
resignations and appoint directors who are acceptable to the Investors.
6.9 BRIDGE LOAN. Concurrently, with the execution of this
Agreement, the parties shall enter into the Credit Agreement, together with
the related security agreements and documents referred to therein, pursuant
to which the Investors shall loan funds to the Company (the "Bridge Loan")
subject to the terms and on the conditions set forth in such Credit Agreement.
6.10 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Investors, and Investors shall give prompt notice to the
Company, of (a) the occurrence or nonoccurrence of any event the occurrence
or nonoccurrence of which would likely to cause any representation or
warranty of the notifying party contained in this Agreement to become
materially untrue or inaccurate, or (b) any failure of the notifying party to
materially comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
6.11 INDEMNIFICATION. In the event any third party brings an
action, suit or proceeding (including, without limitation, any derivative
proceeding) against any Investor arising out of any allegation that this
Agreement or the agreements and transactions contemplated hereby violate or
interfere with an agreement or arrangement between such third party and the
Company, then the Company agrees to indemnify the Investors from and against
the entirety of any loss, damage, claim, cost or expense (including
reasonable attorneys' fees) the Investors may suffer through and after the
date of the claim for indemnification resulting from, arising out of,
relating to, in the nature of, or caused by the third party action, suit or
proceeding referenced above.
ARTICLE VII.
MISCELLANEOUS
7.1 SURVIVAL. The warranties, representations and covenants of
the Company and Investors contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and shall in no
way be affected by any investigation of the subject matter thereof made by or
on behalf of the Investors or the Company prior to the Closing. The
warranties, representations, and covenants of the Company shall terminate
upon the Closing and shall be of no further force or effect after such date.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement, express
or implied, is intended to confer upon any party, other than the parties
hereto or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
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<PAGE>
7.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.5 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed telex or facsimile
if sent during normal business hours of the recipient, if not, then on the
next business day; (iii) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall
be sent to the address as set forth on the signature page hereof or at such
other address as such party may designate by ten days advance written notice
to the other parties hereto.
7.6 FINDER'S FEE. Except as set forth on the Disclosure
Schedules, each party represents that it neither is nor will be obligated for
any finders' fee or commission in connection with this transaction. Each
Investor agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which such Investor or any of its officers, partners,
employees or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company
or any of its officers, employees or representatives is responsible.
7.7 EXPENSES. The Company shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement, the agreements related hereto, and the
agreements related to the Bridge Loan. Upon the execution of this Agreement,
the Company shall reimburse the Investors for their actual costs (including
reasonable legal fees) incurred in connection with the Bridge Loan, but not
in excess of $50,000. If the Closing is effected, the Company shall, at the
Closing, reimburse the actual costs (including reasonable legal fees) of the
Investors in connection with the negotiation, execution, delivery, and
performance of this Agreement and the transactions and agreements
contemplated hereby (in addition to the costs associated with the Bridge Loan
as previously reimbursed) not to exceed $150,000. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
Investors' Rights Agreement, or the Certificate of Determination, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
7.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and each
Investor.
7.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
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<PAGE>
7.10 TERMINATION. If the closing has not occurred on or before
June 30, 1999, either party may terminate this Agreement by providing written
notice to the other party; provided, however, if the SEC reviews the
Company's Proxy Statement, the date on which termination pursuant to this
Section 7.10 shall first be permitted will be July 30, 1999.
Notwithstanding, the termination of this Agreement pursuant to this Section
7.10, the Company shall be liable for the payments described in Section 6.3
if a Trigger event subsequently occurs within the time period set forth in
that section.
7.11 AGGREGATION OF STOCK. All shares of the Series A Preferred
Stock or Common Stock issued upon conversion thereof held or acquired by
affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
7.12 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein constitute the entire agreement among the parties and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or
therein.
7.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
THE COMPANY: AMERIGON INCORPORATED
By: /s/ LON E. BELL
----------------------------------
Its:
----------------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
INVESTORS: WESTAR CAPITAL II LLC
By: /s/ JOHN W. CLARK
----------------------------------
Its:
----------------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
BIG BEAVER INVESTMENTS LLC
By: /s/ OSCAR B. MARX III
----------------------------------
Its: President
----------------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
INVESTOR SERIES A PREFERRED STOCK PURCHASE PRICE
- -------- ------------------------ --------------
<S> <C> <C>
Westar Capital II LLC 4,500 $4,500,000
Big Beaver Investments LLC 4,500 $4,500,000
</TABLE>
<TABLE>
<CAPTION>
INVESTOR WARRANT PURCHASE PRICE
- -------- ------- ---------------
<S> <C> <C>
Westar Capital II LLC Warrants to purchase that number of shares $500
of Class A Common Stock equal to 36.9% of
the aggregate shares subject to (i) currently
outstanding warrants (excluding the Bridge Loan
Warrants) plus (ii) warrants that are issuable at the
Closing to Spencer Trask Securities Incorporated
on the terms and conditions set forth in the
Contingent Common Stock Purchase Warrants attached
hereto as Exhibit B.
Big Beaver Investments LLC Warrants to purchase that number of shares $500
of Class A Common Stock equal to 36.9% of
the aggregate shares subject to (i) currently
outstanding warrants (excluding the Bridge Loan
Warrants) plus (ii) warrants that are issuable at the
Closing to Spencer Trask Securities Incorporated
on the terms and conditions set forth in the Contingent
Common Stock Purchase Warrants attached hereto as Exhibit B.
</TABLE>
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<PAGE>
EXHIBIT A TO SECURITIES PURCHASE AGREEMENT
BEGINS ON THE FOLLOWING PAGE.
<PAGE>
CERTIFICATE OF DETERMINATION
OF RIGHTS, PREFERENCES AND PRIVILEGES
OF
THE SERIES A PREFERRED STOCK
OF
AMERIGON INCORPORATED
---------------------
Pursuant to the Provisions of Section 401 of the
General Corporation Law of the State of California
The undersigned and , the President and
Secretary, respectively, of Amerigon Incorporated, a California corporation (the
"Corporation"), do hereby certify as follows:
A. That the following resolution designates nine thousand shares of
Series A Preferred Stock, and that as of the date hereof, no shares of Series A
Preferred Stock have been issued or are outstanding.
B. That the Board of Directors of the Corporation, pursuant to the
authority so vested in it by the Articles of Incorporation of the Corporation
and in accordance with the provisions of Section 401 of the General Corporation
Law of the State of California, adopted the following resolution creating a
series of Preferred Stock designated as "Series A Preferred Stock":
WHEREAS, the Articles of Incorporation of this Corporation
authorize the issuance of one or more series of preferred stock
("Preferred Stock") of the Corporation and authorize the Board of
Directors to determine the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and to fix the number of shares of such series;
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority
expressly granted to and vested in the board of directors of the
corporation pursuant to the Articles of Incorporation, there is hereby
created one series of preferred stock, without par value, of the
Corporation which shall be designated "SERIES A PREFERRED STOCK." The
number of shares of Series A Preferred Stock authorized for issuance
is nine thousand. In addition to those set forth in the Articles of
Incorporation of the Corporation, the Series A Preferred Stock shall
have the powers and preferences, the relative, participating, optional
or other rights, and the qualifications, limitations or restrictions
set forth below:
1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, the holders of
shares of Series A Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, in an amount equal to the dividends
that would be paid on the outstanding Class A Common Stock of the corporation
into which the Series A Preferred Stock is convertible on an as converted basis,
payable when, as and if declared by the Board of Directors.
<PAGE>
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (i) $1,000 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price"), (ii) an amount equal to
7% of the Original Series A Issue Price annually, but only until the fourth
anniversary of the issuance of the Series A Preferred Stock, and (iii) an amount
equal to any declared but unpaid dividends on such share (the amounts in (ii)
and (iii) being referred to herein as the "Premium"). If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then, subject to the rights
of series of Preferred Stock that may from time to time come into existence, the
entire assets and funds of the corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
in proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution required by subparagraph
(a) of this Section 2 and any other distribution that may be required with
respect to series of Preferred Stock that may from time to time come into
existence, if assets remain in this corporation, the holders of the Common Stock
of this corporation, shall receive all of the remaining assets of the
corporation.
(c)(i) For purposes of this Section 2, a liquidation, dissolution
or winding up of this corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; UNLESS the corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or on the
NASDAQ National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
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<PAGE>
(2) If actively traded over-the-counter or on NASDAQ
(other than on the National Market), the value shall be deemed to be the average
of the closing bid or sale prices (whichever is applicable) over the thirty-day
period ending three (3) days prior to the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the corporation.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as determined in good faith by the Board of Directors of
the corporation.
(iii) In the event the requirements of this subsection 2(c) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Series A Preferred Stock written notice of such impending transaction not later
than twenty (20) days prior to (A) the date of the shareholders' meeting called
to approve such transaction, (B) the effective date of a written consent of the
shareholders to approve the transaction, or (C) the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes relating to the transaction. The transaction
shall in no event take place sooner than twenty (20) days after the corporation
has given the first notice provided for herein or sooner than ten (10) days
after the corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon the written
consent of the holders of Preferred Stock that are entitled to such notice
rights or similar notice rights and that represent at least a majority of the
voting power of all then outstanding shares of such Preferred Stock.
3. REDEMPTION.
(a) Subject to the rights of series of Preferred Stock which may from
time to time come into existence, on or at any time after January 1, 2003, this
corporation may at any time it may lawfully do so, at the option of the Board of
Directors, redeem in whole or in part the Series A Preferred Stock (such date of
redemption is referred to herein as the "Series A Redemption Date") by paying in
cash therefor a sum equal to the Original Series A Issue Price
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<PAGE>
plus the Premium, as adjusted for any stock dividends, combinations or splits
with respect to such shares (the "Series A Redemption Price"); provided,
however, that this corporation may only redeem shares of Series A Preferred
Stock hereunder if the average of the closing prices of the Class A Common
Stock as reported by Nasdaq (or such other exchange or market on which the
shares are then traded) for the sixty trading days preceeding the date the
notice of redemption is given in accordance with subsection (b) is at least 4
times greater than the then applicable Conversion Price (as defined in
Section 4(a) below) . Any redemption effected pursuant to this subsection
(3)(a) shall be made on a pro rata basis among the holders of the Series A
Preferred Stock in proportion to the number of shares of Series A Preferred
Stock then held by them.
(b) As used herein and in subsection (3)(c) and (d) below, the term
"Redemption Date" shall refer to each "Series A Redemption Date" and the term
"Redemption Price" shall refer to each "Series A Redemption Price." Subject to
the rights of series of Preferred Stock which may from time to time come into
existence, at least fifteen (15) but no more than thirty (30) days prior to each
Redemption Date, written notice shall be mailed, first class postage prepaid, to
each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock to
be redeemed, at the address last shown on the records of this corporation for
such holder, notifying such holder of the redemption to be effected, specifying
the number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to this corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
to be redeemed (the "Redemption Notice"). Except as provided in subsection
(3)(c) on or after the Redemption Date, each holder of Series A Preferred Stock
to be redeemed shall surrender to this corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the holders of
shares of Series A Preferred Stock designated for redemption in the Redemption
Notice as holders of Series A Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of this corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, if the funds of
the corporation legally available for redemption of shares of Series A Preferred
Stock on any Redemption Date are insufficient to redeem the total number of
shares of Series A Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of such shares ratably among the holders of such shares to be redeemed based
upon their holdings of Series A Preferred Stock. The shares of Series A
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, at any time
thereafter when additional funds of the corporation are legally available for
the redemption of shares of Series A
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<PAGE>
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the corporation has become obliged to redeem on any
Redemption Date but which it has not redeemed.
(d) On or prior to each Redemption Date, this corporation shall
deposit the Redemption Price of all shares of Series A Preferred Stock
designated for redemption in the Redemption Notice, and not yet redeemed or
converted, with a bank or trust corporation having aggregate capital and
surplus in excess of $100,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for redemption and not yet
redeemed, with irrevocable instructions and authority to the bank or trust
corporation to publish the notice of redemption thereof and pay the
Redemption Price for such shares to their respective holders on or after the
Redemption Date, upon receipt of notification from the corporation that such
holder has surrendered his, her or its share certificate to the corporation
pursuant to subsection (3)(b) above. As of the date of such deposit (even if
prior to the Redemption Date), the deposit shall constitute full payment of
the shares to their holders, and from and after the date of the deposit the
shares so called for redemption shall be redeemed and shall be deemed to be
no longer outstanding, and the holders thereof shall cease to be shareholders
with respect to such shares and shall have no rights with respect thereto
except the rights to receive from the bank or trust corporation payment of
the Redemption Price of the shares, without interest, upon surrender of their
certificates therefor, and the right to convert such shares as provided in
Section 4 hereof. Such instructions shall also provide that any moneys
deposited by the corporation pursuant to this subsection (3)(d) for the
redemption of shares thereafter converted into shares of the corporation's
Common Stock pursuant to Section 4 hereof prior to the Redemption Date shall
be returned to the Corporation forthwith upon such conversion. The balance
of any moneys deposited by this corporation pursuant to this subsection
(3)(d) remaining unclaimed at the expiration of two (2) years following the
Redemption Date shall thereafter be returned to this corporation upon its
request expressed in a resolution of its Board of Directors.
4. CONVERSION. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share and on or prior to the fifth day prior to the
Redemption Date, if any, as may have been fixed in any Redemption Notice with
respect to the Series A Preferred Stock, at the office of this corporation or
any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Class A Common Stock as is determined by dividing the
Original Series A Issue Price by the conversion price ("Conversion Price")
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion
Price per share for shares of Series A Preferred Stock shall be $1.675;
provided, however, that the Conversion Price for the Series A Preferred Stock
shall be subject to adjustment as set forth in subsection 4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock
shall automatically be converted into shares of Class A Common Stock at the
Conversion Price at the time in effect for such Series A Preferred Stock
immediately upon the date specified by written
5
<PAGE>
consent or agreement of the holders of a majority of the then outstanding
shares of Series A Preferred Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Class A Common Stock,
he shall surrender the certificate or certificates therefor, duly endorsed, at
the office of this corporation or of any transfer agent for the Series A
Preferred Stock, and shall give written notice to this corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Class A Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Class A Common Stock to
which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Class A Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Class A Common Stock as of such date. If
the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Class A Common Stock upon conversion of the Series A Preferred Stock shall not
be deemed to have converted such Series A Preferred Stock until immediately
prior to the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the
Series A Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) In the event the corporation should at any time or from
time to time after the date upon which any shares of Series A Preferred Stock
were first issued (the "Purchase Date" with respect to such series) fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Class A Common Stock or the determination of holders of Class A Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Class A Common Stock without payment of any consideration by such
holder for the additional shares of Class A Common Stock, then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A Preferred Stock
shall be appropriately decreased so that the number of shares of Class A Common
Stock issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Class A Common Stock
outstanding. In the event the corporation shall declare or pay, without
consideration, any dividend on the Class A Common Stock payable in any right to
acquire Class A Common Stock for no consideration, then the corporation shall be
deemed to have made a dividend payable in Class A Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Class A Common Stock.
(ii) If the number of shares of Class A Common Stock outstanding
at any time after the Purchase Date is decreased by a combination of the
outstanding shares of
6
<PAGE>
Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Class A Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to
such decrease in outstanding shares.
(iii) All adjustments to the Conversion Price will be calculated
to the nearest cent of a dollar. No adjustment in the Conversion Price will be
required unless such adjustment would require an increase or decrease of at
least one cent per dollar; PROVIDED, HOWEVER, that any adjustments which by
reason of this Section 4(d)(iii) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All adjustments to
the Conversion Price shall be made successively.
(e) OTHER DISTRIBUTIONS. In the event this corporation shall declare
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(d), then, in each such case
for the purpose of this subsection 4(e), the holders of the Series A Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Class A Common Stock of
the corporation into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Class A Common Stock of the corporation entitled to receive such distribution.
(f) RECAPITALIZATIONS AND REORGANIZATIONS. If the Class A Common
Stock issuable upon conversion of the Series A Preferred Stock shall be
changed into or exchanged for a different class or classes of capital stock,
or other securities or property whether by reorganization, recapitalization
or otherwise (other than a subdivision, combination or merger or sale of
assets transaction provided for elsewhere in this Section 4 or Section 2)
provision shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock the number of shares of stock or other securities or
property, to which a holder of Class A Common Stock deliverable upon
conversion would have been entitled on such recapitalization or
reorganization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 4 with respect to the
rights of the holders of the Series A Preferred Stock after the
recapitalization or reorganization to the end that the provisions of this
Section 4 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Series A Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(g) NO IMPAIRMENT. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
7
<PAGE>
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series A Preferred Stock, and the number of shares of
Class A Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Preferred
Stock the holder is at the time converting into Class A Common Stock and the
number of shares of Class A Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock pursuant to this Section 4,
this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Class A Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of a share of Series A Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right (except the
right to vote), this corporation shall mail to each holder of Series A Preferred
Stock, at least 20 days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Class A Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Class A Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock;
and if at any time the number of authorized but unissued shares of Class A
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Series A Preferred Stock,
this corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Class A
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these articles.
(k) NOTICES. Any notice required by the provisions of this Section 4
to be given to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of this corporation.
8
<PAGE>
5. VOTING RIGHTS. The holder of each share of Series A Preferred
Stock shall have the right to one vote for each share of Class A Common Stock
into which such Series A Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Class A Common Stock, and
shall be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the bylaws of this corporation, and,
except with respect to the election of directors as provided in Section 6
hereof, shall be entitled to vote, together with holders of Class A Common
Stock, with respect to any question upon which holders of Class A Common Stock
have the right to vote. Fractional votes shall not, however, be permitted and
any fractional voting rights available on an as-converted basis (after
aggregating all shares into which shares of Series A Preferred Stock held by
each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
6. BOARD OF DIRECTORS. So long as at least 40% of the authorized
shares of Series A Preferred Stock are outstanding, the holders of Series A
Preferred Stock, voting as a class, shall be entitled to elect five directors
and the holders of Common Stock, voting as a class, shall be entitled to elect
two directors. So long as at least 40% of the authorized shares of Series A
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, change the authorized number of directors of the corporation.
7. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares
of Series A Preferred Stock shall be redeemed or converted pursuant to Section 3
or Section 4 hereof, the shares so converted or redeemed shall be cancelled and
shall not be issuable by the corporation. The Articles of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
8. REPURCHASE OF SHARES. In connection with repurchases by this
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
IN WITNESS WHEREOF, this Certificate is signed by ______________,
President, and _________________, Secretary, as of this ____ day of ________,
1999.
____________________________________
, President
____________________________________
, Secretary
9
<PAGE>
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true
and correct of our own knowledge.
____________________________________
, President
____________________________________
, Secretary
10
<PAGE>
EXHIBIT B TO SECURITIES PURCHASE AGREEMENT
BEGINS ON THE FOLLOWING PAGE.
<PAGE>
CONTINGENT COMMON STOCK PURCHASE WARRANT
THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT AND
SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
AMERIGON INCORPORATED
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, __________________ (the
"Holder") is entitled to subscribe for and purchase up to 9225 shares (subject
to adjustment from time to time pursuant to the provisions of Section 5 hereof)
of fully paid and nonassessable Class A Common Stock of Amerigon Incorporated, a
California corporation (the "Company"), at the price specified in Section 2
hereof, as such price may be adjusted from time to time pursuant to Section 5
hereof (the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth.
As used herein, the term "Class A Common Stock" shall mean the
Company's presently authorized Class A Common Stock, no par value, and any stock
into or for which such Common Stock may hereafter be converted or exchanged.
1. TERM OF WARRANT; CONTINGENT EXERCISE.
(a) TERM. Subject to Section 1(b) hereof, the purchase right
represented by this Warrant is exercisable, in whole or in part, at any time
during a period beginning on [Closing Date] and ending ninety days after the
latest of the end of the terms of the warrants as respectively set forth in
Section 1(a) of the Common Stock Purchase Warrant dated December 21, 1998 from
the Company to Spencer Trask Securities, Inc., Section 1(a) of the Common Stock
Purchase Warrant dated December 21, 1998 from the Company to Adam K. Stern and
Section 1(a) of the Common Stock Purchase Warrant dated December 21, 1998 from
the Company to Roger K. Baumberger and Section 1(a) of the Common Stock Purchase
Warrant dated March 24, 1999 from the Company to Matthew Schilowitz (the "Trask
Warrants").
(b) CONTINGENT EXERCISE. The number of shares that may be purchased
pursuant to the exercise of this Warrant is limited to a number of shares equal
to 36.9% multiplied by the number of shares purchased pursuant to the exercise
of the Trask Warrants after the date hereof. To the extent that this would
result in the right to purchase a fractional number of shares, the number of
shares permitted to be purchased will be rounded down to the lowest whole share;
PROVIDED, however, that the number of shares with respect to which this Warrant
shall not then have been exercised will appropriately reflect such adjustment.
<PAGE>
2. WARRANT PRICE.
The Warrant Price is $5.30 per share, subject to adjustment from time
to time pursuant to the provisions of Section 5 hereof.
3. METHOD OF EXERCISE OR CONVERSION; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) EXERCISE. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by the Holder, in whole or in part,
by the surrender of this Warrant (with the notice of exercise form attached
hereto as EXHIBIT 1 duly executed) at the principal office of the Company and by
the payment to the Company, by cashier's check or wire transfer, of an amount
equal to the then applicable Warrant Price per share multiplied by the number of
shares then being purchased. The Company agrees that the shares so purchased
shall be deemed to be issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. In the event of any
exercise of this Warrant, certificates for the shares of stock so purchased
shall be delivered to the Holder within 15 business days thereafter and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the shares, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the Holder within such 15 business
day period.
(b) CONVERSION. Subject to Section 1 hereof, the Holder may convert
this Warrant (the "Conversion Right"), in whole or in part, into the number of
shares (less the number of shares which have been previously exercised or as to
which the Conversion Right has been previously exercised) calculated pursuant to
the following formula by surrendering this Warrant (with the notice of exercise
form attached hereto as EXHIBIT 1 duly executed) at the principal office of the
Company specifying the number of shares the rights to purchase which the Holder
desires to convert:
Y (A - B)
----------
X = A
where: X = the number of shares of Class A Common Stock to be issued to
the Holder;
Y = the number of shares of Class A Common Stock subject to this
Warrant for which the Conversion Right is being exercised;
A = the Market Price of the Common Stock (as defined below) as
of the trading day immediately preceding the date of
exercise of this Warrant; and
B = the Warrant Price
For purposes hereof, the "Market Price of the Common Stock" shall be
the closing price per share of the Class A Common Stock of the Company
on the
2
<PAGE>
principal national securities exchange on which the Class A
Common Stock of the Company is then listed or admitted to trading or,
if not then listed or traded on any such exchange, on the NASDAQ
National Market System, or if then not listed or traded on such
system, the closing bid price per share on NASDAQ or other over-the-
counter trading market. If at any time such quotations are not
available, the market price of a share of Class A Common Stock shall
be the highest price per share which the Company could obtain from a
willing buyer (not a current employee or director) for shares of Class
A Common Stock sold by the Company, from authorized but unissued
shares, as determined in good faith by the Board of Directors of the
Company, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is
not the surviving party, in which case the market price of a share of
Class A Common Stock shall be deemed to be the value received by the
holders of the Company's Class A Common Stock for each share of Class
A Common Stock pursuant to the Company's acquisition.
The Company agrees that the shares so converted shall be deemed issued
to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered
as aforesaid. In the event of any conversion of this Warrant,
certificates for the shares of stock so converted shall be delivered
to the holder hereof within 15 business days thereafter and, unless
this Warrant has been fully converted or expired, a new Warrant
representing the portion of the shares, if any, with respect to which
this Warrant shall not then have been converted, shall also be issued
to the holder hereof within such 15-day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Class A Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all United States taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Class A Common Stock to provide for the exercise of the rights represented by
this Warrant.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The exercise price and number of shares purchasable on exercise of
this Warrant shall adjust identically with any adjustments made pursuant to the
Trask Warrants and the provisions of Section 5 of the Trask Warrants and the
definitions of the different terms therein are hereby incorporated by reference.
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method
3
<PAGE>
by which such adjustment was calculated, the Warrant Price after giving
effect to such adjustment and the number of shares then purchasable upon
exercise of this Warrant, and shall cause copies of such certificate to be
mailed (by first class mail, postage prepaid) to the Holder of this Warrant
at the address specified in Section 10(c) hereof, or at such other address as
may be provided to the Company in writing by the Holder of this Warrant.
7. FRACTIONAL SHARES.
No fractional shares of Class A Common Stock will be issued in
conjunction with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefore on the basis of the Warrant
Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant, by acceptance hereof, agrees that this
Warrant and the shares of Class A Common Stock to be issued on exercise hereof
are being acquired for investment and that it will not offer, sell or otherwise
dispose of this Warrant or any shares of Class A Common Stock to be issued upon
exercise hereof except under circumstances which will not result in a violation
of the Securities Act of 1933, as amended (the "Act"). This Warrant and all
shares of Class A Common Stock issued upon exercise of this Warrant (unless
registered under the Act) shall be stamped and imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS
IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
9. NOTICE OF EXERCISE OF CLASS A WARRANTS.
Whenever any Trask Warrants shall be exercised, within 30 days after
such exercise the Company shall notify the Holder (by first class mail, postage
prepaid) at the address specified in Section 10(c) hereof, or at such other
address as may be provided to the Company in writing by the Holder of this
Warrant.
10. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. The Holder of this Warrant shall not
be entitled to vote or receive dividends or be deemed the Holder of Class A
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the Holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of
4
<PAGE>
stock, reclassification of stock, change of par value or change of stock to
no par value, consolidation, merger, conveyance or otherwise) or to receive
notice of meetings, or to receive dividends or subscription rights or
otherwise until the Warrant shall have been exercised and the shares
purchasable upon the exercise hereof shall have become deliverable, as
provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at the Holder's expense, will execute and deliver, in lieu of this
Warrant, a new Warrant of like tenor.
(c) NOTICE. Any notice given to either party under this Warrant
shall be in writing, and any notice hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or by
standard form of telecommunication or three (3) business days after the mailing
thereof in the U.S. mail if sent registered mail with postage prepaid, addressed
to the Company at its principal executive offices and to the Holder at its
address set forth in the Company's books and records or at such other address as
the Holder may have provided to the Company in writing.
(d) GOVERNING LAW. This Warrant shall be governed and construed
under the laws of the State of California.
5
<PAGE>
This Warrant is executed as of this ____ day of ___________, 1999.
AMERIGON INCORPORATED
By:___________________________________
Name:_________________________________
Title:________________________________
6
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: AMERIGON INCORPORATED
1. Check Box that Applies:
/ / The undersigned hereby elects to purchase __________ shares of
Class A Common Stock of AMERIGON INCORPORATED pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
/ / The undersigned hereby elects to convert the attached warrant into
________ shares of Class A Common Stock of AMERIGON INCORPORATED
pursuant to the terms of the attached Warrant.
2. Please issue a certificate or certificates representing said
shares of Class A Common Stock in the name of the undersigned or in such other
name as is specified below:
__________________________________
(Name)
__________________________________
__________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Class A
Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.
__________________________
Signature
7
<PAGE>
CONTINGENT COMMON STOCK PURCHASE WARRANT
THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT AND
SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
AMERIGON INCORPORATED
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, __________________ (the
"Holder") is entitled to subscribe for and purchase up to 558,659 shares
(subject to adjustment from time to time pursuant to the provisions of Section 5
hereof) of fully paid and nonassessable Class A Common Stock of Amerigon
Incorporated, a California corporation (the "Company"), at the price specified
in Section 2 hereof, as such price may be adjusted from time to time pursuant to
Section 5 hereof (the "Warrant Price"), subject to the provisions and upon the
terms and conditions hereinafter set forth.
As used herein, the term "Class A Common Stock" shall mean the
Company's presently authorized Class A Common Stock, no par value, and any stock
into or for which such Common Stock may hereafter be converted or exchanged.
1. TERM OF WARRANT; CONTINGENT EXERCISE.
(a) TERM. Subject to Section 1(b) hereof, the purchase right
represented by this Warrant is exercisable, in whole or in part, at any time
during a period beginning on [Closing Date] and ending ninety days after the
Warrant Expiration Date as such term is defined in the Warrant Agreement dated
February 12, 1997, by and among the Company, U.S. Stock Transfer Corporation, as
Warrant Agent, and D.H. Blair Investment Banking Corp. (the "1997 Warrant
Agreement").
(b) CONTINGENT EXERCISE. The number of shares that may be purchased
pursuant to the exercise of this Warrant is limited to a number of shares equal
to 36.9% multiplied by the number of shares purchased pursuant to the exercise
of Class A Warrants of the Company after the date hereof. To the extent that
this would result in the right to purchase a fractional number of shares, the
number of shares permitted to be purchased will be rounded down to the lowest
whole share; PROVIDED, however, that the number of shares with respect to which
this Warrant shall not then have been exercised will appropriately reflect such
adjustment.
<PAGE>
2. WARRANT PRICE.
The Warrant Price is $25.00 per share, subject to adjustment from time
to time pursuant to the provisions of Section 5 hereof.
3. METHOD OF EXERCISE OR CONVERSION; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) EXERCISE. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by the Holder, in whole or in part,
by the surrender of this Warrant (with the notice of exercise form attached
hereto as EXHIBIT 1 duly executed) at the principal office of the Company and by
the payment to the Company, by cashier's check or wire transfer, of an amount
equal to the then applicable Warrant Price per share multiplied by the number of
shares then being purchased. The Company agrees that the shares so purchased
shall be deemed to be issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. In the event of any
exercise of this Warrant, certificates for the shares of stock so purchased
shall be delivered to the Holder within 15 business days thereafter and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the shares, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the Holder within such 15 business
day period.
(b) CONVERSION. Subject to Section 1 hereof, the Holder may convert
this Warrant (the "Conversion Right"), in whole or in part, into the number of
shares (less the number of shares which have been previously exercised or as to
which the Conversion Right has been previously exercised) calculated pursuant to
the following formula by surrendering this Warrant (with the notice of exercise
form attached hereto as EXHIBIT 1 duly executed) at the principal office of the
Company specifying the number of shares the rights to purchase which the Holder
desires to convert:
Y (A - B)
-----------
X = A
where: X = the number of shares of Class A Common Stock to be issued to
the Holder;
Y = the number of shares of Class A Common Stock subject to this
Warrant for which the Conversion Right is being exercised;
A = the Market Price of the Common Stock (as defined below) as
of the trading day immediately preceding the date of
exercise of this Warrant; and
B = the Warrant Price
For purposes hereof, the "Market Price of the Common Stock" shall be
the closing price per share of the Class A Common Stock of the Company
on the principal national securities exchange on which the Class A
Common Stock of the Company is then listed or admitted to trading or,
if not then listed or traded on
2
<PAGE>
any such exchange, on the NASDAQ National Market System, or if then
not listed or traded on such system, the closing bid price per
share on NASDAQ or other over-the-counter trading market. If at
any time such quotations are not available, the market price of a
share of Class A Common Stock shall be the highest price per share
which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Class A Common Stock sold by
the Company, from authorized but unissued shares, as determined in
good faith by the Board of Directors of the Company, unless the
Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving
party, in which case the market price of a share of Class A Common
Stock shall be deemed to be the value received by the holders of
the Company's Class A Common Stock for each share of Class A Common
Stock pursuant to the Company's acquisition.
The Company agrees that the shares so converted shall be deemed issued
to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered
as aforesaid. In the event of any conversion of this Warrant,
certificates for the shares of stock so converted shall be delivered
to the holder hereof within 15 business days thereafter and, unless
this Warrant has been fully converted or expired, a new Warrant
representing the portion of the shares, if any, with respect to which
this Warrant shall not then have been converted, shall also be issued
to the holder hereof within such 15-day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Class A Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all United States taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Class A Common Stock to provide for the exercise of the rights represented by
this Warrant.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The exercise price and number of shares purchasable on exercise of
this Warrant shall adjust identically with any adjustments made pursuant to the
1997 Warrant Agreement and the provisions of Section 9 of the 1997 Warrant
Agreement and the definitions of the different terms therein are hereby
incorporated by reference.
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, the Warrant Price after giving effect to such adjustment and the
number of shares then purchasable upon exercise of this Warrant, and shall
3
<PAGE>
cause copies of such certificate to be mailed (by first class mail, postage
prepaid) to the Holder of this Warrant at the address specified in Section
10(c) hereof, or at such other address as may be provided to the Company in
writing by the Holder of this Warrant.
7. FRACTIONAL SHARES.
No fractional shares of Class A Common Stock will be issued in
conjunction with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefore on the basis of the Warrant
Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant, by acceptance hereof, agrees that this
Warrant and the shares of Class A Common Stock to be issued on exercise hereof
are being acquired for investment and that it will not offer, sell or otherwise
dispose of this Warrant or any shares of Class A Common Stock to be issued upon
exercise hereof except under circumstances which will not result in a violation
of the Securities Act of 1933, as amended (the "Act"). This Warrant and all
shares of Class A Common Stock issued upon exercise of this Warrant (unless
registered under the Act) shall be stamped and imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS
IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
9. NOTICE OF EXERCISE OF CLASS A WARRANTS.
Whenever any Class A Warrant shall be exercised, within 30 days after
such exercise the Company shall notify the Holder (by first class mail, postage
prepaid) at the address specified in Section 10(c) hereof, or at such other
address as may be provided to the Company in writing by the Holder of this
Warrant.
10. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. The Holder of this Warrant shall not
be entitled to vote or receive dividends or be deemed the Holder of Class A
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the Holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger, conveyance
or otherwise) or to receive notice of meetings, or to receive
4
<PAGE>
dividends or subscription rights or otherwise until the Warrant shall have
been exercised and the shares purchasable upon the exercise hereof shall have
become deliverable, as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at the Holder's expense, will execute and deliver, in lieu of this
Warrant, a new Warrant of like tenor.
(c) NOTICE. Any notice given to either party under this Warrant
shall be in writing, and any notice hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or by
standard form of telecommunication or three (3) business days after the mailing
thereof in the U.S. mail if sent registered mail with postage prepaid, addressed
to the Company at its principal executive offices and to the Holder at its
address set forth in the Company's books and records or at such other address as
the Holder may have provided to the Company in writing.
(d) GOVERNING LAW. This Warrant shall be governed and construed
under the laws of the State of California.
5
<PAGE>
This Warrant is executed as of this ____ day of ___________, 1999.
AMERIGON INCORPORATED
By:___________________________________
Name:_________________________________
Title:________________________________
6
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: AMERIGON INCORPORATED
1. Check Box that Applies:
/ / The undersigned hereby elects to purchase __________ shares of
Class A Common Stock of AMERIGON INCORPORATED pursuant to the terms
of the attached Warrant, and tenders herewith payment of the
purchase price of such shares in full.
/ / The undersigned hereby elects to convert the attached warrant
into ________ shares of Class A Common Stock of AMERIGON
INCORPORATED pursuant to the terms of the attached Warrant.
2. Please issue a certificate or certificates representing said
shares of Class A Common Stock in the name of the undersigned or in such other
name as is specified below:
__________________________________
(Name)
__________________________________
__________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Class A
Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.
__________________________
Signature
<PAGE>
CONTINGENT COMMON STOCK PURCHASE WARRANT
THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT AND
SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
AMERIGON INCORPORATED
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, __________________ (the
"Holder") is entitled to subscribe for and purchase up to 4428 shares (subject
to adjustment from time to time pursuant to the provisions of Section 5 hereof)
of fully paid and nonassessable Class A Common Stock of Amerigon Incorporated, a
California corporation (the "Company"), at the price specified in Section 2
hereof, as such price may be adjusted from time to time pursuant to Section 5
hereof (the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth.
As used herein, the term "Class A Common Stock" shall mean the
Company's presently authorized Class A Common Stock, no par value, and any stock
into or for which such Common Stock may hereafter be converted or exchanged.
1. TERM OF WARRANT; CONTINGENT EXERCISE.
(a) TERM. Subject to Section 1(b) hereof, the purchase right
represented by this Warrant is exercisable, in whole or in part, at any time
during a period beginning on [Closing Date] and ending ninety days after the
later of the two "Warrant Expiration Dates" as defined in the Warrant to
Purchase Class A Common Stock dated December 29, 1995 from the Company to Sutro
& Co. and the Warrant to Purchase Class A Common Stock dated December 29, 1995
from the Company to Lido Consulting, Inc. (the "1995 Private Placement
Warrants").
(b) CONTINGENT EXERCISE. The number of shares that may be purchased
pursuant to the exercise of this Warrant is limited to a number of shares equal
to 36.9% multiplied by the number of shares purchased pursuant to the exercise
of the 1995 Private Placement Warrants after the date hereof. To the extent
that this would result in the right to purchase a fractional number of shares,
the number of shares permitted to be purchased will be rounded down to the
lowest whole share; PROVIDED, however, that the number of shares with respect to
which this Warrant shall not then have been exercised will appropriately reflect
such adjustment.
<PAGE>
2. WARRANT PRICE.
The Warrant Price is $51.25 per share, subject to adjustment from time
to time pursuant to the provisions of Section 5 hereof.
3. METHOD OF EXERCISE OR CONVERSION; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) EXERCISE. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by the Holder, in whole or in part,
by the surrender of this Warrant (with the notice of exercise form attached
hereto as EXHIBIT 1 duly executed) at the principal office of the Company and by
the payment to the Company, by cashier's check or wire transfer, of an amount
equal to the then applicable Warrant Price per share multiplied by the number of
shares then being purchased. The Company agrees that the shares so purchased
shall be deemed to be issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. In the event of any
exercise of this Warrant, certificates for the shares of stock so purchased
shall be delivered to the Holder within 15 business days thereafter and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the shares, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the Holder within such 15 business
day period.
(b) CONVERSION. Subject to Section 1 hereof, the Holder may convert
this Warrant (the "Conversion Right"), in whole or in part, into the number of
shares (less the number of shares which have been previously exercised or as to
which the Conversion Right has been previously exercised) calculated pursuant to
the following formula by surrendering this Warrant (with the notice of exercise
form attached hereto as EXHIBIT 1 duly executed) at the principal office of the
Company specifying the number of shares the rights to purchase which the Holder
desires to convert:
Y (A - B)
------------
X = A
where: X = the number of shares of Class A Common Stock to be issued to
the Holder;
Y = the number of shares of Class A Common Stock subject to this
Warrant for which the Conversion Right is being exercised;
A = the Market Price of the Common Stock (as defined below) as
of the trading day immediately preceding the date of
exercise of this Warrant; and
B = the Warrant Price
For purposes hereof, the "Market Price of the Common Stock" shall be
the closing price per share of the Class A Common Stock of the Company
on the principal national securities exchange on which the Class A
Common Stock of the Company is then listed or admitted to trading or,
if not then listed or traded on
2
<PAGE>
any such exchange, on the NASDAQ National Market System, or if then
not listed or traded on such system, the closing bid price per
share on NASDAQ or other over-the-counter trading market. If at
any time such quotations are not available, the market price of a
share of Class A Common Stock shall be the highest price per share
which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Class A Common Stock sold by
the Company, from authorized but unissued shares, as determined in
good faith by the Board of Directors of the Company, unless the
Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving
party, in which case the market price of a share of Class A Common
Stock shall be deemed to be the value received by the holders of
the Company's Class A Common Stock for each share of Class A Common
Stock pursuant to the Company's acquisition.
The Company agrees that the shares so converted shall be deemed issued
to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered
as aforesaid. In the event of any conversion of this Warrant,
certificates for the shares of stock so converted shall be delivered
to the holder hereof within 15 business days thereafter and, unless
this Warrant has been fully converted or expired, a new Warrant
representing the portion of the shares, if any, with respect to which
this Warrant shall not then have been converted, shall also be issued
to the holder hereof within such 15-day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Class A Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all United States taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Class A Common Stock to provide for the exercise of the rights represented by
this Warrant.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The exercise price and number of shares purchasable on exercise of
this Warrant shall adjust identically with any adjustments made pursuant to the
1995 Private Placement Warrants and the provisions of Section 7 of the 1995
Private Placement Warrants or other adjustment provisions set forth in the 1995
Private Placement Warrants and the definitions of the different terms therein
are hereby incorporated by reference.
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, the Warrant Price after giving effect to such
3
<PAGE>
adjustment and the number of shares then purchasable upon exercise of this
Warrant, and shall cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the Holder of this Warrant at the address
specified in Section 10(c) hereof, or at such other address as may be
provided to the Company in writing by the Holder of this Warrant.
7. FRACTIONAL SHARES.
No fractional shares of Class A Common Stock will be issued in
conjunction with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefore on the basis of the Warrant
Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant, by acceptance hereof, agrees that this
Warrant and the shares of Class A Common Stock to be issued on exercise hereof
are being acquired for investment and that it will not offer, sell or otherwise
dispose of this Warrant or any shares of Class A Common Stock to be issued upon
exercise hereof except under circumstances which will not result in a violation
of the Securities Act of 1933, as amended (the "Act"). This Warrant and all
shares of Class A Common Stock issued upon exercise of this Warrant (unless
registered under the Act) shall be stamped and imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS
IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
9. NOTICE OF EXERCISE OF CLASS A WARRANTS.
Whenever any 1995 Private Placement Warrants shall be exercised,
within 30 days after such exercise the Company shall notify the Holder (by first
class mail, postage prepaid) at the address specified in Section 10(c) hereof,
or at such other address as may be provided to the Company in writing by the
Holder of this Warrant.
10. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. The Holder of this Warrant shall not
be entitled to vote or receive dividends or be deemed the Holder of Class A
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the Holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value,
4
<PAGE>
consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until
the Warrant shall have been exercised and the shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at the Holder's expense, will execute and deliver, in lieu of this
Warrant, a new Warrant of like tenor.
(c) NOTICE. Any notice given to either party under this Warrant
shall be in writing, and any notice hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or by
standard form of telecommunication or three (3) business days after the mailing
thereof in the U.S. mail if sent registered mail with postage prepaid, addressed
to the Company at its principal executive offices and to the Holder at its
address set forth in the Company's books and records or at such other address as
the Holder may have provided to the Company in writing.
(d) GOVERNING LAW. This Warrant shall be governed and construed
under the laws of the State of California.
[Remainder of page intentionally left blank]
5
<PAGE>
This Warrant is executed as of this ____ day of ___________, 1999.
AMERIGON INCORPORATED
By:___________________________________
Name:_________________________________
Title:________________________________
6
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: AMERIGON INCORPORATED
1. Check Box that Applies:
/ / The undersigned hereby elects to purchase __________ shares of
Class A Common Stock of AMERIGON INCORPORATED pursuant to the terms
of the attached Warrant, and tenders herewith payment of the
purchase price of such shares in full.
/ / The undersigned hereby elects to convert the attached warrant
into ________ shares of Class A Common Stock of AMERIGON
INCORPORATED pursuant to the terms of the attached Warrant.
2. Please issue a certificate or certificates representing said
shares of Class A Common Stock in the name of the undersigned or in such other
name as is specified below:
__________________________________
(Name)
__________________________________
__________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Class A
Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.
__________________________
Signature
7
<PAGE>
CONTINGENT COMMON STOCK PURCHASE WARRANT
THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT AND
SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
AMERIGON INCORPORATED
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, __________________ (the
"Holder") is entitled to subscribe for and purchase up to 7380 shares (subject
to adjustment from time to time pursuant to the provisions of Section 5 hereof)
of fully paid and nonassessable Class A Common Stock of Amerigon Incorporated, a
California corporation (the "Company"), at the price specified in Section 2
hereof, as such price may be adjusted from time to time pursuant to Section 5
hereof (the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth.
As used herein, the term "Class A Common Stock" shall mean the
Company's presently authorized Class A Common Stock, no par value, and any stock
into or for which such Common Stock may hereafter be converted or exchanged.
1. TERM OF WARRANT; CONTINGENT EXERCISE.
(a) TERM. Subject to Section 1(b) hereof, the purchase right
represented by this Warrant is exercisable, in whole or in part, at any time
during a period beginning on [Closing Date] and ending ninety days after the
latest of the end of the terms of the warrants as respectively set forth in
Section 1(a) of the Common Stock Purchase Warrant dated [Issue Date] from the
Company to Spencer Trask Securities Incorporated (the "Trask Warrant").
(b) CONTINGENT EXERCISE. The number of shares that may be purchased
pursuant to the exercise of this Warrant is limited to a number of shares equal
to 36.9% multiplied by the number of shares purchased pursuant to the exercise
of the Trask Warrant after the date hereof. To the extent that this would
result in the right to purchase a fractional number of shares, the number of
shares permitted to be purchased will be rounded down to the lowest whole share;
PROVIDED, however, that the number of shares with respect to which this Warrant
shall not then have been exercised will appropriately reflect such adjustment.
<PAGE>
2. WARRANT PRICE.
The Warrant Price is $[Trask Warrant issue price], subject to
adjustment from time to time pursuant to the provisions of Section 5 hereof.
3. METHOD OF EXERCISE OR CONVERSION; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) EXERCISE. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by the Holder, in whole or in part,
by the surrender of this Warrant (with the notice of exercise form attached
hereto as EXHIBIT 1 duly executed) at the principal office of the Company and by
the payment to the Company, by cashier's check or wire transfer, of an amount
equal to the then applicable Warrant Price per share multiplied by the number of
shares then being purchased. The Company agrees that the shares so purchased
shall be deemed to be issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. In the event of any
exercise of this Warrant, certificates for the shares of stock so purchased
shall be delivered to the Holder within 15 business days thereafter and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the shares, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the Holder within such 15 business
day period.
(b) CONVERSION. Subject to Section 1 hereof, the Holder may convert
this Warrant (the "Conversion Right"), in whole or in part, into the number of
shares (less the number of shares which have been previously exercised or as to
which the Conversion Right has been previously exercised) calculated pursuant to
the following formula by surrendering this Warrant (with the notice of exercise
form attached hereto as EXHIBIT 1 duly executed) at the principal office of the
Company specifying the number of shares the rights to purchase which the Holder
desires to convert:
Y (A - B)
-----------
X = A
where: X = the number of shares of Class A Common Stock to be issued to
the Holder;
Y = the number of shares of Class A Common Stock subject to this
Warrant for which the Conversion Right is being exercised;
A = the Market Price of the Common Stock (as defined below) as
of the trading day immediately preceding the date of
exercise of this Warrant; and
B = the Warrant Price
For purposes hereof, the "Market Price of the Common Stock" shall be
the closing price per share of the Class A Common Stock of the Company
on the principal national securities exchange on which the Class A
Common Stock of the Company is then listed or admitted to trading or,
if not then listed or traded on
2
<PAGE>
any such exchange, on the NASDAQ National Market System, or if then
not listed or traded on such system, the closing bid price per
share on NASDAQ or other over-the-counter trading market. If at
any time such quotations are not available, the market price of a
share of Class A Common Stock shall be the highest price per share
which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Class A Common Stock sold by
the Company, from authorized but unissued shares, as determined in
good faith by the Board of Directors of the Company, unless the
Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving
party, in which case the market price of a share of Class A Common
Stock shall be deemed to be the value received by the holders of
the Company's Class A Common Stock for each share of Class A Common
Stock pursuant to the Company's acquisition.
The Company agrees that the shares so converted shall be deemed issued
to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered
as aforesaid. In the event of any conversion of this Warrant,
certificates for the shares of stock so converted shall be delivered
to the holder hereof within 15 business days thereafter and, unless
this Warrant has been fully converted or expired, a new Warrant
representing the portion of the shares, if any, with respect to which
this Warrant shall not then have been converted, shall also be issued
to the holder hereof within such 15-day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Class A Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all United States taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Class A Common Stock to provide for the exercise of the rights represented by
this Warrant.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The exercise price and number of shares purchasable on exercise of
this Warrant shall adjust identically with any adjustments made pursuant to the
Trask Warrant and the provisions of Section 5 of the Trask Warrant and the
definitions of the different terms therein are hereby incorporated by reference.
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, the Warrant Price after giving effect to such adjustment and the
number of shares then purchasable upon exercise of this Warrant, and shall
3
<PAGE>
cause copies of such certificate to be mailed (by first class mail, postage
prepaid) to the Holder of this Warrant at the address specified in Section
10(c) hereof, or at such other address as may be provided to the Company in
writing by the Holder of this Warrant.
7. FRACTIONAL SHARES.
No fractional shares of Class A Common Stock will be issued in
conjunction with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefore on the basis of the Warrant
Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant, by acceptance hereof, agrees that this
Warrant and the shares of Class A Common Stock to be issued on exercise hereof
are being acquired for investment and that it will not offer, sell or otherwise
dispose of this Warrant or any shares of Class A Common Stock to be issued upon
exercise hereof except under circumstances which will not result in a violation
of the Securities Act of 1933, as amended (the "Act"). This Warrant and all
shares of Class A Common Stock issued upon exercise of this Warrant (unless
registered under the Act) shall be stamped and imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS
IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
9. NOTICE OF EXERCISE OF CLASS A WARRANTS.
Whenever any Trask Warrant shall be exercised, within 30 days after
such exercise the Company shall notify the Holder (by first class mail, postage
prepaid) at the address specified in Section 10(c) hereof, or at such other
address as may be provided to the Company in writing by the Holder of this
Warrant.
10. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. The Holder of this Warrant shall not
be entitled to vote or receive dividends or be deemed the Holder of Class A
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the Holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger, conveyance
or otherwise) or to receive notice of meetings, or to receive
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dividends or subscription rights or otherwise until the Warrant shall have
been exercised and the shares purchasable upon the exercise hereof shall have
become deliverable, as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at the Holder's expense, will execute and deliver, in lieu of this
Warrant, a new Warrant of like tenor.
(c) NOTICE. Any notice given to either party under this Warrant
shall be in writing, and any notice hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or by
standard form of telecommunication or three (3) business days after the mailing
thereof in the U.S. mail if sent registered mail with postage prepaid, addressed
to the Company at its principal executive offices and to the Holder at its
address set forth in the Company's books and records or at such other address as
the Holder may have provided to the Company in writing.
