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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SEAMED CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
WASHINGTON 3845 91-1002092
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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14500 NORTHEAST 87TH STREET
REDMOND, WASHINGTON 98052-3431
(206) 867-1818
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
EDGAR F. RAMPY
VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
SEAMED CORPORATION
14500 NORTHEAST 87TH STREET
REDMOND, WASHINGTON 98052-3431
(206) 867-1818
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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MARK R. BEATTY, ESQ. GREGORY GORDER, ESQ.
PRESTON GATES & ELLIS L. MICHELLE WILSON, ESQ.
5000 COLUMBIA CENTER PERKINS COIE
701 FIFTH AVENUE 1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98104-7078 SEATTLE, WASHINGTON 98101-3099
(206) 623-7580 (206) 583-8888
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, no par value per
share....................... 2,127,500 Shares $12.00 $25,530,000 $7,737
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(1) Includes 277,500 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
---------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 4, 1996
PROSPECTUS
dated , 1996
1,850,000 SHARES
SeaMED
COMMON STOCK
Of the 1,850,000 shares of Common Stock offered hereby, 1,356,942 shares are
being sold by SeaMED Corporation ("SeaMED" or the "Company") and 493,058 shares
are being sold by the selling shareholders (the "Selling Shareholders"). The
Company will not receive any proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "SEMD."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=======================================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Shareholders
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Per Share.............................. $ $ $ $
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Total(3)............................... $ $ $ $
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 277,500 shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public less the Underwriting
Discount. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as, and if delivered and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that certificates for
such shares will be available for delivery at the offices of Piper Jaffray Inc.
in Minneapolis, Minnesota on or about , 1996.
PIPER JAFFRAY INC. NEEDHAM & COMPANY, INC.
<PAGE> 3
[PHOTOGRAPH OF COMPANY HEADQUARTERS AND PHOTOGRAPHS OF SIX PRODUCTS WITH THE
NAME OF EACH PRODUCT AND THE CUSTOMER FOR WHICH IT IS MANUFACTURED]
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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This Prospectus includes trade names, trademarks and registered trademarks
of companies other than SeaMED.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. Unless otherwise
noted, all information in this Prospectus, including financial information,
share data and per share data (i) reflects the pro forma conversion into shares
of Common Stock of all outstanding shares of the Company's convertible
redeemable preferred stock (the "Preferred Stock") upon the closing of this
offering, (ii) reflects the pro forma accrual of cumulative dividends on Class A
and D Preferred Stock, and (iii) assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting." The Company's fiscal year consists of
the 52/53-week period that ends on the Thursday nearest to June 30. For
convenience of presentation, fiscal periods in this Prospectus are shown as
ending on a calendar month-end.
THE COMPANY
SeaMED Corporation (the "Company" or "SeaMED") is a leading manufacturer of
advanced medical instruments for medical technology companies. SeaMED
manufactures durable electronic medical instruments for its customers, often as
part of systems that also include single-use components. To assist its customers
in developing and commercializing their instruments for manufacture by SeaMED,
the Company provides a wide range of engineering services and regulatory
expertise. In its last fiscal year, SeaMED manufactured or engineered
instruments for many established medical technology companies, including Arrow
International, Inc., Becton, Dickinson and Company, Boston Scientific
Corporation, C.R. Bard, Inc., Guidant Corporation, Johnson & Johnson,
Physio-Control Corporation, St. Jude Medical, Inc., Sorin Biomedical Inc. and
United States Surgical Corporation. SeaMED's customers also include many
emerging medical technology companies such as Aksys Ltd., ArthroCare
Corporation, Biofield Corp., CellPro, Incorporated, Gynecare, Inc., ReSound
Corporation and Urologix, Inc. The Company has been profitable in each of its
last five years with revenues growing from $8.7 million in fiscal year 1992 to
$26.1 million in fiscal year 1996, a compound annual growth rate of 32%. During
this period, the number of manufactured instruments grew from seven to 23.
Since 1988, SeaMED has focused its business primarily on manufacturing
medical instruments and believes it is the largest independent manufacturer of
advanced medical instruments for medical technology companies. As part of its
growth strategy, SeaMED continues to expand its engineering expertise,
regulatory knowledge and manufacturing capabilities, thereby allowing it to
design and manufacture a broader range of medical instruments. SeaMED also
utilizes its existing resources and expertise by accepting high value-added
engineering and manufacturing contracts for select nonmedical products.
The demand for health care has grown rapidly in recent years, including
demand for medical instruments that can lessen the overall cost of health care
while improving patient outcomes. As medical instruments have incorporated the
latest developments in computers, electronics, materials and other technologies,
and medical technology companies have sought to comply with increasingly
stringent regulatory requirements, the cost of product development and the
length of the development cycle have increased substantially. The risks in
developing and launching new medical products also have increased significantly
as competition in the highly fragmented medical technology industry has
increased. As a result of these factors, many medical technology companies
increasingly are focusing their resources on certain critical functions and
outsourcing others. SeaMED believes that the trend toward outsourcing
engineering and manufacturing of durable medical instruments is in its early
stages and will expand significantly.
SeaMED provides complete solutions to meet its customers' needs for
instrument engineering, prototyping, preproduction and volume manufacturing.
SeaMED offers its customers the following advantages:
- Broad experience in product development, engineering, manufacturing
and regulatory compliance for advanced medical instruments
- Reduction of fixed capital and personnel commitments for noncore
functions
- Demand-driven production flexibility
- In-place resources to shorten time-to-market
- FDA and ISO 9001 compliant manufacturing facilities
- Integrated engineering and manufacturing, thereby improving quality
and reducing overall cost
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SeaMED, a Washington corporation, was formed in 1976. SeaMED's executive
offices are located at 14500 Northeast 87th Street, Redmond, Washington 98052
and its telephone number is (206) 867-1818.
THE OFFERING
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Common Stock offered by the Company.............. 1,356,942 shares
Common Stock offered by the Selling
Shareholders................................... 493,058 shares
Common Stock to be outstanding after this
offering....................................... 4,964,128 shares(1)
Use of proceeds.................................. Repayment of outstanding bank
indebtedness, expected to be between $3.5
million and $5.0 million, payment of
approximately $1.8 million for cumulative
dividends on Preferred Stock, to fund
working capital needs and for general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol........... SEMD
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SUMMARY FINANCIAL DATA
(in thousands, except per share amounts)
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YEAR ENDED JUNE 30,
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1994 1995 1996
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STATEMENT OF INCOME DATA:
Revenues...................................................... $14,720 $17,661 $26,130
Cost of sales................................................. 11,965 14,590 21,093
Gross margin.................................................. 2,755 3,071 5,038
Marketing, general and administrative expenses................ 1,818 1,931 2,938
Operating income.............................................. 937 1,140 2,100
Net income.................................................... $ 1,007 $ 775 $ 1,240
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Net income per share data(2):
Primary..................................................... $ 0.39 $ 0.25 $ 0.42
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Fully diluted............................................... $ 0.30 $ 0.21 $ 0.32
======= ======= =======
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JUNE 30, 1996
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PRO FORMA AS ADJUSTED(3)
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BALANCE SHEET DATA:
Working capital...................................................... $ 3,333 $ 15,730
Total assets......................................................... 16,064 24,650
Notes payable to bank................................................ 1,817 --
Long-term debt (including current portion)........................... 1,748 783
Shareholders' equity................................................. 4,846 17,878
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(1) Based on shares outstanding at September 30, 1996. Excludes 529,265 shares
of Common Stock issuable upon exercise of stock options and a warrant
outstanding at such date, which had a weighted average exercise price of
$2.56 per share. Also excludes 96,418 shares reserved for issuance pursuant
to future option grants under the Company's stock option plans. See
"Management -- Stock Plans" and "Description of Capital Stock."
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing net income per share.
(3) As adjusted to reflect the sale by the Company of 1,356,942 shares of Common
Stock offered hereby at an assumed initial public offering price of $11.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing shares of Common Stock offered by this
Prospectus. This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this Prospectus.
CUSTOMER RISK FACTORS
SeaMED's success depends on the success of its customers and their products
manufactured by SeaMED. Any unfavorable developments or adverse effects on the
sales of those products or its customers' businesses, results of operations or
financial condition could have a corresponding adverse effect on SeaMED. SeaMED
believes that its customers and their products (and, accordingly, SeaMED) are
generally subject to the following risks:
Competitive Environment
The medical products industry is highly competitive and subject to
significant technological change, and requires ongoing investment to keep pace
with technological developments and quality and regulatory requirements. The
medical products industry consists of numerous companies, ranging from start-up
to well-established companies. Many of SeaMED's customers have a limited number
of products, and some market only a single product. As a result, any adverse
development with respect to these customers' products may have a material
adverse effect on the business and financial condition of such customer, which
may adversely affect that customer's ability to purchase and pay for its
products manufactured by the Company. The competitors and potential competitors
of SeaMED's customers may succeed in developing or marketing technologies and
products that will be more accepted in the marketplace than the instruments
manufactured by SeaMED for its customers or that would render its customers'
technology and products obsolete or noncompetitive. In addition, other
competitors may develop alternative treatments or cures so that the need for the
instruments manufactured by SeaMED could be reduced or eliminated. Many of
SeaMED's customers are emerging medical technology companies that have
competitors and potential competitors with substantially greater capital
resources, research and development staffs and facilities and substantially
greater experience in developing new products, obtaining regulatory approvals
and manufacturing and marketing medical products. SeaMED's customers may not be
successful in launching and marketing their products, or may not respond to
pricing, marketing or other competitive pressures or the rapid technological
innovation demanded by the marketplace and, as a result, may experience a
dramatic drop in product sales, which would have an adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Industry Overview."
Customer Regulatory Compliance
The Food and Drug Administration (the "FDA") regulates instruments
manufactured by SeaMED under a number of statutes, including the Federal Food,
Drug, and Cosmetic Act, as amended (the "FDC Act"), which requires certain
clearances or approvals from the FDA before new medical products can be
marketed. As a prerequisite to any introduction of a new product into the
medical marketplace, SeaMED's customers must obtain necessary product clearances
or approvals from the FDA or other regulatory agencies with applicable
jurisdiction. There can be no assurance that SeaMED's customers will obtain such
clearances or approvals on a timely basis, if at all.
Certain medical instruments manufactured by SeaMED may be subject to FDA
premarket approval ("PMA"), which requires substantial safety and clinical
testing and may cause delays and prevent introduction of such instruments.
Currently, nine of SeaMED's customers are seeking or plan to seek PMA for
instruments to be manufactured by SeaMED. FDA marketing approval regulations
depend heavily on administrative interpretations, which may apply retroactively
and may create additional barriers that prevent
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or delay the introduction of a product. Marketing approval for PMA products
could be denied altogether if clinical testing does not establish that the
product is safe and effective. Clinical testing must be performed in accordance
with the FDA's regulations. A customer's failure to comply with the FDA's
requirements can result in the delay or denial of its PMA. Delays in obtaining
PMA are frequent, and, in turn, could result in delaying or canceling customer
orders from SeaMED. Many products never receive PMA. There can be no assurance
that a product cleared or approved for marketing by the FDA will be accurate,
reliable, safe or effective on a consistent basis. Once FDA approval is
obtained, a new approval, in the form of a PMA supplement, may be needed to
modify the device, its intended use, or its manufacturing. Discovery of product
defects may result in restrictions on the product's future use or withdrawal of
the product from the market despite prior governmental approval. In 1991, one of
the Company's customers recalled its disposable product, and postponed all
purchases of the related instrument from SeaMED, which had an adverse effect on
the Company's results of operations. There can be no assurance that product
recalls, product defects or loss of necessary regulatory approvals will not
occur in the future. The delays and potential product cancellations inherent in
the development, regulatory approval, commercialization and ongoing regulatory
compliance of instruments manufactured by the Company may have a material
adverse effect on the Company's business, reputation, results of operations and
financial condition.
Sales of SeaMED-manufactured medical instruments outside the United States
are subject to regulatory requirements that vary widely from country to country.
The time required to obtain approval for sale in foreign countries may be longer
or shorter than that required for FDA approval, and the requirements may differ.
The FDA also regulates the sale of exported medical devices, although to a
lesser extent than devices sold in the United States. For medical products
exported to countries in the European Community, SeaMED's customers will want
their products to qualify for distribution under the "CE mark," which
qualification enables certain medical products to move freely within the
European Community. Commencing in 1998, SeaMED will be required to obtain
certifications necessary to enable the CE mark to be affixed to medical
instruments it manufactures for sale throughout the European Community. In
addition, SeaMED's customers must comply with other laws generally applicable to
foreign trade, including technology export restrictions, tariffs and other
regulatory barriers. There can be no assurance that SeaMED's customers will
obtain all required clearances or approvals for exported products on a timely
basis, if at all. Failure or delay in obtaining the requisite regulatory
approvals for exported instruments manufactured by the Company may have an
adverse effect on the Company's business, results of operations and financial
condition.
Medical instruments manufactured by SeaMED and marketed by its customers
pursuant to FDA clearances or approvals are subject to pervasive and continuing
regulation by the FDA and certain state and foreign regulatory agencies.
Regulatory approvals may include significant limitations on the indicated uses
for which the product may be marketed. FDA enforcement policy prohibits the
marketing of approved medical products for unapproved uses. Product approvals
could be withdrawn for failure to comply with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company's
customers control the marketing of their products, including representing to the
market the approved uses of their products. If a customer engages in prohibited
marketing practices, the FDA or another regulatory agency with applicable
jurisdiction could intervene, possibly resulting in marketing restrictions,
including prohibitions on further product sales, or civil or criminal penalties,
which could have an adverse effect on the Company's business, results of
operations and financial condition.
Changes in existing laws and regulations or policies could affect adversely
the ability of the Company's customers to comply with regulatory requirements.
Failure to comply with regulatory requirements could have a material adverse
effect on a customer's business, results of operations and financial condition,
which, in turn, could affect adversely the Company's business, results of
operations and financial condition. There can be no assurance that a customer of
the Company, or the Company, will not be required to incur significant costs to
comply with laws and regulations in the future or that compliance with such laws
and regulations will not have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Governmental Regulation."
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Uncertain Market Acceptance of Products; Product Obsolescence
There can be no assurance that SeaMED's customers' products will gain any
significant market acceptance and market share among physicians, patients and
health care payors, even if required regulatory approvals are obtained. Market
acceptance may depend on a variety of factors, including educating physicians
regarding the use of a new procedure, overcoming physician objections to certain
effects of the product or its related treatment regimen, and convincing health
care payors that the benefits of the product and its related treatment regimen
outweigh its costs. Market acceptance and market share are also affected by the
timing of market introduction of competitive products. Accordingly, the relative
speed with which SeaMED's customers can develop products, gain regulatory
approval and reimbursement acceptance and supply commercial quantities of the
product to the market are expected to be important factors in market acceptance
and market share. Many of SeaMED's customers, especially emerging medical
technology companies, have limited or no experience in marketing their products
and have not made marketing or distribution arrangements for their products.
SeaMED's customers may be unable to establish effective sales and marketing and
distribution channels to successfully commercialize their products.
In addition, the marketplace for medical products is characterized by rapid
change and technological innovation. As a result, SeaMED and its customers are
subject to the risk of product obsolescence, whether from long development or
government approval cycles or the development of improved products or processes
by competitors. In addition, the marketplace could conclude that the task for
which a customer's product was designed is no longer an element of a generally
accepted diagnostic or treatment regimen. Any development adversely affecting
the market for an instrument manufactured by SeaMED would result in the
Company's having to reduce production volumes or to discontinue manufacturing
the instrument, which could have an adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Industry
Overview."
Customers' Future Capital Requirements
Many of SeaMED's customers, especially emerging medical technology
companies, are not profitable and may have little or no revenues, but they have
significant working capital requirements, for which the customer may be required
to raise additional funds through public or private financings, including equity
financings. Adequate funds for their operations may not be available when
needed, if at all. Insufficient funds may require customers to delay development
of the product, clinical trials (if required) or the commercial introduction of
their products or prevent such commercial introduction altogether. Depending on
the significance of a customer's product to SeaMED's revenues or profitability,
any adverse effect on a customer resulting from insufficient funds could result
in an adverse effect on the Company's business, results of operations and
financial condition.
Uncertainty of Third-Party Reimbursement
Sales of many of the instruments manufactured by SeaMED will be dependent
in part on availability of adequate reimbursement for those instruments from
third-party health care payors, such as government and private insurance plans,
health maintenance organizations and preferred provider organizations.
Third-party payors are increasingly challenging the pricing of medical products
and services. There can be no assurance that adequate levels of reimbursement
will be available to enable SeaMED's customers to achieve market acceptance of
their products. Without adequate support from third-party payors, the market for
the products of SeaMED's customers may be limited.
VARIABILITY OF OPERATING RESULTS
SeaMED's annual and quarterly operating results are affected by a number of
factors, including the volume and timing of customer orders, which vary due to
(i) variation in demand for the customer's products as a result of, among other
things, product life cycles, competitive conditions and general economic
conditions, (ii) the customer's attempt to balance its inventory, (iii) the
customer's need to adapt to changing regulatory conditions and requirements, and
(iv) changes in the customer's manufacturing strategy. In the past, changes
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in customer orders have had a significant effect on SeaMED's results of
operations. Further, SeaMED's contracts with its customers typically have no
minimum purchase requirements. As a result, production may be reduced or
discontinued at any time, causing substantial sales fluctuations from quarter to
quarter or from year to year. Other factors that may adversely affect SeaMED's
annual and quarterly results of operations include inexperience in manufacturing
a particular instrument, inventory shortages or obsolescence, labor costs or
shortages, price competition and regulatory requirements. Because SeaMED's
business organization and its related cost structure anticipate supporting a
certain minimum level of revenues, the Company's limited ability to adjust its
short-term cost structure would compound the adverse effect of any significant
revenue reduction. Any one of these factors or a combination thereof could
result in a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CUSTOMER CONCENTRATION
Historically, a substantial percentage of SeaMED's net sales have been to
fewer than 10 customers, the loss of any of which would adversely affect the
Company's business, results of operations and financial condition. In each of
the fiscal years ended June 30, 1995 and June 30, 1996, five of the Company's
customers (not all the same in each year) together represented 49% and 41% of
revenues. If one or more of SeaMED's customers experiences exceptional growth
relative to other SeaMED customers, then SeaMED's success could become
substantially more dependent on the continued success of such customer, and any
unfavorable development regarding such customer or its product could result in a
material adverse effect on the Company's business, results of operations and
financial condition. Similarly, if one or more of SeaMED's customers were to
seek and obtain price discounts from the Company for that customer's
instruments, the resulting lower gross margins on those instruments may have an
adverse effect on the Company's overall results of operations. In addition, if
any customer with which SeaMED does a substantial amount of business were to
encounter financial distress, the customer's unwillingness or inability to pay
its obligation to the Company could result in a material adverse effect on the
Company's results of operations and financial condition.
SeaMED expects sales to Coinstar, Inc. ("Coinstar"), a nonmedical customer
for which SeaMED manufactures a coin-sorting machine that exchanges loose coins
for currency, will represent approximately 22% of SeaMED's revenues for the
three months ended September 30, 1996. SeaMED currently manufactures these
machines under a cancelable purchase order with Coinstar. Coinstar could cancel
or otherwise modify its purchase order with SeaMED at any time, which could
result in an adverse effect on the Company's business, results of operations and
financial condition. Coinstar and SeaMED are currently negotiating a
nonexclusive manufacturing agreement that would provide for minimum production
volumes for one year. See "Business -- Customers and Products."
COMPETITION
SeaMED faces competition from current and prospective customers who
evaluate SeaMED's capabilities against the merits of designing, engineering and
manufacturing instruments internally. SeaMED also faces competition from design
firms and other manufacturers that operate in the medical technology industry.
Most of SeaMED's customers have substantially greater financial and research and
development resources than SeaMED and either operate internal design and
manufacturing facilities or have sufficient resources to develop internal design
and manufacturing capabilities. In the future, SeaMED may also compete against
new entrants to the industry. For example, a medical technology company with
design and manufacturing capabilities (especially one with excess capacity)
could decide to compete with SeaMED for outsource development and manufacturing
of medical instruments. In addition, several large electronic contract
manufacturers and defense department contractors with extensive engineering
expertise may from time to time undertake design and/or manufacture of medical
instruments. Although the Company is not aware of substantial competition from
these noncustomer sources to date, there can be no assurance that these or other
formidable competitors will not aggressively expand into the Company's targeted
market segment in the future. Competition from any of the foregoing sources
could place pressure on SeaMED to accept lower
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margins on its contracts or lose existing or potential business, which could
result in a material adverse effect on the Company's business, results of
operations and financial condition.
UNCERTAINTY OF MARKET ACCEPTANCE OF OUTSOURCING MANUFACTURE OF MEDICAL
INSTRUMENTS
SeaMED believes that the market for outsourcing the manufacture of advanced
medical instruments for medical technology companies is in its early stages.
SeaMED's engineering and manufacturing activities require that customers provide
SeaMED with access to their proprietary technology and relinquish the control
associated with internal engineering and manufacturing. As a result, potential
customers may decide that the risks of outsourcing engineering or manufacturing
are too great or exceed the anticipated benefits of outsourcing. In addition,
medical technology companies that have previously made substantial investments
to establish design and manufacturing capabilities may be reluctant to outsource
those functions. If the medical technology industry generally, or any
significant existing or potential customer, concludes that the disadvantages of
outsourcing manufacturing outweigh the advantages, SeaMED could suffer a
substantial diminution in the size of its target market, which would have a
material adverse effect on its business, results of operations and financial
condition.
COMPLIANCE WITH REGULATORY AGENCY REQUIREMENTS
SeaMED is subject to a variety of regulatory agency requirements in the
United States and foreign countries relating to the instruments that it
manufactures for its customers. The process of obtaining and maintaining
required regulatory approvals and otherwise remaining in regulatory compliance
in the United States and certain other countries is lengthy, expensive and
uncertain.
Applicable law requires that SeaMED comply with the FDA's detailed good
manufacturing practices ("GMP") regulations for the manufacture of medical
products. The FDA monitors compliance with its GMP regulations by subjecting
medical product manufacturers to periodic FDA inspections of their manufacturing
facilities. The FDA is currently revising the GMP regulations. The proposed
regulations include authority for the FDA to regulate the design phase as well
as the manufacture of medical products, and SeaMED may have to expend additional
resources to comply with the new requirements. To ensure compliance with GMP
requirements, SeaMED expends significant time, resources and effort in the areas
of training, production and quality assurance. In addition, the FDA typically
inspects a manufacturer of a PMA device before granting a PMA. The failure to
pass such an inspection could result in the delay in granting PMA. SeaMED is
also subject to other regulatory requirements, and may need to submit reports to
the FDA relating to certain types of adverse events. Failure to comply with GMP
regulations or other applicable legal requirements can lead to warning letters,
seizure of violative products, injunctive actions brought by the U.S. government
and potential civil or criminal liability on the part of the Company and of the
officers and employees who are responsible for the activities that lead to any
violation. In addition, the continued sale of any instruments manufactured by
the Company may be halted or otherwise restricted. Any such actions could have
an adverse effect on the willingness of customers and prospective customers to
do business with SeaMED. In order for the Company's instruments to be exported
and for SeaMED and its customers to be qualified to use the CE mark, the Company
is required to maintain International Organization for Standardization ("ISO")
9001/EN 46001 certification, which subjects SeaMED's operations to periodic
surveillance audits. The ultimate regulatory risks present in manufacturing
products for markets governed by these standards are currently substantially
similar to those posed by GMP regulations. There can be no assurance that the
Company's manufacturing operations will be found to comply with GMP regulations,
ISO standards or other applicable legal requirements or that the Company will
not be required to incur substantial costs to maintain its compliance with
existing or future manufacturing regulations, standards or other requirements.
Any such noncompliance or increased cost of compliance could have a material
adverse effect on the Company's business, results of operations and financial
condition.
SeaMED also is subject to numerous federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. While SeaMED has not been the subject of any
material proceeding concerning such laws and believes it is currently in
compliance with such laws in all material respects, there
9
<PAGE> 11
can be no assurance that SeaMED will not be required to incur significant costs
to comply with such laws and regulations now or in the future or that such laws
or regulations will not have a material adverse effect upon the Company's
ability to do business. Changes in existing requirements or adoption of new
requirements or policies could affect adversely the ability of SeaMED to comply
with regulatory requirements. Failure to comply with regulatory requirements
could have a material adverse effect on the Company's business, results of
operations or financial condition. There can be no assurance that the Company
will not be required to incur significant costs to comply with applicable laws
and regulations in the future or that such laws and regulations will not have a
material adverse effect on the Company's business, results of operations or
financial condition. See "Business -- Quality Assurance and Regulatory
Compliance" and "Business -- Governmental Regulation."
PRODUCT RECALLS, PRODUCT LIABILITY AND INSURANCE
Many of the instruments SeaMED designs or manufactures are life-sustaining,
life-supporting or implantable medical products. The tolerance for error in the
design, manufacture or use of these products may be small or nonexistent. If an
instrument designed or manufactured by the Company is found to be defective,
whether due to design or manufacturing defects, to improper use of the product
or to other reasons, the instrument may need to be recalled, possibly at the
Company's expense. Furthermore, the adverse effect of a product recall on the
Company might not be limited to the cost of the recall. For example, a product
recall could cause a general investigation of the Company by applicable
regulatory authorities as well as cause other customers to review and
potentially terminate their relationships with the Company. Recalls, especially
if accompanied by unfavorable publicity or termination of customer contracts,
could result in substantial costs, loss of revenues and a diminution of the
Company's reputation, each of which would have a material adverse effect on the
Company's business, results of operations and financial condition.
The manufacture and sale of the medical instruments manufactured by SeaMED
involve the risk of product liability claims. Although SeaMED generally obtains
an indemnification from its customers for instruments it manufactures to the
customers' specifications and in addition maintains product liability insurance,
there can be no assurance that the indemnities will be honored or the coverage
of the Company's insurance policies will be adequate. In addition, SeaMED
generally provides a design defect warranty and indemnifies its customers for
failure of an instrument to conform to design specifications and against defects
in materials and workmanship. SeaMED intends to evaluate its insurance coverage
from time to time in view of developments in its business and products currently
under development. Product liability insurance is expensive and in the future
may not be available on acceptable terms, in sufficient amounts, or at all. A
successful claim brought against the Company in excess of its insurance coverage
or any material claim for which insurance coverage was denied or limited and for
which indemnification was not available could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business -- Quality Assurance and Regulatory Compliance."
DEPENDENCE ON KEY PERSONNEL
SeaMED's future success depends to a significant extent on the continued
service of certain of its key managerial, technical and engineering personnel,
particularly its President and Chief Executive Officer, W. Robert Berg, and its
continuing ability to attract, train and retain highly qualified engineering,
technical and managerial personnel experienced in commercializing medical
products. Competition for such personnel is intense, the available pool of
qualified candidates is limited and there can be no assurance that SeaMED can
retain its key engineering, technical and managerial personnel or that it can
attract, train, assimilate or retain other highly qualified engineering,
technical and managerial personnel in the future. The loss of Mr. Berg or any of
SeaMED's other key personnel or the inability of SeaMED to hire, train or retain
qualified personnel could have a material adverse effect on the Company's
business, results of operations and financial condition. None of the Company's
key personnel has an employment agreement with the Company. The Company has
obtained key-man life insurance policies on the life of W. Robert Berg in the
amount of $2 million. See "Management."
10
<PAGE> 12
MANAGEMENT OF GROWTH
SeaMED's ability to manage its growth effectively will require it to
continue to implement and improve its operational, financial and management
information systems, to develop its managers' and project engineers' management
skills and to train, motivate and manage its employees. If SeaMED cannot keep
pace with the growth of its customers, it may lose customers and its growth may
be limited. In particular, to accommodate future growth SeaMED may need to
obtain additional space to continue manufacturing at optimum levels. SeaMED
currently obtains additional manufacturing space based on its projected needs,
which are based on, but do not necessarily reflect, its customers' production
forecasts. As a result, the Company may from time to time have insufficient
manufacturing facilities to fulfill on a timely basis unexpected and significant
increases in customer orders. Although an existing manufacturing facility for
PMA products may be able to be expanded without prior regulatory approval,
establishing a new manufacturing facility for PMA products requires prior
regulatory approval, which may cause production delays. The Company could lose
customer business or miss growth opportunities in the future if it were unable
to obtain adequate additional space on a timely basis. Conversely, if one or
more customers were to cancel production orders, the Company may incur
substantial lease obligations resulting in excess production capacity, which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
SeaMED's business, both operationally and administratively, depends on
SeaMED's ability to store, retrieve, process, manage and share significant
amounts of information. In addition, SeaMED depends on its computer system to
integrate its manufacturing processes with its quality assurance procedures
(including, for example, maintaining distribution records and allowing for the
tracing of certain product lots) to comply with GMP requirements and ISO 9001
standards. Although SeaMED believes that its existing computer system will
adequately serve its near-term needs, SeaMED may need to upgrade its computer
system if significant growth continues. Any difficulties or delays in upgrading
the computer system, or in remaining in compliance with applicable GMP
requirements and ISO 9001 standards, could adversely affect the manufacture and
delivery of customer instruments, and the Company's management, reporting and
internal control systems.
The Company's failure to manage growth effectively could have a material
adverse effect on its business, results of operations and financial condition.
AVAILABILITY OF COMPONENT PARTS
SeaMED relies on third-party suppliers for each of the component parts used
in manufacturing its customers' instruments. Although component parts are
generally available from multiple suppliers, certain component parts may require
long lead times before they are placed in production by the third-party
supplier, and SeaMED may have to delay the manufacture of customer instruments
from time to time due to the unavailability of certain component parts.
Component shortages for a particular instrument may adversely affect the
Company's ability to satisfy customer orders for that instrument. At various
times, there have been shortages of component parts, especially electronics
components. If shortages of component parts should occur, the Company may be
forced to pay higher prices for affected components or delay manufacturing and
shipping particular instruments, either of which could adversely affect customer
demand for such instruments or, if the Company is unable to raise its prices,
the Company's business, results of operations and financial condition.
CUSTOMER CONFLICTS
The medical technology industry reflects vigorous competition among its
participants, sometimes leading to substantial animosity between competitors.
SeaMED's growth may be adversely affected if its customers require SeaMED to
enter into noncompetition agreements that prevent SeaMED from manufacturing
instruments of its customers' competitors. For example, if SeaMED enters into a
noncompetition agreement, SeaMED may be adversely affected if its customer's
product is not successful and SeaMED must forgo an opportunity to manufacture a
successful instrument for the customer's competitor. Any conflicts among its
customers could prevent or deter SeaMED from obtaining contracts to manufacture
successful instruments, which could result in a material adverse effect on its
business, results of operations and financial condition.
11
<PAGE> 13
FUTURE CAPITAL REQUIREMENTS
SeaMED believes that the net proceeds of this offering, together with
existing capital resources and amounts available under the Company's existing
bank line of credit, will satisfy the Company's anticipated capital needs for
the next 12 to 24 months (depending primarily on SeaMED's growth rate and its
results of operations). Thereafter, SeaMED may be required to raise additional
capital or increase its borrowing capacity, or both. There can be no assurance
that alternative sources of equity or debt will be available in the future or,
if available, will be available on terms acceptable to SeaMED. Any additional
equity financing would result in additional dilution to the Company's
shareholders, including shareholders who purchase Common Stock in this offering.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTROL BY MANAGEMENT
Following this offering, the current executive officers and directors of
SeaMED and their affiliates will beneficially own or have voting control over
approximately 43.6% of the outstanding Common Stock (approximately 41.3% if the
Underwriters' over-allotment option is exercised in full). Accordingly, these
individuals will have the ability to influence the election of the Company's
directors and to effectively control most corporate actions. This concentration
of ownership may also have the effect of delaying, deterring or preventing a
change in control of the Company. See "Principal and Selling Shareholders."
ABSENCE OF PRIOR MARKET; POTENTIAL VOLATILITY OF COMMON STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained. The initial public offering price for the Common Stock will be
determined by negotiations between the Company and the representatives of the
Underwriters and may not be indicative of the market price of the Common Stock
after this offering. See "Underwriting." The market price of the Common Stock
may be volatile and may fluctuate based on a number of factors, including
significant announcements by the Company and its competitors, quarterly
fluctuations in the Company's operating results and general economic conditions
and conditions in the medical technology industry. In addition, in recent years
the stock market has experienced extreme price and volume fluctuations, which
have had a substantial effect on the market prices for many high-technology
companies and are often unrelated to the operating performance of such
companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock. Of
the 4,964,128 shares outstanding following this offering, the 1,850,000 shares
sold hereby will be freely tradable in the public market and the remaining
3,114,128 shares will be "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act of 1933 as amended (the "Securities Act").
Approximately 57,555 restricted securities will be eligible for sale immediately
following this offering in reliance on Rule 144(k) under the Securities Act.
Approximately 2,083 restricted securities will be eligible for sale 90 days
following this offering in reliance on other provisions of Rule 144 and on Rule
701. Beginning 180 days after the date of this Prospectus, following the
expiration of certain lock-up agreements among the Underwriters, the Selling
Shareholders, the Company's officers and directors and certain other
shareholders of the Company, 2,732,157 additional currently outstanding shares
of Common Stock will be eligible for sale in the public market, subject to the
limitations of Rule 144 and Rule 701. If the Securities and Exchange Commission
(the "Commission") adopts proposed amendments to Rule 144 to substantially
reduce required holding periods for restricted securities, another 322,333
currently outstanding shares of Common Stock will be eligible for sale in the
public market as described in the preceding sentence. In addition, certain
shareholders, representing approximately 2,555,637 shares of Common Stock, have
the right, subject to certain conditions, to include their shares in future
registration statements relating to SeaMED's securities and to cause SeaMED to
register certain shares of Common Stock owned by them. An additional 39,066
shares of Common Stock issuable upon exercise of outstanding warrants and
656,617 shares of Common Stock reserved for issuance pursuant to the Company's
stock option
12
<PAGE> 14
plans (the "Option Shares"), may become eligible for resale in the public market
at various times after the expiration of the 180-day lockup period. The holders
of 104,200 Option Shares which have vested and are not subject to lockup
agreements could exercise their options and sell these shares in compliance with
Rule 701 beginning 90 days after the effective date of this offering. The
Company intends to register the Option Shares for resale in the public market
following expiration of the lock-up period. See "Shares Eligible for Future
Sale."
DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution in the net tangible book value per share of the Common
Stock from the assumed initial public offering price. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid dividends on the Common Stock and does not
anticipate paying any such dividends in the foreseeable future. See "Dividend
Policy."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,356,942 shares of Common
Stock offered hereby are estimated to be approximately $13.0 million
(approximately $15.9 million if the Underwriters' over-allotment option is
exercised in full), after deducting estimated underwriting discounts and
offering expenses and assuming an initial public offering price of $11.00 per
share.
The Company intends to use a portion of such net proceeds to repay bank
debt consisting of a bank line of credit and three notes payable, the aggregate
outstanding balance of which is expected to be between $3.5 million and $5.0
million, and approximately $1.8 million of the net proceeds to pay cumulative
dividends on Class A and Class D Preferred Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company intends to use the remaining net proceeds to
fund working capital needs and for general corporate purposes, including
leasehold improvements and purchases of equipment. The Company, if the
opportunity arises, may use an unspecified portion of the net proceeds to
acquire other businesses or assets that complement the Company's existing
business. The Company currently is not engaged in any discussions regarding such
acquisitions and has no plans, arrangements, understandings or agreements
regarding any specific acquisition.
Pending the uses set forth above, the net proceeds will be invested in
short-term, investment-grade, interest-bearing securities. The Company will not
receive any proceeds from the sale of Common Stock by the Selling Shareholders.
See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock, and currently
intends to retain all earnings for use in the expansion of its business, and
does not anticipate paying any dividends on the Common Stock in the foreseeable
future. In addition, the Company's current revolving credit facility prohibits
the payment of dividends, but such restriction has been waived for the payment
of cumulative dividends on Class A and Class D Preferred Stock at the closing of
this offering.
14
<PAGE> 16
DILUTION
The Company's pro forma net tangible book value as of June 30, 1996 was
$4,846,000, or $1.35 per share. Pro forma net tangible book value per share
represents the Company's total assets less intangible assets and total
liabilities divided by the number of shares outstanding, adjusted on a pro forma
basis for the (i) conversion into Common Stock of all outstanding shares of
Preferred Stock and (ii) pro forma accrual of $1,664,000 of cumulative dividends
on Class A and D Preferred Stock as of June 30, 1996. Without taking into
account any changes in such net tangible book value per share after June 30,
1996, other than to give effect to the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$11.00 per share and the receipt of the estimated net proceeds of such sale, the
pro forma net tangible book value per share as of June 30, 1996 would have been
approximately $17,878,000, or $3.60 per share. This represents an immediate
increase in net tangible book value per share of $2.25 to existing shareholders
and an immediate dilution of $7.40 per share to new investors. The following
table sets forth this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $11.00
Pro forma net tangible book value per share as of June 30, 1996........... $1.35
Increase per share attributable to new investors.......................... 2.25
------
Pro forma net tangible book value per share after this offering............. 3.60
------
Dilution per share to new investors......................................... $ 7.40
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between existing shareholders and investors in this offering
with respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid.
<TABLE>
<CAPTION>
SHARES
PURCHASED(1)(2) TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 3,602,736 72.6% $ 6,665,948 30.9% $ 1.85
New investors....................... 1,356,942 27.4 14,926,362 69.1 11.00
--------- ----- ---------- -----
Total..................... 4,959,678 100.0% $21,592,310 100.0%
========= ===== ========== =====
</TABLE>
- ---------------
(1) Excludes 529,265 shares of Common Stock issuable upon exercise of stock
options and a warrant outstanding at such date, which had a weighted average
exercise price of $2.56 per share. Also excludes 96,418 shares reserved for
issuance pursuant to future option grants under the Company's stock option
plans. See "Management -- Stock Plans" and "Description of Capital Stock."
To the extent these options and warrants are exercised, there will be
further dilution to new investors.
(2) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders as of June 30, 1996 to approximately
3,109,678 shares, or 62.7% (59.4% if the Underwriters' over-allotment option
is exercised in full) of the total number of shares of Common Stock
outstanding after this offering, and will increase the number of shares to
be purchased by new investors to 1,850,000 shares, or 37.3% (approximately
2,127,500 shares, or 40.6% if the Underwriters' over-allotment option is
exercised in full) of the total number of shares of Common Stock outstanding
after this offering. See "Principal and Selling Shareholders."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of June 30, 1996, (ii) the pro forma capitalization after giving effect to
the conversion of all outstanding shares of Preferred Stock into 2,934,029
shares of Common Stock upon the closing of this offering and the pro forma
accrual of $1,664,000 of cumulative dividends on Class A and D Preferred Stock
as of June 30, 1996, and (iii) the adjusted capitalization after giving effect
to the sale by the Company of the 1,356,942 shares of Common Stock offered by it
hereby at an assumed initial public offering price of $11.00 per share, and the
application of the net proceeds thereof.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
<S> <C> <C> <C>
(in thousands)
Notes payable to bank....................................... $1,817 $ 1,817 $ --
======= ======= =======
Current portion of long-term debt........................... $ 462 $ 462 $ 132
======= ======= =======
Long-term debt, net of current portion...................... $1,286 $ 1,286 $ 651
Convertible redeemable preferred stock...................... 5,280 -- --
Shareholders' equity:
Preferred stock, no par value, 14,050,000 shares
authorized; 9,050,000 designated convertible redeemable
shares................................................. -- -- --
Common stock, no par value, 10,000,000 shares authorized;
668,707 shares issued and outstanding actual; 3,602,736
shares issued and outstanding pro forma; 4,959,678
shares issued and outstanding as adjusted(1)........... 887 4,921 17,953
Note receivable from officer.............................. (75) (75) (75)
Retained earnings......................................... 419 -- --
------- ------- -------
Total shareholders' equity........................... 1,231 4,846 17,878
------- ------- -------
Total capitalization.............................. $7,797 $ 6,132 $18,529
======= ======= =======
</TABLE>
- ---------------
(1) Excludes 529,265 shares issuable upon exercise of stock options and a
warrant outstanding at such date, which had a weighted average exercise
price of $2.56 per share. Also excludes 96,418 shares reserved for issuance
pursuant to future option grants under the Company's stock option plans. See
"Management -- Stock Plans" and "Description of Capital Stock."
16
<PAGE> 18
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The following selected financial data as of June 30, 1995 and 1996 and for
each of the periods ended June 30, 1994, 1995 and 1996 are derived from the
financial statements of the Company, which have been audited by Ernst & Young
LLP, independent auditors, and are included elsewhere in this Prospectus. The
selected financial data as of June 30, 1992, 1993 and 1994, and for each of the
periods ended June 30, 1992 and 1993, are derived from audited financial
statements not included herein. The Company's fiscal year consists of the
52/53-week period that ends on the Thursday nearest to June 30. For convenience
of presentation, all fiscal periods in this Prospectus are shown as ending on a
calendar month-end. The data should be read in conjunction with the Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues........................................... $8,663 $9,582 $14,720 $17,661 $26,130
Cost of sales...................................... 6,426 7,444 11,965 14,590 21,093
------ ------ ------- ------- -------
2,237 2,138 2,755 3,071 5,038
Marketing, general and administrative expenses..... 1,430 1,239 1,818 1,931 2,938
------ ------ ------- ------- -------
Operating income................................... 807 899 937 1,140 2,100
Other expense, net................................. (106) (114) (138) (185) (191)
------ ------ ------- ------- -------
Income before income taxes......................... 701 785 799 955 1,909
Income tax benefit (provision)..................... (19) 245 208 (180) (668)
------ ------ ------- ------- -------
Net income......................................... $ 682 $1,030 $ 1,007 $ 775 $ 1,240
====== ====== ======= ======= =======
Net income per share data(1):
Primary.......................................... $ 0.26 $ 0.42 $ 0.39 $ 0.25 $ 0.42
====== ====== ======= ======= =======
Fully diluted.................................... $ 0.21 $ 0.31 $ 0.30 $ 0.21 $ 0.32
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
--------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1996(2)
------- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $ 1,770 $ 2,686 $3,307 $4,497 $ 4,997 $ 3,333
Total assets.............................. 3,616 4,903 7,571 9,900 16,064 16,064
Notes payable to bank..................... -- -- 990 555 1,817 1,817
Long-term debt
(including current portion)............. 1,185 1,370 1,653 1,517 1,748 1,748
Convertible redeemable preferred stock.... 3,815 3,815 3,815 5,279 5,279 --
Shareholders' equity (deficit)............ (2,747) (1,713) (672) (38) 1,231 4,846
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing net income per share.
(2) The pro forma balance sheet data as of June 30, 1996 reflect the pro forma
conversion into shares of Common Stock of all outstanding shares of
Preferred Stock and the pro forma accrual of $1,664,000 of cumulative
dividends on Class A and D Preferred Stock.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto and other financial
information included elsewhere in this Prospectus. This Prospectus contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus. See "Risk Factors."
OVERVIEW
SeaMED is a leading manufacturer of advanced medical instruments for
medical technology companies. SeaMED was incorporated in 1976, and since 1988
has focused its business primarily on manufacturing medical instruments for
medical technology companies. To assist its customers in developing and
commercializing their products for manufacture by SeaMED, the Company provides a
wide range of engineering services and regulatory expertise. The Company has
been profitable in each of its last five fiscal years, with revenues growing
from $8.7 million in fiscal 1992 to $26.1 million in fiscal 1996, a compound
annual growth rate of 32%.
SeaMED's manufacturing contracts with its customers are usually exclusive
contracts for a fixed period of time, generally ranging from three to five
years. SeaMED negotiates each manufacturing contract independently, and each
varies as to profitability. SeaMED negotiates the price of each manufactured
instrument on a cost and margin formula. SeaMED's contracts with its customers
generally permit annual manufacturing cost audits and price renegotiations.
During the contract term, customers have broad discretion to control the volume
and timing of instrument deliveries. Consequently, SeaMED's revenues with
respect to each instrument may vary substantially from period to period. In
addition, for a variety of reasons such as a customer's inventory levels, sales
mix and timing of product launches, SeaMED's revenues for an instrument do not
necessarily correspond to the customer's sales.
Manufacturing revenue growth depends primarily on two factors: increased
demand for instruments manufactured by SeaMED and SeaMED's ability to attract
additional manufacturing contracts from emerging and established medical
technology companies. SeaMED has no ability to increase demand for the
instruments it manufactures because SeaMED's customers control all product
marketing and sales. SeaMED markets its manufacturing capabilities and usually
procures additional manufacturing contracts as a result of its engineering
projects, but the volume and timing of future manufacturing revenues that relate
to any specific engineering project are highly variable, and certain engineering
projects may not lead to future manufacturing revenues. The manufacturing gross
margin percentage from year to year depends primarily on the product mix, as
gross margins vary by instrument and as a result of negotiated volume discounts.
Management may negotiate volume discounts if the larger volume results in
smaller per unit overhead allocation, thereby improving operating margin. For
manufacturing revenues from instruments not yet approved for commercial use
(known as "preproduction revenues"), the gross margin percentage is generally
lower because a smaller number of units limits opportunities to achieve
economies of scale, and the instrument and its manufacturing process are being
refined.
SeaMED provides engineering services to finalize instrument design prior to
commencing manufacturing and, at times, as an inducement to customers to grant
SeaMED the manufacturing rights for an instrument. SeaMED generally provides
engineering services under a project plan that identifies the engineering tasks,
deliverables and schedule. SeaMED negotiates each engineering project plan
independently, and, as a business strategy, generally prices engineering
contracts to cover direct project expenses (i.e., nonrecurring engineering
expenses) plus a share of marketing, general and administrative expenses.
SeaMED's objective in providing engineering services is to obtain, for a
specific time period (usually three to five years), exclusive manufacturing
rights to the instruments resulting from the engineering project. The customer
can typically cancel the engineering project at any time upon short notice.
Engineering revenues are derived primarily from professional services
provided by SeaMED's engineers. The balance of engineering revenues is sales of
materials to customers at cost. Engineering revenue growth
18
<PAGE> 20
depends primarily on three factors: (i) the number and scope of existing
engineering projects, (ii) whether existing projects are in time-intensive
phases, and (iii) whether new engineering projects of sufficient scope replace
engineering projects that are completed or otherwise terminated. Engineering
gross margins are low due to SeaMED's strategy of pricing engineering services
as a means of obtaining an exclusive manufacturing contract for the resulting
instrument. Since demand for engineering services varies widely, SeaMED may
experience from time to time excess engineering capacity. Engineering margins
may fluctuate depending on the rates engineering project plans charge customers
and the utilization rates of engineers.
SeaMED has historically designed, developed and manufactured certain
proprietary instruments. SeaMED expects that fiscal year 1997 will be the last
year in which it derives revenues from such instruments. SeaMED thereafter will
derive its revenues exclusively by manufacturing instruments for its customers.
SeaMED's revenues from its proprietary instruments were $1.2 million, $923,000
and $1.4 million in 1994, 1995 and 1996, respectively.
Marketing, general and administrative expenses include the costs of
SeaMED's marketing, finance, and management information systems departments and
other administrative costs. In addition, marketing, general and administrative
expenses include the cost of a Company-wide bonus tied to operating performance.
RESULTS OF OPERATIONS
The following table sets forth statement of income data as a percentage of
revenues for the fiscal years indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues............................................................ 100.0% 100.0% 100.0%
Cost of sales....................................................... 81.3 82.6 80.7
----- ----- -----
Gross margin........................................................ 18.7 17.4 19.3
Marketing, general and administrative expenses...................... 12.4 10.9 11.3
----- ----- -----
Operating income.................................................... 6.3 6.5 8.0
Other expense, net.................................................. 0.9 1.1 0.7
----- ----- -----
Income before income taxes.......................................... 5.4 5.4 7.3
Income tax benefit (provision)...................................... 1.4 (1.0) (2.6)
----- ----- -----
Net income.......................................................... 6.8% 4.4% 4.7%
===== ===== =====
</TABLE>
Revenues
The following table sets forth revenues with the corresponding percentage
of total revenues and the year-to-year percentage increase for the fiscal years
indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------
1994 1995 1996
------------------- ------------------- -------------------
% OF % OF % OF
TOTAL TOTAL % TOTAL %
REVENUES REVENUES REVENUES REVENUES INCREASE REVENUES REVENUES INCREASE
-------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing......................... $10,029 68.1% $11,941 67.6% 19.1% $17,725 67.8% 48.4%
Engineering........................... 4,691 31.9 5,721 32.4 22.0% 8,405 32.2 46.9%
-------- -------- -------- -------- -------- --------
Total revenues...................... $14,720 100.0% $17,661 100.0% 20.0% $26,130 100.0% 48.0%
======== ======== ======== ======== ======== ========
</TABLE>
Manufacturing revenues increased by approximately $5.8 million from 1995 to
1996, due primarily to new instruments and a nonmedical product and increased
volume of existing instruments, adding approximately $7.6 million in the
aggregate. This increase was offset by decreased volume of certain existing
instruments and the phase-out of other instruments, which decreased revenues by
approximately $1.8 million in the aggregate. Manufacturing revenues were
generated by 20 instruments in 1995 and 23 instruments in 1996. Engineering
19
<PAGE> 21
revenues increased by approximately $2.7 million from 1995 to 1996, due
primarily to new projects, increased time being billed on existing projects and
increases in hourly rates for engineering services, adding approximately $4.7
million in the aggregate. This increase was offset by the transition of certain
projects from engineering to manufacturing and other projects being delayed or
cancelled, which decreased revenues by approximately $2.0 million in the
aggregate. Engineering revenues were generated by 24 projects in 1995 and 30
projects in 1996.
Manufacturing revenues increased by approximately $1.9 million from 1994 to
1995, due primarily to new instruments and increased volume of existing
instruments, adding approximately $4.5 million in the aggregate. This increase
was offset by decreased volume of certain existing instruments, which decreased
revenues by approximately $2.6 million. Manufacturing revenues were generated by
16 instruments in 1994. Engineering revenues increased by approximately $1.0
million from 1994 to 1995, due primarily to new projects, increased time being
billed on existing projects and increases in hourly rates for engineering
services, adding approximately $2.6 million in the aggregate. This increase was
offset by the transition of certain projects from engineering to manufacturing
and other projects being delayed or cancelled, which decreased revenues by
approximately $1.6 million in the aggregate. Engineering revenues were generated
by 16 projects in 1994.
Price adjustments under existing manufacturing contracts have not been
significant. Increases in revenues have not been significantly influenced by
inflation.
Gross Margin
The following table sets forth gross margin, both in dollar amounts and as
a percentage of the corresponding revenue figure for the fiscal years indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
GROSS GROSS GROSS GROSS GROSS GROSS
MARGIN($) MARGIN(%) MARGIN($) MARGIN(%) MARGIN($) MARGIN(%)
--------- --------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Manufacturing..................... $ 2,491 24.8% $ 2,611 21.9% $ 4,184 23.6%
Engineering....................... 264 5.6% 460 8.0% 854 10.2%
------ ------ ------
Total gross margin........... $ 2,755 18.7% $ 3,071 17.4% $ 5,038 19.3%
====== ====== ======
</TABLE>
Manufacturing gross margin increased from 21.9% of manufacturing revenues
in 1995 to 23.6% in 1996, due primarily to changes in the product mix to higher
gross margin products, including a decrease in the percentage of manufacturing
revenues derived from products in preproduction. Engineering gross margin as a
percentage of engineering revenues has increased from 8.0% in 1995 to 10.2% in
1996. This trend was due primarily to (i) spreading fixed costs over a higher
revenue base, (ii) better utilization of engineers, and (iii) increased hourly
rates. The Company does not expect engineering gross margin to exceed 10% in
future periods.
Manufacturing gross margin decreased from 24.8% in 1994 to 21.9% in 1995,
due primarily to changes in the product mix to lower-margin products, including
an increase of the percentage of manufacturing revenues derived from products in
preproduction. Engineering gross margin as a percentage of engineering revenues
increased from 5.6% in 1994 to 8.0% in 1995 for the reasons stated above.
20
<PAGE> 22
Marketing, General and Administrative Expenses
The following table sets forth marketing, general and administrative
expenses with the corresponding percentage of revenues for the fiscal years
indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- -------------------------------------------------------------------------
1994 1995 1996
- --------------------- --------------------- ---------------------
MG&A % OF MG&A % OF MG&A % OF
EXPENSES REVENUES EXPENSES REVENUES EXPENSES REVENUES
- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
$1,818 12.4% $1,931 10.9% $2,938 11.2%
</TABLE>
Marketing, general and administrative expenses increased by approximately
$1.0 million from 1995 to 1996, due primarily to increased Company-wide bonuses
and increased management information systems costs. Marketing, general and
administrative expenses before bonuses represented 10.0% and 8.5% of revenues in
1995 and 1996, respectively, as fixed costs were spread over a higher revenue
base. If anticipated revenue growth occurs, SeaMED expects marketing, general
and administrative expenses before bonus as a percentage of revenues to continue
to decline in the near term.
Marketing, general and administrative expenses did not change significantly
from 1994 to 1995 because the number of employees in the relevant departments
remained substantially the same. Marketing, general and administrative expenses
before bonuses represented 11.7% of revenues in 1994.
Operating Income
The following table sets forth operating income with the corresponding
operating margin as a percentage of revenues and the year-to-year percentage
increase for the fiscal years indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- ---------------------------------------------------------------------------------------------------------
1994 1995 1996
- ----------------------- ----------------------- -----------------------
OPERATING OPERATING OPERATING OPERATING % OPERATING OPERATING %
INCOME MARGIN INCOME MARGIN INCREASE INCOME MARGIN INCREASE
- --------- --------- --------- --------- -------- --------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
$ 937 6.3% $ 1,140 6.5% 21.6% $ 2,100 8.0% 84.4%
</TABLE>
The $960,000 increase in operating income from 1995 to 1996 is due
primarily to an increase in both manufacturing volume and the manufacturing
gross margin percentage. In addition, engineering volume and gross margins
improved. These improvements were offset by the increase in marketing, general
and administrative expenses, the most significant of which was the Company-wide
bonus.
The increase in operating income from 1994 to 1995 was due primarily to
increased revenues.
Income Taxes
The Company's effective tax rate was 35% in 1996 and 18.9% in 1995. A tax
benefit of $208,500 was recorded in 1994. Differences from the federal statutory
income tax rate of 34% for the fiscal years ended June 30, 1994 and 1995
resulted primarily from the use of net operating loss carryforwards and tax
credits and the reversal of valuation allowances due to changes in the estimate
of realizable deferred tax assets. The Company expects the future effective tax
rate to stabilize at a rate that approximates the federal statutory rate of 35%.
21
<PAGE> 23
Quarterly Results, Fiscal 1995 and 1996
Changes in customer orders have had a significant effect on SeaMED's
results of operations. The volume and timing of customer orders may vary due to
(i) variation in demand for customer products as a result of, among other
things, product life cycles, competitive conditions and general economic
conditions, (ii) the customer's attempt to balance its inventory, (iii) the
customer's need to adapt to changing regulatory conditions and requirements, and
(iv) changes in the customer's manufacturing strategy. Production may be reduced
or discontinued at any time, causing sales fluctuations from quarter to quarter.
SeaMED's business organization and its related cost structure anticipate
supporting a certain minimum level of revenues. The Company, therefore, has a
limited ability to adjust its short-term cost structure, which compounds
quarterly fluctuations.
The following table sets forth unaudited revenues, operating income, net
income (loss) and fully diluted net income per share of SeaMED for each of the
quarters for the fiscal years ended June 30, 1995 and 1996. In the opinion of
management, the data include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the information set forth
therein.
