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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
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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(I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
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 March 9, 2000, was $35,814,169 (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 March 9, 2000, the registrant had issued and outstanding 1,910,089 shares
of Class A Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant's definitive proxy statement for its 2000 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 INCORPORATED
ITEM 1. BUSINESS
General
Amerigon Incorporated (the "Company") is a developer, marketer and
manufacturer of proprietary high technology electronic components and systems
for sale to car and truck original equipment manufacturers ("OEMs"). The
Company is currently focusing the majority of its efforts on the introduction
of its primary product, a Climate Control Seat(TM) ("CCS(TM)") which provides
year round comfort by providing both heating and cooling to seat occupants.
The Company recently began shipping the CCS product to Johnson Controls, Inc.
("JCI"), a worldwide automotive seat supplier. In November 1999, JCI began
supplying the Lincoln Mercury Division of Ford Motor Company ("Ford") with the
Company's CCS product for installation in the 2000 model year Lincoln
Navigator SUV.
Additionally, the Company has a product still under development. The
AmeriGuard(TM) radar-based speed and distance sensor system alerts drivers to
the presence of objects near the vehicle.
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.
Business Strategy
The Company's strategy is to build upon the existing relationships with
automobile manufacturers and their suppliers currently in place and to become
the leading provider of climate controlled seating to the automotive
marketplace. Key elements of the Company strategy include:
. Increasing market penetration with global automotive companies.
. Continuing to partner with major automotive seat companies.
. Completing the next generation of the CCS technology.
. Continuing to expand its intellectual property.
Products
Climate Control Seat System
The Company's CCS system utilizes a combination of an exclusive license of
patented technology and three of the Company's own patents to manufacture a
system to actively manage the seat surface temperature to enhance the year
round temperature comfort of automobile passengers. The CCS uses small
thermoelectric heat pumps, which are solid-state electronic devices, which
generate heat or cooling depending upon the polarity of the current applied to
the circuit.
This thermoelectric device is the heart of a compact heat pump built by the
Company. Air is forced through the heat pump and thermally conditioned based
upon the switch input from the occupant. The conditioned air is then
circulated utilizing ducts in the seat to provide temperature comfort for the
occupant. 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.
In the past two years, the Company has supplied prototype seats containing
its CCS system to virtually every major automobile manufacturer and seat
supplier. The Company was selected by Ford to supply the CCS product to JCI
for installation in the 2000 model year Lincoln Navigator SUV. Approximately
47,000 Lincoln Navigators were produced in the 1998 calendar year. The CCS
product is being offered as an optional feature on
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this vehicle, replacing the traditional seat heater. Initial production
shipments to JCI commenced in late November 1999. The Company is also in final
pre-production preparation to supply its CCS products to a major Japanese
automotive manufacturer for installation in a 2001 model year luxury vehicle.
The Company is working with many other automotive OEMs and their seat
suppliers in an effort to have the CCS product included in other models
commencing with the 2002 model year and beyond. The Company currently has
active development programs on other vehicle platforms, but no assurance can
be given that its CCS system will be implemented in any of these vehicles.
On March 27, 2000, the Company entered into a Value Participation Agreement
("VPA") with the Ford Motor Company ("Ford"). Pursuant to the VPA, Ford agreed
that, through December 31, 2004, the Company has the exclusive right to
manufacture and supply CCS units to Ford's tier 1 suppliers for installation
in Ford, Lincoln and Mercury branded vehicles produced and sold in North
America (other than Ford branded vehicles produced by Auto Alliance, Inc.).
Ford is not obligated to purchase any CCS units under the VPA.
The CCS product has reached the stage where it can be mass-produced for a
particular OEM. However, since each vehicle's seats are not the same, the
Company must tailor its CCS components to meet each seat design. If an OEM
wishes to integrate the CCS unit into a seat, it will provide the Company with
one of its automotive seats to be modified so that a CCS unit may be installed
as a prototype. The seat is then returned to the OEM for evaluation and
testing. If the OEM accepts the product, a program can then be launched to put
the CCS in a particular model on a production basis, but it normally takes one
to two years from the time an OEM decides to include the CCS in a car model to
actual volume production for that model vehicle. During that process, the
Company derives minimal revenue from prototype sales and development contracts
but generally obtains no significant revenue until volume production begins.
Radar for Maneuvering Applications
Several automotive OEMs are now offering ultrasonic or infrared laser
distance sensors for parking aids and there are infrared and radar sensors
being used for adaptive cruise control. The Company believes that its radar
technology offers superior performance to ultrasonic as defined by easier
packaging, no styling impact and all-weather performance. Competitive products
in the automotive industry have utilized ultrasonic and infrared sensors which
require direct line of sight from the sensor to the target and infrared
requires installation with optical lenses. The Company uses swept-range radar,
which transmits millions of short radio impulses every second. The Company's
system is designed to operate with a five-meter range from the perimeter of
the vehicle. AmeriGuard radar is intended for precision parking, back-up
warning, side object detection, lane change, and safety restraint. The
Company's radar technology is less susceptible to environmental conditions,
such as dirt, rain, fog or snow than ultrasonic and infrared sensors and can
even penetrate plastic, allowing it to be mounted inside plastic bumpers or
tail light assemblies.
Between 400,000 and 500,000 heavy truck vehicles are produced globally each
year. In addition, by Company estimates, there are four to five million heavy
trucks in service globally. Each of these vehicles operates daily in tight
maneuvering situations and could benefit significantly from back-up warning
and side object warning systems. The Company has identified this global truck
population to be its target market and is developing products to service these
needs.
The Company has applied its technology to develop demonstration prototypes
of a back-up warning system (BWS) and a side object detector (SOD). The BWS is
activated when the vehicle is put into reverse and detects objects behind the
vehicle while providing an audible/visual signal to alert the driver. The SOD
detects objects to the side of the vehicle when the driver attempts to turn or
change lanes and emits an audible warning signal.
On April 2, 1998, the Company entered into a joint research project with New
Mexico State Highway and Transportation Department (NMSHTD) Research Bureau to
evaluate the Company's radar for New Mexico's Highway Maintenance and
Construction Departments. In the project, the Company's radar sensors were
installed in heavy construction equipment used by the department. A special
user interface was designed by the Company to warn vehicle operators if an
object is behind the vehicle when it is in reverse. Detected objects included
people, posts, vehicles, walls and other structures. Two phases of the three-
phase project were successfully
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completed in 1998 and the NMSHTD Research Bureau approved the final phase of
the project in December 1998. This final phase consists of 60 vehicles which
have been equipped with back-up warning systems for extensive field test and
evaluation. The NMSHTD operates a fleet of approximately 5,000 vehicles and
successful completion of Phase III may result in 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 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. In addition, management believes there
is an opportunity to sell the radar product by including the product in
systems manufactured by one or more truck lighting suppliers. The Company is
currently working to obtain a development program with one of the leading
suppliers of lighting systems for trucks and buses with a goal of integrating
the Company's radar product into these lighting systems. Although the
Company's radar technology could be adapted to passenger vehicles, given the
lengthy time period from prototype to commercial sales to automotive OEMs,
this is not a near term prospect. The Company believes that success in the
heavy truck market will lead to automotive market interest.
Considerable research and development will be required to develop this radar
technology into finished products, including design and development of
application software, antenna systems and production engineering to reduce
costs and increase reliability. The Company expects that approximately
$1,500,000 will be expended over the next year in development to bring the
product to market. The Company does not expect to generate any significant
revenue from its radar technology in the immediate future. 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.
Disposition of Electric Vehicle Operations
The Company was originally founded to focus on advanced automotive
technologies, including electric vehicles ("EV"). As a recipient of a number
of federal and state government grants relating to the development of EV, the
Company spent many years developing and conducting research on EV, and had
research and development contracts with commercial companies relating to EV.
The Company incurred substantial losses from EV activities, including
significant cost overruns on an EV development contract. By December 31, 1997,
the Company had completed substantially all work on its EV contracts.
During 1997, the Company's Board of Directors decided to focus primarily on
the CCS and AmeriGuard radar products. After trying and failing to obtain
either a strategic partner who would provide financing for an EV joint
venture, or a purchaser for its EV assets, the Board of Directors decided to
suspend funding the EV 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. In March
1999, the Board of Directors agreed to form a subsidiary to hold the Company's
EV operations. The Company then sold to Dr. Lon Bell, a significant
shareholder, officer and director of the Company, a 15% interest in the EV
subsidiary for $88,000. In May 1999, the shareholders voted to sell the
remaining interest, 85%, of the EV subsidiary to Dr. Bell in exchange for all
of his Class B Common Stock.
Interactive Voice Systems (IVS(TM))
In 1997, the Company entered into a joint venture agreement with Yazaki
Corporation ("Yazaki") to develop and market the Company's voice activated
navigation technology. Under the terms of the agreement, IVS, Inc. ("IVS(TM)")
was created with Yazaki owning a majority interest in IVS and the Company
owning 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 the Company'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 decided to discontinue funding for the joint
venture. The Company did not provide any further funds to continue IVS's
operation in 1999. IVS declared bankruptcy on September 30, 1999.
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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 future 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 its products, excluding expenses associated with projects
that are specifically funded by development contracts or grant agreements from
customers (which are classified Development Contract Costs in the Company's
Statements of Operations). Research and development expenses do not include
any portion of general and administrative expenses.
The Company continues to do additional research and development to advance
the design of the CCS product with the goal of making the unit less complex,
easier to package and less expensive to manufacture and install. There can be
no assurance that this development program will result in improved products. A
patent application has been approved (but a patent has not yet been issued)
for a modified version of the CCS.
Research and development expenses for the Company's CCS technology include
not only development of next generation technologies but also application
engineering, which is engineering to adapt its CCS components to meet the
design criteria of a particular vehicle's seat. Each vehicle's seats are not
the same and each has different configuration requirements. The costs incurred
in this adaptation process are accounted for as research and development
expense.
The total amounts spent for research and development activities in the year
ended December 31, 1999, 1998 and 1997 were $2,478,000, $3,202,000 and
$2,072,000, respectively. Included in these amounts for each of such periods
were $43,000, $43,000 and $168,000, 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.
Marketing and Sales
The Company is a second-tier supplier to car and truck OEMs. As such, the
Company's marketing efforts are focused on car and truck OEMs and their
direct, or tier 1, suppliers. The Company has not and does not expect to
market directly to consumers. For the CCS system, the Company's strategy has
been to convince the major automobile companies that the CCS is an attractive
feature which will meet with consumer acceptance and which has favorable
economics, including high gross margins to the OEM. The OEM then directs the
Company to work with their seat supplier to incorporate the CCS into future
seat designs. The Company also markets directly to the major domestic and
foreign automotive seat suppliers.
For the radar product, the Company's efforts are focused on truck lighting
manufacturers as well as major truck fleet operators who may be interested in
the Company's radar product as an after-market item. The Company does not use
general advertising, but instead concentrates on direct contact with
prospective customers and business partners.
In the automotive components industry, products typically proceed through
five stages of research and development before reaching 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 demonstrates interest 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 its interest in the component.
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The time required to progress through these five stages of commercialization
varies widely. The most significant 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 for evaluation since
other vehicle systems are affected and because a decision to introduce the
product into the vehicle is not easily reversed. The CCS product has a
moderate effect on other vehicle systems and is a factory-installed item. The
Company's radar system could be sold as an after-market item or could be
factory installed and, if the latter, would have a greater impact on other
vehicle systems.
The Company's ability to successfully market its CCS and radar products will
in large part be dependent upon the willingness of automobile manufacturers
and other OEMs to incur the substantial expense involved in the purchase and
installation of its products and systems, and ultimately, upon the acceptance
of these products by consumers. The Company should begin obtaining consumer
feedback soon, as the CCS product has already been installed in model year
2000 Lincoln Navigator vehicles.
Manufacturing, Contractors and Suppliers
The Company currently has limited manufacturing capacity for CCS systems.
The Company intends to further develop its manufacturing capability in order
to implement its business plan, control product quality and delivery, shorten
product development cycle times, and protect and further develop proprietary
technologies and processes. This capability is expected to be developed
internally through the purchase of new equipment and the hiring of additional
personnel. Management anticipates purchasing equipment for a second production
line in March 2000 in anticipation of increased production for model year 2001
vehicles. There can be no assurance that the efforts to establish the
Company's 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.
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
inability to obtain an adequate supply of these thermoelectric devices could
impact the Company's growth. The Company's business and operations could also
be materially adversely affected by delays in deliveries from suppliers.
Proprietary Rights and Patents
The Company has historically acquired existing technologies through licenses
and joint development contracts in order to optimize its expenditure of
capital and time, and sought to adapt and commercialize such technologies in
automotive products which were suitable for mass production. The Company also
developed new technologies or furthered the development of acquired
technologies through internal research and development efforts by its
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 with Feher Design, Inc.
("Feher"), Feher has granted to the Company an exclusive worldwide license to
use specific CCS technologies covered by three 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. As part of the agreement,
all intellectual property developed by the Company related to variable
temperature seats is
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owned by the Company but such licensor will have the right to license the
Company's technology on a non-exclusive basis for use in products other than
products intended for use in cars, trucks, buses, vans and recreational
vehicles.
In addition to the aforementioned license rights to the CCS technology, the
Company holds three issued patents on a variable temperature seat climate
control system. The Company also has one additional patent pending 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 date, this application remains subject to
examination and 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 intellectual property position in
Japan.
Radar For Maneuvering and Applications
Pursuant to a License Agreement with the Regents of the University of
California (Lawrence Livermore National Laboratory) (the "Regents"), the
Regents granted 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 OEM. Since commercial sales
volumes were not achieved, the exclusivity on the license has lapsed. Although
the Company retains this license on a non-exclusive basis, other companies may
also acquire rights to the license and develop products based on the
technology.
As of December 31, 1999, the Company also had two additional patents pending
on its radar technology.
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 be issued from any pending
applications. Claims allowed in any existing or future patents issued or
licensed to the Company may be challenged, invalidated, or circumvented, and
any rights granted under such patents may not provide adequate protection.
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.
The Company's products may conflict with patents that have been or may be
granted to competitors or others. Such other persons could bring legal actions
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 its 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 its business.
In addition, if the Company becomes involved in litigation, it could consume a
substantial portion of its 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 will have adequate remedies for any
such breach or that the 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
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information that may not be resolved in the Company's favor. 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 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 business could be adversely affected to the extent that
the duration and/or level of the royalties the Company 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 or
other major suppliers, most of which have the capability to manufacture
competing products. Many of the Company's existing and potential competitors
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 its products, but
can substitute for its 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 active heating and 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 and Saab offer options on certain
new models which combine 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 the Company owns or licenses. 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.
Radar for Maneuvering and Applications
The potential market for automotive radar has attracted many automotive
electronic companies who have developed a variety of radar technologies.
Several automotive OEMs are now offering ultrasonic or infrared laser distance
sensors for parking aids and there are infrared and radar sensors being used
for adaptive cruise control. These companies have far greater technical,
financial and other resources than the Company. 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 radar products or
that competitors will find ways to offer similar products without infringing
on intellectual property rights.