(d) GOVERNING LAW. This Warrant shall be governed and construed
under the laws of the State of California.
[Remainder of page intentionally left blank]
5
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This Warrant is executed as of this ____ day of ___________, 1999.
AMERIGON INCORPORATED
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: AMERIGON INCORPORATED
1. Check Box that Applies:
/ / The undersigned hereby elects to purchase __________ shares of
Class A Common Stock of AMERIGON INCORPORATED pursuant to the terms
of the attached Warrant, and tenders herewith payment of the
purchase price of such shares in full.
/ / The undersigned hereby elects to convert the attached warrant
into ________ shares of Class A Common Stock of AMERIGON
INCORPORATED pursuant to the terms of the attached Warrant.
2. Please issue a certificate or certificates representing said
shares of Class A Common Stock in the name of the undersigned or in such other
name as is specified below:
__________________________________
(Name)
__________________________________
__________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Class A
Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.
__________________________
Signature
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<PAGE>
EXHIBIT C TO SECURITIES PURCHASE AGREEMENT
BEGINS ON THE FOLLOWING PAGE.
<PAGE>
-------------
INVESTORS' RIGHTS AGREEMENT
-------------
__________, 1999
15
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
1. Registration Rights.. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Request for Registration.. . . . . . . . . . . . . . . . . . . . .2
1.3 Company Registration.. . . . . . . . . . . . . . . . . . . . . . .3
1.4 Obligations of the Company.. . . . . . . . . . . . . . . . . . . .3
1.5 Furnish Information. . . . . . . . . . . . . . . . . . . . . . . .5
1.6 Expenses of Demand Registration. . . . . . . . . . . . . . . . . .5
1.7 Expenses of Company Registration.. . . . . . . . . . . . . . . . .5
1.8 Underwriting Requirements. . . . . . . . . . . . . . . . . . . . .6
1.9 Delay of Registration. . . . . . . . . . . . . . . . . . . . . . .6
1.10 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . .6
1.11 Reports Under Securities Exchange Act of 1934. . . . . . . . . . .8
1.12 Form S-3 Registration. . . . . . . . . . . . . . . . . . . . . . .9
1.13 Assignment of Registration Rights. . . . . . . . . . . . . . . . .9
1.14 Limitations on Subsequent Registration Rights. . . . . . . . . . 10
1.15 "Market Stand-Off" Agreement.. . . . . . . . . . . . . . . . . . 10
1.16 Termination of Registration Rights.. . . . . . . . . . . . . . . 11
2. Right of First Offer. . . . . . . . . . . . . . . . . . . . . . . . . 11
3. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . 12
3.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4 Titles and Subtitles.. . . . . . . . . . . . . . . . . . . . . . 13
3.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7 Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . 14
3.8 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 Aggregation of Stock.. . . . . . . . . . . . . . . . . . . . . . 14
3.10 Entire Agreement; Amendment; Waiver. . . . . . . . . . . . . . . 14
</TABLE>
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<PAGE>
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the day of
, 1999, by and between Amerigon Incorporated, a
California corporation (the "Company"), and the investors listed on the
signature page hereof, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, the Company and the Investors are parties to the
Securities Purchase Agreement dated March __, 1999 (the "Securities Purchase
Agreement") pursuant to which the Investors are acquiring Series A Preferred
Stock of the Company and warrants to purchase Class A Common Stock of the
Company (the "Warrants");
WHEREAS, in order to induce the Company to enter into the
Securities Purchase Agreement and to induce the Investors to invest funds in
the Company pursuant to the Securities Purchase Agreement, the Investors and
the Company hereby agree that this Agreement shall govern the rights of the
Investors to cause the Company to register shares of Common Stock issuable to
the Investors and certain other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Common Stock" means the Class A Common Stock,
no par value, of the Company.
(c) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
(e) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(f) The term "register", "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration
or ordering of effectiveness of such registration statement or document.
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(g) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock,
(ii) the Common Stock issued or issuable upon the exercise of the Warrants,
(iii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of the shares referenced in (i) and (ii) above,
excluding in all cases, however, any Registrable Securities sold by a person
in a transaction in which his rights under this Section 1 are not assigned.
(h) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(i) The term "SEC" means the Securities and Exchange
Commission.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the date
of this Agreement, a written request from the Holders of a majority of the
Registrable Securities then outstanding that the Company file a registration
statement under the Act covering the registration of at least ten percent
(10%) of the Registrable Securities then outstanding, then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) as soon as practicable, and in any event within 45
days of the receipt of such request, file a registration statement under the
Act covering all Registrable Securities which the Holders request to be
registered, subject to the limitations of subsection 1.2(b), within twenty
(20) days of the mailing of such notice by the Company in accordance with
Section 3.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to subsection
1.2(a) and the Company shall include such information in the written notice
referred to in subsection 1.2(a). The underwriter will be selected by the
Company and shall be reasonably acceptable to a majority in interest of the
Initiating Holders. In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company
as provided in subsection 1.4(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if
the underwriter advises the Initiating Holders in writing
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<PAGE>
that marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in
the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided,
however, that the number of shares of Registrable Securities to be included
in such underwriting shall not be reduced unless all other securities are
first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company
shall have the right to defer taking action with respect to such filing for a
period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
(d) The Company shall be obligated to effect only two such
registrations pursuant to this Section 1.2. Registrations effected on Form
S-3 pursuant to Section 1.12, however, shall not be counted as demands
pursuant to this Section 2.
1.3 COMPANY REGISTRATION. At any time within five years after the
date of this Agreement, if (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by
the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration on
any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
the Registrable Securities or a registration in which the only Common Stock
being registered is Common Stock issuable upon conversion of debt securities
which are also being registered), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested to
be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for a period of up to one hundred
twenty (120) days or until the distribution contemplated in the Registration
Statement
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<PAGE>
has been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or
any successor rule under the Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Act
governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment which (I) includes any prospectus
required by Section 10(a)(3) of the Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the
registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holders; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Act.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
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<PAGE>
(h) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this
Section 1, if such securities are being sold through underwriters, or, if
such securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i)
an opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such
Holder's Registrable Securities.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements (not to exceed $15,000) of
one counsel for the selling Holders (as selected by the Holders of a majority
of the Registrable Securities to be registered) shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 if
the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in
which case all participating Holders shall bear such expenses), unless the
Holders of a majority of the Registrable Securities agree to forfeit their
right to one demand registration pursuant to Section 1.2; provided further,
however, that if at the time of such withdrawal, the Holders have learned of
a material adverse change in the condition, business, or prospects of the
Company from that known to the Holders at the time of their request and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant
to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as
provided in Section 1.13), including (without limitation) all registration,
filing, and qualification fees, printers and accounting fees relating or
apportionable thereto and the fees and disbursements (not to exceed $15,000)
of one counsel for the selling Holders (as selected by the Holders of a
majority of the Registrable Securities to be registered), but excluding
underwriting discounts and commissions relating to Registrable Securities.
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1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to
be included therein owned by each selling shareholder or in such other
proportions as shall mutually be agreed to by such selling shareholders) but
in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below twenty percent (20%) of the total
amount of securities included in such offering, or (ii) notwithstanding (i)
above, any shares being sold by a shareholder exercising a demand
registration right similar to that granted in Section 1.2 be excluded from
such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members
of any such partners and retired partners and any trusts for the benefit of
any of the foregoing persons shall be deemed to be a single "selling
shareholder", and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder", as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state
securities law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act,
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<PAGE>
any rule or regulation promulgated under the Act or the 1934 Act, or any
other federal or state securities law; and the Company will pay to each such
Holder, underwriter or controlling person any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Act, the 1934 Act or
other federal or state securities law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with
such registration; and each such Holder will pay any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.10(b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.10(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided, that, in no event
shall any indemnity under this subsection 1.10(b) exceed the gross proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party
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within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 1.10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering
are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at
any time after it has become subject to such reporting requirements), or that
it qualifies as a registrant whose securities may be resold pursuant to Form
S-3 (at any time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
8
<PAGE>
1.12 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 for the resale of shares from time to time in broker
transactions (and not in connection with an underwritten offering), and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written
request given within 15 days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this section
1.12: (1) if Form S-3 is not available for such offering by the Holders; (2)
if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of
less than $300,000; (3) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall
have the right to defer the filing of the Form S-3 registration statement for
a period of not more than 90 days after receipt of the request of the Holder
or Holders under this Section 1.12; provided, however, that the Company shall
not utilize this right more than once in any twelve month period; (4) if the
Company has, within the twelve (12) month period preceding the date of such
request, already effected two registrations on Form S-3 for the Holders
pursuant to this Section 1.12; (5) the Company has previously effected four
registrations on Form S-3 for the Holders pursuant to this Section 1.12, or
(6) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process
in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to Section 1.12, including
(without limitation) all registration, filing, qualification, printer's and
accounting fees, and the fees and disbursements (not to exceed $15,000) of
one counsel for the selling Holder (as selected by the Holders of a majority
of the Registrable Securities to be registered) and counsel for the Company,
shall be borne by the Company. Registrations effected pursuant to this
Section 1.12 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all
9
<PAGE>
related obligations) by a Holder to a transferee or assignee of such
securities, provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of
this Agreement, including without limitation the provisions of Section 1.15
below; and (c) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only
to the extent that the inclusion of his securities will not reduce the amount
of the Registrable Securities of the Holders which is included or (b) to make
a demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 1.2(a) or within one hundred twenty (120) days of the effective
date of any registration effected pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date
of a registration statement of the Company filed under the Act in connection
with an underwritten offering, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any securities of the Company held by it at
any time during such period except common stock included in such
registration; provided, however, that:
(a) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
(b) such market stand-off time period shall not exceed 90
days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be
promulgated in the future, or a registration relating solely to a
10
<PAGE>
Commission Rule 145 transaction on Form S-14 or Form S-15 or similar forms
which may be promulgated in the future.
1.16 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder
to request registration or inclusion in any registration pursuant to this
Agreement shall terminate if all shares of Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately be sold
under Rule 144 during any 90-day period.
2. RIGHT OF FIRST OFFER.
Subject to the terms and conditions specified in this Section
2, the Company hereby grants to each Major Investor (as hereinafter defined)
a right of first offer with respect to future sales by the Company of its
Shares (as hereinafter defined). For purposes of this Section 2, a Major
Investor shall mean (i) any Investor who holds at least 30% of the original
investment such Investor makes in the Company pursuant to the Securities
Purchase Agreement and (ii) any person who acquires at least 15% of the
Series A Preferred Stock (or the common stock issued upon conversion thereof)
issued pursuant to the Securities Purchase Agreement. For purposes of this
Section 2, Investor includes any general partners and affiliates of an
Investor. An Investor shall be entitled to apportion the right of first
offer hereby granted it among itself and its partners and affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of
such Shares to each Major Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii)
the price and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company,
within 20 calendar days after giving of the Notice, the Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that
the number of shares of common stock issued and held, or issuable upon
conversion of the Series A Preferred Stock then held, by such Major Investor
bears to the total number of shares of common stock of the Company then
outstanding (assuming full conversion and exercise of all convertible or
exercisable securities). The Company shall promptly, in writing, inform each
Major Investor which purchases all the shares available to it
("Fully-Exercising Investor") of any other Major Investor's failure to do
likewise. During the ten-day period commencing after such information is
given, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Major Investors were entitled to subscribe
but which were not subscribed for by the Major Investors which is equal to
the proportion that the number of shares of common stock issued and held, or
issuable upon conversion of Series A Preferred Stock then held, by such
Fully-Exercising Investor bears to the total number of shares of common stock
issued and held, or issuable upon conversion of the
11
<PAGE>
Series A Preferred Stock then held, by all Fully-Exercising Investors who
wish to purchase some of the unsubscribed shares.
(c) If all Shares which Investors are entitled to obtain
pursuant to (b) are not elected to be obtained as provided in (b) hereof, the
Company may, during the 30-day period following the expiration of the period
provided in (b) hereof, offer the remaining unsubscribed portion of such
Shares to any person or persons at a price not less than, and upon terms no
more favorable to the offeree than those specified in the Notice. If the
Company does not enter into an agreement for the sale of the Shares within
such period, or if such agreement is not consummated within 30 days of the
execution thereof, the right provided hereunder shall be deemed to be revived
and such Shares shall not be offered unless first reoffered to the Major
Investors in accordance herewith.
(d) The right of first offer in this Section 2 shall not
be applicable (i) to the issuance or sale of shares of common stock (or
options therefor) to employees for the primary purpose of soliciting or
retaining their employment pursuant to a stock option or stock purchase plan,
(ii) the issuance of securities pursuant to the conversion or exercise of
convertible or exercisable securities, (iii) the issuance of securities in
connection with a bona fide business acquisition of or by the Company,
whether by merger, consolidation, sale of assets, sale or exchange of stock
or otherwise or (iv) the issuance of stock, warrants or other securities or
rights to persons or entities with which the Company has business
relationships provided such issuances are for other than primarily equity
financing purposes and provided that at the time of any such issuance, the
aggregate of such issuance and similar issuances in the preceding twelve
month period do not exceed 2% of the then outstanding Common Stock of the
Company (assuming full conversion and exercise of all convertible and
exercisable securities).
(e) The right of first refusal set forth in this Section
2 may not be assigned or transferred, except that (i) such right is
assignable by each Holder to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Act,
controlling, controlled by or under common control with, any such Holder, and
(ii) such right is assignable between and among any of the Holders.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
12
<PAGE>
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice
to the other parties.
3.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements
in addition to any other relief to which such party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon
each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company.
3.8 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 AGGREGATION OF STOCK. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
3.1. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
(including the exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investors'
Rights Agreement as of the date first above written.
AMERIGON INCORPORATED,
a California corporation
By:
--------------------------
, President
Address:
----------------------
------------------------------
INVESTORS:
WESTAR CAPITAL II LLC
By:
--------------------------
Address:
----------------------
------------------------------
BIG BEAVER INVESTMENTS LLC
By:
--------------------------
Address:
----------------------
------------------------------
14
<PAGE>
EXHIBIT D
March 29, 1999
[LETTERHEAD]
Westar Capital II LLC
949 South Coast Drive, Suite 650
Costa Mesa, California 92626
Big Beaver Investments L.L.C.
801 W. Big Beaver Road
Suite 201
Troy, Michigan 48084
Dear Ladies and Gentlemen:
We have acted as counsel to Amerigon Incorporated, a California
corporation (the "Company"), in connection with that certain Securities
Purchase Agreement dated March 29, 1999 (the "Securities Purchase Agreement")
between the Company and you, the Investor Rights' Agreement dated ______ __,
1999 (the "Investor Rights' Agreement") between the Company and you and the
Warrants dated _______ __, 1999 to be issued pursuant to the Securities
Purchase Agreement (the "Warrants"; the Securities Purchase Agreement, the
Investor Rights' Agreement and the Warrants are together referred to as the
"Agreements"). We are providing this opinion to you at the request of the
Company pursuant to Section 4.11 of the Securities Purchase Agreement.
Except as otherwise indicated, capitalized terms used in this opinion and
defined in the Agreements will have the meanings given in the Agreements.
In our capacity as such counsel, we have examined originals or copies of
those corporate and other records and documents we considered appropriate.
As to relevant factual matters, we have relied upon, among other things, the
Company's factual representations in the Agreements and factual
representations in certificates of officers of the Company. In addition, we
have obtained and relied upon those certificates of public officials we
considered appropriate.
We have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals and the conformity with originals
of all documents submitted to us as copies. To the extent the Company's
obligations depend on the enforceability of the Agreements against other
parties to the Agreements, we have assumed that the Agreements are
enforceable against the other parties thereto.
<PAGE>
EXHIBIT D (CONT.)
Westar Capital LLC, Big Beaver Investments L.I.C., March 29, 1999 - Page 2
On the basis of such examination, our reliance upon the assumptions in
this opinion and our consideration of those questions of law we considered
relevant, and subject to the limitations and qualifications in this opinion,
we are of the opinion that:
1. The Company has been duly incorporated, and is validly existing in
good standing under the laws of the state of California, with corporate power
to enter into the Agreement and to perform its obligations under the
Agreements.
2. The authorized capital stock of the Company consists of 20,000,000
shares of Class A Common Stock, 600,000 shares of Class B Common Stock and
5,000,000 shares of Preferred Stock.
3. The execution, delivery and performance of the Agreements have been
duly authorized by all necessary corporate action on the part of the Company,
and the Agreements have been duly executed and delivered by the Company.
4. The Agreements constitute the legally valid and binding obligation
of the Company, enforceable against the Company in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally (including, without limitation, fraudulent
conveyance laws) and by general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance or injunctive
relief, regardless of whether considered in a proceeding in equity or at law.
5. The Company's execution of and delivery of, and performance of its
obligations on or prior to the date of this opinion under the Agreements do
not (i) violate the Company's Articles of Incorporation or Bylaws, (ii)
violate, breach, or result in a default under, the existing obligation of or
restriction on the Company under any of the agreements listed on Exhibit A
attached hereto, or (iii) to our knowledge, breach or otherwise violate any
existing obligation of or restriction on the Company under any order,
judgment or decree of any California or federal court of government authority
binding on the Company.
6. The shares of Series A Preferred Stock to be issued in connection
with the Agreements have been duly authorized by all necessary corporate
action on the part of the Company and, upon payment for and delivery of the
shares of Series A Preferred Stock in accordance with the Agreement, the
Series A Preferred Stock will be validly issued, fully paid and
non-assessable. The Class A Common Stock issuable upon conversion of the
Series A Preferred Stock to be issued in connection with the Agreements has
been duly and validly reserved for issuance and, when and if issued upon such
conversion in accordance with the Company's Certificate of Determination will
be validly issued, fully paid and nonassessable.
<PAGE>
EXHIBIT D (CONT.)
Westar Capital LLC, Big Beaver Investments L.I.C., March 29, 1999 - Page 3
7. The Warrants to be issued in connection with the Securities
Purchase Agreement have been duly authorized by all necessary corporate
action on the part of the Company and, upon payment for and delivery of the
Warrants in accordance with the Securities Purchase Agreement, the Contingent
Warrants will be validly issued. The Class A Common Stock issuable upon
exercise of the Warrants has been duly and validly reserved for issuance and,
when and if issued upon such exercise in accordance with the terms of the
Warrants will be validly issued, fully paid and nonassessable.
8. Except for the matters described in Exhibit B attached hereto, we
have not, since ______ given substantive attention on behalf of the Company
to, or represented the Company in connection with any actions, suits or
proceedings pending or threatened against the Company before any court,
arbitrator or governmental agency, which (i) seek to affect the
enforceability of the Agreements or (ii)seek damages in excess of $_________.
We call your attention to the fact that our engagement is limited to specific
matters as to which we are consulted by the Company.
Our opinion in paragraph 4 above as to the enforceability of the
Agreement is subject to: (i) public policy considerations, statutes or court
decisions that may limit the rights of a party to obtain indemnification; and
(ii) the unenforceability under certain circumstances of broadly or vaguely
stated waivers or waivers of rights granted by law where the waivers are
against public policy or prohibited by law.
The law covered by this opinion is limited to the present federal law of
the United States, the present law of the State of California. We express no
opinion as to the laws of any other jurisdiction and no opinion regarding the
statutes, administrative decisions, rules, regulations or requirements of any
county, municipality, subdivision or local authority of any jurisdiction.
We express no opinion as to any provision of the Agreements require
written amendments or waivers of the Agreement insofar as it suggests that
oral or other modifications, amendments or waivers could not be effectively
agreed upon by the parties or that the doctrine of promissory estoppel might
not apply.
We express no opinion as to the enforceability of Section 6.3 of the
Securities Purchase Agreement.
Our use of the terms "known to us," "to our knowledge," or similar
phrases to qualify a statement in this opinion means that those attorneys in
this firm who have given substantive attention to the representation
described in the introductory paragraph of this opinion do not have current
actual knowledge that the statement is inaccurate. Such terms do not include
any knowledge of other attorneys within our firm (regardless of whether they
have represented or are representing the Company in connection with any other
matter) or any constructive or imputed notice of any matters or items of
information. We have not undertaken any independent investigation to
determine the accuracy of the statement, and any limited inquiry undertaken
by us during the preparation of this opinion letter should not be regarded as
such an investigation.
<PAGE>
EXHIBIT D (CONT.)
Westar Capital LLC, Big Beaver Investments L.I.C., March 29, 1999 - Page 4
No inference as to our knowledge of any matters bearing on the accuracy of
any such statement should be drawn from the fact of our representation of the
Company in connection with this opinion letter or in other matters.
This opinion is furnished by us as counsel to the Company and may be
relied upon by you only in connection with the Agreement. It may not be used
or relied upon by you for any other purpose or by any other person, nor may
copies be delivered to any other person, without in each instance our prior
written consent.
Respectfully yours,
<PAGE>
EXHIBIT E TO SECURITIES PURCHASE AGREEMENT
INTENTIONALLY OMITTED BECAUSE FILED ELSEWHERE.
<PAGE>
EXHIBIT F TO SECURITIES PURCHASE AGREEMENT
INTENTIONALLY OMITTED BECAUSE FILED ELSEWHERE.
<PAGE>
EXHIBIT G TO SECURITIES PURCHASE AGREEMENT
INTENTIONALLY OMITTED BECAUSE FILED ELSEWHERE.
<PAGE>
EXHIBIT H TO SECURITIES PURCHASE AGREEMENT
INTENTIONALLY OMITTED BECAUSE FILED ELSEWHERE.
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of March 29,
1999, is made between Amerigon Incorporated, a California corporation (the
"Company"), and Big Star Investments LLC, a Delaware limited liability
company ("Lender").
The Company has requested the Lender to make term loans to the
Company in an aggregate principal amount of up to $1,200,000. The Lender is
willing to make such loans to the Company upon the terms and subject to the
conditions set forth in this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms shall have the following meanings:
"AFFILIATE" means any Person which, directly or indirectly,
controls, is controlled by or is under common control with another Person.
For purposes of the foregoing, "control," "controlled by" and "under common
control with" with respect to any Person shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities or by contract or otherwise.
"BRIDGE LOAN WARRANT" has the meaning set forth in Section 2.11.
"BUDGET" means the Company's budget, attached hereto as Exhibit A,
indicating the proposed uses of the proceeds of the Loans (including the
purpose of expenditure, persons to be paid, amounts, and dates on which
payments are expected to be made), including any subsequent amendments to
such budget as may be approved by the Lender (which approval shall not be
unreasonably withheld).
"BUSINESS DAY" means a day of the year on which commercial banks
are not required or authorized by law to close in Los Angeles, California.
"CLOSING DATE" means the date upon which the conditions set forth
in Sections 3.01 and 3.02 are satisfied and the initial Loan hereunder is
made.
"COLLATERAL" means the property described in the Collateral Documents,
and all other property now existing or hereafter acquired which may at any time
be or become subject to a Lien in favor of the Lender pursuant to the Collateral
Documents or otherwise, securing the payment and performance of the Obligations.
"COLLATERAL DOCUMENTS" means the Security Agreement, the Patent and
Trademark Security Agreement, any other agreement pursuant to which the
Company provides a Lien on its
<PAGE>
assets in favor of the Lender and all filings (including, but not limited to,
all U.C.C. financing statements filed to perfect the security interests
granted in the Security Agreement), documents and agreements made or
delivered pursuant thereto.
"COMMITMENT" means the Term Commitment.
"COMPANY" has the meaning set forth in the recital of parties to
this Agreement.
"DEFAULT" means an Event of Default or an event or condition which
with notice or lapse of time or both would constitute an Event of Default.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances, judgments and
codes, together with all administrative orders, directives, requests,
licenses, authorizations and permits of, and agreements with (including
consent decrees), any governmental agencies or authorities, in each case
relating to or imposing liability or standards of conduct concerning public
health, safety and environmental protection matters.
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"FINAL MATURITY DATE" means the earlier to occur of (i) September
30, 1999, (ii) the closing of the financing pursuant to the Securities
Purchase Agreement, or (iii) the occurrence of a Trigger Event.
"GAAP" means generally accepted principles in the United States,
consistently applied.
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or
other hazardous substances, materials, wastes, contaminants or pollutants,
including asbestos, PCBs, petroleum products and byproducts, and any
substances defined or listed as "hazardous substances," "hazardous
materials," "hazardous wastes" or "toxic substances" (or similarly identified
or having any constituent substances displaying any of the foregoing
characteristics), regulated under or forming the basis for liability under
any applicable Environmental Law.
"INDEBTEDNESS" means, for any Person, (i) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase price
of property or services; (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person; (iv) all
reimbursement and other obligations of such Person in respect of letters of
credit and bankers acceptances and all net obligations in respect of interest
rate swaps, caps, floors and collars, currency swaps, and other similar
financial products; (v) all obligations under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases; and (vi) all
indebtedness of another Person of the types referred to in clauses (i) through
(v) guaranteed directly or indirectly in any manner by the Person for whom
Indebtedness is being determined, or in effect guaranteed directly or indirectly
by such Person through an agreement to purchase or acquire such indebtedness, to
advance or supply funds for the payment or purchase of such indebtedness or
otherwise assure a
2.