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1996
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands, except per share amounts)
Revenues........................ $ 4,452 $ 3,635 $ 4,560 $ 5,014 $ 5,000 $ 5,366 $ 7,040 $ 8,724
Operating income................ 359 54 423 304 302 334 644 820
Net income (loss)............... 249 (2) 316 212 167 182 395 496
Fully diluted net income per
share......................... $ 0.07 -- $ 0.08 $ 0.05 $ 0.04 $ 0.05 $ 0.10 $ 0.13
</TABLE>
Although SeaMED currently anticipates favorable comparisons of revenues,
operating income and net income in each of the quarters for the fiscal year
ending June 30, 1997 as compared to the corresponding quarters for the fiscal
year ended June 30, 1996, revenues, operating income and net income in each of
the quarters for the fiscal year ended June 30, 1997 may not match the results
attained in the quarter ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
SeaMED has historically financed its operations through earnings, debt and
sales of securities. Net cash provided by operating activities was approximately
$658,000 in 1995 compared to net cash used in operating activities of
approximately $296,000 in 1996, with the change being due primarily to the need
to use increased 1996 earnings to finance a large increase in net working
capital. Net cash used in operating activities was $1.0 million in 1994 compared
to net cash provided by operating activities of $658,000 in 1995, with the
change being due primarily to a smaller increase in inventory and accounts
receivable in 1995.
SeaMED has a zero-balance cash management arrangement with Pacific
Northwest Bank (the "Bank"). Under this arrangement, the amount outstanding
under SeaMED's line of credit fluctuates daily based on the Company's receipts
and disbursements. Under the line of credit, SeaMED can borrow up to 80% of
eligible accounts receivable (less than 60 days outstanding) to a maximum of
$4.0 million. Borrowings under the line bear interest at the Bank's prime rate
plus .25% (8.5% at September 30, 1996) and are secured by receivables and
inventories. The line is subject to annual approval and extension by November 1
of each year. At September 30, 1996, SeaMED had drawn approximately $2.2 million
against the $4.0 million limit.
In addition to the line of credit, SeaMED has three notes payable to the
Bank, each of which requires monthly payments including interest and is secured
by a lien on the Company's equipment. One such note bears interest at a rate of
8.5%, requires monthly payments of approximately $19,000, is due on August 5,
1998, and at September 30, 1996 had an outstanding balance of approximately
$392,000. The second such note bears interest at a rate of 8.75%, requires
monthly payments of approximately $15,000, is due on November 5, 1999, and at
September 30, 1996 had an outstanding balance of approximately $493,000. The
third such note bears interest at a rate of 8.75%, requires monthly payments of
approximately $12,000, is due on July 5, 2000, and at September 30, 1996 had an
outstanding balance of approximately $484,000.
22
<PAGE> 24
At September 30, 1996, total indebtedness to the Bank, including the line
of credit and the three notes payable, was approximately $3.6 million. SeaMED
anticipates using a portion of the net proceeds of this offering to repay all
outstanding indebtedness to the Bank.
In addition to borrowings from the Bank, SeaMED also has an unsecured
subordinated note payable to Cordis Corporation, with an interest rate
adjustment on each July 1 to the prime rate plus 2% (10% at September 30, 1996),
with a maximum rate of 10% and a minimum rate of 7%. The note is due in monthly
payments of $17,000 through May 2001. At September 30, 1996, the balance
outstanding on this note was approximately $740,000.
To accommodate anticipated future growth, SeaMED will need additional
sources of capital to fund working capital needs for inventory and accounts
receivable, to lease and acquire equipment for additional plant facilities and
to make other capital expenditures. In addition to repaying indebtedness to the
Bank, SeaMED expects to use a portion of the net proceeds of this offering to
pay a cumulative preferred dividend of approximately $1.8 million, to fund
working capital needs and for general corporate purposes, including leasehold
improvements and purchases of equipment. SeaMED believes that the net proceeds
of this offering, together with existing capital resources and amounts available
under its existing line of credit with the Bank, will satisfy the Company's
anticipated capital needs for the next 12 to 24 months (depending primarily on
SeaMED's growth rate and its results of operations). Capital expenditures were
$876,000 in 1994, $1.2 million in 1995 and $1.5 million in 1996. Following this
offering, SeaMED will review the adequacy of its line of credit.
SeaMED leases two buildings under long-term leases with an aggregate of
approximately 81,000 square feet, which require annual lease payments of
approximately $900,000. In September 1996, SeaMED entered into a lease for an
additional 90,000 square feet of space for a term of 10 years with two five-year
renewal options. When fully occupied (anticipated to be by January 1, 1999), the
annual lease payment on this space will be approximately $1.2 million.
There can be no assurance that appropriate sources of capital will be
available in the future or, if available, will be on terms acceptable to the
Company. See "Risk Factors -- Future Capital Requirements."
23
<PAGE> 25
BUSINESS
INTRODUCTION
SeaMED is a leading manufacturer of advanced medical instruments for
medical technology companies. SeaMED manufactures durable electronic medical
instruments for its customers, often as part of systems that also include
single-use components. To assist its customers in developing and commercializing
their instruments for manufacture by SeaMED, the Company provides a wide range
of engineering services and regulatory expertise. In its last fiscal year,
SeaMED manufactured or engineered medical instruments for many established
medical technology companies, including Arrow International, Inc., Becton,
Dickinson and Company, Boston Scientific Corporation, C.R. Bard, Inc., Guidant
Corporation, Johnson & Johnson, Physio-Control Corporation, St. Jude Medical,
Inc., Sorin Biomedical Inc. and United States Surgical Corporation. SeaMED's
customers also include many emerging medical technology companies such as Aksys
Ltd., ArthroCare Corporation, Biofield Corp., CellPro, Incorporated, Gynecare,
Inc., ReSound Corporation and Urologix, Inc. The Company has been profitable in
each of its last five years, with revenues growing from $8.7 million in fiscal
year 1992 to $26.1 million in fiscal year 1996, a compound annual growth rate of
32%. During this period, the number of manufactured instruments grew from seven
to 23.
Since 1988, SeaMED has focused its business primarily on manufacturing
medical instruments and believes it is the largest independent manufacturer of
advanced medical instruments for medical technology companies. As part of its
growth strategy, SeaMED continues to expand its engineering expertise,
regulatory knowledge and manufacturing capabilities, thereby allowing SeaMED to
design and manufacture a broader range of medical instruments. SeaMED also
utilizes its existing resources and expertise by accepting high-value added
engineering and manufacturing contracts for select nonmedical products.
INDUSTRY OVERVIEW
Demand for health care has grown rapidly in recent years, and is expected
to continue to increase as the population ages. Advancements in science,
medicine, and computers have dramatically expanded the number and variety of
efficacious medical procedures. The most advanced medical procedures and
techniques, many of which use advanced medical instruments, now are common
treatments under many health insurance plans. As insurance companies and federal
and state governments have expanded the medical procedures for which health care
providers would be reimbursed, demand has grown for the medical instruments and
systems needed for these procedures. More recently, in response to increasing
pressure to control rising health care costs, medical technology companies have
developed advanced medical instruments and systems that improve patient outcomes
and lessen the overall cost of health care by reducing palliative care and acute
hospital stays.
As medical products have incorporated the latest developments in computers,
electronics, materials and other technologies, the cost of product development
and the length of the development cycle have increased substantially. The risks
in developing and launching new medical products also have increased
significantly as competition in the highly fragmented medical products industry
has intensified. As a result, medical technology companies face increased
pressure to bring new products to market in the shortest possible time, reduce
costs, maintain or increase market share and accelerate realization of revenue.
At the same time, the FDA and the European Community have adopted
increasingly stringent and evolving regulatory requirements for the manufacture
of medical products. In the United States, certain medical products are subject
to the FDA's PMA requirements and many medical products require premarket
clearance. In addition, products are subject to regulation with respect to
manufacture, labeling, distribution, postmarket reporting and promotion. Under
European quality standards to be effective in 1998, the design of medical
products must satisfy specific engineering design process standards. To market
and sell their products, medical technology companies must invest significant
financial resources to establish and maintain manufacturing facilities that
comply with the FDA's GMP requirements and the European Community's quality
system standards, particularly if the facilities produce life-supporting,
life-sustaining, or implantable products. After the often lengthy and
time-consuming process of obtaining FDA marketing authorization and ISO
certification, medical technology companies must devote substantial managerial
oversight to assure continued compliance with FDA and European Community
requirements.
24
<PAGE> 26
SeaMED believes that the trend toward outsourcing medical product
engineering and manufacturing is in its early stages and outsourcing revenues
represent a very small percentage of the more than $30 billion medical
technology industry. SeaMED also believes that medical technology companies will
expand their outsourcing of engineering and manufacturing and that SeaMED is
well positioned for such expansion. With intensified competition, higher initial
product development costs and longer product development and regulatory cycles,
many of SeaMED's customers have chosen to concentrate product development and
manufacturing resources on higher-volume, single-use components, and outsource
the development and manufacturing of durable medical instruments.
THE SEAMED ADVANTAGES
SeaMED provides integrated solutions to the engineering, regulatory and
manufacturing challenges of advanced medical instruments and systems. SeaMED
offers its customers the following advantages:
- Broad Experience With Numerous Advanced Medical Instruments. Since
1992, SeaMED has manufactured 18 different advanced medical
instruments that incorporate diverse technologies, and it currently
has an additional 15 instruments or systems in the engineering design
phase. As a result, SeaMED has developed considerable expertise in
solving its customers' product development, engineering,
manufacturing and regulatory issues.
- Focus on Core Functions. By relying on SeaMED's engineering and
manufacturing capabilities, customers can focus management efforts on
product research, clinical development and sales and marketing, as
well as manufacturing their higher-volume, single-use components. In
addition, SeaMED's customers can shift to variable costs the high
fixed costs associated with staffing and maintaining GMP compliant
facilities for durable medical instruments.
- Production Flexibility. SeaMED's broad customer base permits it to
offer its customers production flexibility, which enables customers
to adjust production volumes in response to regulatory issues or
fluctuations in market demand.
- Rapid Product Development. SeaMED believes that, with its engineering
and manufacturing capabilities, it can more rapidly develop and
manufacture new products at a lower overall cost than its customers,
which otherwise expend significant time and financial resources to
develop internal engineering expertise, establish GMP qualified
manufacturing facilities and obtain ISO certification.
- Regulatory Compliant Manufacturing. SeaMED believes that its medical
manufacturing facilities comply with GMP requirements, and they are
ISO 9001/EN 46001 certified. SeaMED currently manufactures six
medical instruments that are regulated as Class III instruments,
which is the most stringent FDA regulatory category. Due to the
critical nature of regulatory compliance, SeaMED devotes significant
management time and financial resources to GMP compliance and ISO
certification.
- Integrated Engineering and Manufacturing. SeaMED provides a wide
range of engineering services, and has the capabilities to provide
complete instrument or system design (including engineering, testing,
component analysis and regulatory compliance), which enhances its
manufacturing business. By integrating engineering design work with
manufacturing processes, materials acquisitions and quality and
regulatory considerations, SeaMED believes that it can increase the
quality and lower the overall cost of the instruments that it
manufactures for its customers. Since 1992, SeaMED's engineering
staff has performed substantially all the engineering design work for
15 medical instruments.
CUSTOMERS AND PRODUCTS
SeaMED's customers include some of the world's largest medical technology
companies as well as many emerging medical technology companies. As of September
30, 1996, SeaMED was manufacturing 18 medical instruments for 18 customers and
was engaged in the engineering design phase of 15 instruments for 12
25
<PAGE> 27
customers. In fiscal year 1996, revenues from one customer, C. R. Bard, Inc.,
accounted for more than 10% of the Company's revenues. SeaMED negotiates
separate contracts with its customers for engineering design services and
product manufacturing. Most projects begin with an engineering design contract.
As a business strategy, SeaMED generally prices engineering contracts to cover
direct project expenses (i.e., nonrecurring engineering expenses) plus a share
of operating expenses. SeaMED's objective is to obtain the exclusive
manufacturing rights to medical instruments for a specific time period,
generally three to five years. SeaMED believes that no customer has replaced
SeaMED as its manufacturer.
The following list identifies customers with instruments currently being
designed or manufactured by SeaMED, the product description and the product
status. The instruments and projects included in this list represented in the
aggregate 62.1% of SeaMED's revenues for fiscal year 1996.
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRODUCT STATUS
---------------------------------------------
U.S.
----------------------------- INTERNATIONAL
CUSTOMER PRODUCT DESCRIPTION PRECOMMERCIAL COMMERCIALIZED COMMERCIALIZED
--------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Aksys Ltd................ Personal hemodialysis
system..................... X
ArthroCare Corporation... Power console for
arthroscopic ablation
system..................... X X
Biofield Corp............ Console breast cancer
detection system........... X
Boston Scientific
Corporation:
EP Technologies,
Inc................. RF generator for
electrophysiology ablation
system..................... X X
Heart Technology,
Inc................. Drive console for
atherectomy system......... X X
C. R. Bard, Inc.......... Amplifier for
electrophysiology.......... X X
Monitor for urinary output
and core temperature....... X X
CellPro, Incorporated.... Stem cell separator........ X X
Guidant Corporation:
Cardiac Pacemakers,
Inc................. Pacemaker system
analyzer................... X X
Gynecare, Inc............ Power console for
endometrial ablation
system..................... X X
Johnson & Johnson........ *.......................... X
Marquette Electronics:
E for M............... Amplifier for
electrophysiology.......... X X
ReSound Corporation...... Hearing aid programmer..... X X
Sorin Biomedical Inc..... Control console for
cardioplegia system........ X X
St. Jude Medical, Inc.:
Pacesetter, Inc....... Pacemaker system
analyzer................... X X
United States Surgical
Corporation........... *.......................... X
Urologix, Inc............ Power control console for
transurethral thermal
therapy system............. X X
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* At the request of the customer, the nature of the project is not disclosed.
SeaMED from time to time selectively designs and manufactures nonmedical
commercial products that utilize SeaMED's engineering and manufacturing
capabilities. Currently, SeaMED manufactures one such
26
<PAGE> 28
product, a coin-counting machine that exchanges loose coins for currency, for
Coinstar under a cancelable purchase order, which SeaMED expects to account for
approximately 22% of the Company's revenues for the quarter ended September 30,
1996. SeaMED also has one engineering contract to design one other nonmedical
product. SeaMED intends to maintain as its primary focus the design and
manufacturing of advanced medical instruments for medical technology companies.
ENGINEERING
SeaMED will provide its customers with engineering services at any stage of
an instrument's development. Customers in many cases rely on SeaMED for complete
instrument design (including engineering, testing, component analysis and
regulatory compliance). Since 1992, SeaMED's engineering staff has performed
complete product design for 15 instruments. Customers, however, often deliver
final drawings for instruments they believe ready for manufacturing. In such
cases, SeaMED reviews and tests the existing design prior to manufacturing the
instrument and, in many cases, SeaMED's engineers are able to identify and offer
alternatives to the customer's design that improve performance or product
manufacturing efficiencies.
SeaMED approaches each engineering project using a team structure, each
team being a multi-disciplinary collection of engineers and technicians who
understand the technical requirements of the particular project. Each team
includes representatives from other engineering disciplines, including one or
more manufacturing, test and quality engineers, who help design an instrument
that can be manufactured in a manner that meets or exceeds customer
specifications and applicable regulatory requirements.
SeaMED integrates its engineering staff throughout its operations,
including sales and marketing, customer relations, materials management, quality
assurance, regulatory compliance and manufacturing. SeaMED's engineers play a
critical role in sales and marketing by assisting SeaMED's Vice President, Sales
and Marketing, in evaluating requests for proposals and developing
project-specific, solution-oriented responses, bids, cost estimates and project
plans. Similarly, SeaMED project engineers act as customer contacts throughout
the engineering design phase and have responsibility for all aspects of a
customer's project, including coordinating the component parts necessary for the
instrument, quality assurance procedures, regulatory requirements and the
manufacturing process. SeaMED has made significant investments in state-
of-the-art equipment to support its engineering design effort, including
engineering design and testing stations and computer-aided design software.
Each instrument, product design, patent and other proprietary right
developed by SeaMED becomes the property of the client, with SeaMED typically
retaining the manufacturing rights to such instrument for a period generally
ranging from three to five years. Generally, SeaMED provides nonrecurring
engineering services under a project plan that identifies the engineering tasks,
deliverables and schedule. Typically, such services are billed on a time and
materials basis and are cancelable at any time. The project plan usually states
that SeaMED is intended to be the manufacturer of the instrument, but does not
specify the manufacturing terms. SeaMED typically provides a design defect
warranty for 15 months to replace or repair instruments relating to the specific
elements for which SeaMED had primary design responsibility.
At September 30, 1996, SeaMED's engineering staff consisted of 56 engineers
employed by SeaMED and 19 consulting or contract engineers. The engineering
staff includes a variety of disciplines, as follows:
<TABLE>
<CAPTION>
ENGINEERING CATEGORY NUMBER
-------------------------------------------- ------
<S> <C>
Component................................... 2
Electrical Design........................... 14
Electrical Test............................. 9
Manufacturing............................... 14
Mechanical Design........................... 19
Reliability and Quality..................... 10
Software Design............................. 7
--
Total............................. 75
</TABLE>
27
<PAGE> 29
MANUFACTURING OPERATIONS
As the engineering project nears completion, the members of the project
team with direct responsibility for manufacturing, quality assurance,
manufacturing/test engineering and materials assume a greater role. The team
implements a materials management system and develops an assembly process and
product testing and quality assurance procedures to produce high-quality
instruments that satisfy customer specifications as well as GMP and ISO 9001
quality standards. Often, manufacturing begins with a relatively small number of
preproduction units, which are used by the customer for clinical trials. SeaMED
and the customer frequently make engineering and manufacturing refinements
during the preproduction phase.
Each instrument is manufactured in a dedicated manufacturing cell on the
Company's manufacturing floor. At September 30, 1996, SeaMED had 19 cells in
operation. These cells are flexible and can be expanded or modified as needed,
enabling SeaMED to adjust production volumes quickly in response to customer
orders.
SeaMED's customers generally submit purchase orders for delivery of
instruments in future periods. The Company does not regard backlog data as a
meaningful measure of revenues for future periods because of its policy of
generally allowing its customers to cancel orders at any time without notice.
SeaMED uses a fully integrated materials requirements system. This system,
which includes sales order entry, purchasing, inventory control, production
control, and cost accounting, helps SeaMED manage material acquisitions and
inventory for the various projects in full production at any one time and
facilitates the planning and control essential to building products within
critical time schedules.
Manufacturing contracts are generally executed near completion of the
engineering project, at which time SeaMED and the customer negotiate the term,
pricing, warranty, indemnity and other provisions. Pricing typically is fixed in
relation to SeaMED's cost and an agreed upon margin, both of which are subject
to customer audit. Although manufacturing contracts rarely include minimum
production requirements, they typically grant SeaMED exclusive manufacturing
rights for periods generally ranging from three to five years. Contracts
typically are terminable only for cause, which generally is defined as the
failure to deliver instruments on a timely basis or the failure to comply with
design specifications. In each case, SeaMED usually has an opportunity to cure
the breach. SeaMED generally warrants conformity to design specifications and
against defects in materials and workmanship and indemnifies its customers
against losses arising out of a breach of such warranty. In addition, SeaMED in
many cases enters into repair and service agreements with its customers that set
forth the pricing and terms under which SeaMED provides repair and replacement
parts, and needed services and upgrades not covered under warranty. Although
most of SeaMED's manufacturing projects are performed under long-term
manufacturing contracts, five such projects, with revenues for the fiscal year
ended June 30, 1996 totaling approximately $6.9 million, are manufactured only
under purchase orders. SeaMED, however, currently is negotiating master
manufacturing contracts with four of such customers.
QUALITY ASSURANCE AND REGULATORY COMPLIANCE
SeaMED emphasizes quality throughout its operations and integrates its
quality assurance and quality engineering programs throughout each project's
engineering and manufacturing phases, a process that involves SeaMED's senior
management and executive officers. At September 30, 1996, SeaMED employed 37
personnel in its quality assurance, quality engineering and regulatory
departments, 10 of whom are engineers.
Quality assurance procedures are integrated into every aspect of an
instrument's manufacturing cycle. SeaMED establishes a quality assurance program
for each such instrument, which includes a "zero defects" objective.
Substantially all component parts and outside-contracted product subassemblies
receive a control number and are inspected and, if necessary, tested. On the
manufacturing floor, quality assurance personnel implement quality procedures at
interim points during the assembly process and conduct a final-level test when
the instrument is fully assembled and ready for shipping. In addition, prior to
shipping, a quality inspector reviews each instrument for proper labeling and
paperwork.
SeaMED is registered with the FDA as a medical device manufacturer. As a
manufacturer of instruments reviewed under the PMA process, SeaMED is subject to
inspections by the FDA prior to PMA. SeaMED has experienced regularly scheduled
and unscheduled FDA audits in past years, none of which
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<PAGE> 30
required significant changes to its facilities or processes and none of which
required discontinuation of normal operations. See "-- Governmental Regulation."
In 1994, SeaMED received ISO 9001/EN 46001 certification. ISO 9000 is the
first quality system standard to gain worldwide recognition, including in the
European Community, Japan and the United States. As many medical technology
companies expand sales of products in international markets, compliance with
international quality standards has increased in importance. SeaMED's ISO 9001
designation is the highest level of ISO 9000 certification and indicates that
SeaMED met standards for the design, manufacture and test procedures for its
products. SeaMED's EN 46001 designation indicates that it has met additional
standards specific to medical instruments.
SeaMED's ISO 9001/EN 46001 certification serves as a marketing tool that
enhances SeaMED's competitive position in the industry, especially with respect
to medical technology companies with internal manufacturing facilities that have
not gone through the costly and time consuming ISO certification process.
SALES AND MARKETING
SeaMED generates new business opportunities by promoting its engineering
design and manufacturing capabilities at industry trade shows, by advertising in
leading industry publications, and by obtaining referrals from customers, former
employees of customers and other parties familiar with SeaMED's services. While
SeaMED's sales and marketing department consists solely of the Vice President,
Sales and Marketing, other executive officers and project engineers participate
extensively in sales and marketing activities. SeaMED believes it can
effectively market and sell its engineering and manufacturing capabilities while
maintaining a small sales and marketing staff.
COMPETITION
For established medical technology companies, SeaMED's primary competitor
is the internal design and manufacturing facilities of its prospective customer.
For emerging companies, SeaMED competes both with the customer's internal design
and manufacturing facilities (planned or operational), other manufacturers that
operate in the medical technology industry and, to a lesser extent, with
specialty design firms, most of which do not have manufacturing capabilities.
The primary competitive factors in medical instrument design and manufacturing
include quality, regulatory compliance, technical engineering competence, cost
of the nonrecurring engineering design component, price of the manufactured
product, experience, customer service, and ability to meet a design and
production schedule.
Competition is primarily limited to those companies that meet the minimum
applicable regulatory requirements of the FDA and international manufacturing
and design standards. In the future, SeaMED is likely to compete against new
entrants to the industry. For example, medical technology companies with design
and manufacturing capabilities (especially those with excess capacity) and large
electronic contract manufacturers and defense department contractors with
extensive nonmedical engineering expertise from time to time may undertake
design and/or manufacture of medical instruments. Although SeaMED is not aware
of substantial competition from these sources to date, there can be no assurance
that these, or other formidable competitors, will not aggressively expand into
SeaMED's targeted market segment in the future.
GOVERNMENTAL REGULATION
SeaMED's business and operations are subject to substantial governmental
regulation, primarily from the FDA in the United States and the regulatory
bodies in other countries, as described below. While these regulations directly
affect SeaMED's design and manufacturing operations, to a greater extent they
affect SeaMED's customers and their products. To the extent that production of a
customer's instrument is delayed or cancelled due to regulatory noncompliance,
the timing and levels of revenues received by SeaMED may be affected adversely.
United States
Because SeaMED provides design and manufacturing services to producers of
medical devices, SeaMED's manufacturing facilities are subject to extensive
regulation by the FDA under the FDC Act. Manufacturers of medical devices must
comply with applicable provisions of the FDC Act and associated
29
<PAGE> 31
regulations governing the development, testing, manufacturing, labeling,
marketing and distribution of medical devices and the reporting of certain
information regarding their safety. The FDC Act requires FDA PMA before certain
medical devices can be marketed. Noncompliance with FDA regulations can result
in, among other things, SeaMED and its customer being subject to fines,
injunctions, civil penalties, criminal prosecution, recall or seizure of
devices, total or partial suspension of production, failure of the government to
grant premarket clearance or PMA for products, withdrawal of marketing
approvals, or a recommendation by the FDA that a customer not be permitted to
enter into government contracts. The FDA also has the authority to require
repair, replacement or refund of the cost of any device manufactured or
distributed by a customer of SeaMED.
The FDA classifies medical devices into one of three classes (Class I, II
or III) on the basis of the controls deemed necessary by the FDA to reasonably
ensure product safety and efficacy. Class I devices are subject to general
controls (e.g., labeling, premarket notification and adherence to GMP) and Class
II devices are subject to general and special controls (e.g., performance
standards and guidelines). Generally, Class III devices are higher-risk devices
and cannot be marketed until after receiving FDA PMA. Currently, 12 instruments
of SeaMED's customers are Class III devices that require PMA prior to
commercialization, two of which have received such approval.
A PMA application must be supported by valid scientific evidence, which
typically includes extensive data, including preclinical and human clinical
trial data to demonstrate safety and efficacy of the device. The application
also must contain the results of all relevant bench tests, laboratory and animal
studies, a complete description of the instrument and its components, and a
detailed description of the methods, facilities and controls used to manufacture
the device. In addition, the submission must include the proposed labeling,
advertising literature and training methods (if applicable). Although SeaMED's
services do not extend to assistance with testing, studies and human clinical
trials, SeaMED does provide its customers with required design information and
other support during the PMA process. Typically, the FDA will inspect the
manufacturer prior to granting PMA. If the FDA indentifies deficiencies in the
manufacturing process, it could delay PMA. Delays in the PMA process can affect
the timing of manufacturing services provided by SeaMED. An FDA review of a PMA
application generally takes one to two years from the date the application is
submitted, but often is significantly extended by an FDA request for more
information or clarification of information previously submitted. The PMA
process can be expensive, uncertain and lengthy, and a number of devices for
which PMA has been sought have never been approved for marketing. Until a device
receives PMA, it cannot be sold commercially in the United States. After PMA is
obtained, subsequent modifications may require additional FDA approvals.
For Class I and Class II devices, and certain Class III devices, FDA
clearance may be obtained through a 510(k) notification, pursuant to which the
FDA determines that a medical device is "substantially equivalent" to an
existing, legally marketed device or a predicate device marketed before May 28,
1976. Clinical testing of certain devices may be required as part of the 510(k)
process. Currently, five of SeaMED's customers have submitted or intend to
submit a request to the FDA for clearance for marketing under a 510(k)
notification for devices to be manufactured by SeaMED. There is no assurance
that the FDA will find a device substantially equivalent and allow marketing of
such device.
Any instrument manufactured by SeaMED or distributed by its customers
pursuant to FDA clearances or approvals is subject to pervasive and continuing
regulation by the FDA, including record keeping requirements and reporting of
adverse experiences associated with the use of the instrument. Device
manufacturers are required to register their establishments and list their
devices with the FDA and certain state agencies, and are subject to periodic
inspections by the FDA and certain state agencies. The FDC Act requires devices
to be manufactured in accordance with GMP regulations which impose certain
procedural and documentation requirements upon SeaMED with respect to
manufacturing and quality assurance activities. The FDA has proposed changes to
the GMP regulations that, among other things, would require design controls and
maintenance of service records which, if finalized, would likely increase the
cost of complying with GMP requirements. SeaMED currently has implemented
training and procedural changes in anticipation of the finalization of the
proposed changes to GMP.
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<PAGE> 32
International
Sales of medical devices outside the United States are subject to
regulatory requirements that vary from country to country. The time required to
obtain approval for sale in foreign countries may be longer or shorter than that
required for FDA approval, and the requirements may differ. The export of
devices is subject to FDA regulation. In some instances, prior FDA approval is
needed. Commencing in 1998, SeaMED will be required to obtain certifications
necessary to enable the CE mark to be affixed to instruments it manufactures for
sale throughout the European Community. In addition, SeaMED's customers must
comply with other laws generally applicable to foreign trade, including
technology export restrictions, tariffs and other regulatory barriers.
Additionally, to market a customer's devices in Europe, SeaMED is required to
maintain ISO 9001/EN 46001 certification, subject to annual surveillance audits.
SeaMED has maintained this certification since 1994.
EMPLOYEES AND LABOR RELATIONS
As of September 30, 1996, SeaMED employed a total of 226 people and
retained 60 consulting or contract personnel in the following areas:
<TABLE>
<CAPTION>
CATEGORY NUMBER
-------------------------------------------------------------------- ------
<S> <C>
Design and Engineering.............................................. 88
Preproduction and Manufacturing..................................... 142
Quality Assurance................................................... 37
Sales and Marketing, Financing and Administration................... 19
---
Total..................................................... 286
</TABLE>
SeaMED considers its labor relations to be good and none of its employees
are covered by a collective bargaining agreement.
PROPERTIES
SeaMED leases three buildings, two of which are under long-term leases
aggregating approximately 81,000 square feet. The third lease is for a building
with approximately 7,800 square feet, and expires in June, 1997. The current
facilities are located in Redmond, Washington. In September 1996, SeaMED entered
into agreements to lease an additional 90,000 square feet of space for a term of
10 years with two five-year renewal options.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which SeaMED is a party or to
which any of its property is subject.
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<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and position of the executive officers and directors as of
September 30, 1996 are listed below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ---------------------------------------------------------
<S> <C> <C>
W. Robert Berg.............. 53 President, Chief Executive Officer and Director(1)
Edgar F. Rampy.............. 57 Vice President, Treasurer and Chief Financial Officer
Donald Rich................. 45 Vice President, Operations
Thomas F. Mrowca............ 47 Vice President, Sales and Marketing
Marcia A. Page.............. 37 Vice President, Quality Assurance and Regulatory Affairs
S. Erik Hagstrom............ 41 Vice President, Engineering
R. Scott Asen............... 52 Chairman of the Board(1)(2)(3)
Stephen J. Clearman......... 45 Director(1)
William D. Ellis, Ph.D...... 53 Director(3)
Richard E. Engebrecht....... 69 Director(2)(3)
William H. Gates, Sr........ 70 Director
Richard O. Martin, Ph.D..... 56 Director(2)
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Stock Option and Compensation Committee.
(3) Member of Audit Committee.
W. Robert Berg has been President, Chief Executive Officer and a Director
of the Company since 1988. Mr. Berg was the Company's Vice President, Operations
from 1985 to 1988. Mr. Berg has been involved in the management of high
technology companies for the last 27 years. Mr. Berg also is a director of the
Washington State Biomedical and Biotechnology Association and the Washington
State Technology Alliance.
Edgar F. Rampy has been Vice President, Treasurer and Chief Financial
Officer of the Company since 1990. In 1990, Mr. Rampy served as Chief Financial
Officer of Quantum Medical Systems and assisted in its sale to Siemens
Corporation. From 1987 to 1989, Mr. Rampy was Chief Operating Officer of Carver
Corporation and, from 1979 to 1987, Chief Financial Officer of Data I/O
Corporation. He became a Certified Public Accountant in 1967.
Donald Rich has been Vice President, Operations of the Company since 1993.
From 1989 to 1993, Mr. Rich was employed with Interpoint Corporation, serving as
the Director of Quality Assurance from 1991 to 1993, and the Director of
Operations from 1989 to 1991.
Thomas F. Mrowca has been Vice President, Sales and Marketing of the
Company since 1990. From 1976 to 1990, Mr. Mrowca was employed with
Physio-Control Corporation, where he held sales and marketing positions and was
responsible for research, new product development, new market development,
product planning, forecasting and pricing.
Marcia A. Page has been Vice President, Quality Assurance and Regulatory
Affairs of the Company since 1993. From 1989 to 1993, Ms. Page was the Company's
Manager of Quality Assurance. Ms. Page is the Past-President and Chairwoman and
current co-chair of the Organization of Regulatory and Clinical Associates and
is a member of the American Society of Quality Control and the Regulatory
Affairs Professionals Society.
S. Erik Hagstrom has been Vice President, Engineering of the Company since
1995. Mr. Hagstrom joined the Company in 1986 as a design engineer, was named a
Project Director in 1989 and a Senior Project Director in 1992. From 1984 to
1986, Mr. Hagstrom was an engineer at Biotronik Cardiac Pacing Systems.
R. Scott Asen has been a director of the Company since 1978 and its
Chairman of the Board since 1992. Mr. Asen has been a general partner of Pioneer
III-A LLC, Pioneer III-B LLC and Pioneer IV, venture capital investment funds,
since 1983 and 1984, respectively. Since 1983, Mr. Asen has been President of
Asen & Co., Inc., an investment management firm. Mr. Asen also is a director of
Biomagnetic Technologies, Inc. and Davox Corporation.
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<PAGE> 34
Stephen J. Clearman has been a director of the Company since 1984. Since
1984, Mr. Clearman has been a principal of Geocapital Partners, a venture
capital fund that he co-founded, and has formed three other venture capital
partnerships. Mr. Clearman also is a director of MemberWorks Inc., Expert
Software, Inc. and World Access, Inc.
William D. Ellis, Ph.D. has been a director of the Company since 1981.
Since 1995, Dr. Ellis has been Chairman of the Board and Chief Executive Officer
of Personal Health Connections, Inc., an Internet-based health services company
that he cofounded. Dr. Ellis also is Chairman of PhyCom Corp., a managed health
care information services firm that he cofounded in 1988. From 1985 to 1988, Dr.
Ellis was the Company's President and Chief Executive Officer. Dr. Ellis is
Chairman of the Washington Software and Digital Media Alliance.
Richard E. Engebrecht has been a director of the Company since 1992. Since
1994, Mr. Engebrecht has been the Chairman of the Board of PrimeSource
Corporation (a successor to Momentum Corporation). From 1990 to 1994, Mr.
Engebrecht was Chairman of the Board and Chief Executive Officer of Momentum
Corporation, and, from 1986 to 1990, President and Chief Executive Officer of
VWR Corporation. Mr. Engebrecht also is a director of Penwest Ltd., VWR
Scientific Products Corporation and Prime Source Corp.
William H. Gates, Sr. has been a director of the Company since January
1996. From 1983 to 1995, Mr. Gates was the Company's Secretary. Since 1964, Mr.
Gates has been a partner in the law firm Preston Gates & Ellis and its
predecessors. Mr. Gates also is a director of Mutual of America Capital
Management Corporation.
Richard O. Martin, Ph.D. has been a director of the Company since October
1995. Since 1991, Dr. Martin has been the President, Chief Executive Officer and
a director of Physio-Control Corporation. Dr. Martin also is a director of
Maxxim Medical, Inc. and Encore Orthopedic, Inc.
The Company's Board of Directors consists of seven directors. Directors are
elected at the annual meeting of shareholders to serve until they resign or are
removed, or are otherwise disqualified to serve, or until their successors are
elected and qualified. Messrs. Asen and Clearman were elected as directors
pursuant to an agreement among certain shareholders, which agreement terminates
on the closing of this offering.
Officers are elected annually and serve at the discretion of the Board of
Directors. The Company has not entered into employment agreements with any of
its executive officers. The Company intends to enter into indemnification
agreements with its directors and executive officers pursuant to which the
Company will agree to indemnify each director or executive officer against
certain liabilities arising by reason of such person's affiliation with the
Company.
DIRECTOR COMPENSATION AND BOARD COMMITTEES
Directors of the Company currently receive no cash compensation. The Board
may consider alternative director compensation arrangements from time to time.
Each of Mr. Martin and Mr. Gates was granted an option to purchase 17,000
shares of Common Stock, with an exercise price of $2.50 per share, upon his
initial election to the Board, subject to the terms and conditions of the
Company's stock option plan, under which options vest over a four year period.
SeaMED currently intends to grant options with similar terms, to new outside
directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
W. Robert Berg, the Company's President and Chief Executive Officer and a
director, served on the Compensation Committee during fiscal year 1996.
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<PAGE> 35
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned by the Company's Chief Executive Officer and the Company's
four other most highly compensated executive officers (the "Named Executive
Officers") for the fiscal year ended June 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS/SARS(#)(1) COMPENSATION($)(2)
- --------------------------------- --------- -------- ------------------- ------------------
<S> <C> <C> <C> <C>
W. Robert Berg................... $175,000 $117,544 -- $2,731
President and
Chief Executive Officer
Edgar F. Rampy................... 108,000 36,271 8,867 1,692
Vice President, Treasurer
and Chief Financial Officer
Thomas F. Mrowca................. 105,000 35,263 9,714 1,676
Vice President,
Sales and Marketing
Donald Rich...................... 99,000 24,936 7,095 1,520
Vice President, Operations
S. Erik Hagstrom................. 92,000 23,173 14,104 1,345
Vice President, Engineering
</TABLE>
- ---------------
(1) Represents options granted pursuant to the Company's stock option plans.
(2) Represents matching contributions under the Company's 401(k) plan.
OPTION GRANTS DURING FISCAL 1996
The following sets forth certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended June 30,
1996. No stock options were granted to Mr. Berg during fiscal year 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
- ---------------------------------------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------- ------------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Edgar F. Rampy............... 1,667 $2.50 10/25/05 $ 2,621 $ 6,642
7,200 6.7% 5.00 05/24/06 22,640 57,375
Thomas F. Mrowca............. 2,514 2.50 10/25/05 3,953 10,017
7,200 7.3% 5.00 05/24/06 22,640 57,375
Donald Rich.................. 2,295 2.50 10/25/05 3,608 9,144
4,800 5.3% 5.00 05/24/06 15,093 38,250
S. Erik Hagstrom............. 8,000 2.50 07/24/05 12,578 31,875
1,304 2.50 10/25/05 2,050 5,196
4,800 10.6% 5.00 05/24/06 15,093 38,250
</TABLE>
- ---------------
(1) Represents options granted pursuant to the Company's stock option plans. All
options were granted at fair market value at the date of grant. All options
vest 50% on the second anniversary of the date of grant, an additional 25%
on the third anniversary of the date of grant and an additional 25% on the
fourth anniversary of the date of grant.
(2) Represents amounts that may be realized upon exercise of the options
immediately prior to expiration of their terms assuming appreciation of 5%
and 10% over the option term. The 5% and 10% numbers are calculated based on
rules required by the Commission and do not reflect the Company's estimate
of future stock price growth. The actual value realized may be greater or
less than the potential realizable value set forth.
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<PAGE> 36
1996 FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise
of stock options and unexercised stock options held as of June 30, 1996 by the
Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END (#) FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Robert Berg................ 40,000 $ 93,600 65,503 60,000 $ 274,885 $37,500
Edgar F. Rampy................ 9,500 30,875 15,875 10,992 69,675 12,643
Thomas F. Mrowca.............. 7,000 22,750 12,875 11,839 56,175 14,760
Donald Rich................... -- -- 8,000 11,095 48,000 21,738
S. Erik Hagstrom.............. 8,985 17,370 3,989 15,933 17,031 30,565
</TABLE>
- ---------------
(1) Based on a fair market value of $5.00 per share as of June 30, 1996, as
determined by the Board of Directors.
STOCK PLANS
1988 Stock Option Plan
The SeaMED Corporation 1988 Stock Option Plan (the "1988 Plan") permits the
grant of options to purchase an aggregate of 680,000 shares of Common Stock to
regular full-time officers and key employees of the Company. The 1988 Plan is
administered by the Board of Directors, which generally has the authority to
select individuals who are to receive options and to specify the terms and
conditions of each option so granted, including the number of shares covered by
the option, the type of option (incentive or nonqualified), the exercise price
(which must be at least equal to the fair market value of the Common Stock on
the date of grant with respect to incentive stock options), the vesting
provisions and the option term. Unless otherwise provided by the Board of
Directors, any option granted under the 1988 Plan expires on the date set forth
on the optionee's option agreement or, if earlier, (i) a date specified in the
option agreement following an optionee's termination of service with the
Company, but not later than 12 months after such termination, other than
termination for cause, in which case the option terminates immediately, (ii) 12
months after the optionee's death or disability, or (iii) on various specified
dates in the event of a merger, consolidation, tender offer, takeover bid, sale
of assets or majority vote of the shareholders of the Company in favor of
dissolving, subject to reinstatement if such event does not occur.
As of September 30, 1996, options to purchase 293,383 shares of Common
Stock granted under the 1988 Plan had been exercised, options to purchase
385,179 shares were outstanding and 1,438 shares remained available for grant.
1995 Employee Stock Option and Incentive Plan
The purpose of the SeaMED Corporation 1995 Employee Stock Option and
Incentive Plan (the "1995 Plan") is to offer incentives and awards to those
employees, agents and consultants of the Company who are key to the Company's
growth, development and financial success, thereby aligning the personal
interests of such persons, through the ownership of Common Stock and other
incentives, with those of the Company's shareholders. The 1995 Plan combines the
features of an incentive and a nonqualified stock option plan, a stock award
plan and a stock appreciation rights ("SAR") plan. The 1995 Plan is a long-term
incentive compensation plan and is designed to provide a competitive and
balanced incentive and reward program for participants. A total of 200,000
shares of Common Stock is available under the 1995 Plan, of which, as of
September 30, 1996, options to purchase 105,020 shares had been granted and
options to purchase 94,980 shares were available for future grant; no options
have been exercised.
Terms of Stock Option Grants. The Compensation Committee has the authority
to select individuals who are to receive options under the 1995 Plan and to
specify the terms and conditions of each option so granted (incentive or
nonqualified), the exercise price (which must be at least equal to the fair
market value
35
<PAGE> 37
of the Common Stock on the date of grant with respect to incentive stock options
and options awarded to nonemployee directors), the vesting provisions and the
option term.
Stock Awards. The Compensation Committee is authorized under the 1995 Plan
to issue shares of Common Stock to eligible participants upon such terms and
conditions and subject to such limitations, if any (including, without
limitation, restrictions based upon the achievement of specific business
objectives, tenure, and other measures of individual or business performance)
and/or restrictions under applicable federal or state securities laws, and
conditions under which the same shall lapse, as the Compensation Committee may
determine. As of September 30, 1996, the Company had granted no such awards.
Stock Appreciation Rights. A SAR is an incentive award that permits the
holder to receive (per share covered thereby) the amount by which the fair
market value of a share of Common Stock on the date of exercise exceeds the fair
market value of such share on the date the SAR was granted. The Compensation
Committee may grant SARs independently or in tandem (such that the exercise of
the SAR or related stock option will result in forfeiture of the right to
exercise the related stock option or SAR for an equivalent number of shares)
with a stock option award. The Compensation Committee is authorized under the
1995 Plan to determine the times of exercise of granted SARs and their times of
expiration, which may not exceed 10 years. As of September 30, 1996, the Company
had granted no SARs.
1996 Employee Stock Purchase Plan
The Company has reserved an aggregate of 70,000 shares of Common Stock for
issuance under the SeaMED Corporation 1996 Employee Stock Purchase Plan (the
"ESPP"). The ESPP is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended, and permits eligible employees of the Company
(all employees who have been employed by the Company for at least six months,
except employees whose customary employment is less than 20 hours per week and
employees whose customary employment is for not more than five months in any
calendar year) to purchase Common Stock through payroll deductions of up to 10%
of their compensation, provided that no employee may purchase Common Stock worth
more than $25,000 in any calendar year. The ESPP will be implemented with 10
consecutive six-month purchase periods, the first such purchase period to
commence upon the date that the Common Stock begins to trade on the Nasdaq Stock
Market and to end on June 30, 1997. Thereafter, purchase periods shall commence
on each subsequent January 1 and July 1. The price of Common Stock purchased
will be 85% of the lesser of the fair market value of the Common Stock on the
first day of the purchase period and the fair market value of the Common Stock
on the last day of the purchase period. The ESPP will expire on December 31,
2001. No shares have been issued under the ESPP.
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<PAGE> 38
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of September 30, 1996, certain
information regarding beneficial ownership of Common Stock and as adjusted to
reflect the sale of the Common Stock offered in this offering, by (i) each
person known by the Company to own beneficially 5% or more of the Common Stock;
(ii) each director of the Company; (iii) each Named Executive Officer; (iv) each
Selling Shareholder; and (v) all directors and executive officers as a group.
For purposes of this table, distributions of Common Stock by Geocapital Ventures
to certain of its limited partners who will be Selling Shareholders are deemed
to have occurred as of September 30, 1996. Unless otherwise indicated, all
persons listed have sole voting and investment power with respect to such
shares, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP SHARES BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING TO BE AFTER THE OFFERING
----------------------- SOLD IN THE -----------------------
NAME AND ADDRESS SHARES(1) PERCENTAGE OFFERING SHARES PERCENTAGE
- -------------------------------------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
James G. Niven(2)..................... 420,550 11.7% 50,000 370,550 7.5%
Geocapital Ventures(3)................ 405,037 11.2% -- 405,037 8.2%
Pioneer IV(4)......................... 379,763 10.5% -- 379,763 7.7%
Pioneer III-B LLC(4).................. 253,069 7.0% -- 253,069 5.1%
Pioneer III-A LLC(4).................. 199,709 5.5% -- 199,709 4.0%
R. Scott Asen(4)(5)................... 1,328,695 36.8% -- 1,328,695 26.8%
Stephen J. Clearman(3)(6)............. 405,037 11.2% -- 405,037 8.2%
William D. Ellis, Ph.D.(7)............ 121,421 3.4% 10,000 111,421 2.2%
Richard E. Engebrecht(7).............. 27,667 * -- 27,667 *
William H. Gates, Sr.................. 28,000 * -- 28,000 *
Richard O. Martin, Ph.D.(7)........... -- -- -- -- --
W. Robert Berg(7)(8).................. 193,503 5.3% -- 193,503 3.9%
Edgar F. Rampy(7)(9).................. 38,375 1.1% -- 38,375 *
Donald Rich(7)(10).................... 12,000 * -- 12,000 *
Thomas F. Mrowca(7)(11)............... 38,375 1.1% -- 38,375 *
S. Erik Hagstrom(7)(12)............... 18,596 * -- 18,596 *
Collier Enterprises, Inc. ............ 161,347 4.5% 161,347 -- --
Allen & Company Incorporated(13)...... 105,732 2.9% 33,333 72,399 1.5%
Terry Allen Kramer.................... 66,666 1.9% 33,333 33,333 *
Gary Altman(14)....................... 36,676 1.0% 3,000 33,676 *
Other Selling Shareholders(15)........ 300,911 8.3% 202,045 98,866 2.0%
All directors and executive officers 2,226,608 59.7% 10,000 2,216,608 43.6%
as a group (12 persons)(7)(16)......
</TABLE>
- ---------------
* Less than 1%.
(1) Computed in accordance with Rule 13d-3(d)(1) of the Securities Exchange Act
of 1934, as amended.
(2) The address of Mr. Niven is c/o Burson-Marsteller, 230 Park Avenue South,
New York, NY 10003.
(3) The address of Mr. Clearman and Geocapital Ventures is One Bridge Plaza,
Fort Lee, NJ 07024.
(4) The address of Mr. Asen, Pioneer IV, Pioneer III-B LLC and Pioneer III-A
LLC is c/o Asen and Co., Inc., 224 East 49th Street, New York, NY 10017.
(5) Includes 5,000 shares of Common Stock held in an IRA and 199,709, 253,069
shares and 379,763 shares beneficially owned through Pioneer III-A LLC,
Pioneer III-B LLC and Pioneer IV (collectively, the "Pioneer Entities"),
respectively, of which Mr. Asen is a general partner. Although Mr. Asen has
full authority to vote and direct the disposal of shares owned by the
Pioneer Entities, he disclaims
37
<PAGE> 39
beneficial ownership of shares held by such investment partnerships to the
extent partnership interests in such partnerships are held by other
persons.
(6) Represents 405,037 shares beneficially owned through Geocapital Ventures,
of which Mr. Clearman is a general partner.
(7) May include stock jointly or separately owned with spouse.
(8) Includes 65,503 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(9) Includes 16,375 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(10) Includes 12,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(11) Includes 13,375 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(12) Includes 4,403 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(13) Allen & Company Incorporated acted as placement agent with respect to the
sale of Class D Preferred Stock. Includes 39,066 shares of Common Stock
issuable upon exercise of a warrant that is currently exercisable.
(14) Gary Altman is an employee of the Company. Includes 12,478 shares of Common
Stock issuable upon exercise of options that are currently exercisable or
will become exercisable within 60 days of September 30, 1996.
(15) Includes 20 Selling Shareholders holding Common Stock ranging from 161,347
shares to 322 shares. Three of the 20 Selling Shareholders will be
shareholders of the Company after this offering.
(16) Includes 122,023 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
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<PAGE> 40
CERTAIN TRANSACTIONS
In January 1995, the Company issued shares of Class D Preferred Stock
convertible into an aggregate of 390,666 shares of Common Stock at an
as-converted price of $3.75 per share. Dr. Ellis and Mr. Engebrecht, directors
of the Company, purchased 25,000 and 40,000 shares, respectively, of Class D
Preferred Stock, which shares are convertible into 6,667 and 10,667 shares of
Common Stock, respectively. The Company sold such securities pursuant to a
preferred stock purchase agreement on substantially similar terms as were sold
to nonaffiliated purchasers. The terms of the Class D Preferred Stock provides
that all such shares shall be converted into Common Stock upon the consummation
of this offering.
On October 11, 1995, W. Robert Berg, the Company's Chief Executive Officer
and President, received a $75,000 loan from the Company, the proceeds of which
he used to purchase 30,000 shares of Common Stock. The loan is evidenced by an
unsecured promissory note that bears interest at the floating minimum statutory
rate of interest set by the Internal Revenue Service from time to time. Mr. Berg
may prepay principal and interest at any time without penalty; unpaid principal
and interest are due on October 11, 2000. As of September 30, 1996, aggregate
principal and accrued interest on this loan were approximately $80,000.
William H. Gates, Sr., a director of the Company, is also a partner in the
law firm Preston Gates & Ellis, the Company's counsel.
Physio-Control Corporation, a company of which Richard O. Martin, a
director of the Company, serves as President and Chief Executive Officer and a
director, has retained the Company to provide engineering and manufacturing
services. The Company recognized revenues with respect to such services of
approximately $1.0 million for fiscal year 1995 and $355,000 for fiscal year
1996. The Company recognized no revenues for fiscal year 1994 with respect to
such services.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, no par value per share, 1,500,000 shares of Class A Preferred
Stock, no par value per share, 450,000 shares of Class B Preferred Stock, no par
value per share, 5,100,000 shares of Class C Preferred Stock, no par value per
share, 2,000,000 shares of Class D Preferred Stock, no par value per share, and
5,000,000 shares of Preferred Stock, no par value per share (the "Undesignated
Preferred Stock"). The following summary description of the Company's capital
stock is qualified in its entirety by reference to the Articles of Incorporation
and the Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
COMMON STOCK
As of September 30, 1996, there were 673,157 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders, and have no cumulative voting
rights and no preemptive, subscription or sinking fund rights. Subject to
preferences that may be applicable to any then-outstanding Preferred Stock,
holders of Common Stock will be entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock will be entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference to any then-outstanding Preferred Stock.
PREFERRED STOCK
As of September 30, 1996, there were outstanding 1,458,500, 450,000,
5,082,704, and 1,465,000 shares of Class A, B, C and D Preferred Stock,
respectively. The designations of rights and preferences with respect to the
Preferred Stock generally provides for liquidation, conversion, redemption,
voting and other rights. Holders of Class A and D Preferred Stock are entitled
to cumulative annual dividends of $0.10 and $0.08, respectively. All shares of
outstanding Preferred Stock will be converted automatically into an aggregate of
2,934,029 shares of Common Stock upon the closing of this offering. Upon such
closing, holders of Class A
39
<PAGE> 41
and D Preferred Stock are entitled to all dividends which have accrued to the
time of such conversion, which such accrued dividends total approximately $1.7
million as of June 30, 1996.
Pursuant to SeaMED's Articles of Incorporation, the Board of Directors is
authorized to issue 5,000,000 shares of the Undesignated Preferred Stock in one
or more classes or series, or both, and without further approval of the
shareholders, to fix dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences and any other
rights, preferences, privileges and restrictions applicable to each class or
series of Undesignated Preferred Stock. The issuance of Undesignated Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a third party to gain control of the Company, discourage bids
for Common Stock at a premium or otherwise adversely affect the market price of
the Common Stock. The Company has no current plans to issue any Undesignated
Preferred Stock.
WARRANT
The investment banking firm of Allen & Company Incorporated acted as
placement agent with respect to the sale of Class D Preferred Stock. As partial
compensation for such services, it received, and beneficially owns, a warrant to
purchase 39,066 shares of Common Stock at a price of $4.70 per share.
REGISTRATION RIGHTS
Pursuant to certain agreements between the Company and certain purchasers
of capital stock (collectively, the "Holders"), who will hold approximately
2,555,637 shares of Common Stock (the "Registerable Securities") following this
offering, the Holders are entitled to certain rights with respect to
registration of such shares under the Securities Act. The Holders include R.
Scott Asen, each of the Pioneer Entities and Geocapital Ventures. If the Company
proposes to register any of its securities, with certain exceptions that include
a registration relating solely to employee benefit plans, either for its own
account or the account of other security holders, the Company is required to
notify the Holders and to use its best efforts to effect the registration, and
the Holders are entitled to include at the Company's expense their Registerable
Securities in such registration, subject to certain conditions and limitations.
In addition, at any time after the first anniversary of the closing of this
offering, the Holders may require the Company to file a registration statement
under the Securities Act at the Company's expense, and the Company is required
to use its best efforts to effect such registration, subject to certain
conditions and limitations.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
Shareholder Action by Written Consent; Special Meetings of Shareholders
The Company's Bylaws permit any action required or permitted to be taken by
the Company's shareholders to be effected at a duly called annual or special
meeting of shareholders or by unanimous consent in writing. Additionally, the
Articles of Incorporation and Bylaws require that special meetings of the
shareholders of the Company may be called only by a majority of the Board of
Directors or an authorized committee thereof.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations
The Company's Bylaws provide that shareholders seeking to bring business
before or to nominate directors at any meeting of shareholders must provide
timely notice thereof in writing. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than (i) with respect to an annual meeting, 120 calendar days
in advance of the one-year anniversary of the date that the Company's proxy
statement was released to shareholders in connection with the previous year's
annual meeting, except that if no annual meeting was held in the previous year
or if the date of the annual meeting has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, such notice must be received by the Company a reasonable time before
the Company's proxy statement is to be released and (ii) with respect to a
special meeting of
40
<PAGE> 42
shareholders, a reasonable time before the Company's proxy statement is to be
released. The Bylaws also specify certain requirements for a shareholder's
notice to be in proper written form. These provisions may preclude some
shareholders from bringing matters before the shareholders or from making
nominations for directors.
Director and Officer Indemnification
The Washington Business Corporation Act (the "Washington Business Act")
provides that a Washington corporation may include provisions in its articles of
incorporation relieving each of its directors of monetary liability arising out
of his or her conduct as a director for breach of his or her fiduciary duty,
except liability for (i) acts or omissions of a director finally adjudged to be
intentional misconduct or a knowing violation of law, (ii) conduct in violation
of Section 23B.08.310 of the Washington Business Act (which section relates to
unlawful distributions), or (iii) any transaction with respect to which it is
finally adjudged that a director personally received benefit in money, property
or services to which the director was not legally entitled. The Company's
Articles of Incorporation include such provisions.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall, to the fullest extent permitted by law, indemnify and advance expenses to
each of its currently acting and former directors and officers, and may so
indemnify and advance expenses to each of its current and former employees and
agents. The Company believes that the foregoing provisions are necessary to
attract and retain qualified persons as directors and officers. Prior to
consummation of this offering, the Company intends to enter into separate
indemnification agreements with each of its directors and executive officers in
order to effectuate such provisions.