Employees
As of December 31, 1999, the Company had 65 employees and 3 outside
contractors. None of the employees are subject to collective bargaining
agreements. The Company considers its employee relations to be satisfactory.
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Risk Factors
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.
Risks Relating to the Company's Business
Early Stage of Commercialization
Although the Company began operations in 1991, the Company is only in the
early stages of commercial manufacturing and marketing of its products. The
Company originally focused its efforts on developing electric vehicles and
other automotive systems. Because the electric vehicle market did not develop
as rapidly as the Company anticipated, it substantially scaled back its
efforts in that area beginning in 1997 and completely disposed of its electric
vehicle business in June 1999 to focus completely on the CCS and AmeriGuard
radar products. In December 1997, the Company received its first production
order for the CCS product but shipments of production units in 1998 were
minimal. The Company commenced initial production shipments to JCI in late
November 1999 to supply its CCS product to JCI for installation in the 2000
model year Lincoln Navigator SUV. There can be no assurance that sales will
significantly increase, or that the Company will become profitable.
Substantial Operating Losses Since Inception
The Company has incurred substantial operating losses since its inception.
As of December 31, 1999 and December 31, 1998, the Company has accumulated
deficits since inception of $43,880,000 and $36,305,000, respectively. The
accumulated deficits are attributable to the costs of developmental and other
start-up activities, including the industrial design, development and
marketing of its products and a significant loss incurred on a major electric
vehicle development contract. Of the $23 million the Company spent between
inception and 1996, $18 to $21 million of that amount was spent on electric
vehicles or integrated voice technology, another discontinued product. As is
typical for a development company transitioning for the first time into a
production company, 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.
Need for Additional Financing
As is customary for a development stage company only now initiating
production, 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 in its development and marketing efforts. In
addition, as the CCS product now requires production in larger quantities, the
Company will incur increased manufacturing costs. 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. The Company will require additional financing through bank
borrowings, debt or equity financing or otherwise to finance its operations.
No assurance can be given that such alternate funding sources can be obtained
or will provide sufficient financing for the Company.
8
<PAGE>
Dependence on Acceptance by Consumers; Market Competition
The Company has engaged in a lengthy development process on the CCS product
which involved developing a prototype for proof of concept and then adapting
the basic system to actual seats provided by various automotive OEMs and their
seat suppliers. In the last two years, the Company has supplied prototype
seats containing its CCS system to virtually every major car manufacturer. As
a result of this process, the Company has been selected by Ford to supply its
CCS product to JCI for installation in the 2000 model year Lincoln Navigator
SUV. The CCS product is being offered as an optional feature on this vehicle.
The Company commenced initial production shipments to JCI in late November
1999. The Company is working with many other automotive OEMs and their seat
suppliers in an effort to have the CCS product included in other models
commencing with the 2002 model year and beyond. It currently has active
development programs on nine other vehicle platforms, but no assurance can be
given that the Company's CCS system will be implemented in any of these
vehicles. Furthermore, there is no assurance that consumers will accept or
desire this CCS product. This may prevent the CCS product from becoming a
standard (as opposed to an optional) feature in vehicles and also may prevent
other automotive OEMs from adopting this CCS product as an optional or
standard feature for other models.
Dependence on Relationships with Third Parties
The Company's ability to successfully market and manufacture its products is
dependent on relationships with both third party suppliers and customers.
The Company's success in marketing the CCS product is dependent on
acceptance of the product by automotive OEMs and their seat suppliers. The CCS
product is being offered as an optional feature on the 2000 model year Lincoln
Navigator SUV and the Company is working with many other automotive OEMs and
their seat suppliers in an effort to have the CCS product included in other
models commencing with the 2001 model year and beyond. However, there is no
assurance that automotive OEMs will accept this product.
The Company relies on various vendors and suppliers for the components of
the CCS product and procures 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, operations and cash flows.
In light of the lengthy sales cycles to automotive OEMs and recent successes
with the Company's radar products in tests with trucks and heavy construction
equipment, the Company has decided to focus its radar product in the truck and
heavy construction equipment market rather than sales to automotive OEMs for
passenger vehicles. The Company is currently working to obtain a development
program with one of the world's leading suppliers of lighting systems for
trucks and buses with a goal of integrating the Company's radar product into
its lighting systems for heavy trucks. However, the Company does not yet have
a commitment from this company and, in any event, the success of this approach
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 such party.
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 efforts to establish
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. 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
9
<PAGE>
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 its 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 five years or more for products that must be designed into a
vehicle, since some companies take up to five years 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. As a result, from the time that an OEM develops a
strong interest in the Company's CCS product, it normally will take several
years before the CCS is available to consumers in that OEM's vehicles.
Radar Technology Still in Development Stage
In contrast to CCS, which has begun commercial production, the Company's
AmeriGuard product is still in a developmental stage. As with all development
projects, the Board of Directors will monitor its progress and future
prospects carefully. If the current test with the New Mexico Highway and
Transportation Department is unsuccessful or the Company's efforts to obtain a
development program with a supplier of truck lighting systems fail, the Board
may reconsider its decision to continue development of the radar technology.
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 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 it can succeed in establishing relationships with
automobile manufacturers. Furthermore, no assurance can be given that the
competitive pressures the Company faces will not adversely affect its
financial performance. Due to the rapid pace of technological change, as with
any technology-based product, the Company's products may be rendered obsolete
by future developments in the industry. The Company's competitive position
would be adversely affected if it was unable to anticipate such future
developments and obtain access to the new technology.
10
<PAGE>
Limited Protection of Patents and Proprietary Rights
As of December 31, 1999, the Company owned three patents and had three
patents pending. The Company is also the licensee of sixteen patents. The
Company believes that patents and proprietary rights have been and will
continue to be very important in enabling it to compete. There can be no
assurance that any new patents will be granted or that the Company or its
licensors' patents and proprietary rights will not be challenged or
circumvented or will provide it 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's
licensors or itself. 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.
The Company holds current and future rights to licensed technology through
licensing agreements requiring the payment of minimum royalties and must
continue to comply with these licensing agreements. Failure to do so or loss
of such agreements could 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, suppliers 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 its 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 the Company's favor. 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 its 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.
Exclusive License on Heated and Cooled Seats; Non-Exclusive License on Radar
Technology
In 1997, the Company negotiated an exclusive license with the licensor of
the CCS technology 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 the
Company related to variable temperature seats is owned by it but such licensor
will have the right to license the Company's technology on a non-exclusive
basis for use in products other than in products used in respect to cars,
trucks, buses, vans and recreational vehicles.
The Company's license from Lawrence Livermore National Laboratory (LLNL) for
one type of radar technology became non-exclusive as of December 31, 1998. The
lack of exclusivity means that the Company has reduced intellectual property
protection for products developed based on this license and faces possible
competition from other companies who can also acquire this license from LLNL.
Special Factors Applicable to the Automotive Industry in General
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. 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 its financial condition
and results of operations.
11
<PAGE>
Dependence on Key Personnel; Need to Retain Technical Personnel
The Company's success will depend to a large extent upon the continued
contributions of Richard A. Weisbart, President and Chief Executive Officer,
and Dr. Lon E. Bell. The Company has obtained key-person life insurance
coverage in the amount of $2,000,000 on the life of Dr. Bell. The loss of the
services of Dr. Bell, Mr. Weisbart or any of the Company's executive personnel
could have a material adverse effect on the Company. The Company's success
will also depend, in part, upon the Company's 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 its products. If available, product liability insurance
generally is expensive. While the Company presently has $6,000,000 of product
liability coverage with an additional $1,000,000 in product recall coverage,
there can be no assurance that the Company will be able to obtain or maintain
such insurance on acceptable terms with respect to other products it 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. This is
expected to occur with the current policy renewal period of May 1, 2000. In
the event of a successful claim against it, a lack or insufficiency of
insurance coverage could have a material adverse effect on the Company's
business and operations.
Risk of Foreign Sales
Many of the world's largest automotive OEMs are located in 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, historically, substantially all of the Company's 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.
12
<PAGE>
Risks Relating to Share Ownership
Controlling Shareholders
On March 29, 1999, the Company entered into a Securities Purchase Agreement
with Westar Capital II LLC ("Westar Capital II") and Big Beaver Investments
LLC ("Big Beaver") (the "Investors") pursuant to which the Investors invested
$9 million in Amerigon in return for 9,000 shares of 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 to purchase a number of
shares in proportion to the shares purchased by the exercise of such other
warrants in an amount equal to the percentage interest in the Company that
they had after the initial investment (on an as converted basis). In
connection with this transaction, the Investors obtained the right to elect a
majority of the Company's directors as well as rights of first refusal on
future financing and registration rights. In addition, based upon the terms of
the Series A Preferred Stock the last sales price as of the close of trading
on December 31, 1999, the Investors have approximately 73.8% of the Company's
common equity (on an as converted basis, excluding options and warrants).
Other Significant Shareholders
As part of the VPA, the Company will grant to Ford warrants exercisable for
Class A Common Shares. A warrant for the right to purchase 82,197 shares of
Class A Common Stock at an exercise price of $2.75 per share was issued and
fully vested on March 27, 2000. Additional warrants will be granted and vested
based upon purchases by Ford of a specified number of CCS units in a given
year throughout the length of the VPA. The exercise price of these additional
warrants depends on when such warrants vest, with the exercise price
increasing each year. If Ford does not achieve specific goals in any year, the
VPA contains provisions for Ford to make up the shortfall in the next
succeeding year. If Ford achieves all of the incentive levels required under
the VPA, warrants will be granted and vested for an additional 986,364 shares
of Class A Common Stock. The total number of shares subject to warrants which
may become vested will be adjusted in certain circumstances for antidilution
purposes, including an adjustment for equity issuances of up to $15 million on
or before September 30, 2000, so that the percentage interest in the Company
represented by the aggregate number of shares subject to warrants is not
diluted by such issuances.
Fluctuations in Quarterly Results; Small "Float" and Possible Volatility of
Stock Price
The Company's quarterly operating results may fluctuate significantly in the
future due to such factors as acceptance of the Company's product by OEMs and
consumers, timing of its product introductions, availability and pricing of
components from third parties, timing of orders, foreign currency exchange
rates, technological changes and economic conditions, generally. Broad market
fluctuations in the stock markets can, obviously, 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.
Without a significantly larger public float, the Company's Class A Common
Stock will be less liquid than stocks with broader public ownership, and as a
result, trading prices for the Company's Stock may significantly fluctuate and
certain institutional investors may be unwilling to invest in such a thinly
traded security.
Potential Conflicts of Interest
On March 16, 2000, the Company entered into a credit facility with Big Star
Investments LLC ("Big Star") (a limited liability company owned by Westar
Capital II and Big Beaver, the Company's two largest shareholders), for an
initial advance of $1.5 million and, at the Company's request and subject to
Big Star's sole discretion, additional advances of up to an additional $2.5
million. John W. Clark, a director of the Company, is a partner of Westar
Capital II. Oscar Marx, III, Chairman of the Board of the Company, is Chief
Executive Officer of Big Beaver and Paul Oster, a director of the Company, is
Chief Financial Officer of Big Beaver. Both
13
<PAGE>
of these companies are partners in the credit facility. This transaction,
combined with Mr. Clark's, Mr. Marx's and Mr. Oster's membership on the Board
of Directors, could give rise to conflicts of interest.
Anti-Takeover Effects of Preferred Stock
The Series A Preferred Stock which is outstanding confers upon its holders
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.
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
Company's outstanding voting stock.
Future Sales of Eligible Shares May Lower Price of Common Shares
The Company has 1,910,089 shares of Class A Common Stock outstanding as of
the close of trading on December 31, 1999, which are eligible for sale under
Rule 144 of the Securities Act of 1933, as amended. In addition, employees and
directors (who are not deemed affiliates) hold options to buy 871,180 shares
of Class A Common Stock. The Class A Common Stock to be issued upon exercise
of these options, has been registered, and therefore, may be freely sold when
issued. The Company also has outstanding warrants to buy 2,705,374 shares of
Class A Common Stock. Any shares registered will be eligible for resale. If
these shares are not sold they may be included in certain registration
statements to be filed by the Company in the future.
The Company may issue options to purchase up to an additional 598,653 shares
of Class A Common Stock under the Company's stock option plans, which will be
fully transferable when issued.
Furthermore, the Series A Convertible Preferred Stock is convertible into
5,373,134 shares of Class A Common Stock and the holders thereof possess
demand and piggyback registration rights. Future sales by them could depress
the market price of the Class A Common Stock.
Sales of substantial amounts of Class A Common Stock into the public market
could lower the market price of the Class A Common Stock.
Lack of Dividends on Common Stock
The Company has never paid any cash dividends on the Company's Common Stock
and does not anticipate paying dividends in the near future.
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 has
other immaterial leased sales offices. The Company believes that these
facilities are adequate for their present requirements.
ITEM 3. LEGAL PROCEEDINGS
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
None
14
<PAGE>
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
Bulletin Board 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 1998 through fourth quarter of 1999. Such prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High(1) Low(1)
------- ------
<S> <C> <C>
1998
1st Quarter................................................ $14.06 $5.00
2nd Quarter................................................ 6.88 3.13
3rd Quarter................................................ 3.59 1.25
4th Quarter................................................ 5.00 0.63
1999
1st Quarter................................................ 3.44 0.81
2nd Quarter................................................ 6.22 0.75
3rd Quarter................................................ 5.25 3.00
4th Quarter................................................ 4.91 2.00
</TABLE>
- ---------------------
(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 Company's Articles of Incorporation. The Company's Class A Common
Stock began trading on the adjusted basis on the Nasdaq SmallCap Market on
January 28, 1999.
As of March 17, 2000, there were approximately 1,110 holders of record of
the Class A Common Stock (not including beneficial owners holding shares in
nominee accounts). The closing bid price of the Class A Common Stock on
December 31, 1999 was $3.00.
The Company has not paid any cash dividends since formation and, given the
Company's present financial status and their anticipated financial
requirements, does not expect to pay any cash dividends in the foreseeable
future.
On March 16, 2000, the Company obtained a loan from Big Star Investments for
an initial advance of $1.5 million and, at the Company's request and subject
to Big Star's sole discretion, additional advances of up to an additional $2.5
million, which bears interest at 10% per annum and matures on August 31, 2000.
Under the terms of the 2000 Bridge Loan, the principal and accrued interest is
convertible at any time into Class A Common Stock at a conversion price (the
"Conversion Price") equal to the average closing bid price of the Common Stock
during the 10 days preceding the date of the 2000 Bridge Loan (the "Market
Price"). The Conversion Price will be adjusted in the event the Company issues
in excess of $5 million of equity securities in an offering at an issuance
price that is less than the Market Price with respect to the 2000 Bridge Loan.
The adjusted conversion price in such case would be reduced to the issuance
price in such equity offering.