<PAGE>
creditor against loss, or secured by any Lien upon or in property owned by
the Person for whom Indebtedness is being determined, whether or not such
Person has assumed or become liable for the payment of such indebtedness of
such other Person.
"INVESTORS" shall mean Westar Capital II LLC and Big Beaver
Investments LLC.
"LENDER" has the meaning set forth in the recital of parties to
this Agreement.
"LIEN" means any mortgage, pledge, security interest, assignment,
deposit arrangement, charge or encumbrance, lien or other type of
preferential arrangement (other than a financing statement filed by a lessor
in respect of an operating lease not intended as security).
"LOAN DOCUMENTS" means this Agreement, the Note, the Collateral
Documents and all other certificates, documents, agreements and instruments
delivered to the Lender under or in connection with this Agreement.
"LOANS" means the Term Loan.
"MATERIAL ADVERSE EFFECT" means any event, circumstance or
condition that, individually or in the aggregate (i) has or could reasonably
be expected to have a material adverse effect on the business, operations,
assets, liabilities (including without limitation contingent liabilities),
prospects, employee relationships, customer or supplier relationships, or the
condition (financial or otherwise) of the Company; (ii) would materially
impair the ability of the Company to perform or observe its obligations under
or in respect of the Loan Documents; or (iii) adversely affects the legality,
validity, binding effect or enforceability of any of the Loan Documents or
the perfection or priority of any Lien granted to the Lender under any of the
Collateral Documents.
"NOTE" has the meaning set forth in Section 2.03.
"OBLIGATIONS" means the indebtedness, liabilities and other
obligations of the Company to the Lender under or in connection with the Loan
Documents, including all Loans, all interest accrued thereon, all fees due
under this Agreement and all other amounts payable by the Company to the
Lender thereunder or in connection therewith.
"PATENT AND TRADEMARK SECURITY AGREEMENT" means the Patent and
Trademark Assignment and Security Agreement between the Company and the
Lender, in form and substance satisfactory to the Lender.
"PERMITTED LIENS" means: (i) Liens in favor of the Lender; (ii) the
existing Liens (including leases and subleases) listed in SCHEDULE 1 or incurred
in connection with the extension, renewal or refinancing of the Indebtedness
secured by such existing Liens, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase; (iii) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and which are adequately reserved for in
accordance with GAAP, PROVIDED the same does not have priority over any of the
Lender's Liens and no notice of tax lien has been filed of
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record; (iv) Liens of materialmen, mechanics, warehousemen, carriers or
employees or other similar Liens provided for by mandatory provisions of law
and securing obligations either not delinquent or being contested in good
faith by appropriate proceedings and which do not in the aggregate materially
impair the use or value of the property or risk the loss or forfeiture
thereof; (v) Liens consisting of deposits or pledges to secure the
performance of bids, trade contracts, leases, public or statutory
obligations, or other obligations of a like nature incurred in the ordinary
course of business (other than for Indebtedness); (vi) Liens upon or in any
equipment acquired or held by the Company to secure the purchase price of
such equipment or Indebtedness incurred solely for the purpose of financing
the acquisition of such equipment; and (vii) restrictions and other minor
encumbrances on real property which do not in the aggregate materially impair
the use or value of such property or risk the loss or forfeiture thereof.
"PERSON" means an individual, corporation, partnership, joint
venture, trust, unincorporated organization or any other entity of whatever
nature or any governmental agency or authority.
"RESPONSIBLE OFFICER" means, with respect to any Person, the chief
executive officer, the president, the chief financial officer or the
treasurer of such Person, or any other senior officer of such Person having
substantially the same authority and responsibility.
"SECURITY AGREEMENT" means a Security Agreement between the Company
and the Lender, in form and substance satisfactory to the Lender.
"SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement of even date herewith between the Company and the
Investors.
"TERM COMMITMENT" means $1,200,000 or, where the context so
requires, the obligation of the Lender to make a Term Loan up to such amount
on the terms and conditions set forth in this Agreement.
"TERM LOAN" has the meaning set forth in Section 2.01(b).
"TERM LOAN AVAILABILITY PERIOD" means the period extending from
and including the Closing Date through the earliest of : (i) September 1,
1999, (ii) the occurrence of a Trigger Event, (iii) the date on which the
financing contemplated by the Securities Purchase Agreement is completed, or
(iv) the date upon which the Lender declares an Event of Default.
"TRIGGER EVENT" means that the Company (or its Board of Directors)
shall have authorized, recommended, proposed or publicly announced its
intention to enter into (or has failed to recommend rejection of) any tender
or exchange offer, merger, consolidation, liquidation, dissolution, business
combination, recapitalization, acquisition, or disposition of a material
amount of assets or securities or any comparable transaction which has not
been consented to in writing by the Lender.
SECTION 1.02 ACCOUNTING TERMS. Unless otherwise defined or the
context otherwise requires, all accounting terms not expressly defined herein
shall be construed, and all accounting determinations and computations
required under this Agreement or any other Loan Document shall be made, in
accordance with GAAP.
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SECTION 1.03 INTERPRETATION. In the Loan Documents, except to
the extent the context otherwise requires: (i) any reference to an Article,
a Section, a Schedule or an Exhibit is a reference to an article or section
thereof, or a schedule or an exhibit thereto, respectively, and to a
subsection or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the reference
appears; (ii) the words "hereof," "herein," "hereto," "hereunder" and the
like mean and refer to this Agreement or any other Loan Document as a whole
and not merely to the specific Article, Section, subsection, paragraph or
clause in which the respective word appears; (iii) the meaning of defined
terms shall be equally applicable to both the singular and plural forms of
the terms defined; (iv) the words "including," "includes" and "include" shall
be deemed to be followed by the words "without limitation;" (v) references to
agreements and other contractual instruments shall be deemed to include all
subsequent amendments and other modifications thereto, but only to the extent
such amendments and other modifications are not prohibited by the terms of
the Loan Documents; (vi) references to statutes or regulations are to be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to; (vii) any table
of contents, captions and headings are for convenience of reference only and
shall not affect the construction of this Agreement or any other Loan
Document; and (viii) in the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding"; and the word
"through" means "to and including."
ARTICLE II
THE LOANS
SECTION 2.01 TERM LOAN. The Lender agrees, subject to the terms
and conditions of this Agreement, to make term loans (each a "Term Loan") to
the Company on the Closing Date and from time to time during the Term Loan
Availability Period following the Company's compliance with the borrowing
procedure under Section 2.02 below, in the aggregate principal amount up to
but not exceeding the Term Commitment.
SECTION 2.02 BORROWING PROCEDURE. Each Loan shall be made upon
written notice from the Company to the Lender, which notice shall be received
by the Lender not later than 10:00 A.M. (California time) at least three (3)
Business Days prior to the proposed borrowing date. Each such notice of
borrowing shall be irrevocable and binding on the Company and shall specify
the proposed date of the borrowing (which shall be a Business Day), the
amount of the borrowing (which shall be at least $200,000 or a greater amount
which is an integral multiple of $50,000), and payment instructions with
respect to the funds to be made available to the Company. Each such notice
shall also be accompanied by the Budget (updated to reconcile the use of the
proceeds of any prior Loans). Upon fulfillment of the applicable conditions
set forth in Article III hereof, the Lender shall make the Loan available to
the Company in same day funds, or such other funds as shall separately be
agreed upon by the Company and the Lender, in accordance with the payment
instructions provided to the Lender as set forth in the borrowing request
delivered pursuant hereto.
SECTION 2.03 EVIDENCE OF INDEBTEDNESS. At the request of the
Lender, the Company shall execute and deliver for account of the Lender a
promissory note (the "Note"), in
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a form reasonably acceptable to the Lender ,as additional evidence of the
Indebtedness of the Company to the Lender resulting from each Term Loan.
SECTION 2.04 INTEREST. The Company hereby promises to pay
interest on the unpaid principal amount of each Loan from the date of such
Loan until the maturity thereof, at a rate equal to 10% per annum, on the
date of any prepayment of any such Loan and at maturity.
SECTION 2.05 COMPUTATIONS. All computations of fees and interest
hereunder shall be made on the basis of a year of 360 days for the actual
number of days occurring in the period for which any such interest or fee is
payable.
SECTION 2.06 HIGHEST LAWFUL RATE. Anything herein to the
contrary notwithstanding, if during any period for which interest is computed
hereunder, the applicable interest rate, together with all fees, charges and
other payments which are treated as interest under applicable law, as
provided for herein or in any other Loan Document, would exceed the maximum
rate of interest which may be charged, contracted for, reserved, received or
collected by the Lender in connection with this Agreement under applicable
law (the "Maximum Rate"), the Company shall not be obligated to pay, and the
Lender shall not be entitled to charge, collect, receive, reserve or take,
interest in excess of the Maximum Rate, and during any such period the
interest payable hereunder shall be limited to the Maximum Rate.
SECTION 2.07 TERMINATION OF THE COMMITMENT. Upon the earlier to
occur of (i) September 30, 1999, (ii) the occurrence of a Trigger Event,
(iii) the closing of the financing pursuant to the Securities Purchase
Agreement, or (iv) the Lender's declaration of an Event of Default, any
unused portion of the Term Commitment shall terminate. After the Term
Commitment terminates under this Section 2.07 it may not be reinstated.
SECTION 2.08 REPAYMENT OF THE LOAN. The Company hereby promises
to pay to the Lender the principal amount of the Term Loans and any accrued
interest thereon in full on the Final Maturity Date.
SECTION 2.09 PREPAYMENTS OF THE LOANS.
(a) OPTIONAL PREPAYMENTS. The Company may, upon prior notice to
the Lender, prepay the outstanding amount of the Loans in whole or in part,
without premium or penalty.
(b) NOTICE; APPLICATION. The notice given of any prepayment shall
specify the date and amount of the prepayment. If the notice of prepayment
is given, the Company shall make such prepayment and the prepayment amount
specified in such notice shall be due and payable on the date specified
therein, with accrued interest to such date on the amount prepaid.
SECTION 2.10 PAYMENTS.
(a) PAYMENTS. The Company shall make each payment under the Loan
Documents, unconditionally in full without deduction, set-off, counterclaim or,
to the extent permitted by applicable law, other defense, and free and clear of,
and without reduction for or on
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account of, any present and future taxes or withholdings (other than a tax on
the overall net income of the Lender), and all liabilities with respect
thereto. Each payment shall be made not later than 11:00 A.M. (California
time) on the day when due to the Lender in U.S. dollars and in immediately
available funds, or such other funds as shall be separately agreed upon by
the Company and the Lender, in accordance with the Lender's payment
instructions.
(b) EXTENSION. Whenever any payment hereunder shall be stated to
be due, or whenever any interest payment date or any other date specified
hereunder would otherwise occur, on a day other than a Business Day, then,
except as otherwise provided herein, such payment shall be made, and such
interest payment date or other date shall occur, on the next succeeding
Business Day, and such extension of time shall in such case be included in
the computation of payment of interest.
(c) APPLICATION. Each payment by or on behalf of the Company
hereunder shall, unless a specific determination is made by the Lender with
respect thereto, be applied (i) first, to accrued and unpaid interest due the
Lender; and (ii) second, to principal due the Lender.
SECTION 2.11 BRIDGE LOAN WARRANT. Concurrently with the
execution of this Agreement, the Company will issue to the Lender a warrant
to purchase 300,000 shares of the Class A Common Stock of the Company on the
terms and conditions set forth in EXHIBIT B hereto (the "Bridge Loan
Warrant").
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01 CONDITIONS PRECEDENT TO THE INITIAL LOAN. The
obligation of the Lender to make its initial Loan on the date of the initial
borrowing hereunder (the "Closing Date") shall be subject to the satisfaction
of each of the following conditions precedent before or concurrently with the
initial Loan:
(a) FEES AND EXPENSES. The Company shall have paid all fees and
invoiced costs and expenses then due hereunder.
(b) LOAN DOCUMENTS. The Lender shall have received the following
Loan Documents: (i) this Agreement executed by the Company, (ii) the Note
required hereunder, executed by the Company; and (iii) the Collateral
Documents executed by each of the respective parties thereto.
(c) DOCUMENTS AND ACTIONS RELATING TO COLLATERAL. The Lender
shall have received, in form and substance satisfactory to it, results of
such Lien searches as it shall reasonably request, and evidence that all
filings, registrations and recordings have been made in the appropriate
governmental offices, and all other action has been taken, which shall be
necessary to create, in favor of the Lender, a perfected first priority Lien
on the Collateral.
(d) ADDITIONAL CLOSING DOCUMENTS. The Lender shall have received the
following, in form and substance satisfactory to it: (i) evidence that all
(A) authorizations or
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approvals of any governmental agency or authority, and (B) approvals or
consents of any other Person, required in connection with the execution,
delivery and performance of the Loan Documents shall have been obtained; and
(ii) a certificate of the Secretary or other appropriate officer of the
Company, dated the Closing Date, certifying (A) copies of the articles or
certificate of incorporation, and bylaws, of the Company and the resolutions
and other actions taken or adopted by the Company authorizing the execution,
delivery and performance of the Loan Documents, and (B) the incumbency,
authority and signatures of each officer of the Company authorized to execute
and deliver the Loan Documents and act with respect thereto.
(e) LEGAL OPINION. The Lender shall have received an opinion of
legal counsel to the Company dated the Closing Date, in the form attached
hereto as EXHIBIT C.
(f) BRIDGE LOAN WARRANT. The Company shall have delivered to the
Lender a duly executed Bridge Loan Warrant, in the form attached hereto as
EXHIBIT B.
(g) PERMIT. All evidences of indebtedness issued by the Company
pursuant to (and including) this Agreement shall have been qualified by
permit filed with and approved by the California Department of Corporations
pursuant to Section 25113 of the California Corporations Code.
(h) SECURITIES PURCHASE AGREEMENT. The Company shall have
executed and delivered to the Investors the Securities Purchase Agreement.
SECTION 3.02 CONDITIONS PRECEDENT TO ALL LOANS. The obligation
of the Lender to make each Loan shall be subject to the satisfaction of each
of the following conditions precedent:
(a) NOTICE. The Company shall have given its notice of borrowing
as provided in Section 2.02.
(b) MATERIAL ADVERSE EFFECT. On and as of the date of such Loan,
there shall have occurred no change or event since the date of this Agreement
(in the case of the initial Loan) or the date of the most recent borrowing
(in the case of any subsequent Loan), as the case may be, that has or could
reasonably be expected to have a Material Adverse Effect.
(c) NO DEFAULT. On the date of such Loan, both before and after
giving effect thereto and to the application of proceeds therefrom, no
material Default shall have occurred and be continuing or shall result from
the making of such Loan. The giving of any notice of borrowing and the
acceptance by the Company of the proceeds of each Loan made on or following
the Closing Date shall each be deemed a certification to the Lender that on
and as of the date of such Loan no material Default shall have occurred or
shall result from the making of the Loan.
(d) BUDGET. The Company shall have provided to the Lender
certification regarding the use of the proceeds received from any prior Loans
as well as the proposed use of the proceeds of the currently requested Loan,
as such expenditures relate to the Budget. The Company shall have
demonstrated to the reasonable satisfaction of the Lender that the proposed
use of the proceeds of the currently requested Loan is in accordance with the
Budget.
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(e) ADDITIONAL DOCUMENTS. The Lender shall have received, in form
and substance satisfactory to it, such additional approvals, opinions,
documents and other information as the Lender may reasonably request.
(f) LIMITATION ON AMOUNT. Notwithstanding the satisfaction of the
other conditions set forth in this Section 3.02, the Lender shall not be
obligated to make any Loan to the Company in an amount that exceeds the
anticipated cash needs of the Company, as determined in the reasonable
discretion of the Lender based on the Budget, for a period of two (2) weeks
following the anticipated date of funding of such Loan.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Lender that, except as set forth in
the Disclosure Letter:
(a) ORGANIZATION AND POWERS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California, and has all requisite power and authority to execute, deliver
and perform its obligations under the Loan Documents. The Company is
qualified to do business and is in good standing in each jurisdiction in
which the failure so to qualify or be in good standing would result in a
Material Adverse Effect and has all requisite power and authority to own its
assets and carry on its business.
(b) AUTHORIZATION; NO CONFLICT. The execution, delivery and
performance by the Company of the Loan Documents have been duly authorized by
all necessary corporate action of the Company and do not and will not will
not (i) result in a violation of the Company's Articles of Incorporation or
Bylaws, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture or instrument to which the Company or any
of its properties is subject, or result in a violation of any material law,
rule, regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, or (iii) except as
contemplated by this Agreement, result in, or require, the creation or
imposition of any Lien upon or with respect to any of the properties, assets
or revenues of the Company. The Company is not in violation of its Articles
of Incorporation, Bylaws or other organizational documents, or of any
judgment, order, writ, decree, law, rule or regulation to which the Company
or its properties is subject. The Company is not in default (and no event
has occurred which, with notice or lapse of time or both, would put the
Company in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company is a party or any of its properties is
subject.
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(c) BINDING OBLIGATION. The Loan Documents constitute, or when
delivered under this Agreement, will constitute, legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms.
(d) CONSENTS. No authorization, consent, approval, license,
exemption of, or filing or registration with, any governmental agency or
authority, or approval or consent of any other Person, is required for the
due execution, delivery or performance by the Company of any of the Loan
Documents, except for such approvals as have been obtained or as set forth in
SCHEDULE 2 hereto.
(e) LITIGATION. There is no action, suit, proceeding or
investigation pending, or to the Company's knowledge, currently threatened
against the Company, except as which individually or in the aggregate would
not have a Material Adverse Effect. The Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. Except as set forth on the
Disclosure Letter, there is no material action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
(f) PATENTS AND TRADEMARKS. The Company owns or licenses from
another person all inventions, patents, patent rights, computer software,
trademarks, trademark rights, service marks, service mark rights, trade
names, trade name rights and copyrights (collectively, the "Intellectual
Property") necessary for its business without any conflict with or
infringement of the valid rights of others and the lack of which could
materially and adversely affect the operations or condition, financial or
otherwise, of the Company, and the Company has not received any notice of
infringement upon or conflict with the asserted rights of others. The
Disclosure Letter contain a complete list of all such patents, patent rights,
registered trademarks, registered service marks, registered copyrights, all
agreements related to the foregoing, and all agreements pursuant to which the
Company licenses Intellectual Property from or to a third party (excluding
"shrink wrap" license agreements relating solely to off the shelf software
which is not material to the Company's business). All Intellectual Property
owned by the Company is owned free and clear of all liens, adverse claims,
encumbrances, or restrictions, except for restrictions contained in the terms
of the licenses listed in the Disclosure Letter. All Intellectual Property
licensed by the Company is the subject of a license agreement which is legal,
valid, binding and enforceable and in full force and effect. The
consummation of the transactions contemplated hereby will not result in the
termination or impairment of the Company's ownership of, or right to use, any
Intellectual Property. The Company has a valuable body of trade secrets,
including know-how, concepts, business plans, and other technical data (the
"Proprietary Information") for the development, manufacture and sale of its
products. The Company has the right to use the Proprietary Information free
and clear of any rights, liens, encumbrances or claims of others. The
Company is not aware, after reasonable investigation, that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with the use of his or her best efforts to promote the interests of the
Company or that would conflict with the Company's business.
(g) TITLE TO PROPERTIES; LIENS. The Company has good and marketable
title to, or valid and subsisting leasehold interests in, their properties and
assets, including all property
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forming a part of the Collateral, and there is no Lien upon or with respect
to any of such properties or assets, including any of the Collateral, except
for Permitted Liens.
(h) SEC DOCUMENTS AND FINANCIAL STATEMENTS. Since January 1,
1997, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the Securities and
Exchange Commission ("SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, with
amendments read together with underlying documents, are referred to herein as
the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles, consistently applied, during the periods
involved and fairly and accurately present in all material respects the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the most recent audited balance sheet provided to the Lender, the
Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the
date of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
Except as disclosed in such financial statements, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
(i) BRIDGE LOAN WARRANT. The Bridge Loan Warrant is duly
authorized and, upon issuance in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable, and will be free of
liens, claims, encumbrances and restrictions on transfer, other than
restrictions on transfer under applicable state and federal securities laws.
The shares of Class A Common Stock issuable upon exercise of the Bridge Loan
Warrant are duly authorized and reserved for issuance, and, upon exercise of
the Bridge Loan Warrant in accordance with the terms thereof, will be validly
issued, fully paid and nonassessable, and will be free of liens, claims,
encumbrances and restrictions on transfer, other than restrictions on
transfer under applicable state and federal securities laws.
(j) TAX RETURNS. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it and such tax returns are
true and correct in all material respects. In addition, (i) the Company has not
requested any extension of time within which to file any tax returns in respect
of any fiscal year which have not since been filed and no request
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for waivers of the time to assess any taxes are pending or outstanding, (ii)
no claim for taxes has become a lien against the property of the Company or
is being asserted against the Company other than liens for taxes not yet due
and payable, (iii) no audit of any tax return of the Company is being
conducted by a tax authority, (iv) no extension of the statute of limitations
on the assessment of any taxes has been granted to, by or applied for by, the
Company and is currently in effect, and (v) there is no agreement, contract
or arrangement to which the Company is a party that may result in the payment
of any amount that would not be deductible by reason of Sections 280G, 162 or
404 of the Internal Revenue Code.
(k) PERMITS. The Company has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business
("Permits"). The Company is not in default under any of such Permits.
(l) ENVIRONMENTAL AND SAFETY LAWS. The Company is not in
violation of any applicable material statute, law or regulation relating to
the environment or occupational health and safety, and no material
expenditures are or will be required in order to comply with any such
existing statute, law or regulation.
SECTION 4.02 REPRESENTATIONS AND WARRANTIES OF THE LENDER. The
Lender represents and warrants to the Company that:
(a) INVESTMENT REPRESENTATIONS. The Lender: (i) will acquire the
Note, Bridge Loan Warrant and shares underlying the Bridge Loan Warrant for
its own account for investment and not with a view to any resale or other
distribution (other than to affiliates) of the Note in a transaction
constituting a public offering or otherwise requiring registration under the
U.S. Securities Act of 1933, as amended (the "Securities Act") or in a
transaction that would result in noncompliance with applicable state
securities laws; (ii) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and the risks of
its acquisition of the Note , the Bridge Loan Warrant (and shares underlying
the Bridge Loan Warrant) and credit extensions to the Company, (iii) is an
accredited investor as such term is defined in Rule 501 of Regulation D under
the Securities Act, and (iv) understands that the Note, the Bridge Loan
Warrant and the shares underlying the Bridge Loan Warrant have not been
registered under the Securities Act or any state securities laws.
(b) ORGANIZATION AND POWERS. The Lender is a limited liability
company duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement.
(c) AUTHORIZATION; BINDING OBLIGATION. The execution, delivery
and performance by the Lender of this Agreement has been duly authorized by
all necessary organizational action of the Lender. This Agreement
constitutes a legal, valid and binding obligation of the Lender, enforceable
against the Lender in accordance with its terms.
(d) FINANCIAL CAPACITY. The Lender has access to adequate capital
to enable it to satisfy its obligations to make the Loan contemplated hereby.
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ARTICLE V
COVENANTS
SECTION 5.01 REPORTING COVENANTS. So long as any of the
Obligations shall remain unpaid or the Lender shall have any Commitment, the
Company agrees that:
(a) FINANCIAL STATEMENTS AND OTHER REPORTS. The Company will
furnish to the Lender: (i) on Monday of each week, a statement of cash flow
for the prior week and projected cash flow for the following two weeks; (ii)
as soon as available and in any event within 10 days after the end of a
month, monthly agings (aged from invoice date) of accounts receivable,
payables reports, and unaudited financial statements (including a balance
sheet, income statement and statement of cash flows) with respect to that
month prepared on a basis consistent with such statements prepared in prior
months and otherwise in accordance with GAAP and certified by a Responsible
Officer as being prepared in accordance with GAAP; and (iii) as soon as
available and in any event within 45 days after the end of each fiscal
quarter, its quarterly consolidated and, if requested by the Lender,
consolidating financial statements (including a balance sheet, income
statement and statement of cash flows), prepared in accordance with GAAP,
together with a certificate of a Responsible Officer of the Company stating
that such financial statements fairly present in all material respects the
financial condition of the Company as at such date and the results of
operations of the Company for the period ended on such date and have been
prepared in accordance with GAAP, subject to changes resulting from normal,
year-end audit adjustments and except for the absence of notes.