PROVISIONS AFFECTING ACQUISITIONS AND BUSINESS COMBINATIONS
The Washington Business Act contains certain provisions that may have the
effect of delaying or discouraging a hostile takeover of the Company. Chapter
23B.19 of the Washington Business Act prohibits a target corporation, with
certain exceptions, from engaging in certain significant business transactions
(such as a merger or sale of assets) with a person or group of persons which
beneficially acquires 10% or more of the corporation's voting securities (an
"Acquiring Entity") for a period of five years after such acquisition, unless
the transaction is approved by a majority of the members of the target
corporation's board of directors prior to the date of the transaction. An
Acquiring Entity is further prohibited from engaging in significant business
transactions with the target corporation unless the per share consideration paid
to holders of outstanding shares of Common Stock and other classes of Stock of
the target corporation meet certain minimum criteria. These provisions may have
the effect of delaying, deterring or preventing a change in control of the
Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.
41
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 4,964,128 shares of
Common Stock outstanding, assuming the issuance of 1,356,942 shares by the
Company hereby (5,241,628 shares if the Underwriters' over-allotment option is
exercised in full). Of the outstanding shares, 1,850,000 (2,127,500 if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act.
The remaining 3,114,128 shares of Common Stock are "restricted securities"
within the meaning of Rule 144 under the Securities Act and were issued and sold
by the Company in private transactions and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. Of these restricted securities,
59,638 shares are not subject to lockup agreements and will be eligible for sale
following this offering in the public market as follows: 57,555 shares eligible
for sale immediately without restriction pursuant to Rule 144(k) and 2,083
shares eligible for sale 90 days after the date of this offering under Rule 701
and in reliance on Rule 144 without having to comply with certain restrictions
of Rule 144 as described below. The Company, its officers and directors, the
Selling Shareholders and certain other shareholders (representing 3,054,490
shares of restricted securities) have agreed pursuant to lockup agreements that
they will not sell, directly or indirectly, any Common Stock without the prior
consent of Piper Jaffray Inc. for a period of 180 days from the date of this
Prospectus. Upon the expiration of this 180-day period (or earlier upon the
consent of Piper Jaffray Inc.), approximately 2,732,157 of these restricted
shares will become eligible for sale in the public market as follows: 2,539,442
shares eligible for immediate sale without restriction pursuant to Rule 144(k)
and 192,715 shares eligible for sale immediately (or 90 days after the date of
this offering with the earlier consent of Piper Jaffray Inc.) under Rule 701 and
in reliance on Rule 144 without having to comply with certain restrictions of
Rule 144 as described below.
In general, under Rule 144, as currently in effect, a person who has owned
shares for at least two years would be entitled to sell, within any three-month
period, that number of shares that does not exceed the greater of (i) 1% of the
then-outstanding shares of Common Stock (approximately 49,641 shares immediately
after this offering) and (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date of the notice of sale is
filed with the Commission, subject to certain other limitations and
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years,
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Under Rule 701, persons who purchase shares upon
exercise of options granted prior to the effective date of this offering are
entitled to sell such shares 90 days after the effective date of this offering
and in reliance on Rule 144 without having to comply with the holding period
requirements of Rule 144 and, in the case of nonaffiliates, without having to
comply with the public information, volume limitation, or notice provisions of
Rule 144.
The holders of options to purchase 104,200 shares which have vested and are
not subject to lockup agreements could exercise their options and sell these
shares in compliance with Rule 701 beginning 90 days after the effective date of
this offering. The Company intends to file registration statements under the
Securities Act covering an aggregate of approximately 656,617 shares of Common
Stock reserved for issuance under the 1988 Plan, the 1995 Plan and the ESPP.
Such registration statements are expected to be filed 180 days after the date of
this Prospectus and will automatically become effective upon filing.
Accordingly, shares registered under such registration statements will be
available for sale in the open market, unless such shares are subject to vesting
restrictions with the Company or the contractual restrictions described above.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price prevailing from time to time. Nevertheless, sales
of substantial amounts of Common Stock in the public markets or the perception
that such sales could occur could adversely affect the market price of the
Common Stock or the Company's ability to raise capital through an offering of
its equity securities.
42
<PAGE> 44
UNDERWRITING
The Company and the Selling Shareholders have entered into a Purchase
Agreement (the "Purchase Agreement") with the underwriters listed in the table
below (the "Underwriters"), for whom Piper Jaffray Inc. and Needham & Company,
Inc. are acting as representatives (the "Representatives"). Subject to the terms
and conditions set forth in the Purchase Agreement, the Company and the Selling
Shareholders have agreed to sell to the Underwriters, and each of the
Underwriters has severally agreed to purchase, the following number of shares of
Common Stock set forth opposite each Underwriter's name in the table below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Piper Jaffray Inc.........................................................
Needham & Company, Inc....................................................
---------
Total........................................................... 1,850,000
=========
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement, if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession of not
more than $ per share. Additionally, the Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable by the
Representatives within 30 days after the date of the Purchase Agreement, to
purchase up to an additional 277,500 shares of Common Stock at the same price
per share to be paid by the Underwriters for the other shares offered hereby. If
the Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.
The Representatives have informed the Company and the Selling Shareholders
that neither they, nor any other member of the National Association of
Securities Dealers, Inc. participating in the distribution of this offering,
will make sales of the Common Stock offered hereby to accounts over which they
exercise discretionary authority without the prior specific written approval of
the customer.
As of the date of this Prospectus, Needham Capital SBIC, L.P., an affiliate
of Needham & Company, Inc., beneficially owned shares of Class D Preferred Stock
convertible into 133,333 shares of Common Stock. These shares were purchased on
January 3, 1995 in reliance upon the exemption from registration set forth in
Section 4(2) of the Securities Act relating to sales by an issuer not involving
any public offering. Needham & Company, Inc. and certain of its affiliates may
be deemed to own shares convertible into 35,555 shares of Common Stock held by
Needham Capital SBIC, L.P. as a result of ownership interests in such
partnership.
43
<PAGE> 45
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The officers and directors of the Company, the Selling Shareholders and
certain other shareholders designated by the Representatives, who will
beneficially own in the aggregate 3,054,490 shares of Common Stock after this
offering, have agreed that they will not, directly or indirectly, sell, contract
to sell, make any short sale, pledge or otherwise dispose of any shares of
Common Stock, options to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock that such persons
may own, of record or beneficially or have the right to acquire, for a period of
180 days after the closing of this offering, without the prior written consent
of Piper Jaffray Inc. The Company has agreed that it will not, directly or
indirectly, without the prior written consent of Piper Jaffray Inc., issue,
offer, sell, contract to sell, pledge or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into Common Stock during the 180-day
period following the closing of this offering, except that the Company may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under the Company's existing stock option and purchase
plans.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price will be prevailing
market and economic conditions, the Company's revenues and earnings, estimates
of the Company's business potential and prospects, the present state of the
Company's business operations, an assessment of the Company's management and the
consideration of the above factors in relation to the market valuations of
companies in related businesses. The initial public offering price for the
Common Stock should not be considered as an indication of the actual value of
the Common Stock offered hereby. In addition, there can be no assurance that the
Common Stock may be resold at a price equal to or greater than the initial
public offering price. See "Risk Factors -- Absence of Prior Market; Potential
Volatility of Common Stock Price."
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Preston Gates & Ellis,
Seattle, Washington. William H. Gates, Sr., a partner of the firm and a director
of the Company, beneficially owns 28,000 shares of Common Stock. Mark R. Beatty,
a partner of the firm, serves as Secretary of the Company. Certain legal matters
will be passed upon for the Underwriters by Perkins Coie, Seattle, Washington.
EXPERTS
The financial statements and schedule of the Company as of June 30, 1995
and 1996, and for each of the three years in the period ended June 30, 1996,
appearing in this Prospectus and elsewhere in the Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby (the "Registration Statement"). This Prospectus, which constitutes part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and schedule thereto, certain
portions of which have been
44
<PAGE> 46
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, including the exhibits and schedule thereto.
Statements contained in this Prospectus as to the contents of any contract,
agreement or any other document referred to herein are not necessarily complete
and in each instance reference is made to the copy of such contract, agreement
or other document for a more complete description of the matters involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement, including the exhibits and schedule thereto, may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, the New York Regional Office located at 7
World Trade Center, Suite 1300, New York, New York 10048, and the Chicago
Regional Office located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, or obtained upon payment of prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. The Commission maintains a web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
45
<PAGE> 47
SEAMED CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Audited Financial Statements:
Balance Sheets as of June 30, 1995 and 1996......................................... F-3
Statements of Income for the Years Ended June 30, 1994, 1995 and 1996............... F-4
Statements of Shareholders' Equity for the Years Ended June 30, 1994, 1995 and
1996............................................................................. F-5
Statements of Cash Flows for the Years Ended June 30, 1994, 1995 and 1996........... F-6
Notes to Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE> 48
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SeaMED Corporation
We have audited the accompanying balance sheets of SeaMED Corporation as of
June 30, 1995 and 1996, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SeaMED Corporation as of
June 30, 1995 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
Seattle, Washington
August 6, 1996 ERNST & YOUNG LLP
F-2
<PAGE> 49
SEAMED CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA AT
-------------------------- JUNE 30,
1995 1996 1996
---------- ----------- (NOTE 6)
------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................... $ 70,383 $ 2,912 $ 2,912
Short-term investments............................. 200,000 -- --
Accounts receivable, net of allowance of $252,226
in 1996 and $204,483 in 1995.................... 3,354,542 5,875,933 5,875,933
Inventories........................................ 3,719,656 6,697,248 6,697,248
Deferred income taxes.............................. 529,682 625,221 625,221
Prepaid expenses................................... 60,148 63,536 63,536
---------- ----------- ----------
Total current assets................................. 7,934,411 13,264,850 13,264,850
Fixed assets......................................... 1,856,996 2,655,265 2,655,265
Deposits and other assets............................ 108,964 144,220 144,220
---------- ----------- ----------
Total assets......................................... $9,900,371 $16,064,335 $ 16,064,335
========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.............................. $ 555,000 $ 1,817,000 $ 1,817,000
Accounts payable................................... 1,185,539 2,688,160 2,688,160
Accrued expenses and reserves...................... 1,401,042 3,301,064 4,965,088
Current portion of long-term debt.................. 296,067 461,990 461,990
---------- ----------- ----------
Total current liabilities............................ 3,437,648 8,268,214 9,932,238
Long-term debt, less current portion................. 1,221,106 1,285,782 1,285,782
Convertible redeemable preferred stock, issued and
outstanding shares of all classes -- 8,456,204 in
1995 and 1996; none pro forma (liquidation
value -- $6,308,200)............................... 5,279,514 5,279,514 --
Shareholders' equity (deficit):
Preferred stock, no par value per share:
Authorized shares -- 14,050,000, of which
9,050,000 have been designated convertible
redeemable shares............................. -- -- --
Common stock, no par value per share:
Authorized shares -- 10,000,000.................
Issued and outstanding shares -- 548,964 in
1995; 668,707 in 1996; 3,602,736 pro forma.... 783,560 886,828 4,921,315
Note receivable from officer....................... -- (75,000) (75,000)
Retained earnings (deficit)........................ (821,457) 418,997 --
---------- ----------- ----------
Total shareholders' equity (deficit)................. (37,897) 1,230,825 4,846,315
---------- ----------- ----------
Total liabilities and shareholders' equity........... $9,900,371 $16,064,335 $ 16,064,335
========== =========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 50
SEAMED CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................ $14,720,064 $17,661,210 $26,130,235
Cost of sales....................................... 11,964,620 14,590,584 21,092,679
----------- ----------- -----------
2,755,444 3,070,626 5,037,556
Marketing, general and administrative expenses...... 1,818,177 1,930,734 2,937,556
----------- ----------- -----------
Operating income.................................... 937,267 1,139,892 2,100,000
Other income (expense):
Interest expense.................................. (138,177) (193,095) (198,274)
Other............................................. (312) 7,966 6,665
----------- ----------- -----------
(138,489) (185,129) (191,609)
----------- ----------- -----------
Income before income taxes.......................... 798,778 954,763 1,908,391
Income tax benefit (provision)...................... 208,500 (180,000) (667,937)
----------- ----------- -----------
Net income.......................................... $ 1,007,278 $ 774,763 $ 1,240,454
=========== =========== ===========
Net income per share data:
Primary........................................... $ 0.39 $ 0.25 $ 0.42
=========== =========== ===========
Fully diluted..................................... $ 0.30 $ 0.21 $ 0.32
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 51
SEAMED CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTE RETAINED TOTAL
---------------------- RECEIVABLE EARNINGS SHAREHOLDERS'
SHARES AMOUNT FROM OFFICER (DEFICIT) EQUITY
---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993............... 372,396 $ 735,473 $ -- $(2,603,498) $ (1,868,025)
Stock options exercised............ 122,237 33,822 -- -- 33,822
Net income......................... -- -- -- 1,007,278 1,007,278
--------- --------- -------- ----------- -----------
Balance, June 30, 1994............... 494,633 769,295 -- (1,596,220) (826,925)
Stock options exercised............ 54,331 14,265 -- -- 14,265
Net income......................... -- -- -- 774,763 774,763
--------- --------- -------- ----------- -----------
Balance, June 30, 1995............... 548,964 783,560 -- (821,457) (37,897)
Stock options exercised............ 89,735 28,268 -- -- 28,268
Common stock issued in exchange for
note receivable................. 30,000 75,000 (75,000) -- --
Fractional shares issued due to
reverse stock split............. 8 -- -- -- --
Net income......................... -- -- -- 1,240,454 1,240,454
--------- --------- -------- ----------- -----------
Balance, June 30, 1996............... 668,707 886,828 (75,000) 418,997 1,230,825
Pro forma accrual of cumulative
dividends on Class A and B
preferred stock (unaudited)..... -- (1,245,027) -- (418,997) (1,664,024)
Pro forma conversion of convertible
redeemable preferred stock
(unaudited)..................... 2,934,029 5,279,514 -- -- 5,279,514
--------- --------- -------- ----------- -----------
Pro forma balance, June 30, 1996
(unaudited)........................ 3,602,736 $4,921,315 $(75,000) $ -- $ 4,846,315
========= ========== ======== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 52
SEAMED CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 1,007,278 $ 774,763 $ 1,240,454
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation...................................... 334,872 421,084 693,752
Provision for bad debts........................... 226,830 (25,127) (47,743)
Deferred tax benefit.............................. (225,000) (54,682) (95,539)
Changes in operating assets and liabilities:
Increase in accounts receivable................ (1,513,221) (569,079) (2,473,648)
Increase in inventories........................ (1,107,090) (682,803) (2,977,592)
Increase in accounts payable, accrued expenses,
and deferred revenue......................... 354,315 801,426 3,402,643
Increase in other assets and prepaid
expenses..................................... (105,130) (7,615) (38,644)
----------- ----------- -----------
Net cash provided by (used in) operating
activities........................................ (1,027,146) 657,967 (296,317)
INVESTING ACTIVITIES
Purchases of equipment.............................. (875,957) (1,185,267) (1,492,021)
Purchase of short-term investments.................. -- (200,000) --
Proceeds from short-term investments................ -- -- 200,000
----------- ----------- -----------
Net cash used in investing activities............... (875,957) (1,385,267) (1,292,021)
FINANCING ACTIVITIES
Proceeds from stock options exercised............... 33,822 14,265 28,268
Proceeds from sale of preferred stock............... -- 1,309,391 --
Net proceeds (uses) in credit line.................. 988,710 (437,185) 1,261,999
Proceeds from notes payable......................... 680,000 750,000 600,000
Principal payments on notes payable................. (390,719) (882,072) (369,400)
Principal payments on capital lease obligations..... (5,406) (1,368) --
----------- ----------- -----------
Net cash provided by financing activities........... 1,306,407 753,031 1,520,867
----------- ----------- -----------
Net increase (decrease) in cash..................... (596,696) 25,731 (67,471)
Cash at beginning of year........................... 641,348 44,652 70,383
----------- ----------- -----------
Cash at end of year................................. $ 44,652 $ 70,383 $ 2,912
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 53
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Description of Business
SeaMED Corporation (the "Company") is a leading manufacturer of advanced
medical instruments for medical technology companies. The Company manufactures
durable electronic medical instruments for its customers, often as part of
systems that also include single-use components. To assist its customers in
developing and commercializing their instruments for manufacture by the Company,
the Company provides a wide range of engineering services and regulatory
expertise.
Change in Accounting Period
During fiscal year 1995, the Company changed its fiscal year-end from June
30 to a 52/53-week fiscal year that ends on the Thursday nearest to June 30. For
convenience of presentation, all fiscal periods in these financial statements
are shown as ending on a calendar month-end.
Use of Estimates
The preparation 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.
Credit Policies
The Company extends credit to various customers which are primarily in the
medical device industry. Receivables generally are due within 30 days and the
Company generally does not require collateral. The Company maintains reserves
for potential credit losses.
Short-Term Investments
Short-term investments consist of certificates of deposit with a maturity
date of less than one year from June 30, 1995.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Depreciation
The Company provides for depreciation of furniture, fixtures, equipment and
manufacturing molds over their estimated useful lives of three to eight years
using the straight-line method.
Revenue Recognition
The Company recognizes revenue from contracts to perform engineering design
and product development as costs are incurred for cost-plus contracts, or based
on the percentage-of-completion method for fixed-price contracts. When estimates
indicate a probable loss on a contract, the full amount of such loss is accrued
at that time. The Company generally recognizes revenue from manufacturing
services when the related products are shipped.
F-7
<PAGE> 54
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Warranty Costs
Warranty reserves are recorded based on historical experience and estimates
of current warranty activity.
Income Taxes
The Company provides for income taxes based on the liability method which
requires the recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities
measured using enacted tax rates and laws that are expected to be in effect when
the differences are expected to reverse.
Stock Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options. Generally, stock compensation, if
any, is measured as the difference between the exercise price of a stock option
and the fair market value of the Company's stock at the date of grant, which is
then amortized over the related vesting period.
Net Income Per Share and Pro Forma Net Income Per Share
Except as noted below, historical primary net income per share is based on
the weighted average number of common and common equivalent shares outstanding
during each period. Common equivalent shares include outstanding Class B and C
convertible redeemable preferred stock and outstanding stock options and
warrants. Common equivalent shares are not included in the per share
calculations where the effect of their inclusion would be antidilutive, except
that, in accordance with Securities and Exchange Commission requirements, common
and common equivalent shares issued during the 12-month period prior to the
filing of a proposed initial public offering have been included in the
calculation as if they were outstanding for all periods (using the treasury
stock method and an assumed initial public offering price). In addition, net
income is adjusted for the accretion of cumulative preferred stock dividends to
determine earnings applicable to common stock.
Fully diluted net income per share has been computed as described above and
also gives effect to the dilutive effect of the conversion of outstanding Class
A and D convertible redeemable preferred stock net of the effect of the related
cumulative dividends.
Data used in calculating net income per share information follow:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1994 1995 1996
---------- --------- ----------
<S> <C> <C> <C>
Net income, as reported........................ $1,007,278 $ 774,763 $1,240,454
Accretion of cumulative preferred stock
dividends.................................... (145,850) (203,005) (263,050)
---------- --------- ----------
Adjusted income for computing primary
net income per share......................... $ 861,428 $ 571,758 $ 977,404
========== ========= ==========
Shares used in computing primary net income
per share.................................... 2,223,790 2,302,359 2,330,739
========== ========= ==========
Shares used in computing fully diluted
net income per share......................... 3,408,860 3,660,549 3,893,243
========== ========= ==========
</TABLE>
F-8
<PAGE> 55
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Work-in-process....................................... $1,602,146 $2,490,710
Purchased and manufactured parts...................... 2,117,510 4,206,538
---------- ----------
$3,719,656 $6,697,248
========== ==========
</TABLE>
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Equipment, at cost:
Furniture and fixtures.............................. $ 454,711 $ 514,950
Equipment........................................... 2,489,288 3,657,224
Manufacturing molds................................. 514,433 523,999
Leasehold improvements.............................. 300,659 554,939
---------- ----------
3,759,091 5,251,112
Less accumulated depreciation and amortization...... 1,902,095 2,595,847
---------- ----------
$1,856,996 $2,655,265
========== ==========
</TABLE>
4. ACCRUED EXPENSES AND RESERVES
Accrued expenses and reserves consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Taxes payable......................................... $ 150,843 $ 630,036
Accrued compensation.................................. 353,585 1,102,565
Deferred revenue and customer deposits................ 494,853 1,015,029
Other accrued expenses................................ 215,350 338,146
Warranty reserve...................................... 186,411 215,288
---------- ----------
$1,401,042 $3,301,064
========== ==========
</TABLE>
5. NOTES PAYABLE
Line of Credit Agreement
The Company has a line of credit agreement with a bank under which the
Company can borrow up to 80% of eligible accounts receivable (less than 60 days
outstanding) up to a maximum of $4,000,000. Borrowings under this agreement are
payable on demand if certain covenants are not met. These covenants include,
among others, requirements that the Company maintain minimum working capital of
$4,000,000, combined net worth, including convertible redeemable preferred
stock, and subordinated debt of $6,000,000, a minimum current ratio of 1.5-to-1,
and a maximum debt-to-equity ratio of 1.5-to-1. The agreement also prohibits the
Company from paying dividends without prior approval of the bank. Borrowings
under this agreement bear interest at the bank's prime rate plus .25% (8.5% at
June 30, 1996) and are secured by receivables and inventories. The agreement is
subject to annual approval and extension by November 1 of each
F-9
<PAGE> 56
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
year. Borrowings outstanding under the line of credit at June 30, 1995 and 1996
were $555,000 and $1,817,000, respectively. Weighted average borrowings under
this agreement were $627,000, $428,000 and $422,000 during fiscal years 1994,
1995 and 1996, respectively. Weighted average interest rates under this
agreement were 7.5%, 8.8% and 8.9% during fiscal years 1994, 1995 and 1996,
respectively.
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Unsecured, subordinated note payable, with monthly payments of
$17,000, including interest, through May 2001. Interest is
adjusted annually on July 1 to 2% over prime, with a maximum
of 10% and a minimum of 7% (10% at June 30, 1996)........... $ 902,390 $ 782,650
8.5% note payable, secured by equipment, with monthly
payments, including interest, through August 5, 1998........ 614,783 438,456
8.75% note payable, secured by equipment, with monthly
payments, including interest, through November 5, 1999...... -- 526,666
---------- ----------
1,517,173 1,747,772
Less current portion.......................................... 296,067 461,990
---------- ----------
$1,221,106 $1,285,782
========== ==========
</TABLE>
Subsequent to year-end, on June 28, 1996, the Company received $500,000 in
proceeds from a note payable, secured by equipment, issued to a commercial bank,
calling for monthly interest and principal payments through June 27, 2000.
Borrowings under the note payable bear interest at 8.75%.
Maturities of long-term debt as of June 30, 1996, including the $500,000
note payable referred to above, are as follows:
<TABLE>
<S> <C>
1997............................. $ 560,674
1998............................. 624,148
1999............................. 491,460
2000............................. 391,832
2001............................. 179,658
----------
$2,247,772
==========
</TABLE>
Interest of $136,599, $193,095, and $198,274 was paid in the fiscal years
ended June 30, 1994, 1995, and 1996, respectively.
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK
On January 3, 1995, the Company sold 1,465,000 shares of Class D
convertible redeemable preferred stock at $1.00 per share. These shares are
convertible into common stock at the ratio of 3.75 shares of preferred stock for
each share of common stock. In connection with the Class D preferred stock
offering, the Company also issued a warrant to purchase 39,066 shares of common
stock, with an exercise price of $4.70 per share. The warrants expire December
21, 1999.
If the initial public offering referred to in Note 13 is consummated, all
convertible redeemable preferred stock will convert into 2,934,029 shares of
common stock and the cumulative dividends on Class A and D preferred stock
($1,664,024 at June 30, 1996) will be declared and paid with a portion of the
net proceeds of the offering. The unaudited pro forma balance sheet and
unaudited pro forma statement of shareholders'
F-10
<PAGE> 57
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
equity reflect the assumed conversion of all preferred stock and the accrual of
cumulative preferred stock dividends as of June 30, 1996.
At June 30, 1996, the Company's convertible redeemable preferred stock is
as follows:
<TABLE>
<CAPTION>
COMMON SHARES
AUTHORIZED OUTSTANDING UPON CONVERSION
---------- ----------- ---------------
<S> <C> <C> <C>
Class A....................................... 1,500,000 1,458,500 1,166,804
Class B....................................... 450,000 450,000 360,016
Class C....................................... 5,100,000 5,082,704 1,016,543
Class D....................................... 2,000,000 1,465,000 390,666
--------- --------- ---------
9,050,000 8,456,204 2,934,029
========= ========= =========
</TABLE>
In the event the offering referred to in Note 13 is not consummated, the
following terms and conditions will continue to apply. Convertible redeemable
preferred stock is convertible into common stock, at the option of the holder,
at various rates, subject to antidilution provisions and any accrued but unpaid
dividends. Unissued shares of common stock are reserved for issuance in the
event of full conversion of all convertible and redeemable preferred stock.
Subject to certain conditions, convertible redeemable preferred stock also has
mandatory conversion requirements in the event of a qualified initial public
offering of the Company's common stock.
Each share of convertible redeemable preferred stock has voting rights
equivalent to the number of shares of common stock issuable, if converted. Class
A and D convertible redeemable preferred stock have cumulative dividend rights
commencing at various dates and payable at $.10 and $.08 per share,
respectively. Each class of convertible redeemable preferred stock also has
preferential rights, in the event of any distribution of assets upon liquidation
of the Company, which are determined as fixed amounts per share, plus any
accrued but unpaid dividends, distributed pro rata on the basis of liquidation
value.
7. SHAREHOLDERS' EQUITY
Reverse Stock Split
Subsequent to year-end, in July 1996, the Company's shareholders approved a
one share for five share stock split for common stock, which resulted in an
adjustment to the preferred stock conversion ratio. All share and per-share data
in the accompanying financial statements have been retroactively restated to
reflect the reverse stock split.
Incentive and Stock Option Plans
The Company has two incentive and stock option plans (collectively, the
"Plans"), the SeaMED Corporation 1988 Stock Option Plan and the SeaMED 1995
Employee Stock Option and Incentive Plan. Under the terms of the Plans, the
option price may not be less than fair market value of the common stock at the
date of grant. Generally, options granted under the Plans become exercisable at
the rate of 50% after two years, 75% after three years, and 100% after four
years from the date of grant. Certain options granted under the 1988 plan become
exercisable ratably over seven years from the date of grant. Unexercised options
expire
F-11
<PAGE> 58
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10 years after the date of grant. Stock options exercised, granted, and canceled
during fiscal years 1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------
NUMBER OF AGGREGATE PRICE PER
SHARES PRICE SHARE
--------- ---------- -----------
<S> <C> <C> <C>
Balance, July 1, 1993.......................... 489,676 $ 175,468 $ .16- .80
Options granted.............................. 87,015 128,758 1.00- 2.20
Options canceled............................. (25,690) (16,860) .50- 1.25
Options exercised............................ (122,237) (33,822) .16- .50
-------- ----------
Balance, June 30, 1994......................... 428,764 253,544 .16- 2.20
Options granted.............................. 89,200 485,500 2.50-10.00
Options canceled............................. (13,252) (10,848) .16- 2.50
Options exercised............................ (54,331) (14,265) .16- .75
-------- ----------
Balance, June 30, 1995......................... 450,381 713,931 .16-10.00
Options granted.............................. 132,824 454,060 2.50- 5.00
Options canceled............................. (8,031) (12,300) .50- 2.50
Options exercised............................ (89,735) (28,268) .16- 1.25
-------- ----------
Balance June 30, 1996
(options representing 223,366 shares
exercisable).............................. 485,439 $1,127,423 $ .16-10.00
======== ==========
</TABLE>
Employee Stock Purchase Plan
Subsequent to year-end, in July 1996, the Company's shareholders approved
an employee stock purchase plan to be effective in the event the Company
completes an initial public offering of its common stock. The shareholders
authorized the sale of up to 70,000 shares of common stock over five years
pursuant to the plan.
Shares Reserved for Future Issuance
The following shares of common stock have been reserved for future issuance
as of June 30, 1996, including the stock purchase plan referred to above, and
pursuant to the various other agreements and plans discussed above:
<TABLE>
<S> <C> <C>
Convertible redeemable preferred stock......................... 2,934,029
Common stock purchase warrants................................. 39,066
Stock purchase plan............................................ 70,000
Incentive stock option plans:
Options outstanding.......................................... 485,439
Options available for grant.................................. 105,628 591,067
------- ---------
Total common shares reserved for future issuance as of June 30,
1996......................................................... 3,634,162
=========
</TABLE>
F-12
<PAGE> 59
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The income tax benefit (provision) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Current income tax provision..................... $(16,500) $(234,682) $(763,476)
Deferred income tax benefit...................... 225,000 54,682 95,539
-------- --------- ---------
Income tax benefit (provision)................... $208,500 $(180,000) $(667,937)
======== ========= =========
</TABLE>
The current tax provisions are recorded net of the benefit of utilizing net
operating loss carryforwards and tax credit carryforwards.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets................................................. $(19,511) $(20,337)
Deferred tax assets:
Inventory reserves........................................... 247,780 356,175
Accrued expenses............................................. 111,803 147,712
Bad debt reserves............................................ 69,524 85,757
Tax credit carryforwards..................................... 102,517 --
Other........................................................ 17,569 55,914
-------- --------
Total deferred assets.......................................... 549,193 645,558
-------- --------
Net deferred asset balance..................................... $529,682 $625,221
======== ========
</TABLE>
A reconciliation from the U.S. statutory rate to the effective tax rate is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1994 1995 1996
----- ----- ----
<S> <C> <C> <C>
Tax at U.S. statutory rate................................... 34.0% 34.0% 34.0%
Change in valuation allowance................................ (55.5) (26.3) --
Other........................................................ (4.6) 11.2 1.0
----- ----- ----
(26.1)% 18.9% 35.0%
===== ===== ====
</TABLE>
The decrease in the valuation allowance of $443,000 in fiscal year 1994 and
$251,000 in fiscal year 1995 is primarily attributable to the utilization of net
operating loss carryforwards and tax credit carryforwards and related changes in
the estimate of the amount of deferred tax assets to be realizable.
Taxes of $15,000, $28,000, and $330,000 were paid in the fiscal years ended
June 30, 1994, 1995, and 1996, respectively.
9. REVENUES AND OPERATIONS
During fiscal years 1994, 1995, and 1996, 51%, 49%, and 41%, respectively,
of total revenues were to five customers. Receivables from these five customers
represented 41% and 34% of total accounts receivable at June 30, 1995 and 1996,
respectively.
Revenues from customers that represent more than 10% of total revenues are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
CUSTOMER 1994 1995 1996
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
A........................................... $2,774,000 $2,278,000 $2,665,000
B........................................... 2,229,000 -- --
C........................................... 1,622,000 -- --
D........................................... -- 1,933,000 --
</TABLE>
F-13
<PAGE> 60
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During fiscal years 1994, 1995, and 1996, revenue recognized and costs
incurred (included in cost of sales) under engineering contracts were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue engineering contracts.................... $4,690,876 $5,720,600 $8,405,352
Costs of engineering contracts, exclusive of
related general and administrative expenses.... 4,426,852 5,260,489 7,551,399
---------- ---------- ----------
$ 264,024 $ 460,111 $ 853,953
========== ========== ==========
</TABLE>
10. LEASE COMMITMENTS
The Company currently leases office and production space, furniture, and
equipment under noncancelable operating leases. Rental expense under operating
lease agreements for the fiscal years ended June 30, 1994, 1995, and 1996
amounted to $358,085, $388,085, and $655,079, respectively.
In July 1996, the Company signed a letter of intent to occupy 90,000 square
feet of production space in two new buildings effective May 1, 1997. The Company
will occupy the first 30,000 square feet on May 1, 1997, the second 30,000
square feet on February 1, 1998 and the third 30,000 square feet on January 1,
1999. The proposed lease term is 10 years with two five-year options to renew.
Future minimum lease commitments under noncancelable leases and service
agreements as of June 30, 1996, and including the lease for an additional 90,000
square feet, are as follows:
<TABLE>
<S> <C>
1997............................ $ 1,148,312
1998............................ 1,509,818
1999............................ 1,896,476
2000............................ 2,179,100
2001............................ 2,144,291
Thereafter...................... 12,299,185
-----------
$21,177,182
===========
</TABLE>
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute amounts through payroll deductions.
The Company makes an annual contribution of 37.5% of the employees'
contributions up to 4% of the employees' salary. The 401(k) savings plan expense
was $40,100, $57,672, and $72,000 in fiscal years 1994, 1995, and 1996,
respectively. The Company does not provide other post-retirement benefits.
12. RELATED-PARTY TRANSACTIONS
In January 1995, the Company issued 1,465,000 shares of Class D Preferred
Stock, which are convertible into an aggregate of 390,666 shares of Common Stock
at an as-converted price of $3.75 per share. Two directors of the Company
purchased 25,000 and 40,000 shares, respectively, of Class D Preferred Stock,
which shares are convertible into 6,667 and 10,667 shares of Common Stock,
respectively. The Company sold such securities pursuant to a preferred stock
purchase agreement on substantially similar terms as were sold to nonaffiliated
purchasers. The terms of the Class D Preferred Stock provides that all such
shares shall be converted into Common Stock upon the consummation of the
offering referred to in Note 13.
On October 11, 1995, the Company's Chief Executive Officer and President
received a $75,000 loan from the Company, the proceeds of which he used to
purchase 30,000 shares of Common Stock. The loan is evidenced by an unsecured
promissory note that bears interest at the floating minimum statutory rate of
F-14
<PAGE> 61
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
interest set by the Internal Revenue Service from time to time. This officer may
prepay principal and interest at any time without penalty; unpaid principal and
interest are due on October 11, 2000. As of June 30, 1996, aggregate principal
and accrued interest on this loan was $78,000.
A director of the Company is also a partner in the law firm Preston Gates &
Ellis, the Company's counsel.
A director of the Company serves as President and Chief Executive Officer
and a director of one of the Company's customers. The Company has provided
engineering and manufacturing services for this customer. The Company recognized
revenues with respect to such services of approximately $1.0 million in fiscal
year 1995 and $355,000 in fiscal year 1996. The Company recognized no revenues
in fiscal year 1994 with respect to such services.
13. SUBSEQUENT EVENTS
Registration Statement
In July 1996, the Company's Board of Directors delegated authority to a
newly formed Executive Committee to authorize filing a Registration Statement
with the Securities and Exchange Commission to permit the Company to sell shares
of its common stock to the public. In conjunction with the closing of the public
offering, the Company's Board of Directors approved an increase in the total
number of authorized shares to 24,050,500, of which 10,000,000 are for common
stock and 14,050,500 are for preferred stock. The respective amounts have been
retroactively adjusted on the accompanying balance sheet and these notes to
financial statements. If the offering is consummated under the terms presently
anticipated, all of the Company's preferred stock will convert to 2,934,029
shares of common stock and cumulative dividends will be paid from the proceeds
of the offering.
F-15
<PAGE> 62
No dealer, salesperson or other person is authorized to give any information or
to make any representations not contained in this Prospectus in connection with
the offer made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make such an offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the affairs of the Company since the
date hereof or the information herein is correct as of any time subsequent to
the date of this Prospectus.
-------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
Use of Proceeds......................... 14
Dividend Policy......................... 14
Dilution................................ 15
Capitalization.......................... 16
Selected Financial Data................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 18
Business................................ 24
Management.............................. 32
Principal and Selling Shareholders...... 37
Certain Transactions.................... 39
Description of Capital Stock............ 39
Shares Eligible for Future Sale......... 42
Underwriting............................ 43
Legal Matters........................... 44
Experts................................. 44
Additional Information.................. 44
Index to Financial Statements........... F-1
</TABLE>
-------------------------------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
1,850,000 SHARES
SeaMED
COMMON STOCK
-------------------------------------
P R O S P E C T U S
-------------------------------------
PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
, 1996
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the Registrant in connection with the sale of
the Common Stock being registered hereby (all amounts are estimated except the
SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing
Fee):
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 7,737
NASD Filing Fee........................................................... 3,053
Nasdaq National Market Listing Fee........................................ 15,638
Blue Sky Fees and Expenses (Including Legal Fees)......................... 10,000
Transfer Agent and Registrar Fees......................................... 10,000
Legal Fees and Expenses................................................... 200,000
Printing Expenses......................................................... 130,000
Accounting Fees and Expenses.............................................. 150,000
Miscellaneous Expenses.................................................... 323,572
--------
Total........................................................... $850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23B.08.500 through 23B.08.600 of the Washington Business Act
authorize Washington corporations to indemnify their officers, directors,
employees and agents under certain circumstances against certain expenses that
they may incur in such capacities, including liabilities under the Securities
Act, provided they acted in good faith and in a manner reasonably calculated to
be in or not opposed to the best interests of the corporation. The Registrant's
Articles of Incorporation (Exhibit 3.1 hereto) and Bylaws (Exhibit 3.2 hereto)
require indemnification of the Registrant's officers and directors to the
fullest extent permitted by Washington law. The Registrant also maintains
directors' and officers' liability insurance on its directors and officers.
The Registrant's Bylaws and Articles of Incorporation provide that the
Registrant shall, to the fullest extent permitted by the Washington Business
Act, indemnify all directors and officers of the Registrant. In addition, the
Registrant's Articles of Incorporation contain a provision eliminating the
personal liability of directors to the Registrant or its shareholders for
monetary damages arising out of a breach of fiduciary duty. Section 23B.08.320
of the Washington Business Act authorizes a corporation to limit or eliminate
such directors' liability for breaches of fiduciary duty, but does not eliminate
the personal liability of any director for (i) acts or omissions of a director
finally adjudged to be intentional misconduct or a knowing violation of law,
(ii) conduct finally adjudged to be in violation of Section 23B.08.310 of the
Washington Business Act (which section relates to unlawful distributions), or
(iii) any transaction with respect to which it is finally adjudged that a
director personally received a benefit in money, property or services to which
the director was not legally entitled.
The above discussion of the Washington Business Act and the Registrant's
Bylaws and Articles of Incorporation is not intended to be exhaustive and is
qualified in its entirety by reference to such statute, the Bylaws and the
Articles of Incorporation, respectively.
The Registrant will enter into indemnification agreements with each of its
directors and executive officers.
II-1
<PAGE> 64
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The table below sets forth sales of unregistered securities made by the
Registrant since August 1, 1993.
<TABLE>
<CAPTION>
TITLE AND AMOUNT OF SECURITY DATE OF SALE EXEMPTION
--------------------------------------------------- ------------- ---------
<S> <C> <C>
1,465,000 shares of convertible redeemable Class D January 1995 (1)
preferred stock
Warrant to purchase 39,066 shares of Common Stock January 1995 (2)
266,303 shares of Common Stock (3) (3)
</TABLE>
- ---------------
(1) Allen & Company Incorporated acted as placement agent with respect to the
sale. Issued for total proceeds of $1,465,000, before placement fees of
$73,500. In addition, the Registrant issued to the placement agent a warrant
to purchase 39,066 shares of Common Stock at a per share exercise price of
$4.70. All sales were made to accredited investors in private transactions
not involving any public offering in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act. A Form D with
respect to such sales was filed with the Commission under Regulation D under
the Securities Act.
(2) Issued to Allen & Company Incorporated as partial consideration for serving
as placement agent with respect to the sale of convertible redeemable Class
D preferred stock, as discussed in note (1) above.
(3) Issued from time to time upon the exercise of stock options granted under
the Registrant's stock options plan, for total proceeds of $76,355, in
reliance on Rule 701 promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C> <C> <C>
(a) Exhibits:
1.1* -- Form of Purchase Agreement
3.1 -- Articles of Incorporation of the Registrant
3.2 -- Bylaws of the Registrant
5.1* -- Opinion of Preston Gates & Ellis
10.1 -- Promissory Note dated June 27, 1996, made by SeaMED Corporation payable
to Pacific Northwest Bank, in the amount of $4,000,000
10.2 -- Promissory Note dated June 27, 1996, made by SeaMED Corporation payable
to Pacific Northwest Bank, in the amount of $500,000
10.3 -- Promissory Note dated October 24, 1995, made by SeaMED Corporation
payable to Pacific Northwest Bank, in the amount of $600,000
10.4 -- Loan Agreement dated August 1, 1994, between SeaMED Corporation and
Pacific Northwest Bank
10.5 -- Amended and Restated Promissory Note dated September 1, 1993, made by
SeaMED Corporation payable to Cordis Corporation, in the amount of
$1,107,065
10.6 -- Lease Agreement dated December 8, 1993, by and between Med Willows,
successor in interest to Jack Martin, and SeaMED Corporation
10.7 -- Industrial Real Estate Lease (Building 1) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation
10.8 -- Industrial Real Estate Lease (Building 2) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation
10.9 -- Option Agreement dated September 10, 1996, by and between Washington
Capital Management, Inc. and SeaMED Corporation
10.10 -- SeaMED Corporation 1988 Stock Option Plan
10.11 -- SeaMED Corporation 1995 Employee Stock Option and Incentive Plan
10.12 -- SeaMED Corporation 1996 Employee Stock Purchase Plan
</TABLE>
II-2
<PAGE> 65
<TABLE>
<S> <C> <C>
10.13* -- [Coinstar Contract]
10.14 -- Promissory Note dated October 11, 1995, made by W. Robert Berg payable
to SeaMED Corporation, in the amount of $75,000
10.15* -- Form of Director and Officer Indemnification Agreement
10.16 -- Preferred Stock Purchase Agreement dated as of March 28, 1984, by and
between SeaMED Corporation and the Purchasers listed therein
10.17 -- First Amendment to Preferred Stock Purchase Agreement made as of July
31, 1986, by and between SeaMED Corporation and the Purchasers list
therein
10.18 -- Second Amendment to Preferred Stock Purchase Agreement, Class A
Preferred Stock made as of October 28, 1994, by and between SeaMED
Corporation and the Purchasers list therein
10.19 -- Preferred Stock Purchase Agreement, Class B Preferred Stock dated as of
August 25, 1986, by and among SeaMED Corporation and the Purchasers
listed therein
10.20 -- First Amendment to Preferred Stock Purchase Agreement, Class B Preferred
Stock made as of October 28, 1994, by and between SeaMED Corporation and
the Purchasers listed therein
10.21 -- Preferred Stock Purchase Agreement, Class D Preferred Stock made as of
January 3, 1995, by and among SeaMED Corporation and the Purchasers
listed therein
10.22* -- Purchase and Sale Agreement dated January 20, 1978, by and among Pioneer
Investors Corp., Doan Resources Corporation and SeaMED Corporation
10.23* -- First Amendment to Purchase and Sale Agreement dated October 28, 1994,
by and between Pioneer Associates and SeaMED Corporation
11.1 -- Statement regarding computation of earnings per share
23.1 -- Consent of Ernst & Young LLP, Independent Auditors (see page II-6)
23.2* -- Consent of Preston Gates & Ellis (contained in Exhibit 5.1)
24.1 -- Power of Attorney (see signature page)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules:
Report of Ernst & Young LLP, Independent Auditors
Schedule II -- Valuation and Qualifying Accounts
All other financial statement schedules are omitted because the required
information is either included in the Registrant's financial statements or the
notes thereto or is inapplicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Purchase Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the adjudication of such
issue.
II-3
<PAGE> 66
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Redmond, State of
Washington, on this 4th day of October, 1996.
SEAMED CORPORATION
By /s/ W. ROBERT BERG
------------------------------------
W. Robert Berg
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, W. Robert Berg
and Edgar F. Rampy, or any of them, with full power to act alone, his true and
lawful attorneys-in-fact, with full power of substitution, and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to the Registration
Statement or any Registration Statement filed pursuant to Rule 462 under the
Securities Act of 1933, and file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on this 4th day of October, 1996 by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------------- ----------------------------------------------------
<C> <S>
/s/ W. ROBERT BERG President, Chief Executive Officer and Director
- ------------------------------------- (Principal Executive Officer)
W. Robert Berg
/s/ EDGAR F. RAMPY Vice President, Treasurer and Chief Financial
- ------------------------------------- Officer (Principal Financial and Accounting Officer)
Edgar F. Rampy
/s/ R. SCOTT ASEN Chairman of the Board
- -------------------------------------
R. Scott Asen
/s/ STEPHEN J. CLEARMAN Director
- -------------------------------------
Stephen J. Clearman
/s/ WILLIAM D. ELLIS Director
- -------------------------------------
William D. Ellis
/s/ RICHARD E. ENGEBRECHT Director
- -------------------------------------
Richard E. Engebrecht
/s/ WILLIAM H. GATES, SR. Director
- -------------------------------------
William H. Gates, Sr.
/s/ RICHARD O. MARTIN Director
- -------------------------------------
Richard O. Martin
</TABLE>
II-5
<PAGE> 68
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated August 6,
1996, in the Registration Statement (Form S-1) and related Prospectus of SeaMED
Corporation for the registration of 2,127,500 shares of its common stock.
Seattle, Washington
October 4, 1996 ERNST & YOUNG LLP
II-6
<PAGE> 69
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the financial statements of SeaMED Corporation as of June
30, 1995 and 1996, and for each of the three years in the period ended June 30,
1996, and have issued our report thereon dated August 6, 1996 (included
elsewhere in this Registration Statement). Our audits also included the
financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Seattle, Washington
August 6, 1996 ERNST & YOUNG LLP
S-1
<PAGE> 70
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
SEAMED CORPORATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO CHARGED TO OTHER DEDUCTIONS BALANCE
BEGINNING OF COSTS AND ACCOUNTS -- -- AT END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1994:
Deducted from asset accounts:
Allowance for uncollectible
accounts $ 2,780 $226,830 -- $ 229,610
Warranty reserve 136,302 131,160 $ 107,191(2) 160,271
-------- -------- --------- ---------
$139,082 $357,990 $ 107,191 $ 389,881
======== ======== ========= =========
Year Ended June 30, 1995:
Deducted from asset accounts:
Allowance for uncollectible
accounts $229,610 $104,320 $ 129,447(1) $ 204,483
Warranty reserve 160,271 171,515 145,375(2) 186,411
-------- -------- --------- ---------
$389,881 $275,835 $ 274,822 $ 390,894
======== ======== ========= =========
Year Ended June 30, 1996:
Deducted from asset accounts:
Allowance for uncollectible
accounts $204,483 $ 50,709 $ 2,966(1) $ 252,226
Warranty reserve 186,411 275,893 247,016(2) 215,288
-------- -------- --------- ---------
$390,894 $326,602 $ 249,982 $ 467,514
======== ======== ========= =========
</TABLE>
- ---------------
(1) Write-off of uncollectible accounts, net of recoveries.
(2) Actual warranty costs incurred.
S-2
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
1.1* -- Form of Purchase Agreement................................................
3.1 -- Articles of Incorporation of the Registrant...............................
3.2 -- Bylaws of the Registrant..................................................
5.1* -- Opinion of Preston Gates & Ellis..........................................
10.1 -- Promissory Note dated June 27, 1996, made by SeaMED Corporation payable to
Pacific Northwest Bank, in the amount of $4,000,000.......................
10.2 -- Promissory Note dated June 27, 1996, made by SeaMED Corporation payable to
Pacific Northwest Bank, in the amount of $500,000.........................
10.3 -- Promissory Note dated October 24, 1995, made by SeaMED Corporation payable
to Pacific Northwest Bank, in the amount of $600,000......................
10.4 -- Loan Agreement dated August 1, 1994, between SeaMED Corporation and
Pacific Northwest Bank....................................................
10.5 -- Amended and Restated Promissory Note dated September 1, 1993, made by
SeaMED Corporation payable to Cordis Corporation, in the amount of
$1,107,065................................................................
10.6 -- Lease Agreement dated December 8, 1993, by and between Med Willows,
successor in interest to Jack Martin, and SeaMED Corporation..............
10.7 -- Industrial Real Estate Lease (Building 1) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation........
10.8 -- Industrial Real Estate Lease (Building 2) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation........
10.9 -- Option Agreement dated September 10, 1996, by and between Washington
Capital Management, Inc. and SeaMED Corporation...........................
10.10 -- SeaMED Corporation 1988 Stock Option Plan.................................
10.11 -- SeaMED Corporation 1995 Employee Stock Option and Incentive Plan..........
10.12 -- SeaMED Corporation 1996 Employee Stock Purchase Plan......................
10.13* -- [Coinstar Contract].......................................................
10.14 -- Promissory Note dated October 11, 1995, made by W. Robert Berg payable to
SeaMED Corporation, in the amount of $75,000..............................
10.15* -- Form of Director and Officer Indemnification Agreement....................
10.16 -- Preferred Stock Purchase Agreement dated as of March 28, 1984, by and
between SeaMED Corporation and the Purchasers listed therein..............
10.17 -- First Amendment to Preferred Stock Purchase Agreement made as of July 31,
1986, by and between SeaMED Corporation and the Purchasers list therein...
10.18 -- Second Amendment to Preferred Stock Purchase Agreement, Class A Preferred
Stock made as of October 28, 1994, by and between SeaMED Corporation and
the Purchasers list therein...............................................
10.19 -- Preferred Stock Purchase Agreement, Class B Preferred Stock dated as of
August 25, 1986, by and among SeaMED Corporation and the Purchasers listed
therein...................................................................
10.20 -- First Amendment to Preferred Stock Purchase Agreement, Class B Preferred
Stock made as of October 28, 1994, by and between SeaMED Corporation and
the Purchasers listed therein.............................................
10.21 -- Preferred Stock Purchase Agreement, Class D Preferred Stock made as of
January 3, 1995, by and among SeaMED Corporation and the Purchasers listed
therein...................................................................
10.22* -- Purchase and Sale Agreement dated January 20, 1978, by and among Pioneer
Investors Corp., Doan Resources Corporation and SeaMED Corporation........
10.23* -- First Amendment to Purchase and Sale Agreement dated October 28, 1994, by
and between Pioneer Associates and SeaMED Corporation.....................
11.1 -- Statement regarding computation of earnings per share.....................
23.1 -- Consent of Ernst & Young LLP, Independent Auditors (see page II-6)........
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
23.2* -- Consent of Preston Gates & Ellis (contained in Exhibit 5.1)...............
24.1 -- Power of Attorney (see signature page)....................................
27.1 -- Financial Data Schedule...................................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
SEAMED ACQUISITION CORP.
ARTICLE 1. SEAMED CORPORATION
The name of this corporation is SeaMED Acquisition Corp.
ARTICLE 2. DURATION
This corporation has perpetual existence.
ARTICLE 3. PURPOSE
This corporation is organized for the purposes of transacting any and
all lawful business for which a corporation may be incorporated under Title 23B
of the Revised Code of Washington, as amended.
ARTICLE 4. REGISTERED OFFICE AND AGENT
The address of the registered office of the corporation is 5000
Columbia Center, 701 Fifth Avenue, Seattle, Washington 98104-7078, and the name
of the registered agent at such address is PTSGE Corp.
ARTICLE 5. CAPITAL STOCK
5.1 Authorized Capital. The total number of shares of stock that the
corporation shall have the authority to issue is Twenty-Three Million Fifty
Thousand (23,050,000) as follows:
5.1.1 Ten Million (10,000,000) shares, which shares shall be
of one class and shall be designated Common Stock, no par value per share.
5.1.2 One Million Five Hundred Thousand (1,500,000) shares of
Class A Preferred Stock, no par value per share, with such voting power,
preference rights, conversion rights and other special rights, qualifications,
limitations, or restrictions as set forth below.
5.1.3 Four Hundred Fifty Thousand (450,000) shares of Class B
Preferred Stock, no par value per share, with such voting power, preference
rights, conversion rights, and other special rights, qualifications,
limitations, or restrictions as set forth below.
5.1.4 Five Million One Hundred Thousand (5,100,000) shares of
Class C Preferred Stock, no par value per share, with such voting power,
preference rights, conversion rights, and other special rights, qualifications,
limitations, or restrictions as set forth below.
<PAGE> 2
5.1.5 Two Million (2,000,000) shares of Class D Convertible
Preferred Stock, no par value per share, with such voting power, preference
rights, conversion rights, and other special rights, qualifications,
limitations, or restrictions as set forth below.
5.1.6 Five Million (5,000,000) shares of Preferred Stock, no
par value per share.
The Board of Directors shall have the full authority permitted by law
to divide the authorized and unissued shares of Preferred Stock into classes or
series, or both, and to provide for the issuance of such shares in an aggregate
amount not exceeding in the aggregate the number of shares of Preferred Stock
authorized by these Articles of Incorporation, as amended from time to time; and
to determine with respect to each such class and/or series the voting powers, if
any (which voting powers, if granted, may be full or limited), designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions relating thereto, including
without limiting the generality of the foregoing, the voting rights relating to
shares of Preferred Stock of any class and/or series (which may be one or more
votes per share or a fraction of a vote per share, which may vary over time and
which may be applicable generally or only upon the happening and continuance of
stated events or conditions), the rate of dividend to which holders of Preferred
Stock of any class and/or series may be entitled (which may be cumulative or
noncumulative), the rights of holders of Preferred Stock of any class and/or
series in the event of liquidation, dissolution or winding up of the affairs of
the corporation, the rights, if any, of holders of Preferred Stock of any class
and/or series to convert or exchange such shares of Preferred Stock of such
class and/or series for shares of any other class or series of capital stock or
for any other securities, property or assets of the corporation or any
subsidiary (including the determination of the price or prices or the rate or
rates applicable to such rights to convert or exchange and the adjustment
thereof, the time or times during which the right to convert or exchange shall
be applicable and the time or times during which a particular price or rate
shall be applicable), whether or not the shares of that class and/or series
shall be redeemable, and if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates, and whether any shares
of that class and/or series shall be redeemed pursuant to a retirement or
sinking fund or otherwise and the terms and conditions of such obligation.
Before the corporation shall issue any shares of Preferred Stock of any
class and/or series, articles of amendment in a form meeting the requirements of
the Washington Business Corporation Act, as amended from time to time (the
"Act"), setting forth the terms of the class and/or series and fixing the voting
powers, designations, preferences, the relative, participating, optional
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or other special rights, if any, and the qualifications, limitations and
restrictions, if any, relating to the shares of Preferred Stock of such class
and/or series, and the number of shares of Preferred Stock of such class and/or
series authorized by the Board of Directors to be issued shall be filed with the
Secretary of State of the State of Washington in the manner prescribed by the
Act, and shall become effective without any shareholder action. The Board of
Directors is further authorized to increase or decrease (but not below the
number of such shares of such series then outstanding) the number of shares of
any class or series subsequent to the issuance of shares of that class or
series.
5.2 Class A Preferred Stock - Designation of Rights and Preferences.
The holders of Class A Preferred Stock are vested with the following voting
powers, preferences, conversion rights and other special rights, qualifications,
limitations and restrictions.
5.2.1 Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation, the holders of each share of Class A Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the corporation to the holders of Junior Stock (as
defined below) of the corporation by reason of their ownership thereof, but
subordinate and junior to the interests of the holders of the series of Class D
Preferred Stock, an amount equal to one dollar ($1.00) per share plus an amount
equal to all accrued but unpaid dividends with respect to such share.