The warrant (the "Warrant") issued in connection with the 2000 Bridge Loan
provides for the purchase of an amount of Class A Common Stock up to 10% of
the principal amount of the 2000 Bridge Loan divided by the exercise price
(the "Exercise Price"). The Exercise Price for the Warrant is the same price
as the Conversion Price. The Warrant will expire if not exercised within 5
years from the date of the 2000 Bridge Loan. Under the terms of the 2000
Bridge Loan, the number of shares issued under the Bridge Loan and Warrant may
not exceed 19.99% of the current outstanding shares of Class A Common Stock.
The securities sold are exempt from registration under the Securities Act of
1933 (the "Securities Act"), as amended, under an exemption for non-public
offerings to accredited investors. Both Westar Capital II and Big Beaver are
accredited investors as defined in the Securities Act. The proceeds from the
sale of securities will be used for working capital and general corporate
purposes.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
(In thousands except per share data)
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues.............. $ 7,809 $ 7,447 $ 1,308 $ 770 $ 784
Net loss.................... (3,237) (9,997) (5,417) (7,704) (7,575)
Net loss per basic and
diluted share(1)........... (4.90) (12.30) (3.08) (4.03) (8.29)
Accumulated deficit......... (13,187) (23,184) (28,601) (36,305) (43,880)
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------
(In thousands)
1995 1996 1997 1998 1999
------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Working capital (deficit)................ $6,481 $(3,315) $ 8,826 $1,190 $1,481
Total assets............................. 8,995 3,922 10,568 2,644 3,721
Capitalized lease obligations............ 68 43 41 65 27
</TABLE>
- ---------------------
(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 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
Amerigon Incorporated is in the business of developing and manufacturing
vehicle components for automotive OEMs. The Company was incorporated in
California on April 23, 1991 as a research and development entity focused on
creating electric vehicles ("EV"). During 1998, the Company decided to suspend
funding activities associated with EV and directed its resources to developing
and commercializing the Climate Control Seat(TM) ("CCS(TM)") and Radar for
Maneuvering and Safety ("AmeriGuard(TM)"), which are both products of the
Company's research. On May 26, 1999, the shareholders of the Company voted to
discontinue EV operations. As a result, the Company is now principally
positioned to bring to market the CCS and AmeriGuard product lines and,
accordingly, has incurred significant sales and marketing, prototype and
engineering expenses to gain orders for production vehicles.
The Company is now operating as a supplier to the auto industry. Inherent in
this market are costs and expenses well in advance of the receipt of orders
(and resulting revenues) from customers. This is due in part to OEM's
requiring the coordination and testing of proposed new components and sub-
systems. Revenues from these expenditures may not be realized for two to three
years as the OEMs tend to group new components and enhancements into annual or
every two to three year vehicle model introductions.
Results of Operations Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998
Revenues. Revenues for year ended December 31, 1999 ("1999") were $784,000
as compared with revenues of $770,000 in the year ended December 31, 1998
("1998"). The change was due to a decrease in revenues generated by the direct
development contracts associated with the radar program of $304,000 offset by
the increase in product shipments for the CCS program of $318,000 as the
Company began shipping mass-volumes of its CCS in the fourth quarter of 1999.
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<PAGE>
Product Costs. Product costs increased from $48,000 in 1998 to $962,000 in
1999. During 1999, the Company continued to incur costs related to the ramp-up
of production of the Company's CCS units which began shipping in mass-volumes
starting in the fourth quarter 1999. The Company anticipates product costs to
increase in absolute dollars while decreasing as a percentage of revenue.
Development Contract Costs. Development contract costs increased to
$1,507,000 in 1999 from $1,364,000 in 1998. This was primarily due to the
costs incurred in conjunction with the pre-production of the CCS for a major
automotive supplier which is anticipated to be in production by mid 2000.
Research and Development Expenses. Research and development expenses
decreased to $2,478,000 in 1999 from $3,202,000 in 1998. The decrease was due
to the Company's shift of emphasis from research and development to direct
development contracts and pre-production efforts associated with the
anticipated contracts with CCS.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses decreased to $3,481,000 in 1999 compared to
$4,098,000 in 1998. The change was due to a decrease in recruiting and other
outside/consulting services in 1999. The Company expects SG&A expenses to
increase as it hires additional employees in connection with the development
of the radar products and the commencement of production and marketing of the
CCS.
Interest Income. Net interest income in 1999 decreased to $105,000 due to a
decline in cash balances before the completion of the sale of Series A
Preferred Stock (See Note 8 to the financial statements). The Company also
incurred interest expense of $14,000 as a result of a bridge loan of
$1,200,000 and $9,000 associated with the amortization of deferred financing
costs.
Results of Operations Year Ended December 31, 1998 Compared to Year Ended
December 31, 1997
Revenues. 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 $556,000, or approximately 43% from the $1,308,000 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 development contracts and continues to
focus its efforts on working toward production contracts for CCS and radar
sensor systems.
Development Contract Costs. Development contract costs decreased to
$1,364,000 in 1998 from $2,611,000 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. 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 has been obtained. The increase was due to an increase in
headcount, tooling expenditures, prototype materials, consulting and travel.
Selling, General and Administrative Expenses. 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 a reclassification of certain expenses to research and
development, fees related to the electric vehicle development and fees related
to the formation of the joint venture in 1997.
Interest Income. 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.
17
<PAGE>
Liquidity and Capital Resources
As of December 31, 1999, the Company had working capital of $1,481,000.
On March 29, 1999, Big Star provided a secured credit facility (the "1999
Bridge Loan") to the Company for up to $1.2 million which beared interest at
10% per annum and matured on the earlier of September 30, 1999 or the
completion of an equity financing. As additional consideration for the 1999
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 warrants were canceled upon the completion of a subsequent
equity investment with the Investors. The 1999 Bridge Loan was secured by a
lien on virtually all of the Company's assets. The 1999 Bridge Loan was
necessary to allow the Company to continue operations pending the closing of a
subsequent equity financing.
On June 8, 1999, the Company completed an equity financing (the "Preferred
Financing") with the Investors pursuant to which the Company sold 9,000 shares
of Series A Convertible Preferred Stock for $9,001,000. The Preferred Stock is
convertible into Class A Common Stock. In addition, the Company issued
warrants to purchase up to 1,229,574 shares of Class A Common Stock. The
warrants were 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 was approved by the shareholders at the 1999
Annual Meeting.
The Company's principal sources of operating capital have been the proceeds
of its various financing transactions and, to a lesser extent, revenues from
sale of CCS units to JCI, grants, development contracts and sale of prototypes
to customers.
The Company entered into a production contract with JCI for CCS units with
the initial shipments occurring in the fourth quarter of 1999. The Company has
spent to date $2,430,000 for tooling, equipment and materials related to this
contract and expects to spend an additional $730,000 for tooling, equipment
and materials for this product line in the first quarter of 2000. The
agreement with JCI has generated, to date, Product and Development Contract
revenues of $293,000 and $150,000, respectively.
As of December 31, 1999, the cash and cash equivalents decreased by $20,000
primarily due to the cash raised by the Preferred Financing offset by the cash
used in operating activities of $7,491,000, which was mainly attributable to
the net loss of $7,575,000. Investing activities used $869,000 as the Company
purchased production equipment and tooling for CCS production. Financing
activities provided $8,340,000 due primarily to $8,267,000 from net proceeds
of the Preferred Financing.
The Company's initial production orders will not provide adequate volumes to
achieve appropriate profit margins or a positive cash flow. These margins and
cash levels can only be achieved through the addition of future CCS production
orders, along with the introduction of Ameriguard. With these additional
programs, the Company expects to require significant capital to fund expenses
for tooling, the set up of manufacturing and/or assembly processes and other
near-term production engineering and manufacturing, as well as research and
development and marketing of these products.
On March 16, 2000, Big Star provided a senior secured convertible credit
facility (the "2000 Bridge Loan") to the Company for an initial advance of
$1.5 million and, at the Company's request and subject to Big Star's sole
discretion, additional advances of up to an additional $2.5 million, which
bears interest at 10% per annum and matures on August 31, 2000. The principal
and accrued interest of the 2000 Bridge Loan are convertible at any time into
Class A Common Stock at a conversion price (the "Conversion Price") equal to
the average closing bid price of the Common Stock during the ten days
preceding the date of the 2000 Bridge Loan (the "Market Price"). The
Conversion Price will be adjusted in the event the Company issues in excess of
$5 million of equity securities in an offering at an issuance price that is
less than the Market Price with respect to the 2000 Bridge Loan. The adjusted
conversion price in such case would be reduced to the issuance price in such
equity
18
<PAGE>
offering. As additional consideration for the 2000 Bridge Loan, the Company
issued a warrant (the "Warrant") to purchase an amount of Class A Common Stock
up to 10% of the principal amount of the 2000 Bridge Loan divided by the
exercise price (the "Exercise Price"). The Exercise Price for the Warrant is
the same price as the Conversion Price. The Warrant will expire if not
exercised within 5 years from the date of the 2000 Bridge Loan. Under the
terms of the 2000 Bridge Loan, the number of shares issued under the Bridge
Loan and Warrant may not exceed 19.99% of the current outstanding shares of
Class A Common Stock. The 2000 Bridge Loan is secured by a lien on virtually
all of the Company's assets.
The Company will need to raise additional cash from financing sources to
fund its operations. There can be no assurance that funding sources will be
obtained or will provide sufficient financing for the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. 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.
The table below presents the carrying value and related weighted average
interest rates for the Company's investment portfolio. The carrying value
approximates fair value at December 31, 1999.
<TABLE>
<CAPTION>
Average Rate of
Return at
Carrying December 31,
Value 1999
Marketable Securities (in thousands) (Annualized)
--------------------- ------------- ---------------
<S> <C> <C>
Cash equivalents.............................. $1,647 5.0%
</TABLE>
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
19
<PAGE>
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 2000 Annual Meeting of
Shareholders.
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
2000 Annual Meeting of Shareholders.
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 2000 Annual Meeting of Shareholders.
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 2000 Annual Meeting of Shareholders.
20
<PAGE>
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> <C>
Report of Independent Accountants............................... F-2
Balance Sheets.................................................. F-3
Statements of Operations........................................ F-4
Statements of Shareholders' Equity (Deficit).................... 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.
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
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(8)
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)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
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(7)
10.7.2 Limited Nonexclusive License Agreement dated as of June 1998 between
the Company and the Regents of the University of California(7)
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(7)
10.18 Credit Agreement dated March 29, 1999 between the Company and Big Star
Investments LLC(7)
10.19 Security Agreement dated March 29, 1999 between the Company and Big
Star Investments LLC(7)
10.20 Patent and Trademark Security Agreement dated March 29, 1999 between
the Company and Big Star Investments LLC(7)
10.21 Bridge Warrant dated March 29, 1999(7)
10.22 Share Exchange Agreement dated March 29, 1999 between the Company and
Lon E. Bell(7)
10.23 Credit Agreement dated March 16, 2000 between the Company and Big Star
Investments LLC
10.24 Security Agreement dated March 16, 2000 between the Company and Big
Star Investments LLC
10.25 Patent and Trademark Security Agreement dated March 16, 2000 between
the Company and Big Star Investments LLC
10.26 Bridge Loan Warrant dated March 16, 2000
10.27 Letter to Amerigon Incorporated Regarding Series A Preferred Stock
23.1 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
22
<PAGE>
(b) Reports on Form 8-K.
During the quarter ended December 31, 1999, 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.
(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.
(7) Previously filed as an exhibit to the Company's Current Report on Form 10-
K for the period ended December 31, 1998 and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Company's Current Report on Form 10-
Q for the period ended June 30, 1999 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 (Deficit)............................... 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
In our opinion, the financial statements listed in the index appearing under
Item 14 (a) (1) on page 21 present fairly, in all material respects, the
financial position of Amerigon Incorporated at December 31, 1999 and 1998, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14 (a)
(2) on page 21 presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States, 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, negative cash
flows from operations, has a significant accumulated deficit, and expects to
incur future losses. 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
February 4, 2000, except for Note 10, as
to which the date is March 30, 2000 and
for Note 17, as to which the date is March 27, 2000.