(b) ADDITIONAL INFORMATION. The Company will furnish to the
Lender: (i) promptly after the Company has knowledge or becomes aware
thereof, notice of the occurrence of any Default; (ii) prompt written notice
of all actions, suits and proceedings before any governmental agency or
authority or arbitrator pending, or to the best of the Company's knowledge,
threatened against or affecting the Company; (iii) prompt written notice of
any other condition or event which has resulted, or that could reasonably be
expected to result, in a Material Adverse Effect; (iv) promptly after the
same are released, copies of all press releases; (v) promptly after the
giving, sending or filing thereof, copies of all reports and financial
information, if any, which the Company sends to the holders of its capital
stock or other securities, and the holders, if any, of any other
Indebtedness, and of all reports or filings, if any, by the Company with the
Securities and Exchange Commission or any national securities exchange; and
(vi) such other information respecting the operations, properties, business
or condition (financial or otherwise) of the Company (including with respect
to the Collateral) as the Lender may from time to time reasonably request.
Each notice pursuant to claims (i) through (iii) of this subsection (b) shall
be accompanied by a written statement by a Responsible Officer of the Company
setting forth details of the occurrence referred to therein.
(c) CERTAIN CONTRACTS. Upon the Lender's reasonable request, and
at least twice monthly after the date of this Agreement, the Company shall
provide reports to the Lender concerning the status of all programs with
major customers, in such detail as Lender may reasonably request.
SECTION 5.02 AFFIRMATIVE COVENANTS. So long as any of the
Obligations shall remain unpaid or the Lender shall have any Commitment, the
Company agrees that:
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(a) PRESERVATION OF EXISTENCE, ETC. The Company will, maintain
and preserve its corporate existence, its rights to transact business and all
other material rights, franchises and privileges necessary or desirable in
the normal course of its business and operations and the ownership of its
properties, except in connection with any transactions expressly permitted by
Section 5.03.
(b) PAYMENT OF TAXES, ETC. The Company will pay and discharge all
taxes, fees, assessments and governmental charges or levies imposed upon it
or upon its properties or assets prior to the date on which penalties attach
thereto, and all lawful claims for labor, materials and supplies which, if
unpaid, might become a Lien upon any properties or assets of the Company
prior to the date on which penalties attach thereto except to the extent such
taxes, fees, assessments or governmental charges or levies, or such claims,
are being contested in good faith by appropriate proceedings and are
adequately reserved against in accordance with GAAP.
(c) MAINTENANCE OF INSURANCE. The Company will carry and maintain
in full force and effect, at its own expense and with financially sound and
reputable insurance companies, insurance in such amounts, with such
deductibles and covering such risks as is is consistent with the Company's
past practices.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company will
keep adequate records and books of account to permit preparation of financial
statements in accordance with GAAP.
(e) INSPECTION RIGHTS. The Company will at any reasonable time
during regular business hours and from time to time permit the Lender or any
of its agents or representatives to visit and inspect any of the properties
of the Company and to examine the records and books of account of the
Company, and to discuss the business affairs, finances and accounts of the
Company with any of the officers, employees or accountants of the Company,
provided that the Company may designate one or more individuals who will be
present during such discussions.
(f) COMPLIANCE WITH LAWS. The Company will comply in all material
respects with the requirements of all applicable laws, rules, regulations and
orders of any governmental agency or authority, including all Environmental
Laws.
(g) MAINTENANCE OF PROPERTIES, ETC. The Company will maintain and
preserve all of its material properties necessary or useful in the proper
conduct of its business in good working order and condition in accordance
with the general practice of other corporations of similar character and
size, ordinary wear and tear excepted.
(h) LICENSES. The Company will obtain and maintain all licenses,
authorizations, consents, filings, exemptions, registrations and other
governmental approvals of any governmental agency or authority necessary in
connection with the execution, delivery and performance of the Loan
Documents, the consummation of the transactions therein contemplated or the
operation and conduct of its business and ownership of its properties, except
where the failure to do so would not have a Material Adverse Effect.
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(i) USE OF PROCEEDS. The Company will use the proceeds of the
Loans solely in accordance with the Budget. No amount of the proceeds of the
Loans may be used in connection with the Company's electric vehicle business.
(j) FURTHER ASSURANCES AND ADDITIONAL ACTS. The Company will
execute, acknowledge, deliver, file, notarize and register at its own expense
all such further agreements, instruments, certificates, documents and
assurances and perform such acts as the Lender shall deem necessary or
appropriate to effectuate the purposes of the Loan Documents, and promptly
provide the Lender with evidence of the foregoing satisfactory in form and
substance to the Lender.
SECTION 5.03 NEGATIVE COVENANTS. So long as any of the
Obligations shall remain unpaid or the Lender shall have any Commitment, the
Company agrees that without the consent of Lender, which consent will not be
unreasonably withheld:
(a) LIENS; NEGATIVE PLEDGES. (i) The Company will not create,
incur, assume or suffer to exist any Lien upon or with respect to any of its
properties, revenues or assets, whether now owned or hereafter acquired,
other than Permitted Liens. (ii) The Company will not enter into any
agreement (other than this Agreement or any other Loan Document) prohibiting
the creation or assumption of any Lien upon any of its properties, revenues
or assets, whether now owned or hereafter acquired.
(b) CHANGE IN NATURE OF BUSINESS. The Company will not engage in
any material line of business substantially different from those lines of
business carried on by it at the date hereof.
(c) RESTRICTIONS ON FUNDAMENTAL CHANGES. The Company will not
merge with or consolidate into, or acquire all or substantially all of the
assets of, any Person, or sell, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or
substantially all of its assets.
(d) SALES OF ASSETS. The Company will not sell, lease, transfer,
or otherwise dispose of, or part with control of (whether in one transaction
or a series of transactions) any assets (including any shares of stock in any
other Person), except: (i) sales or other dispositions of inventory, and the
license, sublicense and grant of distribution and similar rights, in the
ordinary course of business; (ii) sales or other dispositions of assets in
the ordinary course of business which have become worn out or obsolete or
which are promptly being replaced; (iii) sales or other dispositions of
assets (other than accounts receivable) outside the ordinary course of
business not exceeding in the aggregate $25,000 in any fiscal year; and (iv)
a sale of 15% of the outstanding capital stock of AEVT Incorporated to Lon
Bell upon Dr. Bell's payment of $88,000 to the Company.
(e) DISTRIBUTIONS. The Company will not declare or pay any
dividends in respect of the Company's capital stock, or purchase, redeem,
retire or otherwise acquire for value any of its capital stock now or
hereafter outstanding, return any capital to its shareholders as such, except
that the Company may: (A) declare and deliver dividends and distributions
payable only in common stock of the Company; (B) purchase, redeem, retire, or
otherwise acquire shares
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of its capital stock with the proceeds received from a substantially
concurrent issue of new shares of its capital stock; and (C) repurchase
shares of Class B Common Stock as contemplated by the Securities Purchase
Agreement.
(f) LOANS AND INVESTMENTS. The Company will not purchase or
otherwise acquire the capital stock, assets (constituting a business unit),
obligations or other securities of or any interest in any Person, or
otherwise extend any credit to or make any additional investments in any
Person, other than in connection with: (i) extensions of credit in the nature
of accounts receivable or notes receivable arising from the sales of goods or
services in the ordinary course of business; (ii) short term, investment
grade money market instruments, in accordance with the Company's usual and
customary treasury management policies.
(g) TRANSACTIONS WITH RELATED PARTIES. The Company will not enter
into any transaction, including the purchase, sale or exchange of property or
the rendering of any services, with any Affiliate, any officer or director
thereof or any Person which beneficially owns or holds 5% or more of the
equity securities, or 5% or more of the equity interest, thereof (a "Related
Party"), or enter into, assume or suffer to exist, any employment or
consulting contract with any Related Party, except (i) a transaction or
contract which is in the ordinary course of the Company's business and which
is upon fair and reasonable terms not less favorable to the Company than it
would obtain in a comparable arm's length transaction with a Person not a
Related Party (ii) the transactions and agreements contemplated by the
Securities Purchase Agreement, and (iii) loans from Lon Bell to the Company
at interest rates not exceeding 10% per annum and upon fair and reasonable
terms not less favorable to the Company than it would obtain in a comparable
arm's length transaction with a Person not a Related Party.
SECTION 5.04 CONFIDENTIALITY. The Lender will hold in confidence
all, and not disclose to others for any reason whatsoever any, non-public
information received by it from the Company in connection with this
Agreement, except that the Lender may provide such confidential information
in response to legal process or applicable governmental regulations provided
that the Lender forthwith notifies the Company of its obligation to provide
such confidential information and fully cooperates with the Company to
protect the confidentiality of such information.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 EVENTS OF DEFAULT. Any of the following events
which shall occur shall constitute an "Event of Default":
(a) PAYMENTS. The Company shall fail to pay when due any amount
of principal of, or interest on, any Loan or Note, or any fee or other amount
payable under any of the Loan Documents.
(b) REPRESENTATIONS AND WARRANTIES. Any representation or
warranty by the Company under or in connection with the Loan Documents shall
prove to have been incorrect in any material respect when made or deemed made.
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(c) FAILURE BY COMPANY TO PERFORM CERTAIN COVENANTS. The Company
shall fail to perform or observe any term, covenant or agreement contained in
Section 5.03 or Subsections (a) or (i) of Section 5.02.
(d) FAILURE BY COMPANY TO PERFORM OTHER COVENANTS. The Company
shall fail to perform or observe any term, covenant or agreement, other than
those specified in Section 6.01(c), contained in any Loan Document on its
part to be performed or observed, and any such failure shall continue for a
period of 10 days from the occurrence thereof (unless the Lender determines
that such failure is not capable of remedy).
(e) INSOLVENCY. (i) The Company shall (A) make a general
assignment for the benefit of creditors or (B) be dissolved, liquidated,
wound up or cease its corporate existence; or (ii) the Company (A) shall file
a voluntary petition in bankruptcy or a petition or answer seeking
reorganization, to effect a plan or other arrangement with creditors or any
other relief under the Bankruptcy Reform Act of 1978 (the "Bankruptcy Code")
or under any other state or federal law relating to bankruptcy or
reorganization granting relief to debtors, whether now or hereafter in
effect, or (B) shall file an answer admitting the jurisdiction of the court
and the material allegations of any involuntary petition filed against the
Company pursuant to the Bankruptcy Code or any such other state or federal
law; or (iii) the Company shall be adjudicated a bankrupt, or shall make an
assignment for the benefit of creditors, or shall apply for or consent to the
appointment of any custodian, receiver or trustee for all or any substantial
part of the Company's property, or shall take any action to authorize any of
the actions or events set forth above in this subsection; or (iv) an
involuntary petition seeking any of the relief specified in this subsection
shall be filed against the Company and not dismissed within 60 days; or (v)
any order for relief shall be entered against the Company, in any involuntary
proceeding under the Bankruptcy Code or any such other state or federal law
referred to in this subsection.
(f) DISSOLUTION, ETC. The Company shall (i) liquidate, wind up or
dissolve (or suffer any liquidation, wind-up or dissolution), (ii)
discontinue its operations, or (iii) take any corporate action to authorize
any of the actions or events set forth above in this subsection (f).
(g) JUDGMENTS. (i) A final judgment or order for the payment of
money in excess of $50,000 (or its equivalent in another currency) which is
not fully covered by third-party insurance shall be rendered against the
Company (or its equivalent in another currency); or (ii) any non-monetary
judgment or order shall be rendered against the Company which has or would
reasonably be expected to have a Material Adverse Effect; and in each case
there shall be any period of 15 consecutive days during which such judgment
continues unsatisfied or during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be in effect.
(h) MATERIAL ADVERSE EFFECT. Any circumstance, condition, or
event shall have occurred which has or could reasonably be expected to have a
Material Adverse Effect.
(i) COLLATERAL DOCUMENTS. Any "Event of Default" as defined in the
Collateral Documents shall have occurred; or any of the Collateral Documents
after delivery thereof shall for any reason be revoked or invalidated, or
otherwise cease to be in full force and effect, or the Company or any other
Person shall contest in any manner the validity or
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enforceability thereof, or the Company or any other Person shall deny that it
has any further liability or obligation thereunder; or any of the Collateral
Documents for any reason, except to the extent permitted by the terms
thereof, shall cease to create a valid and perfected first priority Lien
subject only to Permitted Liens in any of the Collateral purported to be
covered thereby.
SECTION 6.02 EFFECT OF EVENT OF DEFAULT. If any Event of Default
shall occur, the Lender may, by notice to the Company, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate. If any Event
of Default under Section 6.01(e) shall occur, the Lender may declare the
entire unpaid principal amount of the Loans and the Note, all interest
accrued and unpaid thereon and all other Obligations to be forthwith due and
payable, whereupon the Loans and the Note, all such accrued interest and all
such other Obligations shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company. In addition, if any Event of Default
under Section 6.01(a) or Section 6.01(e) shall occur, the Lender may exercise
any or all of the Lender's rights and remedies under the Collateral Documents
and proceed to enforce all other rights and remedies available to the Lender
under the Loan Documents and applicable law.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 AMENDMENTS AND WAIVERS. No amendment to any
provision of the Loan Documents shall be effective unless it is in writing
and has been signed by the Lender and the Company, and no waiver of any
provision of any Loan Document, or consent to any departure by the Company
therefrom, shall be effective unless it is in writing and has been signed by
the Lender. Any such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 7.02 NOTICES. All notices and other communications
provided for hereunder and under the other Loan Documents shall, unless
otherwise stated herein, be in writing (including by facsimile transmission)
and mailed, sent or delivered to the respective parties hereto at or to their
respective addresses or facsimile numbers set forth below their names on the
signature pages hereof, or at or to such other address or facsimile number as
shall be designated by any party in a written notice to the other party
hereto. All such notices and communications shall be effective (i) if
delivered by hand, when delivered; (ii) if sent by mail, upon the earlier of
the date of receipt or five Business Days after deposit in the mail, first
class, postage prepaid; and (iii) if sent by facsimile transmission, when
sent; PROVIDED, HOWEVER, that notices and communications to the Lender
pursuant to Article II shall not be effective until received.
SECTION 7.03 NO WAIVER; CUMULATIVE REMEDIES. No failure on the
part of the Lender to exercise, no delay in exercising, and no course of
dealing with respect to, any right, remedy, power or privilege under any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, remedy, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege.
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The rights and remedies under the Loan Documents are cumulative and not
exclusive of any rights, remedies, powers and privileges that may otherwise
be available to the Lender.
SECTION 7.04 COSTS AND EXPENSES; INDEMNITY.
(a) COSTS AND EXPENSES. The Company agrees to pay on demand: (i)
the reasonable out-of-pocket costs and expenses of the Lender and any of its
Affiliates, and the reasonable fees and disbursements of counsel to the
Lender and its Affiliates, in connection with the negotiation, preparation,
execution, delivery and administration of the Loan Documents and any
amendments, modifications or waivers of the terms thereof (but not in excess
of $50,000) and (ii) all reasonable costs and expenses of the Lender and its
Affiliates, and fees and disbursements of counsel, in connection with (A) any
Default, (B) the enforcement or attempted enforcement of, and preservation of
any rights or interests under, the Loan Documents, (C) any out-of-court
workout or other refinancing or restructuring or any bankruptcy or insolvency
case or proceeding, and (D) the preservation of and realization upon any of
the Collateral.
(b) INDEMNIFICATION. Whether or not the transactions contemplated
hereby shall be consummated, the Company hereby agrees to indemnify the
Lender, any Affiliate thereof and their respective directors, officers,
employees, agents, counsel and other advisors (each an "Indemnified Person")
against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including
the reasonable fees and disbursements of counsel to an Indemnified Person,
which may be imposed on, incurred by, or asserted against any Indemnified
Person, (i) in any way relating to or arising out of any of the Loan
Documents, the use or intended use of the proceeds of the Loans or the
transactions contemplated hereby or thereby, (ii) with respect to any
investigation, litigation or other proceeding relating to any of the
foregoing, irrespective of whether the Indemnified Person shall be designated
a party thereto, or (iii) in any way relating to or arising out of the use,
generation, manufacture, installation, treatment, storage or presence, or the
spillage, leakage, leaching, migration, dumping, deposit, discharge, disposal
or release, at any time, of any Hazardous Substances on, under, at or from
any properties of the Company, including any personal injury or property
damage suffered by any Person, and any investigation, site assessment,
environmental audit, feasibility study, monitoring, clean-up, removal,
containment, restoration, remedial response or remedial work undertaken by or
on behalf of the any Indemnified Person at any time, voluntarily or
involuntarily, with respect to the Premises (the "Indemnified Liabilities");
PROVIDED that the Company shall not be liable to any Indemnified Person for
any portion of such Indemnified Liabilities to the extent they are found by a
final decision of a court of competent jurisdiction to have resulted from
such Indemnified Person's gross negligence or willful misconduct. If and to
the extent that the foregoing indemnification is for any reason held
unenforceable, the Company agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
SECTION 7.05 SURVIVAL. All covenants, agreements,
representations and warranties made in any Loan Documents shall, except to
the extent otherwise provided therein, survive the execution and delivery of
this Agreement, the making of the Loans and the execution and delivery of the
Note, and shall continue in full force and effect so long as the Lender has
any Commitment, any Loans remain outstanding or any other Obligations remain
unpaid or any
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obligation to perform any other act hereunder or under any other Loan
Document remains unsatisfied. Without limiting the generality of the
foregoing, the obligations of the Company under Section 7.04, and all similar
obligations under the other Loan Documents (including all obligations to pay
costs and expenses and all indemnity obligations), shall survive the
repayment of the Loans and the termination of the Commitments.
SECTION 7.06 BENEFITS OF AGREEMENT. The Loan Documents are
entered into for the sole protection and benefit of the parties hereto and
their successors and assigns, and no other Person shall be a direct or
indirect beneficiary of, or shall have any direct or indirect cause of action
or claim in connection with, any Loan Document.
SECTION 7.07 BINDING EFFECT; ASSIGNMENT. This Agreement shall
become effective when it shall have been executed by the Company and the
Lender and thereafter shall be binding upon, inure to the benefit of and be
enforceable by the Company, the Lender and their respective successors and
assigns. The Company shall not have the right to assign its rights and
obligations hereunder or under the other Loan Documents or any interest
herein or therein without the prior written consent of the Lender. The
Lender reserves the right to sell, assign, transfer or grant participations
in all or any portion of the Lender's rights and obligations hereunder and
under the other Loan Documents (i) to one or more Affiliates of the Lender
and/or (ii) with the prior consent of the Company (which consent shall not be
unreasonably withheld) to any other Person. In the event of any such
assignment, the assignee shall be deemed a "Lender" for all purposes of the
Loan Documents with respect to the rights and obligations assigned to it, and
the obligations of the Lender so assigned shall thereupon terminate. The
Company shall, from time to time upon request of the Lender, enter into such
amendments to the Loan Documents and execute and deliver such other documents
as shall be necessary to effect any such grant or assignment. The Company
agrees that in connection with any such grant or assignment, the Lender may
deliver to the prospective participant or assignee financial statements and
other relevant information relating to the Company (subject to such Person
entering into a confidentiality agreement with the Company on terms
reasonably satisfactory to the Company).
SECTION 7.08 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
SECTION 7.09 WAIVER OF JURY TRIAL. THE COMPANY AND THE LENDER EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE COMPANY AND THE LENDER EACH AGREE THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM
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OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE
VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
SECTION 7.10 ENTIRE AGREEMENT. The Loan Documents reflect the
entire agreement between the Company and the Lender with respect to the
matters set forth herein and therein and supersede any prior agreements,
commitments, drafts, communication, discussions and understandings, oral or
written, with respect thereto.
SECTION 7.11 SEVERABILITY. Whenever possible, each provision of
the Loan Documents shall be interpreted in such manner as to be effective and
valid under all applicable laws and regulations. If, however, any provision
of any of the Loan Documents shall be prohibited by or invalid under any such
law or regulation in any jurisdiction, it shall, as to such jurisdiction, be
deemed modified to conform to the minimum requirements of such law or
regulation, or, if for any reason it is not deemed so modified, it shall be
ineffective and invalid only to the extent of such prohibition or invalidity
without affecting the remaining provisions of such Loan Document, or the
validity or effectiveness of such provision in any other jurisdiction.
SECTION 7.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the
same agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Credit Agreement, as of the date first above written.
THE COMPANY
AMERIGON INCORPORATED, a California
corporation
By /s/ LON E. BELL
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Title:
Address:
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Attn.:
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Fax No.
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THE LENDER
BIG STAR INVESTMENTS LLC
By: /s/ JOHN W. CLARK
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Address:
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Attn.:
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Fax No.
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of March 29,
1999, is made between Amerigon Incorporated, a California corporation (the
"Borrower") and Big Star Investments LLC ("Lender").
The Borrower and the Lender are parties to a Credit Agreement dated
as of March 29, 1999 (as amended, modified, renewed or extended from time to
time, the "Credit Agreement"). It is a condition precedent to the borrowings
under the Credit Agreement that the Borrower enter into this Agreement and
grant to the Lender the security interests hereinafter provided to secure the
obligations of the Borrower described below.
Accordingly, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms
used in this Agreement and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"ACCOUNT CONTROL AGREEMENT" means any account control agreement or
other agreement with any securities intermediary granting control with
respect to any Investment Property for purposes of UCC Section 9115.
"ACCOUNTS" means any and all accounts of the Borrower, whether now
existing or hereafter acquired or arising, and in any event includes all
accounts receivable, contract rights, rights to payment and other obligations
of any kind owed to the Borrower arising out of or in connection with the
sale or lease of merchandise, goods or commodities or the rendering of
services or arising from any other transaction, however evidenced, and
whether or not earned by performance, all guaranties, indemnities and
security with respect to the foregoing, and all letters of credit relating
thereto, in each case whether now existing or hereafter acquired or arising.
"BOOKS" means all books, records and other written, electronic or
other documentation in whatever form maintained now or hereafter by or for
the Borrower in connection with the ownership of its assets or the conduct of
its business or evidencing or containing information relating to the
Collateral, including: (i) ledgers; (ii) records indicating, summarizing, or
evidencing the Borrower's assets (including Inventory and Rights to Payment),
business operations or financial condition; (iii) computer programs and
software; (iv) computer discs, tapes, files, manuals, spreadsheets; (v)
computer printouts and output of whatever kind; (vi) any other computer
prepared or electronically stored, collected or reported information and
equipment of any kind; and (vii) any and all other rights now or hereafter
arising out of any contract or agreement between the Borrower and any service
bureau, computer or data processing company or other Person charged with
preparing or maintaining any of the Borrower's books or records or with
credit reporting, including with regard to the Borrower's Accounts.
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"CHATTEL PAPER" means all writings of whatever sort which evidence
a monetary obligation and a security interest in or lease of specific goods,
whether now existing or hereafter arising.
"COLLATERAL" has the meaning set forth in Section 2.
"DEPOSIT ACCOUNT" means any demand, time, savings, passbook or like
account now or hereafter maintained by or for the benefit of the Borrower
with a bank, savings and loan association, credit union or like organization,
and all funds and amounts therein, whether or not restricted or designated
for a particular purpose.
"DOCUMENTS" means any and all documents of title, bills of lading,
dock warrants, dock receipts, warehouse receipts and other documents of the
Borrower, whether or not negotiable, and includes all other documents which
purport to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made
available to the Borrower for the purpose of ultimate sale or exchange of
goods or for the purpose of loading, unloading, storing, shipping,
transshipping, manufacturing, processing or otherwise dealing with goods in a
manner preliminary to their sale or exchange, in each case whether now
existing or hereafter acquired or arising.
"EQUIPMENT" means all now existing or hereafter acquired equipment
of the Borrower in all of its forms, wherever located, and in any event
includes any and all machinery, furniture, equipment, furnishings and
fixtures in which the Borrower now or hereafter acquires any right, and all
other goods and tangible personal property (other than Inventory), including
tools, parts and supplies, automobiles, trucks, tractors and other vehicles,
computer and other electronic data processing equipment and other office
equipment, computer programs and related data processing software, and all
additions, substitutions, replacements, parts, accessories, and accessions to
and for the foregoing, now owned or hereafter acquired, and including any of
the foregoing which are or are to become fixtures on real property.
"FINANCING STATEMENTS" has the meaning set forth in Section 3.
"GENERAL INTANGIBLES" means all general intangibles of the
Borrower, now existing or hereafter acquired or arising, and in any event
includes: (i) all tax and other refunds, rebates or credits of every kind and
nature to which the Borrower is now or hereafter may become entitled; (ii)
all good will, choses in action and causes of action, whether legal or
equitable, whether in contract or tort and however arising; (iii) all
Intellectual Property Collateral; (iv) all interests in limited and general
partnerships and limited liability companies; (v) all rights of stoppage in
transit, replevin and reclamation; (vi) all licenses, permits, consents,
indulgences and rights of whatever kind issued in favor of or otherwise
recognized as belonging to the Borrower by any governmental authority; and
(vii) all indemnity agreements, guaranties, insurance policies and other
contractual, equitable and legal rights of whatever kind or nature; in each
case whether now existing or hereafter acquired or arising.
2.
<PAGE>
"INSTRUMENTS" means any and all negotiable instruments and every
other writing which evidences a right to the payment of money, wherever
located and whether now existing or hereafter acquired.