All of the preferential amounts to be paid to the holders of the Class
A Preferred Stock under this Section 5.2.1 shall be paid or set apart for
payment after the payment or setting apart for payment of the designated
preferential amounts for Class D Preferred Stock (including any accrued but
unpaid dividends on Class D Preferred Stock) and before the payment or setting
apart for payment of any amount for, or the distribution of any assets of the
corporation to, the holders of Junior Stock in connection with such liquidation,
dissolution or winding up. After the payment or the setting apart of payment to
the holders of the Class D Preferred Stock and the Class A Preferred Stock of
the preferential amounts so payable to them, the holders of Junior Stock shall
be entitled to receive all remaining assets of the corporation.
If the assets or surplus funds to be distributed to the holders of the
Class A Preferred Stock are insufficient to permit the payment to such holders
of their full preferential amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among the holders of the
Class A Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive with any such distribution allocable
first to amounts payable measured by the amount of accrued but unpaid dividends
with respect to such shares and second to the One Dollar ($1.00) per share
preferential amount payable in any event. In the event that assets or surplus
funds are distributed to the holders of the Class A Preferred Stock under this
Section 5.2.1 prior to the final liquidating distribution in an amount allocable
to the One Dollar ($1.00) per share preferential amount payable in any event,
dividends in respect of such shares shall continue to accrue but shall be
reduced in proportion to the amount of such One Dollar ($1.00) per share
preferential amount which has theretofore been distributed.
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As used in this Section 5.2, the term "Junior Stock" means:
(a) Common Stock, Class B Preferred Stock and Class C Preferred Stock;
and
(b) all those classes and series of preferred or special stock which,
by the terms of the Articles of Incorporation of the corporation (as the same
has heretofore been or may hereafter be amended) shall designate the special
rights and limitations of each such class and series of preferred or special
stock, shall be subordinate to the Class A Preferred Stock with respect to the
right of the holders thereof to receive dividends or to participate in the
assets of the corporation upon any liquidation, dissolution or winding-up of the
corporation.
5.2.2 Conversion. The holders of the Class A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Class A Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for the Class A Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing One Dollar
($1.00) by the Conversion Price, determined as hereinafter provided, in effect
at the time of conversion. The Conversion Price at which shares of Common Stock
shall be deliverable upon conversion without the payment of any additional
consideration by the holder thereof (the "Conversion Price") shall, as of the
date hereof, be One Dollar and Twenty-Five Cents ($1.25). Such Conversion Price
shall be subject to adjustment, in order to adjust the number of shares of
Common Stock into which the Class A Preferred Stock is convertible, as
hereinafter provided. Each holder who so converts Class A Preferred Stock
shall not be entitled to any dividends which have accrued pursuant to Section
5.2.5 hereof to the time of the conversion but have not been paid prior to
such conversion.
(b) Automatic Conversion. Each share of Class A Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933 covering the offer and sale of Common Stock for the account of the
corporation to the public at a public offering price of at least five times the
then existing Conversion Price per share and having an aggregate offering price
to the public of not less than $5,000,000 (in the event of which offering, the
person(s) entitled to receive the Common Stock issuable upon such conversion of
the Class A Preferred Stock shall not be deemed to have converted that Class A
Preferred Stock until immediately prior to the closing of such offering). Each
person who holds of record Class A Preferred Stock immediately prior to such
automatic conversion shall be entitled to all dividends which have accrued to
the time of the automatic conversion, but not paid on the Class A Preferred
Stock, pursuant to Section 5.2.5 hereof. Such dividends shall be paid to all
such holders within thirty (30) days of the automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of the Class A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction
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multiplied by the then effective Conversion Price. Before any holder of Class A
Preferred Stock shall be entitled to convert the same into full shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the corporation or of any transfer agent for the
Class A Preferred Stock, and shall give written notice to the corporation at
such office that he elects to convert the same and shall state therein his name
or the name or names of his nominees in which he wishes the certificate or
certificates for shares of Common Stock to be issued. The corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Class A Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of Shares of Common Stock to which he shall be
entitled as aforesaid, together with cash in lieu of any fraction of a share.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Class A Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Section
5.2.2(d), the following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities provided, however, that options and purchase rights covered by
Section 5.2.2(d)(i)(4)(B) shall not be included in the definition of "Option"
for purposes of this Section 5.2.2(d).
(2) "Issue Date" shall mean the date of these Articles of
Incorporation.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Class A Preferred Stock) or
other securities directly or indirectly convertible into or exchangeable for
Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares, of Common Stock issued (or, pursuant to Section 5.2.2(d)(iii), deemed to
be issued) by the corporation after the Issue Date, other than shares of Common
Stock issued or issuable:
(A) upon conversion of shares of any class of
convertible preferred stock, including the Class A Preferred Stock, now or
hereafter issued by the corporation;
(B) to officers, directors, or employees of, or
consultants to, the corporation pursuant to a stock purchase or option plan or
other employee or executive stock incentive program (collectively, the "Plans")
approved by the Board of Directors; or
(C) by way of dividend or other distribution on shares
of Common Stock excluded from the definition of Additional Shares of Common
Stock by the
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foregoing clauses (A), (B), or this clause (C) or on any other shares of Common
Stock so excluded.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Class A Preferred Stock is
convertible shall be made, by adjustment in the Conversion Price of Class A
Preferred Stock in respect of the issuance of Additional Shares of Common Stock
or otherwise, unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the corporation is less than the
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Share.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
(1) Options and Convertible Securities. In the event the
corporation at any time or from time to time shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 5.2.2(d)(v) hereof), of such Additional Shares
of Common Stock would be less than the Conversion Price in effect on the date of
and immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such options or the rights of conversion or exchange under such
Convertible securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a
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record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the corporation
(determined pursuant to Section 5.2.2(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock (other than shares in respect of which the
readjustment is being made) between the original adjustment date and such
readjustment date;
(E) in the case of any options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
options, whereupon such adjustment shall be made in the same manner provided in
clause (C) above; and
(F) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price which became effective on
such record date shall be canceled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted pursuant to this
Section 5.2.2(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and Subdivisions.
In the event the corporation at any time or from time to time after the Issue
Date shall declare or pay any dividend or make any other distribution on the
Common Stock payable in Common Stock, or effect a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then and in any such event, Additional Shares of
Common Stock shall be deemed to have been issued:
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(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend or
distribution, or
(B) in the case of any such subdivision, at the close
of business on the date immediately prior to the date upon which such corporate
action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously made
in the Conversion Price which became effective on such record date shall be
canceled as of the close of business on such record date, and thereafter the
Conversion Price shall be adjusted pursuant to this Section 5.2.2(d)(iii) as of
the time of actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
In the event the corporation shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 5.2.2(d)(iii), but excluding Additional Shares of Common Stock deemed
to be issued pursuant to Section 5.2.2(d)(iii)(2), which event is dealt with in
Section 5.2.2(d)(vi)) without consideration or for a consideration per share
less than the Conversion Price in effect on the date of and immediately prior to
such issue, then and in such event, such Conversion Price shall be reduced,
concurrently with such issue in order to increase the number of shares into
which the Class A Preferred Stock is convertible, to a price (calculated to the
nearest cent) determined by dividing (x) an amount equal to the sum of (i) the
number of shares of Common Stock outstanding immediately prior to such issue
multiplied by the Conversion Price in effect immediately prior to such issue,
plus (ii) the consideration, if any, received by the corporation upon such
issue, by (y) the sum of the number of shares of Common Stock outstanding
immediately prior to such issue plus the total number of Additional Shares of
Common Stock so issued; provided, however, the Conversion Price shall not be so
reduced at such time if the amount of such reduction would be an amount less
than $0.05, 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 $0.05 or more.
(v) Determination of Consideration. For purposes of this
Section 5.2.2(d), the consideration received by the corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
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(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
per share received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5.2.2(d)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the corporation as consideration for the issue of such options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions,
Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or Subdivisions. In the
event the corporation shall issue Additional Shares of Common Stock pursuant to
Section 5.2.2(d)(iii)(2) in a stock dividend, stock distribution or subdivision,
the Conversion Price in effect immediately prior to such stock dividend, stock
distribution or subdivision shall, concurrently with the effectiveness of such
stock dividend, stock distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustment for Merger or Reorganization, etc.
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In case of any consolidation or merger of the corporation with or into
another corporation or the conveyance of all or substantially all of the assets
of the corporation to another corporation, each share of Class A Preferred Stock
shall thereafter be convertible into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the corporation deliverable upon conversion of such Class A Preferred Stock
would have been entitled upon such consolidation, merger or conveyance; and, in
any such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the holders of the Class A Preferred
Stock, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Class A Preferred Stock.
(e) No Impairment. The corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5.2.2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Class A Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
5.2.2, the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Class A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Class A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Class A Preferred Stock.
(g) Notices of a Record Date. In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as annual cash dividends
paid in previous years) or other distribution, the corporation shall mail to
each holder of Class A Preferred Stock at least ten (10) days prior to the date
specified herein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Class A Preferred Stock.
5.2.3 Redemption.
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(a) Right to Redeem. The corporation may at any time if it may lawfully
do so, at the option of the Board of Directors, redeem in whole (but not in
part) the Class A Preferred Stock by paying in cash therefor $1.00 per share
and, in addition, an amount equal to all accrued but unpaid dividends on the
Class A Preferred Stock to and including the date fixed for redemption (such
total amount is hereinafter referred to as the "Redemption Price").
(b) Notice to Holders. At least sixty days prior to the date fixed for
any redemption of the Class A Preferred Stock (the "Redemption Date"), written
notice (the "Redemption Notice") shall be mailed, postage prepaid, to each
holder of record of the Class A Preferred Stock to be redeemed, at its post
office address last shown on the records of the corporation, of the
corporation's election to redeem such shares, specifying the Redemption Date and
the date on which such holder's Conversion Rights (as defined in Section 5.2.2)
as to such shares terminate and calling upon such holder to surrender to the
corporation, in the manner and at the place designated, his certificate or
certificates representing the shares to the corporation, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of such shares as holders of the Class A Preferred Stock
of the corporation (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the corporation or be deemed to be outstanding for any purpose
whatsoever.
(c) Termination of Conversion Rights. In the event of a call for
redemption of any shares of Class A Preferred Stock pursuant to Section 5.2.3
hereof, the Conversion Rights shall terminate as to the shares designated for
redemption at the close of business on the fifth (5th) day preceding the
Redemption Date, unless default is made in the payment of the Redemption Price.
5.2.4 Voting Rights. Except as otherwise required by law, the
holders of shares of Class A Preferred Stock shall be entitled to notice of any
shareholders' meeting and to vote upon any matter submitted to a shareholder for
a vote, and the holders of Class A Preferred Stock shall have that number of
votes equal to the numbers of shares of Common Stock into which such Class A
Preferred Stock is convertible.
5.2.5 Dividend Rights.
(a) The holders of outstanding Class A Preferred Stock shall be
entitled to receive, when as declared by the Board of Directors, dividends at
the annual rate of $.10 per share. Such dividends shall be cumulative and,
subject to the last sentence of this Section 5.2.5, shall accrue annually on
each outstanding share of Class A Preferred Stock, beginning on the second
anniversary of the day when such share is issued. Such dividends shall be
payable, whenever declared by the Board of Directors; provided, however, that
funds are legally available therefor. The corporation's obligation to pay such
dividends shall commence on the third anniversary of the date of issuance of
such shares. In addition to the redemption price set forth in Section 5.2.3
hereof and in addition to the other dividends provided in this Section 5.2.5
above, each holder of Class A
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Preferred Stock redeemed in accordance with Section 5.2.3 shall be entitled to
receive upon such redemption out of funds legally available therefor a dividend
of One Dollar ($1.00) for each share of Class A Preferred Stock so redeemed, and
if funds are not legally available, such additional dividend shall be payable
whenever funds are legally available therefor.
(b) Notwithstanding any provisions in Section 5.2.5(a) hereof,
dividends which have accrued on the Class A Preferred Stock but not been paid
prior to an automatic conversion pursuant to Section 5.2.2(b) hereof shall be
payable within thirty (30) days of the Closing, as defined in that Section
5.2.2(b), to each person who holds of record Class A Preferred Stock immediately
prior to the automatic conversion.
5.2.6 Covenants. So long as any shares of Class A Preferred
Stock shall be outstanding (as adjusted for all subdivisions and combinations),
the corporation shall not, without first obtaining the affirmative vote or
written consent of not less than sixty-seven percent (67%) of such outstanding
shares of Class A Preferred Stock:
(a) amend or repeal any provision of, or add any provision to, the
corporation's Articles of Incorporation or By-laws if such action would alter or
change the preferences rights, privileges or powers of, or the restrictions
provided for the benefit of, the Class A Preferred Stock;
(b) reclassify any Common Stock into shares having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Class A Preferred Stock;
(c) pay or declare any dividend or distribution on any shares of Common
Stock or apply any of its assets to the redemption, retirement, purchase or
other acquisition directly or indirectly, through subsidiaries or otherwise, of
any shares of Common Stock except from employees of the corporation upon
termination of employment and except pursuant to the corporation's rights of
first refusal; or
(d) create or issue any other series, class or classes of stock.
5.2.7 Residual Rights. All rights accruing to the outstanding
shares of the corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
5.3 Class B Preferred Stock - Rights and Preferences. The holders of
Class B Preferred Stock are vested with the following voting powers,
preferences, conversion rights and other special rights, qualifications,
limitations and restrictions.
5.3.1 Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation, the holders of each share of Class B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the corporation to the holders of Junior Stock of the
corporation by reason of their ownership thereof, but subordinate and junior to
the interests of the
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holders of Class D Preferred Stock and Class A Preferred Stock an amount equal
to one dollar ($1.00) per share plus an amount equal to all declared but unpaid
dividends with respect to such share.
All of the preferential amounts to be paid to the holders of the Class
B Preferred Stock under this Section 5.3.1 shall be paid or set apart for
payment after the payment or setting apart for payment of the designated
preferential amounts for Class D Preferred Stock and Class A Preferred Stock
(including any accrued but unpaid dividends on Class D Preferred Stock and/or
Class A Preferred Stock) and before the payment or setting apart for payment of
any amount for, or the distribution of any assets of the corporation to, the
holders of Junior Stock in connection with such liquidation, dissolution or
winding up. After the payment or the setting apart of payment to the holders of
the Class D Preferred Stock and Class A Preferred Stock of the preferential
amounts so payable to them, and the payment or setting aside for payment to the
holders of Class B Preferred Stock of the preferential amounts to be payable to
them, the holders of Junior Stock shall be entitled to receive all remaining
assets of the corporation.
If the assets or surplus funds to be distributed to the holders of the
Class B Preferred stock are insufficient to permit the payment to such holders
of their full preferential amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among the holders of the
Class B Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive with any such distribution allocable
first to amounts payable measured by the amount of declared but unpaid
dividends, if any, with respect to such shares and second to the One Dollar
($1.00) per share preferential amount payable in any event.
As used in this Section 5.3, the term "Junior Stock" means:
(a) Common Stock and Class C Preferred Stock; and
(b) all those classes and series of preferred or special stock which,
by the terms of the Articles of Incorporation of the corporation (as the same
has heretofore been or may hereafter be amended) shall designate the special
rights and limitations of each such class and series of preferred or special
stock, shall be subordinate to the Class B Preferred Stock with respect to the
right of the holders thereof to receive dividends or to participate in the
assets of the corporation upon any liquidation, dissolution or winding-up of the
corporation.
5.3.2 Conversion. The holders of the Class B Preferred Stock
shall have conversion rights as follows ( the "Conversion Rights"):
(a) Right to Convert. Each share of Class B Preferred Stock
shall be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the corporation or any transfer
agent for the Class B Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing one Dollar
($1.00) by the Conversion Price, determined as hereinafter provided, in effect
at the time of conversion. The Conversion Price at which shares of Common Stock
shall be deliverable upon conversion without the payment of any additional
consideration by the holder thereof (the "Conversion
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<PAGE> 14
Price") shall, as of the date hereof, be One Dollar and Twenty-Five Cents
($1.25). Such Conversion Price shall be subject to adjustment, in order to
adjust the number of shares of Common Stock into which the Class B Preferred
Stock is convertible, as hereinafter provided.
(b) Automatic Conversion. Each share of Class B Preferred
Stock shall automatically be converted into shares of Common Stock at the then
effective Conversion Price upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933 covering the offer and sale of Common Stock for the
account of the corporation to the public at a public offering price of at least
five times the then existing Conversion Price per share and having an aggregate
offering price to the public of not less than $5,000,000 (in the event of which
offering, the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Class B Preferred Stock shall not be deemed to have converted
that Class B Preferred Stock until immediately prior to the closing of such
offering). Each person who holds of record Class B Preferred Stock immediately
prior to such automatic conversion shall be entitled to all dividends which have
been declared prior to the time of the automatic conversion, but not paid on the
Class B Preferred Stock, pursuant to Section 5 hereof. Such dividends shall be
paid to all such holders within thirty (30) days of the automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Class B Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Class B Preferred Stock shall
be entitled to convert the same into full shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the corporation or of any transfer agent for the Class B Preferred Stock, and
shall give written notice to the corporation at such office that he elects to
convert the same and shall state therein his name or the name or names of his
nominees in which he wishes the certificates or certificates for shares of
Common Stock to be issued. The corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Class B Preferred
Stock, or to his nominee or nominees a certificate or certificates for the
number of Shares of Common Stock to which he shall be entitled as aforesaid,
together with cash in lieu of any fraction of a share. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Class B Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(d) Adjustment to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section
5.3.2(d), the following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities provided, however, that options and purchase rights covered by
Section 5.3.2(d)(i)(4)(B) shall not be included in the definition of "Option"
for the purposes of this Section 5.3.2(d).
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(2) "Issue Date" shall mean the date of these Articles
of Incorporation.
(3) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than Common Stock, Class A Preferred Stock and
Class B Preferred Stock) or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5.3.2(d)(iii), deemed to
be issued) by the corporation after the Issue Date, other than shares of Common
Stock issued or issuable:
(A) upon conversion of any class of convertible
preferred stock, including the Class A Preferred Stock and Class B Preferred
Stock, now or hereafter issued by the corporation;
(B) to officers, directors, or employees of, or
consultants to, the corporation pursuant to a stock purchase or option plan or
other employee or executive stock incentive program (collectively, the "Plans")
approved by the Board of Directors; or
(C) by way of dividend or other distribution on
shares of Common Stock excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B), or this clause (C) or on any
other shares of Common Stock so excluded.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Class B Preferred Stock is
convertible shall be made, by adjustment in the Conversion Price of Class B
Preferred Stock in respect of the issuance of Additional Shares of Common Stock
or otherwise, unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the corporation is less than the
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Share.
(iii) Issue of Securities Deemed Issue of Additional Shares
of Common Stock.
(1) Options and Convertible Securities. In the event
the corporation at any time or from time to time shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued
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<PAGE> 16
as of the time of such issue or, in case such a record date shall have been
fixed as of the close of business on such record date, provided that Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 5.3.2(d)(v) hereof), of
such Additional Shares of Common Stock would be less than the Conversion Price
in effect on the date of and immediately prior to such issue, or such record
date, as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(I) In the case of Convertible Securities or
options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
corporation for the issue of all such Options, whether or not exercised, plus
the additional consideration, if any, actually received by the corporation upon
such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the corporation
(determined pursuant to Section 5.3.2(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of
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(i) the Conversion Price on the original adjustment date, or (ii) the Conversion
Price that would have resulted from any issuance of Additional Shares of Common
Stock (other than shares in respect of which the readjustment is being made)
between the original adjustment date and such readjustment date;
(E) in the case of any Options which expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the expiration of
exercise of all such Options, whereupon such adjustment shall be made in the
same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and
such Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Conversion Price which became
effective on such record date shall be canceled as of the close of business on
such record date, and thereafter the Conversion Price shall be adjusted pursuant
to this Section 5.3.2(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and
Subdivisions. In the event the corporation at any time or from time to time
shall declare or pay any dividend or make any other distribution on the Common
Stock (by reclassification or otherwise than by payment of a dividend in Common
Stock), then and in any such event, Additional Shares of Common Stock shall be
deemed to have been issued:
(A) in the case of any such dividend or
distribution, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend or distribution, or
(B) in the case of any such subdivision, at the
close of business on the date immediately prior to the date upon which such
corporate action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously made
in the Conversion Price which became effective on such record date shall be
canceled as of the close of business on such record date, and thereafter the
Conversion Price shall be adjusted pursuant to this Section 5.3.2(d)(iii) as of
the time of actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5.3.2(d)(iii), but excluding Additional
Shares of Common Stock deemed to be issued pursuant to Section 5.3.2(d)(iii)(2),
which event is dealt with in Section 5.3.2(d)(vi)) without consideration or for
a consideration per share less than the Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Conversion
Price shall be reduced (concurrently with such issue in order to increase the
number of shares into which the Class B Preferred Stock is convertible) to a
price (calculated to the nearest cent) determined by dividing (x) an amount
equal to the sum of (i) the number of shares of Common Stock
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outstanding immediately prior to such issue multiplied by the Conversion Price
in effect immediately prior to such issue, plus (ii) the consideration, if any,
received by the corporation upon such issue, by (y) the sum of the number of
shares of Common Stock outstanding immediately prior to such issue plus the
total number of Additional Shares of Common Stock so issued; provided, however,
the Conversion Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $0.05, 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 $0.05 or more.
(v) Determination of Consideration. For purposes of this
Section 5.3.2(d), the consideration received by the corporation for the issue of
any Additional Shares of Common stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
per share received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5.3.2(d)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or receivable
by the corporation as consideration for the issue of such Options or Convertible
securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the corporation upon the exercise of such options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein
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for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions,
Subdivisions, Combinations or Consolidation of Common Stock.
(A) Stock Dividends, Distributions or Subdivisions. In
the event the corporation shall issue Additional Shares of Common Stock pursuant
to Section 5.2.2(d)(iii)(2) in a stock dividend, stock distribution or
subdivision, the Conversion Price in effect immediately prior to such stock
dividend, stock distribution or subdivision shall, concurrently with the
effectiveness of such stock dividend, stock distribution or subdivision, be
proportionately decreased.
(B) Combinations or Consolidations. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustment for Merger or Reorganization, etc. In
case of any consolidation or merger of the corporation with or into another
corporation or the conveyance of all or substantially all of the assets of the
corporation to another corporation, each share of Class B Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
corporation deliverable upon conversion of such Class B Preferred Stock would
have been entitled upon such consolidation, merger or conveyance; and in any
such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the holders of the Class B Preferred
Stock, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Class B Preferred Stock.
(e) No Impairment. The corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5.3.2 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion Rights of the holders of the
Class B Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
5.3.2, the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Class B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
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The corporation shall, upon the written request at any time of any holder of
Class B Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of Class B Preferred Stock.
(g) Notices of a Record Date. In the event of any taking by
the corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as annual cash dividends
paid in previous years) or other distribution, the corporation shall mail to
each holder of Class B Preferred Stock at least ten (10) days prior to the date
specified herein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Class B Preferred Stock.
5.3.3 Voting Rights. Except as otherwise required by law, the
holders of shares of Class B Preferred Stock shall be entitled to notice of any
shareholders' meeting and to vote upon any matter submitted to a shareholder for
a vote, and the holders of Class B Preferred Stock shall have that number of
votes equal to the number of shares of Common Stock into which such Class B
Preferred Stock is convertible.
5.3.4 Dividend Rights. The holders of outstanding Class B
Preferred Stock shall be entitled to receive dividends when, as, and if declared
by the Board of Directors with respect to such Class B Preferred Stock.
5.3.5 Covenants. So long as any shares of Class B Preferred
Stock shall be outstanding (as adjusted for all subdivisions and combinations),
the corporation shall not, without first obtaining the affirmative vote or
written consent of not less than sixty-seven percent (67%) of such outstanding
shares of Class B Preferred Stock:
(a) amend or repeal any provisions of, or add any provision
to, the corporation's Articles of Incorporation or By-laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Class B Preferred Stock;
(b) reclassify any Common Stock into shares having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Class B Preferred Stock;
(c) pay or declare any dividend or distribution on any shares
of Common Stock or apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock except from
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employees of the corporation upon termination of employment and except pursuant
to the corporation's rights of first refusal; or
(d) create or issue any other series, class or classes of
stock.
5.3.6 Residual Rights. All rights accruing to the outstanding
shares of the corporation not expressly provided for the contrary herein shall
be vested in the Common Stock.
5.4 Class C Preferred Stock - Designation of Rights and Preferences.
The holders of Class C Preferred Stock are vested with the following voting
powers, preferences, conversion rights and other special rights, qualifications,
limitations and restrictions.
5.4.1 Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation, the holders of each share of Class C Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the corporation to the holders of Junior Stock of the
corporation by reason of their ownership thereof, but subordinate and junior to
the interests of the holders of Class D Preferred Stock, Class A Preferred Stock
and Class B Preferred Stock an amount equal to twenty-five cents ($0.25) per
share plus an amount equal to all declared but unpaid dividends with respect to
such share.
All of the preferential amounts to be paid to the holders of the Class
C Preferred Stock under this Section 5.4.1 shall be paid or set apart for
payment after the payment or setting apart for payment of the designated
preferential amounts for Class D Preferred Stock, Class A Preferred Stock and
Class B Preferred Stock (including any accrued but unpaid dividends on Class D
Preferred Stock, Class A Preferred Stock and/or Class B Preferred Stock) and
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the corporation to, the holders of Junior Stock in
connection with such liquidation, dissolution or winding up. After the payment
or the setting apart of payment to the holders of the Class D Preferred Stock,
Class A Preferred Stock and Class B Preferred stock of the preferential amounts
so payable to them, and the payment or setting aside for payment to the holders
of Class C Preferred Stock of the preferential amounts to be payable to them,
the holders of Junior Stock shall be entitled to receive all remaining assets of
the corporation.
If the assets or surplus funds to be distributed to the holders of the
Class C Preferred Stock are insufficient to permit the payment to such holders
of their full preferential amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among the holders of the
Class C Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive with any such distribution allocable
first to amounts payable measured by the amount of declared but unpaid
dividends, if any, with respect to such shares and second to the twenty-five
cents ($0.25) per share preferential amount payable in any event.
As used in this Section 5.4, the term "Junior Stock" means:
(a) Common Stock;
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(b) all those classes and series of preferred or special stock which,
by the terms of the Articles of Incorporation of the corporation (as the same
has heretofore been or may hereafter be amended) shall designate the special
rights and limitations of each such class and series of preferred or special
stock, shall be subordinate to the Class C Preferred Stock with respect to the
right of the holders thereof to receive dividends or to participate in the
assets of the corporation upon any liquidation, dissolution or winding-up of the
corporation.
5.4.2 Conversion. The holders of the Class C Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Class C Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for the Class C Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing twenty-five
cents ($0.25) by the Conversion Price, determined as hereinafter provided, in
effect at the time of conversion. The Conversion Price at which shares of Common
Stock shall be deliverable upon conversion without the payment of any additional
consideration by the holder thereof (the "Conversion Price") shall initially be
One Dollar and Twenty-Five Cents ($1.25) per share of Common Stock. Such initial
Conversion Price shall be subject to adjustment, in order to adjust the number
of shares of Common Stock into which the Class C Preferred Stock is convertible,
as hereinafter provided.
(b) Automatic Conversion. Each share of Class C Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the closing of a firm commitment underwritten public
offering pursuant to effective registration statement under the Securities Act
of 1933 covering the offer and sale of Common Stock for the account of the
corporation to the public at a public offering price of at least five times the
then existing Conversion Price per share and having an aggregate offering price
to the public of not less than $5,000,000 (in the event of which offering, the
person(s) entitled to receive the Common Stock issuable upon such conversion of
the Class C Preferred Stock shall not be deemed to have converted that Class C
Preferred Stock until immediately prior to the closing of such offering). Each
person who holds of record Class C Preferred Stock immediately prior to such
automatic conversion shall be entitled to all dividends which have been declared
prior to the time of the automatic conversion, but not paid on the Class C
Preferred Stock, pursuant to Section 5 hereof. Such dividends shall be paid to
all such holders within thirty (30) days of the automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common stock shall
be issued upon conversion of the Class C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Class C Preferred Stock shall
be entitled to convert the same into full shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the corporation or of any transfer agent for the Class C Preferred Stock, and
shall give written notice to the corporation at
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such office that he elects to convert the same and shall state therein his name
or the name or names of his nominees in which he wishes the certificates or
certificates for shares of Common Stock to be issued. The corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Class C Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of Shares of Common Stock to which he shall be
entitled as aforesaid, together with cash in lieu of any fraction of a share.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Class C Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price of Diluting Issues.
(i) Special Definitions. For purposes of this Section 5.4.2(d), the
following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities provided, however, that options and purchase rights covered by
Section 5.4.2(d)(i)(4)(B) shall not be included in the definition of "Option"
for the purposes of this Section 5.4.2(d).
(2) "Issue Date" shall mean the date of these Articles of
Incorporation.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock, Class A Preferred Stock, Class B
Preferred Stock, and Class C Preferred Stock) or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued (or, pursuant to Section 5.4.2(d)(iii), deemed to be
issued) by the corporation after the Issue Date, and other than shares of Common
Stock issued or issuable:
(A) upon conversion of any class of convertible preferred
stock, including Class A Preferred Stock, Class B Preferred Stock and Class C
Preferred Stock, now or hereafter issued by the corporation;
(B) to officers, directors, or employees of, or
consultants to, the corporation pursuant to a stock purchase or option plan or
other employee or executive stock incentive program (collectively, the "Plans")
approved by the Board of Directors;
(C) by way of dividend or other distribution on shares of
Common Stock excluded from the definition of Additional Shares of Common Stock
by the foregoing clauses (A), (B) or this clause (C) or on any other shares of
Common Stock so excluded.
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(ii) No Adjustment in Conversion Price. No adjustment in the
number of shares of Common Stock into which the Class C Preferred stock is
convertible shall be made, by adjustment in the Conversion Price of Class C
Preferred Stock in respect of the issuance of Additional Shares of Common Stock
or otherwise, unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the corporation is less than the
Conversion Price in effect on the date of, and immediately prior to the issue of
such Additional Share.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
(1) Options and Convertible Securities. In the event the
corporation at any time or from time to time shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 5.4.2(d)(v) hereof), of such Additional Shares
of Common Stock would be less than the Conversion Price in effect on the date of
and immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
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(I) In the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
corporation for the issue of all such Options, whether or not exercised, plus
the additional consideration, if any, actually received by the corporation upon
such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the corporation
(determined pursuant to Section 5.4.2(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock (other than shares in respect of which the
readjustment is being made) between the original adjustment date and such
readjustment date;
(E) in the case of any Options which expire by their
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the expiration of
exercise of all such Options, whereupon such adjustment shall be made in the
same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and such
options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price which became effective on
such record date shall be canceled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted pursuant to this
Section 5.4.2(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and Subdivisions.
In the event the corporation at any time or from time to time after the Issue
Date shall declare or pay any dividend or make any other distribution on the
Common Stock (by reclassification or otherwise than by payment of a dividend in
Common Stock), then and in any such event, Additional Shares of Common Stock
shall be deemed to have been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend or
distribution, or
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(B) in the case of any such subdivision, at the close
of business on the date immediately prior to the date upon which such corporate
action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously made
in the Conversion Price which became effective on such record date shall be
canceled as of the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this Section 5.4.2(d)(iii) as of
the time of actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the corporation shall issue
Additional Shares of Common Stock (including Additional Shares of common stock
deemed to be issued pursuant to Section 5.4.2(d)(iii), but excluding Additional
Shares of Common Stock deemed to be issued pursuant to Section 5.4.2(d)(iii)(2),
which event is dealt with in Section 5.4.2(d)(vi)) without consideration or for
a consideration per share less than the Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Conversion
Price shall be reduced (concurrently with such issue in order to increase the
number of shares into which the Class C Preferred Stock is convertible) to a
price (calculated to the nearest cent) determined by dividing (x) an amount
equal to the sum of (i) the number of shares of Common Stock outstanding
immediately prior to such issue multiplied by the Conversion Price in effect
immediately prior to such issue, plus (ii) the consideration, if any, received
by the corporation upon such issue, by (y) the sum of the number of shares of
Common Stock outstanding immediately prior to such issue plus the total number
of Additional Shares of Common Stock so issued; provided, however, the
Conversion Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $0.05, 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 $0.05 or more.
(v) Determination of Consideration. For purposes of this
Section 5.4.2(d), the consideration received by the corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
corporation for
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consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (1) and (2) above, as determined in
good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
per share received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5.4.2(d)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or receivable
by the corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such options or the conversion or exchange of such Convertible
Securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions,
Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or Subdivisions. In the
event the corporation shall issue Additional Shares of Common Stock pursuant to
Section 5.4.2(d)(iii)(2) in a stock dividend, stock distribution or subdivision,
the Conversion Price in effect immediately prior to such stock dividend, stock
distribution or subdivision shall, concurrently with the effectiveness of such
stock dividend, stock distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into at lesser number of shares of Common Stock,
the conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustment for Merger or reorganization, etc. In case of
any consolidation or merger of the corporation with or into another corporation
or the conveyance of all or substantially all of the assets of the corporation
to another corporation, each share of Class C Preferred Stock shall thereafter
be convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
corporation deliverable upon conversion of such Class C Preferred Stock would
have been entitled upon such consolidation, merger or conveyance; and in any
such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the
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provisions herein set forth with respect to the rights and interest thereafter
of the holders of the Class C Preferred Stock, to the end that the provisions
set forth herein (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Class C Preferred Stock.
(e) No Impairment. The corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5.4.2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Class C Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
5.4.2, the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Class C Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Class C Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Class C Preferred Stock.
(g) Notices of Record Date In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as annual cash dividends
paid in previous years) or other distribution, the corporation shall mail to
each holder of Class C Preferred Stock at least ten (10) days prior to the date
specified herein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved The corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Class C Preferred Stock.
5.4.3 Voting Rights Except as otherwise required by law, the
holders of shares of Class C Preferred Stock shall be entitled to notice of any
shareholders' meeting and to vote upon any matter submitted to a shareholder for
a vote, and the holders of Class C Preferred Stock shall have that number of
votes equal to the number of shares of Common Stock into which such Class C
Preferred Stock is convertible.
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5.4.4 Dividend Rights. The holders of outstanding Class C
Preferred Stock shall be entitled to receive dividends when, as, and if declared
by the Board of Directors with respect to such Class C Preferred Stock.
5.4.5 Covenants So long as any shares of Class C Preferred
Stock shall be outstanding (as adjusted for all subdivisions and combinations),
the corporation shall not, without first obtaining the affirmative vote or
written consent of not less than sixty-seven percent (67%) of such outstanding
shares of Class C Preferred Stock:
(a) amend or repeal any provisions of, or add any provision
to, the corporation's Article of Incorporation or By-laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Class C Preferred Stock;
(b) reclassify any Common Stock into shares having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Class C Preferred Stock;
(c) pay or declare any dividend or distribution on any shares
of Common Stock or apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock except from employees of the
corporation upon termination of employment and except pursuant to the
corporation's rights of first refusal; or
(d) create or issue any other series, class or classes of
stock.
5.4.6 Residual Rights. All rights accruing to the outstanding
shares of the corporation not expressly provided for the contrary herein shall
be vested in the Common Stock.
5.5 Class D Preferred Stock-Designation of Rights and Preferences. The
holders of Class D Preferred Stock are vested with the following voting powers,
preferences conversion rights and other special rights, qualifications,
limitations and restrictions.
5.5.1 Liquidation Rights In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation, the holders of each share of Class D Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the corporation to the holders of Junior Stock (as
defined below) of the corporation by reason of their ownership thereof, an
amount equal to One Dollar ($1.00) per share plus an amount equal to all accrued
but unpaid dividends with respect to such share.
All of the preferential amounts to be paid to the holders of the Class
D Preferred Stock under this Section 5.5.1 shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of the corporation to, the holders of Junior
Stock in connection with such liquidation, dissolution or winding up. After the
payment or the setting apart of payment to the holders of the Class D Preferred
Stock of the preferential
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amounts so payable to them, the holders of Junior Stock shall be entitled to
receive all remaining assets of the corporation in accordance with their
respective relative priorities and preferences.
If the assets or surplus funds to be distributed to the holders of the
Class D Preferred Stock are insufficient to permit the payment to such holders
of their full preferential amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among the holders of the
Class D Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive with any such distribution allocable
first to amounts payable measured by the amount of accrued but unpaid dividends
with respect to such shares and second to the One Dollar ($1.00) per share
preferential amount payable in any event. In the event that assets or surplus
funds are distributed to the holders of the Class D Preferred Stock under this
Section 5.5.1 prior to the final liquidating distribution in an amount allocable
to the One Dollar ($1.00) per share preferential amount payable in any event,
dividends in respect of such shares shall continue to accrue but shall be
reduced in proportion to the amount of such One Dollar ($1.00) per share
preferential amount which has theretofore been distributed.
A reorganization, consolidation or merger of the corporation of a sale
of all or substantially all of the assets of the corporation in which all of the
shareholders of the corporation immediately prior to such transaction own less
than 50% of the voting securities after such transaction, shall be deemed to be
a liquidation, dissolution or winding up, within the meaning of this Section
5.5.1 except in the event that the holders of at least a majority of the
outstanding shares of Class D Preferred Stock vote that any such event shall not
be deemed to be a liquidation, dissolution or winding up of the corporation.
As used in this Section 5.5, the term "Junior Stock" means:
(a) Common Stock, Class A Preferred Stock, Class B Preferred Stock and
Class C Preferred Stock, and
(b) all those classes and series of preferred or special stock which,
by the terms of the Articles of Incorporation of the corporation (as the same
has heretofore been or may hereafter be amended) shall designate the special
rights an limitation of each such class and series of preferred or special
stock, shall be subordinate to the Class D Preferred Stock with respect to the
right of the holders thereof to receive dividends or to participate in the
assets of the corporation upon any liquidation, dissolution or winding-up of the
corporation.
5.5.2 Conversion. The holders of the Class D Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Rights to Convert. Each share of Class D Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for the Class D Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing One Dollar
($1.00) by the Conversion Price, determined as hereinafter provided, in effect
at the time of conversion. The Conversion Price at which shares of Common Stock
shall be deliverable upon conversion without
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the payment of any additional consideration by the holder thereof (the
"Conversion Price") shall initially be Three Dollars and Seventy-Five Cents
($3.75) per share of Common Stock. Such initial Conversion Price shall be
subject to adjustment, in order to adjust the number of shares of Common Stock
into which the Class D Preferred Stock is convertible, as hereinafter provided.
Each holder who so converts Class D Preferred Stock shall not be entitled to
any dividends which have accrued pursuant to Section 5.5.5 hereof to the time
of the conversion but have not been paid prior to such conversion.
(b) Automatic Conversion. Each share of Class D Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon (i) the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933 covering the offer and sale of Common Stock for the account of the
corporation to the public at a public offering price to the public of not less
than $5,000,000 (in the event of which offering, the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Class D Preferred
Stock shall not be deemed to have converted that Class D Preferred Stock until
immediately prior to the closing of such offering) or (ii) the vote approving
such conversion by holders of at least a majority of the outstanding shares of
Class D Preferred Stock. Each person who holds of record Class D Preferred Stock
immediately prior to such automatic conversion shall be entitled to all
dividends which have accrued to the time of the automatic conversion, but not
paid on the Class D Preferred Stock, pursuant to Section 5.5.4 hereof. Such
dividends shall be paid to all such holders within thirty (30) days of the
automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of the Class D Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction, multiplied by the then
effective Conversion Price. Before any holder of Class D Preferred Stock shall
be entitled to convert the same into full shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the corporation or of any transfer agent for the Class D Preferred Stock, and
shall give written notice to the corporation at such office that he elects to
convert the same and shall state therein his name or the name or names of his
nominees in which he wishes the certificate or certificates for shares of Common
Stock to be issued. The corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Class D Preferred stock, or
to his nominee or nominees, a certificate or certificates for the number of
Shares of Common Stock to which he shall be entitled as aforesaid, together with
cash in lieu of any fraction of a share. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Class D Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(d) Adjustments of Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Section
5.5.2(d), the following definitions shall apply:
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(1) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities provided, however, that options and purchase rights covered by
Section 5.5.2(d)(i)(4)(B) shall not be included in the definition of "option"
for purposes of this Section 5.5.2(d).
(2) "Original Issue Date" shall mean the date of these
Articles of Incorporation.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Class D Preferred Stock) or
other securities directly or indirectly convertible into or exchangeable for
Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5.5.2(d)(iii), deemed to
be issued) by the corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable:
(A) upon conversion of shares of the corporation's
Class A, B and C Preferred Stock outstanding on the date of these Articles of
Incorporation; or
(B) to officers, directors, or employees of, or
consultants to, the corporation pursuant to a stock purchase or option plan or
other employee or executive stock incentive program (collectively, the "Plans")
approved by the Board of Directors.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Class D Preferred Stock is
convertible shall be made, by adjustment in the Conversion Price of Class D
Preferred Stock in respect of the issuance of Additional Shares of Common Stock
or otherwise, unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the corporation is less than the
Conversion Price in effect on the date of, and immediately prior to, the
issuance of such Additional Share.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
(1) Options and Convertible Securities. In the event the
corporation at any time or from time to time shall issue any Options or
Convertible Securities or shall fix a record date fore, the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 5.5.2(d)(v) hereof), of such Additional Shares
of Common Stock would be less than the Conversion Price in effect on the date of
and immediately prior to such issue, or such record date,
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as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of times of otherwise, for any increase in the
consideration payable to the corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflected such increase or decrease insofar as it
affects such options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such options, and the
consideration received by the corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the corporation
(determined pursuant to Section 5.5.2(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock (other than shares in respect of which the
readjustment is being made) between the original adjustment date and such
readjustment date;
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(E) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner provided in
clause (C) above; and
(F) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price which became effective on
such record date shall be canceled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted pursuant to this
Section 5.5.2(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and Subdivisions.
In the event the corporation at any time or from time to time after the Original
Issue Date shall declare or pay any dividend or make any other distribution on
the Common Stock payable in Common Stock, or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such event, Additional
Shares of Common Stock shall be deemed to have been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend or
distribution, or
(B) in the case of any such subdivision, at the close
of business on the date immediately prior to the date upon which such corporate
action becomes effective.
If such record date Shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously made
in the Conversion Price which became effective on such record date shall be
canceled as of the close of business on such record date, and thereafter the
Conversion Price shall be adjusted pursuant to this Section 5.5.2(d)(iii) as of
the time of actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5.5.2(d)(iii), but excluding Additional
Shares of Common Stock deemed to be issued pursuant to Section 5.4.2(d)(iii)(2),
which event is dealt with in Section 5.5.2(d)(vi)) without consideration or for
a consideration per shares less than the Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Conversion
Price shall be reduced, concurrently with such issue in order to increase the
number of shares into which the Class D Preferred Stock is convertible, to a
price (calculated to the nearest cent) determined by dividing (x) an amount
equal to the sum of (i) the number of shares of Common Stock outstanding
immediately prior to such issue multiplied by the Conversion Price in effect
immediately prior to such issue, plus (ii) the consideration, if any, received
by the corporation upon such issue, by (y) the sum of the number of shares of
Common Stock outstanding immediately prior to the such issue plus the total
number of Additional Shares of Common Stock
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so issued; provided, however, the Conversion Price shall not be so reduced at
such time if the amount of such reduction would be a amount less than $0.05, 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
any subsequent reduction which, together with such amount and any other amount
or amounts so carried forward, shall aggregate $0.05 or more.
(v) Determination of Consideration. For purposes of this
Section 5.5.2(d), the consideration received by the issue of any Additional
Shares of Common stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with the other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
per share received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5.5.2(d)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
corporation as consideration for the issue of such options of Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of options for Convertible
Securities, the exercise of such options for Convertible Securities and the
conversion or exchange or such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions,
Combinations or Consolidation of Common Stock.
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(1) Stock Dividends, Distributions or Subdivisions. In the
event the corporation shall issue Additional Shares of Common Stock pursuant to
Section 5.5.2(d)(iii)(2) in a stock dividend, stock distribution or subdivision,
the Conversion Price in effect immediately prior to such stock dividend, stock
distribution or subdivision shall, concurrently with the effectiveness of such
stock dividend, stock distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustment for Merger or Reorganization, etc. In case of
any consolidation or merger of the corporation with or into another corporation
or the conveyance of all or substantially all of the assets of the corporation
to another corporation, each share of Class D Preferred Stock shall thereafter
be convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
corporation deliverable upon conversion of such Class D Preferred Stock would
have been entitled upon such consolidation, merger or conveyance; and, in any
such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the holders of the Class D Preferred
Stock, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Class D Preferred Stock.
(e) No Impairment. The corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5.5.2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Class D Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant this Section 5.5.2,
the corporation at is expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Class D Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Class D Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Class D Preferred Stock.
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(g) Notices of Record Date. In the event of any taking by the
corporation of a record of the holder 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 which is the same as annual cash dividends paid in
previous years) or other distribution, the corporation shall mail to each holder
of Class D Preferred Stock at least ten (10) days prior to the date specified
herein, a notice specifying the date on which any such record is be taken for
the purpose of such dividend or distribution.
(h) Common Stock Reserved. The corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Class D Preferred Stock.
5.5.3 Voting Rights. Except as otherwise required by law, the
holder of shares of Class D Preferred Stock shall be entitled to notice of any
shareholders' meeting and to vote upon any matter submitted to shareholders for
a vote, and the holders of Class D Preferred Stock shall have that number of
votes equal to the number of shares of Common Stock into which such Class D
Preferred Stock is convertible.
5.5.4 Dividend Rights.
(a) The holders of outstanding Class D Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, dividends
at the annual rate of $.08 per share. Such dividends shall be cumulative and
shall accrue annually on each outstanding share of Class D Preferred Stock,
whether or not declared, beginning on the day when such share is issued. Such
dividends shall be payable, whenever funds are legally available therefor, and
when not legally available therefore whether pursuant to the prior sentence or
otherwise, shall be cumulative. So long as any Class D Preferred Stock is
outstanding, no dividends whatsoever shall be paid, nor shall any distribution
be made, on any Junior Stock, other than a dividend or distribution payable in
such Junior Stock or warrants or other rights to purchase such Junior Stock, nor
shall any shares of Junior Stock be purchased, redeemed or otherwise acquired
for a consideration by this corporation or any subsidiary thereof unless all
accrued but unpaid dividends on Class D Preferred Stock for all past dividend
periods shall have been paid.
(b) Notwithstanding any provisions in Section 5.5.4(a) hereof,
dividends which have accrued on the Class D Preferred Stock but not been paid
prior to a conversion pursuant to Section 5.5.2(b) hereof shall be payable
within thirty (30) days of the closing or vote contemplated by Section 5.5.2(b),
to each person holds of record Class D Preferred Stock immediately prior to the
automatic conversion.
5.5.5 Covenants.
So long as any shares of Class D Preferred Stock shall be outstanding
(as adjusted for all subdivisions and combinations), the corporation shall not:
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(a) without first obtaining the affirmative vote or written consent of
not less than seventy-five percent (75%) of such outstanding shares of Class D
Preferred Stock:
(i) amend or repeal any provision of, or add any provision to, the
corporation's Articles of Incorporation or By-laws if such action would alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Class D Preferred Stock;
(ii) reclassify any Common Stock into shares having any preference
or priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Class D Preferred Stock;
(iii) pay or declare any dividend or distribution on any shares of
Common Stock or apply any of its assets to the redemption, retirement, purchase
or other acquisition directly or indirectly, through subsidiaries or otherwise,
of any shares of Common Stock except from employees of the corporation upon
termination of employment and except pursuant to the corporation's rights of
first refusal; or
(iv) create or issue any other series, class or classes or stock
having any preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the Class D Preferred Stock.
(b) without first obtaining the affirmative vote or written consent of
not less a majority of such outstanding shares of Class D Preferred Stock
increase the authorized number or issue any additional shares of the Class A, B
or C Preferred Stock.
5.5.6 Residual Rights.
All rights accruing to the outstanding shares of the corporation not
expressly provided for to the contrary herein shall be vested in the Common
Stock.
ARTICLE 6. PREEMPTIVE RIGHTS
Shareholders of this corporation have no preemptive rights to acquire
additional shares of stock or securities convertible into shares of stock issued
by the corporation.
ARTICLE 7. DIRECTORS
7.1 Number of Directors. The number of directors of this corporation
shall be fixed in the manner specified by the bylaws of this corporation. The
first director of the corporation is one (1) in number and his name and
address is:
W. Robert Berg
14500 Northwest 87th Street
Redmond, Washington 98052
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The first director shall serve until the first annual meeting of the
shareholders and until his successors are elected and qualified.
7.2 Removal. Any director or the entire Board of Directors may be
removed from office at any time, at a duly called special meeting of
shareholders, by the affirmative vote of shareholders which satisfies the
requirements of Article 11 applicable to amendment, modification, or repeal of
these Articles.
7.3 Vacancies. Vacancies in the Board of Directors, including vacancies
resulting from an increase in the number of directors, shall be filled by a
majority of the directors then in office, though less than a quorum, by the sole
remaining director or by action of the shareholders. All directors elected to
fill vacancies shall hold office for a term expiring at the next annual meeting
of shareholders, but shall continue to serve despite the expiration of the
director's term until his or her successor shall have been elected and qualified
or until there is a decrease in the number of directors. No decrease in the
number of directors constituting the Board of Directors shall shorten or
eliminate the term of any incumbent director.
ARTICLE 8. CUMULATIVE VOTING
Shareholders of this corporation shall not have the right to cumulate
votes in the election of directors.
ARTICLE 9. LIMITATION OF DIRECTOR LIABILITY
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for conduct as a director,
except for:
(a) Acts or omissions involving intentional misconduct by the
director or a knowing violation of law by the director;
(b) Conduct violating RCW 23B.08.310 (which involves certain
distributions by the corporation);
(c) Any transaction from which the director will personally
receive a benefit in money, property, or services to which the
director is not legally entitled.
If the Washington Business Corporation Act is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Washington Business
Corporation Act, as so amended. Any repeal or modification of the foregoing
paragraph by the shareholders of the corporation shall not adversely affect any
right or protection of a director of the corporation with respect to any acts or
omissions of such director occurring prior to such repeal or modification.
ARTICLE 10. INDEMNIFICATION OF DIRECTORS
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10.1 Indemnification. The corporation shall indemnify its directors to
the full extent permitted by the Washington Business Corporation Act now or
hereafter in force. However, such indemnity shall not apply on account of:
(a) Acts or omissions of the director finally adjudged to be
intentional misconduct or a knowing violation of law;
(b) Conduct of the director finally adjudged to be in violation of
RCW 23B.08.310; or
(c) Any transaction with respect to which it was finally adjudged
that such director personally received a benefit in money,
property, or services to which the director was not legally
entitled.
The corporation shall advance expenses for such persons pursuant to the terms
set forth in the Bylaws, or in a separate directors' resolution or contract.
10.2 Authorization. The Board of Directors may take such action as is
necessary to carry out these indemnification and expense advancement provisions.
It is expressly empowered to adopt, approve, and amend from time to time such
Bylaws, resolutions, contracts, or further indemnification and expense
advancement arrangements as may be permitted by law, implementing these
provisions. Such Bylaws, resolutions, contracts or further arrangements shall
include but not be limited to implementing the manner in which determinations as
to any indemnity or advancement of expenses shall be made.
10.3 Amendment. No amendment or repeal of this Article shall apply to
or have any effect on any right to indemnification provided hereunder with
respect to acts or omissions occurring prior to such amendment or repeal.
ARTICLE 11 MISCELLANEOUS
11.1 Repeal of and Amendment to Articles of Incorporation. Unless
otherwise provided herein, the provisions of these Articles of Incorporation may
be repealed or amended upon the affirmative vote of the holders of not less than
a majority of the outstanding shares of capital stock of the corporation. The
provisions set forth in Section 7.1 of Article 7, Article 9, Article 10 and this
sentence of Section 11.1 of Article 11 herein may not be repealed or amended in
any respect unless such action is approved by the affirmative vote of the
holders of not less than 66-2/3% of the outstanding shares of capital stock of
the corporation.
11.2 Repeal of and Amendment to Bylaws. In furtherance and not in
limitation of the powers conferred by the Washington Business Corporation Act,
the Board of Directors is expressly authorized to make, adopt, repeal, alter,
amend, and rescind the Bylaws of the corporation by a resolution adopted by a
majority of the directors. The shareholders shall also have the power to adopt,
amend or repeal the Bylaws of the corporation as set forth therein.
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11.3 Special Meetings of Shareholders. Special meetings of the
shareholders of the corporation for any purpose may be called at any time by the
Board of Directors or an authorized committee of the Board of Directors, but
such special meetings may not be called by any other person or persons.
ARTICLE 12. INCORPORATOR
The name and address of the incorporator is:
Robert Vallelunga 5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
The undersigned incorporator has signed these Articles of Incorporation
as duplicate signed originals on October 1, 1996.
/s/ Robert Vallelunga
______________________________
Robert Vallelunga
Incorporator
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CONSENT TO SERVE AS REGISTERED AGENT
PTSGE Corp hereby consents to serve as Registered Agent in the State of
Washington for SeaMED Acquisition Corp. I understand that as agent for the
corporation, it will be my responsibility to receive service of process in the
name of the corporation; to forward all mail to the corporation; and to
immediately notify the Office of the Secretary of State in the event of my
resignation, or of any changes in the registered office of the corporation for
which I am agent.
October 1, 1996 PTSGE Corp
By: /s/ Robert Vallelunga
__________________________________
Robert Vallelunga, Vice President
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EXHIBIT 3.2
B Y L A W S
OF
SEAMED ACQUISITION CORP.
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. An annual meeting of the shareholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the date and at the
time determined by the Board of Directors. The failure to hold an annual meeting
at the time fixed in accordance with these Bylaws does not affect the validity
of any corporate action.
Section 2. Special Meetings. Except as otherwise provided by law,
special meetings of shareholders of this Corporation shall be held whenever
called by the Board of Directors or an authorized committee of the Board of
Directors in accordance with the provisions of these Bylaws.
Section 3. Place of Meetings. Meetings of shareholders shall be held at
such place within or without the State of Washington as determined by the Board
of Directors, pursuant to proper notice.
Section 4. Notice. Written notice of each shareholders' meeting stating
the date, time, and place and, in case of a special meeting, the purpose(s) for
which such meeting is called, shall be given by the Corporation not less than
ten (10) (unless a greater period of notice is required by law in a particular
case) nor more than sixty (60) days prior to the date of the meeting, to each
shareholder of record entitled to vote at such meeting unless required by law to
send notice to all shareholders regardless of whether or not such shareholders
are entitled to vote, to the shareholder's address as it appears on the current
record of shareholders of this Corporation.
Section 5. Waiver of Notice. A shareholder may waive any notice
required to be given by these Bylaws, the Articles of Incorporation of this
Corporation, as amended and restated from time to time (the "Articles of
Incorporation"), or the Washington Business Corporation Act, as amended from
time to time (the "Act"), before or after the meeting that is the subject of
such notice. A valid waiver is created by any of the following three methods:
(a) in writing, signed by the shareholder entitled to the notice and delivered
to the Corporation for inclusion in its corporate records; (b) attendance at the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; or (c) as to the
consideration of a particular matter that is not within the purpose or purposes
described in the meeting notice, the shareholders' failure to object at the time
of presentation of such matter for consideration.