F-2
<PAGE>
AMERIGON INCORPORATED
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------
Pro Forma
1999
1999 1998 (Note 18)
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents....................... $ 1,647 $ 1,667 $ 1,647
Accounts receivable less allowance of $58 and
$101, respectively........................... 282 174 282
Inventory..................................... 490 105 490
Prepaid expenses and other assets............. 251 136 251
-------- -------- --------
Total current assets........................ 2,670 2,082 2,670
Property and equipment, net.................... 1,051 562 1,051
-------- -------- --------
Total assets................................ $ 3,721 $ 2,644 $ 3,721
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 592 $ 363 $ 592
Deferred revenue.............................. -- 44 --
Accrued liabilities........................... 597 485 597
-------- -------- --------
Total current liabilities................... 1,189 892 1,189
Long term portion of capital lease............. 11 26 11
-------- -------- --------
Total liabilities........................... 1,200 918 1,200
Mandatorily redeemable preferred stock:
Series A--Preferred Stock--no par value;
redeemable and convertible; 9 shares
authorized, 9 and none issued and outstanding
at December 31, 1999 and 1998; none issued
and outstanding pro forma; liquidation
preference of $9,315 (Note 8)................ 8,267 -- --
-------- -------- --------
Commitments (Note 13)
Shareholders' equity (deficit):
Preferred stock:
Series A--no par value; convertible; 9 shares
authorized, none issued and outstanding at
December 31, 1999 and 1998; 9 issued and
outstanding pro forma; liquidation
preference of $9,315 (Note 8)............... -- -- 8,267
Common stock:
Class A--no par value; 20,000 shares
authorized, 1,910 issued and outstanding at
December 31, 1999 and 1998 and pro forma.... 28,149 28,149 28,149
Class B--no par value; 600 shares authorized,
none issued and outstanding................. -- -- --
Paid-in capital............................... 10,059 9,882 10,059
Deferred compensation......................... (74) -- (74)
Accumulated deficit........................... (43,880) (36,305) (43,880)
-------- -------- --------
Total shareholders' equity (deficit)........ (5,746) 1,726 2,521
-------- -------- --------
Total liabilities and shareholders' equity
(deficit).................................. $ 3,721 $ 2,644 $ 3,721
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
AMERIGON INCORPORATED
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Revenues:
Product........................................... $ 336 $ 18 $ --
Development contracts............................. 448 752 1,308
-------- ------- -------
Total revenues.................................. 784 770 1,308
Costs and expenses:
Product........................................... 962 48 --
Development contracts............................. 1,507 1,364 2,611
Research and development.......................... 2,478 3,202 2,072
Selling, general and administrative............... 3,481 4,098 4,471
-------- ------- -------
Total costs and expenses........................ 8,428 8,712 9,154
-------- ------- -------
Operating loss..................................... (7,644) (7,942) (7,846)
Interest income.................................... 135 255 477
Interest expense................................... (30) (17) (71)
Gain (loss) on disposal of property and equipment.. (36) -- 2,363
-------- ------- -------
Loss before extraordinary item..................... (7,575) (7,704) (5,077)
-------- ------- -------
Extraordinary loss from extinguishment of
indebtedness...................................... -- -- (340)
-------- ------- -------
Net loss........................................... $ (7,575) $(7,704) $(5,417)
======== ======= =======
Deemed dividend to preferred shareholders (Note
8)................................................ (8,267) -- --
-------- ------- -------
Net loss available to common shareholders.......... $(15,842) $(7,704) $(5,417)
======== ======= =======
Basic and diluted net loss per share:
Loss before extraordinary item.................... $ (8.29) $ (4.03) $ (2.89)
Extraordinary loss from extinguishment of
indebtedness..................................... -- -- (0.19)
-------- ------- -------
Net loss........................................... $ (8.29) $ (4.03) $ (3.08)
======== ======= =======
Weighted average number of shares outstanding...... 1,910 1,910 1,758
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
AMERIGON INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Class A
Common Stock
-------------- Paid-in Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
------ ------- ------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
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
Issuance of warrants to
purchase Class A
Common Stock in
conjunction with
Bridge Loan Financing
(Note 10)............. -- -- 9 -- -- 9
Issuance of warrants to
purchase Class A
Common Stock in
exchange for
services.............. -- -- 1 -- -- 1
Issuance of shares in
consolidated
subsidiary to
shareholder........... -- -- 88 -- -- 88
Issuance of option to
purchase Class A
Common Stock.......... -- -- 79 (74) -- 5
Net loss............... -- -- -- -- (7,575) (7,575)
----- ------- ------- ---- -------- -------
Balance at December 31,
1999................... 1,910 $28,149 $10,059 $(74) $(43,880) $(5,746)
===== ======= ======= ==== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
AMERIGON INCORPORATED
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net loss........................................... $(7,575) $(7,704) $(5,417)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization..................... 344 582 162
Provision for doubtful accounts................... (43) 21 --
(Gain) loss from sale of assets................... 36 -- (2,363)
Compensation from grant of non-employee stock
options and warrants............................. 15 -- --
Change in operating assets and liabilities:
Accounts receivable.............................. (65) 60 933
Unbilled revenue................................. -- -- 1,157
Inventory........................................ (385) (70) (35)
Prepaid expenses and other assets................ (115) 60 548
Accounts payable................................. 229 (287) (1,265)
Deferred revenue................................. (44) (53) (57)
Accrued liabilities.............................. 112 164 (133)
------- ------- -------
Net cash used in operating activities........... (7,491) (7,227) (6,470)
------- ------- -------
Investing Activities:
Purchase of property and equipment................. (869) (449) (302)
Proceeds from sale of assets....................... -- 971 1,800
Purchase of short term investments................. (1,854) -- (2,400)
Sale of short term investments..................... 1,854 2,400 --
------- ------- -------
Net cash (used in) provided by investing
activities..................................... (869) 2,922 (902)
------- ------- -------
Financing Activities:
Proceeds from Series A Preferred Stock and
Warrants.......................................... 9,001 -- --
Cost of issuance of Series A Preferred Stock and
Warrants.......................................... (734) -- --
Proceeds from sale of common stock units........... -- -- 20,137
Cost of issuance of common stock units............. -- -- (2,542)
Repayment of line of credit........................ -- -- (1,187)
Repayment of capital lease......................... (15) (65) (2)
Proceeds from Bridge Financing..................... 1,200 -- --
Repayment of Bridge Financing...................... (1,200) -- (3,000)
Proceeds from notes payable to shareholder......... -- -- 250
Repayment of notes payable to shareholder.......... -- -- (450)
Sale of shares in consolidated subsidiary.......... 88 -- --
------- ------- -------
Net cash (used in) provided by financing
activities..................................... 8,340 (65) 13,206
------- ------- -------
Net (decrease) increase in cash and cash
equivalents.................................... (20) (4,370) 5,834
------- ------- -------
Cash and cash equivalents at beginning of
period......................................... 1,667 6,037 203
------- ------- -------
Cash and cash equivalents at end of period...... $ 1,647 $ 1,667 $ 6,037
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest............................ $ 21 $ 17 $ 71
======= ======= =======
Supplemental schedule of non-cash activity
Purchase of equipment under capital lease......... $ -- $ 50 $ 23
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
Note 1 -- The Company
Amerigon Incorporated (the "Company"), incorporated in California in April
1991, is a developer, marketer and manufacturer of proprietary, high
technology electronic components and systems for sale to car and truck
original equipment manufacturers ("OEMs"). The Company is currently focusing
the majority of its efforts on the introduction of its primary product, a
Climate Control Seat(TM) ("CCS(TM)"), which provides both heating and cooling
to seat occupants. The Company has one other product under development, the
AmeriGuard(TM) radar-based speed and distance sensor system, which alterts
drivers to the presence of objects near the vehicle.
Historically, the Company's operations have focused on the research and
development of technologies to adapt them for a variety of uses in the
automotive industry. 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.
Through September 30, 1999, the Company was in the development stage. During
the fourth quarter of 1999, the Company's planned principal operations
commenced with the first significant sales and production of CCS systems.
Accordingly, the Company is no longer considered a development stage company.
Disposition of Electric Vehicle Operations
The Company was originally founded to focus on advanced automotive
technologies, including electric vehicle systems ("EV"). As a recipient of a
number of federal and state government grants relating to the development of
EV, the Company spent many years developing and conducting research on EV, and
had research and development contracts with commercial companies relating to
EV. The Company incurred substantial losses from EV activities, including
significant cost overruns on an EV development contract. By December 31, 1997,
the Company had completed substantially all work on its EV contracts.
During 1997, the Company's Board of Directors decided to focus primarily on
the CCS and AmeriGuard radar products. After trying and failing to obtain
either a strategic partner who would provide financing for an EV joint
venture, or to purchase for its EV assets, the Board of Directors decided to
suspend funding the EV 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. In June 1999,
the Company disposed of its electric vehicle operations (Note 14).
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 and
expects to incur future losses. Consequently, in order to fund continuing
operations, the Company will need to raise additional financing. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern. The Company's ability to continue as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations as they come due. In this regard, on March 8, 2000, the Board of
Directors approved a financing transaction with an investor group to obtain a
bridge loan (Note 17), which is due at the earlier of August 31, 2000 or the
occurrence of certain Trigger Events, as described in Note 17. Management is
seeking additional sources of permanent equity or long term financing to fund
its operations. The outcome of such efforts to obtain additional financing
cannot be assured.
F-7
<PAGE>
Note 2 -- Basis of Presentation (Continued)
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.
Reverse Stock Split
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.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
period presentation.
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of less than 90 days to be cash equivalents.
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 a money market fund managed by a major U.S.
financial services company and the credit risk is considered limited. Credit
risk associated with accounts receivable is limited by the large size and
creditworthiness of the Company's commercial customers. The Company maintains
an allowance for uncollectable accounts receivable based upon expected
collectibility and generally does not require collateral.
Inventory
Inventory is valued at the lower of cost, based on the first-in, first-out
basis, or market.
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, 1999 and 1998.
F-8
<PAGE>
Note 3 -- Summary of Significant Accounting Policies (Continued)
Depreciation and amortization are computed using the straight-line method.
The estimated useful lives of the Company's property and equipment are as
follows:
<TABLE>
<CAPTION>
Useful Life in Years
-------------------------
<S> <C>
Description of property and equipment:
Equipment....................................... 5
Computer equipment.............................. 1 to 3
Leasehold improvements.......................... Shorter of estimated life
of term of lease
Production tooling.............................. Estimated life of tool
</TABLE>
Product Revenues
Revenues from product sales are recognized at the time of shipment to the
customer. Provision for estimated future cost of warranty is recorded when
revenue is recognized.
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 OEMs and (2) 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. 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.
Research and Development Expenses
Research and development activities are expensed as incurred. Research and
development expenses associated with projects that are specifically funded by
development contracts are classified as costs of development contracts in the
Statements of Operations. All other research and development expenses that are
not associated with projects that are not specifically funded by development
contracts are classified as research and development. Research and development
excludes any overhead or administrative costs.
Accounting for Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," the Company accounts for its
stock-based compensation arrangements pursuant to Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
complies with the disclosure provision of SFAS No. 123. Under APB No. 25,
compensation cost is recognized based on the difference, if any, on the date
of grant between the fair value of the Company's stock and the amount an
employee must pay to acquire the stock.
The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued in
accordance with the provision of SFAS No. 123 and Emerging Issues Task Force
No. 96-18, "Accounting for Equity Instruments that are Issued to other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
Income Taxes
Income taxes are determined under guidelines prescribed by SFAS No. 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 when
management considers it more likely than not that the asset will not be
realized.
F-9
<PAGE>
Note 3 -- Summary of Significant Accounting Policies (Continued)
Net Loss per Share
Under the provisions of SFAS 128, "Earnings per Share," basic loss 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 loss 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, dilutive net loss per share for the
years ended December 31, 1999, 1998 and 1997 does not include the effect of:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Stock options outstanding for:
1993 and 1997 Stock Option Plans............. 871,180 203,170 115,637
Options granted by an officer to directors
and officers................................ -- 118,422 119,768
Shares of Class A Common Stock issuable upon
the exercise of warrants.................... 2,705,374 1,430,800 1,471,751
Common stock issuable upon the conversion of
Series A Preferred Stock.................... 5,373,134 -- --
--------- --------- ---------
Total........................................ 8,949,688 1,752,392 1,707,156
========= ========= =========
</TABLE>
Net loss available to common shareholders represents net loss for the year
ended December 31, 1999, increased by a non-cash deemed dividend of
$8,267,000, to the holders of Series A Preferred Stock (Note 8) resulting from
the beneficial difference between the conversion price and the fair market
value of Class A Common Stock on the date of issuance of the Series A
Preferred Stock.
Comprehensive Loss
For the years ended December 31, 1999, 1998 and 1997, there was no
difference between net loss and comprehensive loss.
Recent Accounting Pronouncement
Effective January 1, 1999, the Company adopted Statement of Position No. 98-
5, "Reporting on the Costs of Start-up Activities." SOP No. 98-5 requires that
all start-up costs related to new operations must be expensed as incurred. In
addition, start-up costs that were capitalized in the past must be written off
when SOP No. 98-5 is adopted. The implementation of SOP 98-5 did not have a
material effect on the financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB No.
101, as amended, is required to be adopted by registrants no later than their
second fiscal quarter of the fiscal year beginning after December 15, 1999.
The Company is currently analyzing SAB No. 101, but believes that adoption of
this new accounting principle will not have a material effect on the Company's
financial statements.
F-10
<PAGE>
Note 4 -- Details of Certain Financial Statement Components (in thousands)
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Inventory:
Raw material.............................................. $ 398 $ 173
Work in Process........................................... 20 30
Finished goods............................................ 192 2
------- -------
610 205
Less: inventory allowance.................................. (120) (100)
------- -------
$ 490 $ 105
======= =======
Prepaid Expenses and Other Assets:
Deposits.................................................. $ 171 $ 104
Prepaid insurance......................................... 80 32
------- -------
$ 251 $ 136
======= =======
Property and Equipment:
Equipment................................................. $ 1,426 $ 1,000
Computer equipment........................................ 672 663
Leasehold improvements.................................... 252 225
Production tooling........................................ 527 330
------- -------
2,877 2,218
Less: accumulated depreciation and amortization............ (1,826) (1,656)
------- -------
$ 1,051 $ 562
======= =======
Accrued Liabilities:
Accrued salaries.......................................... $ 220 $ 201
Accrued vacation.......................................... 187 171
Other accrued liabilities................................. 190 113
------- -------
$ 597 $ 485
======= =======
</TABLE>
Property and equipment includes assets acquired under capital leases of
approximately $50,000 at December 1999 and 1998, respectively, and accumulated
amortization of $13,000 and $10,000 at December 31, 1999 and 1998,
respectively.
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. The deferred tax assets and related
valuation allowance were comprised of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Net Operating Loss............................ $ 15,316 $ 12,488 $ 9,755
Credits....................................... 798 718 551
Effect of State Taxes......................... (596) (480) (390)
Depreciation.................................. 253 219 74
Other......................................... 168 122 56
-------- -------- --------
Less: valuation allowance...................... 15,939 13,067 10,046
(15,939) (13,067) (10,046)
-------- -------- --------
Net deferred tax asset....................... $ -- $ -- $ --
======== ======== ========
</TABLE>
F-11
<PAGE>
Note 5 -- Income Taxes (Continued)
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the net operating loss carryforward period. Management has
considered these factors in reaching its conclusion that the Company's
deferred tax assets at December 31, 1999 should be fully reserved.
A reconciliation between the statutory federal income tax rate of 34% and
the effective rate of income tax expense for each of the three years ended
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate................... (34.0%) (34.0%) (34.0%)
Increase (decrease) in taxes resulting from:
State tax, net of federal benefit.................. (5.8%) (5.8%) (6.1%)
Nondeductible expenses............................. -- 0.1% (1.1%)
Change in valuation allowance..................... 39.8% 39.7% 41.2%
----- ----- -----
Effective Rate...................................... --% --% --%
===== ===== =====
</TABLE>
At December 31, 1999 the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $40.1 million and $19.0
million, respectively, and tax credits for federal and state income tax
purposes of $488,000 and $310,000, respectively. The federal net operating
loss carryforwards expire in 2008 through 2019 and state net operating loss
carryforwards expire in 1999 through 2004.
Because of the "change of ownership" provision of the Tax Reform Act of
1986, utilization of the Company's net operating loss and research credit
carryforwards may be subject to annual limitation against income in future
periods. As a result of the annual limitation, a portion of these
carryforwards may expire before ultimately becoming available to reduce future
tax liabilities.
Note 6 -- Extraordinary Loss
In connection with the repayment of debt financing in 1997, the Company
recorded a non-cash charge of $340,000 resulting from the elimination of the
remaining unamortized portion of the deferred debt issuance costs.
Note 7 -- Bridge Note
On March 29, 1999, the Company entered into a Security Purchase Agreement
(the "Preferred Financing") with Westar Capital II and Big Beaver (Note 8) for
the sale of Series A Preferred Stock. In connection with the Preferred
Financing, prior to the close of the Preferred Financing, the investors
extended to the Company $1,200,000 in bridge notes bearing interest at 10% per
annum which were due and payable upon the earlier of the closing of the
Preferred Financing or September 30, 1999. At the close of the sale of the
Preferred Financing, the Company repaid the bridge notes and $14,000 in
interest to the investors with proceeds received from the sale of Series A
Preferred Stock. As discussed in Note 10, in conjunction with the issuance of
these bridge notes, the Company granted warrants to purchase 300,000 shares of
Class A Common Stock which were canceled upon the close of the Preferred
Financing.
Note 8 -- Redeemable and Convertible Preferred Stock
Under the terms of the Preferred Financing, on June 8, 1999, the Company
issued 9,000 shares of Series A Preferred Stock and warrants to purchase up to
1,229,574 shares of Class A Common Stock (Note 10) in exchange for $9,001,000.
Costs in connection with the financing were $734,000, resulting in net
proceeds of $8,267,000. The Series A Preferred Stock will initially be
convertible into 5,373,134 shares of Class A Common Stock.