"INTELLECTUAL PROPERTY COLLATERAL" means the following properties
and assets owned or held by the Borrower or in which the Borrower otherwise
has any interest, now existing or hereafter acquired or arising:
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses (including such patents, patent applications and
patent licenses as described in Schedule 1), all rights to sue for past,
present or future infringement thereof, all rights arising therefrom and
pertaining thereto and all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof;
(ii) all copyrights and applications for copyright, domestic or
foreign, together with the underlying works of authorship (including titles),
whether or not the underlying works of authorship have been published and
whether said copyrights are statutory or arise under the common law, and all
other rights and works of authorship (including the copyrights and copyright
applications described in Schedule 1), all rights, claims and demands in any
way relating to any such copyrights or works, including royalties and rights
to sue for past, present or future infringement, and all rights of renewal
and extension of copyright;
(iii) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration
of such trademarks, service marks and trade names, all licenses relating to
any of the foregoing and all income and royalties with respect to any
licenses (including such marks, names, applications and licenses as described
in Schedule 1), whether registered or unregistered and wherever registered,
all rights to sue for past, present or future infringement or unconsented
thereof, all rights arising therefrom and pertaining thereto and all
reissues, extensions and renewals thereof;
(iv) all trade secrets, trade dress, trade styles, logos, other
source of business identifiers, mask-works, mask-work registrations,
mask-work applications, software, confidential information, customer lists,
license rights, advertising materials, operating manuals, methods, processes,
know-how, algorithms, formulae, databases, quality control procedures,
product, service and technical specifications, operating, production and
quality control manuals, sales literature, drawings, specifications, blue
prints, descriptions, inventions, name plates and catalogs; and
(v) the entire goodwill of or associated with the businesses now
or hereafter conducted by the Borrower connected with and symbolized by any
of the aforementioned properties and assets.
"INVENTORY" means any and all of the Borrower's inventory in all of
its forms, wherever located, whether now owned or hereafter acquired, and in any
event includes all goods (including goods in transit) which are held for sale,
lease or other disposition, including those held for display or demonstration or
out on lease or consignment or to be furnished under a
3.
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contract of service, or which are raw materials, work in process, finished
goods or materials used or consumed in the Borrower's business, and the
resulting product or mass, and all repossessed, returned, rejected, reclaimed
and replevied goods, together with all parts, components, supplies, packing
and other materials used or usable in connection with the manufacture,
production, packing, shipping, advertising, selling or furnishing of such
goods; and all other items hereafter acquired by the Borrower by way of
substitution, replacement, return, repossession or otherwise, and all
additions and accessions thereto, and any Document representing or relating
to any of the foregoing at any time.
"INVESTMENT PROPERTY" means any and all investment property of the
Borrower, including all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and commodity
accounts, and all financial assets held in any securities account or
otherwise, wherever located, and whether now existing or hereafter acquired
or arising.
"LETTER OF CREDIT PROCEEDS" means any and all proceeds of written
letters of credit.
"PROCEEDS" means whatever is receivable or received from or upon
the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Collateral or other assets of the
Borrower, including "proceeds" as defined at UCC Section 9306, any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to or for
the account of the Borrower from time to time with respect to any of the
Collateral, any and all payments (in any form whatsoever) made or due and
payable to the Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), any and all other amounts from time to time paid or
payable under or in connection with any of the Collateral or for or on
account of any damage or injury to or conversion of any Collateral by any
Person, any and all other tangible or intangible property received upon the
sale or disposition of Collateral, and all proceeds of proceeds.
"RIGHTS TO PAYMENT" means all Accounts, and any and all rights and
claims to the payment or receipt of money or other forms of consideration of
any kind in, to and under all Chattel Paper, Documents, General Intangibles,
Instruments, Investment Property and Proceeds.
"SECURED OBLIGATIONS" means the indebtedness, liabilities and other
obligations of the Borrower to the Lender under or in connection with the
Credit Agreement, the Notes and the other Loan Documents, including all
unpaid principal of the Loans, all interest accrued thereon, all fees due
under the Credit Agreement and all other amounts payable by the Borrower to
the Lender thereunder or in connection therewith, whether now existing or
hereafter arising, and whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or undetermined.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; PROVIDED, HOWEVER, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of California, the term "UCC" shall mean the Uniform
4.
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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.
(c) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the
meanings assigned to them in the UCC.
(d) INTERPRETATION. The rules of interpretation set forth in
Section 1.03 of the Credit Agreement shall be applicable to this Agreement
and are incorporated herein by this reference.
SECTION 2 SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. As security for the payment and
performance of the Secured Obligations, the Borrower hereby pledges, assigns,
transfers, hypothecates and sets over to the Lender, and hereby grants to the
Lender a security interest in, all of the Borrower's right, title and
interest in, to and under the following property, wherever located and
whether now existing or owned or hereafter acquired or arising (collectively,
the "Collateral"): (i) all Accounts; (ii) all Chattel Paper; (iii) all
Deposit Accounts; (iv) all Documents; (v) all Equipment; (vi) all General
Intangibles; (vii) all Instruments; (viii) all Inventory; (ix) all Investment
Property; (x) all Books; (xi) all products and Proceeds of any and all of the
foregoing; and (xii) all Letter of Credit Proceeds.
(b) BORROWER REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (i) the Borrower shall remain liable under any contracts,
agreements and other documents included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise by
the Lender of any of the rights hereunder shall not release the Borrower from
any of their duties or obligations under such contracts, agreements and other
documents included in the Collateral and (iii) the Lender shall not have any
obligation or liability under any contracts, agreements and other documents
included in the Collateral by reason of this Agreement, nor shall the Lender
be obligated to perform any of the obligations or duties of the Borrower
thereunder or to take any action to collect or enforce any such contract,
agreement or other document included in the Collateral hereunder.
(c) CONTINUING SECURITY INTEREST. The Borrower agrees that this
Agreement shall create a continuing security interest in the Collateral which
shall remain in effect until terminated in accordance with Section 22.
SECTION 3 PERFECTION PROCEDURES.
(a) FINANCING STATEMENTS, ETC. The Borrower shall execute and
deliver to the Lender concurrently with the execution of this Agreement, and
at any time and from time to time thereafter, all financing statements,
continuation financing statements, termination statements, security
agreements, chattel mortgages, assignments, patent, copyright and trademark
collateral assignments, fixture filings, warehouse receipts, documents of
title, affidavits, reports, notices,
5.
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schedules of account, letters of authority and all other documents and
instruments, in form satisfactory to the Lender (the "Financing Statements"),
and take all other action, as the Lender may request, to perfect and continue
perfected, maintain the priority of or provide notice of the Lender's
security interest in the Collateral and to accomplish the purposes of this
Agreement.
(b) CERTAIN AGENTS. Any third person at any time and from time
to time holding all or any portion of the Collateral shall be deemed to, and
shall, hold the Collateral as the agent of, and as pledge holder for, the
Lender. At any time and from time to time, the Lender may give notice to any
third person holding all or any portion of the Collateral that such third
person is holding the Collateral as the agent of, and as pledge holder for,
the Lender.
SECTION 4 REPRESENTATIONS AND WARRANTIES. In addition to the
representations and warranties of the Borrower set forth in the Credit
Agreement, which are incorporated herein by this reference, the Borrower
represents and warrants to the Lender that:
(a) LOCATION OF CHIEF EXECUTIVE OFFICE AND COLLATERAL. The
Borrower's chief executive office and principal place of business is located
at the address set forth in Schedule 1, and all other locations where the
Borrower conducts business or Collateral is kept are set forth in Schedule 1.
(b) LOCATIONS OF BOOKS. All locations where Books pertaining to
the Rights to Payment are kept, including all equipment necessary for
accessing such Books and the names and addresses of all service bureaus,
computer or data processing companies and other Persons keeping any Books or
collecting Rights to Payment for the Borrower, are set forth in Schedule 1.
(c) TRADE NAMES AND TRADE STYLES. All trade names and trade
styles under which the Borrower presently conducts its business operations
are set forth in Schedule 1, and, except as set forth in Schedule 1, the
Borrower has not, at any time in the past: (i) been known as or used any
other corporate, trade or fictitious name; (ii) changed its name; (iii) been
the surviving or resulting corporation in a merger or consolidation; or (iv)
acquired through asset purchase or otherwise any business of any Person.
(d) OWNERSHIP OF COLLATERAL. The Borrower is, and, except as
permitted by Section 5(i), will continue to be, the sole and complete owner
of the Collateral (or, in the case of after-acquired Collateral, at the time
the Borrower acquires rights in such Collateral, will be the sole and
complete owner thereof), free from any Lien other than Permitted Liens.
(e) ENFORCEABILITY; PRIORITY OF SECURITY INTEREST. (i) This
Agreement creates a security interest which is enforceable against the
Collateral in which the Borrower now has rights and will create a security
interest which is enforceable against the Collateral in which the Borrower
hereafter acquires rights at the time the Borrower acquires any such rights;
and (ii) the Lender has a perfected and first priority security interest in
the Collateral, in which the Borrower now has rights, and will have a
perfected and first priority security interest in the Collateral in which the
Borrower hereafter acquires rights at the time the Borrower acquires any such
rights, in each case securing the payment and performance of the Secured
Obligations.
6.
<PAGE>
(f) OTHER FINANCING STATEMENTS. Other than (i) Financing
Statements disclosed to the Lender and (ii) Financing Statements in favor of
the Lender, no effective Financing Statement naming the Borrower as debtor,
assignor, grantor, mortgagor, pledgor or the like and covering all or any
part of the Collateral is on file in any filing or recording office in any
jurisdiction.
(g) RIGHTS TO PAYMENT.
(i) The Rights to Payment represent valid, binding and
enforceable obligations of the account debtors or other Persons obligated
thereon, representing undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in any documents related
thereto, and are and will be genuine, free from Liens, and not subject to any
adverse claims, counterclaims, setoffs, defaults, disputes, defenses,
discounts, retainages, holdbacks or conditions precedent of any kind of
character, except to the extent reflected by the Borrower's reserves for
uncollectible Rights to Payment or to the extent, if any, that such account
debtors or other Persons may be entitled to normal and ordinary course trade
discounts, returns, adjustments and allowances in accordance with Section
5(m), or as otherwise disclosed to the Lender in writing;
(ii) to the best of the Borrower's knowledge and belief, all
account debtors and other obligors on the Rights to Payment are solvent and
generally paying their debts as they come due;
(iii) all Rights to Payment comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable any federal or state consumer credit laws;
(iv) the Borrower has not assigned any of its rights under the
Rights to Payment except as provided in this Agreement or as set forth in the
other Loan Documents;
(v) all statements made, all unpaid balances and all other
information in the Books and other documentation relating to the Rights to
Payment are true and correct and in all respects what they purport to be; and
(vi) the Borrower has no knowledge of any fact or circumstance
which would impair the validity or collectibility of any of the Rights to
Payment.
(h) INVENTORY. No Inventory is stored with any bailee,
warehouseman or similar Person, nor has any Inventory been consigned to the
Borrower or consigned by the Borrower to any Person or is held by the
Borrower for any Person under any "bill and hold" or other arrangement,
except as set forth in Schedule 1.
(i) INTELLECTUAL PROPERTY.
(i) Except as set forth in Schedule 1, the Borrower (directly or
through any Subsidiary) does not own, possess or use under any licensing
arrangement any patents, copyrights, trademarks, service marks or trade names,
nor is there currently pending before any
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governmental authority any application for registration of any patent,
copyright, trademark, service mark or trade name;
(ii) all patents, copyrights, trademarks, service marks and trade
names are subsisting and have not been adjudged invalid or unenforceable in
whole or in part;
(iii) all maintenance fees required to be paid on account of any
patents have been timely paid for maintaining such patents in force, and, to
the best of the Borrower's knowledge, each of the patents is valid and
enforceable and the Borrower has notified the Lender in writing of all prior
art (including public uses and sales) of which it is aware;
(iv) to the best of the Borrower's knowledge after due inquiry, no
material infringement or unauthorized use presently is being made of any
Intellectual Property Collateral by any Person;
(v) the Borrower is the sole and exclusive owner of the
Intellectual Property Collateral and the past, present and contemplated
future use of such Intellectual Property Collateral by the Borrower has not,
does not and will not infringe or violate any right, privilege or license
agreement of or with any other Person; and
(vi) the Borrower owns, has material rights under, is a party to,
or an assignee of a party to all material licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
trade names and all other Intellectual Property Collateral necessary to
continue to conduct its business as heretofore conducted.
(j) EQUIPMENT.
(i) None of the Equipment or other Collateral is affixed to real
property, except Collateral with respect to which the Borrower has supplied
the Lender with all information and documentation necessary to make all
fixture filings required to perfect and protect the priority of the Lender's
security interest in all such Collateral which may be fixtures as against all
Persons having an interest in the premises to which such property may be
affixed; and
(ii) none of the Equipment is leased from or to any Person, except
as set forth at Schedule 1 or as otherwise disclosed to the Lender.
(k) DEPOSIT ACCOUNTS. The names and addresses of all financial
institutions at which the Borrower maintains its Deposit Accounts, and the
account numbers and account names of such Deposit Accounts, are set forth in
SCHEDULE 1.
(l) INVESTMENT PROPERTY; INSTRUMENTS. All securities accounts of
Borrower and other Investment Property of Borrower are set forth in SCHEDULE
1, and all Instruments held by Borrower are also set forth in SCHEDULE 1. No
Account Control Agreements exist with respect to any Investment Property
other than any Account Control Agreements in favor of the Lender.
SECTION 5 COVENANTS. In addition to the covenants of the Borrower set
forth in the Credit Agreement, which are incorporated herein by this reference,
so long as any of the
8.
<PAGE>
Secured Obligations remain unsatisfied or the Lender shall have any
Commitment, the Borrower agrees that:
(a) DEFENSE OF COLLATERAL. The Borrower will appear in and
defend any action, suit or proceeding which may affect to a material extent
its title to, or right or interest in, or the Lender's right or interest in,
the Collateral.
(b) PRESERVATION OF COLLATERAL. The Borrower will do and perform
all reasonable acts that may be necessary and appropriate to maintain,
preserve and protect the Collateral.
(c) COMPLIANCE WITH LAWS, ETC. The Borrower will comply with all
material laws, regulations and ordinances, and all policies of insurance,
relating to the possession, operation, maintenance and control of the
Collateral.
(d) LOCATION OF BOOKS AND CHIEF EXECUTIVE OFFICE. The Borrower
will: (i) keep all Books pertaining to the Rights to Payment at the
locations set forth in Schedule 1; and (ii) give at least 30 days' prior
written notice to the Lender of (A) any changes in any such location where
Books pertaining to the Rights to Payment are kept, including any change of
name or address of any service bureau, computer or data processing company or
other Person preparing or maintaining any Books or collecting Rights to
Payment for the Borrower or (B) any changes in the location of the Borrower's
chief executive office or principal place of business.
(e) LOCATION OF COLLATERAL. The Borrower will: (i) keep the
Collateral at the locations set forth in Schedule 1 and not remove the
Collateral from such locations (other than disposals of Collateral permitted
by subsection (i)) except upon at least 30 days' prior written notice of any
removal to the Lender; and (ii) give the Lender at least 30 days' prior
written notice of any change in the locations set forth in Schedule 1.
(f) CHANGE IN NAME, IDENTITY OR STRUCTURE. The Borrower will
give at least 30 days' prior written notice to the Lender of (i) any change
in name, (ii) any changes in, additions to or other modifications of its
trade names and trade styles set forth in Schedule 1, and (iii) any changes
in its identity or structure in any manner which might make any Financing
Statement filed hereunder incorrect or misleading.
(g) MAINTENANCE OF RECORDS. The Borrower will keep separate,
accurate and complete Books with respect to the Collateral, disclosing the
Lender's security interest hereunder.
(h) INVOICING OF SALES. The Borrower will invoice all of its
sales upon forms customary in the industry and to maintain proof of delivery
and customer acceptance of goods.
(i) DISPOSITION OF COLLATERAL. The Borrower will not surrender
or lose possession of (other than to the Lender), sell, lease, rent, or
otherwise dispose of or transfer any of the Collateral or any right or
interest therein, except for sales of inventory in the ordinary course of
business or to the extent permitted by the Loan Documents; PROVIDED that no
such disposition or transfer of Investment Property or Instruments shall be
permitted while any Event of Default exists.
9.
<PAGE>
(j) LIENS. The Borrower will keep the Collateral free of all
Liens except Permitted Liens.
(k) EXPENSES. The Borrower will pay all expenses of protecting,
storing, warehousing, insuring, handling and shipping the Collateral.
(l) LEASED PREMISES. At the Lender's request, the Borrower will
obtain from each Person from whom the Borrower leases any premises at which
any Collateral is at any time present such subordination, waiver, consent and
estoppel agreements as the Lender may require, in form and substance
satisfactory to the Lender.
(m) RIGHTS TO PAYMENT. The Borrower will:
(i) with such frequency as the Lender may require, furnish to the
Lender full and complete reports, in form and substance satisfactory to the
Lender, with respect to the Accounts, including information as to
concentration, aging, identity of account debtors, letters of credit securing
Accounts, disputed Accounts and other matters, as the Lender shall request;
(ii) give only normal discounts, allowances and credits as to
Accounts and other Rights to Payment, in the ordinary course of business,
according to normal trade practices utilized by the Borrower in the past, and
enforce all Accounts and other Rights to Payment strictly in accordance with
their terms, and take all such action to such end as may from time to time be
reasonably requested by the Lender, except that the Borrower may grant any
extension of the time for payment or enter into any agreement to make a
rebate or otherwise to reduce the amount owing on or with respect to, or
compromise or settle for less than the full amount thereof, any Account or
other Right to Payment, in the ordinary course of business, according to
normal trade practices utilized by the Borrower in the past, and where the
amount involved does not exceed $10,000 or where the Account or Right to
Payment does not exceed $10,000 or would not be materially impaired;
(iii) if any discount, allowance, credit, extension of time for
payment, agreement to make a rebate or otherwise to reduce the amount owing
on, or compromise or settle, an Account or other Right to Payment exists or
occurs, or if, to the knowledge of the Borrower, any dispute, setoff, claim,
counterclaim or defense exists or has been asserted or threatened with
respect to an Account or other Right to Payment, disclose such fact fully to
the Lender in the Books relating to such Account or other Right to Payment
and in connection with any invoice or report furnished by the Borrower to the
Lender relating to such Account or other Right to Payment;
(iv) if any Accounts arise from contracts with the United States
or any department, agency or instrumentality thereof, immediately notify the
Lender thereof and execute any documents and instruments and take any other
steps requested by the Lender in order that all monies due and to become due
thereunder shall be assigned to the Lender and notice thereof given to the
federal authorities under the Federal Assignment of Claims Act;
(v) in accordance with its sound business judgment perform and
comply in all material respects with its obligations in respect of the
Accounts and other Rights to Payment;
10.
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(vi) upon the request of the Lender (A) at any time, notify all or
any designated portion of the account debtors and other obligors on the
Rights to Payment of the security interest hereunder, and (B) upon the
occurrence of an Event of Default, notify the account debtors and other
obligors on the Rights to Payment or any designated portion thereof that
payment shall be made directly to the Lender or to such other Person or
location as the Lender shall specify; and
(vii) upon the occurrence of any Event of Default, establish such
lockbox or similar arrangements for the payment of the Accounts and other
Rights to Payment as the Lender shall require.
(n) INSTRUMENTS, INVESTMENT PROPERTY, ETC. Upon the request of
the Lender, the Borrower will (i) immediately deliver to the Lender, or an
agent designated by them, appropriately endorsed or accompanied by
appropriate instruments of transfer or assignment, all Instruments,
Documents, Chattel Paper and certificated securities with respect to any
Investment Property, all letters of credit, and all other Rights to Payment
at any time evidenced by promissory notes, trade acceptances or other
instruments, (ii) cause any securities intermediaries to show on their books
that the Lender is the entitlement holder with respect to any Investment
Property, and/or obtain Account Control Agreements in favor of the Lender
from such securities intermediaries, in form and substance satisfactory to
the Lender, with respect to any Investment Property, as requested by Lender,
(iii) mark all Documents and Chattel Paper with such legends as the Lender
shall reasonably specify, and (iv) obtain consents from any letter of credit
issuers with respect to the assignment to the Agent of any Letter of Credit
Proceeds.
(o) DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS. The Borrower will
give the Lender immediate notice of the establishment of any new Deposit
Account and any new securities account with respect to any Investment
Property.
(p) INVENTORY. The Borrower will:
(i) at such times as the Lender shall request, prepare and
deliver to the Lender a report of all Inventory, in form and substance
satisfactory to the Lender;
(ii) upon the request of the Lender, take a physical listing of
the Inventory and promptly deliver a copy of such physical listing to the
Lender; and
(iii) not store any Inventory with a bailee, warehouseman or
similar Person or on premises leased to the Borrower, nor dispose of any
Inventory on a bill-and-hold, guaranteed sale, sale and return, sale on
approval, consignment or similar basis, nor acquire any Inventory from any
Person on any such basis.
(q) EQUIPMENT. The Borrower will, upon the Lender's request,
deliver to the Lender a report of each item of Equipment, in form and
substance reasonably satisfactory to the Lender.
11.
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(r) INTELLECTUAL PROPERTY COLLATERAL. The Borrower will:
(i) not enter into any agreement (including any license or
royalty agreement) pertaining to any Intellectual Property Collateral,
without the prior written consent of the Lender;
(ii) not allow or suffer any Intellectual Property Collateral to
become abandoned, nor any registration thereof to be terminated, forfeited,
expired or dedicated to the public;
(iii) promptly give the Lender notice of any rights the Borrower
may obtain to any new patentable inventions, copyrightable works or other new
Intellectual Property Collateral, prior to the filing of any application for
registration thereof; and
(iv) diligently prosecute all applications for patents, copyrights
and trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for certificate
of correction and like matters as shall be reasonable and appropriate in
accordance with prudent business practice, and promptly and timely pay any
and all maintenance, license, registration and other fees, taxes and expenses
incurred in connection with any Intellectual Property Collateral.
(s) NOTICES, REPORTS AND INFORMATION. The Borrower will (i)
notify the Lender of any other modifications of or additions to the
information contained in SCHEDULE 1; (ii) notify the Lender of any material
claim made or asserted against the Collateral by any Person and of any change
in the composition of the Collateral or other event which could materially
adversely affect the value of the Collateral or the Lender's Lien thereon;
(iii) furnish to the Lender such statements and schedules further identifying
and describing the Collateral and such other reports and other information in
connection with the Collateral as the Lender may reasonably request, all in
reasonable detail; and (iv) upon request of the Lender make such demands and
requests for information and reports as the Borrower is entitled to make in
respect of the Collateral.
SECTION 6 RIGHTS TO PAYMENT.
(a) COLLECTION OF RIGHTS TO PAYMENT. Until the Lender exercises
its rights hereunder to collect Rights to Payment, the Borrower shall
endeavor in the first instance diligently to collect all amounts due or to
become due on or with respect to the Rights to Payment. At the request of
the Lender, upon and after the occurrence of any Event of Default, all
remittances received by the Borrower shall be held in trust for the Lender
and, in accordance with the Lender's instructions, remitted to the Lender or
deposited to an account with the Lender in the form received (with any
necessary endorsements or instruments of assignment or transfer).
(b) INVESTMENT PROPERTY AND INSTRUMENTS. At the request of the
Lender, upon and after the occurrence of any Event of Default, the Lender shall
be entitled to receive all distributions and payments of any nature with respect
to any Investment Property or Instruments, and all such distributions or
payments received by the Borrower shall be held in trust for the Lender and, in
accordance with the Lender's instructions, remitted to the Lender or deposited
to an account with the Lender in the form received (with any necessary
endorsements or instruments of assignment or transfer). Following the
occurrence of an Event of Default any
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such distributions and payments with respect to any Investment Property held
in any securities account shall be held and retained in such securities
account, in each case as part of the Collateral hereunder. Additionally, the
Lender shall have the right, upon the occurrence of an Event of Default,
following prior written notice to the Borrower, to vote and to give consents,
ratifications and waivers with respect to any Investment Property and
Instruments, and to exercise all rights of conversion, exchange, subscription
or any other rights, privileges or options pertaining thereto, as if the
Lender was the absolute owner thereof; PROVIDED that the Lender shall have no
duty to exercise any of the foregoing rights afforded to them and shall not
be responsible to the Borrower or any other Person for any failure to do so
or delay in doing so.