<PAGE> 2
Section 6. Quorum of Shareholders. At any meeting of the shareholders,
holders of a majority of the votes of all of the shares entitled to vote on a
matter, represented by shareholders of record in person or by proxy, shall
constitute a quorum.
Once a share is represented at a meeting, other than to object to
holding the meeting or transacting business, it is deemed to be present for
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for the adjourned meeting. At
such reconvened meeting, any business may be transacted that might have been
transacted at the meeting as originally noticed.
If a quorum exists, action on a matter is approved if the votes cast
favoring the action exceed the votes cast opposing the action, unless the
question is one upon which by express provision of law or of the Articles of
Incorporation a different vote is required.
Section 7. Proxies. Shareholders of record may vote at any meeting
either in person or by proxy executed in writing. A proxy is effective when
received by the Secretary of the Corporation or another officer or agent of the
Corporation authorized to tabulate votes for the Corporation. A proxy is valid
for eleven (11) months unless a longer period is expressly provided in the
proxy.
Section 8. Voting. Subject to the Act and unless otherwise provided in
the Articles of Incorporation, each outstanding share of Common Stock is
entitled to one (1) vote on each matter voted on at a shareholders' meeting,
with all shares voting together as a single class.
Section 9. Adjournment. A majority of the shares represented at the
meeting, even if less than a quorum, may adjourn any meeting of the shareholders
from time to time. At a reconvened meeting at which a quorum is present, any
business may be transacted at the meeting as originally noticed. If a meeting is
adjourned to a different date, time, or place, notice need not be given of the
new date, time, or place if a new date, time, or place is announced at the
meeting before adjournment; however, if a new record date for the adjourned
meeting is or must be fixed in accordance with the Act, notice of the adjourned
meeting must be given to persons who are shareholders as of the new record date.
Section 10. Advance Notice Requirements for Shareholder Proposals and
Director Nominations. Any shareholder seeking to bring business before or to
nominate a director or directors at any meeting of shareholders, must provide
written notice thereof in accordance with this Section 10. The notice must be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not less than (i) with respect to an annual meeting of shareholders,
120 calendar days in advance of the one-year anniversary of the date that the
Corporation's proxy statement was released to shareholders in connection with
the previous year's annual meeting, except that if no annual meeting of
shareholders was held in the previous year or if the date of the annual meeting
has been changed by more than 30 calendar days from the date contemplated at the
time of the previous year's proxy statement, such notice must be received by the
Corporation a reasonable time before the Corporation's proxy statement is to be
released, and
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(ii) with respect to a special meeting of shareholders, a reasonable time before
the Corporation's proxy statement is to be released.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Powers of Directors. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the Corporation
shall be managed under the direction of, the Board of Directors, except as
otherwise provided by the Articles of Incorporation.
Section 2. Number and Qualifications. The number of directors which
shall constitute the whole Board shall be not less than one (1) director nor
more than nine (9) directors. The number of directors may at any time be
increased or decreased within such range by the shareholders or by the Board of
Directors at any regular or special meeting. Directors must have reached the age
of majority. The Board of Directors shall initially consist of seven (7)
directors.
Section 3. Election - Term of Office. The directors shall be elected by
the shareholders at each annual shareholders' meeting to hold office until the
next annual meeting of the shareholders, but shall continue to serve despite the
expiration of the director's term until their respective successors are elected
and qualified or until there is a decrease in the number of directors. If, for
any reason, the directors shall not have been elected at any annual meeting,
they may be elected at a special meeting of shareholders called for that purpose
in the manner provided by these Bylaws.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held immediately following each annual meeting of shareholders and at
such other times and at such places as the Board may determine.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held at any time, whenever called by the Chairman of the Board,
President, Chief Executive Officer, or any director, notice thereof being given
to each director by the officer calling or directed to call the meeting.
Section 6. Notice. No notice is required for regular meetings of the
Board of Directors. Notice of special meetings of the Board of Directors,
stating the date, time, and place thereof, shall be given at least three (3)
days prior to the date of the meeting. The purpose of the meeting need not be
given in the notice. Such notice shall be given in the manner provided by
Section 3 of Article III of these Bylaws.
Section 7. Waiver of Notice. A director may waive notice of a special
meeting of the Board either before or after the meeting, and such waiver shall
be deemed to be the equivalent of giving such notice. Attendance of a director
at or participation in a meeting shall constitute waiver of notice of that
meeting unless said director, at the beginning of the meeting, or promptly
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upon such director's arrival, objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting. Any waiver by a non-attending director must be in writing,
signed by the director entitled to the notice and delivered to the Corporation
for inclusion in its corporate records.
Section 8. Quorum of Directors. A majority of the members of the Board
of Directors shall constitute a quorum for the transaction of business. When a
quorum is present at any meeting, a majority of the members present thereat
shall decide any question brought before such meeting, except as otherwise
provided by the Articles of Incorporation or by these Bylaws.
Section 9. Adjournment. A majority of the directors present, even if
less than a quorum, may adjourn a meeting and continue it to a later time.
Notice of the adjourned meeting or of the business to be transacted thereat,
other than by announcement, shall not be necessary. At any adjourned meeting at
which a quorum is present, any business may be transacted which could have been
transacted at the meeting as originally called.
Section 10. Resignation and Removal. Any director of this Corporation
may resign at any time by giving written notice to the Board of Directors, its
Chairman, or the President or Secretary of this Corporation. Any such
resignation is effective when the notice is delivered, unless the notice
specifies a later effective date. A director or the entire Board of Directors
may be removed as prescribed in the Articles of Incorporation.
Section 11. Vacancies. Unless otherwise provided by law, vacancies in
the Board of Directors shall be filled by a majority of the directors then in
office, though less than a quorum, by the sole remaining director or by action
of the shareholders.
Section 12. Compensation. By resolution of the Board of Directors, each
director may be paid expenses, if any, of attendance at each meeting of the
Board of Directors (and each meeting of any committees thereof), and may be paid
a stated salary as director, or a fixed sum for attendance at each meeting of
the Board of Directors (and each meetings of any committee thereof), or both. No
such payment shall preclude any director from serving this Corporation in any
other capacity and receiving compensation therefor.
Section 13. Presumption of Assent. A director of this Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless:
a. The director objects at the beginning of the meeting, or
promptly upon the director's arrival, to holding it or transacting business at
the meeting;
b. The director's dissent or abstention from the action taken
is entered in the minutes of the meeting; or
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c. The director delivers written notice of dissent or
abstention to the presiding officer of the meeting before its adjournment or to
the Corporation within a reasonable time after adjournment.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 14. Committees of the Board of Directors. The Board of
Directors is expressly authorized to create one or more committees of directors
in accordance with the provisions of Section 23B.08.250 of the Act. Each
committee must have two or more members, who serve at the pleasure of the Board
of Directors. The creation of a committee and appointment of members to it must
be approved by a majority of all the directors in office when such action is
taken or such other number of directors as may be required by Section
23B.08.250(2) of the Act. To the extent specified by the Board of Directors or
in the Articles of Incorporation or these Bylaws, each committee may exercise
the authority of the Board of Directors under Section 23B.08.010 of the Act;
provided, however, a committee may not: (a) authorize or approve a distribution
except according to a general formula or method prescribed by the Board of
Directors, (b) approve or propose to shareholders action that is required by the
Act to be approved by shareholders; (c) fill vacancies on the Board of Directors
or on any of its committees, (d) amend the Articles of Incorporation pursuant to
Section 23B.10.020 of the Act, (e) adopt, amend or repeal these Bylaws, (f)
approve a plan of merger not requiring shareholder approval or (g) authorize or
approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences, and limitations of a class or
series of shares, except that, in the case of this clause (g), the Board of
Directors may authorize a committee, or a senior executive officer of the
corporation, to do so within limits specifically prescribed by the Board of
Directors.
ARTICLE III
SPECIAL MEASURES APPLYING TO
SHAREHOLDER AND/OR DIRECTOR ACTIONS
Section 1. Action by Written Consent. Any action required or permitted
to be taken at a meeting of the shareholders or the Board of Directors may be
accomplished without a meeting if the action is taken by all the shareholders
entitled to vote thereon, or all the members of the Board, as the case may be.
The action must be evidenced by one or more written consents describing the
action taken, signed by all the shareholders entitled to vote thereon, or by all
directors, as the case may be, either before or after the action is taken, and
delivered to the Corporation for inclusion in the minutes or filing with the
Corporation's records.
Action taken by unanimous written consent of the shareholders is
effective when all consents have been delivered to the Corporation, unless the
consent specifies a later effective date. Action taken by unanimous written
consent of the Board of Directors is effective when the last director signs the
consent, unless the consent specifies a later effective date.
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<PAGE> 6
Section 2. Conference Telephone. Meetings of the shareholders and Board
of Directors may be effectuated by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other during the meeting. Participation by such means
shall constitute presence in person at such meeting.
Section 3. Oral and Written Notice. Oral notice of a meeting of the
Board of Directors may be communicated in person or by telephone, wire or
wireless equipment that does not transmit a facsimile of the notice. Oral notice
is effective when communicated if communicated in a comprehensible manner.
Written notice may be transmitted by mail, reputable overnight or
express delivery service, or personal delivery; telegraph or teletype; or
telephone, wire, or wireless equipment that transmits a facsimile of the notice.
Written notice in a comprehensible form is effective at the earliest of the
following:
(a) when dispatched by telegraph, teletype or facsimile
equipment, if such notice is sent to the person's address, telephone number or
other number appearing on the records of the Corporation;
(b) when received;
(c) when mailed, if mailed with first-class postage prepaid
and correctly addressed to the shareholder's address shown in the Corporation's
current record of shareholders;
(d) the day of delivery as shown on the delivery receipt or
acknowledgment if delivered by reputable overnight or express delivery service;
or
(e) on the date shown on the return receipt, if sent by
registered or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee.
ARTICLE IV
OFFICERS
Section 1. Positions. The officers of this Corporation may consist of a
Chairman of the Board of Directors, President, Chief Executive Officer, one or
more Vice Presidents, a Chief Financial Officer, a Secretary, one or more
Assistant Secretaries, a Controller and a Treasurer, as appointed by the Board.
In addition, the Board of Directors may choose such other officers and
assistant officers to perform such duties as from time to time may be assigned
to them by the Board of Directors. The Board of Directors may delegate to any
other officer of the Corporation the power to choose such other officers and
assistant officers and to prescribe their respective duties and powers. No
officer need be a shareholder or a director of this Corporation. Any two or more
offices may be held by the same person.
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Section 2. Appointment and Term of Office. The officers of this
Corporation shall be appointed annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
shareholders. If officers are not appointed at such meeting, such appointment
shall occur as soon as possible thereafter. Each officer shall hold office until
a successor shall have been appointed and qualified or until said officer's
earlier death, resignation, or removal.
Section 3. Powers and Duties. If the Board of Directors appoints
persons to fill the following officer positions, such officer shall have the
powers and duties set forth below:
a. Chairman of the Board of Directors. The Chairman of the
Board of Directors shall preside at all meetings of the shareholders and of the
Board of Directors. The Chairman of the Board of Directors shall possess the
same power as the President to sign all bonds, deeds, mortgages and any other
agreements, and such signature shall be sufficient to bind this Corporation.
During the absence or disability of the President, the Chairman of the Board of
Directors shall exercise all the powers and discharge all the duties of the
President. The Chairman of the Board of Directors shall also perform such other
duties as the Board of Directors shall designate.
b. President. The President shall, subject to the direction
and control of the Board of Directors, have general supervision of the business
of this Corporation. Unless the Chairman of the Board of Directors has been
appointed and is present, the President shall preside at meetings of the
shareholders and of the Board of Directors.
The President, or such other persons as are specifically authorized by
resolution of the Board of Directors, shall possess the power to sign all bonds,
deeds, mortgages, and any other agreements, and such signatures shall be
sufficient to bind this Corporation. The President shall perform such other
duties as the Board of Directors shall designate.
c. Chief Executive Officer. The Chief Executive Officer shall,
together with the President, and subject to the direction and control of the
Board of Directors, have general supervision of the business of the Corporation.
The Chief Executive Officer shall, in the absence of the Chairman of the Board
of Directors and the President, preside at all meetings of shareholders and of
the Board of Directors.
The Chief Executive Officer may sign all bonds, deeds, mortgages, and
any other agreements, and such signature shall be sufficient to bind this
Corporation. The Chief Executive Officer shall perform such other duties as the
Board of Directors shall designate.
d. Vice Presidents. Each Vice President shall have such powers
and discharge such duties as may be assigned from time to time to such Vice
President by the Board of Directors, the Chairman of the Board of Directors, the
President or the Chief Executive Officer. The Board of Directors may select a
specific title for a Vice President of this Corporation, which such title shall
include the words "Vice President" together with such other
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<PAGE> 8
term or terms which may generally indicate such Vice President's rank and/or
duties. During the absence or disability of the Chairman of the Board of
Directors (if one has been elected), the President, and the Chief Executive
Officer, the Vice President (or in the event that there be more than one Vice
President, the Vice Presidents in the order designated by the Board of
Directors) shall exercise all functions of the Chairman of the Board of
Directors, the President and the Chief Executive Officer, except as limited by
resolution of the Board of Directors.
e. Secretary. The Secretary shall:
(1) Prepare minutes of the directors' and shareholders'
meetings and keep them in one or more books provided for that purpose;
(2) Authenticate records of the Corporation;
(3) See that all notices are duly given in accordance with
the provisions of these Bylaws or as required by law;
(4) Be custodian of the corporate records and of the seal
of the Corporation (if any), and affix the seal of the Corporation to all
documents as may be required;
(5) Keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(6) Sign with the Chairman of the Board of Directors, the
President, the Chief Executive Officer or a Vice President, certificates for
shares of the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors;
(7) Have general charge of the stock transfer books of the
Corporation; and
(8) In general, perform all the duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him or her by the Board of Directors, the Chairman of the Board of Directors,
the President or the Chief Executive Officer. In the Secretary's absence, an
Assistant Secretary shall perform the Secretary's duties.
f. Chief Financial Officer. The Chief Financial Officer shall
have custody of the funds and securities of the Corporation, shall keep full and
accurate accounts of receipts and disbursements of the Corporation in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects of the Corporation in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Chief
Financial Officer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Chairman of the Board, the President, the Chief Executive
Officer and the Board of Directors, at its regular meetings, or when the
Chairman of the Board, the President, the Chief Executive Officer or the Board
of Directors so requires, an account of all of his or her transactions as Chief
Financial
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<PAGE> 9
Officer and of the financial condition of the Corporation. If required by the
Board of Directors, the Chief Financial Officer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his or her
office and for the restoration to the Corporation, in case of his or her death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his or her possession or under his
or her control belonging to the Corporation.
g. Controller. The Controller shall perform such duties and
have such powers as from time to time may be assigned to him or her by the Board
of Directors, the Chairman of the Board, the President, the Chief Executive
Officer, any Vice President, or the Chief Financial Officer, and in the absence
of the Chief Financial Officer or in the event of the Chief Financial Officer's
disability or refusal to act, shall perform the duties of the Chief Financial
Officer, and when so acting, shall have all the powers of and be subject to all
the restrictions upon the Chief Financial Officer. If required by the Board of
Directors, the Controller shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his or her office and for the
restoration to the Corporation, in the case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his or her possession or under his or her
control belonging to the Corporation.
h. Treasurer. The Treasurer shall perform such duties and have
such responsibilities as from time to time may be assigned by the Board of
Directors.
Section 4. Salaries and Contract Rights. The salaries, if any, of the
officers shall be fixed from time to time by the Board of Directors. The
appointment of an officer shall not of itself create contract rights.
Section 5. Resignation or Removal. Any officer of this Corporation may
resign at any time by giving written notice to the Board of Directors. Any such
resignation is effective when the notice is delivered, unless the notice
specifies a later date, and shall be without prejudice to the contract rights,
if any, of such officer.
The Board of Directors, by majority vote, may remove any officer or
agent appointed by it, with or without cause. The removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Section 6. Vacancies. If any office becomes vacant by any reason, the
directors may appoint a successor or successors who shall hold office for the
unexpired term.
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ARTICLE V
CERTIFICATES OF SHARES AND THEIR TRANSFER;
UNCERTIFICATED SHARES
Section 1. Issuance of Shares. No shares of this Corporation shall be
issued unless authorized by the Board of Directors. Such authorization shall
include the maximum number of shares to be issued and the consideration to be
received. A good faith determination by the Board that the consideration
received or to be received for the shares to be issued is adequate is conclusive
insofar as the adequacy of consideration relates to whether the shares are
validly issued, fully paid and nonassessable.
Section 2. Issuance of Certificated Shares. Unless the Board of
Directors determines that the Corporation's shares are to be uncertificated,
certificates for shares of the Corporation shall be in such form as is
consistent with the provisions of the Act. The certificate shall be signed by
original or facsimile signature of two officers of the Corporation, and the seal
of the Corporation may be affixed thereto.
Section 3. Transfer of Certificated Stock. Certificated shares of stock
may be transferred by delivery of the certificate accompanied by either an
assignment in writing on the back of the certificate or by a written power of
attorney to assign and transfer the same on the books of the Corporation, signed
by the record holder of the certificate. Shares shall be transferable on the
books of this Corporation upon surrender thereof so assigned or endorsed.
Section 4. Loss or Destruction of Certificates. In case of the loss,
mutilation, or destruction of a certificate of stock, a duplicate certificate
may be issued upon such terms as the Board of Directors shall prescribe.
Section 5. Issuance of Uncertificated Shares. The Board of Directors
may authorize the issue of some or all of the shares of any or all of the
Corporation's classes or series of stock without certificates, provided,
however, that such authorization shall not affect shares already represented by
certificates until they are surrendered to the Corporation. Within a reasonable
time after the issue or transfer of shares without certificates, the Corporation
shall send the shareholders a written statement of the information required on
certificates by the Act. Said statement shall be informational to the
shareholder, and not incontrovertible evidence of stock ownership.
The statement shall be signed by original or facsimile signature of two
officers of the Corporation, and the seal of the Corporation may be affixed
thereto.
Section 6. Transfer of Uncertificated Stock. Transfer of uncertificated
shares of stock may be accomplished by delivery of an assignment in writing or
by a written power of attorney to assign and transfer the same on the books of
the Corporation, signed by the record holder of the shares. Surrender of the
written statement shall not be a requirement for transfer of the shares so
represented.
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<PAGE> 11
Section 7. Record Date and Transfer Books. For the purpose of
determining shareholders who are entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or entitled to receive payment of
any dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may fix in advance a record date for any
such determination of shareholders, such date in any case to be not more than
seventy (70) days and, in case of a meeting of shareholders, not less than ten
(10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken.
If no record date is fixed for such purposes, the date on which notice
of the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date, which it must do if the meeting is adjourned more than one hundred
twenty (120) days after the date fixed for the original meeting.
Section 8. Voting Record. The officer or agent having charge of the
stock transfer books for shares of this Corporation shall make at least ten (10)
days before each meeting of shareholders a complete record of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
Such record shall be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purposes thereof.
ARTICLE VI
BOOKS AND RECORDS
Section 1. Books of Accounts, Minutes, and Share Register. The
Corporation:
a. Shall keep as permanent records minutes of all meetings of
its shareholders and Board of Directors, a record of all actions taken by the
shareholders or Board of Directors without a meeting, and a record of all
actions taken by a committee of the Board of Directors exercising the authority
of the Board of Directors on behalf of the Corporation;
b. Shall maintain appropriate accounting records;
c. Or its agent shall maintain a record of its shareholders,
in a form that permits preparation of a list of the names and addresses of all
shareholders, in alphabetical order by class of shares showing the number and
class of shares held by each; and
d. Shall keep a copy of the following records at its principal
office:
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<PAGE> 12
(1) The Articles of Incorporation and all amendments to
them currently in effect;
(2) The Bylaws or Restated Bylaws and all amendments to
them currently in effect;
(3) The minutes of all shareholders' meetings, and records
of all actions taken by shareholders without a meeting, for the past three (3)
years;
(4) Its financial statements for the past three (3) years,
including balance sheets showing in reasonable detail the financial condition of
the Corporation as of the close of each fiscal year, and an income statement
showing the results of its operations during each fiscal year;
(5) All written communications to shareholders generally
within the past three (3) years;
(6) A list of the names and business addresses of its
current directors and officers; and
(7) Its most recent annual report delivered to the
Secretary of State of Washington.
Section 2. Copies of Resolutions. Any person dealing with the
Corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the Board of Directors or shareholders, when certified
by the President or Secretary.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1. Indemnification Rights of Directors, Officers, Employees and
Agents. The Corporation shall indemnify its directors and officers and may
indemnify its employees and agents (each an "Indemnified Party") to the full
extent permitted by the Act or other applicable law, as then in effect, and the
Articles of Incorporation, against liability arising out of a proceeding to
which each such Indemnified Party was made a party because the Indemnified Party
is or was a director, officer, employee or agent of the Corporation. The
Corporation shall advance expenses incurred by each such Indemnified Party who
is a party to a proceeding in advance of final disposition of the proceeding, as
provided by applicable law, the Articles of Incorporation, or by written
agreement, which written agreement may allow any required determinations to be
made by any appropriate person or body consisting of a member or members of the
Board of Directors, or any other person or body appointed by the Board of
Directors, who is not a party to the particular claim for which an Indemnified
Party is seeking indemnification, or independent legal counsel.
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<PAGE> 13
The Corporation is not obligated to indemnify an Indemnified Party for
any amounts paid in settlement of any proceeding without the Corporation's prior
written consent to such settlement and payment. The Corporation shall not settle
any proceeding in any manner which would impose any penalty or limitation on an
Indemnified Party without such Indemnified Party's prior written consent.
Neither the Corporation nor an Indemnified Party may unreasonably withhold its
consent to a proposed settlement.
Section 2. Contract and Related Rights.
a. Contract Rights. The right of an Indemnified Party to
indemnification and advancement of expenses is a contract right upon which the
Indemnified Party shall be presumed to have relied in determining to serve or to
continue to serve in his or her capacity with the Corporation. Such right shall
continue as long as the Indemnified Party shall be subject to any possible
proceeding. Any amendment to or repeal of this Article shall not adversely
affect any right or protection of an Indemnified Party with respect to any acts
or omissions of such Indemnified Party occurring prior to such amendment or
repeal.
b. Optional Insurance, Contracts, and Funding. The Corporation
may:
(1) Maintain insurance, at its expense, to protect itself
and any Indemnified Party against any liability, whether or not the Corporation
would have power to indemnify the Indemnified Party against the same liability
under Sections 23B.08.510 or .520 of the Act, or a successor section or statute;
(2) Enter into contracts with any Indemnified Party in
furtherance of this Article and consistent with the Act; and
(3) Create a trust fund, grant a security interest, or use
other means (including without limitation a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in this Article.
Section 3. Exceptions. Any other provision herein to the contrary
notwithstanding, the Corporation shall not be obligated pursuant to the terms of
these Bylaws to indemnify or advance expenses to an Indemnified Party with
respect to any proceeding:
a. initiated or brought voluntarily by an Indemnified Party
and not by way of defense, except with respect to proceedings brought to
establish or enforce a right to indemnification under these Bylaws, the Articles
of Incorporation or any statute or law; but such indemnification or advancement
of expenses may be provided by the Corporation in specific cases if the Board of
Directors finds it to be appropriate;
b. instituted by an Indemnified Party to enforce or interpret
the provisions hereof or the Articles of Incorporation, if a court of competent
jurisdiction determines that each of the material assertions made by such
Indemnified Party in such proceeding was not made in good faith or was
frivolous;
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<PAGE> 14
c. to the extent such Indemnified Party has otherwise
actually received payment (under any insurance policy or otherwise) of the
amounts otherwise indemnifiable hereunder; or
d. if the Corporation is prohibited by the Articles of
Incorporation, the Act or other applicable law as then in effect from paying
such indemnification and/or advancement of expenses.
ARTICLE VIII
AMENDMENT OF BYLAWS
Section 1. By the Shareholders. These Bylaws may be amended or repealed
by a resolution duly adopted by not less than a majority of the shares entitled
to vote thereon.
Section 2. By the Board of Directors. These Bylaws may be amended or
repealed by a resolution duly adopted by a majority of the whole Board of
Directors.
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CERTIFICATE OF ADOPTION
The undersigned Secretary of SeaMED Acquisition Corp. does hereby
certify that the above and foregoing Bylaws of said Corporation were adopted by
the directors as the Bylaws of said Corporation and that the same do now
constitute the Bylaws of this Corporation.
DATED this 1st day of October, 1996.
/s/ Mark L. Beatty
______________________________
Mark L. Beatty, Secretary
<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
<TABLE>
<CAPTION>
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PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$4,000,000.00 06-27-1996 12-05-1996 1-3895-1 0400 AR, IN MHD
- ------------------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
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</TABLE>
BORROWER: SEAMED CORPORATION LENDER: PACIFIC NORTHWEST BANK
(TIN: 91-1002092) BELLEVUE FINANCIAL CENTER
14500 N.E. 87TH ST. 11100 N.E. 8TH
REDMOND, WA 98052-3431 BELLEVUE, WA 98004
================================================================================
PRINCIPAL AMOUNT: INITIAL RATE: 8.500% DATE OF NOTE: JUNE 27, 1996
$4,000,000.00
PROMISE TO PAY. SEAMED CORPORATION ("BORROWER") PROMISES TO PAY TO PACIFIC
NORTHWEST BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF FOUR MILLION & 00/100 DOLLARS ($4,000,000.00)
OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID
OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM
THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
DECEMBER 5, 1996. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING JULY 5, 1996, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this Note
is computed on a 365/360 simple interest basis; that is, by applying the ratio
of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Prime Rate (the
"Index"). This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This rate may or may not be
the lowest rate available from Lender at any given time. Lender will tell
Borrower the current Index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each DAY. THE INDEX CURRENTLY IS 8.250%
PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF
THIS NOTE WILL BE AT A RATE OF 0.250 PERCENTAGE POINTS OVER THE INDEX, RESULTING
IN AN INITIAL RATE OF 8.500% PER ANNUM. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
<PAGE> 2
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT OR $50.00,
WHICHEVER IS LESS.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrowers financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired. (h) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 5.250
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE SLATE OF WASHINGTON. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF KING COUNTY, THE STATE OF WASHINGTON. THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $18.00 if Borrower
makes a payment on Borrower's loan and the check preauthorized charge with which
Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by SECURITY AGREEMENT DATED SEPTEMBER 10, 1991
ON ACCOUNTS, INVENTORY AND GENERAL INTANGIBLES.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. All
communications, instructions, or directions by telephone or otherwise to
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<PAGE> 3
Lender are to be directed to Lender's office shown above. The following party or
parties are authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: W. ROBERT BERG, PRESIDENT; EDGAR F. RAMPY, V.P. -
FINANCE; and GINA JAMES. Borrower agrees to be liable for all sums either: (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal balance
owing on this Note at any time may be evidenced by endorsements on this Note or
by Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant to
this Note for purposes other than those authorized by Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement between
Lender and Borrower.
PRIOR NOTE. PROMISSORY NOTE FROM BORROWER TO LENDER DATED NOVEMBER 1, 1995 IN
THE AMOUNT OF $2,000,000.00.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETE COPY OF THE NOTE.
BORROWER:
SEAMED CORPORATION
BY BY /S/ Edgar F. Rampy
---------------------------------- ---------------------------------
W. ROBERT BERG, PRESIDENT EDGAR F. RAMPY, V.P. - FINANCE
-3-
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500,000.00 06/27/96 07/05/00 1-3895-5 0400 AR, IN MHD
- ----------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO
ANY PARTICULAR LOAN OR ITEM
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
BORROWER: SEAMED CORPORATION (TIN: 91-1002092) LENDER: PACIFIC NORTHWEST BANK
14500 NE 87TH ST. BELLEVUE FINANCIAL CENTER
REDMOND, WASHINGTON 98052-3431 11100 NE 8TH
BELLEVUE, WASHINGTON 98004
======================================================================================
</TABLE>
PRINCIPAL AMOUNT: INTEREST RATE: 8.750% DATE OF NOTE: JUNE 27, 1996
$500,000.00
PROMISE TO PAY. SEAMED CORPORATION ("BORROWER") PROMISES TO PAY TO PACIFIC
NORTHWEST BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF FIVE HUNDRED THOUSAND & 00/100 DOLLARS
($500,000.00), TOGETHER WITH INTEREST AT THE RATE OF 8.750% PER ANNUM ON THE
UNPAID PRINCIPAL BALANCE FROM JUNE 27, 1996, UNTIL PAID IN FULL.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN 48
PAYMENTS OF $12,438.41 EACH PAYMENT. BORROWER'S FIRST PAYMENT IS DUE AUGUST 5,
1996, AND ALL SUBSEQUENT PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER
THAT. BORROWER'S FINAL PAYMENT WILL BE DUE ON JULY 5, 2000, AND WILL BE FOR ALL
PRINCIPAL AND ALL ACCRUED INTEREST NOT YET PAID. PAYMENTS INCLUDE PRINCIPAL AND
INTEREST. Interest on this Note is computed on a 365/360 simple interest basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT OR $50.00,
WHICHEVER IS LESS.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any respect either
now or at the time made or furnished. (d) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding is commenced either by Borrower
or against Borrower under any bankruptcy or insolvency laws. (e) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (F) ANY GUARANTOR DIES OR ANY OF THE OTHER EVENTS DESCRIBED IN THIS
DEFAULT SECTION OCCURS WITH RESPECT TO ANY GUARANTOR OF THIS NOTE. (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is impaired.
(h) Lender in good faith deems itself insecure.
<PAGE> 2
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note 5.000 percentage points.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. If not prohibited by applicable law, Borrower also will pay
any court costs, in addition to all other sums provided by law. THIS NOTE HAS
BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF WASHINGTON. IF
THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF KING COUNTY, THE STATE OF WASHINGTON. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
WASHINGTON.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $18.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby signs, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by SECURITY AGREEMENT DATED OCTOBER 24, 1995 ON
LOAN #1-3895-4 ON INVENTORY, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
SEAMED CORPORATION
BY BY /S/ EDGAR F. RAMPY
----------------------------- ----------------------------------------
W. ROBERT BERG, PRESIDENT EDGAR F. RAMPY, VICE PRESIDENT-FINANCE
-2-
<PAGE> 1
EXHIBIT 10.3
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$600,000.00 10/24/95 11/05/99 1-3895-4 0400 AR, EQ 202
- ----------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO
ANY PARTICULAR LOAN OR ITEM
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
BORROWER: SEAMED CORPORATION (TIN: 91-1002092) LENDER: PACIFIC NORTHWEST BANK
14500 NE 87TH ST. BELLEVUE FINANCIAL CENTER
REDMOND, WASHINGTON 98052-3431 11100 NE 8TH
BELLEVUE, WASHINGTON 98004
</TABLE>
================================================================================
Principal Amount: Interest Rate: 8.750% Date of Note: October 24, 1995
$600,000.00
PROMISE TO PAY. SEAMED CORPORATION ("Borrower") promises to pay to Pacific
Northwest Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Six Hundred Thousand & 00/100 Dollars
($600,000.00), together with interest at the rate of 8.750% per annum on the
unpaid principal balance from October 24, 1995, until paid in full.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in 48
payments of $14,938.66 each payment. Borrower's first payment is due December 5,
1995, and all subsequent payments are due on the same day of each month after
that. Borrower's final payment will be due on November 5, 1999, and will be for
all principal and accrued interest not yet paid. Payments include principal and
interest. Interest on this Note is computed on a 365/360 simple interest basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $50.00,
whichever is less.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any respect either
now or at the time made or furnished. (d) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding is commenced either by Borrower
or against Borrower under any bankruptcy or insolvency laws. (e) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (f) Any of the events described in this default section occurs with
respect to any guarantor of this Note. (g) A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired. (h) Lender in good faith deems
itself insecure.
<PAGE> 2
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note 5.000 percentage points.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. If not prohibited by applicable law, Borrower also will pay
any court costs, in addition to all other sums provided by law. This Note has
been delivered to Lender and accepted by Lender in the State of Washington. If
there is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of King County, the State of Washington. This Note
shall be governed by and construed in accordance with the laws of the State of
Washington.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $18.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby signs, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Note against any and all such
accounts.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
SEAMED CORPORATION
By By /s/ Edgar F. Rampy
----------------------------------- -----------------------------------
W. ROBERT BERG, President EDGAR F. RAMPY, Vice President
-2-
<PAGE> 1
EXHIBIT 10.4
LOAN AGREEMENT
FOR A LOAN FROM
PACIFIC NORTHWEST BANK
- --------------------------------------------------------------------------------
1. DATE AND PARTIES. The date of this Loan Agreement (Agreement) is August 1,
1994, and the parties are the following:
BORROWER: SEAMED CORPORATION
a Delaware corporation
11810 North Creek Parkway N.
Bothell, WA 98011
Tax I.D. #91-1002092
BANK: PACIFIC NORTHWEST BANK
a WASHINGTON banking corporation
11100 N.E. 8th
Bellevue, WA 98004
Tax I.D. #91-1396446
Branch No. 102
2. BACKGROUND. Borrower has applied for the renewal of a loan (Loan) in the
principal amount of $750,000.00. The Loan shall be evidenced by a promissory
note, No. 1000003895-3, (Note) dated August 1, 1994, and executed by Borrower
payable to the order of Bank and all extensions, renewals, modifications, or
substitutions thereof. There may be other documents (Related Documents) that
secure, guaranty or otherwise relate to the Loan, any collateral securing the
Loan (Collateral), or this Agreement. To induce Bank to make the Loan and as
part of the consideration for Bank making the Loan, Borrower and Bank agree to
the following terms, representations, warranties and covenants, which shall
prevail so long as any part of the Loan or any other obligation of Borrower to
Bank remains outstanding or Bank is obligated to make any advances on the Loan.
3. DEPOSITORY RELATIONSHIP. Borrower shall maintain a primary checking, savings,
or similar account, at Bank during the term of this Agreement and any extensions
thereto. Bank shall have the right, in its sole discretion, to dishonor checks
drawn on such deposit account and to hold such deposit account as cash
collateral to secure the payment of the Loan. Notwithstanding the foregoing,
nothing contained herein shall interfere with Bank's right under statutory and
common law to set-off the balances of any such deposit account against the Loan.
4. COLLECTION EXPENSES. Borrower shall, upon demand, reimburse Bank for all fees
and expenses paid or incurred by Bank for the preparation in and recordation of
all documentation, the closing, and the enforcement of the Note, this Agreement
or the Related
<PAGE> 2
Documents, whether or not a suit is filed. These fees and expenses include, but
are not limited to, accountants' fees and other professional fees. All such fees
and expenses shall be additional liabilities of Borrower to Bank as advances
under the Loan and shall be secured by the Collateral securing the Loan.
5. ATTORNEYS' FEES. Upon demand and to the extent not prohibited by law,
Borrower shall reimburse Bank for all reasonable attorneys' fees paid or
incurred by Bank in connection with the preparation and recordation of all
documentation, closing, and enforcement of the Note, this Agreement or the
Related Documents, whether or not a suit is filed. Such reasonable attorneys'
fees shall be additional liabilities of Borrower to Bank as advances under the
Loan and shall be secured by the Collateral securing the Loan.
6. AFFIRMATIVE COVENANTS. Borrower agrees:
A. PERFORMANCE OF LOAN OBLIGATIONS. To make full and timely payment of all
principal and interest obligations, and to comply with the terms and
covenants contained in this Agreement and in the Related Documents.
B. PRESERVE EXISTENCE. To preserve Borrower's present existence until such
time as Bank consents in writing to any change. Bank's consent to any
such change will not be unreasonably withheld provided Bank can protect
Bank's security interest and provided further Borrower can provide Bank
with sufficient security to assure repayment of the Loan.
C. MAINTENANCE OF PROPERTY. To maintain, preserve and keep Borrower's
properties in good repair, working order and condition, and from time
to time to make all needful and proper repairs, renewals, replacements,
additions, betterments and improvements thereto so that the efficiency
of the properties is fully preserved and maintained at all times.
D. INSURANCE. To keep and maintain the Collateral insured in full with
companies acceptable to Bank, naming Bank and Borrower on the policy in
accordance with their respective interests, with the loss payable to
Bank. Insurance of the types and in amounts customarily carried by
entities in businesses similar to Borrower's shall be maintained for
the full insurable value, including without limitation, fire, public
liability, property damage, business interruption, rent loss insurance,
and worker's compensation insurance. Certified copies of all such
insurance policies or certificates of insurance shall be delivered upon
demand to Bank.
E. LOSS OR DEPRECIATION OF COLLATERAL. To immediately notify Bank of any
material casualty, loss or depreciation to the Collateral or to any
other property of Borrower which affects Borrower's business.
-2-
<PAGE> 3
F. AGING REPORTS. To furnish Bank a certified and detailed accounts
receivable aging report upon Bank's request, and in event of no request
at least quarterly, in such form and for such period(s) as Bank may
request.
G. INSPECTION. To permit Bank, or its agents, to enter upon any of
Borrower's premises and any location where the Collateral is located at
all reasonable times for the following purposes, without limitation:
(1) to inspect, audit, check, review and obtain copies from Borrower's
books, records, journals, orders, receipts, and any correspondence and
other business related data; (2) to make verifications concerning the
Collateral, proceeds of the Collateral and proceeds of proceeds and
their use and disposition; and (3) to discuss the affairs, finances and
business of Borrower with any person or entity who claims to be a
creditor of Borrower.
H. BOOKS AND RECORDS. To maintain accurate and complete books and records
regarding its operations and to permit Bank, or its agents, to examine
and copy all or any part of them.
I. FINANCIAL STATEMENTS. To promptly provide Bank with all financial
statements which Bank may request concerning the Borrower, initially
and from time to time, within 30 days of the request(s), or if no
request is made, at least every 12 months from the date of this
Agreement, including business and personal financial statements; such
statements shall be reasonably current, accurate, complete, in a form
acceptable to Bank and shall be based on generally accepted accounting
principles (GAAP) then in effect.
J. FURNISH DOCUMENTS. To promptly furnish Bank such other documents,
instruments, and information as Bank may reasonably request.
K. TAXES AND LIENS. To file all federal, state and other tax and similar
returns and to pay all taxes or liens assessed against Borrower or
Borrower's properties, whether due now or hereafter, including but not
limited to sales taxes, use taxes, personal property taxes, documentary
stamp taxes, recordation taxes, franchise taxes, income taxes,
withholding taxes, FICA taxes and unemployment taxes when due, and to
promptly furnish Bank with written evidence of such payments.
L. LICENSES, PERMITS, BONDS AND OTHER RIGHTS. To acquire and maintain in
full force and effect all licenses, permits, bonds and other documents
or certificates reasonably necessary or required to engage in and to
carry on its business or venture as contemplated by Borrower and Bank.
M. NOTICE TO BANK BY BORROWER. To promptly notify Bank of the occurrence
of any Event of Default under the terms of this Agreement and of the
occurrence of any default against Borrower by third parties which
materially affects Borrower's business.
-3-
<PAGE> 4
N. CERTIFICATION OF NO DEFAULT. To furnish Bank a written certification
upon Bank's request or in event of no request at least quarterly, that
there exists no Event of Default under the terms of this Agreement or
under the Related Documents, and that there exists no other action,
condition or event which with the giving of notice or lapse of time or
both would constitute an Event of Default. If such a condition does
exist, the certificate must accurately and fully disclose the extent
and nature of such condition and state what action is being taken to
correct it.
O. ADDITIONAL AFFIRMATIVE COVENANT. To provide monthly account receivable
agings and borrower's certificates, quarterly profit and loss
statements and balance sheet within 30 days of month end, and annual
CPA audited financial statements within 120 days of fiscal year end.
P. ADDITIONAL AFFIRMATIVE COVENANT. To maintain a minimum working capital
of $2,000,000, current ratio of 2.0:1, net worth and subordinated debt
of $3,000,000 and maximum debt/worth and subordinated debt of 1.5:1.
Q. ADDITIONAL AFFIRMATIVE COVENANT. To notify the bank prior to any
changes in the repayment provisions or other terms and conditions of
the note payable to Cordis Corporation, dated June 30, 1991 which has
been subordinated to the bank's interest.
7. NEGATIVE COVENANTS. Without Bank's prior written consent, which shall
not be unreasonably withheld, Borrower agrees:
A. NO CHANGE IN STRUCTURE. Not to change the structure or ownership of
Borrower's entity or business venture, which includes a change in the
management, shareholders, directors, or officers of any corporate
borrower and to notify Bank in writing of any change in name or
management of Borrower.
B. NOT TO FORM. Not to form, organize or participate in the organization
of any other corporation, partnership or other entity, or in the
creation of any other business entity or merge, consolidate with or
into any other corporation, partnership or other entity.
C. PAY NO DIVIDENDS. Not to pay or declare any dividends (including but
not limited to any cash dividend or stock dividend) or similar
distribution.
D. NO CHANGE IN CAPITAL STRUCTURE OR STOCK. Not to release, redeem,
retire, purchase or otherwise acquire, directly or indirectly, any of
its capital stock or other equity security or partnership interest or
make any change in Borrower's capital structure except to the extent
required by the terms of any agreements signed prior to this Agreement.
-4-
<PAGE> 5
E. DEALINGS WITH INSIDERS. Not to purchase, acquire or lease any property
or services from, or sell, provide or lease any property or service to,
or otherwise deal with, any insiders. The term "insiders" includes but
is not limited to any officer, employee, stockholder, director,
partner, or any immediate family member thereof, or any business entity
who owns a controlling interest in Borrower.
F. LOANS TO INSIDERS. Not to lend or advance or permit to be outstanding
any loans or advances to any of its "insiders" which term is defined
above.
G. INCUR NO OTHER LIABILITIES. Not to incur, assume or otherwise permit
any liability to exist for money borrowed, except from Bank, or incur,
assume or otherwise permit any other debts or obligations outside of
the ordinary course of business, or loan money to, or guaranty or
otherwise become in any way liable for the debt or obligations of any
other person or entity.
H. USE OF LOAN PROCEEDS. Not to permit the loan proceeds to be used to
purchase, carry, reduce, or retire any loan incurred to purchase or
carry any margin stock.
I. DISPOSE OF NO ASSETS. Not to sell or dispose of or make any other
distribution of any of Borrower's assets, properties or business other
than as permitted in the Related Documents.
J. NO OTHER LIENS OR ENCUMBRANCES. Not to permit or suffer any lien or
encumbrance upon any of Borrower's properties, except to Bank, and
except for any valid purchase money security interests, or any other
liens specifically agreed to by Bank in writing.
8. REPRESENTATIONS. Borrower represents, guaranties and warrants to Bank
that:
A. AUTHORITY TO DO BUSINESS. Borrower is authorized to do business in this
state and in each state where it may be doing business and has full
power and authority to execute and deliver the Note and enter into this
Agreement and the Related Documents.
B. CORPORATE STATUS. Borrower is duly incorporated and validly existing
and in good standing in the jurisdiction of Borrower's incorporation
and where Borrower conducts Borrower's business.
C. AUTHORITY TO ENTER AGREEMENTS. This Agreement, the Note, and the
Related Documents will constitute legal, valid, and binding agreements
and are enforceable against Borrower and all other parties thereto.
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<PAGE> 6
D. TITLE AND POSSESSION. Borrower has good and marketable title to its
assets, and enjoys peaceful and undisturbed possession under all leases
under which Borrower now operates.
E. LABOR LAWS. Borrower is complying with all applicable federal or state
labor laws, including but not limited to the Federal Fair Labor
Standards Act.
F. TAX LAWS. Borrower has complied with all federal, state and local tax
laws, licensing laws and permit laws.
G. OTHER LAWS. Borrower is not in violation of other federal laws or state
laws, including but not limited to, ERISA (Employee Retirement Income
Security Act) or RICO (Racketeer Influenced and Corrupt Organizations).
H. COMPLIANCE. Borrower is in compliance with all laws, orders, judgments,
decrees and regulations (Laws) of all federal, foreign, state and local
governmental authorities relating to the business operations and the
assets of Borrower, the violation of which would have an adverse effect
on the value of or Bank's interest in any of the Collateral or would
have a materially adverse effect on Borrower's financial condition,
business or conduct of its business.
I. ADVERSE AGREEMENTS. Borrower is not a party to, nor is Borrower bound
by, any agreement that materially or adversely affects Borrower's
business, properties, assets or operations.
J. OTHER CLAIMS. There are no outstanding claims or rights that would
conflict with the execution, delivery or performance by Borrower of the
terms of the Note, this Agreement or the Related Documents or that
would cause a lien to be placed on the Collateral given for this Loan,
including proceeds of the Collateral and proceeds of proceeds, except
those, if any, disclosed to and agreed to by Bank in writing prior to
the execution of this Agreement.
K. ACCURATE STATEMENTS. All financial statements, books, records,
documents, and instruments submitted by Borrower to Bank in connection
with the Loan are accurate and complete, and there has been no material
adverse change in the financial condition of Borrower as shown by such
statements, books, records, documents or instruments.
L. SOLVENCY. Borrower is solvent, able to pay its debts as they mature,
and has sufficient capital to carry on its business and all businesses
in which Borrower is or will be engaged. Borrower's total assets, at a
present, fair market value, are greater than the amount of Borrower's
total obligations. Borrower will not be rendered insolvent by the
execution of the Note, this Agreement or Related Documents or by any
other transactions.
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<PAGE> 7
M. LITIGATION. There are no proceedings pending or threatened before any
court or administrative agency which will or could have a materially
adverse affect upon the financial condition or operations of Borrower.
N. SURVIVAL OF WARRANTIES. All representations, warranties, statements,
guaranties and covenants contained in the Note, this Agreement or any
Related Documents shall survive the execution of such documents.
9. EVENTS OF DEFAULT. Borrower shall be in default upon the occurrence of
any of the following events, circumstances or conditions (Events of Default):
A. Failure by any party obligated on the Loan to make payment when due; or
B. A default or breach by Borrower or any co-signer, endorser, surety, or
guarantor under any of the terms of this Agreement the Note, any
construction loan agreement or other loan agreement, any security
agreement, mortgage, deed to secure debt, deed of trust, trust deed, or
any other document or instrument evidencing, guarantying, securing or
otherwise relating to the Loan; or
C. The making or furnishing of any verbal or written representation,
statement or warranty to Bank which is or becomes false or incorrect in
any material respect by or on behalf of Borrower, owner, or any
co-signer, endorser, surety or guarantor of the Loan; or
D. Failure to obtain or maintain the insurance coverages required by Bank,
or insurance as is customary and proper for the Collateral (as herein
defined); or
E. The death, dissolution or insolvency of, the appointment of a receiver
by or on behalf of, the assignment for the benefit of creditors by or
on behalf of, the voluntary or involuntary termination of existence by,
or the content of any proceeding under any present or future federal or
state insolvency, bankruptcy, reorganization, composition or debtor
relief law by or against Borrower, owner, or any co-signer, endorser,
surety or guarantor of the Loan; or
F. A good faith belief by Bank at any time that Bank is insecure with
respect to Borrower, or any co-signer, endorser, surety or guarantor,
that the prospect of any payment is impaired or that the Collateral (as
herein defined) is impaired; or
G. Failure to pay or provide proof of payment of any tax, assessment,
rent, insurance premium, escrow or escrow deficiency on or before its
due date; or
H. A material adverse change in Borrower's business, including ownership,
management, and financial conditions, which in Bank's opinion, impairs
the Collateral or repayment of the Obligations; or
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<PAGE> 8
I. A transfer of a substantial part of Borrower's money or property.
10. REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default, Bank,
at its option, may declare the Loan immediately due and payable as well as
invoke any or all other remedies provided in the Note, any Related Document or
by law. All remedies are cumulative and not exclusive, Bank is also entitled to
all remedies provided at law or equity, whether or not expressly set forth.
11. NOTICE. All notices, requests, and demands under this Agreement shall
be given by regular United States mail, postage prepaid, or personal delivery,
at the address set forth above or such other address as the parties may
designate in writing.
12. GENERAL PROVISIONS.
A. TIME IS OF THE ESSENCE. Time is of the essence in Borrower's
performance of all duties and obligations imposed by this Agreement
B. NO WAIVER BY BANK. Bank's course of dealing, or Bank's forbearance
from, or delay in, the exercise of any of Bank's rights, remedies,
privileges or right to insist upon Borrower's strict performance of any
provisions contained in this Agreement, or other loan documents, shall
not be construed as a waiver by Bank, unless any such waiver is in
writing and is signed by Bank.
C. AMENDMENT. The provisions contained in this Agreement may not be
amended, except through a written amendment which is signed by Borrower
and Bank.
D. INTEGRATION CLAUSE. This written Agreement and all documents executed
concurrently herewith, represent the entire understanding between the
parties as to the Obligations and may not be contradicted by evidence
of prior, contemporaneous, or subsequent oral agreements of the
parties.
E. FURTHER ASSURANCES. Borrower, upon request of Bank, agrees to execute,
acknowledge, deliver and record or file such further instruments or
documents as may be required by Bank to secure the Note or confirm any
lien.
F. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of WASHINGTON, provided that such laws are not otherwise
preempted by federal laws and regulations.
G. FORUM AND VENUE. In the event of litigation pertaining to this
Agreement, the exclusive forum, venue and place of jurisdiction shall
be in the State of WASHINGTON in the state courts for the county, or
the federal court of the United States Federal District, where the
principal office of Bank is located (as applicable). If, in conjunction
with any litigation on the Note or Obligations, there
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<PAGE> 9
is relief sought against any property securing such Note or
Obligations, Bank may, at its option, designate as the exclusive forum,
venue and place of jurisdiction, any location where the security is
situated, unless otherwise designated in writing by Bank or otherwise
required by law.
H. SUCCESSORS. This Agreement shall inure to the benefit of and bind the
heirs, personal representatives, successors and assigns of the parties;
provided however, that Borrower may not assign, transfer or delegate
any of the rights or obligations under this Agreement.
I. NUMBER AND GENDER. Whenever used, the singular shall include the
plural, the plural the singular, and the use of any gender shall be
applicable to all genders.
J. DEFINITIONS. The terms used in this Agreement, if not defined herein,
shall have their meanings as defined in the other documents executed
contemporaneously, or in conjunction, with this Agreement.
K. PARAGRAPH HEADINGS. The headings at the beginning of any paragraph, or
any subparagraph, in this Agreement are for convenience only and shall
not be dispositive in interpreting or construing this Agreement.
L. IF HELD UNENFORCEABLE. If any provision of this Agreement shall be held
unenforceable or void, then such provision shall be severable from the
remaining provisions and shall in no way affect the enforceability of
the remaining provisions nor the validity of this Agreement.
M. CHANGE IN APPLICATION. Borrower will notify Bank in writing prior to
any change in Borrower's name, address, or other application
information.
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<PAGE> 10
N. NOTICE. All notices under this Agreement must be in writing. Any notice
given by Bank to Borrower hereunder will be effective upon personal
delivery or 24 hours after mailing by first class United States mail,
postage prepaid, addressed to Borrower at the address indicated below
Borrower's name on page one of this Agreement. Any notice given by
Borrower to Bank hereunder will be effective upon receipt by Bank at
the address indicated below Bank's name on page one of this Agreement.
Such addresses may be changed by written notice to the other party.
BORROWER:
SEAMED CORPORATION, [Corporate Seal*]
a DELAWARE corporation
By /s/ Edgar F. Rampy
--------------------------------------------
Edgar F. Rampy, V.P. - Finance
(* Corporate seal may be affixed, but failure to affix shall not affect validity
or reliance.)
BANK:
PACIFIC NORTHWEST BANK, [Corporate Seal*]
a WASHINGTON corporation
By /s/ Milton Douglas
--------------------------------------------
Milton Douglas, Vice President
(* Corporate seal may be affixed, but failure to affix shall not affect validity
or reliance.)
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<PAGE> 1
EXHIBIT 10.5
AMENDED AND RESTATED PROMISSORY NOTE
$1,107,064.64 September 1, 1993
Miami, Florida
FOR VALUE RECEIVED, the undersigned (the "Maker") hereby promises to
pay to the order of Cordis Corporation, a Florida corporation (the "Payee"), at
14201 N.W. 60th Ave., Miami Lakes, Florida 33014 or at such other address as the
Payee may from time to time designate in writing to the Maker, the principal
amount of $1,107,064.64.
The Maker further agrees to pay interest to the Payee on the unpaid
principal amount hereof from the date hereof at the rate per annum equal to
eight percent (8%), which interest rate shall be adjusted on July 1, 1994, and
each July 1 thereafter, and shall be equal to two percent (2%) in excess of the
prime rate published in the Wall Street Journal 30 days prior to each such
adjustment date. Notwithstanding anything contained herein to the contrary, the
interest rate hereunder shall not be less than seven percent (7%) nor greater
than ten percent (10%). All computations of interest hereunder shall be made on
a basis of a year of 360 days for the actual number of days (including the first
but excluding the last) occurring in the period for which interest is payable.
Principal and interest shall be paid in consecutive monthly
installments of $17,000, or, if the unpaid principal and interest accrued
thereon is less than $17,000 such lesser amount, on the first day of each month
commencing October 1, 1993. Such monthly installments shall continue until the
entire indebtedness evidenced by this Amended and Restated Promissory is paid in
full, except that all remaining indebtedness, if any, if not sooner paid, shall
be due and payable on June 1, 2001. Each such monthly installment shall be
credited first to accrued but unpaid interest due, if any, and the balance of
such installment shall be credited to the principal amount of this Amended and
Restated Promissory Note.
This Amended and Restated Promissory Note, among other things:
(i) amends and restates that certain Promissory Note dated
March 10, 1988 (as such note may be amended, modified or supplemented from time
to time, the "Original Note"), in the original principal amount of $1,176,165,
which Original Note was amended by that certain Promissory Note dated June 30,
1991 (the "Amended Note"), in the principal amount of $1,132,798.81;
(ii) reduces the principal amount evidenced by the Amended
Note to $1,107,064.64 to reflect the current principal amount which reflects
certain payments of principal to the Payee since the date of the Amended Note;
and
(iii) shall replace and be substituted for the Amended Note
which shall be canceled and voided and be of no further force or effect upon:
(a) the execution of the consent set forth below by Pacific Northwest Bank,
State of Washington (the "Bank"); (b) execution and
<PAGE> 2
delivery to Cordis of this Amended and Restated Promissory Note; and (c) receipt
by Cordis of that certain payment of principal and interest in the amount of
$50,000.
The occurrence of any of the following events shall constitute an event
of default hereunder (each such event, an "Event of Default"):
(i) if any payment required to be made hereunder is not paid
within 10 days of its corresponding due date;
(ii) default in the observation or performance of any
agreement or condition set forth herein or in that certain Settlement Agreement
dated January 13, 1988, by and between the Payee and the Maker;
(iii) in the event the Maker: (a) files with any bankruptcy
court of competent Jurisdiction or is the subject of any petition (which is not
dismissed within 30 days from the filing thereof) under Title 11 of the United
States Code, as amended; (b) is the subject of any order for relief issued under
such Title 11 of the United States Code, as amended (which is not dismissed
within 30 days from the filing thereof); (c) files or is the subject of any
petition seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future federal
or state act or law relating to bankruptcy, insolvency or other relief for
debtors (which is not dismissed within 30 days from the filing thereof); (d) has
sought or consented to or acquiesced in the appointment of any trustee,
receiver, conservator or liquidator; or (e) is subject of any order, judgment or
decree entered by any court of competent jurisdiction approving a petition filed
against it for any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future federal
or state act or law relating to bankruptcy, insolvency or relief for debtors
(which is not dismissed within 30 days from the filing thereof);
(iv) the Maker's failure to generally pay its debts as they
become due; or
(v) the Maker's failure to pay any of its currently
outstanding debt held by the Bank.