F-12
<PAGE>
Note 8 -- Redeemable and Convertible Preferred Stock (Continued)
Also in conjunction with the Preferred Financing, in accordance with
Emerging Issues Task Force Consensus No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios", the Company recorded a non-cash deemed dividend to the
Series A Preferred shareholders of $8,267,000, or $4.33 per weighted average
common share outstanding for the year ended December 31, 1999, resulting from
the difference between the conversion price of $1.675 and the closing price of
Class A Common Stock on the date of issuance, June 8, 1999 of $4.31.
Conversion
Each issued share of Series A Preferred Stock is immediately convertible, in
full and not in part, into shares of Class A Common Stock based on the formula
of $1,000 of the face value divided by the Conversion Price. The Conversion
Price is $1.675, subject to proportional adjustments for certain dilutive
issuance, splits and combinations and other recapitalizations or
reorganizations. A total of 5,373,134 shares of Class A Common Stock has been
reserved for issuance in the event of the conversion of Series A Convertible
Preferred Stock.
Voting Rights
The holder of each share of Series A Preferred Stock has the right to one
vote for each share of Class A Common Stock into which such Series A Preferred
Stock could then be converted. The holders of this Series A Preferred Stock,
as a class, have the right to elect five of the seven seats on the Board of
Directors of the Company.
Dividends
The Series A Redeemable and Convertible Preferred Stock will receive
dividends on an "as-converted" basis with the Class A Common Stock when and if
declared by the Board of Directors. The dividends are noncumulative and are
payable in preference to any dividends on common stock.
Liquidation Preference
Upon liquidation, dissolution or winding up of Amerigon, including a merger,
acquisition or sale of assets where there is a change in control, each share
of Series A Redeemable and Convertible Preferred Stock is entitled to a
liquidation preference of $1,000 plus 7% of the original issue price ($1,000)
annually for up to four years after issuance plus any declared but unpaid
dividends in priority to any distribution to the Class A Common Stock, which
will receive the remaining assets of Amerigon. As of December 31, 1999, the
liquidation preference was $9,315,000.
The Company's Certificate of Determination of Rights, Preferences and
Privileges of the Series A Preferred Stock ("Certificate") states that a
liquidation, dissolution or winding up of the Company shall be deemed to be
occasioned by (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) or (B) a sale of all
or substantially all of the assets of the corporation unless the corporation's
shareholders will immediately after such acquisition or sale hold at least 50%
of the voting power of the surviving or acquiring entity. This provision is
deemed to be a condition of redemption that is not solely within the control
of the issuer. As such, the Company is required to classify the Series A
Preferred Stock as mandatorily redeemable or mezzanine equity. In March 2000,
the holders of the Series A Preferred Stock agreed to amend the Certificate to
eliminate this provision (Note 18).
Redemption
On or after January 1, 2003, if the closing price of the Class A Common
Stock for the past 60 days has been at least four times the then Conversion
Price ($1.675 per share at December 31, 1999), Amerigon may redeem the Series
A Redeemable and Convertible Preferred Stock for an amount equal to the
liquidation preference.
F-13
<PAGE>
Note 9 -- 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. At December 31, 1999 and 1998, no shares of Class
B Common Stock were issued and outstanding. As discussed below, 600,000 shares
were held in escrow as Class A Common Stock at December 31, 1998, of which
518,580 were released as Class B Common Stock on April 30, 1999. These Class B
shares were reacquired and canceled as part of the sale of the EV subsidiary
in 1999 (Note 14).
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
280 Class A Warrants to purchase, at $25.00 per share plus five warrants,
Class A Common Stock, resulting in the issuance of 952,000 shares of Class A
Common Stock and 4,760,000 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 714,000 Class A Warrants
to cover over allotments. Proceeds to the Company, net of expenses of
$2,541,500, 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 were
scheduled to be released from escrow upon the earlier of (1) the attainment
during the period through December 31, 1998 of certain goals, as adjusted,
including prescribed earnings levels or (2) on April 30, 1999. All shares that
had not been released from escrow by April 30, 1999 were to be exchanged for
shares of Class B Common Stock, which then would be released from escrow to
the shareholders who remained either an employee, director or consultant of
the Company on April 30, 1999. As the Company did not achieve such goals, on
April 30, 1999, 518,580 shares held in escrow were automatically exchanged for
shares of Class B Common Stock and were released to Lon Bell, the only
remaining shareholder. The remaining 81,420 shares were canceled. In
conjunction with the sale of the EV subsidiary, (Notes 1 and 14), all shares
of Class B Common Stock were acquired by the Company and canceled.
Note 10 -- Stock Warrants
Warrants Issued in Connection with the Preferred Financing
In conjunction with the Preferred Financing (Note 8), the Company issued
contingent warrants to purchase shares of Class A Common Stock at exercise
prices ranging from $2.67 to $51.25 in exchange for $1,000. At December 31,
1999, the Company had outstanding contingent warrants to issue 1,229,574
shares of Class A Common Stock. Effective March 27, 2000, as a result of the
issuance to Ford Motor Company of a warrant to purchase shares of the
Company's Class A Common Stock (Note 17), the Company had outstanding
contingent warrants to issue 1,266,456 shares of Class A Common Stock. The
warrants can only be exercised to the extent that certain other warrants to
purchase Class A Common Stock are exercised by existing warrant holders and
then only in the proportion of the Company's equity purchased and at the same
exercise price as the exercising warrant holders. The proceeds of the
preferred financing were allocated between the preferred stock and the
warrants based on the relative fair values of the preferred stock and the
warrants. The value allocated to the warrants granted was less than $1,000.
The warrants are exercisable at any time prior to dates ranging from December
28, 2000 to March 23, 2004. None of the warrants had been exercised as of
December 31, 1999.
F-14
<PAGE>
Note 10 -- Stock Warrants (Continued)
Also in conjunction with the Preferred Financing (Note 8), the Company
granted to financial advisors warrants to purchase 45,000 shares of Class A
Common Stock at exercise prices ranging from $2.67 to $5.30. The fair value of
the warrants granted, as determined using the Black-Scholes model was $1,000
and was reflected as paid-in capital. The warrants are exercisable at various
dates ranging from March to June 2004 and none had been exercised as of
December 31, 1999.
In conjunction with the issuance of bridge notes as described in (Note 7),
the note holders received warrants to purchase 300,000 shares of Class A
Common Stock at an exercise price of $1.03. Such warrants would only become
exercisable at anytime during a period beginning on the date that the
Preferred Financing was terminated and ending five years after such date, but
would terminate upon the closing of the Preferred Financing. The fair value of
the warrants granted was $9,000 and was recorded as interest expense. Upon the
closing of the Preferred Financing in June 1999, (Note 8), these warrants were
canceled.
Warrants Issued in Connection with Public Offerings
In connection with debt financing obtained in 1996 and the follow-on public
offering completed in 1997 (Note 9), at December 31, 1999, the Company had in
the aggregate 7,094,000 outstanding warrants to issue 1,418,800 shares of
Class A Common Stock (324,000 shares related to the 1996 debt financing and
1,094,800 shares related to the 1997 public offering). At December 31, 1999,
each registered warrant holder was entitled to convert five warrants for one
share of Class A Common Stock at an exercise price of $25.00.
Effective March 27, 2000, as a result of the issuance to Ford Motor Company
of a warrant to purchase shares of the Company's Class A Common Stock (Note
17) and subject to the surrender by holders of existing warrant certificates,
the Company had in the aggregate 7,343,880 outstanding warrants to issue
1,468,776 shares of Class A Common Stock. As of such date, each registered
warrant holder was entitled to convert five warrants for one share of Class A
Common Stock at an exercise price of $24.149.
On March 30, 2000, the Company announced its election to reduce by a factor
of five the number of outstanding warrants, rather than continue to require
five warrants to be exercised in order to acquire one share of Class A Common
Stock. Each warrant outstanding after making this adjustment will represent
the same interest as five outstanding warrants. As a result of this election
and subject to the surrender by holders of existing warrant certificates and
the cancellation of any warrants to acquire less than one share of Class A
Common Stock, the Company will have in the aggregate 1,468,776 outstanding
warrants to issue 1,468,776 shares of Class A Common Stock, with each
registered warrant holder entitled to convert one warrant for one share of
Class A Common Stock at an exercise price of $24.149.
The Company may, upon 30 days' written notice, redeem each Class A Warrant
in exchange for $.05 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, 1999, the
Company had not exercised this option and none of these warrants had been
exercised.
In connection with the Company's June 1993 initial public offering of its
common stock, 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. These warrants expire on December 28, 2000 and none of the warrants had
been exercised as of December 31, 1999.
Note 11 -- 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
F-15
<PAGE>
Note 11 -- Stock Options (Continued)
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. On June
23, 1999, the Board of Directors approved an amendment to the 1997 Stock
Option Plan to increase the maximum number of shares of Common Stock that may
be delivered pursuant to all Options (including both Nonqualified Stock
Options and Incentive Stock Options) granted not to exceed 1,300,000 shares.
This amendment is subject to shareholder approval.
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 ten 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 Vice Chairman ("Bell Options")
Dr. Lon E. Bell, the Vice Chairman and founder of the Company, had granted
options to purchase shares of his Class A Common Stock, 75% of which were
Escrowed Contingent Shares (Note 9). 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. As
discussed in Note 9, shares held in escrow were released on April 30, 1999 as
Class B Common Stock. As such, all options to purchase shares of Dr. Bell's
Class A Common Stock were canceled. In conjunction with the sale of the EV
subsidiary (Notes 1 and 14), all shares of Class B Common Stock were canceled.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
1993 and 1997
Stock Option Plans Bell Options
------------------ -------------------
Weighted Weighted
Shares Number of Average Number of Average
Available Options Exercise Options Exercise
For Grant Granted Price Granted Price
--------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31,
1996....................... 312,059 53,165 $47.20 135,386 $12.00
Granted..................... (115,880) 115,880 17.50 -- --
Canceled.................... 76,323 (53,408) 46.10 (13,305) 33.45
Exercised................... -- -- -- (2,313) 5.75
--------- ------- ------ -------- ------
Outstanding at December 31,
1997....................... 272,502 115,637 18.45 119,768 13.55
Granted..................... (120,995) 120,995 6.15 -- --
Canceled.................... 27,370 (33,462) 13.15 (1,346) 5.75
--------- ------- ------ -------- ------
Outstanding at December 31,
1998....................... 178,877 203,170 11.95 118,422 13.25
Authorized.................. 1,150,000 -- -- -- --
Granted..................... (759,000) 759,000 3.16 -- --
Canceled.................... 28,776 (90,990) 8.03 (118,422) 13.25
--------- ------- ------ -------- ------
Outstanding at December 31,
1999....................... 598,653 871,180 $ 8.43 -- $ --
========= ======= ====== ======== ======
</TABLE>
F-16
<PAGE>
Note 11 -- Stock Options (Continued)
The following table summarizes information concerning currently outstanding
and exercisable stock options for the 1993 and 1997 Stock Option Plans as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Exercisable
Options Outstanding at at
December 31, 1999 December 31, 1999
-------------------------------------- ---------------------
Weighted- Weighted-
Weighted-Average Average Number Average
Range of Number Remaining Exercise Vested and Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.55-
3.06 643,700 9.44 $ 3.05 120,414 $ 3.06
3.31- 3.88 91,000 8.88 3.59 -- --
4.00-11.40 56,220 8.86 7.15 8,067 10.34
13.15-18.15 75,000 2.16 17.25 64,998 17.11
20.30-51.85 5,260 2.44 21.13 5,259 21.13
------- -------
871,180 198,738
======= =======
</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,
----------------
1999 1998
------- -------
(In thousands,
except per
share data)
<S> <C> <C>
Net loss
As reported............................................ $(7,575) $(7,704)
Pro forma.............................................. (9,401) (8,274)
Basic and diluted loss per share
As reported............................................ $ (8.29) $ (4.03)
Pro forma.............................................. (9.25) (4.33)
</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
-----------------
1999 1998
-------- --------
<S> <C> <C>
Risk free interest rates................................. 6% 6%
Expected dividend yield.................................. none none
Expected lives........................................... 4.5 yrs. 4.3 yrs.
Expected volatility...................................... 96% 60%
</TABLE>
The weighted average grant date fair values of options granted under the
1993 and 1997 Stock Option Plans during 1999 and 1998 were $3.14 and $6.26,
respectively.
Note 12 -- Licenses
Climate Control Seat System. In 1992, the Company obtained the worldwide
license to manufacture and sell technology for a CCS system to individual
automotive OEMs. Under the terms of the license agreement, royalties are
payable based on cumulative net sales and do not require minimum payments. The
Company has recorded royalty expense under this license agreement of $43,000,
$43,000 and $18,000 in 1999, 1998 and 1997, respectively. These royalties are
recorded as research and development expense.
F-17
<PAGE>
Note 12 -- Licenses (Continued)
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 1997 were $150,000 and were expensed as research and
development costs. This licensing agreement was converted to a non-exclusive
agreement in 1998.
Note 13 -- Commitments
The Company leases its current facility in Irwindale, California from a
partnership controlled by Dr. Bell, a significant shareholder of the Company.
The Company believes that the terms of the lease are at least as favorable as
those that could be obtained from other lessors. The agreement expires on
December 31, 2002, and requires the Company to pay $20,000 per month. The
Company also leases certain equipment under operating leases, which expire
through 2002. Rent expense under all of the Company's operating leases was
$268,000, $266,000 and $415,000 for 1999, 1998 and 1997, respectively. Future
minimum lease payments under all operating leases are $266,000, $258,000,
$247,000, in 2000, 2001 and 2002 respectively, and nil thereafter.
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 $19,000, $6,000 and $6,000, respectively, for years ending December 31,
2000, 2001 and 2002 of which $4,000 represents total interest to be paid and
$16,000 was included in liabilities at December 31, 1999.
Note 14 -- Related Party Transactions
Dr. Bell, Vice Chairman of the Board and founder of the Company, co-founded
CALSTART in 1992, served as its interim President, and for five years had
served on CALSTART's Board of Directors and is a member of its Executive
Committee. Included in accounts receivable at December 31, 1998 and 1999, was
a receivable owed to the Company from CALSTART of $41,000 and nil,
respectively, relating primarily to amounts withheld from payments made by
CALSTART under several development programs.
On March 23, 1999, the Company's Board of Directors agreed to form a
subsidiary to hold the Company's EV operations. Pursuant to discussions held
among the Company's Board of Directors and Dr. Bell, Vice 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. On March 29,
1999, the 15% was sold to Dr. Bell and was reflected as paid-in capital. On
May 26, 1999, the shareholders voted to sell the remaining interest, 85%, of
the EV subsidiary to Dr. Bell in exchange for all of his Class B Common Stock
(Note 9). The Company recorded a loss of $36,000 on the transfer of related
assets to Dr. Bell.
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 the
Company'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 $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 the Company to IVS.
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.
F-18
<PAGE>
Note 16 -- Segment Reporting (Continued)
The Company's reportable segments are as follows:
. Climate Control Seats (CCS) -- variable temperature climate control seat
system designed to improve the temperature comfort of automobile
occupants.