SECTION 7 AUTHORIZATION; LENDER APPOINTED ATTORNEY-IN-FACT. The
Lender shall have the right to, in the name of the Borrower, or in the name
of the Lender or otherwise, without notice to or assent by the Borrower, and
the Borrower hereby constitutes and appoints the Lender (and any of Lender's
officers, employees or agents designated by Lender) as the Borrower's true
and lawful attorney-in-fact, with full power and authority to:
(i) sign any of the Financing Statements which must be executed
or filed to perfect or continue perfected, maintain the priority of or
provide notice of the Lender's security interest in the Collateral;
(ii) Upon the occurrence of an Event of Default:
(A) take possession of and endorse any notes, acceptances,
checks, drafts, money orders or other forms of payment or security and
collect any Proceeds of any Collateral;
(B) sign and endorse any invoice or bill of lading relating
to any of the Collateral, warehouse or storage receipts, drafts against
customers or other obligors, assignments, notices of assignment,
verifications and notices to customers or other obligors;
(C) send requests for verification of Rights to Payment to
the customers or other obligors of the Borrower;
(D) contact, or direct the Borrower to contact, all account
debtors and other obligors on the Rights to Payment and instruct such account
debtors and other obligors to make all payments directly to the Lender;
(E) assert, adjust, sue for, compromise or release any claims
under any policies of insurance;
(F) exercise dominion and control over, and refuse to permit
further withdrawals from, Deposit Accounts maintained with any financial
institution or other Person;
(G) notify each Person maintaining lockbox or similar
arrangements for the payment of the Rights to Payment to remit all amounts
representing collections on the Rights to Payment directly to the Lender;
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(H) ask, demand, collect, receive and give acquittances and
receipts for any and all Rights to Payment, enforce payment or any other
rights in respect of the Rights to Payment and other Collateral, grant
consents, agree to any amendments, modifications or waivers of the agreements
and documents governing the Rights to Payment and other Collateral, and
otherwise file any claims, take any action or institute, defend, settle or
adjust any actions, suits or proceedings with respect to the Collateral, as
the Lender may deem necessary or desirable to maintain, preserve and protect
the Collateral, to collect the Collateral or to enforce the rights of the
Lender with respect to the Collateral;
(I) execute any and all applications, documents, papers and
instruments necessary for the Lender to use the Intellectual Property
Collateral and grant or issue any exclusive or non-exclusive license or
sublicense with respect to any Intellectual Property Collateral;
(J) execute any and all endorsements, assignments or other
documents and instruments necessary to sell, lease, assign, convey or
otherwise transfer title in or dispose of the Collateral; and
(K) execute and deliver to any securities intermediary or
other Person any entitlement order, Account Control Agreement or other
notice, document or instrument which the Lender may deem necessary of
advisable to maintain, protect, realize upon and preserve the Investment
Property and the Lender's security interest therein; and
(L) execute any and all such other documents and instruments,
and do any and all acts and things for and on behalf of the Borrower, which
the Lender may deem necessary or advisable to maintain, protect, realize upon
and preserve the Collateral and the Lender's security interest therein and to
accomplish the purposes of this Agreement.
The foregoing power of attorney is coupled with an interest and
irrevocable so long as the Lender has any Commitment or the Secured
Obligations have not been paid and performed in full. The Borrower hereby
ratifies, to the extent permitted by law, all that the Lender shall lawfully
and in good faith do or cause to be done by virtue of and in compliance with
this Section 7.
SECTION 8 LENDER PERFORMANCE OF BORROWER OBLIGATIONS. The Lender
may perform or pay any obligation which the Borrower has agreed to perform or
pay under or in connection with this Agreement, and the Borrower shall
reimburse the Lender on demand for any amounts paid by the Lender pursuant to
this Section 8.
SECTION 9 LENDER'S DUTIES. Notwithstanding any provision contained
in this Agreement, the Lender shall have no duty to exercise any of the
rights, privileges or powers afforded to them and shall not be responsible to
the Borrower or any other Person for any failure to do so or delay in doing
so. Beyond the exercise of reasonable care to assure the safe custody of
Collateral in the Lender's possession and the accounting for moneys actually
received by the Lender hereunder, the Lender shall have no duty or liability
to exercise or preserve any rights, privileges or powers pertaining to the
Collateral.
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SECTION 10 REMEDIES.
(a) REMEDIES. Upon the occurrence of any Event of Default, the
Lender shall have, in addition to all other rights and remedies granted to
them in this Agreement, the Credit Agreement or any other Loan Document, all
rights and remedies of a secured party under the UCC and other applicable
laws. Without limiting the generality of the foregoing, the Borrower agrees
that:
(i) The Lender may peaceably and without notice enter any
premises of the Borrower, take possession of any the Collateral, remove or
dispose of all or part of the Collateral on any premises of the Borrower or
elsewhere, or, in the case of Equipment, render it nonfunctional, and
otherwise collect, receive, appropriate and realize upon all or any part of
the Collateral, and demand, give receipt for, settle, renew, extend,
exchange, compromise, adjust, or sue for all or any part of the Collateral,
as the Lender may determine.
(ii) The Lender may require the Borrower to assemble all or any
part of the Collateral and make it available to the Lender at any place and
time designated by the Lender.
(iii) The Lender may use or transfer any of the Borrower's rights
and interests in any Intellectual Property Collateral, by license, by
sublicense (to the extent permitted by an applicable license) or otherwise,
on such conditions and in such manner as the Lender may determine.
(iv) The Lender may secure the appointment of a receiver of the
Collateral or any part thereof (to the extent and in the manner provided by
applicable law).
(v) The Lender may withdraw (or cause to be withdrawn) any and
all funds from any Deposit Accounts or securities accounts.
(vi) The Lender may sell, resell, lease, use, assign, transfer or
otherwise dispose of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing (utilizing in
connection therewith any of the Borrower's assets, without charge or liability
to the Lender therefor) at public or private sale, by one or more contracts, in
one or more parcels, at the same or different times, for cash or credit, or for
future delivery without assumption of any credit risk, all as the Lender deems
advisable; PROVIDED, HOWEVER, that the Borrower shall be credited with the net
proceeds of sale only when such proceeds are finally collected by the Lender.
The Lender shall have the right upon any such public sale, and, to the extent
permitted by law, upon any such private sale, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption, which
right or equity of redemption the Borrower hereby releases, to the extent
permitted by law. The Borrower hereby agrees that the sending of notice by
ordinary mail, postage prepaid, to the address of the Borrower set forth in the
Credit Agreement, of the place and time of any public sale or of the time after
which any private sale or other intended disposition is to be made, shall be
deemed reasonable notice thereof if such notice is sent ten days prior to the
date of such sale
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or other disposition or the date on or after which such sale or other
disposition may occur, PROVIDED that the Lender may provide the Borrower
shorter notice or no notice, to the extent permitted by the UCC or other
applicable law. The Borrower recognizes that the Lender may be unable to
make a public sale of any or all of the Investment Property, by reason of
prohibitions contained in applicable securities laws or otherwise, and
expressly agrees that a private sale to a restricted group of purchasers for
investment and not with a view to any distribution thereof shall be
considered a commercially reasonable sale.
(b) LICENSE. For the purpose of enabling the Lender to exercise
its rights and remedies under this Section 10 or otherwise in connection with
this Agreement, the Borrower hereby grants to the Lender an irrevocable,
non-exclusive and assignable license (exercisable without payment or royalty
or other compensation to the Borrower) to use, license or sublicense any
Intellectual Property Collateral, except to the extent a grant of such
license would violate the terms of an existing agreement to which the
Borrower is a party.
APPLICATION OF PROCEEDS. The cash proceeds actually received from
the sale or other disposition or collection of Collateral, and any other
amounts received in respect of the Collateral the application of which is not
otherwise provided for herein, shall be applied be applied (i) first, to any
fees, costs, expenses and other amounts (other than principal and interest)
then due to the Lender under the Loan Documents; (ii) second, to accrued and
unpaid interest due the Lender; and (iii) third, to principal due the Lender.
Any surplus thereof which exists after payment and performance in full of
the Secured Obligations shall be promptly paid over to the Borrower or
otherwise disposed of in accordance with the UCC or other applicable law.
The Borrower shall remain liable to the Lender for any deficiency which
exists after any sale or other disposition or collection of Collateral.
SECTION 11 CERTAIN WAIVERS. The Borrower waives, to the fullest
extent permitted by law, (i) any right of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any,
of marshalling of the Collateral or other collateral or security for the
Secured Obligations; (ii) any right to require the Lender (A) to proceed
against any Person, (B) to exhaust any other collateral or security for any
of the Secured Obligations, (C) to pursue any remedy in the Lender's power,
or (D) to make or give any presentments, demands for performance, notices of
nonperformance, protests, notices of protests or notices of dishonor in
connection with any of the Collateral; and (iii) all claims, damages, and
demands against the Lender arising out of the repossession, retention, sale
or application of the proceeds of any sale of the Collateral
SECTION 12 NOTICES. All notices or other communications hereunder
shall be given in the manner and to the addresses specified in the Credit
Agreement. All such notices and other communications shall be effective (i)
if delivered by hand, when delivered; (ii) if sent by mail, upon the earlier
of the date of receipt or five Business Days after deposit in the mail, first
class (or air mail, with respect to communications to be sent to or from the
United States); and (iii) if sent by facsimile transmission, when sent.
SECTION 13 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
the Lender to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right,
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remedy, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights and
remedies under this Agreement are cumulative and not exclusive of any rights,
remedies, powers and privileges that may otherwise be available to the Lender.
SECTION 14 COSTS AND EXPENSES; INDEMNIFICATION; OTHER CHARGES.
(a) COSTS AND EXPENSES. The Borrower agrees to pay on demand:
(i) the reasonable out-of-pocket costs and expenses of the Lender
and any of its Affiliates, and the reasonable fees and disbursements of
counsel to the Lender, in connection with the negotiation, preparation,
execution, delivery and administration of this Agreement (but, together with
the costs associated with the preparation of the Loan Documents, not in
excess of $50,000), and any amendments, modifications or waivers of the terms
thereof, and the custody of the Collateral;
(ii) all title, appraisal (including the allocated costs of
internal appraisal services), survey, audit, consulting, search, recording,
filing and similar costs, fees and expenses incurred or sustained by the
Lender or any of its Affiliates in connection with this Agreement or the
Collateral; and
(iii) all costs and expenses of the Lender and its Affiliates, and
the reasonable fees and disbursements of counsel, in connection with the
enforcement or attempted enforcement of, and preservation of any rights or
interests under, this Agreement, including in any out-of-court workout or
other refinancing or restructuring or in any bankruptcy case, and the
protection, sale or collection of, or other realization upon, any of the
Collateral, including all expenses of taking, collecting, holding, sorting,
handling, preparing for sale, selling, or the like, and other such expenses
of sales and collections of Collateral, and any and all losses, costs and
expenses sustained by the Lender as a result of any failure by the Borrower
to perform or observe its obligations contained herein.
(b) INDEMNIFICATION. The Borrower hereby agrees to indemnify the
Lender, any Affiliate thereof, and their respective directors, officers,
employees, agents, counsel and other advisors (each an "Indemnified Person")
against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including
the reasonable fees and disbursements of counsel to an Indemnified Person,
which may be imposed on, incurred by, or asserted against any Indemnified
Person, in any way relating to or arising out of this Agreement or the
transactions contemplated hereby or any action taken or omitted to be taken
by it hereunder (the "Indemnified Liabilities"); PROVIDED that the Borrower
shall not be liable to any Indemnified Person for any portion of such
Indemnified Liabilities to the extent they are found by a final decision of a
court of competent jurisdiction to have resulted from such Indemnified
Person's gross negligence or willful misconduct. If and to the extent that
the foregoing indemnification is for any reason held unenforceable, the
Borrower agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
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(c) OTHER CHARGES. The Borrower agrees to indemnify the Lender
against and hold it harmless from any and all present and future stamp,
transfer, documentary and other such taxes, levies, fees, assessments and
other charges made by any jurisdiction by reason of the execution, delivery,
performance and enforcement of this Agreement.
(d) INTEREST. Any amounts payable to the Lender under this
Section 14 or otherwise under this Agreement if not paid upon demand shall
bear interest from the date of such demand until paid in full, at the rate of
interest set forth in Section 2.04 of the Credit Agreement.
SECTION 15 BINDING EFFECT. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by the Borrower, the Lender and
their respective successors and assigns.
SECTION 16 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR
PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN
RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER
THAN CALIFORNIA.
SECTION 17 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains
the entire agreement of the parties with respect to the subject matter hereof
and shall not be amended except by the written agreement of the parties as
provided in the Credit Agreement.
SECTION 18 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of
this Agreement shall be prohibited by or invalid under any such law or
regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed
modified to conform to the minimum requirements of such law or regulation,
or, if for any reason it is not deemed so modified, it shall be ineffective
and invalid only to the extent of such prohibition or invalidity without
affecting the remaining provisions of this Agreement, or the validity or
effectiveness of such provision in any other jurisdiction.
SECTION 19 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the
same agreement.
SECTION 20 INCORPORATION OF PROVISIONS OF THE CREDIT AGREEMENT. To
the extent the Credit Agreement contains provisions of general applicability
to the Loan Documents, such provisions are incorporated herein by this
reference.
SECTION 21 NO INCONSISTENT REQUIREMENTS. The Borrower acknowledges
that this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
agrees that all such
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covenants, terms and provisions are cumulative and all shall be performed and
satisfied in accordance with their respective terms.
SECTION 22 TERMINATION. Upon termination of the Commitment of the
Lender and payment and performance in full of all Secured Obligations, this
Agreement shall terminate and the Lender shall promptly execute and deliver
to the Borrower such documents and instruments reasonably requested by the
Borrower as shall be necessary to evidence termination of all security
interests given by the Borrower to the Lender hereunder; PROVIDED, HOWEVER,
that the obligations of the Borrower under Section 14 shall survive such
termination.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE BORROWER
AMERIGON INCORPORATED, a California
corporation
By /s/ LON E. BELL
---------------------------------------
Title:
THE LENDER
BIG STAR INVESTMENTS LLC
By /s/ JOHN W. CLARK
---------------------------------------
Title:
19.
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PATENT AND TRADEMARK SECURITY AGREEMENT
THIS PATENT AND TRADEMARK SECURITY AGREEMENT (this "Agreement"),
dated as of March 29, 1999, is made between Amerigon Incorporated, a
California corporation ("Borrower"), and Big Star Investments LLC, a Delaware
limited liability company ("Lender").
Borrower and Lender are parties to a Security Agreement dated as of
March 29, 1999 (as amended, modified, renewed or extended from time to time,
the "Security Agreement"), which Security Agreement provides, among other
things, for the grant by Borrower to Lender of a security interest in,
certain of Borrower's property and assets, including, without limitation, its
patents and patent applications, its trademarks, service marks and trade
names, and its applications for registration of such trademarks, service
marks and trade names. Pursuant to the Security Agreement, Borrower has
agreed to execute and deliver this Agreement to Lender for filing with the
United States Patent and Trademark Office (the "PTO") (and any other relevant
recording systems in any domestic or foreign jurisdiction), and as further
evidence of and to effectuate such assignment of and grant of a security
interest in such patents and patent applications, trademarks, service marks
and trade names, and applications for registration of such trademarks,
service marks and trade names, and the other general intangibles described
herein. Accordingly, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
(a) All capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to them in the
Security Agreement.
(b) In this Agreement, (i) the meaning of defined terms shall be
equally applicable to both the singular and plural forms of the terms
defined; and (ii) the captions and headings are for convenience of reference
only and shall not affect the construction of this Agreement.
SECTION 2. ASSIGNMENT AND GRANT OF SECURITY INTEREST.
(a) As security for the payment and performance of the Secured
Obligations (as defined in the Security Agreement), Borrower hereby assigns,
transfers and conveys and grants a security interest in and mortgage to
Lender, for security purposes, all of Borrower's right, title and interest
in, to and under the following property, whether now existing or owned or
hereafter acquired, developed or arising (collectively, the "Intellectual
Property Collateral"):
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses (including, without limitation, such patents and
patent applications as described in SCHEDULE A hereto), all rights to sue for
past, present or future infringement thereof, all rights arising therefrom
and pertaining thereto and all reissues, reexaminations, divisions,
continuations, renewals, extensions and continuations-in-part thereof;
<PAGE>
(ii) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration
of such trademarks, service marks and trade names, all licenses relating to
any of the foregoing and all income and royalties with respect to any
licenses (including, without limitation, such marks, names and applications
as described in SCHEDULE B hereto), whether registered or unregistered and
wherever registered, all rights to sue for past, present or future
infringement or unconsented use thereof, all rights arising therefrom and
pertaining thereto and all reissues, extensions and renewals thereof;
(iii) the entire goodwill of or associated with the businesses now
or hereafter conducted by Borrower connected with and symbolized by any of
the aforementioned properties and assets;
(iv) all general intangibles (as defined in the UCC) and all
intangible intellectual or other similar property of the Borrower of any kind
or nature, associated with or arising out of any of the aforementioned
properties and assets and not otherwise described above; and
(v) all products and proceeds of any and all of the foregoing.
(b) This Agreement shall create a continuing security interest in
the Intellectual Property Collateral which shall remain in effect until
terminated in accordance with Section 17 hereof.
SECTION 3. FURTHER ASSURANCES; APPOINTMENT OF LENDER AS
ATTORNEY-IN-FACT. Borrower at its expense shall execute and deliver, or
cause to be executed and delivered, to Lender any and all documents and
instruments, in form and substance satisfactory to Lender, and take any and
all action, which Lender may reasonably request from time to time, to perfect
and continue perfected, maintain the priority of or provide notice of
Lender's security interest in the Intellectual Property Collateral and to
accomplish the purposes of this Agreement. Lender shall have the right to,
in the name of the Borrower, or in the name of Lender or otherwise, without
notice to or assent by the Borrower, and the Borrower hereby irrevocably
constitutes and appoints Lender (and any of Lender's officers or employees or
agents designated by Lender) as the Borrower's true and lawful
attorney-in-fact with full power and authority, (i) to sign the name of the
Borrower on all or any of such documents or instruments and perform all other
acts that Lender deems necessary or advisable in order to perfect or continue
perfected, maintain the priority or enforceability of or provide notice of
Lender's security interest in, the Intellectual Property Collateral, and (ii)
to execute any and all other documents and instruments, and to perform any
and all acts and things for and on behalf of the Borrower, which Lender may
deem necessary or advisable to maintain, preserve and protect the
Intellectual Property Collateral and to accomplish the purposes of this
Agreement, including (A) to defend, settle, adjust or (after the occurrence
of any Event of Default) institute any action, suit or proceeding with
respect to
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the Intellectual Property Collateral, and, after the occurrence of any Event
of Default, (B) to assert or retain any rights under any license agreement
for any of the Intellectual Property Collateral, including without limitation
any rights of the Borrower arising under Section 365(n) of the Bankruptcy
Code, and (C) after the occurrence of any Event of Default, to execute any
and all applications, documents, papers and instruments for Lender to use the
Intellectual Property Collateral, to grant or issue any exclusive or
non-exclusive license or sub-license with respect to any Intellectual
Property Collateral, and to assign, convey or otherwise transfer title in or
dispose of the Intellectual Property Collateral; PROVIDED, HOWEVER, that in
no event shall Lender have the unilateral power, prior to the occurrence and
continuation of an Event of Default, to assign any of the Intellectual
Property Collateral to any Person, including themselves, without the
Borrower's written consent. The foregoing shall in no way limit Lender's
rights and remedies upon or after the occurrence of an Event of Default. The
power of attorney set forth in this Section 3, being coupled with an
interest, is irrevocable, so long as this Agreement shall not have terminated
in accordance with Section 17.
SECTION 4. FUTURE RIGHTS. Except as otherwise expressly agreed
to in writing by Lender, if and when the Borrower shall obtain rights to any
new patentable inventions or any new trademarks, or become entitled to the
benefit of any of the foregoing, or obtain rights or benefits with respect to
any reissue, division, continuation, renewal, extension or
continuation-in-part of any patents or trademarks or, or any improvement of
any patent, the provisions of Section 2 shall automatically apply thereto and
the Borrower shall give to Lender prompt notice thereof. Borrower shall do
all things deemed necessary or advisable by Lender to ensure the validity,
perfection, priority and enforceability of the security interests of Lender
in such future acquired Intellectual Property Collateral. Borrower hereby
authorizes Lender to modify, amend, or supplement the Schedules hereto and to
reexecute this Agreement from time to time on Borrower's behalf and as its
attorney-in-fact to include any such future Intellectual Property Collateral
and to cause such reexecuted Agreement or such modified, amended or
supplemented Schedules to be filed with PTO.
SECTION 5. LENDER'S DUTIES. Notwithstanding any provision
contained in this Agreement, Lender shall have no duty to exercise any of the
rights, privileges or powers afforded to it and shall not be responsible to
the Borrower or any other Person for any failure to do so or delay in doing
so. Except for the accounting for moneys actually received by Lender
hereunder or in connection herewith, Lender shall have no duty or liability
to exercise or preserve any rights, privileges or powers pertaining to the
Intellectual Property Collateral.
SECTION 6. REPRESENTATIONS AND WARRANTIES. Borrower represents
and warrants to Lender that:
(a) A true and correct list of all of the existing Intellectual
Property Collateral consisting of United States patents and patent
applications and/or registrations owned by the Borrower, in whole or in part,
is set forth in SCHEDULE A.
(b) A true and correct list of all of the existing Intellectual
Property Collateral consisting of United States trademarks, trademark
registrations and/or applications owned by the Borrower, in whole or in part,
is set forth in SCHEDULE B.
(c) All patents, trademarks, service marks and trade names of
Borrower are subsisting and have not been adjudged invalid or unenforceable
in whole or in part.
(d) All maintenance fees at the large entity rate required to be
paid on account of any patents or trademarks of Borrower have been timely paid
for maintaining such patents and
3.
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trademarks in force, and, to the best of Borrower's knowledge, each of the
patents and trademarks constituting part of the Intellectual Property
Collateral is valid and enforceable.
(e) To the best of Borrower's knowledge after due inquiry, no
material infringement or unauthorized use presently is being made of any
Intellectual Property Collateral by any Person.
(f) Borrower is the sole and exclusive owner of the Intellectual
Property Collateral and the past, present and contemplated future use of such
Intellectual Property Collateral by Borrower has not, does not and will not
infringe or violate any right, privilege or license agreement of or with any
other Person.
SECTION 7. COVENANTS.
(a) Borrower will appear in and defend any action, suit or
proceeding which may affect to a material extent its title to, or Lender's
rights or interest in, the Intellectual Property Collateral.
(b) Borrower will not allow or suffer any Intellectual Property
Collateral to become abandoned, nor any registration thereof to be
terminated, forfeited, expired or dedicated to the public.
(c) Borrower will diligently prosecute all applications for
patents and trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for certificate
of correction and like matters as shall be reasonable and appropriate in
accordance with prudent business practice, and promptly pay any and all
maintenance, license, registration and other fees, taxes and expenses
incurred in connection with any Intellectual Property Collateral.
SECTION 8. LENDER'S RIGHTS AND REMEDIES.
(a) Lender shall have all rights and remedies available to it
under the Security Agreement, the other Loan Documents and applicable law
with respect to the security interests in any of the Intellectual Property
Collateral or any other collateral. Borrower agrees that such rights and
remedies include, but are not limited to, the right of Lender as a secured
party to sell or otherwise dispose of its collateral after default pursuant
to the UCC. Borrower agrees that Lender shall at all times have such royalty
free licenses, to the extent permitted by law and Borrower's existing
contracts, for any Intellectual Property Collateral that shall be reasonably
necessary to permit the exercise of any of Lender's rights or remedies upon
or after the occurrence of an Event of Default and shall additionally,
effective upon or after the occurrence of an Event of Default, have the right
to license and/or sublicense any Intellectual Property Collateral, whether
general, special or otherwise, and whether on an exclusive or a nonexclusive
basis, any of the Intellectual Property Collateral, throughout the world for
such term or terms, on such conditions, and in such manner, as Lender in its
discretion shall determine. In addition to and without limiting any of the
foregoing, upon the occurrence and during the continuance of an Event of
Default, Lender shall have the right but shall in no way be obligated to
bring suit, or to take such other action as Lender deems necessary or
advisable, in the name of the Borrower or Lender, to enforce or protect any
of the Intellectual Property Collateral, in which event the
4.
<PAGE>
Borrower shall, at the request of Lender, do any and all lawful acts and
execute any and all documents required by Lender in aid of such enforcement.
To the extent that Lender shall elect not to bring suit to enforce such
Intellectual Property Collateral, Borrower agrees to use all reasonable
measures and its diligent efforts, whether by action, suit, proceeding or
otherwise, to prevent the infringement, misappropriation or violations
thereof by others and for that purpose agrees diligently to maintain any
action, suit or proceeding against any Person necessary to prevent such
infringement, misappropriation or violation.
(b) The cash proceeds actually received from the sale or other
disposition or collection of Intellectual Property Collateral, and any other
amounts received in respect of the Intellectual Property Collateral the
application of which is not otherwise provided for herein, shall be applied
as provided in the Security Agreement.
SECTION 9. NOTICES. All notices or other communications
hereunder shall be in writing (including by facsimile transmission) shall be
mailed, sent or delivered in accordance with the Security Agreement at or to
their respective addresses or facsimile numbers set forth below their names
on the signature pages hereof, or at or to such other address or facsimile
number as shall be designated by any party in a written notice to the other
parties hereto. All such notices and other communications shall be effective
as provided in the Security Agreement.
SECTION 10. NO WAIVER; CUMULATIVE REMEDIES. No failure on the
part of Lender to exercise, and no delay in exercising, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, remedy, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights and remedies under this
Agreement are cumulative and not exclusive of any rights, remedies, powers
and privileges that may otherwise be available to Lender.