Upon the occurrence of an Event of Default, the entire principal amount
hereunder shall become immediately due and payable in full without notice to the
Maker. Such acceleration may be exercised at the option of the Payee regardless
of any prior forbearance.
Upon the occurrence of an Event of Default, and the subsequent
acceleration of this Amended and Restated Promissory Note by the Payee, the
interest rate of the entire indebtedness then outstanding will be the highest
rate permitted by law computed from the date of such default and continuing
until such default be cured.
In the event the Maker fails to make any payment of principal or
interest within 10 days of its due date, the Maker shall, in addition to making
such payment, pay to the Payee a late fee equal to 5% of such overdue payment.
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<PAGE> 3
The Maker hereby waives presentment, demand for payment, dishonor,
notice of dishonor, protest and notice of protest, and any and all other
requirements necessary to hold the Maker liable as the maker of this Amended and
Restated Promissory Note.
Notwithstanding any other provision of this Amended and Restated
Promissory Note or any other agreement between the Maker and the Payee, nothing
herein shall require the Maker to pay or the Payee to accept interest in an
amount which would subject the Payee to any penalty or forfeiture under
applicable law, and in no event shall the total of all charges payable hereunder
(whether of interest or of such other charges which may or might be
characterized as interest) exceed the maximum amount permitted to be charged
under applicable law. Should the Payee receive any payment which is or would be
in excess of that permitted to be charged under applicable law, such payment
shall have been and shall be deemed to have been made in error and such excess
shall be applied to reduce the principal indebtedness outstanding hereunder.
The Maker may prepay the full amount of this Amended and Restated
Promissory Note in whole or in part at any time and from time to time without
penalty.
No offset, counterclaim, reduction or diminution of any obligation
which the Maker may have or assert against any person, including, without
limitation, the Payee, shall be available hereunder to or shall be asserted by
the Maker in any action on or to enforce this Amended and Restated Promissory
Note or the obligations herein.
If any one or more of the provisions of this Amended and Restated
Promissory Note shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions of this
Amended and Restated Promissory Note shall not be affected or impaired.
The Maker agrees to pay all costs of collection of this Amended and
Restated Promissory Note, including, without limitation, attorneys' fees plus
costs incurred in enforcing this Amended and Restated Promissory Note and
recovery of all sums due hereunder, whether or not suit is instituted,
including, without limitation, in trial, on appeal, in bankruptcy proceedings or
otherwise.
The Maker shall be responsible for any and all documentary stamp taxes,
intangible taxes and recording costs arising in connection with this Amended and
Restated Promissory Note.
No waiver of any default in the performance of any of the duties or
obligations arising out of this Amended and Restated Promissory Note shall be
valid unless in writing and signed by the waiving party. Waiver of any one
default shall not constitute or be construed as creating waiver of any other
default or defaults. No course of dealing between the parties shall operate as a
waiver or preclude the exercise of any rights or remedies under this Amended and
Restated Promissory Note. Failure on the part of either party to object to any
act or failure to act of the other party, or declare the other party in default,
regardless of the extent of such default, shall not constitute a waiver by the
party of its rights hereunder.
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<PAGE> 4
All rights, remedies and options conferred upon the Payee hereunder or
by law shall be cumulative and may be exercised successively or concurrently and
are not alternative or exclusive of any other such rights, remedies or options.
This Amended and Restated Promissory Note shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the Maker and the Payee; provided, however, that the Maker may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of the Payee.
This Amended and Restated Promissory Note shall be governed by and
construed in accordance with the laws of the State of Florida.
THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED TO CERTAIN
INDEBTEDNESS OF THE MAKER IN FAVOR OF THE BANK PURSUANT TO THAT CERTAIN
SUBORDINATION AGREEMENT DATED AS OF AUGUST 7, 1991, AMONG THE MAKER, THE PAYEE
AND THE BANK (the "Subordination Agreement").
IN WITNESS WHEREOF, the Maker has executed and delivered the foregoing
Amended and Restated Promissory Note as of the day and year first above written.
Witnesses: Seamed Corporation, a Delaware corporation
/s/ Steven F. Bahr
- ----------------------------
By:
------------------------
/s/ Gina James By: /s/ Edgar F. Rampy
- ---------------------------- -------------------------------------
By: Title: VP-CFO
------------------------ ------------------------------------
In order to induce the Payee to enter into this Amended and Restated
Promissory Note, the undersigned: (i) consents to this Amended and Restated
Promissory Note and the terms and conditions contained herein, and (ii) as
required pursuant to the Subordination Agreement, consents to the payment when
due of all sums hereunder including, without limitation, the payment of the sum
of $50,000 simultaneously upon the execution hereof.
Witnesses: Pacific Northwest Bank, State of Washington
/s/ Steven F. Bahr
- ----------------------------
By:
------------------------
/s/ Gina James By: /s/ Milton Douglas
- ---------------------------- -------------------------------------
By: Title: Vice President
------------------------ ------------------------------------
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<PAGE> 1
EXHIBIT 10.6
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms are to
be read in conjunction with the Basic Terms.
SECTION 1.01. DATE OF LEASE: December 8, 1993
SECTION 1.02. LANDLORD (INCLUDING LEGAL ENTITY): Jack Martin, provided,
however, that Landlord shall be entitled to his interest to a general
partnership in which he is a general partner
Address of Landlord:
SECTION 1.03. TENANT (INCLUDE LEGAL ENTITY): SeaMED Corporation, a
Delaware corporation
Address of Tenant: 11810 North Creek Parkway North
Bothell, WA 98011
SECTION 1.04. PROPERTY (INCLUDE STREET ADDRESS, APPROXIMATE SQUARE
FOOTAGE AND DESCRIPTION): See Rider No. 2
SECTION 1.05. LEASE TERM: 12 years -0- months beginning on May 1, 1995
or such other date as is specified in this Lease, and ending on April 30, 2007
SECTION 1.06. PERMITTED USES: (See Article Five) All Commercial uses
allowable by law.
SECTION 1.07. TENANT'S GUARANTOR: (If none, so state) None
SECTION 1.08. BROKERS: (See Article Fourteen) (If one, so state)
Landlord's Broker: Kidder, Matthews & Segner, Inc.
Tenant's Broker: Kidder, Mathews & Segner, Inc.
SECTION 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ per separate agreement
SECTION 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $ 45,000.00
SECTION 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: 3 to 3.5
stalls per usable 1,000 square feet
<PAGE> 2
SECTION 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: Forty Five Thousand and No/100-------------- Dollars
($45,000.00) per month, for the first 60 months, as provided in Section 3.01,
and shall be increased on the first day of the 61 and 121 month(s) after the
Commencement Date either (i) as provided in Section 3.02, or (ii) by 10% of the
then immediately preceding month's rental rate. (If (ii) is completed, then (i)
and Section 3.02 are inapplicable).
(b) OTHER PERIODIC PAYMENTS: (i) Real Property taxes (See Section
4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section
4.04); (iv) Impounds for Insurance Premiums and Property Taxes (See Section
4.07); (v) Maintenance, Repairs and Alterations (See Article Six).
SECTION 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE:
(See Section 9.05) Fifty percent ( 50 %) of the Profit (the "Landlord's Share").
SECTION 1.14. RIDERS: The following Riders are attached to and made a
part of this Lease: (If note, so state)
Rider 1
Rider 2
SECTION 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
SECTION 2.02. DELAY IN COMMENCEMENT. See Rider No. 1.
SECTION 2.03. EARLY OCCUPANCY. See Rider No. 1.
SECTION 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
SECTION 3.01. TIME AND MANNER OF PAYMENT. See Rider No. 1.
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<PAGE> 3
SECTION 3.03. SECURITY DEPOSITS; INCREASES. See Rider No. 1.
SECTION 3.04. TERMINATION; ADVANCE PAYMENTS. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord, and any amounts paid for real property taxes and other reserves which
apply to any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
SECTION 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
SECTION 4.02. PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes on
the Property including any fees, taxes or assessments against, or as a result of
any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.07
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10)-day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i)
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) JOINT ASSESSMENT. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under
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<PAGE> 4
Paragraph 4.02(a) from the assessor's worksheets or other reasonably available
information. Tenant shall pay such share to Landlord within fifteen (15) days
after receipt of Landlord's written statement.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord for
such personal property taxes.
(e) TENANT'S RIGHT TO CONTEST TAXES. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when clue and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest-bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action is
unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
determined at such proceedings. The real property taxes shall be paid under
protest from such deposit if such payment under protest is necessary to prevent
the Property from being sold under a "tax sale" or similar enforcement
proceeding.
SECTION 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
SECTION 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
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amount of such insurance shall be Three Million Dollars ($3,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall be liable for the payment of any deductible amount under Landlord's
or Tenant's insurance policies maintained pursuant to this Section 4.04, in an
amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or
permit anything to be done which invalidates any such insurance policies.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.07, Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days alter Tenant's
receipt of a copy of the premium statement or other evidence of the amount due,
except Landlord shall pay all premiums for non-primary comprehensive public
liability insurance which Landlord elects to obtain as provided in Paragraph
4.04(a). If insurance policies maintained by Landlord cover improvements on real
property other than the Property, Landlord shall deliver to Tenant a statement
of the premium applicable to the Property showing in reasonable detail how
Tenant's share of the premium was computed. If the Lease Term expires before the
expiration of an insurance policy maintained by Landlord. Tenant shall be liable
for Tenant's prorated share of the insurance premiums. Before the Commencement
Date, Tenant shall deliver to Landlord a copy of any policy of insurance which
Tenant is required to maintain under this Section 4.04. At least thirty (30)
days prior to the expiration of any such policy, Tenant shall deliver to
Landlord a renewal of such policy. As an alternative to providing a policy of
insurance, Tenant shall have the right to provide Landlord a certificate of
insurance, executed by an authorized officer of the insurance company, showing
that the insurance which Tenant is required to maintain under this Section 4.04
is in full force and effect and containing such other information which Landlord
reasonably requires.
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(d) GENERAL INSURANCE PROVISIONS.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal
to Landlord required under this Lease within the prescribed time period or if
any such policy is canceled or modified during the Lease Term without Landlord's
consent. Landlord may obtain such insurance, in which case Tenant shall
reimburse Landlord for the cost of such insurance within fifteen (15) days after
receipt of a statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set forth
in the most current issue of "Best Key Rating Guide". Landlord and Tenant
acknowledge the insurance markets are rapidly changing and that insurance in the
form and amounts described in this Section 4.04 may not be available in the
future. Tenant acknowledges that the insurance described in this Section 4.04 is
for the primary tenet of Landlord. If at any time during the Lease Term, Tenant
is unable to maintain the insurance required under the Lease, Tenant shall
nevertheless maintain insurance coverage which is customary and commercially
reasonable in the insurance industry for Tenant's type of business as that
coverage may change from time to time. Landlord makes no representation as to
the adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of recovery
against the other, or against the officers, employees, agents or representatives
of the other, for loss of or damage to its property or the property of others
under its control, if such loss or damage is covered by any insurance policy in
force (whether or not described in this Lease) at the time of such loss or
damage. Upon obtaining the required policies of insurance, Landlord and Tenant
shall give notice to the insurance carriers of this mutual waiver of
subrogation.
SECTION 4 05. LATE CHARGES. See Rider No. 1
SECTION 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
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SECTION 4.07. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES.
If requested by any ground lessor or lender to whom Landlord has granted a
security interest in the property, or if Tenant is more than ten (10) days late
in the payment of rent more than once in any consecutive twelve (12) month
period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the
annual real property taxes and insurance premiums payable by Tenant under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-interest bearing impound account. If unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord may
apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE FIVE: USE OF PROPERTY
SECTION 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
SECTION 5.02. MANNER OF USE. Tenant shall not cause or permit the
Property to be used in any way which constitutes violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of other tenants of Landlord, or which constitutes a nuisance or
waste. Tenant shall obtain and pay for all permits, including a Certificate of
Occupancy, required for Tenant's occupancy of the Property and shall promptly
take all actions necessary to comply with all applicable statutes, ordinances,
rules, regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
SECTION 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or '"toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or winning
consent to tenant's proposed activity with respect to Hazardous Material. In no
event, however, shall Landlord be required to consent to the installation or use
of any storage tanks on the Property.
SECTION 5.04. SIGNS AND AUCTIONS. See Rider No. 1.
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SECTION 5.05. INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising from:
(a) Tenant's use of the Property; (b) the conduct of Tenant's business or
anything else clone or permitted by Tenant to be done in or about the Property,
including any contamination of the Property or any other property resulting from
the presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any reasonable legal fees or costs incurred by Landlord in
connection with any such Claim. As a material part of the consideration to
Landlord, Tenant assumes all risk of damage to property or injury to persons in
or about the Property arising from any cause, and Tenant hereby waives all
claims in respect thereof against Landlord, except for any claim arising out of
Landlord's gross negligence or willful misconduct. As used in this Section, the
term "Tenant" shall include Tenant's employees, agents, contractors and
invitees, if applicable. Landlord shall indemnify Tenant for all damage or
claims arising from Landlord's gross negligence or misconduct.
SECTION 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an emergency. Landlord
may place customary "For Sale" or "For Lease" signs on the Property.
SECTION 5.07. QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property for
the full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
SECTION 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the Commencement of the Lease Term, subject to all recorded
matters, laws, ordinances, and governmental regulations and orders. Except as
provided herein, Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation as to the condition of the Property or the
suitability of the Property for Tenant's intended use. Tenant represents and
warrants that Tenant has made its own inspection of and inquiry regarding the
condition of the Property and is not relying on any representations of Landlord
or any Broker with respect thereto except as provided herein. If Landlord or
Landlord's Broker has provided a Property Information Sheet or other Disclosure
Statement regarding the Property, a copy is attached as an exhibit to the Lease.
SECTION 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not
be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares,
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merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or upon other portions of the
Project, or from other sources or places; or (d) any act or omission of any
other tenant of the Project. Landlord shall not be liable for any such damage or
injury even though the cause of or the means of repairing such damage or injury
are not accessible to Tenant. The provisions of this Section 6.02 shall not,
however, exempt Landlord from liability for Landlord's dross negligence or
willful misconduct.
SECTION 6.03. LANDLORD'S OBLIGATION. See Rider No. 1.
SECTION 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Article Seven (Damage or Destruction),
Article Eight (Condemnation) and Section 6.03 Tenant shall keep all portions of
the Property (including structural, nonstructural, interior, exterior, and
landscaped areas, portions, systems and equipment) in good order, condition and
repair (including interior repainting and refinishing, as need). In any portion
of the Property or any system or equipment in the Property which Tenant is
obligated to repair cannot be fully repaired or restored. Tenant shall promptly
replace such portion of the Property or system or equipment in the Property,
regardless of whether the benefit of such replacement extends beyond the Lease
Term; but if the benefit or useful life of such replacement extends beyond the
Lease Term (as such term may be extended by exercise of any options), the useful
life of such replacement shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended). Tenant shall
maintain a preventive maintenance contract providing for the regular inspection
and maintenance and the heating and air conditioning system by a licensed
heating and air conditioning contractor. If any part of the Property is damaged
by any act or omission of Tenant, Tenant shall pay Landlord the cost of
repairing or replacing such damaged property, whether or not Landlord would
otherwise be obligated to pay the cost of maintaining or repairing such
property. It is the intention of Landlord and Tenant that at all times Tenant
shall maintain the portions of the Property which Tenant is obligated to
maintain in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
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SECTION 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS. See Rider No.
1.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20) days'
prior written notice of the commencement of any work on the Property, regardless
of whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
SECTION 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Section 6.03 or Article Seven (Damage or Destruction). In addition,
Landlord may require Tenant to remove any alterations, additions or improvements
(whether or not made with Landlord's consent) prior to the expiration of the
Lease and to restore the Property to its prior condition, all at Tenant's
expense. All alterations, additions and improvements which Landlord has not
required Tenant to remove shall become Landlord's property and shall be
surrendered to Landlord upon the expiration or earlier termination of the Lease,
except that Tenant may remove any of Tenant's machinery or equipment which can
be removed without material damage to the Property. Tenant shall repair, at
Tenant's expense, any damage to the Property, caused by the removal of any such
machinery or equipment. In no event, however, shall Tenant remove any of the
following materials or equipment (which shall be deemed Landlord's property)
without Landlord's prior written consent: any power wiring or power panels;
lighting or lighting fixtures; wall coverings; drapes, blinds or other window
coverings; carpets or other floor coverings; heaters; air conditioners or any
other heating or air conditioning equipment; fencing or security gales; or other
similar building operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
SECTION 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
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(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt if notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and, if the
damage was due to an act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to terminate the
Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair any damage to the Property and any building in
which the Property is located. Tenant shall pay the cost of such repairs, except
that upon satisfactory completion of such repairs, Landlord shall deliver to
Tenant any insurance proceeds received by Landlord for the damage repaired by
Tenant. Tenant shall give Landlord written notice of such election within ten
(10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months
of the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as for the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
SECTION 7.02. SUBSTANTIAL R TOTAL DESTRUCTION. See Rider No. 1.
SECTION 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed
or damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, ill
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
SECTION 7.04. WAIVER. Tenant waives the protection of any statute, code
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or
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Tenant may terminate this Lease as of the date the condemning authority takes
title or possession, by delivering written notice to the other within ten (10)
days after receipt of written notice of such taking(or in the absence of such
notice, within ten (10) days after the condemning authority takes title or
possession). If neither Landlord nor Tenant terminates this Lease, this Lease
shall remain in effect as to the portion of the Property not taken, except that
the Base Rent and Additional Rent shall be reduced in proportion to the
reduction in the floor area of the Property. Any Condemnation award or payment
shall be distributed in the following order: (a) first, to any ground Lessor,
mortgagee or beneficiary under a deed of trust encumbering the Property, the
amount of its interest in the Property; (b) second, to Tenant, only the amount
of any award specifically designated for loss of or damage to Tenant's trade
fixtures or removable personal property; and (c) third, to Landlord, the
remainder of such award, whether as compensation for reduction in the value of
the leasehold, the taking of the fee, or otherwise. It this Lease is not
terminated, Landlord shall repair any damage to the Property caused by the
Condemnation, except that Landlord shall not be obligated to repair any damage
for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
SECTION 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property
or of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than twenty percent
(20%) of the partnership interests shall require Landlord's consent. If Tenant
is a corporation, any change in the ownership of a controlling interest of the
voting stock of the corporation shall require Landlord's consent.
SECTION 9.02. TENANT AFFILIATE. Tenant may assign this Lease or
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
SECTION 9.03. NO RELEASE OF TENANT. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release Tenant
or change Tenant's primary liability to pay the rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of rent from any
other person is not a waiver of any provision of this Article Nine. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's transferee
defaults under this Lease, Landlord may proceed directly against Tenant without
pursuing remedies against the transferee. Landlord may consent to subsequent
assignments or modifications of this Lease by Tenant's transferee, without
notifying Tenant or obtaining its consent. Such action shall not relieve
Tenant's liability under this Lease.
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SECTION 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease
or sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.05 with respect to any proposed transfer shall
continue to apply.
SECTION 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in Section
9.01 shall set forth in writing the details of the proposed transfer (e.g., the
term of and the rent and security deposit payable under any proposed assignment
or sublease), and any other information Landlord deems relevant. Landlord shall
have the right to withhold consent, if reasonable, or to grant consent, based on
the following factors: (i) the business of the proposed assignee or subtenant
and the proposed use of the Property; (ii) the net worth and financial
reputation of the proposed assignee or subtenant; (iii) Tenant's compliance with
all of its obligations under the Lease; and (iv) such other factors as Landlord
may reasonably deem relevant. If Landlord objects to a proposed assignment
solely because of the net worth and/or financial reputation of the proposed
assignee, Tenant may nonetheless sublease (but not assign) all or a portion of
the Property to the proposed transferee, but only on the other terms of the
proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.13) of the Profit (defined below) on
such transaction as and when received by Tenant, unless Landlord gives written
notice to Tenant and the assignee or subtenant that Landlord's Share shall be
paid by the assignee or subtenant to Landlord directly. The "Profit" means (A)
all amounts paid to Tenant for such assignment or sublease, including "key"
money, monthly rent in excess of the monthly rent payable under the Lease, and
all fees and other consideration paid for the assignment or sublease, including
fees under any collateral agreements, less (B) costs and expenses directly
incurred by Tenant in connection with the execution and performance of such
assignment or sublease for real estate broker's commissions and costs of
renovation or construction of tenant improvements required under such assignment
or sublease. Tenant is entitled to recover such costs and expenses before Tenant
is obligated to pay the Landlord's Share to Landlord. The Profit in the case of
a sublease of less than all the Property is the rent allocable to the subleased
space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying
all amounts to be paid from any assignment or sublease of the Property within
thirty (30) days after the transaction documentation is signed and Landlord may
inspect Tenant's books and records to verify the accuracy of such statement. On
written request, Tenant shall promptly furnish to Landlord copies of all the
transaction documentation, all of which shall be certified by Tenant to be
complete, true and correct. Landlord's receipt of Landlord's Share shall not be
a consent to
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any further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.05(b) shall be a material default of the Lease.
SECTION 9.06. NO MERGER. No merger shall result from Tenant's sublease
of the Property under this Article Nine. Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
SECTION 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
SECTION 10.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge after written
notice that such payment is more than ten (10) days overdue;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period for sixty (60) days after written notice from
Landlord; provided that if more than sixty (60) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the sixty (60) day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
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(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
SECTION 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
SEE RIDER NO. 1 FOR 10.04.
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SECTION 10.5. REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments, a period for "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated Rent".
Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition required
by this Lease. Tenant acknowledges that its right to receive credit for the
Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual
performance of its obligations under this Lease. If Tenant defaults and does not
cure within any applicable grace period, the Abated Rent shall immediately
become due and payable in full and this Lease shall be enforced as if there were
no such rent abatement or other rent concession. In such case Abated Rent shall
be calculated based on the full initial rent payable under this Lease.
SECTION 10.6. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
SECTION 10.7 CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
SECTION 11.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any lender
which is acquiring a security interest in the Property or the Lease. Tenant
shall execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is
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dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
SECTION 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
SECTION 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
SECTION 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of the
terms or provisions of this Lease have been changed (or if they have been
changed. stating how they have been changed); (ii) that this Lease has not been
canceled or terminated; (iii) the last date of payment of the Base Rent and
other charges and the time period covered by such payment; (iv) that Landlord is
not in default under this Lease (or, if Landlord is claimed to be in default,
stating why); and (v) such other representations or information with respect to
Tenant or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such
ten (10) day period, Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been canceled or terminate
except as otherwise represented by Landlord; (iii) that not more than one
month's Base Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
SECTION 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
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Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
SECTION 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or nor suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and costs.
Tenant shall also indemnify Landlord against and hold Landlord harmless from all
costs, expenses, demands and liability Landlord may incur if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant against any
third party, or by any third party against Tenant, or by or against any person
holding any interest under or using the Property by license of or agreement with
Tenant; (b) for foreclosure of any lien for labor or material furnished to or
for Tenant or such other person; (c) otherwise arising out of or resulting from
any act or transaction of Tenant or such other person; or (d) necessary to
protect Landlord's interest under this Lease in a bankruptcy proceeding, or
other proceeding under Title 11 of the United States Code, as amended. Tenant
shall defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
SECTION 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
SECTION 13.01. NON-DISCRIMINATION. Tenant promises and it is a
condition to the continuance of this Lease that there will be no discrimination
against, or segregation of, any person or group of persons on the basis of race,
color, sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
SECTION 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under
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this Lease only during the time such Landlord owns such interest or title. Any
Landlord who transfers its title or interest is relieved of all liability with
respect to the obligations of Landlord under this Lease to be performed on or
after the case of transfer. However, each Landlord shall deliver to its
transferee all funds that Tenant previously paid if such funds have not yet been
applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders. officers or other principals shall have
any personal liability under this Lease.
SECTION 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
SECTION 13.04. INTERPRETATION. The captions of the Articles or Sections
of this Lease are to assist the parties in reading this Lease and are not a part
of the terms or provisions of this Lease. Whenever required by the context of
this Lease, the singular shall include the plural and the plural shall include
the singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
SECTION 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
SECTION 13.06. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by certified
mail, return receipt requested, postage prepaid. Notices to Tenant shall be
delivered to the address specified in Section 1.03 above, except that upon
Tenant's taking possession of the Property, the Property shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery. Either party may change its notice address upon written notice to the
other party.
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SECTION 13.07. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
SECTION 13.08. NO RECORDATION. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or Tenant
may require that a "Short Form" memorandum of this Lease executed by both
parties be recorded. The party requiring such recording shall pay all transfer
taxes and recording fees.
SECTION 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
SECTION 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is
a corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
SECTION 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
SECTION 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
SECTION 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding
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instrument. Landlord's delivery of this Lease to Tenant shall not be deemed to
be an offer to lease and shall not be binding upon either party until executed
and delivered by both parties.
SECTION 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
SECTION 14.01. BROKER'S FEE. When this Lease is signed by and delivered
to both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 1.08 above, if any, as provided in the
written agreement between Landlord and Landlord's Broker or the sum stated in
Section 1.09 above for services rendered to Landlord by Landlord's Broker in
this transaction. Landlord shall pay Landlord's Broker a commission if Tenant
exercises any option to extend the Lease Term or to buy the Property or any
similar option or right which Landlord may grant to Tenant, or if Landlord's
Broker is the procuring cause of any other lease or sale entered into between
Landlord and Tenant covering the Property. Such commission shall be the amount
set forth in Landlord's Broker's commission schedule in effect as of the
execution of this Lease. If a Tenant's Broker is named in Section 1.08 above,
Landlord's Broker shall pay an appropriate portion of its commission to Tenant's
Broker if so provided in any agreement between Landlord's Broker and Tenant's
Broker. Nothing contained in this Lease shall impose any obligation on Landlord
to pay a commission or fee to any party other than Landlord's Broker. Tenant
shall not be required to pay any Broker's commission or fee.
SECTION 14.02. PROTECTION OF BROKERS. If Landlord sells the Property or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the court in such action. This Paragraph is included in this
Lease for the benefit of Landlord's Broker.
SECTION 14.03. AGENCY DISCLOSURE; NO OTHER BROKERS. Landlord and Tenant
each warrant that they have dealt with no other real estate broker(s) in
connection with this transaction except Kidder, Mathews & Segner, Inc., who
represents Tenant.
ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal state
and local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment in Real Property Tax, the Comprehensive
Environmental Response Compensation and Liability Act, and the Americans With
Disabilities Act.
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ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO OR
IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW
A LINE THROUGH THE SPACE BELOW.
Landlord and Tenant have signed this Lease at the place and on the
dates specified adjacent to their signatures below and have initialed all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on 8 December, 1993 Jack Martin
at Bothwell, Washington /s/ Jack Martin
____________________________________
By: ________________________________
Its: _______________________________
By: ________________________________
Its: _______________________________
"TENANT"
Signed on December 8, 1993 SeaMED Corporation, a Delaware corporation
at Bothwell, WA ____________________________________
By: /s/ W. Robert Berg
Its: Pres/C.E.O.
By: Subject to B.O.D. Approval
Its: _______________________________
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IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH
A PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE
DIRECTION OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND
OFFICE REALTORS INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC., ITS
LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO
ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
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<PAGE> 24
AMENDMENT A
THIS IS AMENDMENT A TO THAT CERTAIN LEASE AGREEMENT DATED FOR REFERENCE
PURPOSES ONLY OCTOBER 8, 1993, BY AND BETWEEN JACK MARTIN, "LANDLORD," AND
SEAMED CORPORATION, "TENANT."
The lease shall be amended as follows:
1. SECTION 1.12 (A) - BASE RENT.
Base rent shall be $45,750 per month for the first 60 months, as
provided in Section 3.01, and shall be increased on the first day of
the 61st and 121st month after the Commencement Date by 10% of the then
immediately preceding months' rental rate.
2. ENERGY CONSERVATION CREDIT.
Tenant agrees to pay, in addition to base rent a monthly fee of $666.67
to offset Landlord's expenses associated with the upgraded mechanical
system.
ACKNOWLEDGED AND AGREED: ACKNOWLEDGED AND AGREED:
LANDLORD TENANT
BY: /s/ Jack Martin BY: /s/ Edgar F. Rampy
DATE: 12 September 1994 ITS: VP-CFO
DATE: 9-21-94
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STATE OF WASHINGTON )
) ss
COUNTY OF KING )
On this 8th day of December, 1993, before me, the undersigned, a
notary public in and for the State of Washington, duly commissioned and sworn
personally appeared W. Robert Berg, to me known to be the President & CEO of
SeaMed Corporation; the corporation that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation for the uses and purposes therein mentioned and
on oath stated that he/she is authorized to execute the said instrument.
WITNESS my hand and official seal hereto affixed the day and year in
this certificate above written.
/s/ William C. Neil
_____________________________________
NOTARY PUBLIC in and for the State of
Washington, residing at
Bellevue, WA
Print Name: William C. Neil
My commission expires 1/18/97
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Jack Martin
signed this instrument and acknowledged it to be his free and voluntary act for
the uses and purposes mentioned in the instrument.
Dated: December 8th, 1993
/s/ William C. Neil
_____________________________________
NOTARY PUBLIC in and for the State of
Washington, residing at
Bellevue, WA
Print Name: William C. Neil
My commission expires 1/18/97
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RIDER NO. 1
This is Rider No. 1 to that certain Lease Agreement dated December 8
1993, by and between Jack Martin ("Landlord") and SeaMED ("Tenant ").
SECTION 2.02. DELAY IN COMMENCEMENT. Landlord shall be liable to Tenant
by an amount equal to 100% of Tenant's holdover expenses incurred as a result of
late delivery if Landlord does not deliver possession of the Property to Tenant
on the Commencement Date. In no event shall the Commencement Date be prior to
the date of substantial completion of the Construction. Landlord's non-delivery
of the Property to Tenant on that date shall not affect this Lease or the
obligations of Tenant under this Lease except that the Commencement Date shall
be delayed until Landlord delivers possession of the Property to Tenant and the
Lease Term shall be extended for a period equal to the delay in delivery of
possession of the Property to Tenant, plus the number of days necessary to end
the Lease Term on the last day of a month. If Landlord does not deliver
possession of the Property to Tenant within sixty (60) days after the
Commencement Date, Tenant may elect to cancel this Lease by giving written
notice to Landlord within ten (10) days after the sixty (60)-day period ends. If
Tenant gives such notice, the Lease shall be canceled and neither Landlord nor
Tenant shall have any further obligations to the other. If Tenant does not give
such notice, Tenant's right to cancel the Lease shall expire and the Lease Term
shall commence upon the delivery of possession of the Property to Tenant. If
delivery of possession of the Property to Tenant is delayed, Landlord and Tenant
shall, upon such delivery, execute an amendment to this Lease setting forth the
actual Commencement Date and expiration date of the Lease. Failure to execute
such amendment shall not affect the actual Commencement Date and expiration date
of the Lease.
SECTION 2.03 EARLY OCCUPANCY. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay a prorata portion of
50% of Base Rent based on the portion it occupies.
SECTION 3.01 TIME AND MANNER OF PAYMENT. Upon identification of the
Property and agreement on Tenant's acceptance of the Site Plan, in addition to
the security deposit described in section 3.03 below, Tenant shall deposit with
Landlord an amount equal to 50% of one month's Base Rent set forth in Paragraph
1.12(a) above, which is to be credited to Tenant's first month rent. Upon
commencement of the Lease Term, Tenant shall pay Landlord 50% of the Base Rent
in the amount stated in Paragraph 1.12 (a) above. On the first day of the second
month of the Lease Term and each month thereafter, Tenant shall pay Landlord the
Base Rent, in advance, without offset, deduction or prior demand. The Base Rent
shall be payable at Landlord's address or at such other place as Landlord may
designate in writing.
SECTION 3.03 SECURITY DEPOSIT; INCREASES.
(a) Upon identification of the Property and agreement on Tenant's
acceptance of the Site Plan, Tenant shall deposit with Landlord the security
deposit set forth in Section 1.10 above. Landlord may apply all or part of the
Security Deposit to any unpaid rent or other charges due
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from Tenant or to cure any other defaults of Tenant. If Landlord uses any part
of the Security Deposit in any manner permitted under this Section, Tenant shall
restore the Security Deposit to its full amount within ten (10) days after
Landlord's written request. Tenant's failure to do so shall be a material
default under this Lease. No interest shall be paid on the Security Deposit.
Landlord shall not be required to keep the Security Deposit separate from its
other accounts and no trust relationship is created with respect to the Security
Deposit.
SECTION 4.05 LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of Such costs is
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay Landlord a late charge equal to
five percent (5%) of the overdue amount, regardless of whether Tenant receives
notice of such late payment from Landlord. The parties agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
SECTION 5.04 SIGNS AND AUCTIONS. Tenant shall not conduct or permit any
auctions or sheriff's sales at the Property. Tenant is authorized to install at
its expense a sign on the Building exterior, subject to compliance with
applicable law.
SECTION 6.03 LANDLORD'S OBLIGATIONS.
(a) Repair of Defects. Landlord, at its sole cost and expense without
cost or charge to or contribution by Tenant, shall be responsible for and make
all repairs, replacements and perform all maintenance required because of (i)
defective design or construction of the Building, and/or Improvements (unless
designed and constructed by Tenant), and all equipment and systems associated
therewith and/or incorporated therein, or (ii) latent defects in any of the
foregoing. The Landlord represents that the Building and all Improvements will
be built, and the Premises on completion of the Construction shall have been
built, in accordance with and in compliance with all applicable laws. Tenant
waives the benefit of any present or future law that might give Tenant the right
to repair the Property at Landlord's expense or to terminate the Lease due to
the condition of the Property except Tenant shall be entitled to terminate this
Lease upon written notice to Landlord if Landlord fails to complete repairs as
required under this Section 6.03.
(b) Time to Complete Work. All work to be performed by the Landlord
under this Section shall be completed promptly, but in any event within
twenty-four (24) hours in any emergency (as defined below) and within twenty
(20) days for all other repairs. If the work cannot be completed within
twenty-four (24) hours or twenty (20) days, as the case may be, it shall be
commenced within the applicable period and prosecuted continuously and
diligently thereafter until completion. "Emergency" means a situation that (i)
threatens the physical well-being of persons within the Premises, (ii)
materially disrupts the Tenant's use and/or occupancy of the Premises or any
portion thereof, or (iii) disrupts Tenant's use of parking.
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SECTION 6.05. ALTERATIONS, ADDITIONS AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or improvements
to the Property without Landlord's prior written consent, except for those
listed in Rider 2 and except for non-structural alterations which do not exceed
Twenty Thousand Dollars ($20,000)and which are not visible from the outside of
any building of which the Property is part. Landlord shall not unreasonably
withhold such consent. Landlord's consent shall be deemed given if Landlord does
not respond within fifteen (15) days of receipt of Tenant's request for consent.
Landlord may require Tenant to provide demolition and/or lien and completion
bonds in form and amount satisfactory to Landlord. Tenant shall promptly remove
any alterations, additions, or improvements constructed in violation of this
Paragraph 6.05(a) upon Landlord's written request. All alterations, additions
and improvements shall be done in a good and workmanlike manner, in conformity
with all applicable laws and regulations, and by a contractor approved by
Landlord. Upon completion of any such work, Tenant shall provide Landlord with
"as built" plans, copies of all construction contracts, and proof of payment for
all labor and materials.
SECTION 7.02 SUBSTANTIAL OR TOTAL DESTRUCTION.
If the Property is substantially or totally destroyed by any cause
whatsoever (i.e., the damage to the Property is greater than partial damage as
described in Section 7.01), and regardless of whether Landlord receives any
insurance proceeds, this Lease shall terminate as of the date the destruction
occurred. Notwithstanding the preceding sentence, if the Property can be rebuilt
within six (6) months after the date of destruction, Landlord may elect to
rebuilt the Property at Landlord's own expense, in which case this Lease shall
remain in full force and effect. Landlord shall notify Tenant of such election
within thirty (30) days after Tenant's notice of the occurrence of total or
substantial destruction. If repairs are not completed within six (6) months
after the date of destruction, Tenant may terminate this Lease upon written
notice to Landlord. If Landlord so elects, Landlord shall rebuild the Property
at Landlord's sole expense, except that if the destruction was caused by an act
or omission of Tenant, Tenant shall pay Landlord the difference between the
actual cost of rebuilding and any insurance proceeds received by Landlord.
SECTION 10.04 MITIGATION OF DAMAGES.
Landlord shall mitigate its damage by making reasonable efforts to
relet the Property on reasonable terms. Landlord may relet for a shorter or
longer period of time than the Lease Term and make reasonably necessary repairs
or alterations. If Landlord makes modifications to the Property that are
reasonably necessary to relet the Premises, the cost of such modifications shall
be considered damages to the Landlord, except that in no event shall the amount
of such damages exceed the amount of rental due from Tenant under the Lease. If
Landlord relets for a period longer than the Lease Term, then any special
concessions given to the new tenant, and the cost of modifications made on
behalf of the new tenant, shall be allocated throughout the entire reletting
term so that Tenant is charged only with the proportion of the concessions or
modifications allocated to the remainder of the Lease Term.
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RIDER NO. 2
This is Rider No. 2 to that certain Lease Agreement dated December 8,
1993, by and between Jack Martin ("Landlord") and SeaMED ("Tenant ").
A. IDENTIFICATION OF THE PROPERTY
As of the execution date of this Lease, neither Landlord nor Tenant
have identified the real property ('the "Land") upon which the building and
other improvements which are the subject of this Lease (the "Improvements") will
be constructed. Immediately subsequent to the execution date of this Lease,
Landlord shall commence a search for Land which is mutually acceptable to
Landlord and Tenant upon which the Improvements will be constructed. Upon such
agreement, this Lease shall be amended to include the legal description of the
Land as Exhibit A.
Tenant acknowledges that the Base Rent specified in this Lease is based
upon certain assumptions by Landlord regarding the cost of the Land. In the
event the cost of the Land upon which Landlord and Tenant have agreed is
appropriate for construction of the Improvements exceeds the amount assumed by
Landlord in establishing the Base Rent, Landlord shall so notify Tenant and
shall propose an adjusted Base Rent to Tenant. In the event Landlord and Tenant
are unable to agree upon an adjusted Base Rent, Landlord and Tenant shall either
agree to locate alternative Land or either may elect to terminate this Lease.
In the event Landlord and Tenant have not specified the Land by March
1, 1994, either party may elect to terminate this Lease. In the event this Lease
is terminated, Tenant shall receive a refund of its initial security deposit and
the portion of the first month's rent paid to Landlord and neither party shall
have any further obligation to the other under this Lease.
B. CONSTRUCTION
1. Site Plan. Within 5 days of Landlord's and Tenant's agreement
regarding the identity of the Land, Landlord shall provide to Tenant a site plan
with respect to the Land and Improvements (the "Site Plan") and conceptual
elevations. Upon Tenant's approval of the Site Plan, it shall be attached to
this Lease as Exhibit B. Landlord shall provide to Tenant for the construction
of the Building schematic designs (the "Tenant Plans") and the Building
Standards and Specifications ("Specifications") within 5 days of Landlord's and
Tenant's agreement regarding the Site Plan. The work Landlord is required to
perform under this Article, and the process of performing that work, are
referred to as the "Construction". The Improvements to be constructed on the
Land are described on Exhibit C of this Lease. Landlord and Tenant agree that
Tenant's Plans and Specifications shall be consistent with the Improvements
described on Exhibit C.
2. Conditions
(a) Within 5 days of Landlord's and Tenant's agreement with respect to
the site, Landlord shall prepare and furnish to Tenant a preliminary Site Plan.
These and conceptual
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elevations shall be prepared by duly licensed or registered architect and shall
conform to applicable governmental requirements as to the adequacy of plans and
specifications submitted with an application for a building or other
construction permit so that such permit may issue. The Working Drawings shall be
an evolution of and incorporate the work shown on the Site Plan conceptual
elevations and exhibit "C" attached hereto.
(b) Tenant shall approve or reject the Site Plan within 5 days of
receipt of the Site Plan. Landlord shall provide Tenant with a project
construction schedule in bar chart format using the Uniform Construction Index
("UCI") format, prior to commencement of construction.
(c) Upon Tenant's acceptance and approval of the preliminary Site Plan
and elevations Landlord, at its sole cost and expense, shall obtain or cause to
be obtained all building permits and other governmental approvals which may be
required to permit the Construction in accordance with the Working Drawings and
the occupancy thereof for the intended uses. In the event Landlord is unable,
despite its best efforts, to obtain the permits and other governmental approvals
necessary to construct the Improvements by September 1, 1994, either Landlord or
Tenant shall be entitled to terminate this Lease. In the event of such
termination, Tenant shall receive a refund of its initial security deposit and
the portion of the first month's rent paid to Landlord and neither party shall
have any further obligation to the other under this Lease.
3. Construction Defects. Tenant's acceptance of the Site Plan and
elevations shall not: (i) constitute an opinion or agreement by Tenant that they
comply with Laws (it being agreed that such compliance is solely Landlord's
responsibility); (ii) impose any present or future liability on Tenant; (iii)
constitute a waiver of any of Tenant's rights hereunder; (iv) impose additional
obligations on Tenant; or (v) impose on Tenant any responsibility for a design
and/or construction defect or fault in the Construction. Notwithstanding
anything to the contrary contained elsewhere in this Lease, the correction of
any such defect or fault whenever necessary and whatever involving shall be at
Landlord's sole cost and expense without any expense, payment, cost or charge
whatever to or contribution by Tenant.
4. The Construction. Upon the issuance of a building permit, Landlord
shall promptly commence the Construction and diligently proceed to complete same
at its sole cost and expense. In the event Landlord has not commenced
construction by September 1, 1994, Tenant shall be entitled to terminate this
Lease. In the event of such termination, Tenant shall receive a refund of its
initial security deposit and the portion of the first month's rent paid to
Landlord and neither party shall have any further obligation to the other under
this Lease. Landlord warrants and represents that all portions of the Building
will be constructed with new materials. The construction shall be performed by
or on behalf of Landlord in a good and workmanlike manner and in compliance with
all Laws. Landlord has the entire and sole responsibility to correct any
portion(s) of the Construction which is not in compliance with Laws, all at its
sole cost and expense without expense, payment, cost or charge whatever to or
contribution by Tenant for causing such compliance. Landlord's obligation set
forth in the preceding sentence shall apply only with respect to the
Construction. In the event that, subsequent to substantial completion (as
defined in Section 8 hereof), due to a change in applicable law or additional
construction or repair activities (except repair activities undertaken by
Landlord as required in Section 6.03 of the
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Lease) with respect to the Property, any governmental agency requires
modification to the Property in order to bring it into compliance with then-
applicable Laws, the cost of performing such modification shall be the
responsibility of Tenant.
5. Changes in Construction. If Tenant requests a change to the
Construction, Landlord shall notify Tenant in writing, before executing the
change, of the cost thereof or the savings to the Landlord, if any, and the
delay in substantial completion, if any, in the Construction caused by the
change. Tenant shall then either tell Landlord to proceed with the change order
or withdraw it within 5 days thereafter. If Tenant does not take any action with
respect thereto in that time the change order is deemed withdrawn hereby. The
cost of a change order shall be determined by mutual agreement of Landlord and
Tenant negotiating the costs and savings in good faith. Payments by Tenant to
Landlord for changes that increase the cost of the Construction shall be made
pro rata as such work progresses so long as the relevant materials are installed
or are on site, Tenant or its representative(s) has inspected and approved the
work, appropriate lien waivers from the proper parties furnishing labor,
materials, and/or services are provided, and Landlord has submitted an itemized
bill. Such payment shall be made within 10 days of receipt of all of the
foregoing by Tenant. If the parties agree on the length of the delay
necessitated by the change, the date for substantial completion of the
Construction shall be postponed by the length of such delay. If the parties
cannot agree the period of postponement shall be determined by the actual length
of delay.
7. Tenant's Access During Construction. During the Construction,
Tenant or its representative(s) may enter upon the Property for purposes of
inspecting the Construction, taking measurements, making plans, installing trade
fixtures and doing such other work as may be appropriate or desirable without
being deemed thereby to have taken possession. Tenant's use of the Property for
the purposes herein stated shall be on all of the terms, covenants, and
conditions of this Lease, except as to commencement of the Term and payment of
Rent. In exercising its rights under this Paragraph, Tenant shall not interfere
materially with Landlord's construction work in the Property. Tenant has the
right to reject any portion(s) of the Construction which do not meet the
requirements of this Lease. If Tenant does reject any portion(s) of the
Construction as nonconforming to the requirements of this Lease, Landlord shall
take all necessary corrective measures, including but not limited to replacement
of all of such Construction, at no expense, charge, or cost to Tenant.
8. Substantial Completion. The phrases "substantial completion" or
"substantially complete(d)" as used in this Lease shall be deemed to mean the
availability of the Property for uninterrupted use and occupancy by Tenant with
a minimum of interference by the Landlord which will be indicated by the fact
that the following shall have occurred: (i) All Construction shall have been
completed, except for punchlist items, shall have been inspected and approved by
the appropriate authorities and a final certificate of occupancy has been
issued; (ii) mechanical, plumbing, electrical, conveying and sprinkler systems
(installed and tested as per specifications) shall have been completed such that
the appropriate services to be rendered by such systems can be and are being
supplied and such systems are fully operational; (iii) the entrance and lobby of
the Building shall have been completed and the means of ingress and egress are
not interfered with
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by any scaffolding, building materials, or other articles; and (iv) the parking
areas and access roads have been completed.
9. Punchlist. Landlord shall complete all punchlist items as
expeditiously as possible but in any event within thirty (30) days after
substantial completion of the Construction. The punchlist shall be developed by
Landlord and Tenant after an inspection of the Property by Landlord and Tenant
or their representative(s). Landlord shall deliver to Tenant five (5) sets of
"as-built" Construction Documents within thirty (30) days after substantial
completion of the Construction.
10. Dispute About Substantial Completion. If Landlord alleges that the
date of substantial completion of the Construction would have occurred earlier
than the actual date thereof but for the fault of Tenant and the parties cannot
agree on the date, the matter shall be submitted to an independent arbitration
for determination of the date of substantial completion of the Construction. The
arbitration shall be conducted in accordance with generally accepted practices
of the American Arbitration Association. The cost of said arbitration shall be
shared equally by the parties.
B. LANDLORD'S WARRANTIES
To induce Tenant to execute this Lease, and in consideration of the
other representations and warranties of Landlord contained in this Lease,
Landlord warrants and represents that, as of the Commencement of the Lease Term:
1. Landlord is the owner in fee simple of the Property;
2. Landlord has good and marketable title to the Building and the Land,
there are no liens, easements, restrictions or encumbrances upon the Building
and Land other than those shown on Exhibit A and none of the matters listed on
Exhibit A does or shall prohibit, restrict or adversely affect Tenant's use and
occupancy of the Property or the intended use of the rights and easements
granted to Tenant in this Lease;
3. There are no restrictions or impediments imposed by laws (including
applicable zoning and building ordinances) that would prevent Tenant from using
the Property for the uses and in the manner contemplated by this Lease, or from
using the parking facilities and access roads;
4. This Lease, the Property, the Construction and the Tenant
Improvements, when or as constructed shall not violate the provisions of laws or
of any instrument executed by the Landlord or any other instrument that places
any restrictions or burdens on the Land or Building;
5. Landlord has obtained all necessary easements for access and
utilities and these are appurtenant to the Land; and
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6. Landlord has full right and lawful authority to enter into and
perform Landlord's obligations under this Lease for the full term.
C. TENANT'S WARRANTIES
To induce Landlord to execute this Lease, and in consideration of the
other representations and warranties of Tenant contained in this Lease, Tenant
warrants and represents that:
1. Tenant is a duly formed and validly existing corporation under the
laws of the state of Delaware and is qualified to do business as a foreign
corporation in the State of Washington. Tenant's execution and performance of
this Lease has been duly authorized by Tenant and the individual executing this
Lease on behalf of the Tenant has been duly authorized to do so.
2. Tenant has full right and lawful authority to enter into and perform
Tenant's obligations under this Lease for the full term (including any optional
extensions thereof).
D. CONTROLLING TERMS
To the extent that any provisions of the preprinted Lease and this
Rider 2 are inconsistent, the terms of this Rider 2 shall be controlling.
E. OPTION TO EXTEND
Tenant shall have the option to extend the term of this Lease for five
(5) additional consecutive periods of three (3) years each ("Option Period"),
provided Tenant is not in default of any of the terms, conditions or covenants
of this Lease at the time of exercise, and Tenant gives written notice of
exercise of the option to extend at least nine (9) months prior to the
expiration of the original term. The Option Period shall be upon the same terms
and conditions except that the Rent shall be ninety-five percent (95%) of the
then fair market rental value of the Property, but in no event less than the
rental rate charge during the last year of the initial term, or the previous
Option Period, as the case may be. Then rental rate for each Option Period shall
be determined as follows:
(1) The parties shall have fifteen (15) days after the Landlord
receives Tenant's Notice within which to agree on the rental rate for the Option
Period in question based upon ninety-five percent (95%) of the then fair market
rental value of the Property as defined in Paragraph E(3). If the parties agree
on the rental rate for that Option Period within fifteen (15) days, they shall
immediately execute an amendment to this Lease stating the rental rate for that
Option Period.
(2) If the parties are unable to agree on the rental rate for an Option
Period within such fifteen (15) day period, then the rental rate for that Option
Period shall be ninety-five percent (95%) of the then current fair market rental
value of the Property as determined by an MAI appraiser selected by mutual
agreement of Landlord and Tenant. The cost of said appraisal is to be shared
equally by the parties.
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(3) The "then fair market rental value of the Property" shall be
defined to mean the fair market rental value of the Property as of the
commencement of the Option Period in question, taking into consideration the
uses permitted under this Lease, the quality, size, design and location of the
Property, and the rent for comparable buildings located in Bothell, but
excluding the value of any improvements made to the Property by Tenant at
Tenant's expense.
F. PROPERTY MANAGEMENT FEE
Landlord shall arrange for a third party property management company to
provide the following property management services with respect to the Property'
1. Coordination of all matters relating to repair and maintenance
of the Property, including but not limited to: HVAC,
electricity, landscaping, elevators, janitorial service, and
window washing.
2. Coordination of taxes and insurance payments.
Tenant shall pay to the third party property management company, on the
first day of each month, commencing with the commencement of the Lease Term, a
property management fee equal to 1.9% of the Base Rent, as such Base rent is
adjusted pursuant to the terms of this Lease.
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EXHIBIT 10.7
INDUSTRIAL REAL ESTATE LEASE
(BUILDING 1)
DATED: September 10, 1996
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. LANDLORD: WASHINGTON CAPITAL MANAGEMENT, INC., as
Investment Manager for Locals 302 and 612, International Union of Operating
Engineers - Employers Construction Industry Retirement Fund. Address of
Landlord: 1301 5th Avenue, Suite 3636, Seattle, WA 98101.
Section 1.02. TENANT: SeaMED Corporation, a Delaware corporation.
Address of Tenant: 14560 N.E. 87th Street, Redmond, WA 98052.
Section 1.03. PREMISES: The "Premises" shall be the building (the
"Building") to be constructed pursuant to the provisions of Exhibit B. The
Building will be located on a portion or the real property described on Exhibit
A, which portion is shown on Exhibit A-1 (which portion, together with all
improvements now or hereafter located thereon is referred to as the "Property").
The second floor of the Building shall also be known as the "Expansion Space."
Section 1.04. COMMON AREAS. Tenant shall have the non-exclusive right
to use the Common Areas as described in Section 6.03.
Section 1.05. LEASE TERM: 10 years commencing (the "Commencement Date")
on the date Landlord obtains a certificate of occupancy for the Building. If the
Commencement Date has not occurred within 90 days after May 1, 1997, then unless
the delay is caused by force majeure (see Section 13.13), then Tenant may
terminate this Lease by written notice to Landlord.
Section 1.06. TENANT'S SHARE OF COMMON EXPENSES: 100%.
Section 1.07. PERMITTED USES: (See Article Six) Design, manufacturing
and distribution of medical and commercial equipment and general office uses and
for no other purpose.
1
<PAGE> 2
Section 1.08. BROKERS: (See Article Fifteen) Landlord's Broker:
Trammell Crow NW, Inc. Tenant's Broker: Kidder, Mathews & Segner, Inc.
Section 1.09. SECURITY DEPOSIT: (See Section 3.02) $50,000.
Section 1.10. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: From the Commencement Date until 9 months after the
Commencement Date, the monthly Base Rent shall be $28,500. From that date until
the date which is 3 years after the Commencement Date, the monthly Base Rent
shall be $57,000. Thereafter, the monthly Base Rent shall be $63,000 for years
4-6 of the Lease Term; $69,000 for years 7-9 of the Lease Term; and $75,000 for
year 10 of the Lease Term.
(b) OTHER PERIODIC PAYMENTS: (i) Common Expenses (see Section 4.01);
and (ii) Utilities (see Section 4.04).
Section 1.11. TENANT IMPROVEMENTS. See Exhibit B.
Section 1.12. EXHIBITS. The following Exhibits are attached to and made
a part of this Lease: Exhibits A (Description of Property), and B (Landlord's
Work) and C (Tenant's Party in Interest Certificate).
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PREMISES FOR LEASE TERM. Landlord leases the
Premises to Tenant and Tenant leases the Premises from Landlord for the Lease
Term stated in Section 1.05 above. Notwithstanding the foregoing, if Landlord
does not commence construction on the Property on or before November 1, 1996,
then Tenant shall have the right to terminate this Lease by written notice to
Landlord accompanied by payment of the termination fee. The termination fee
shall be 50% of all out-of-pocket architectural costs incurred by Landlord in
connection with the Property, provided that the termination fee shall not exceed
$25,000.
Section 2.02. EARLY OCCUPANCY. Landlord will permit Tenant to enter the
Premises during the final phases of the tenant improvement work to begin
installing its fixtures and equipment, provided that Tenant shall at all times
cooperate with Landlord and provided that such installations do not interfere
with or delay Landlord's Work (as defined in Exhibit B). Tenant's presence on
the Premises shall be subject to all of the provisions of this Lease, but
excluding the payment of Base Rent and Other Periodic Payments.
Section 2.03. OPTIONS TO EXTEND.
(a) Provided that Tenant is not in default at the time of exercise or
at commencement of the extended term, and otherwise has timely cured all
defaults, then Tenant shall have 2 consecutive options to extend the Lease term
for 5 years each (each, an "Extended Term"). In order to exercise such options,
Tenant shall provide written notice ("Notice of Exercise") to
2
<PAGE> 3
Landlord of its election no later than 6 months before the end of the initial
lease term (or first Extended Term). The exercise of such options to extend
shall be for the entire Premises and shall be on the same terms and conditions
as set forth in the Lease except the Base Rent shall be adjusted as set forth in
Paragraph (b) below. The options provided in this Section 2.03 are personal to
Tenant and may not be exercised by any assignee or sublessee.
(b) If Tenant exercises an extension right pursuant to Paragraph (a)
above, the initial Base Rent and the periodic increases for the applicable
Extended Term shall be equal to the market rent for a 5 year term for comparable
space ("Fair Market Rent Schedule") but in no event shall the initial Base Rent
be less than the Base Rent paid in Year 10 of the Lease Term (for the first
Extended Term) or the Base Rent paid in Year 5 of the first Extended Term (for
the second Extended Term). Tenant's estimation of the Fair Market Rent Schedule
shall be included with Tenant's option exercise notice. Landlord shall give
Tenant notice of Landlord's estimation of Fair Market Rent Schedule ("Landlord's
Value Notice") by the later of 20 days after receipt of Tenant's exercise notice
or 6 months before the end of the initial Lease Term or first Extended Term, as
the case may be. If there is a disagreement on the Fair Market Rent Schedule,
the parties shall promptly meet to attempt to resolve their differences. If the
differences are not resolved then either party may apply for arbitration in
accordance with the below paragraphs.