. Radar -- radar-based sensing system that detects objects by reflecting
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. As discussed in Notes 1 and 14, all EV
related assets were sold to Dr. Bell, a significant shareholder of the
Company. Also, as discussed in Note 1, the Company's Board of Directors
decided to suspend funding of the EV program in August 1998.
. Interactive Voice Navigation System (IVS) -- 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, 1999, 1998 and
1997 (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 Items Reported
------- ----- ------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
1999
Revenue............. $ 784 $ -- $ -- $ -- $ -- $ 784
Operating loss...... (3,316) (847) -- -- (3,481)(1) (7,644)
1998
Revenue............. 396 329 45 -- -- 770
Operating loss...... (2,844) (455) (545) -- (4,098)(1) (7,942)
1997
Revenue............. 451 135 611 111 -- 1,308
Operating loss...... (978) (702) (1,194) (501) (4,471)(1) (7,846)
</TABLE>
- ---------------------
(1) Represents selling, general and administrative costs of $3,255,000,
$3,752,000 and $4,309,000, respectively, and depreciation expense of
$226,000, $346,000 and $162,000, respectively, for years ended December
31, 1999, 1998 and 1997.
Revenue information by geographic area (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ------
<S> <C> <C> <C>
United States--Commercial................................ $491 $ 58 $ 211
United States--Government................................ -- 103 416
Asia..................................................... 247 461 556
Europe................................................... 46 148 125
---- ---- ------
Total Revenues........................................... $784 $770 $1,308
==== ==== ======
</TABLE>
In 1999, two customers (CCS), one foreign and one commercial, represented
30% and 53%, respectively, of the Company's sales. In 1998 three customers,
two foreign (CCS) and one government (Radar) represented 12%, 30% and 13%,
respectively, 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%, respectively, of the Company's sales.
F-19
<PAGE>
Note 17 -- Subsequent Events
Bridge Facility
In March 2000, the Company obtained a loan from Big Star for an initial
advance of $1.5 million and, at the Company's request and subject to Big
Star's sole discretion, additional advances of up to an additional
$2.5 million. The advances accrue interest at 10% per annum, payable at
maturity or on the date of any prepayment. The principal and accrued interest
of the initial loan are convertible at any time into Class A Common Stock at
a conversion price (the "Conversion Price") equal to the average closing bid
price of the Common Stock during the ten days preceding the date of the bridge
loan (the "Market Price"). The Conversion price will be adjusted in the event
the Company issues in excess of $5 million of equity securities in an offering
at an issuance price that is less than the Market Price with respect to the
bridge loan. Additional advances will also be convertible based on the average
price of the Company's Class A Common Stock during the ten days preceding such
additional advances. The loans are due on the earlier of August 31, 2000, or
upon the occurrence of a Trigger Event as defined as an event 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 the assets or securities or any comparable
transaction which has not been consented to in writing by Big Star. The
Company has granted liens on substantially all of its assets as collateral for
this loan. Warrants to purchase Class A Common Stock of the Company were also
issued in connection with the loan for the number of shares equal to 10% of
the principal amount of the advances made divided by the conversion price. The
exercise price for the warrants and provision for future adjustments to their
exercise prices are the same as for the loans.
Ford Agreement
On March 27, 2000, the Company entered into a Value Participation Agreement
("VPA") with the Ford. Pursuant to the VPA, Ford agreed that, through December
31, 2004, the Company has the exclusive right to manufacture and supply CCS
units to Ford's tier 1 suppliers for installation in Ford, Lincoln and Mercury
branded vehicles produced and sold in North America (other than Ford branded
vehicles produced by Auto Alliance, Inc.). Ford is not obligated to purchase
any CCS units under the VPA.
As part of the VPA, the Company will grant to Ford warrants exercisable for
Class A Common Shares. A warrant for the right to purchase 82,197 shares of
Class A Common Stock at an exercise price of $2.75 per share was issued and
fully vested on March 27, 2000. Additional warrants will be granted and vested
based upon purchases by Ford of a specified number of CCS units in a given
year throughout the length of the VPA. The exercise price of these additional
warrants depends on when such warrants vest, with the exercise price
increasing each year. If Ford does not achieve specific goals in any year, the
VPA contains provisions for Ford to make up the shortfall in the next
succeeding year. If Ford achieves all of the incentive levels required under
the VPA, warrants will be granted and vested for an additional 986,364 shares
of Class A Common Stock. The total number of shares subject to warrants which
may become vested will be adjusted in certain circumstances for antidilution
purposes, including an adjustment for equity issuances of up to $15 million on
or before September 30, 2000, so that the percentage interest in the Company
represented by the aggregate number of shares subject to warrants is not
diluted by such issuances.
Modification of the Company's Certificate of Determination
In March 2000, the holders of the Series A Preferred Stock entered into an
agreement whereby, subject to shareholder approval, the holders agreed to
amend the Company's Certificate of Determination to eliminate the provision as
discussed in Note 8, which defined a merger, acquisition or sale of assets
where there is change in control as a liquidation event.
Note 18 -- Unaudited Pro Forma Balance Sheet Information
The unaudited pro forma balance sheet reflects the reclassification of the
Series A Redeemable and Convertible Preferred Stock to equity as if the
agreement to amend the Certificate of Determination, as discussed in Note 17,
had occurred on December 31, 1999.
F-20
<PAGE>
AMERIGON INCORPORATED
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
(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,
1997................... $ 80 $ -- $ -- $ -- $ 80
Year Ended December 31,
1998................... 80 27 -- (6) 101
Year Ended December 31,
1999................... 101 16 -- (59) 58
Allowance for Inventory
Year Ended December 31,
1997................... -- -- -- -- --
Year Ended December 31,
1998................... -- 100 -- -- 100
Year Ended December 31,
1999................... 100 121 (101) 120
Allowance for Deferred
Income Tax Assets
Year Ended December 31,
1997................... 7,161 2,885 -- -- 10,046
Year Ended December 31,
1998................... 10,046 3,021 -- -- 13,067
Year Ended December 31,
1999................... 13,067 2,872 -- -- 15,939
</TABLE>
F-21
<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
/s/ Richard A. Weisbart
By: _________________________________
Richard A. Weisbart
President, Chief Executive
Officer
and Chief Financial Officer
March 30, 2000
-------------------------------
(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/ Richard A. Weisbart President, Chief Executive March 30, 2000
____________________________________ Officer and Chief Financial
Richard A. Weisbart Officer
/s/ Lon E. Bell, Ph. D Vice Chairman of the Board March 30, 2000
____________________________________ and Chief Technology
Lon E. Bell, Ph. D. Officer
/s/ Roy A. Anderson Director March 30, 2000
____________________________________
Roy A. Anderson
/s/ John W. Clark Director March 30, 2000
____________________________________
John W. Clark
/s/ Oscar B. Marx, III Chairman of the Board March 30, 2000
____________________________________
Oscar B. Marx, III
/s/ Paul Oster Director March 30, 2000
____________________________________
Paul Oster
/s/ James J. Paulsen Director March 30, 2000
____________________________________
James J. Paulsen
/s/ Sandra L. Grouf Controller March 30, 2000
____________________________________ (Principal Accounting
Sandra L. Grouf Officer)
</TABLE>
<PAGE>
[GRAPHIC]
EXHIBIT 10.16
LETTER AGREEMENT
This Letter Agreement entered into this 16th day of December, 1998 at Bangalore,
between:
Sudarshan K. Maini, an Indian citizen, having his addresses at Maini Sadan,
Lavelle Road, Bangalore, acting for himself and
Maini Materials Movement Pvt.Ltd., a company incorporated and registred under
the Companies Act, 1956, 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 its 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 its 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, 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")
<PAGE>
[SEAL]
RANGA SWAMY
<PAGE>
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 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.
<PAGE>
(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.
2. Formation of Newco.
------------------
(a) Newco will be an Indian Private Limited Company registered
under the Companies 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 Products(s) throughout the
Territory, (ii) marketing, distributing and selling the Products(s) throughout
the Territory, (iii) servicing the Products(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
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 of the
earlier version of the REVA and any other exemptions/concessions 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 ----------
<PAGE>
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 reductions (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 agreeable valuation
method.
(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 of 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.
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
<PAGE>
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 attendance of at least one Amerigon
director or 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 require (i) at
least 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, 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.
<PAGE>
(d) Newco shall maintain true and accurate books of 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.
(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 a 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 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
<PAGE>
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 party 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,
nontransferable 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 facility
in Irwindale, California. All sales of products will be made pursuant to
Amerigon's standard terms and conditions of sale. In 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.
<PAGE>
(e) Newco shall be formed and capitalized and the Technology
License Agreement between Amerigon and Newco shall be concluded latest by
31st March 1999.
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 that Newco must raise additional funds, per
Indian Company Laws, all shareholders will have pre-emptive rights to
subscribe for pro rata and purchase additional shares and contribute
additional capital to maintain its then existing owenership interest in
Newco. Such pre-emptive rights shall be on terms and conditions agreed upon
by Amerigon and Maini in the definitive agreements.
(c) Amerigon and Maini shall have the right to participate, pro
rata, with respect to the any sale by an 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
other shareholders of Newco to purchase their equity interests in Newco (which
may
<PAGE>
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.
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.
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
<PAGE>
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 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 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 of intent 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 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
<PAGE>
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 Sections 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.
(f) This letter agreement constitutes and contains the entire
agreement concerning the subject matter hereof between the parties and may only
be amended or superseded by a written agreement signed by both parties. This
letter agreement supersedes 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.
<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
<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 lease 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), data acquisition, harness tester, specific
electronic testing and assembly tools.
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
1. 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).
<PAGE>
2. 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 to Newco, if permitted by the terms of the
software licenses.
3. Employees: To enable the program to continue smoothly, Amerigon will
continue to employ Chetan Maini, Todd Cameron, Ellen Morris and Dudley
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, safety tests and road
tests in Bangalore.
4. Homologation and roadworthiness certification for the earlier REVA prototype
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. 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.
<PAGE>
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.
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, which ever 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
----------------------------------------------------------
All amounts are in thousands of US dollars
Conversion rate assumed at Rs 42.5 equals US $1
</TABLE>
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.
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.
<PAGE>
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 98, production will commence by Feb
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 99, 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: 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.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Task Name REVA IMPLEMENTATION PLAN
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1999
-------------------------------------------------------------------------------------------
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 JV Kickoff & Capitalization --------------------
2 Start-Up Acitivities -------------------------
3 Production - Upgrades --------
4 Procurement - BETA --------------
5 Procurement - Pre-Production ----------------
6 Procurment - Production -----------------
7 Supplier Tooling ------------------------------
8 Assemble BETA Vehicles --------
9 Assemble Pre-Prod. Vehicles -----------
10 Testing ------------------------------------------------------------------
11 Production Readiness --------------------------------------------------------
12 Facilitization --------------------------------------------
13 Marketing/Distribution Planning ----------------------------------------
14 Marketing Implementation --------------------------
15 Quality Plan ----------------------------------------
16 Quality Implementation --------------------------
17 Design for Production -------------------------------
18 Production Start (125 Vehicle/Month) ------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Page 1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Org. Chart for Proposed India JV thru Year 2
October 19, 1998
<S> <C> <C> <C> <C> <C>
--------------------
BOARD OF
DIRECTORS ----------------------
-------------------- -------------------
MANAGING
DIRECTOR
-------------------
-------------------------------------------------------------------------------------------
------------------- ------------------ ---------------- --------------------
CFO QUALITY OPERATIONS SALES & MARKETING
ASSURANCE
-------------------- ------------------- ----------------- ---------------------
- Investor Relations - Standards - Distribution
- MIS - Benchmarking - Service
- Administration - Communicate Standards - Warranty
- Accounting/Payroll - Assure Conformance - Training
- Gov't. Cert/Subsidy - Vendor Quality - Publication of Manuals
- Human Resources - Quality Systems
---------------- -------------------- ----------------------
----------------- ------------------- PURCHASING MANUFACTURING PRODUCTION
ENGINEERING VENDOR ----------------- -------------------- ---------------------
DEVELOPMENT - Supplier Certi- - Tooling - Assembly Process
---------------- -------------------- fication - Vacuum Form - Production Planning
- Testing - Certify Suppliers - Better Target Price - Chassis - Facility Planning
- Beta Assembly - Select Suppliers - Part Deliver, - Manufacturing - Parts Receiving
- Configuration - Negotiate contracts Quality Documents - Storage
Control - Continuous Improvement - Kitting
- Production - Cost Reduction
Engineering
</TABLE>
<PAGE>
Org. Chart for Proposed India JV after Year 2
October 19, 1998
<TABLE>
<CAPTION>
BOARD OF
DIRECTORS
MANAGING
DIRECTOR
CFO RESEARCH & DEVELOPMENT QUALITY ASSURANCE OPERATION SALES & MARKETING
- --- ---------------------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
- -Investor Relations -Product Support -Standards -Distribution
- -MIS -New Product Development -Benchmarking -Service
- -Administration -Product Evolution -Communicate Standards -Warranty
- -Accounting/Payroll -Assure Conformance -Training
- -Gov't. Cert/Subsidy -Vendor Quality -Publication of Manuals
- -Human Resources -Quality Systems
<CAPTION>
ENGINEERING PURCHASING MANUFACTURING PRODUCTION
----------- ---------- ------------- ----------
<S> <C> <C> <C>
-Product Modification -Supplier Certification -Tooling -Assembly Process
-Continuous Improvement -Part Delivery, Quality -Vacuum Form -Production Planning
-Cost Reduction -Cost Reduction -Chassis -Facility Planning
-Configuration Control -Manufacturing Documents -Parts Receiving
-Storage
-Kitting
</TABLE>
<PAGE>
To assist in administration set up, accounting, payroll, purchasing (not vendor
development), housekeeping, etc., Maini Group will provide the required
resources.
<TABLE>
<CAPTION>
Indian Staff Number
<S> <C> <C>
Managing Director 1
Key Managers 9
Engineering Team Leaders 5
Engineers (Design/Production/Test) 12
Automotive Engineering Consultants 4
Sales and Marketing 6
Vendor Development 3
Test Technicians 6
Assembly Technicians 7
Administration Support 2
Total 55
</TABLE>
In the US, a skeleton team will assist in completion and compiling of all design
information. This will include Amerigon's current employees as well as key
automotive consultants who have previous experience with the REVA project. Some
employees from Amerigon will also spend a significant portion of their time in
India to transfer the technology and assist with start-up.
C. Marketing Plan
Based on marketing surveys and work done by the leading marketing agencies in
India, the following attributes of the REVA are to be marketed.
. Low cost entry
. Low operation and maintenace cost
. Ease of operation
. Environment friendly
. Pleasant, reliable, quiet & clean
. Not a "typical car"
. Battery leasing
The company will engage a highly qualified marketing firm to develop and
implement an aggressive marketing and public relations plan. This will include,
market surveys, detail market strategy for launch, advertisements, printed
material development, road shows etc.