SECTION 11. COSTS AND EXPENSES; INDEMNITY.
(a) Borrower agrees to pay on demand all costs and expenses of
Lender, including without limitation all reasonable attorneys' fees, in
connection with the enforcement or attempted enforcement of, and preservation
of any rights or interests under, this Agreement, and the assignment, sale or
other disposal of any of the Intellectual Property Collateral.
(b) Borrower hereby agrees to indemnify Lender and any of its
affiliates, and their respective directors, officers, employees, agents, counsel
and other advisors (each an "Indemnified Person") against, and hold each of them
harmless from, any and all liabilities, obligations, losses, claims, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever, including, without limitation, reasonable attorneys'
fees and attorneys' fees incurred pursuant to Chapter 11 United States Code,
which may be imposed on, incurred by, or asserted against any Indemnified
Person, in any way relating to or arising out of this Agreement, including in
connection with any infringement or alleged infringement with respect to any
Intellectual Property Collateral, or any action taken or omitted to be taken by
it hereunder (the "Indemnified Liabilities"); PROVIDED that Borrower shall not
be liable to any Indemnified Person for any portion of such Indemnified
Liabilities to the extent they are found by a final decision of a court of
competent jurisdiction to have resulted from such
5.
<PAGE>
Indemnified Person's gross negligence or willful misconduct. If and to the
extent that the foregoing indemnification is for any reason held
unenforceable, Borrower agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
(c) Any amounts payable to Lender under this Section 11 or
otherwise under this Agreement if not paid upon demand shall bear interest
from the date of such demand until paid in full, at the rate of interest set
forth in the Note.
SECTION 12. BINDING EFFECT. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by Borrower, Lender and their
respective successors and assigns.
SECTION 13. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the law of the State of California, except
to the extent that the validity or perfection of the assignment and security
interests hereunder in respect of any Intellectual Property Collateral are
governed by federal law and except to the extent that Lender shall have
greater rights or remedies under federal law, in which case such choice of
California law shall not be deemed to deprive Lender of such rights and
remedies as may be available under federal law.
SECTION 14. AMENDMENT. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and no
amendment to this Agreement, or any waiver of any provision hereof, shall be
effective unless it is in writing and signed by Lender and (in the case of
any amendment) the Borrower.
SECTION 15. SEVERABILITY. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and
valid under all applicable laws and regulations. If, however, any provision
of this Agreement shall be prohibited by or invalid under any such law or
regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed
modified to conform to the minimum requirements of such law or regulation,
or, if for any reason it is not deemed so modified, it shall be ineffective
and invalid only to the extent of such prohibition or invalidity without
affecting the remaining provisions of this Agreement, or the validity or
effectiveness of such provision in any other jurisdiction.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 17. TERMINATION. Upon payment and performance in full of
all Secured Obligations, this Agreement shall terminate and Lender shall
promptly execute and deliver to Borrower such documents and instruments
reasonably requested by Borrower as shall be necessary to evidence termination
of all security interests given by Borrower to Lender hereunder, including
cancellation of this Agreement by written notice from Lender to the PTO;
PROVIDED, HOWEVER, that (i)the obligations of Borrower under Section 11 hereof
shall survive such termination and (ii) in the event a voluntary proceeding in
bankruptcy is filed by Borrower or an involuntary proceeding in bankruptcy is
filed against Borrower, this Agreement and
6.
<PAGE>
Lender's interest in the Intellectual Property Collateral created hereby
shall survive such proceeding.
SECTION 18. SECURITY AGREEMENT. Borrower acknowledges that the
rights and remedies of Lender with respect to the security interests in the
Intellectual Property Collateral granted hereby are more fully set forth in
the Security Agreement and the other Loan Documents and all such rights and
remedies are cumulative.
SECTION 19. NO INCONSISTENT REQUIREMENTS. Borrower acknowledges
that this Agreement and the Security Agreement may contain covenants and
other terms and provisions variously stated regarding the same or similar
matters, and the Borrower agrees that all such covenants, terms and
provisions are cumulative and all shall be performed and satisfied in
accordance with their respective terms.
SECTION 20. CONFLICTS. In the event of any conflict or
inconsistency between this Agreement and the Security Agreement, the terms of
this Agreement shall control.
7.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Patent and Trademark Security Agreement, as of the date first above written.
BORROWER:
AMERIGON INCORPORATED, a California
corporation
By /s/ LON E. BELL
-----------------------------------------
Name:
Title:
Address:
-------------------------------------------
-------------------------------------------
Attn:
--------------------------------------
Fax:
---------------------------------------
LENDER:
BIG STAR INVESTMENTS LLC
By /s/ JOHN W. CLARK
-----------------------------------------
Name:
Title:
Address:
-------------------------------------------
-------------------------------------------
Attn:
--------------------------------------
Fax:
---------------------------------------
8.
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF_______________)
On ___________ , before me, _____________, Notary Public, personally
appeared ___________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
_____________________________
Signature
[SEAL]
9.
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF_____________)
On ___________ , before me, _____________, Notary Public, personally
appeared ___________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
_____________________________
Signature
[SEAL]
10.
<PAGE>
BRIDGE LOAN WARRANT
THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT AND
SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
AMERIGON INCORPORATED
WARRANT TO PURCHASE COMMON STOCK
This Warrant (the "Warrant") represents and certifies that, for value
received, Big Star Investments LLC, a Delaware limited liability company (the
"Holder") is entitled to subscribe for and purchase up to 300,000 shares
(subject to adjustment from time to time pursuant to the provisions of Section 5
hereof) of fully paid and nonassessable Class A Common Stock of Amerigon
Incorporated, a California corporation (the "Company"), at the price specified
in Section 2 hereof, as such price may be adjusted from time to time pursuant to
Section 5 hereof (the "Warrant Price"), subject to the provisions and upon the
terms and conditions hereinafter set forth.
As used herein, the term "Class A Common Stock" shall mean the
Company's presently authorized Class A Common Stock, no par value, and any stock
into or for which such Common Stock may hereafter be converted or exchanged.
1. TERM OF WARRANT; CALL PROVISIONS.
(a) TERM. Subject to Section 1(b) hereof, the purchase right
represented by this Warrant is exercisable, in whole or in part, at any time
during a period beginning on the date that the Securities Purchase Agreement
dated March 29, 1999 among the Company, Westar Capital II, LLC, and Big
Beaver Investments LLC (the "Purchase Agreement") is terminated pursuant to
its terms and ending five years after such date, but shall terminate upon the
Closing of the transactions contemplated by the Purchase Agreement.
(b) CALL PROVISIONS. In the event that the Company shall have been
required to pay a fee in excess of $600,000 pursuant to Section 6.3(b) of the
Purchase Agreement, in accordance with the terms thereof, upon such payment and
for a period of fifteen days following such payment, the Company shall have the
right to redeem one half of the shares subject to this Warrant at an aggregate
redemption price of $1,000. Upon such redemption, this Warrant will thereafter
remain exercisable for 150,000 shares of Class A Common Stock at the purchase
Warrant Price set forth in Section 2 hereof (subject to adjustment as provided
herein).
- 1 -
<PAGE>
2. WARRANT PRICE.
The Warrant Price is $1.03 per share, subject to adjustment from time
to time pursuant to the provisions of Section 5 hereof.
3. METHOD OF EXERCISE OR CONVERSION; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) EXERCISE. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by the Holder, in whole or in part,
by the surrender of this Warrant (with the notice of exercise form attached
hereto as EXHIBIT 1 duly executed) at the principal office of the Company and by
the payment to the Company, by cashier's check or wire transfer, of an amount
equal to the then applicable Warrant Price per share multiplied by the number of
shares then being purchased. The Company agrees that the shares so purchased
shall be deemed to be issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. In the event of any
exercise of this Warrant, certificates for the shares of stock so purchased
shall be delivered to the Holder within 15 business days thereafter and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the shares, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the Holder within such 15 business
day period.
(b) CONVERSION. Subject to Section 1 hereof, the Holder may convert
this Warrant (the "Conversion Right"), in whole or in part, into the number of
shares (less the number of shares which have been previously exercised or as to
which the Conversion Right has been previously exercised) calculated pursuant to
the following formula by surrendering this Warrant (with the notice of exercise
form attached hereto as EXHIBIT 1 duly executed) at the principal office of the
Company specifying the number of shares the rights to purchase which the Holder
desires to convert:
Y (A - B)
-------------
X - A
where: X = the number of shares of Class A Common Stock to be issued to
the Holder;
Y = the number of shares of Class A Common Stock subject to this
Warrant for which the Conversion Right is being exercised;
A = the Market Price of the Common Stock (as defined below) as
of the trading day immediately preceding the date of
exercise of this Warrant; and
B = the Warrant Price
For purposes hereof, the "Market Price of the Common Stock" shall be
the closing price per share of the Class A Common Stock of the Company
on the principal national securities exchange on which the Class A
Common Stock of the Company is then listed or admitted to trading or,
if not then listed or traded on
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<PAGE>
any such exchange, on the NASDAQ National Market System, or if then
not listed or traded on such system, the closing bid price per
share on NASDAQ or other over-the-counter trading market. If at
any time such quotations are not available, the market price of a
share of Class A Common Stock shall be the highest price per share
which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Class A Common Stock sold by
the Company, from authorized but unissued shares, as determined in
good faith by the Board of Directors of the Company, unless the
Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving
party, in which case the market price of a share of Class A Common
Stock shall be deemed to be the value received by the holders of
the Company's Class A Common Stock for each share of Class A Common
Stock pursuant to the Company's acquisition.
The Company agrees that the shares so converted shall be deemed issued
to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered
as aforesaid. In the event of any conversion of this Warrant,
certificates for the shares of stock so converted shall be delivered
to the holder hereof within 15 business days thereafter and, unless
this Warrant has been fully converted or expired, a new Warrant
representing the portion of the shares, if any, with respect to which
this Warrant shall not then have been converted, shall also be issued
to the holder hereof within such 15-day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Class A Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all United States taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Class A Common Stock to provide for the exercise of the rights represented by
this Warrant.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
(a) ADDITIONAL SHARES. In the event that the Company shall issue
additional shares of Class A Common Stock, or other securities exchangeable for,
exerciseable for, or convertible into additional shares of Class A Common Stock,
for consideration per share less than the Warrant Price on the date of and
immediately prior to any such issue, then and in such event, the per share
Warrant Price shall be reduced concurrently with such issuance or sale, to a
price equal to the consideration per share of such issuance; provided that the
Warrant Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $0.01, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.01 or more. No
adjustment in the Warrant Price shall be made on account of (i) the grant of
options exercisable for, or sales
- 3 -
<PAGE>
of, Class A Common Stock pursuant to employee benefit plans previously
approved by the Company's shareholders, (ii) the issuance of warrants to
Spencer Trask Securities, Inc. in connection with the transaction
contemplated by the Purchase Agreement (or the exercise of such warrants), or
(iii) the issuance of stock, warrants or other securities or rights to
persons or entities with which the Company has business relationships
provided such issuances are for other than primarily equity financing
purposes and provided that (i) any such issuance does not exceed 2% of the
then outstanding Class A Common Stock of the Company (assuming full
conversion and exercise of all convertible and exercisable securities) and
(ii) the aggregate of all such issuances since the date of this Warrant do
not exceed 5% of the then outstanding Class A Common Stock of the Company
(assuming full conversion and exercise of all convertible and exercisable
securities).
(b) STOCK SPLITS AND COMBINATIONS. If the Company at any time or
from time to time after the date this Warrant is issued effects a subdivision
of the outstanding Class A Common Stock pursuant to a stock split or similar
event, the Warrant Price shall be proportionately decreased, and conversely,
if the Company at any time or from time to time after the date this Warrant
is issued combines the outstanding shares of Class A Common Stock into a
smaller number of shares in a reverse stock split or similar event, the
Warrant Price shall be proportionately increased. Upon the adjustment of the
Warrant Price pursuant to the foregoing provisions, the number of shares of
Class A Common Stock subject to the exercise of the Warrant shall be adjusted
to the nearest full share by multiplying the shares subject to the Warrant by
a fraction, the numerator of which is the Warrant Price immediately prior to
such adjustment and the denominator of which is the Warrant Price immediately
after such adjustment. Any adjustment under this subsection (b) shall be
effective at the close of business on the date the subdivision or combination
becomes effective.
(c) CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the Company at any
time or from time to time after the date this Warrant is issued makes, or
fixes a record date for the determination of holders of Class A Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Class A Common Stock, then and in each such event the number of
shares of Class A Common Stock subject to the Warrant shall be increased and
the Warrant Price then in effect shall be decreased as of the date of such
issuance or, in the event such record date is fixed, as of the close of
business on such record date, by:
(i) multiplying the Warrant Price then in effect by a fraction
(1) the numerator of which is the total number of shares of Class A Common
Stock issued and outstanding immediately prior to the time of such issuance
or the close of business on such record date, and (2) the denominator of
which shall be the total number of shares of Class A Common Stock issued
and outstanding immediately prior to the time of such issuance or the close
of business on such record date plus the number of shares of Class A Common
Stock issuable in payment of such dividend or distribution; and
(ii) multiplying the number of shares of Class A Common Stock
subject to the Warrant by a fraction (1) the numerator of which is the
total number of shares of Class A Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on
such record date plus the number of shares of Class A Common Stock issuable
in payment of such dividend or distribution, and (2) the
- 4 -
<PAGE>
denominator of which shall be the total number of shares of Class A
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date.
If, however, such record date is fixed and such dividend is not fully
paid or if such distribution is not fully made on the date fixed therefor, the
number of shares of Class A Common Stock subject to the Warrant and the Warrant
Price thereof shall be recomputed accordingly as of the close of business on
such record date and thereafter shall be adjusted pursuant to this subsection
(c) as of the time of actual payment of such dividends or distributions.
(d) OTHER ADJUSTMENTS. In the event the Company at any time or from
time to time after the date this Warrant is issued:
(i) makes a dividend or other distribution payable in
securities of the Company other than shares of Class A Common Stock, or
(ii) changes any Class A Common Stock into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 5),
or
(iii) effects a capital reorganization of the Class A Common
Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
Section 5) or merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person,
then, in each such event, any and all new, substituted or additional
securities to which Holder is or would be entitled by reason of its ownership of
the shares underlying this Warrant shall be immediately subject to the Warrant
and be included in the shares underlying this Warrant for all purposes
hereunder. After each such event, the Warrant Price per share shall be
proportionately adjusted so that the aggregate Warrant Price upon exercise of
the Warrant shall remain the same as before such event.
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, the Warrant Price after giving effect to such adjustment and the
number of shares then purchasable upon exercise of this Warrant, and shall cause
copies of such certificate to be mailed (by first class mail, postage prepaid)
to the Holder of this Warrant at the address specified in Section 9(c) hereof,
or at such other address as may be provided to the Company in writing by the
Holder of this Warrant.
- 5 -
<PAGE>
7. FRACTIONAL SHARES.
No fractional shares of Class A Common Stock will be issued in
conjunction with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefore on the basis of the Warrant
Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant, by acceptance hereof, agrees that this
Warrant and the shares of Class A Common Stock to be issued on exercise hereof
are being acquired for investment and that it will not offer, sell or otherwise
dispose of this Warrant or any shares of Class A Common Stock to be issued upon
exercise hereof except under circumstances which will not result in a violation
of the Securities Act of 1933, as amended (the "Act"). This Warrant and all
shares of Class A Common Stock issued upon exercise of this Warrant (unless
registered under the Act) shall be stamped and imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS
IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
9. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. The Holder of this Warrant shall not
be entitled to vote or receive dividends or be deemed the Holder of Class A
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the Holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger, conveyance
or otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised and
the shares purchasable upon the exercise hereof shall have become deliverable,
as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at the Holder's expense, will execute and deliver, in lieu of this
Warrant, a new Warrant of like tenor.
- 6 -
<PAGE>
(c) NOTICE. Any notice given to either party under this Warrant
shall be in writing, and any notice hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or by
standard form of telecommunication or three (3) business days after the mailing
thereof in the U.S. mail if sent registered mail with postage prepaid, addressed
to the Company at its principal executive offices and to the Holder at its
address set forth in the Company's books and records or at such other address as
the Holder may have provided to the Company in writing.
(d) GOVERNING LAW. This Warrant shall be governed and construed
under the laws of the State of California.
[Remainder of page intentionally left blank]
- 7 -
<PAGE>
This Warrant is executed as of this 29th day of March, 1999.
AMERIGON INCORPORATED
By: /s/ LON E. BELL
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: AMERIGON INCORPORATED
1. Check Box that Applies:
/ / The undersigned hereby elects to purchase __________ shares of
Class A Common Stock of AMERIGON INCORPORATED pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
/ / The undersigned hereby elects to convert the attached warrant into
________ shares of Class A Common Stock of AMERIGON INCORPORATED
pursuant to the terms of the attached Warrant.
2. Please issue a certificate or certificates representing said
shares of Class A Common Stock in the name of the undersigned or in such other
name as is specified below:
__________________________________
(Name)
__________________________________
__________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Class A
Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.
__________________________
Signature
- 9 -
<PAGE>
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into as of
March 29, 1999 by and between AMERIGON INCORPORATED, a California corporation,
whose address is 5462 Irwindale Avenue, Irwindale, California 91706 (hereafter
referred to as "Company") and Lon E. Bell, an officer of Company, whose address
is 1819 North Grand Oaks, Altadena, California 91001 (hereafter referred to as
"Bell").
RECITALS
WHEREAS, Company has caused AEVT Incorporated ("Subsidiary"), a California
corporation, to be created, with the Company as the sole initial shareholder of
Subsidiary;
WHEREAS, as partial consideration for the issuance of Subsidiary's shares
to Company, Company has contributed substantially all of its assets relating to
the manufacture and sale of electric vehicles to Subsidiary;
WHEREAS, subsequent to the incorporation of Subsidiary, Company transferred
to Bell 150 shares of common stock of Subsidiary, representing 15% of
Subsidiary's outstanding common stock, and Company now holds 85% of Subsidiary's
outstanding common stock; and
WHEREAS, Company desires to redeem and cancel all shares of Company's Class
B Common Stock held or controlled by Bell or his affiliates or related persons
(the "Class B Shares"); and
WHEREAS, subject to obtaining approval of holders of a majority of the
disinterested shares of Company, Company is willing to exchange all of the
shares of Subsidiary's outstanding common stock owned by Company for the Class B
Shares.
NOW, THEREFORE, in consideration of the premises set forth above, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
ARTICLE I
SHARE TRANSFER
SECTION 1.1 SHARE TRANSFER.
(a) Company hereby agrees, upon satisfaction of the Closing
Conditions (as defined herein), to transfer to Bell 850 shares of common stock
of Subsidiary (the "Subsidiary Shares"), representing all of the shares of
common stock of Subsidiary owned by Company, and Bell hereby agrees, upon the
satisfaction of the Closing Conditions, to simultaneously deliver all
outstanding Class B Shares to Company for cancellation (such transaction is
collectively referred to herein as the "Exchange"). The "Closing Conditions"
are (i) the approval of the Exchange by a majority of the disinterested shares
voting thereon at a duly called meeting of the shareholders
<PAGE>
of Company, (ii) the closing of the transactions contemplated by the
Securities Purchase Agreement, dated as of March 29, 1999, among Company and
each of the "Investors" named therein, and (iii) Company having the legal
capacity to effect a repurchase of the Class B Shares in accordance with the
California General Corporation Law.
(b) The Exchange will occur at the offices of Company or its
counsel immediately after the condition set forth in Section 1.1(a)(ii) is
satisfied, if all Closing Conditions are then satisfied, or at such other place
and time as Company and Bell may agree to.
SECTION 1.2 SHARE PURCHASE.
(a) If the condition set forth in Section 1.1(a)(i) is not met
but the other Closing Conditions are met, then:
(1) Bell will sell all outstanding Class B Shares to
Company for a price per share equal to 5% of the average of the closing price of
Company's Class A Common Shares at the close of trading on each of the ten
immediately preceding days during which Company's Class A Common Shares were
traded on the NASDAQ Stock Exchange (such transaction is collectively referred
to herein as the "Purchase"); and
(2) Company will grant to Bell the following rights:
(i) the right to appoint a majority of the members of
Subsidiary's Board of Directors;
(ii) if Company proposes to transfer all or any part of
its Subsidiary Shares (or is required by operation of law or
other involuntary transfer to do so), the right to purchase such
Subsidiary Shares in accordance with the following provisions:
(A) Company will deliver a written notice
("Option Notice") to Bell stating (w) Company's bona fide
intention to transfer such Subsidiary Shares, (x) the number
of Subsidiary Shares to be transferred, (y) the purchase
price and terms of payment for which Company proposes to
transfer such Subsidiary Shares, and (iv) the name and
address of the proposed purchaser, and
(B) within 30 days after receipt of the Option
Notice, Bell will have the right to elect to purchase all or
any part of the Subsidiary Shares upon the price and terms
of payment designated in the Option Notice (or, if the
consideration proposed to be paid is not cash, for cash in
an amount equal to the fair market value of the non-cash
consideration proposed to be paid) by delivering written
notice of his exercise of such right within such 30-day
period, and the closing of such purchase will occur within
90 days after receipt of such notice and Company and Bell
will execute such documents and instruments and make such
deliveries as may be reasonably required to consummate such
purchase; and
(iii) if an Option Notice is provided by Company, the right
to participate in the proposed sale of Subsidiary Shares on the same
terms and conditions, and for the same consideration per Subsidiary
Share, as Company, by giving written
2
<PAGE>
notice to Company within 10 days after delivery of the Option Notice;
PROVIDED that Bell must, and will then be obligated to, sell the
same pro-rata number of his Subsidiary Shares as Company is selling
of its Subsidiary Shares.
(b) The Purchase will occur at the offices of Company or its
counsel immediately after the conditions set forth in Sections 1.1(a)(ii),
1.1(a)(iii), and 1.2(a)(1) are satisfied, if at all.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF COMPANY.
(a) Company hereby represents and warrants that that it has sole
and marketable title to the Subsidiary Shares, and that such Subsidiary Shares,
when transferred to Bell will be free and clear of all liens, claims and
encumbrances.
(b) The Company has the corporate power and authority to execute
this Agreement and to consummate the Exchange and the Purchase in accordance
with the terms of this Agreement, and the execution and delivery of this
Agreement has been duly authorized by the Board of Directors of Company and is a
legally valid and binding obligation of Company.
SECTION 2.2 REPRESENTATIONS AND WARRANTIES OF BELL.
(a) Bell hereby represents and warrants that that he has sole
and marketable title to the Class B Shares, and that such Class B Shares, when
transferred to Company, will be free and clear of all liens, claims and
encumbrances.
(b) Bell hereby represents and warrants that he has the right,
power and authority to execute this Agreement and to consummate the Exchange and
the Purchase, and this Agreement is a legally valid and binding obligation of
Bell.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 GOVERNING LAW.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES, AND OF THE UNITED STATES.
SECTION 3.2 AMENDMENTS.
No amendment, modification, termination or waiver of any provision of this
Agreement, shall be effective unless the same shall be in writing and signed by
an authorized officer of
3
<PAGE>
Company (other than Bell) and Bell. Any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which it was given.
SECTION 3.3 SEVERABILITY.
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 3.4 COUNTERPARTS.
This Agreement may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
SECTION 3.5 INTEGRATION.
This Agreement, together with any exhibits and schedules hereto,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith.
SECTION 3.6 FURTHER ASSURANCES.
Each party hereto agrees to execute, acknowledge and deliver any and all
further instruments, and to do any and all further acts, as may be necessary or
appropriate to carry out the intent and purpose of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
AMERIGON INCORPORATED
By: /s/ Richard A. Weisbart
------------------------
Name: Richard A. Weisbart
Title: President
/s/ LON E. BELL
------------------------------
LON E. BELL
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
AEVT Incorporated
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-03290 and No. 333-44007) of Amerigon
Incorporated of our report dated March 23, 1999 appearing on page F-2 of this
Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Costa Mesa, California
March 30, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 333-25805)
of Amerigon Incorporated of our report dated March 23, 1999 appearing on page
F-2 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Costa Mesa, California
March 30, 1999
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,667
<SECURITIES> 0
<RECEIVABLES> 275
<ALLOWANCES> (101)
<INVENTORY> 105
<CURRENT-ASSETS> 2,082
<PP&E> 2,218
<DEPRECIATION> (1,656)
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<CURRENT-LIABILITIES> 892
<BONDS> 0
0
0
<COMMON> 28,149
<OTHER-SE> (26,423)
<TOTAL-LIABILITY-AND-EQUITY> 2,644
<SALES> 0
<TOTAL-REVENUES> 770
<CGS> 0
<TOTAL-COSTS> 8,712
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<INTEREST-EXPENSE> 17
<INCOME-PRETAX> (7,704)
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<INCOME-CONTINUING> (7,704)
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<NET-INCOME> (7,704)
<EPS-PRIMARY> (4.03)
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