If neither party applies for arbitration within 10 business days after
receipt by Tenant of Landlord's Value Notice, Tenant shall be bound to the Fair
Market Rent Schedule stated in Landlord's Value Notice. Should either party
elect to arbitrate, and if the arbitration is not concluded before the
commencement of the applicable Extended Term, Tenant shall pay Monthly Base Rent
to Landlord in an amount equal to the Fair Market Rent Schedule set forth in
Landlord's Value Notice, until the Fair Market Rent Schedule is determined in
accordance with the arbitration provisions hereof. If the Fair Market Rent
Schedule as determined by arbitration differs from that stated in Landlord's
Value Notice, then any adjustment required to correct the amount previously paid
by Tenant shall be made by payment by the appropriate party within 30 days after
the determination of Fair Market Rent Schedule by arbitration has been
concluded, as provided herein. Tenant shall be obligated to make payment during
the entire Extended Term of the Monthly Base Rent determined in accordance with
the arbitration procedures hereunder.
(c) If either party seeks arbitration of Fair Market Rent Schedule
under the provisions hereof for the applicable Extended Term, the other party
shall be bound to submit the matter for determination by arbitration. The
arbitration shall be conducted and determined in the county where the Property
is located.
(d) A party demanding arbitration hereunder shall make its demand in
writing ("Demand Notice") within 10 business days after service of Landlord's
Value Notice. A copy of the Demand Notice shall be sent to the President of the
Real Estate Board for the county in which the Property is located. If there is
no Real Estate Board President in the county in which the Property is located,
then a copy of the Demand Notice shall be sent to the Presiding Judge of the
highest trial court in such county for the state in which the Property is
located. The Board President, or Presiding Judge, whichever is applicable, is
hereinafter referred to as the "Appointer." The Appointer, acting in his
personal, private capacity, shall appoint within 10 days thereafter a real
estate broker with at least 7 years' experience leasing property in the same
county for the general type of use to
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which the Property is devoted under the terms of this Lease. The arbitrator
shall be a person who would be qualified to serve as an expert witness and to
give opinion testimony addressed to the issue in a court of competent
jurisdiction. Such a party is hereinafter referred to as the "Arbitrator." The
parties may, however, before sending the Demand Notice to the Appointer,
mutually agree upon an Arbitrator of their own choice, in which event such
appointment shall nullify the necessity of appointment of an Arbitrator by an
Appointer.
(e) The Arbitrator so selected, within 90 days after appointment, shall
determine whether Landlord's valuation, or Tenant's valuation of Fair Market
Rent Schedule most closely approximates the Arbitrator's and shall provide
written notice of the decision to the parties. The Arbitrator is strictly
limited to the selection of Landlord's Fair Market Rent Schedule evaluation as
stated in Landlord's Value Notice or Tenant's Fair Market Rent Schedule
evaluation as stated in the Notice of Exercise. The Arbitrator shall have the
right to consult experts and competent authorities with factual information or
evidence pertaining to a determination of Fair Market Rent Schedule, but any
such consultation shall be made in the presence of both parties with full right
to cross examine. The Arbitrator shall have no right to propose a middle ground
or any modification of either of the proposed valuations, and shall have no
power to modify the provisions of this Lease. The evaluation so chosen as most
closely approximating that of the Arbitrator shall constitute the decision of
the Arbitrator and shall be final and binding upon the parties, absent fraud or
gross error. The Arbitrator shall render a decision and award in writing, with
counterpart copies to each party and judgment thereon may be entered in any
court of competent jurisdiction.
(f) If the Arbitrator fails, refuses or is unable to act in a timely
manner, a successor shall be appointed in the same manner as such Arbitrator was
first chosen hereunder, if such Arbitrator was chosen by an Appointer. If chosen
by mutual agreement, the parties shall, in this succeeding instance, choose the
Arbitrator through means of the procedure for the Appointer. The fees and
expenses of the Arbitrator and the administrative hearing fee, if any, shall be
divided equally between the parties. Each party shall bear its own attorneys'
fees and the other expenses including fees for witnesses in presenting evidence
to the Arbitrator.
Section 2.04. HOLDING OVER. Tenant shall vacate the Premises upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Premises. If Tenant does not vacate the Premises
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Premises shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by 50% if Tenant does not have Landlord's written consent to holdover.
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Commencing on the
Commencement Date and continuing on the first day of each month thereafter,
Tenant shall pay Landlord the Base Rent, in advance, without offset, deduction
or prior demand. The Base Rent shall be
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payable at Landlord's address set forth in Section 1.01 or at such other place
as Landlord may designate in writing.
Section 3.02. SECURITY DEPOSIT. Upon the execution of this Lease,
Tenant shall deposit with Landlord the Security Deposit specified in Section
1.09. Landlord may apply all or part of the Security Deposit to any unpaid rent
or other charges due from Tenant or to cure any other defaults of Tenant. If
Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its original amount within 10 days after Landlord's written
request. Tenant's failure to do so shall be a material default under this Lease.
The Security Deposit shall be commingled with Landlord's other funds and shall
not bear interest.
Section 3.03. TERMINATION: ADVANCE PAYMENTS. Upon termination of this
Lease under Article Eight (Damage or Destruction), Article Nine (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Premises in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord which apply to any time periods after termination of the Lease.
ARTICLE FOUR: COMMON EXPENSES
Section 4.01 DEFINITIONS. The following terms shall have the following
meanings:
Common Expenses. All costs incurred by Landlord in connection with the
Property including payroll costs, insurance, utilities, Real Property Taxes,
repairs, operation, maintenance and replacements and any other expenses which in
accordance with generally accepted accounting and management practices would be
considered an expense of maintaining, managing (not to exceed 3% of Base Rent),
operating, owning, or repairing the Property excluding (i) initial leasing costs
including tenant improvements and leasing commissions for other tenants; and
(ii) costs of any special services rendered to individual tenants for which a
special charge is collected, together with an amount equal to 10% of the total
thereof as compensation to Landlord for administrative services. Common Expenses
shall include amortization (including interest at the rate incurred by Landlord
in connection therewith) of repairs and improvements to the Property which are
capitalized.
Real Property Taxes: All taxes, governmental charges and assessments
levied on the Property, or any improvements, fixtures and equipment and all
other property of Landlord, real or personal, used in the operation of the
Property; any taxes in addition to or in lieu of, in whole or in part, such
taxes; any tax upon leasing or rents of the Property; any other governmental
charge such as payments for transit or carpooling or environmental facilities;
and all costs and expenses incurred by Landlord in connection with the attempt
to reduce any of the foregoing, whether by negotiation or contest. Real Property
Taxes shall not include any franchise or state income tax, inheritance tax,
estate tax, business and occupation tax, or other similar tax, and do not
include any late payment penalties if Tenant has paid the amounts due under
Section 4.02(a) as and when due.
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Section 4.02 PAYMENT OF TENANT'S SHARE. Commencing on the Commencement
Date and continuing until the earlier of (a) 9 months after the Commencement
Date, or (b) the date Tenant occupies any portion of the Expansion Space for any
purpose, including storage (the "Initial Period"), Tenant shall pay -1/2 of
Tenant's Share of Common Expenses. Commencing at the end of the Initial Period,
Tenant shall pay to Landlord, Tenant's Share of Common Expenses. Tenant's Share
of Common Expenses for any portion of a year at the beginning or end of the Term
and at the end of the Initial Period shall be prorated. Tenant's Share of Common
Expenses shall be paid in estimated monthly installments on the first day of
each month of the Lease Term in an amount specified by Landlord. Landlord may at
any time revise the estimate by notice to Tenant and subsequent payments shall
be based upon the new estimate. Within 90 days after the close of each year, or
as soon thereafter as practicable, Landlord shall deliver to Tenant a statement
with the total amount of Tenant's Share of Common Expenses for the prior year,
and there shall be a final adjustment between Landlord and Tenant with Tenant
paying Landlord any amount due Landlord and any amount due Tenant shall be
credited to the next amounts due Landlord, or if the Lease has terminated or
expired, such amount shall be credited against any amounts still due Landlord
and the balance shall be refunded to Tenant.
Section 4.03 PERSONAL PROPERTY TAXES. Tenant shall pay, prior to
delinquency, all personal property taxes on Tenant's property.
Section 4.04. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Premises. Any utilities which are not separately metered shall be (a)
allocated between the users by Landlord and paid within 10 days after receipt of
Landlord's invoice or, at Landlord's election, or (b) included in Common
Expenses.
Section 4.05. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent". Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "Rent" shall mean Base Rent and Additional Rent.
Section 4.06. LATE CHARGES. Tenant's failure to pay Rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any financing on the Property. If Landlord does not
receive any Rent payment within 10 days after it becomes due, Tenant shall pay
Landlord a late charge equal to 10% of the overdue amount. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment.
Section 4.07. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate of
6% per annum over the prime rate of interest, as announced by Seattle First
National Bank or its successors, from the due date of such amount. However,
interest shall not be payable on late charges to be paid by
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Tenant under this Lease. The payment of interest on such amounts shall not
excuse or cure any default by Tenant under this Lease.
ARTICLE FIVE: INSURANCE.
Section 5.01 TENANT'S INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Landlord and
Tenant against liability for bodily injury, property damage (including loss of
use of property) and personal injury arising out of the operation, use or
occupancy of the Premises and common areas. Tenant shall name Landlord as an
additional insured under such policy. The initial minimum coverage for the
liability insurance shall be $2,000,000 per occurrence and in the aggregate.
During the Lease Term, Tenant shall also maintain fire and extended coverage
insurance for Tenant's property to their full replacement cost. Landlord may
increase the minimum levels and types of insurance required to be carried by
Tenant periodically based upon inflation, increased liability awards,
recommendations of Landlord's professional insurance advisers, lender
requirements and other relevant factors, so long as such changes are
commercially reasonable. The liability insurance obtained by Tenant under this
Section 5.01 shall (i) be primary and non-contributing; (ii) contain
cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 6.06, if the matters giving rise to the indemnity
under Section 6.06 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease.
Section 5.02 LANDLORD'S INSURANCE. As part of Common Expenses, Landlord
shall maintain (a) policies of insurance covering loss of or damage to the
Property, including flood and earthquake insurance if required by any lender
holding a security interest in the Property; (b) commercial general liability
insurance in an amount and with coverage determined by Landlord insuring
Landlord against liability arising out of ownership, operation, use or occupancy
of the Property; and (c) a rental income insurance policy, with loss payable to
Landlord, in an amount equal to one year's Base Rent, plus the estimate of
Tenant's Share of Common Expenses real property taxes and insurance premiums.
The policy obtained by Landlord shall not be contributory and shall not provide
primary insurance. Landlord shall not obtain insurance for Tenant's fixtures or
equipment or building improvements installed by Tenant in the Premises. Common
Expenses shall include any deductible amount under insurance policies maintained
pursuant to this Section 5.02, other than Landlord's liability insurance policy.
Tenant shall not do or permit anything to be done which invalidates any such
insurance policies.
Section 5.03 GENERAL INSURANCE PROVISIONS.
(i) Before Tenant enters the Property to begin installing
fixtures and equipment or to store any items, Tenant shall deliver to
Landlord a copy of any policies of insurance which Tenant is required
to maintain under this Article Five. At least 30 days prior to the
expiration of any such policy, Tenant shall deliver to Landlord a
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renewal of such policy. As an alternative to providing a policy of
insurance, Tenant shall have the right to provide Landlord a
certificate of insurance, executed by an authorized officer of the
insurance company, showing that the insurance which Tenant is required
to maintain under this Article Five is in full force and effect and
containing such other information which Landlord reasonably requires.
(ii) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance
carrier to give Landlord not less than 30 day's written notice prior to
any cancellation or modification of such coverage.
(iii) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed
time period or if any such policy is canceled or modified during the
Lease Term without Landlord's consent, Landlord may obtain such
insurance, and Tenant shall reimburse Landlord for the cost of such
insurance within 15 days after receipt of an invoice from Landlord.
(iv) Tenant shall maintain all insurance required under this
Lease with companies holding a "General Policy Rating" reasonably of
A-12 or better, as set forth in the most current issue of "Best Key
Rating Guide" or such other rating as is required by a lender on the
Property. Landlord and Tenant acknowledge that the insurance markets
are rapidly changing and that insurance in the form and amounts
described in this Article Five may not be available in the future. If
that situation occurs, the parties agree to work together in good faith
to determine types and levels of coverage which will provide sufficient
protection for the interests of Landlord and any lender on the
Property. Landlord makes no representation as to the adequacy of such
insurance to protect Tenant's interests and Tenant shall obtain any
such additional property or liability insurance which Tenant deems
necessary to protect Landlord and Tenant.
(v) Unless prohibited under any applicable insurance policies,
Landlord and Tenant each hereby waive any and all rights of
subrogation. Upon obtaining the required policies of insurance,
Landlord and Tenant shall give notice to the insurance carriers of this
mutual waiver of subrogation.
ARTICLE SIX: USE OF PROPERTY
Section 6.01. PERMITTED USES. Tenant may use the Premises only for the
Permitted Uses set forth in Section 1.07 above.
Section 6.02. MANNER OF USE. Tenant shall not cause or permit the
Premises to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of other tenants or Landlord, or which constitutes a nuisance or
waste. Landlord shall be responsible for obtaining a Certificate of Occupancy
for the Premises at the conclusion of the construction, except to the extent
that issuance of such certificate is delayed or withheld on the basis of work
which is not included in Landlord's Work.
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Tenant, at its own expense, shall obtain and pay for all permits
related to its business and/or its specific use of the Premises, for example,
racking permits. Tenant shall promptly take all actions necessary to comply with
all applicable statutes, ordinances, rules, regulations, orders and requirements
regulating the use by Tenant of the Premises and Common Areas, including the
Occupational Safety and Health Act. There shall be no "vehicle maintenance"
performed on the Premises or Common Areas, except as permitted otherwise by
separate agreements with Landlord.
Section 6.03. COMMON AREAS: Landlord shall make available from time to
time such "common areas" as Landlord deems appropriate (the "Common Areas"). As
part of Common Expenses (as defined in Article Four) Landlord is responsible for
operating and maintaining the Common Areas and Landlord may change the size,
location, nature and use of any Common Areas. Tenant has the nonexclusive right
to use those Common Areas which from time to time are designated for such use by
Landlord, subject to any rules Landlord may impose. Landlord may close
temporarily any Common Areas to make repairs or changes or to prevent the
acquisition of public rights in such areas.
Section 6.04. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste, including any
substances included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" now or subsequently
regulated under any applicable federal, state or local regulations, including
without limitation petroleum-based products, asbestos, PCBs and similar
compounds. Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Premises except in complete compliance with all applicable laws and
regulations. In no event, however, shall the installation or use of any storage
tanks be permitted on the Property. Tenant shall dispose of any residue through
authorized disposal companies. Simultaneously with Tenant's filing of any
reports with or delivery of any notices or other information to any governmental
entity regarding Hazardous Materials, Tenant shall provide a copy of that
report, notice or information to Landlord.
Section 6.05. SIGNS AND AUCTIONS. Tenant shall not place any signs on
the Property or within the Premises without Landlord's prior written consent,
which shall not be unreasonably withheld. Tenant shall not conduct or permit any
auctions or sheriff's sales at the Property or within the Premises.
Section 6.06. INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising from:
(a) Tenant's use of the Premises; (b) the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Premises,
including any contamination of the Property or any other property caused or
permitted by Tenant; or (c) other acts or omissions of Tenant. Tenant shall
defend Landlord against any such cost, claim or liability at Tenant's expense
with counsel reasonably acceptable to Landlord or, at Landlord's election,
Tenant shall reimburse Landlord for any legal fees or costs incurred by Landlord
in connection with any such claim. As a
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material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Premises arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in clauses (a), (b) and (c) of the first sentence of
this Section, the term "Tenant" shall include Tenant's employees, agents,
contractors and invitees, if applicable.
Section 6.07. LANDLORD'S ACCESS. Landlord or its agents may enter the
Premises to show the Premises to potential buyers, lenders, investors, tenants
or other parties; to do any other act or to inspect and conduct tests in order
to monitor Tenant's compliance with this Lease and applicable law; or for any
other purpose Landlord deems necessary. Landlord shall give Tenant prior notice
of such entry, except in the case of emergency. Landlord may place customary
"For Sale" or "For Lease" signs within the windows of the Premises.
Section 6.08. QUIET POSSESSION. If Tenant pays the Rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Premises for
the full Lease Term, subject to the provisions of this Lease.
ARTICLE SEVEN: CONDITION OF PROPERTY: MAINTENANCE, REPAIRS AND
ALTERATIONS
Section 7.01. EXISTING CONDITIONS. Except as described in Exhibit B,
Tenant accepts the Premises in its condition as of the execution of the Lease,
subject to all recorded matters, laws, ordinances, and governmental regulations
and orders. Except as provided herein, Tenant acknowledges that neither Landlord
nor any agent of Landlord has made any representation as to the condition of the
Premises or the suitability of the Premises for Tenant's intended use. Tenant
represents and warrants that Tenant has made its own inspection of and inquiry
regarding the condition of the Premises and is not relying on any
representations of Landlord or any broker with respect thereto.
Section 7.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not
be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Premises, whether such damage or injury is caused by or results from: (a) fire,
steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause; (c) conditions arising in
or about the Premises or from other sources or places; or (d) any act or
omission of any other tenant of Landlord. Landlord shall not be liable for any
such damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
7.02 shall not, however, exempt Landlord from liability for Landlord's gross
negligence or willful misconduct.
Section 7.03. LANDLORD'S OBLIGATIONS. Landlord, at its expense, shall
maintain and repair the structural portions of the Building, including the floor
slab, foundation and the
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structural portions of the roof and exterior walls. Landlord, as part of Common
Expenses, shall also maintain, repair and replace the other components of the
Building and the Common Areas. Tenant waives the benefit of any present or
future law which might give Tenant the right to repair the Property at
Landlord's expense or to terminate the Lease due to the condition of the
Property. If Landlord is also maintaining exterior areas of adjacent properties,
the costs shall be allocated among the properties based on the building square
footage of those properties.
Section 7.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 7.03, Article Eight (Damage or
Destruction), and Article Nine (Condemnation), Tenant shall keep all portions of
the Premises in good order, condition and repair, such as interior repainting
and refinishing, as needed, and repairs to any of its fixtures or equipment not
included in Landlord's Work. Tenant shall maintain a preventive maintenance
contract providing for the regular inspection and maintenance of the heating and
air conditioning system by a licensed heating and air conditioning contractor.
If any part of the Premises is damaged by any act or omission of Tenant, Tenant
shall pay Landlord the cost of repairing or replacing such damaged property,
whether or not Landlord would otherwise be obligated to pay the cost of
maintaining or repairing such property. It is the intention of Landlord and
Tenant that at all times Tenant shall maintain the portions of the Premises
which Tenant is obligated to maintain in an attractive, first-class and fully
operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
7.04 at Tenant's sole expense. It is in the best interest of Landlord and Tenant
for the Premises to be well maintained, with a clean and professional
appearance. The parties agree that the determination of whether the Tenant has
satisfied its repair and maintenance and replacement obligations shall be based
on Landlord's commercially reasonable judgment. If Tenant fails to maintain,
repair or replace the Premises as required by this Section 7.04, Landlord may,
upon 10 days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Premises and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 7.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions or improvements to
the Premises without Landlord's prior written consent, which shall not be
unreasonably withheld. Landlord may condition its consent on various matters,
including, without limitation, Tenant agreeing to remove the alterations and
repair any resulting damage prior to the end of the Lease Term. Landlord may
require Tenant to provide payment and performance bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 7.05(a)
and restore the Premises to its condition prior to the unpermitted alteration
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
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completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Premises. Tenant shall give Landlord at least 20 days' prior
written notice of the commencement of any work on the Premises.
Section 7.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Premises to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under this Lease. However, Tenant shall not be
obligated to repair any damage which Landlord is required to repair under
Article Eight (Damage or Destruction). In addition, Landlord may require Tenant
to remove any alterations, additions or improvements prior to the expiration of
the Lease and to restore the Premises to its prior condition, all at Tenant's
expense. All alterations, additions and improvements which Landlord has not
required Tenant to remove shall become Landlord's property and shall be
surrendered to Landlord upon the expiration or earlier termination of the Lease,
except that Tenant may remove any of Tenant's machinery or equipment which can
be removed without material damage to the Premises. Tenant shall repair, at
Tenant's expense, any damage to the Premises caused by the removal of any such
machinery or equipment. In no event, however, shall Tenant remove any of the
following materials or equipment (which shall be deemed Landlord's property)
without Landlord's prior written consent: any power wiring or power panels;
lighting or lighting fixtures; wall coverings; drapes, blinds or other window
coverings; floor coverings; HVAC equipment; fencing or security gates; or other
similar building operating equipment.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
Section 8.01. PARTIAL DAMAGE.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Premises. If the Building is only partially
damaged (i.e., less than 25% of the value of the Building) and if the insurance
proceeds received by Landlord are sufficient to pay for the necessary repairs,
this Lease shall remain in effect and Landlord shall repair the damage to
Landlord's Work as soon as is reasonably possible, and Tenant shall repair any
damage to Tenant's fixtures and equipment and any improvements installed by
Tenant.
(b) If (i) the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance or (ii) if the damage exceeds 25% of the value of
the Building, then Landlord may elect either to (1) repair the damage to
Landlord's Work as soon as reasonably possible, in which case this Lease shall
remain in full force and effect, or (2) terminate this Lease. Landlord shall
notify Tenant within 60 days after receipt of notice of the occurrence of the
damage whether Landlord elects to repair the damage or terminate the Lease. If
Landlord elects to repair the damage, Tenant shall pay to Landlord Tenant's
Share of the "deductible amount" (if any) under Landlord's insurance policy and,
if the damage was due to an act or omission of Tenant or Tenant's
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employees, agents, contractors or invitees, Tenant shall also pay to Landlord
the difference between the actual cost of repair and any insurance proceeds
received by Landlord.
(c) If the damage to the Premises occurs during the last 6 months of
the Lease Term, and such damage will require more than 30 days to repair, either
Landlord or Tenant may elect to terminate this Lease as of the date the damage
occurred regardless of the sufficiency of any insurance proceeds. The party
electing to terminate this Lease shall give written notification to the other
party of such election within 30 days after Tenant's notice to Landlord of the
occurrence of the damage.
Section 8.02. TOTAL DESTRUCTION. If the Building or Premises are
totally destroyed by any cause whatsoever, regardless of whether Landlord
receives any insurance proceeds, this Lease shall terminate as of the date the
destruction occurred. Notwithstanding the preceding sentence, if the Building or
Premises can be rebuilt within 6 months after the date of destruction, Landlord
may elect to rebuild, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within 31 days after
Tenant's notice of the occurrence of total destruction. If Landlord so elects,
Landlord shall rebuild the Building or Premises, except that if the destruction
was caused by an act or omission of Tenant, Tenant shall pay Landlord the
difference between the actual cost of rebuilding and any insurance proceeds
received by Landlord.
Section 8.03. TENANT'S RIGHT TO TERMINATE. If (a) the Premises are
damaged by casualty, and (b) the damage was not due to an act or omission of
Tenant, it's agents or employees, and (c) the Landlord's reasonable estimate of
the date that the repairs will be completed is more than 240 days from the date
of the damage, then Tenant shall have the right to terminate this Lease by
written notice to Landlord given within 30 days after Tenant's receipt of
Landlord's estimate of the repair completion date. Similarly, if the repair is
not sufficiently completed to allow Tenant to resume its operations in the
Premises within 240 days after the date of the damage, Tenant shall have the
right to terminate this Lease by 30 days written notice to Landlord if the
Premises are not tenantable by the end of that 30 day period.
ARTICLE NINE: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than 20% of the floor area of the Premises is taken, either Landlord or
Tenant may terminate this Lease as of the date the condemning authority takes
title or possession by delivering written notice to the other party within 10
days after receiving notice of such taking (or in the absence of such notice,
within 10 days after the condemning authority take title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
shall be reduced in proportion to the reduction in the floor area of the
Premises. Any Condemnation award shall be distributed in the following order:
(a) first, to any ground
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lessor, mortgagee or beneficiary under a deed of trust encumbering the Property,
the amount of its interest in the Property; (b) second, to Tenant, only the
amount of any award specifically designated for loss or damage to Tenant's trade
fixtures or removable personal property; and (c) third, to Landlord, the
remainder of such award, whether as compensation for the taking of or reduction
of the value in the leasehold, the taking of the fee, or otherwise. If this
Lease is not terminated, Landlord shall perform any necessary repairs to
Landlord's Work to restore the Building to a complete unit. If the severance
damages received by Landlord are not sufficient to pay for such repair, Landlord
shall have the right to either terminate this Lease or to make such repair at
Landlord's expense. Landlord shall have exclusive authority to negotiate the
Condemnation award and the exclusive authority to grant "possession" and use" to
the condemning authority.
ARTICLE TEN: ASSIGNMENT AND SUBLETTING
Section 10.01. LANDLORD'S CONSENT REQUIRED. No portion of the Premises
or of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent except as
provided in Section 10.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 10.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
Section 10.02. TENANT AFFILIATE. Tenant may Lease or sublease the
Premises, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant Affiliate")
but such sublease or assignment shall not release Tenant from its obligations
under this Lease. In such case, any Tenant Affiliate shall assume in writing all
of Tenant's obligations under this Lease.
Section 10.03. ENTITY TRANSFERS. The cumulative (i.e. in one or more
sales or transfers, by operation of law or otherwise) transfer of an aggregate
of 50% or more of the ownership interests, including by creation or issuance of
new ownership interests, in an entity which is (i) Tenant, (ii) an assignee of
Tenant, or (iii) any entity which is a general partner in a general or limited
partnership which is Tenant or assignee of this Lease; (except as the result of
transfers by gift or inheritance), shall be deemed a transfer of this Lease and
shall be subject to the provisions of Section 10.01. For the purpose of this
Article Ten, any entity which has undergone any of the changes described in this
Section 10.03 shall be deemed to be a Transferee. The two immediately preceding
sentences, however, shall not be applicable to any tenant corporation the
outstanding voting stock of which is listed on a national securities exchange
actively traded "over the counter."
Section 10.04. NO RELEASE OF TENANT. No transfer permitted by this
Article Ten, whether with or without Landlord's consent, shall release Tenant or
change Tenant's primary liability to pay the Rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of Rent from any
other person is not a waiver of any provision of this Article Ten. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's
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transferee defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing remedies against the transferee. Landlord may consent to
subsequent assignments or modifications of this Lease by Tenant's transferee,
without notifying Tenant or obtaining its consent. Such action shall not relieve
Tenant of its liability under this Lease.
Section 10.05. LANDLORD'S CONSENT. Tenant's request for consent to any
transfer shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, specific proposed use of the Premises, financial details of the
proposed transfer (e.g., the term of and the rent and security deposit payable
under any proposed assignment or sublease), and any other information Landlord
deems relevant. Landlord will not unreasonably withhold its consent, except
based on the following factors: (i) the net worth, creditworthiness and
financial reputation of the proposed assignee or subtenant; (ii) the expected
impact of the proposed assignee or sublessee on the common facilities; (iii) any
requested change in the terms of this Lease, including a change in permitted
use, and (iv) whether the presence of the proposed assignee or sublessee would
cause a diminuition in the reputation of the Building or Property of which the
Premises is a part.
Section 10.06. NO MERGER. No merger shall result from Tenant's sublease
of the Premises under this Article Ten, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
Section 10.07 ASSIGNMENT / SUBLETTING INCOME. 50% of any amounts
payable by an assignee to Tenant which exceed the Rent payable by Tenant
hereunder, whether in the form of assignment fees or increased Base Rent or
otherwise, shall be immediately paid on to Landlord as Additional Rent. 50% of
any amounts payable by a sublessee which, on a per square foot basis, exceed the
Rent due from Tenant hereunder shall be immediately paid on to Landlord.
ARTICLE ELEVEN: DEFAULTS: REMEDIES
Section 11.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 11.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Premises or if Tenant's vacation of the
Premises results in the cancellation of any insurance described in Article Five;
(b) If Tenant fails to pay Rent or any other charge within 3 days after
written notice from Landlord;
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(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of 15 days after written notice from Landlord;
provided that, if more than 15 days are required to complete such performance,
Tenant shall not be in default if Tenant commences such performance within the
15 day period and thereafter diligently pursues its completion. However, the 15
day period shall not apply if Tenant's failure to perform constitutes a
non-curable breach of this Lease. The notice required by this paragraph is
intended to satisfy any and all notice requirements imposed by law on Landlord
and is not in addition to any such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within 30 days; (iii) if a trustee or receiver is appointed to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease and possession is not restored to Tenant within
30 days; or (iv) if substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease is subjected to attachment, execution or
other judicial seizure which is not discharged within 30 days. If a court of
competent jurisdiction determines that any of the acts described in this
subparagraph (d) is not a default under this Lease, and a trustee is appointed
to take possession (or if Tenant remains a debtor in possession) and such
trustee or Tenant transfers Tenant's interest hereunder, then Landlord shall
receive, as Additional Rent, the excess, if any, of the rent (or any other
consideration) paid in connection with such assignment or sublease over the Rent
payable by Tenant under this Lease.
Section 11.03. REMEDIES. On the occurrence of any default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have:
(a) Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Premises after such default,
the cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at
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the time of the award" is computed by allowing interest on unpaid amounts at the
rate set forth in Section 4.07. As used in subpart (iii) above, the "worth at
the time of the award" is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award, plus
1%. If Tenant has abandoned the Premises, Landlord shall have the option of (i)
retaking possession of the Premises and recovering from Tenant the amount
specified in this Paragraph 11.03(a), or (ii) proceeding under Paragraph
11.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Premises. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the Rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
ARTICLE TWELVE: PROTECTION OF LENDERS
Section 12.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any lender
which is acquiring a security interest in the Property or the Lease. Tenant's
right to quiet possession of the Premises during the Lease Term shall not be
disturbed if Tenant pays the rent and performs all of Tenant's obligations under
this Lease and is not otherwise in default. If any ground lessor, beneficiary or
mortgagee elects to have this Lease prior to the lien of its ground lease, deed
of trust or mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such ground lease, deed of trust or mortgage whether
this Lease is dated prior or subsequent to the date of said ground lease, deed
of trust or mortgage or the date of recording thereof.
Section 12.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Premises upon the transfer
of Landlord's interest.
Section 12.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or document required by the lender to evidence any such attornment or
subordination or agreement to do so; provided that Tenant's obligations under
this Lease not be increased in any material way (the performance of ministerial
acts shall not be deemed material), and Tenant shall not be deprived of its
rights under this Lease. If Tenant fails to do so within 10 days after written
request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or
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any transferee or successor of Landlord, the attorney-in-fact of Tenant to
execute and deliver any such instrument or document.
Section 12.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying the following information
to Landlord and any other entity Landlord requests: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within 10 days after Landlord's request. Landlord may give
any such statement by Tenant to any prospective purchaser or encumbrancer of the
Property. Such purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such
10 day period, (a) Tenant shall be subject to a liquidated damages charge of
$100 per day of delay in delivering it and (b) Landlord, and any prospective
purchaser or encumbrancer, may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not been changed
except as otherwise represented by Landlord; (ii) that this Lease has not been
canceled or terminated except as otherwise represented by Landlord; (iii) that
not more than one month's Base Rent or other charges have been paid in advance;
and (iv) that Landlord is not in default under the Lease. In such event, Tenant
shall be estopped from denying the truth of such facts.
Section 12.05. TENANT'S FINANCIAL CONDITION. Within 20 days after
written request from Landlord, but not more often than once per year, Tenant
shall deliver to Landlord Tenant's most recent financial statements and tax
returns to verify the net worth of Tenant or any assignee, subtenant, or
guarantor of Tenant. In addition, Tenant shall deliver to any lender designated
by Landlord any financial statements required by such lender to facilitate the
financing or refinancing of the Property and copies of Tenant's current federal
income tax returns. Tenant represents and warrants to Landlord that each such
financial statement is a true and accurate statement as of the date of such
statement. All financial statements and tax returns shall be confidential and
shall be used only for the purposes set forth in this Lease.
ARTICLE THIRTEEN: LEGAL COSTS
Section 13.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or
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not suit is commenced or judgment entered. Such costs shall include legal fees
and costs incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and costs.
Tenant shall also indemnify Landlord against and hold Landlord harmless from all
costs, expenses, demands and liability Landlord may incur if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant against any
third party, or by any third party against Tenant, or by or against any person
holding any interest under or using the Premises by license of or agreement with
Tenant; (b) for foreclosure of any lien for labor or material furnished to or
for Tenant or such other person; (c) otherwise arising out of or resulting from
any act of Tenant or such other person; or (d) necessary to protect Landlord's
interest under this Lease in a bankruptcy proceeding, or other proceeding under
Title 11 of the United States Code, as amended. Tenant shall defend Landlord
against any such claim or action at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs Landlord incurs in any such claim or
action.
Section 13.02. COSTS AND ATTORNEYS' FEES. In the event of litigation
between the parties hereto, declaratory or otherwise to enforce this Lease, the
non-prevailing party shall pay the costs thereof and attorneys' fees actually
incurred by the prevailing party, in such suit, at trial and on appeal. In
addition, if Landlord engages counsel to enforce the terms of this Lease,
including without limitation, for the purpose of preparing a delinquency notice,
Tenant shall be required to reimburse Landlord for all costs incurred before the
subject default is considered cured.
Section 13.03. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees and other out-of-pocket costs incurred in connection
with Tenant's request for Landlord's consent under Article Ten (Assignment and
Subletting), or in connection with any other act which Tenant proposes to do and
which requires Landlord's consent.
ARTICLE FOURTEEN: MISCELLANEOUS PROVISIONS
Section 14.01. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) The Landlord is the Fiduciary Account described in Section 1.01.
All references to Landlord are to this Fiduciary Account. Tenant acknowledges
and agrees that Washington Capital Management, Inc. is the investment manager
only and therefore Tenant shall have no claim against Washington Capital
Management or any of its agents or employees for matters related to this Lease.
(b) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any
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Landlord who transfers its title or interest is relieved of all liability with
respect to the obligations of Landlord under this Lease to be performed on or
after the date of transfer. However, each Landlord shall deliver to its
transferee all funds that Tenant previously paid if such funds have not yet been
applied under the terms of this Lease.
(c) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address has been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within 30 days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than 30 days to cure, Landlord shall
not be in default if such cure is commenced within such 30 day period and
thereafter diligently pursued to completion.
(d) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, members, officers or other principals
shall have any personal liability under this Lease.
Section 14.02. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 14.03. INTERPRETATION. The captions of Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms and provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Premises with Tenant's expressed or
implied permission.
Section 14.04. INCORPORATION OF PRIOR AGREEMENTS: MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Premises and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 14.05. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by certified
mail, return receipt requested, postage prepaid. Notices to Tenant shall be
delivered to the address specified in Section 1.02 above, except that upon
Tenant's taking possession of the Premises, the Premises shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.01 above. All notices shall be effective upon
either delivery or 3 days after mailing in the manner described above. Either
party may change its notice address upon written notice to the other party.
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Section 14.06. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provisions of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 14.07. NO RECORDATION. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or Tenant
may require that a "Short Form" memorandum of this Lease executed by both
parties be recorded. The party requiring such recording shall pay all transfer
taxes and recording fees.
Section 14.08. BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligations to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 14.09. AUTHORITY. Each person signing this Lease on behalf of
Tenant represents and warrants that he has full authority to do so and that this
Lease binds the Tenant entity.
Section 14.10. JOINT AND SEVERAL LIABILITY. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 14.11. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 14.12. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
Section 14.13. FORCE MAJEURE. As used in this Lease, "force majeure"
shall mean that a party is delayed in performing an obligation hereunder (other
than the payment of money) by circumstances beyond that party's reasonable
control, including without limitation, strikes, embargoes, acts of God and war.
Section 14.14. ERISA CONTINGENCY. This Lease is contingent upon Tenant
executing Exhibit C to this Lease and taking any other actions requested by
Landlord to verify that this Lease is not a prohibited transaction under ERISA.
Landlord will rely on the statements by Tenant contained in Exhibit C in
agreeing to enter into this Lease. As a result, if Landlord later learns that
any of the statements by Tenant on Exhibit C are not correct, then (a) it shall
be deemed an incurable default by Tenant under the Lease and Landlord may
immediately terminate this Lease by notice to Tenant and Landlord shall be
entitled to collect the damages
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described in Section 16, and (b) Tenant shall indemnify, defend and hold
Landlord harmless from any and all damages, costs, or liabilities incurred by
Landlord in connection with the false statements.
ARTICLE FIFTEEN: BROKERS
Section 15.01 BROKER'S FEE. Landlord shall be responsible for the
commission due to Landlord's Broker and Tenant's Broker. Landlord's Broker
hereby discloses to Landlord and Tenant and Landlord and Tenant hereby consent
to Landlord's Broker acting in this transaction as the agent of Landlord only.
Section 15.02. NO OTHER BROKERS. Tenant represents and warrants to
Landlord that the brokers named in Section 1.08 above are the only agents,
brokers, finders or other parties with whom Tenant has dealt who are or may be
entitled to any commission or fee with respect to this Lease or the Premises.
ARTICLE SIXTEEN: UNIFORM COMMERCIAL CODE SECURITY AGREEMENT
Section 16.01 GRANT TO LANDLORD. This Lease constitutes a security
agreement pursuant to the Uniform Commercial Code with respect to:
(a) Any of the property in the Premises which, under applicable
law, is not real property or effectively made part of the real property
by the provisions of this Lease; and
(b) All fixtures and equipment now or hereafter located on the
Premises.
Tenant hereby grants Landlord a security interest in all property
described in clauses (a) and (b) above (collectively, the "Personal
Property").
Section 16.02 LANDLORD'S RIGHTS AND REMEDIES. With respect to the
Personal Property, Landlord has all of the rights and remedies (i) of a secured
party under the Uniform Commercial Code, (ii) provided herein, including without
limitation the right to cause the Personal Property to be sold, and (iii) as
provided by law. In exercising its remedies, Landlord may proceed against the
items of real property and any items of Personal Property, separately or
together, and in any order whatsoever, without in any way affecting the
availability of Landlord's remedies. Upon demand by Landlord following a default
hereunder, Tenant will assemble any items of Personal Property and make them
available to Landlord at the Property, a place which is hereby deemed to be
reasonably convenient to both parties. Landlord shall give Tenant at least 5
days' prior written notice of the time and place of any public sale or
disposition of the Personal Property or of the time of or after which any
private sale or any other intended disposition is to be made. Any person
permitted by law to purchase at any such sale may do so. Such property may be
sold at any one or more public or private
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sales as permitted by applicable law. All expenses incurred in realizing on the
Personal Property shall be borne by Tenant.
Section 16.03 FINANCING STATEMENT. At Landlord's request, Tenant shall
execute and deliver to Landlord UCC-1 and UCC-2 Financing Statements for filing
and recording and such other documents as Landlord requests for perfecting the
security interest granted by this Article.
Section 16.04 PRIORITY. Tenant warrants that Landlord's security
interest in the Personal Property shall be junior only to purchase money
financing on the Personal Property.
"LANDLORD"
WASHINGTON CAPITAL MANAGEMENT,
INC.,
As Investment Manager for Locals 302 and 612,
International Union of Operating Engineers -
Employers Construction Industry Retirement Fund
By: /s/ Michael S. Barnes
--------------------------------------------
Michael Barnes
Its VP & Principal
-----------------------------------------
"TENANT"
SeaMED CORPORATION,
a Delaware corporation
By: /s/ Don Rich
--------------------------------------------
Its V.P. of Operations
-------------------------------------------
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STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Michael
Barnes is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the VP and Principal of WASHINGTON CAPITAL
MANAGEMENT, INC., as Investment Manager for Locals 302 and 612, International
Union of Operating Engineers Employers Construction Industry Retirement Fund to
be the free and voluntary act of such party for the uses and purposes mentioned
in this instrument.
Dated: 9/11/96 .
----------------------
/s/ Brian A. Guenther
------------------------------------
(Signature of Notary Public)
Brian A. Guenther
------------------------------------
(Printed Name of Notary Public)
My Appointment expires 4/23/00
--------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Don
Rich is the person who appeared before me, and said person acknowledged that
he/she signed this instrument, on oath stated that he/she was authorized to
execute the instrument and acknowledged it as the Vice President of SeaMED
Corporation, a Delaware corporation, to be the free and voluntary act of such
party for the uses and purposes mentioned in this instrument.
Dated: 9/4/96.
/s/ William C. Neil
------------------------------------
(Signature of Notary Public)
William C. Neil
------------------------------------
(Printed Name of Notary Public)
My Appointment expires 1/18/97
--------------
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EXHIBIT 10.8
INDUSTRIAL REAL ESTATE LEASE
(BUILDING 2)
DATED: September 10, 1996
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. LANDLORD: WASHINGTON CAPITAL MANAGEMENT, INC., as
Investment Manager for Locals 302 and 612, International Union of Operating
Engineers - Employers Construction Industry Retirement Fund. Address of
Landlord: 1301 5th Avenue, Suite 3636, Seattle, WA 98101.
Section 1.02. TENANT: SeaMED Corporation, a Delaware corporation.
Address of Tenant:14560 N.E. 87th Street, Redmond, WA 98052.
Section 1.03. PREMISES: The "Premises" shall be the first floor of the
building (the "Building") to be constructed pursuant to the provisions of
Exhibit B. The Building will be located on a portion of the real property
described in Exhibit A, which portion is shown on Exhibit A-1 (which portion,
together with all improvements thereon, is referred to as the "Property").
Section 1.04. COMMON AREAS: Tenant shall have the non-exclusive right
to use the Common Areas as described in Section 6.03.
Section 1.05. LEASE TERM: 10 years commencing (the "Commencement Date")
on the later of (a) the date Landlord obtains a certificate of occupancy for the
first floor of the Building or (b) January 1, 1999. Notwithstanding the
foregoing, if Tenant wishes to occupy the Premises prior to January 1, 1999,
Tenant shall so notify Landlord and Landlord will use good faith efforts to
complete the Premises earlier and the Lease Term shall commence on the date
Landlord obtains the certificate of occupancy for the first floor.
Section 1.06. TENANT'S SHARE OF COMMON EXPENSES: During any period that
the Premises are composed of only the first floor of the Building, Tenant's
Share shall be 50%. During any period that the Premises is composed of the
entire Building, Tenant's Share shall be 100%.
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Section 1.07. PERMITTED USES: (See Article Six) Design, manufacturing
and distribution of medical and commercial equipment and general office uses and
for no other purpose.
Section 1.08. BROKERS: (See Article Fifteen) Landlord's Broker:
Trammell Crow NW, Inc. Tenant's Broker: Kidder, Mathews & Segner, Inc.
Section 1.09. SECURITY DEPOSIT: (See Section 3.02) $25,000.
Section 1.10. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: The monthly Base Rent for the first floor of the
Building shall be $30,000 for the first 3 years of the Lease Term; $33,000 for
years 4-6 of the Lease Term; $36,000 for years 7-9 of the Lease Term; and
$40,500 for year 10 of the Lease Term. If Tenant exercises its option under
Article Seventeen, the monthly Base Rent for the second floor shall be $30,000
for the first 3 years; $33,000 for years 4-6; $36,000 for years 7-9; and $40,500
for year 10.
(b) OTHER PERIODIC PAYMENTS: (i) Common Expenses (see Section 4.01);
and (ii) Utilities (see Section 4.04).
Section 1.11. TENANT IMPROVEMENTS. See Exhibit B.
Section 1.12. EXHIBITS. The following Exhibits are attached to and made
a part of this Lease: Exhibits A (Description of Property), and B (Landlord's
Work) and C (Tenant's Party in Interest Certificate).
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PREMISES FOR LEASE TERM. Landlord leases the
Premises to Tenant and Tenant leases the Premises from Landlord for the Lease
Term stated in Section 1.05 above.
Section 2.02. EARLY OCCUPANCY. Landlord will permit Tenant to enter the
Premises during the final phases of the tenant improvement work to begin
installing its fixtures and equipment, provided that Tenant shall at all times
cooperate with Landlord and provided that such installations do not interfere
with or delay Landlord's Work (as defined in Exhibit B). Tenant's presence on
the Premises shall be subject to all of the provisions of this Lease, but
excluding the payment of Base Rent and Other Periodic Payments.
Section 2.03. OPTIONS TO EXTEND.
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(a) Provided that Tenant is not in default at the time of exercise or
at commencement of the extended term, and otherwise has timely cured all
defaults, then Tenant shall have 2 consecutive options to extend the Lease term
for 5 years each (each, an "Extended Term"). In order to exercise such options,
Tenant shall provide written notice ("Notice of Exercise") to Landlord of its
election no later than 6 months before the end of the initial lease term (or
first Extended Term). The exercise of such options to extend shall be for the
entire Premises and shall be on the same terms and conditions as set forth in
the Lease except the Base Rent shall be adjusted as set forth in Paragraph (b)
below. The options provided in this Section 2.03 are personal to Tenant and may
not be exercised by any assignee or sublessee.
(b) If Tenant exercises an extension right pursuant to Paragraph (a)
above, the initial Base Rent and the periodic increases for the applicable
Extended Term shall be equal to the market rent for a 5 year term for comparable
space ("Fair Market Rent Schedule") but in no event shall the initial Base Rent
be less than the Base Rent paid in Year 10 of the Lease Term (for the first
Extended Term) or the Base Rent paid in Year 5 of the first Extended Term (for
the second Extended Term). Tenant's estimation of the Fair Market Rent Schedule
shall be included with Tenant's option exercise notice. Landlord shall give
Tenant notice of Landlord's estimation of Fair Market Rent Schedule ("Landlord's
Value Notice") by the later of 20 days after receipt of Tenant's exercise notice
or 6 months before the end of the initial Lease Term or first Extended Term, as
the case may be. If there is a disagreement on the Fair Market Rent Schedule,
the parties shall promptly meet to attempt to resolve their differences. If the
differences are not resolved then either party may apply for arbitration in
accordance with the below paragraphs.
If neither party applies for arbitration within 10 business days after
receipt by Tenant of Landlord's Value Notice, Tenant shall be bound to the Fair
Market Rent Schedule stated in Landlord's Value Notice. Should either party
elect to arbitrate, and if the arbitration is not concluded before the
commencement of the applicable Extended Term, Tenant shall pay Monthly Base Rent
to Landlord in an amount equal to the Fair Market Rent Schedule set forth in
Landlord's Value Notice, until the Fair Market Rent Schedule is determined in
accordance with the arbitration provisions hereof. If the Fair Market Rent
Schedule as determined by arbitration differs from that stated in Landlord's
Value Notice, then any adjustment required to correct the amount previously paid
by Tenant shall be made by payment by the appropriate party within 30 days after
the determination of Fair Market Rent Schedule by arbitration has been
concluded, as provided herein. Tenant shall be obligated to make payment during
the entire Extended Term of the Monthly Base Rent determined in accordance with
the arbitration procedures hereunder.
(c) If either party seeks arbitration of Fair Market Rent Schedule
under the provisions hereof for the applicable Extended Term, the other party
shall be bound to submit the matter for determination by arbitration. The
arbitration shall be conducted and determined in the county where the Property
is located.
(d) A party demanding arbitration hereunder shall make its demand in
writing ("Demand Notice") within 10 business days after service of Landlord's
Value Notice. A copy of the Demand Notice shall be sent to the President of the
Real Estate Board for the county in which the Property
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is located. If there is no Real Estate Board President in the county in which
the Property is located, then a copy of the Demand Notice shall be sent to the
Presiding Judge of the highest trial court in such county for the state in which
the Property is located. The Board President, or Presiding Judge, whichever is
applicable, is hereinafter referred to as the "Appointer." The Appointer, acting
in his personal, private capacity, shall appoint within 10 days thereafter a
real estate broker with at least 7 years' experience leasing property in the
same county for the general type of use to which the Property is devoted under
the terms of this Lease. The arbitrator shall be a person who would be qualified
to serve as an expert witness and to give opinion testimony addressed to the
issue in a court of competent jurisdiction. Such a party is hereinafter referred
to as the "Arbitrator." The parties may, however, before sending the Demand
Notice to the Appointer, mutually agree upon an Arbitrator of their own choice,
in which event such appointment shall nullify the necessity of appointment of an
Arbitrator by an Appointer.
(e) The Arbitrator so selected, within 90 days after appointment, shall
determine whether Landlord's valuation, or Tenant's valuation of Fair Market
Rent Schedule most closely approximates the Arbitrator's and shall provide
written notice of the decision to the parties. The Arbitrator is strictly
limited to the selection of Landlord's Fair Market Rent Schedule evaluation as
stated in Landlord's Value Notice or Tenant's Fair Market Rent Schedule
evaluation as stated in the Notice of Exercise. The Arbitrator shall have the
right to consult experts and competent authorities with factual information or
evidence pertaining to a determination of Fair Market Rent Schedule, but any
such consultation shall be made in the presence of both parties with full right
to cross examine. The Arbitrator shall have no right to propose a middle ground
or any modification of either of the proposed valuations, and shall have no
power to modify the provisions of this Lease. The evaluation so chosen as most
closely approximating that of the Arbitrator shall constitute the decision of
the Arbitrator and shall be final and binding upon the parties, absent fraud or
gross error. The Arbitrator shall render a decision and award in writing, with
counterpart copies to each party and judgment thereon may be entered in any
court of competent jurisdiction.
(f) If the Arbitrator fails, refuses or is unable to act in a timely
manner, a successor shall be appointed in the same manner as such Arbitrator was
first chosen hereunder, if such Arbitrator was chosen by an Appointer. If chosen
by mutual agreement, the parties shall, in this succeeding instance, choose the
Arbitrator through means of the procedure for the Appointer. The fees and
expenses of the Arbitrator and the administrative hearing fee, if any, shall be
divided equally between the parties. Each party shall bear its own attorneys'
fees and the other expenses including fees for witnesses in presenting evidence
to the Arbitrator.
Section 2.04. HOLDING OVER. Tenant shall vacate the Premises upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Premises. If Tenant does not vacate the Premises
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Premises shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by 50% if Tenant does not have Landlord's written consent to holdover.
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ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Commencing on the
Commencement Date and continuing on the first day of each month thereafter,
Tenant shall pay Landlord the Base Rent, in advance, without offset, deduction
or prior demand. The Base Rent shall be payable at Landlord's address set forth
in Section 1.01 or at such other place as Landlord may designate in writing.
Section 3.02. SECURITY DEPOSIT. Upon the execution of this Lease,
Tenant shall deposit with Landlord the Security Deposit specified in Section
1.09. Landlord may apply all or part of the Security Deposit to any unpaid rent
or other charges due from Tenant or to cure any other defaults of Tenant. If
Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its original amount within 10 days after Landlord's written
request. Tenant's failure to do so shall be a material default under this Lease.
The Security Deposit shall be commingled with Landlord's other funds and shall
not bear interest.
Section 3.03. TERMINATION: ADVANCE PAYMENTS. Upon termination of this
Lease under Article Eight (Damage or Destruction), Article Nine (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Premises in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord which apply to any time periods after termination of the Lease.
ARTICLE THREE: COMMON EXPENSES
Section 4.01 DEFINITIONS. The following terms shall have the following
meanings:
Common Expenses. All costs incurred by Landlord in connection with the
Property including payroll costs, insurance, utilities, Real Property Taxes,
repairs, operation, maintenance and replacements and any other expenses which in
accordance with generally accepted accounting and management practices would be
considered an expense of maintaining, managing (not to exceed 3% of Base Rent),
operating, owning, or repairing the Property excluding (i) initial leasing costs
including tenant improvements and leasing commissions for other tenants; and
(ii) costs of any special services rendered to individual tenants for which a
special charge is collected, together with an amount equal to 10% of the total
thereof as compensation to Landlord for administrative services. Common Expenses
shall include amortization (including interest at the rate incurred by Landlord
in connection therewith) of repairs and improvements to the Property which are
capitalized.
Real Property Taxes: All taxes, governmental charges and assessments
levied on the Property, or any improvements, fixtures and equipment and all
other property of Landlord,
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real or personal, used in the operation of the Property; any taxes in addition
to or in lieu of, in whole or in part, such taxes; any tax upon leasing or rents
of the Property; any other governmental charge such as payments for transit or
carpooling or environmental facilities; and all costs and expenses incurred by
Landlord in connection with the attempt to reduce any of the foregoing, whether
by negotiation or contest. Real Property Taxes shall not include any franchise
or state income tax, inheritance tax, estate tax, business and occupation tax,
or other similar tax, and do not include any late payment penalties if Tenant
has paid the amounts due under Section 4.02(a) as and when due.
Section 4.02 PAYMENT OF TENANT'S SHARE. Tenant shall pay to Landlord,
Tenant's Share of Common Expenses. Tenant's Share of Common Expenses for any
portion of a year at the beginning or end of the Term shall be prorated.
Tenant's Share of Common Expenses shall be paid in estimated monthly
installments on the first day of each month of the Lease Term in an amount
specified by Landlord. Landlord may at any time revise the estimate by notice to
Tenant and subsequent payments shall be based upon the new estimate. Within 90
days after the close of each year, or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement with the total amount of Tenant's
Share of Common Expenses for the prior year, and there shall be a final
adjustment between Landlord and Tenant with Tenant paying Landlord any amount
due Landlord and any amount due Tenant shall be credited to the next amounts due
Landlord, or if the Lease has terminated or expired, such amount shall be
credited against any amounts still due Landlord and the balance shall be
refunded to Tenant.
Section 4.03 PERSONAL PROPERTY TAXES. Tenant shall pay, prior to
delinquency, all personal property taxes on Tenant's property.
Section 4.04. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Premises. Any utilities which are not separately metered shall be (a)
allocated between the users by Landlord and paid within 10 days after receipt of
Landlord's invoice or, at Landlord's election, or (b) included in Common
Expenses.
Section 4.05. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent". Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "Rent" shall mean Base Rent and Additional Rent.
Section 4.06. LATE CHARGES. Tenant's failure to pay Rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any financing on the Property. If Landlord does not
receive any Rent payment within 10 days after it becomes due, Tenant shall pay
Landlord a late charge equal to 10% of the overdue amount. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment.
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Section 4.07. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate of
6% per annum over the prime rate of interest, as announced by Seattle First
National Bank or its successors, from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease.
ARTICLE FIVE: INSURANCE.
Section 5.01 TENANT'S INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Landlord and
Tenant against liability for bodily injury, property damage (including loss of
use of property) and personal injury arising out of the operation, use or
occupancy of the Premises and common areas. Tenant shall name Landlord as an
additional insured under such policy. The initial minimum coverage for the
liability insurance shall be $2,000,000 per occurrence and in the aggregate.
During the Lease Term, Tenant shall also maintain fire and extended coverage
insurance for Tenant's property to their full replacement cost. Landlord may
increase the minimum levels and types of insurance required to be carried by
Tenant periodically based upon inflation, increased liability awards,
recommendations of Landlord's professional insurance advisers, lender
requirements and other relevant factors, so long as such changes are
commercially reasonable. The liability insurance obtained by Tenant under this
Section 5.01 shall (i) be primary and non-contributing; (ii) contain
cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 6.06, if the matters giving rise to the indemnity
under Section 6.06 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease.