The company will initially focus on high profile cities as well as cities that
are close to the new company so as to be able to better service the customer.
The REVA will initially launch in Bangalore followed by Pune, Delhi, Agra and
Coimbatore. Market surveys identify showed high sales potential for the REVA.
Coimbatore is close to Bangalore, so that service can be monitored during the
start-up phase. Delhi and Agra are high profile cities. Agra is the the only
city in India where fossil fuel powered vehicles is banned around the Taj Mahal
area and so is targeted.
<PAGE>
The company will target private as well as institutional buyers. Private buyer
demographics will include; young executives, lady drivers, retired persons,
college students, etc. Institution buyer demographics will include Government
offices, hospitals, universities, utility companies, etc.
In addition, the company will also focus on export markets. Initial markets will
include neighboring countries such as Nepal, Bangladesh, Sri Lanka, Pakistan and
Schelles, for example. (Nepal has very favorable tax laws for electric vehicles.
Non-electric vehicles are taxed over 60% well as electric vehicles are only
taxed at less than 5%). Other potential export markets include Southeast Asia,
Africa, Europe and the US. In Europe over 25,000 diesel and electric vehicles
were sold in 1997 that were the size of the REVA. The REVA will sell in Europe
for $7000 which compares very favorably with other micro cars that sell for
$9000-$13,000 in Europe. In the US, new legislation introduced in May 98, allows
the use of low speed vehicles on city roads with minimum homologation. The REVA
can very easily meet the requirements under this classification. Two companies
in Canada and US have started to market Neighborhood electric vehicles (NEV's)
that sell for between $7000-$8000. When compared to the REVA, these vehicles
have lower range, acceleration, seating capacity and are not enclosed. US
dealers that have seen the REVA have expressed serious interest in selling the
vehicle and feel that it will compete very favorably against other NEV's.
As mentioned above, battery leasing will be highlighted as part of the marketing
campaign. The batteries for the REVA will be leased to the end consumer for a
period of 3-4 years. The fuel costs (battery and electricity) with battery
leasing is Re 0.90/km (2.2 cents/km) for the REVA compared to Rs 2.15/km (5.4
cents) for Maruti 800. Battery leasing has several advantages:
1) The responsibility of the battery warranty lies with the battery
manufacturer. This ensures that operating cost over time will not change and
removes any fear that the customer is liable in case the battery prematurely
fails.
2) The consumer does not have to pay a large amount at purchase or at
replacement time for the batteries. He pays for it "as he uses it".
3) As battery technology changes, it provides the customer options for newer
battery types when replacement is due. For example, a customer could choose
to pay a premium for batteries with greater range.
Based on discussions with dealers and marketing agencies, the car will be
launched at a lower price. In addition a free battery pack will be provided
with the vehicle. The subsidy received form the government will be used to
finance these activities.
D. Quality Philosophy
Making the REVA reliable and of high quality standards is going to be the key to
success. Sufficient funds have been provided for quality training and engaging
experienced, knowledgeable, Quality Assurance personnel. A detail quality plan
will be established and executed for all components, vendors, in-house
fabrication and assembly, prior to production.
<PAGE>
Initial quality perception must be very high to insure customer satisfaction.
This is to be achieved by:
. Ensuring that the design and components have significant performance margins.
. Publicizing test results and other measures of quality as part of the market-
ing program.
. Having measurable quality standards and goals for vendors, internal
manufacturing and after sale service.
. Establishing and tracking customer satisfaction measures.
. Using perceived value measurements to guide product improvement.
In addition, production will only commerce after testing of all components has
been completed and all failures or non-conformance addressed.
<PAGE>
SCHEDULE B
----------
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Equity Contribution
------ --------------------------
Stake (%) In Cash
--------- -------
-----------------------------------------------------------------
<S> <C> <C>
Maini Group 43.50 US$1 million or equivalent
Indian rupees
Amerigon 25.00 --
Investors 20.00 US$2.67 million
Chetan Maini 4.25 --
Bob Marcellini 1.55 --
David Bell 1.20 --
Open Pool 4.50 n/a
TOTAL 100.00
</TABLE>
<PAGE>
EXHIBIT 10.23
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of March 16, 2000,
is made between Amerigon Incorporated, a California corporation (the "Company"),
and Big Star Investments LLC ("Lender").
The Company has requested the Lender to make term loans to the Company
in an aggregate principal amount of up to $1,500,000 (the "Initial Loans"). The
Lender is willing to make such loans to the Company upon the terms and subject
to the conditions set forth in this Agreement. In addition, this Agreement also
provides for the advance of up to $2,500,000 in aggregate principal amount of
term loans in the event the Lender, in its sole discretion, elects to make such
loans to the Company (the "Additional Loans"). The Initial Loans and any
Additional Loans are collectively referred to herein as the "Loans."
The Lender may elect to convert its Loans into Class A Common Stock of
the Company as provided herein.
In order to induce the Lender to enter into this Agreement, the
Company has agreed to issue certain warrants to the Lender or its members as
provided herein.
This Agreement amends and restates and supersedes the Credit Agreement
dated as of March 28, 1999 among the Company and lender (the "Prior Credit
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:
"ADDITIONAL BRIDGE LOAN WARRANTS" has the meaning set forth in Section
2.11.
"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 WARRANTS" means the Initial Bridge Loan Warrants and any
Additional Bridge Loan Warrants.
"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.
<PAGE>
"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 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 $1,500,000 or, where the context so requires, the
obligation of the Lender to make an Initial Loan up to such amount on the terms
and conditions set forth in this Agreement.
"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) August 31, 2000, or
(ii) the occurrence of a Trigger Event.
"GAAP" means generally accepted accounting 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 which purchase price is (a) due more than six months
from the date of incurrence of the obligation in
2
<PAGE>
respect thereof, or (b) evidenced by a note or similar written instrument, but
excluding trade payables incurred in the ordinary course of business; (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 described in clause (i) above; (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 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.
"INITIAL BRIDGE LOAN WARRANTS" has the meaning set forth in Section 2.11.
"INVESTORS" shall mean Westar Capital II LLC and Big Beaver Investments
LLC.
"INVESTORS RIGHTS AGREEMENT" means the Investors' Rights Agreement dated as
of June 8, 1999 among the Company and the Investors.
"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 AVAILABILITY PERIOD" means the period extending from and including
the Closing Date through the earliest of : (i) August 31, 2000, (ii) the
occurrence of a Trigger Event, or (iii) the date upon which the Lender declares
an Event of Default.
"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 Initial Loan, and any Additional Loans.
"MARKET PRICE" shall mean, with respect to a particular Loan (i) the
average closing bid price of the Class A Common Stock, for ten (10) consecutive
business days ending on the date that Lender makes such Loan to Company, as
reported by Nasdaq, if the Class A Common Stock is traded on the Nasdaq SmallCap
Market, or (ii) the average last reported sale price of the Class A Common
Stock, for ten (10) consecutive business days ending on the date that Lender
makes such Loans to the Company, as reported by the primary exchange on which
the Class A Common Stock is traded, if the Class A Common Stock is traded on a
national securities
3
<PAGE>
exchange, or by Nasdaq, if the Class A Common Stock is traded on the Nasdaq
National Market.
"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 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.
4
<PAGE>
"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.
"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.
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 LOANS. The Lender agrees, subject to the terms and
conditions of this Agreement, to make term loans (each an "Initial Loan") to the
Company on the Closing Date and from time to time during the Loan Availability
Period following the Company's
5
<PAGE>
compliance with the borrowing procedure under Section 2.02 below, in the
aggregate principal amount up to but not exceeding the Term Commitment.
The Lender may agree in its sole discretion, subject to the terms and
conditions of this Agreement, to make additional loans in an aggregate principal
amount not to exceed $2,500,000 (each an "Additional Loan") to the Company from
time to time during the Loan Availability Period following the Company's
compliance with the borrowing procedure under Section 2.02 below. In addition,
the Company acknowledges that neither the Lender nor either of its investors
have been granted the requisite internal approvals which are a condition to the
making of Additional Loans and such approvals may not be forthcoming and would
only be obtained in the sole discretion of the Lender and its investors.
Nothing in this Agreement or any other Loan Document shall constitute a
commitment or other undertaking by the Lender or any of its investors or
affiliates to make Additional Loans.
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. 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 a form reasonably acceptable to the Lender, as additional
evidence of the Indebtedness of the Company to the Lender resulting from each
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.
Any principal payments on the Loans not paid when due and, to the extent
permitted by applicable law, any interest payments on the Loans not paid when
due, in each case whether at stated maturity, by notice of prepayment, by
acceleration or otherwise, shall thereafter bear interest (including post-
petition interest in any proceeding under applicable bankruptcy laws) payable on
demand at a rate which is 2% per annum in excess of the interest rate otherwise
payable under this Agreement for Loans. Payment or acceptance of the increased
rates of interest provided for in this paragraph is not a permitted alternative
to timely payment and shall not constitute a waiver of any Event of Default or
otherwise prejudice or limit any rights or remedies of Lender.
6
<PAGE>
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) August 31, 2000, (ii) the occurrence of a Trigger Event, or (iii) 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 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,
7
<PAGE>
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 CONVERSION OF LOANS INTO CLASS A COMMON STOCK. The Lender
shall have conversion rights as follows (the "Conversion Rights"):
(a) CONVERSION RIGHTS. The Lender may elect in its sole discretion to
convert the principal of or interest accrued under all or a portion of any Loan
into Class A Common Stock of the Company at a conversion price equal to the
Market Price of the Class A Common Stock as of the date that such Loan was made
to the Company; provided that in the event the Company issues in excess of $5
million of equity securities in an offering at an issuance price that is less
than the Market Price with respect to a particular Loan, the conversion price
relating to such Loan shall be reduced to such issuance price (the "Conversion
Price"). The Conversion Price for the Note shall be subject to adjustment as
set forth in subsection 2.11(c).
(b) MECHANICS OF CONVERSION. Before the Lender shall be entitled to
convert the Note into shares of Class A Common Stock, the Lender shall, in the
case of a partial conversion of the Note, indicate on the face of the Note the
amount so converted and provide a copy of the Note to the Company or, in the
case of the conversion of all of the remaining outstanding principal and
interest due under the Note, surrender the Note, duly endorsed, at the office of
the Company and shall give written notice to the Company at its principal
corporate office, of the election to convert the same or a portion thereof 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. The Company shall, as soon
as practicable thereafter, issue and deliver at such office to Lender, or to the
nominee or nominees of Lender, a certificate or certificates for the number of
shares of Class A Common Stock to which such persons 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 Note 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 Lender, 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 Note shall
not be deemed to have converted such Note until immediately prior to the closing
of such sale of securities.
(c) CONVERSION PRICE ADJUSTMENTS OF NOTE FOR CERTAIN DILUTIVE ISSUANCES,
SPLITS AND COMBINATIONS. The Conversion Price of the Note shall be subject to
adjustment from time to time as follows:
8
<PAGE>
(i) In the event the Company should at any time or from time to time
after the Closing Date 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 Note shall be appropriately
decreased so that the number of shares of Class A Common Stock issuable on
conversion of the Note shall be increased in proportion to such increase of
the aggregate of shares of Class A Common Stock outstanding. In the event
the Company 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 Company 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 Closing Date is decreased by a combination of the
outstanding shares of common stock, then, following the record date of such
combination, the Conversion Price for the Note shall be appropriately
increased so that the number of shares of Class A Common Stock issuable on
conversion of the Note or a portion thereof 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 2.11(c)(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.
(d) RECAPITALIZATIONS AND REORGANIZATIONS. If the Class A Common Stock
issuable upon conversion of the Note 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 2.11) provision shall be made so that the Lender shall
thereafter be entitled to receive upon conversion of the Note 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 2.11 with
respect to the rights of the Lender after the recapitalization or reorganization
to the end that the provisions of this Section 2.11 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Note) shall be applicable after the event as nearly equivalent
as may be practicable.
(e) NO IMPAIRMENT. The Company 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
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avoid the observance or performances of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out all of the provisions of this Section 2.11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the Lender against impairment.
(f) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the conversion of the
Note 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
amount of Note the Lender 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 the Note pursuant to this Section 2.11, the Company, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to the Lender a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request at any time of the Lender, furnish
or cause to be furnished to the Lender a like certificate setting forth (A)
such adjustment and readjustment, (B) the Conversion Price for the Note 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 the Note.
(g) NOTICES OF RECORD DATE. In the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend (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), the Company
shall mail to the Lender 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.
(h) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company 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 conversion of the
Note, such number of its shares of Class A Common Stock as shall from time to
time be sufficient to effect the conversion of the Note; and it at any time the
number of authorized but unissued shares of Class A Common Stock shall not be
sufficient to effect the conversion of the Note, in addition to such other
remedies as shall be available to the Lender, the Company will take such
corporate action as may, in the option 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 its articles of incorporation.
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(i) NO STOCKHOLDER RIGHTS. Nothing contained in this Agreement shall be
construed as conferring upon the Lender or any other person the right to vote or
to consent to receive notice as a stockholder in respect of meeting of
stockholders for the election of directors of the Company or any or any other
matters or any other rights whatsoever as a stockholder of the Company; and no
dividends or interest shall be payable or accrued in respect of the Note or the
Class A Common Stock obtainable under this Section 2.11 until, and only to the
extent that, this Note shall have been converted.
(j) Any Loans that are converted into Class A Common Stock as provided
herein will be deemed to be paid in full for all purposes of this Agreement and
the other Loan Documents.
SECTION 2.12 WARRANTS.
(a) Concurrently with the execution of this Agreement, and in
consideration of the Lender's agreement to make Initial Loans to the Company,
the Company will issue to the Lender a warrant to purchase an amount of the
Class A Common Stock of the Company equal to 10% of the principal amount of the
Initial Loans divided by the Exercise Price (as defined below) and on the terms
and conditions set forth in EXHIBIT A hereto (the "Initial Bridge Loan
Warrants").
(b) In addition, on any date that the Lender, in its sole discretion,
makes Additional Loans to the Company, in consideration thereof, the Company
will issue to the Lender additional warrants to purchase shares of the Class A
Common Stock of the Company on the terms and conditions set forth in EXHIBIT A
hereto and in an amount equal to 10% of the principal amount of the Additional
Loans provided by Lender divided by the Exercise Price (the "Additional Bridge
Loan Warrants").
(c) The Exercise Price of any Warrants shall be equal to the Conversion
Price calculated as of the date of the particular Loan as further provided in
the Bridge Loan Warrants.
SECTION 2.13 LIMITATION ON CONVERSION RIGHTS AND EXERCISE OF WARRANTS.
In no event shall the Lender be entitled to convert the Note or exercise the
Warrants to the extent that, after giving effect to such conversion or exercise,
the Lender shall have acquired pursuant to such conversion and exercise more
than 19.99% of the outstanding Class A Common Stock of the Company such that a
shareholder vote would have been required in connection with the issuance of the
Note and the Bridge Loan Warrants under applicable NASDAQ rules or to the extent
that the Class A Common Stock issued pursuant to the conversion or exercise of
the Note and the Bridge Loan Warrants exceeds the amount approved by the
California Department of Corporations. In the event Lender anticipates that the
Class A Common Stock issued pursuant to the conversion or exercise of the Note
and the Bridge Loan Warrants may exceed the amount approved by the California
Department of Corporations, then at the Lender's request the Company shall apply
for an additional permit from the California Department of Corporations covering
any additional shares of Class A Common Stock requested by Lender and use its
best efforts to have such application approved.
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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, subject only to Permitted Liens.
(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 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 B.
(f) INITIAL BRIDGE LOAN WARRANTS. The Company shall have delivered to the
Lender a duly executed Initial Bridge Loan Warrants, in the form attached hereto
as EXHIBIT A.
(g) AMENDMENT TO INVESTORS RIGHTS AGREEMENT. The Company and the Investors
shall have entered into the First Amendment to the Investors Rights' Agreement,
in substantially the form attached hereto as EXHIBIT C.
(h) 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
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California Department of Corporations pursuant to Section 25113 of the
California Corporations Code.
SECTION 3.02 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the
Lender to make each Initial Loan (and to the extent that the Lender has agreed
in its sole discretion in writing after the Closing Date to make Additional
Loans, the obligation of the Lender to make Additional Loans provided for in
such writing) 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) 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, including in the case of
any Additional Loans, the Additional Bridge Loan Warrants to be issued to Lender
pursuant to Section 2.12.
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
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action of the Company and do not and 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 in any material respect. 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 in any material respect.
(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, 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.
(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 contains a complete list of all such
patents, patent rights, registered trademarks,
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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 such 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 such 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 material 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
in any material respect.
(g) TITLE TO PROPERTIES; LIENS. The Company has good and marketable title
to, or valid and subsisting leasehold interests in, its properties and assets,
including all property forming a part of the Collateral, in all material
respects, 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 balance sheet provided to the Lender or the Disclosure Schedule, the
Company
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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) WARRANTS. The Bridge Loan Warrants 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 or as set forth therein. The
shares of Class A Common Stock issuable upon exercise of the Bridge Loan
Warrants and upon exercise of the Conversion Rights are duly authorized and
reserved for issuance, and, upon exercise of the Bridge Loan Warrants or the
Conversion Rights, as the case may be, 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 or as set forth
therein.
(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 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 in any material respect 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 Warrants and shares underlying the Bridge Loan Warrants for its own
account for
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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 Warrants
(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, 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.
(d) FINANCIAL CAPACITY. The Lender has access to adequate capital to
enable it to satisfy its obligations to make the Loan contemplated hereby.
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
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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 clauses (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:
(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
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companies, insurance in such amounts, with such deductibles and covering such
risks as 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.
(i) USE OF PROCEEDS. The Company will use the proceeds of the Loans for
its general corporate purposes.
(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
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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; or (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.
(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; and (B) purchase, redeem, retire, or otherwise acquire shares of
its capital stock with the proceeds received from a substantially concurrent
issue of new shares of its capital stock.
(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; and (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 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.
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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.
(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
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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 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
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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. 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 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
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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
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
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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 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: ________________________________
Name: ________________________________
Title:________________________________
THE LENDER
BIG STAR INVESTMENTS LLC
By: ________________________________
Name: ________________________________
Title: _______________________________
S-1
<PAGE>
EXHIBIT A
---------
BEGINS ON THE FOLLOWING PAGE
S-2
<PAGE>
EXHIBIT B
---------
BEGINS ON THE FOLLOWING PAGE
S-3
<PAGE>
EXHIBIT 10.24
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of March 16, 2000, 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 ___, 2000 (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.
<PAGE>
"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.
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"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 contract of service, or
which are raw materials, work in process, finished goods or materials used
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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
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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, 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
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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 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 except for Permitted Liens.
(f) OTHER FINANCING STATEMENTS. Other than (i) Financing Statements
disclosed to the Lender and (ii) Financing Statements in favor of the Lender, no
effective
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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 all material Rights to Payment are solvent and
generally paying their debts as they come due;
(iii) all Rights to Payment comply with all applicable laws in all
material respects 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 in all material respects and in all material 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 material 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
material patents, copyrights, trademarks, service marks or trade names, nor is
there currently pending before any governmental authority any application for
registration of any patent, copyright, trademark, service mark or trade name;
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(ii) all material 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 material
patents have been timely paid for maintaining such patents in force, and, to the
best of the Borrower's knowledge, each of the material 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 material
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 in any material respect; 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 on request 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 or permitted under
the Loan Documents.
(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 Secured Obligations remain unsatisfied or the Lender shall
have any Commitment, the Borrower agrees that:
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(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.
(j) LIENS. The Borrower will keep the Collateral free of all Liens except
Permitted Liens.
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(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 reasonably require, in form and substance
reasonably 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 in
all material respects, 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 material 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 such 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;
(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
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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 and during the continuance 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
Lender 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 reasonably
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.
(r) INTELLECTUAL PROPERTY COLLATERAL. The Borrower will:
(i) not enter into any agreement (including any license or royalty
agreement) pertaining to any material Intellectual Property Collateral, without
the prior written consent of the Lender, which shall not be unreasonably
withheld;
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(ii) not allow or suffer any material 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 that are material to the Borrower, 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 such
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 in accordance with prudent business practice to diligently to
collect all material 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
and during the continuance of any Event of Default, all remittances received by
the Borrower shall be held in trust for the Lender to the extent permitted by
applicable law 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 and during the continuance 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 to the extent permitted by applicable law 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 and during the
continuance of an Event of Default any such distributions and payments with
respect to any Investment Property held in any securities
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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 and during the continuance 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 to the extent
permitted by applicable law 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 to the extent
permitted by applicable law.
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 and during the continuance 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
to the extent permitted by applicable law.
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 to the
extent permitted by applicable law.
SECTION 10. REMEDIES.
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(a) REMEDIES. Upon the occurrence and during the continuance 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 to the extent permitted by applicable law:
(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 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
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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 (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 to the extent permitted by applicable law.
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, 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.
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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.
(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.
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(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 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
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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.
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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: ____________________________________
Title:
THE LENDER
BIG STAR INVESTMENTS LLC
By: ____________________________________
Title:
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EXHIBIT 10.25
PATENT AND TRADEMARK SECURITY AGREEMENT
THIS PATENT AND TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated
as of March 16, 2000, is made between Amerigon Incorporated, a California
corporation ("Borrower"), and Big Star Investments LLC ("Lender").
Borrower and Lender are parties to a Security Agreement dated as of
March __, 2000 (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 and during the
continuance of any Event of Default) institute any action, suit or proceeding
with respect to the Intellectual Property Collateral, and, after the occurrence
and during the continuance 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 and
during the continuance of any Event of Default, to execute any and all
applications, documents, papers and instruments for Lender to use
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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 and during the continuance 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 material patents, trademarks, service marks and trade names
of Borrower are subsisting and have not been adjudged invalid or unenforceable
in whole or in part.
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(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 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 in all material
respects.
(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, in any material respect.
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 material 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 and during the
continuance of an Event of Default and shall additionally, effective upon or
after the occurrence and during the continuance 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
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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 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 in any material respect 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
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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 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. 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
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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 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.
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 ____________________________
Name:_____________________
Title:____________________
Address:
_______________________________________
_______________________________________
Attn: _________________________________
Fax: __________________________________
LENDER:
BIG STAR INVESTMENTS LLC
By ____________________________
Name:_____________________
Title:____________________
Address:
_______________________________________
_______________________________________
Attn:__________________________________
Fax: __________________________________
8
<PAGE>
EXHIBIT 10.26
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 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"), of an amount up to 10% of the principal
amount of the Loans (as defined below) divided by the relevant Exercise Price
(as defined below) at the relevant Exercise Price specified in Section 2 hereof,
as such price may be adjusted from time to time pursuant to Section 5 hereof,
subject to the provisions and upon the terms and conditions hereinafter set
forth.
As used herein, the term "Loans" shall mean the $1.5 million bridge
facility (the "Initial Loans") to be advanced to Company by Holder pursuant to
the Credit Agreement, dated as of March __, 2000, between the Company and the
Holder (as amended or modified from time to time, the "Credit Agreement") and,
in the event the Holder makes or commits to make in its sole discretion
additional advances thereunder of up to an aggregate of $2.5 million in
principal amount of additional loans under the Credit Agreement (the "Additional
Loans"), shall also mean such principal amount of Additional Loans. The date
(if any) on which the Holder makes any Initial Loan or any Additional Loan is
referred to herein as a "Loan Date."
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.
As used herein, the term "Exercise Price" shall mean, with respect to
the portion of this Warrant that is allocable to any Loan, the Market Price of
the Class A Common Stock as of the Loan Date of such Loan, provided that the
Exercise Price shall be subject to adjustment as provided in Section 5 hereof.
<PAGE>
As used herein, the term "Market Price of the Class A Common Stock"
shall have the meaning set forth in Section 3(b) hereof.
1. TERM OF WARRANT.
a. TERM. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time during a period beginning on the date hereof
and s ending five years after such date, but shall not be exercisable as to the
portion of this Warrant allowable to any Loans unless the Loan Date with respect
thereto has occurred.
2. EXERCISE PRICE.
The Exercise Price shall be as provided in the definition of Exercise
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 Exercise 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:
2
<PAGE>
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 Class A Common Stock (as
defined below) as of the trading day immediately
preceding the date of exercise of this Warrant;
and
B = the Exercise Price
For purposes hereof, the "Market Price of the Class A Common Stock,"
with respect to the portion of this Warrant allocable to a particular
Loan, shall be (i) the average closing bid price of the Class A Common
Stock, for ten (10) consecutive business days ending on the Loan Date
of such Loan, as reported by Nasdaq, if the Class A Common Stock is
traded on the Nasdaq SmallCap Market, or (ii) the average last
reported sale price of the Class A Common Stock, for ten (10)
consecutive business days ending on such applicable Loan Date, as
reported by the primary exchange on which the Class A Common Stock is
traded, if the Class A Common Stock is traded on a national securities
exchange, or by Nasdaq, if the Class A Common Stock is traded on the
Nasdaq National Market.
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.
3
<PAGE>
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,
exercisable for, or convertible into additional shares of Class A Common Stock,
in each case in an equity offering in excess of $5 million, for consideration
per share less than the Exercise Price relating to a portion of this Warrant
allocable to a particular Loan on the date of and immediately prior to any such
issue, then and in such event, the per share Exercise Price relating to the
portion of this Warrant allocable to such Loan shall be reduced concurrently
with such issuance or sale, to a price equal to the consideration per share of
such issuance; provided that such Exercise 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 Exercise Price shall be made on account of (i) the
grant of options exercisable for, or sales of, Class A Common Stock pursuant to
employee benefit plans previously approved by the Company's shareholders, (ii)
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 (x) 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 (y) 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
Exercise 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 Exercise Price shall be
proportionately increased. Upon the adjustment of the Exercise 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 Exercise Price immediately prior to such adjustment and the
denominator of which is the Exercise 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 Exercise 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:
4
<PAGE>
(i) multiplying the Exercise 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 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 Exercise
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 Exercise Price per share shall be
proportionately adjusted so that the aggregate Exercise Price upon exercise of
the Warrant shall remain the same as before such event.
5
<PAGE>
6. NOTICE OF ADJUSTMENTS.
Whenever any Exercise 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 Exercise 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.
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 Exercise
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
6
<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.
[Remainder of page intentionally left blank]
7
<PAGE>
This Warrant is executed as of this ___th day of March, 2000.
AMERIGON INCORPORATED
By:___________________________________
Name: Richard A. Weisbart
--------------------------------
Title: President & CEO
-------------------------------
8
<PAGE>
EXHIBIT 10.27
March 17, 2000
Amerigon Incorporated
5462 Irwindale Avenue
Irwindale, California 91706-2048
Re: Series A Preferred Stock
------------------------
Dear Gentlemen:
In June 1999, each of the undersigned purchased and each of the undersigned
currently owns, that number of shares of Amerigon Incorporated (the "Company")
Series A Preferred Stock indicated below next to their signature block.
Section 2(c)(i) of the Company's Certificate of Determination of Rights,
Preferences and Privileges of the Series A Preferred Stock (the "Certificate of
Designation") specifies that a liquidation, dissolution or winding up of the
Company shall be deemed to be occasioned by the events specified in Section
2(c)(i)(A) and 2(c)(i)(B) of the Certificate of Designation. Each of the
undersigned has advised the Company that it does not, absent a distribution of
assets to shareholders, consider Section 2(c)(i) to give the undersigned the
right to cause the Company to make any payment to the undersigned or to permit
the undersigned to cause the Company to redeem its Shares of Series A Preferred
Stock.
Notwithstanding the foregoing, each of the undersigned hereby (i)
permanently and irrevocably waives any right it may have under Section 2(c) of
the Certificate of Designation as a holder of the Series A Preferred Stock, (ii)
agrees that it shall vote in favor a proposal to be presented to the
shareholders of the Company to delete Section 2(c) in its entirety from the
Certificate of Designation and (iii) agrees that it will, as a condition to any
transfer made by it of any shares of Series A Preferred, obtain an undertaking
from the transferee that it will comply with the provisions of this paragraph.
The obligation to obtain this undertaking shall apply to each additional
subsequent transferee (and each of their transferees).
<PAGE>
Amerigon, March 17, 2000 - Page 2
The undersigned view this undertaking to be effective as of the date of our
initial purchase of the shares of Series A Preferred Stock as it is consistent
with our understanding as of that date.
<PAGE>
Amerigon, March 17, 2000 - Page 3
Sincerely,
Shares of Series A Preferred Stock (4,500)
Westar Capital II, LLC
By: Westar Capital Associates II, LLC
By: _________________________
Shares of Series A Preferred Stock (4,500)
Big Beaver Investments, LLC
By: __________________________
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-25805 and 333-17401) and on Form S-8
(No. 333-03290 and 333-44007) of Amerigon Incorporated of our report
dated February 4, 2000 except for Note 10, as to which the date is March
30, 2000 and for Note 17, as to which the date is March 27, 2000
relating to the financial statements and financial statement schedule,
which appears in this Form 10-K.
/S/ PricewaterhouseCoopers LLP
Costa Mesa, California
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,647
<SECURITIES> 0
<RECEIVABLES> 340
<ALLOWANCES> 58
<INVENTORY> 490
<CURRENT-ASSETS> 251
<PP&E> 2,877
<DEPRECIATION> 1,826
<TOTAL-ASSETS> 3,721
<CURRENT-LIABILITIES> 1,189
<BONDS> 0
8,267
0
<COMMON> 28,149
<OTHER-SE> (33,895)
<TOTAL-LIABILITY-AND-EQUITY> 3,721
<SALES> 336
<TOTAL-REVENUES> 784
<CGS> 962
<TOTAL-COSTS> 8,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (36)
<INTEREST-EXPENSE> (30)
<INCOME-PRETAX> (7,575)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,575)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,575)
<EPS-BASIC> (8.29)
<EPS-DILUTED> (8.29)
</TABLE>