Section 5.02 LANDLORD'S INSURANCE. As part of Common Expenses, Landlord
shall maintain (a) policies of insurance covering loss of or damage to the
Property, including flood and earthquake insurance if required by any lender
holding a security interest in the Property; (b) commercial general liability
insurance in an amount and with coverage determined by Landlord insuring
Landlord against liability arising out of ownership, operation, use or occupancy
of the Property; and (c) a rental income insurance policy, with loss payable to
Landlord, in an amount equal to one year's Base Rent, plus the estimate of
Tenant's Share of Common Expenses real property taxes and insurance premiums.
The policy obtained by Landlord shall not be contributory and shall not provide
primary insurance. Landlord shall not obtain insurance for Tenant's fixtures or
equipment or building improvements installed by Tenant in the Premises. Common
Expenses shall include any deductible amount under insurance policies maintained
pursuant to this Section 5.02, other than Landlord's liability insurance policy.
Tenant shall not do or permit anything to be done which invalidates any such
insurance policies.
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Section 5.03 GENERAL INSURANCE PROVISIONS.
(i) Before Tenant enters the Property to begin installing
fixtures and equipment or to store any items, Tenant shall deliver to
Landlord a copy of any policies of insurance which Tenant is required
to maintain under this Article Five. At least 30 days prior to the
expiration of any such policy, Tenant shall deliver to Landlord a
renewal of such policy. As an alternative to providing a policy of
insurance, Tenant shall have the right to provide Landlord a
certificate of insurance, executed by an authorized officer of the
insurance company, showing that the insurance which Tenant is required
to maintain under this Article Five is in full force and effect and
containing such other information which Landlord reasonably requires.
(ii) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance
carrier to give Landlord not less than 30 day's written notice prior to
any cancellation or modification of such coverage.
(iii) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed
time period or if any such policy is canceled or modified during the
Lease Term without Landlord's consent, Landlord may obtain such
insurance, and Tenant shall reimburse Landlord for the cost of such
insurance within 15 days after receipt of an invoice from Landlord.
(iv) Tenant shall maintain all insurance required under this
Lease with companies holding a "General Policy Rating" reasonably of
A-12 or better, as set forth in the most current issue of "Best Key
Rating Guide" or such other rating as is required by a lender on the
Property. Landlord and Tenant acknowledge that the insurance markets
are rapidly changing and that insurance in the form and amounts
described in this Article Five may not be available in the future. If
that situation occurs, the parties agree to work together in good faith
to determine types and levels of coverage which will provide sufficient
protection for the interests of Landlord and any lender on the
Property. Landlord makes no representation as to the adequacy of such
insurance to protect Tenant's interests and Tenant shall obtain any
such additional property or liability insurance which Tenant deems
necessary to protect Landlord and Tenant.
(v) Unless prohibited under any applicable insurance
policies, Landlord and Tenant each hereby waive any and all rights of
subrogation. Upon obtaining the required policies of insurance,
Landlord and Tenant shall give notice to the insurance carriers of this
mutual waiver of subrogation.
ARTICLE SIX: USE OF PROPERTY
Section 6.01. PERMITTED USES. Tenant may use the Premises only for the
Permitted Uses set forth in Section 1.07 above.
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Section 6.02. MANNER OF USE. Tenant shall not cause or permit the
Premises to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of other tenants or Landlord, or which constitutes a nuisance or
waste. Landlord shall be responsible for obtaining a Certificate of Occupancy
for the Premises at the conclusion of the construction, except to the extent
that issuance of such certificate is delayed or withheld on the basis of work
which is not included in Landlord's Work.
Tenant, at its own expense, shall obtain and pay for all permits
related to its business and/or its specific use of the Premises, for example,
racking permits. Tenant shall promptly take all actions necessary to comply with
all applicable statutes, ordinances, rules, regulations, orders and requirements
regulating the use by Tenant of the Premises and Common Areas, including the
Occupational Safety and Health Act. There shall be no "vehicle maintenance"
performed on the Premises or Common Areas, except as permitted otherwise by
separate agreements with Landlord.
Section 6.03. COMMON AREAS: Landlord shall make available from time to
time such "common areas" as Landlord deems appropriate (the "Common Areas"). As
part of Common Expenses (as defined in Article Four) Landlord is responsible for
operating and maintaining the Common Areas and Landlord may change the size,
location, nature and use of any Common Areas. Tenant has the nonexclusive right
to use those Common Areas which from time to time are designated for such use by
Landlord, subject to any rules Landlord may impose. Landlord may close
temporarily any Common Areas to make repairs or changes or to prevent the
acquisition of public rights in such areas.
Section 6.04. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste, including any
substances included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" now or subsequently
regulated under any applicable federal, state or local regulations, including
without limitation petroleum-based products, asbestos, PCBs and similar
compounds. Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Premises except in complete compliance with all applicable laws and
regulations. In no event, however, shall the installation or use of any storage
tanks be permitted on the Property. Tenant shall dispose of any residue through
authorized disposal companies. Simultaneously with Tenant's filing of any
reports with or delivery of any notices or other information to any governmental
entity regarding Hazardous Materials, Tenant shall provide a copy of that
report, notice or information to Landlord.
Section 6.05. SIGNS AND AUCTIONS. Tenant shall not place any signs on
the Property or within the Premises without Landlord's prior written consent,
which shall not be
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unreasonably withheld. Tenant shall not conduct or permit any auctions or
sheriff's sales at the Property or within the Premises.
Section 6.06. INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising from:
(a) Tenant's use of the Premises; (b) the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Premises,
including any contamination of the Property or any other property caused or
permitted by Tenant; or (c) other acts or omissions of Tenant. Tenant shall
defend Landlord against any such cost, claim or liability at Tenant's expense
with counsel reasonably acceptable to Landlord or, at Landlord's election,
Tenant shall reimburse Landlord for any legal fees or costs incurred by Landlord
in connection with any such claim. As a material part of the consideration to
Landlord, Tenant assumes all risk of damage to property or injury to persons in
or about the Premises arising from any cause, and Tenant hereby waives all
claims in respect thereof against Landlord, except for any claim arising out of
Landlord's gross negligence or willful misconduct. As used in clauses (a), (b)
and (c) of the first sentence of this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 6.07. LANDLORD'S ACCESS. Landlord or its agents may enter the
Premises to show the Premises to potential buyers, lenders, investors, tenants
or other parties; to do any other act or to inspect and conduct tests in order
to monitor Tenant's compliance with this Lease and applicable law; or for any
other purpose Landlord deems necessary. Landlord shall give Tenant prior notice
of such entry, except in the case of emergency. Landlord may place customary
"For Sale" or "For Lease" signs within the windows of the Premises.
Section 6.08. QUIET POSSESSION. If Tenant pays the Rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Premises for
the full Lease Term, subject to the provisions of this Lease.
ARTICLE SEVEN: CONDITION OF PROPERTY: MAINTENANCE, REPAIRS AND
ALTERATIONS
Section 7.01. EXISTING CONDITIONS. Except as described in Exhibit B,
Tenant accepts the Premises in its condition as of the execution of the Lease,
subject to all recorded matters, laws, ordinances, and governmental regulations
and orders. Except as provided herein, Tenant acknowledges that neither Landlord
nor any agent of Landlord has made any representation as to the condition of the
Premises or the suitability of the Premises for Tenant's intended use. Tenant
represents and warrants that Tenant has made its own inspection of and inquiry
regarding the condition of the Premises and is not relying on any
representations of Landlord or any broker with respect thereto.
Section 7.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not
be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods,
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wares, merchandise or other property of Tenant, Tenant's employees, invitees,
customers or any other person in or about the Premises, whether such damage or
injury is caused by or results from: (a) fire, steam, electricity, water, gas or
rain; (b) the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
or any other cause; (c) conditions arising in or about the Premises or from
other sources or places; or (d) any act or omission of any other tenant of
Landlord. Landlord shall not be liable for any such damage or injury even though
the cause of or the means of repairing such damage or injury are not accessible
to Tenant. The provisions of this Section 7.02 shall not, however, exempt
Landlord from liability for Landlord's gross negligence or willful misconduct.
Section 7.03. LANDLORD'S OBLIGATIONS. Landlord, at its expense, shall
maintain and repair the structural portions of the Building, including the floor
slab, foundation and the structural portions of the roof and exterior walls.
Landlord, as part of Common Expenses, shall also maintain, repair and replace
the other components of the Building and the Common Areas. Tenant waives the
benefit of any present or future law which might give Tenant the right to repair
the Property at Landlord's expense or to terminate the Lease due to the
condition of the Property. If Landlord is also maintaining exterior areas of
adjacent properties, the costs shall be allocated among the properties based on
the building square footage of those properties.
Section 7.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 7.03, Article Eight (Damage or
Destruction), and Article Nine (Condemnation), Tenant shall keep all portions of
the Premises in good order, condition and repair, such as interior repainting
and refinishing, as needed, and repairs to any of its fixtures or equipment not
included in Landlord's Work. Tenant shall maintain a preventive maintenance
contract providing for the regular inspection and maintenance of the heating and
air conditioning system by a licensed heating and air conditioning contractor.
If any part of the Premises is damaged by any act or omission of Tenant, Tenant
shall pay Landlord the cost of repairing or replacing such damaged property,
whether or not Landlord would otherwise be obligated to pay the cost of
maintaining or repairing such property. It is the intention of Landlord and
Tenant that at all times Tenant shall maintain the portions of the Premises
which Tenant is obligated to maintain in an attractive, first-class and fully
operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
7.04 at Tenant's sole expense. It is in the best interest of Landlord and Tenant
for the Premises to be well maintained, with a clean and professional
appearance. The parties agree that the determination of whether the Tenant has
satisfied its repair and maintenance and replacement obligations shall be based
on Landlord's commercially reasonable judgment. If Tenant fails to maintain,
repair or replace the Premises as required by this Section 7.04, Landlord may,
upon 10 days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Premises and perform such maintenance or
repair (including replacement, as needed)
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on behalf of Tenant. In such case, Tenant shall reimburse Landlord for all costs
incurred in performing such maintenance or repair immediately upon demand.
Section 7.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions or improvements to
the Premises without Landlord's prior written consent, which shall not be
unreasonably withheld. Landlord may condition its consent on various matters,
including, without limitation, Tenant agreeing to remove the alterations and
repair any resulting damage prior to the end of the Lease Term. Landlord may
require Tenant to provide payment and performance bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 7.05(a)
and restore the Premises to its condition prior to the unpermitted alteration
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Premises. Tenant shall give Landlord at least 20 days' prior
written notice of the commencement of any work on the Premises.
Section 7.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Premises to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under this Lease. However, Tenant shall not be
obligated to repair any damage which Landlord is required to repair under
Article Eight (Damage or Destruction). In addition, Landlord may require Tenant
to remove any alterations, additions or improvements prior to the expiration of
the Lease and to restore the Premises to its prior condition, all at Tenant's
expense. All alterations, additions and improvements which Landlord has not
required Tenant to remove shall become Landlord's property and shall be
surrendered to Landlord upon the expiration or earlier termination of the Lease,
except that Tenant may remove any of Tenant's machinery or equipment which can
be removed without material damage to the Premises. Tenant shall repair, at
Tenant's expense, any damage to the Premises caused by the removal of any such
machinery or equipment. In no event, however, shall Tenant remove any of the
following materials or equipment (which shall be deemed Landlord's property)
without Landlord's prior written consent: any power wiring or power panels;
lighting or lighting fixtures; wall coverings; drapes, blinds or other window
coverings; floor coverings; HVAC equipment; fencing or security gates; or other
similar building operating equipment.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
Section 8.01. PARTIAL DAMAGE.
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(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Premises. If the Building is only partially
damaged (i.e., less than 25% of the value of the Building) and if the insurance
proceeds received by Landlord are sufficient to pay for the necessary repairs,
this Lease shall remain in effect and Landlord shall repair the damage to
Landlord's Work as soon as is reasonably possible, and Tenant shall repair any
damage to Tenant's fixtures and equipment and any improvements installed by
Tenant.
(b) If (i) the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance or (ii) if the damage exceeds 25% of the value of
the Building, then Landlord may elect either to (1) repair the damage to
Landlord's Work as soon as reasonably possible, in which case this Lease shall
remain in full force and effect, or (2) terminate this Lease. Landlord shall
notify Tenant within 60 days after receipt of notice of the occurrence of the
damage whether Landlord elects to repair the damage or terminate the Lease. If
Landlord elects to repair the damage, Tenant shall pay to Landlord Tenant's
Share of the "deductible amount" (if any) under Landlord's insurance policy and,
if the damage was due to an act or omission of Tenant or Tenant's employees,
agents, contractors or invitees, Tenant shall also pay to Landlord the
difference between the actual cost of repair and any insurance proceeds received
by Landlord.
(c) If the damage to the Premises occurs during the last 6 months of
the Lease Term, and such damage will require more than 30 days to repair, either
Landlord or Tenant may elect to terminate this Lease as of the date the damage
occurred regardless of the sufficiency of any insurance proceeds. The party
electing to terminate this Lease shall give written notification to the other
party of such election within 30 days after Tenant's notice to Landlord of the
occurrence of the damage.
Section 8.02. TOTAL DESTRUCTION. If the Building or Premises are
totally destroyed by any cause whatsoever, regardless of whether Landlord
receives any insurance proceeds, this Lease shall terminate as of the date the
destruction occurred. Notwithstanding the preceding sentence, if the Building or
Premises can be rebuilt within 6 months after the date of destruction, Landlord
may elect to rebuild, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within 31 days after
Tenant's notice of the occurrence of total destruction. If Landlord so elects,
Landlord shall rebuild the Building or Premises, except that if the destruction
was caused by an act or omission of Tenant, Tenant shall pay Landlord the
difference between the actual cost of rebuilding and any insurance proceeds
received by Landlord.
Section 8.03. TENANT'S RIGHT TO TERMINATE. If (a) the Premises are
damaged by casualty, and (b) the damage was not due to an act or omission of
Tenant, it's agents or employees, and (c) the Landlord's reasonable estimate of
the date that the repairs will be completed is more than 240 days from the date
of the damage, then Tenant shall have the right to terminate this Lease by
written notice to Landlord given within 30 days after Tenant's receipt of
Landlord's estimate of the repair completion date. Similarly, if the repair is
not
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sufficiently completed to allow Tenant to resume its operations in the Premises
within 240 days after the date of the damage, Tenant shall have the right to
terminate this Lease by 30 days written notice to Landlord if the Premises are
not tenantable by the end of that 30 day period.
ARTICLE NINE: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than 20% of the floor area of the Premises is taken, either Landlord or
Tenant may terminate this Lease as of the date the condemning authority takes
title or possession by delivering written notice to the other party within 10
days after receiving notice of such taking (or in the absence of such notice,
within 10 days after the condemning authority take title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
shall be reduced in proportion to the reduction in the floor area of the
Premises. Any Condemnation award shall be distributed in the following order:
(a) first, to any ground lessor, mortgagee or beneficiary under a deed of trust
encumbering the Property, the amount of its interest in the Property; (b)
second, to Tenant, only the amount of any award specifically designated for loss
or damage to Tenant's trade fixtures or removable personal property; and (c)
third, to Landlord, the remainder of such award, whether as compensation for the
taking of or reduction of the value in the leasehold, the taking of the fee, or
otherwise. If this Lease is not terminated, Landlord shall perform any necessary
repairs to Landlord's Work to restore the Building to a complete unit. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or to make
such repair at Landlord's expense. Landlord shall have exclusive authority to
negotiate the Condemnation award and the exclusive authority to grant
"possession" and use" to the condemning authority.
ARTICLE TEN: ASSIGNMENT AND SUBLETTING
Section 10.01. LANDLORD'S CONSENT REQUIRED. No portion of the Premises
or of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent except as
provided in Section 10.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 10.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
Section 10.02. TENANT AFFILIATE. Tenant may Lease or sublease the
Premises, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with
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Tenant ("Tenant Affiliate") but such sublease or assignment shall not release
Tenant from its obligations under this Lease. In such case, any Tenant Affiliate
shall assume in writing all of Tenant's obligations under this Lease.
Section 10.03. ENTITY TRANSFERS. The cumulative (i.e. in one or more
sales or transfers, by operation of law or otherwise) transfer of an aggregate
of 50% or more of the ownership interests, including by creation or issuance of
new ownership interests, in an entity which is (i) Tenant, (ii) an assignee of
Tenant, or (iii) any entity which is a general partner in a general or limited
partnership which is Tenant or assignee of this Lease; (except as the result of
transfers by gift or inheritance), shall be deemed a transfer of this Lease and
shall be subject to the provisions of Section 10.01. For the purpose of this
Article Ten, any entity which has undergone any of the changes described in this
Section 10.03 shall be deemed to be a Transferee. The two immediately preceding
sentences, however, shall not be applicable to any tenant corporation the
outstanding voting stock of which is listed on a national securities exchange
actively traded "over the counter."
Section 10.04. NO RELEASE OF TENANT. No transfer permitted by this
Article Ten, whether with or without Landlord's consent, shall release Tenant or
change Tenant's primary liability to pay the Rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of Rent from any
other person is not a waiver of any provision of this Article Ten. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's transferee
defaults under this Lease, Landlord may proceed directly against Tenant without
pursuing remedies against the transferee. Landlord may consent to subsequent
assignments or modifications of this Lease by Tenant's transferee, without
notifying Tenant or obtaining its consent. Such action shall not relieve Tenant
of its liability under this Lease.
Section 10.05. LANDLORD'S CONSENT. Tenant's request for consent to any
transfer shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, specific proposed use of the Premises, financial details of the
proposed transfer (e.g., the term of and the rent and security deposit payable
under any proposed assignment or sublease), and any other information Landlord
deems relevant. Landlord will not unreasonably withhold its consent, except
based on the following factors: (i) the net worth, creditworthiness and
financial reputation of the proposed assignee or subtenant; (ii) the expected
impact of the proposed assignee or sublessee on the common facilities; (iii) any
requested change in the terms of this Lease, including a change in permitted
use, and (iv) whether the presence of the proposed assignee or sublessee would
cause a diminuition in the reputation of the Building or Property of which the
Premises is a part.
Section 10.06. NO MERGER. No merger shall result from Tenant's sublease
of the Premises under this Article Ten, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
Section 10.07 ASSIGNMENT / SUBLETTING INCOME. 50% of any amounts
payable by an assignee to Tenant which exceed the Rent payable by Tenant
hereunder, whether in the form
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of assignment fees or increased Base Rent or otherwise, shall be immediately
paid on to Landlord as Additional Rent. 50% of any amounts payable by a
sublessee which, on a per square foot basis, exceed the Rent due from Tenant
hereunder shall be immediately paid on to Landlord.
ARTICLE ELEVEN: DEFAULTS: REMEDIES
Section 11.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 11.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Premises or if Tenant's vacation of the
Premises results in the cancellation of any insurance described in Article Five;
(b) If Tenant fails to pay Rent or any other charge within 3 days after
written notice from Landlord;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of 15 days after written notice from Landlord;
provided that, if more than 15 days are required to complete such performance,
Tenant shall not be in default if Tenant commences such performance within the
15 day period and thereafter diligently pursues its completion. However, the 15
day period shall not apply if Tenant's failure to perform constitutes a
non-curable breach of this Lease. The notice required by this paragraph is
intended to satisfy any and all notice requirements imposed by law on Landlord
and is not in addition to any such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within 30 days; (iii) if a trustee or receiver is appointed to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease and possession is not restored to Tenant within
30 days; or (iv) if substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease is subjected to attachment, execution or
other judicial seizure which is not discharged within 30 days. If a court of
competent jurisdiction determines that any of the acts described in this
subparagraph (d) is not a default under this Lease, and a trustee is appointed
to take possession (or if Tenant remains a debtor in possession) and such
trustee or Tenant transfers Tenant's interest hereunder, then Landlord shall
receive, as Additional Rent, the excess, if any, of the rent (or any other
consideration) paid in connection with such assignment or sublease over the Rent
payable by Tenant under this Lease.
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Section 11.03. REMEDIES. On the occurrence of any default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have:
(a) Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Premises after such default,
the cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate set
forth in Section 4.07. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus 1%. If
Tenant has abandoned the Premises, Landlord shall have the option of (i)
retaking possession of the Premises and recovering from Tenant the amount
specified in this Paragraph 11.03(a), or (ii) proceeding under Paragraph
11.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Premises. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the Rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
ARTICLE TWELVE: PROTECTION OF LENDERS
Section 12.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or
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extensions thereof, whenever made or recorded. Tenant shall cooperate with
Landlord and any lender which is acquiring a security interest in the Property
or the Lease. Tenant's right to quiet possession of the Premises during the
Lease Term shall not be disturbed if Tenant pays the rent and performs all of
Tenant's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to the
lien of its ground lease, deed of trust or mortgage and gives written notice
thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed
of trust or mortgage whether this Lease is dated prior or subsequent to the date
of said ground lease, deed of trust or mortgage or the date of recording
thereof.
Section 12.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Premises upon the transfer
of Landlord's interest.
Section 12.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or document required by the lender to evidence any such attornment or
subordination or agreement to do so; provided that Tenant's obligations under
this Lease not be increased in any material way (the performance of ministerial
acts shall not be deemed material), and Tenant shall not be deprived of its
rights under this Lease. If Tenant fails to do so within 10 days after written
request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or
any transferee or successor of Landlord, the attorney-in-fact of Tenant to
execute and deliver any such instrument or document.
Section 12.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying the following information
to Landlord and any other entity Landlord requests: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within 10 days after Landlord's request. Landlord may give
any such statement by Tenant to any prospective purchaser or encumbrancer of the
Property. Such purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
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(b) If Tenant does not deliver such statement to Landlord within such
10 day period, (a) Tenant shall be subject to a liquidated damages charge of
$100 per day of delay in delivering it and (b) Landlord, and any prospective
purchaser or encumbrancer, may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not been changed
except as otherwise represented by Landlord; (ii) that this Lease has not been
canceled or terminated except as otherwise represented by Landlord; (iii) that
not more than one month's Base Rent or other charges have been paid in advance;
and (iv) that Landlord is not in default under the Lease. In such event, Tenant
shall be estopped from denying the truth of such facts.
Section 12.05. TENANT'S FINANCIAL CONDITION. Within 20 days after
written request from Landlord, but not more often than once per year, Tenant
shall deliver to Landlord Tenant's most recent financial statements and tax
returns to verify the net worth of Tenant or any assignee, subtenant, or
guarantor of Tenant. In addition, Tenant shall deliver to any lender designated
by Landlord any financial statements required by such lender to facilitate the
financing or refinancing of the Property and copies of Tenant's current federal
income tax returns. Tenant represents and warrants to Landlord that each such
financial statement is a true and accurate statement as of the date of such
statement. All financial statements and tax returns shall be confidential and
shall be used only for the purposes set forth in this Lease.
ARTICLE THIRTEEN: LEGAL COSTS
Section 13.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and costs.
Tenant shall also indemnify Landlord against and hold Landlord harmless from all
costs, expenses, demands and liability Landlord may incur if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant against any
third party, or by any third party against Tenant, or by or against any person
holding any interest under or using the Premises by license of or agreement with
Tenant; (b) for foreclosure of any lien for labor or material furnished to or
for Tenant or such other person; (c) otherwise arising out of or resulting from
any act of Tenant or such other person; or (d) necessary to protect Landlord's
interest under this Lease in a bankruptcy proceeding, or other proceeding under
Title 11 of the United States Code, as amended. Tenant shall defend Landlord
against any such claim or action at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs Landlord incurs in any such claim or
action.
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Section 13.02. COSTS AND ATTORNEYS' FEES. In the event of litigation
between the parties hereto, declaratory or otherwise to enforce this Lease, the
non-prevailing party shall pay the costs thereof and attorneys' fees actually
incurred by the prevailing party, in such suit, at trial and on appeal. In
addition, if Landlord engages counsel to enforce the terms of this Lease,
including without limitation, for the purpose of preparing a delinquency notice,
Tenant shall be required to reimburse Landlord for all costs incurred before the
subject default is considered cured.
Section 13.03. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees and other out-of-pocket costs incurred in connection
with Tenant's request for Landlord's consent under Article Ten (Assignment and
Subletting), or in connection with any other act which Tenant proposes to do and
which requires Landlord's consent.
ARTICLE FOURTEEN: MISCELLANEOUS PROVISIONS
Section 14.01. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) The Landlord is the Fiduciary Account described in Section 1.01.
All references to Landlord are to this Fiduciary Account. Tenant acknowledges
and agrees that Washington Capital Management, Inc. is the investment manager
only and therefore Tenant shall have no claim against Washington Capital
Management or any of its agents or employees for matters related to this Lease.
(b) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee all funds that Tenant
previously paid if such funds have not yet been applied under the terms of this
Lease.
(c) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address has been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within 30 days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than 30 days to cure, Landlord shall
not be in default if such cure is commenced within such 30 day period and
thereafter diligently pursued to completion.
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(d) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, members, officers or other principals
shall have any personal liability under this Lease.
Section 14.02. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 14.03. INTERPRETATION. The captions of Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms and provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Premises with Tenant's expressed or
implied permission.
Section 14.04. INCORPORATION OF PRIOR AGREEMENTS: MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Premises and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 14.05. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by certified
mail, return receipt requested, postage prepaid. Notices to Tenant shall be
delivered to the address specified in Section 1.02 above, except that upon
Tenant's taking possession of the Premises, the Premises shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.01 above. All notices shall be effective upon
either delivery or 3 days after mailing in the manner described above. Either
party may change its notice address upon written notice to the other party.
Section 14.06. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provisions of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 14.07. NO RECORDATION. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or Tenant
may require that a "Short Form" memorandum of this Lease executed by both
parties be recorded. The party requiring such recording shall pay all transfer
taxes and recording fees.
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Section 14.08. BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligations to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 14.09. AUTHORITY. Each person signing this Lease on behalf of
Tenant represents and warrants that he has full authority to do so and that this
Lease binds the Tenant entity.
Section 14.10. JOINT AND SEVERAL LIABILITY. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 14.11. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 14.12. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
Section 14.13. ERISA CONTINGENCY. This Lease is contingent upon
Tenant executing Exhibit C to this Lease and taking any other actions requested
by Landlord to verify that this Lease is not a prohibited transaction under
ERISA. Landlord will rely on the statements by Tenant contained in Exhibit C in
agreeing to enter into this Lease. As a result, if Landlord later learns that
any of the statements by Tenant on Exhibit C are not correct, then (a) it shall
be deemed an incurable default by Tenant under the Lease and Landlord may
immediately terminate this Lease by notice to Tenant and Landlord shall be
entitled to collect the damages described in Section 16, and (b) Tenant shall
indemnify, defend and hold Landlord harmless from any and all damages, costs, or
liabilities incurred by Landlord in connection with the false statements.
ARTICLE FIFTEEN: BROKERS
Section 15.01 BROKER'S FEE. Landlord shall be responsible for the
commission due to Landlord's Broker and Tenant's Broker. Landlord's Broker
hereby discloses to Landlord and Tenant and Landlord and Tenant hereby consent
to Landlord's Broker acting in this transaction as the agent of Landlord only.
Section 15.02. NO OTHER BROKERS. Tenant represents and warrants to
Landlord that the brokers named in Section 1.08 above are the only agents,
brokers, finders or other parties
22
<PAGE> 23
with whom Tenant has dealt who are or may be entitled to any commission or fee
with respect to this Lease or the Premises.
ARTICLE SIXTEEN: UNIFORM COMMERCIAL CODE SECURITY AGREEMENT
Section 16.01 GRANT TO LANDLORD. This Lease constitutes a security
agreement pursuant to the Uniform Commercial Code with respect to:
(a) Any of the property in the Premises which, under applicable
law, is not real property or effectively made part of the real property
by the provisions of this Lease; and
(b) All fixtures and equipment now or hereafter located on the
Premises.
Tenant hereby grants Landlord a security interest in all property
described in clauses (a) and (b) above (collectively, the "Personal
Property").
Section 16.02 LANDLORD'S RIGHTS AND REMEDIES. With respect to the
Personal Property, Landlord has all of the rights and remedies (i) of a secured
party under the Uniform Commercial Code, (ii) provided herein, including without
limitation the right to cause the Personal Property to be sold, and (iii) as
provided by law. In exercising its remedies, Landlord may proceed against the
items of real property and any items of Personal Property, separately or
together, and in any order whatsoever, without in any way affecting the
availability of Landlord's remedies. Upon demand by Landlord following a default
hereunder, Tenant will assemble any items of Personal Property and make them
available to Landlord at the Property, a place which is hereby deemed to be
reasonably convenient to both parties. Landlord shall give Tenant at least 5
days' prior written notice of the time and place of any public sale or
disposition of the Personal Property or of the time of or after which any
private sale or any other intended disposition is to be made. Any person
permitted by law to purchase at any such sale may do so. Such property may be
sold at any one or more public or private sales as permitted by applicable law.
All expenses incurred in realizing on the Personal Property shall be borne by
Tenant.
Section 16.03 FINANCING STATEMENT. At Landlord's request, Tenant shall
execute and deliver to Landlord UCC-1 and UCC-2 Financing Statements for filing
and recording and such other documents as Landlord requests for perfecting the
security interest granted by this Article.
Section 16.04 PRIORITY. Tenant warrants that Landlord's security
interest in the Personal Property shall be junior only to purchase money
financing on the Personal Property.
ARTICLE SEVENTEEN: RIGHT TO LEASE ENTIRE BUILDING
23
<PAGE> 24
Subject to the net worth condition described below, Tenant shall have
the option to lease the second floor of the Building. In order to exercise this
option, Tenant must give written notice to Landlord during the period between
May 1, 1997 and September 30, 1998. If Tenant exercises this option, then
Landlord agrees to lease to Tenant and Tenant agrees to lease from Landlord, the
second floor of the Building, on the terms contained in this Lease. Following
Tenant's exercise of the option, Landlord shall perform "Landlord's Work" (as
defined in Exhibit B) on the second floor and the leasing of the second floor
shall commence on the date Landlord receives a certificate of occupancy for the
second floor and shall continue for 10 years from that date. Tenant shall have a
tenant improvement allowance of $750,000 (inclusive of sales tax, permit fees
and space planning fees) and if the cost of the work is less than or more than
that amount, the difference shall be handled as described in paragraphs G, H and
I of Exhibit B.
Tenant's right to exercise this option is conditioned upon Tenant
providing to Landlord, with its notice of exercise of the option, audited
financial statements demonstrating that Tenant's tangible net worth, as of the
end of its most recently completed fiscal year equals or exceeds Tenant's
tangible net worth as of the date this Lease is executed. Net worth means the
total shareholder's equity (including capital stock, additional paid in capital,
and retained earnings after deducting treasury stock, but excluding minority
interests in subsidiaries) which appear on the balance sheet of Tenant, less the
sum of (a) all notes receivable from related parties, (b) the book value of
intangible assets including good will, patents, trademarks, franchises and
deferred charges (including organizational costs, deferred development expense,
etc.) and similar assets, and (c) the write-up of assets above acquisition cost.
ARTICLE EIGHTEEN: RIGHT OF FIRST OPPORTUNITY
During the Term of the Lease, Tenant shall have a right of
first opportunity to lease available space in the Building comprising 10,000
square feet or more prior to that space being offered to third parties for
lease, on the terms set forth in this Section. If Landlord wishes to lease an
available area in the Building and if that space is at least 10,000 square feet
in size, Landlord shall first offer to lease that space (the "Opportunity
Space") to Tenant for a ten year term at the rental rate(s) and tenant
improvement terms that Landlord is willing to accept from a third party. Tenant
shall have 10 days within which to notify Landlord in writing that it elects to
lease the space and to reach agreement with Landlord on all the terms,
conditions and rental rate for the Opportunity Space. If the parties reach
agreement on the terms (including commencement date), conditions and rental
rate, Landlord shall prepare a lease containing those terms for Tenant's
signature. If Tenant does not elect to lease the Opportunity Space or fails to
execute the new lease within 3 days after presentation by Landlord, then such
right shall be deemed to have lapsed and shall be of no further force or effect
as to that notification by Landlord. Landlord may thereafter freely lease all or
a portion of the Opportunity Space to any other party, at any time, on any
terms, in Landlord's sole discretion. The right of first opportunity shall be
null and void if Tenant is in default under the Lease at the date Landlord would
otherwise notify Tenant of Landlord's Offer or at any
24
<PAGE> 25
time thereafter and prior to delivery of possession of the Opportunity Space.
The right of first opportunity is personal to Tenant and may not be exercised or
enjoyed by any other person or entity.
This right of first opportunity is subject to the rights of
existing tenants or occupants of the Opportunity Space to renew their existing
leases whether pursuant to options to extend or renew previously granted. If
Tenant exercises this right of first opportunity, Landlord does not guarantee
that the Opportunity Space will be available on the commencement date for the
lease thereof, if the then existing occupants of the Opportunity Space hold-over
for for any other reason the space is not available for reasons beyond
Landlord's reasonable control. In that event, rent for the Opportunity Space
shall be abated unitl Landlord delivers possession of the Opportunity Space to
Tenant, as Tenant's sole remedy or recourse. Tenant's right of first opportunity
is a part of this Lease and shall automatically terminate upon any termination
or expiration of the Lease.
"LANDLORD"
WASHINGTON CAPITAL MANAGEMENT,
INC.,
As Investment Manager for Locals 302 and 612,
International Union of Operating Engineers -
Employers Construction Industry Retirement Fund
By: /s/ Michael S. Barnes
--------------------------------------------
Michael Barnes
Its VP & Principal
---------------------------------------
"TENANT"
SeaMED CORPORATION,
a Delaware corporation
By: /s/ Don Rich
--------------------------------------------
Its V.P. of Operations
--------------------------------------------
25
<PAGE> 26
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
Michael Barnes is the person who appeared before me, and said person
acknowledged that he signed this instrument, on oath stated that he was
authorized to execute the instrument and acknowledged it as the VP & Principal.
of WASHINGTON CAPITAL MANAGEMENT, INC., as Investment Manager
for Locals 302 and 612, International Union of Operating Engineers Employers
Construction Industry Retirement Fund to be the free and voluntary act of such
party for the uses and purposes mentioned in this instrument.
Dated: 9/11/96 .
----------------------
/s/ Brian A. Guenther
------------------------------------
(Signature of Notary Public)
Brian A. Guenther
------------------------------------
(Printed Name of Notary Public)
My Appointment expires 4/23/00
-------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Don Rich
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the Vice President of SeaMED Corporation, a
Delaware corporation, to be the free and voluntary act of such party for the
uses and purposes mentioned in this instrument.
Dated: 9/4/96 .
----------------------
/s/ William C. Neil
------------------------------------
(Signature of Notary Public)
William C. Neil
------------------------------------
(Printed Name of Notary Public)
My Appointment expires 1/18/97
-------------
26
<PAGE> 1
EXHIBIT 10.9
OPTION AGREEMENT
This OPTION AGREEMENT (this "Agreement"), dated as of September 10,
1996 (the "Effective Date"), is by and between WASHINGTON CAPITAL MANAGEMENT,
INC., as Investment Manager for Locals 302 and 612, International Union of
Operating Engineers - Employers Construction Industry Retirement Fund
("Landlord"), and SeaMED CORPORATION, a Delaware corporation ("Tenant").
Landlord is the owner of the property described on Exhibit A (the
"Parcel 3") and plans to construct a building thereon of approximately 80,000
square feet ("Building 3"). Tenant is interested in obtaining the right to lease
Parcel 3 and Building 3 (collectively, the "Premises").
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
SECTION 1. OPTION.
1.1 OPTION. Landlord grants to Tenant the option (the "Option") to
lease the Premises on the terms contained herein and in the Lease attached as
Exhibit B.
1.2 OPTION TERM. Subject to the payment requirements of Section 1.4,
the Option shall remain in full force and effect from September 4, 1996 through
5:00 P.M. on January 1, 2000 (the "Option Term").
1.3 OPTION EXERCISE. Tenant shall exercise the Option, if at all, by
written notice to Landlord within the Option Term, accompanied by (a) a signed
original of the Lease attached as Exhibit B, (b) detailed plans and
specifications for the tenant improvements requested by Tenant, and (c) the net
worth documentation required by Section 1.5 below. Landlord agrees to make good
faith efforts to complete the Premises within 15 months after exercise of the
Option.
1.4 OPTION PAYMENTS. In order to retain its rights under this
Agreement, Tenant must make semi-annual payments of $92,500 to Landlord,
commencing on July 1, 1997 and continuing until Building 3 is completed. If
Tenant fails to make any such payment on the date due, the Option and this
Agreement shall automatically terminate.
1.5 NET WORTH CONDITION. Tenants rights under this Agreement are
conditioned upon Tenant providing to Landlord, with its notice of exercise of
the Option, audited financial statements demonstrating that Tenant's tangible
net worth, as of the date the option is exercised, is at least $10,000,000. Net
worth means the total shareholder's equity (including capital stock, additional
paid in capital, and retained earnings after deducting treasury stock, but
excluding minority interests in subsidiaries) which appear on the balance sheet
of Tenant, less the sum of (a) all notes receivable from related parties, (b)
the book value of intangible assets including good will, patents, trademarks,
franchises and deferred charges (including
1
<PAGE> 2
organizational costs, deferred development expense, etc.) and similar assets,
and (c) the write-up of assets above acquisition cost.
SECTION 2. LEASE TERM AND BASE RENT.
The term of the Lease shall be a length selected by Tenant; provided
that it shall be a minimum of 10 years. The term shall commence on issuance of
the certificate of occupancy for Building 3. The annual Base Rent shall be
calculated as Total Project Costs times 11% and shall be paid in equal monthly
payments. The Base Rent shall increase by 10% every 3 years during the Lease
Term. Total Project Costs shall mean the sum of the Acquisition Costs and
Construction Costs. Acquisition Costs shall mean the total cost incurred by
Landlord in acquiring Parcel 3, calculated based on Landlord's cost of acquiring
and holding the approximately 14 acres (the "Larger Parcel") which contains
Parcel 3 and allocating those costs, prorata, based on the square footage of the
Larger Parcel, including taxes, insurance and interest. Construction Costs mean
the total costs incurred by Landlord in connection with the design, permitting
and construction of the Premises, including, without limitation, design fees,
permitting and mitigation fees, site work, off site infrastructure costs, and
other construction costs. Construction Costs shall include a minimum of
$2,240,000 of tenant improvement costs. On the Commencement Date, Landlord will
provide to Tenant an estimate of the Total Project Costs and shall use that
estimate in calculating an estimated Base Rent to be paid by Tenant until the
final Total Project Cost figures are available and the actual Base Rent can be
calculated, at which time the Base Rent shall be adjusted to the correct figure,
and Tenant shall pay to Landlord any accumulated deficit between the amount paid
and the actual Base Rent and Tenant shall receive a credit for any accumulated
overpayment.
SECTION 3. MISCELLANEOUS.
3.1 NOTICES. Any demand, request or notice which either party hereto
desires or may be required to make or deliver to the other shall be in writing
and shall be deemed delivered when personally delivered, or when delivered by
private courier service (such as Federal Express), when received by facsimile at
the facsimile number shown below, addressed as follows:
If to Tenant: SeaMED Corporation
___________________________________
___________________________________
___________________________________
___________________________________
Facsimile:_________________________
If to Landlord: Washington Capital Management, Inc.
1301 Fifth Avenue, Suite 3636
Seattle, Washington 98101
Facsimile: (206) 382-0950
2
<PAGE> 3
The parties shall have the right from time to time and at any time to change
their respective addresses and each shall have the right to specify as its
address any other address by at least 15 days prior written notice to the other
party. Each party shall have the right from time to time to specify additional
parties to whom notice hereunder must be given by delivering to the other party
15 days prior written notice thereof, setting forth the address of such
additional parties. Notice required to be delivered hereunder to either party
shall not be deemed to be effective until the additional parties, if any,
designated by such party have been given notice in a manner deemed effective
pursuant to the terms of this Section 3.1.
3.2 ENTIRE AGREEMENT; NO ORAL AMENDMENT. This Agreement contains the
entire understanding between the parties and supersedes any prior understandings
and agreements between them respecting the subject matter hereof. No amendment
of or supplement to this Agreement shall be valid or effective unless made in
writing and executed by the parties hereto.
3.3 ATTORNEYS' FEES. If litigation occurs between the parties hereto in
connection with this Agreement, the prevailing party shall recover its costs,
arising out of attorneys' fees and costs actually incurred, including for
appeals, which shall be determined and fixed by the court as part of the
judgment. The parties covenant and agree that they intend by this Section 3.3 to
compensate for attorneys' fees actually incurred by the prevailing party to the
particular attorneys involved at such attorneys' then normal hourly rates, and
that this Section 3.3 shall constitute a request to the court that such rate or
rates shall be deemed reasonable.
3.4 APPLICABLE LAW. This Agreement shall be construed and interpreted
under the laws of the State of Washington.
3.5 AGREEMENT NOT ASSIGNABLE. This Agreement shall not be assignable by
Tenant.
"LANDLORD"
WASHINGTON CAPITAL MANAGEMENT,
INC.,
As Investment Manager for Locals 302 and 612,
International Union of Operating Engineers -
Employers Construction Industry Retirement Fund
By:/s/ Michael S. Barnes
--------------------------------------------
Michael Barnes
Its VP & Principal
-----------------------------------------
3
<PAGE> 4
"TENANT"
SeaMED CORPORATION,
a Delaware corporation
By:/s/ Don Rich
--------------------------------------------
Its V.P. of Operations
--------------------------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Michael
Barnes is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the VP & Principal of WASHINGTON CAPITAL
MANAGEMENT, INC., as Investment Manager for Locals 302 and 612, International
Union of Operating Engineers Employers Construction Industry Retirement Fund to
be the free and voluntary act of such party for the uses and purposes mentioned
in this instrument.
Dated: 9/11/96 .
-----------------------
/s/ Brian A. Guenther
------------------------------------
(Signature of Notary Public)
Brian A. Guenther
------------------------------------
(Printed Name of Notary Public)
My Appointment expires 4/23/00
--------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Don Rich
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the Vice President of SeaMED Corporation to be
the free and voluntary act of such party for the uses and purposes mentioned in
this instrument.
Dated: 9/4/96 .
-----------------------
/s/ William C. Neil
------------------------------------
(Signature of Notary Public)
William C. Neil
------------------------------------
(Printed Name of Notary Public)
My Appointment expires 1/18/97
--------------
4
<PAGE> 1
EXHIBIT 10.10
SEAMED CORPORATION
1988 STOCK OPTION PLAN
AMENDED AND ADOPTED APRIL 11, 1988
AS OF JUNE 22, 1989 AND OCTOBER 26, 1995
1. INTRODUCTION:
This Plan establishes the right of and procedures for SEAMED
Corporation (the "Company") to grant stock options to its key employees. The
Plan provides for the granting of two types of options, namely, (1)
Non-Qualified Stock options and (2) Incentive Stock Options. This Plan sets
forth provisions applicable to both types of options, to Non-Qualified Options
only, and to Incentive Stock Options only.
2. PROVISIONS OF GENERAL APPLICATION:
The provisions of this Section 2 apply to both Non-Qualified Options
and Incentive Stock Options granted by the Company.
2.1 Objectives of the Plan:
The purpose of this Plan is to encourage ownership of Common Stock of
the Company by key employees of the Company and any current or future
subsidiary. This Plan is intended to provide an incentive for maximum effort in
the successful operation of the Company and is expected to benefit the
shareholders by enabling the Company to attract and retain personnel of the best
available talent through the opportunity to share, by the proprietary interests
created by this Plan, in the increased value of the Company's shares to which
such personnel have contributed.
2.2 Stock Reserved for this Plan:
The stock reserved for issue upon the exercise of options granted under
this Plan will not exceed 3,400,000 Shares of the Common Stock of the Company
(the "Shares") which may be either authorized and unissued shares or issued
shares held in or hereafter acquired for the treasury of the Company. Shares
subject to any option under this Plan which is not exercised in full or Shares
as to which the right to purchase is forfeited through default or otherwise,
shall remain available for other options under this Plan provided that the
aggregate number of Shares subject to options under this Plan shall not exceed
2,400,000 shares of said stock.
2.3 Administration of this Plan:
<PAGE> 2
This Plan will be administered by the Board of Directors of the Company
(the "Board"). No member of the Board who is or may become eligible to receive
an option under this Plan shall participate in the deliberations or actions of
the Board in respect to this Plan.
A majority of the Board shall constitute a quorum, and acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Board, shall be deemed the acts of
the Board.
The Board on consideration of recommendations of the President and of
other officers, if the Board shall deem the same appropriate, shall:
(a) Determine the number of shares subject to each option, the
terms thereof, the type of option to be granted, and direct the President, or
other officer in his absence, to issue such option;
(b) Prescribe rules and regulations from time to time for
administration of this Plan;
(c) Decide any questions arising as to the interpretation or
application of any provision of this Plan.
Any action, decision, interpretation or determination by the Board with
respect to this Plan shall be final and binding upon any and all employees.
2.4 Eligibility: Facts to be Considered in Granting Options:
An option may be granted to any officer or key employee who, at the
time the option is granted, is a regular full-time employee of the Company or of
any subsidiary. In its determination of an employee to whom an option shall be
granted and the number of Shares to be covered by such option, the Board shall
take into account the duties of the employee, the present and potential
contributions of the employee to the success of the Company, the anticipated
number of years of service remaining before the attainment by the employee of
the age of retirement, and other factors deemed relevant by the Board in
connection with accomplishing the purpose of this Plan. An employee who has been
granted an option to purchase Shares of the Company, whether under this Plan or
otherwise, may, if the Board shall so determine be granted additional options.
As used in this Plan, the term "Optionee" shall refer to the holder of an option
granted hereunder.
2.5 Vesting of Options:
The Board shall have the authority to establish the time or times at
which the optioned Shares may be purchased and, whether all of the options may
be exercised at one time or in increments.
-2-
<PAGE> 3
2.6 Rights of Optionee in Event of Merger, Consolidation, Tender
Offer, Takeover Bid, Sale of Assets, or Dissolution:
(a) Notwithstanding anything in this Plan to the contrary, the
Optionee may purchase the full amount of optioned Shares for which options have
been granted to the Optionee and for which the options have not been exercised
under the following conditions:
(1) The Optionee may conditionally purchase any or all
optioned Shares during the period commencing twenty-seven (27) days and ending
seven (7) days prior to the scheduled effective date of a merger or
consolidation (as such effective date may be delayed from time to time) wherein
the Company is not to be the surviving corporation, which merger or
consolidation is not between or among the Company and other corporations related
to or affiliated with the Company;
(2) The optionee may conditionally purchase any or all
optioned Shares during the period commencing on the initial date of a tender
offer or takeover bid for the Shares (other than a tender offer by the Company)
subject to the Securities Exchange Act of 1934 and the rules promulgated
thereunder and ending on the day preceding the scheduled termination date of
acceptance of tenders of shares by the offeror under any such tender offer or
takeover bid (as such termination date may be extended by such offeror);
(3) The Optionee may conditionally purchase any or all
optioned Shares during the period commencing on the date the shareholders of the
Company approve a sale of substantially all the assets of the Company and ending
seven (7) days prior to the scheduled closing date of such sale (as such closing
date may be delayed from time to time).
(4) The Optionee may conditionally purchase any or all
optioned Shares during the period commencing on the date a majority of the
shareholders of the Company vote in favor of dissolving the Company and ending
thirty (30) days later but not in any event later than the day before the
Company files its Certificate of Dissolution.
(b) If the merger, consolidation, tender offer, takeover bid,
sale of assets, or dissolution, as the case may be and as described in
Subsections (1) through (4) above, once commenced, is canceled or revoked, the
conditional purchase of Shares for which the option to purchase would not have
otherwise been exercisable at the time of said cancellation or revocation, but
for the operation of this Section 2.6, shall be rescinded. With respect to all
other Shares conditionally purchased, the Optionee may rescind such purchase at
his option.
(c) If the merger, consolidation, tender offer, takeover bid,
or sale of assets does occur or thirty (30) days passes after a majority of the
Company's shareholders vote in favor of dissolving the Company (or a Certificate
of Dissolution is filed) and the Optionee has not conditionally purchased all
optioned Shares, all unexercised options shall terminate on the effective,
termination or closing date, or thirty (30) days after the date of said vote
(but not later than the day before the Certificate of Dissolution is filed), as
the case may be.
-3-
<PAGE> 4
(d) If the Company shall be the surviving corporation in any
merger or is a party to a merger or consolidation which is between or among the
Company and other corporations related to or affiliated with the Company, any
option granted hereunder shall pertain and apply to the securities to which a
holder of the number of Shares of Common Stock subject to the option would have
been entitled.
(e) Nothing herein shall allow the Optionee to purchase
optioned Shares, the options for which have expired.
2.7 Terms and Expiration of Options:
Each option granted under this Plan shall be in writing, shall be
subject to such amendment or modification from time to time as the Board shall
deem necessary or appropriate to comply with or take advantage of applicable
laws or regulations and shall contain provisions to the following effect,
together with such other provisions as the Board shall from time to time
approve:
(a) that, subject to the provisions of Section 2.7(b) below,
the option, as to the whole or any part thereof, may be exercised only by the
Optionee or his personal representative;
(b) that neither the whole nor any part of the option shall be
transferable by the Optionee or by operation of law otherwise than by the will
of, or by the laws of descent and distribution applicable to, a deceased
Optionee and that the option and any and all rights granted to the Optionee
thereunder and not theretofore effectively and completely exercised shall
automatically terminate and expire upon any sale, transfer or hypothecation or
any attempted sale, transfer or hypothecation of such rights or upon the
bankruptcy or insolvency of the Optionee or his or her estate;
(c) that subject to the foregoing provisions, an option may be
exercised at different times for portions of the total number of option Shares
for which the right to purchase or exercise shall have vested provided that such
portions are in multiples of one hundred (100) Shares;
(d) that the Optionee shall have no right to receive any
dividend on or to vote or exercise any right in respect to any Shares the
certificate for which has not been issued to him or her;
(e) that the option shall expire at the earliest of the
following:
(1) The date specified in the option;
(2) A date specified in the option agreement but not later
than twelve (12) months after voluntary or involuntary termination of Optionee's
employment other than termination as described in Paragraph (3) below;
-4-
<PAGE> 5
(3) Upon the discharge of Optionee for misconduct,
willfully or recklessly harmful to the Company;
(4) Twelve (12) months after Optionee's death or
disability;
(5) In the event of a merger, consolidation, tender offer,
takeover bid, sale of assets or majority vote of the shareholders of the Company
in favor of dissolving (or the filing of a Certificate of Dissolution), on the
date specified in Section 2.6(c). However, if the merger, consolidation, tender
offer, takeover bid or sale of assets does not occur or if a Certificate of
Revocation of Voluntary Dissolution is filed within the thirty (30) days after
said majority vote, as the case may be, all options which are terminated
pursuant to this Subsection (e)(5) shall be reinstated as if no action with
respect to any of said events had been contemplated or taken by any party
thereto and all Optionees shall be returned to their position on the date of
termination; and
(f) that the terms of the option shall not be affected by any
change of the Optionee's duties or position so long as the Optionee shall
continue to be employed by the Company or a subsidiary.
2.8 Notice of Intent to Exercise Option:
The Optionee (or other person or persons, if any, entitled thereto
hereunder) desiring to exercise an option granted hereunder as to all or part of
the Shares covered thereby shall in writing notify the Company at its principal
office at Bothell, Washington, to that effect specifying the number of option
Shares to be purchased, and, if required by the Company, representing in form
satisfactory to the Company that the Shares are being purchased for investment
and not with a view to resale or distribution. With respect to any shares
conditionally purchased pursuant to Section 2.6(a) above and for which such
purchase has not been voluntarily or otherwise rescinded pursuant to Section
2.6(b), the Optionee shall be deemed to have given to the Company the notice of
exercise required by this Section 2.8 as of ten (10) days prior to the closing
or effective date of the merger, consolidation, tender offer, takeover bid or
sale of assets or as of the twentieth (20th) day after a majority of the
shareholders vote in favor of dissolving the Company (or the tenth (10th) day
before the filing of a Certificate of Dissolution if it precedes said twentieth
(20th) day), as the case may be.
2.9 Recapitalization:
The aggregate number of Shares for which options may be granted
hereunder, the number of shares covered by each outstanding option, the price
per share thereof in each such option shall be proportionately adjusted for any
increase or decrease in the number of outstanding shares of Common Stock of the
Company resulting from a division or consolidation of shares or any other
increase or decrease in such shares effected without receipt of consideration by
the Company excluding any decrease resulting from the purchase of shares for the
treasury. If the adjustment would result in a fractional Share, the Optionee
shall be entitled to one (1) additional Share, provided that the total number of
Shares to be granted under this Plan shall not be increased
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above the equivalent number of shares initially allocated to this Plan or
subsequently approved by the shareholders of the Company for issuance hereunder.
2.10 Termination and Amendment of this Plan:
The directors of the Company may at any time modify, amend or terminate
this Plan except with respect to options granted prior to such action, provided,
however, that no such amendment or modification shall increase the number of
Shares as to which options may be granted under this Plan or change the class of
employee to whom options may be granted under this Plan.
2.11 Granting of Options:
The granting of any option pursuant to this Plan shall be entirely in
the discretion of the Board and nothing herein contained shall be construed to
give any officer or employee any right to participate under this Plan or to
receive any option under it.
The granting of an option pursuant to this Plan shall not constitute
any agreement or an understanding, express or implied, on the part of the
Company or a subsidiary to employ the Optionee for any specified period.
2.12 Withdrawal:
An Optionee may at any time elect in writing to abandon an option with
respect to the number of shares as to which the option shall not have been
exercised.
2.13 Government Regulations:
This Plan and the granting and exercise of any option hereunder and the
obligations of the Company to sell and deliver shares under any such option
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies as may be required. This Plan shall be
governed by the laws of the State of Washington.
2.14 Shareholder Approval:
This Plan shall be submitted to the shareholders for their approval
within twelve (12) months from the date hereof. The Company may grant options
prior to such approval which shall be conditioned upon subsequent shareholder
approval.
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2.15 Compliance with Securities Laws:
The Board shall have the right to:
(a) require an Optionee to execute, as a condition of the
exercise of an option, a letter evidencing Optionee's intent to acquire the
Shares for investment and not with a view to the distribution thereof;
(b) place appropriate legends upon the certificate or
certificates for the Shares; and
(c) take such other acts as it deems necessary in order to
cause the issuance of optioned Shares to comply with applicable provisions of
State and Federal Securities Laws.
2.16 Method of Exercise of Option:
Within ten (10) days after receipt of the Company of the notice
provided for in Section 2.8, but not later than the expiration date specified in
Section 2.7(e), the option shall be exercised as to the number of Shares
specified in the notice by payment to the Company of the amount specified in
either Section 3.2 or Section 4.5, as may be applicable. Payment of the purchase
price provided in the option shall be made in cash, in shares of the Company's
Common Stock owned by the Optionee, or in any combination of cash and shares of
the Company's Common Stock. Full or partial payment in Shares of the Company's
Common Stock shall be deemed to be the equivalent of payment in cash of the fair
market value of those shares. For purposes of the preceding sentence and this
Plan, "fair market value" is defined as the average, if any, of the closing
prices for the Common Stock as of 4:00 Eastern Time on the principal trading
exchange or national automated stock quotation system on which the Common Stock
is traded or quoted or, if there are no such closing prices or average, the
value of the Company's Common Stock as determined by the Board in good faith.
2.17 Substitutions and Assumptions:
The Board shall have the right to substitute or assume options in
connection with mergers, reorganizations, separations or other "corporate
transactions" as that term is defined in and said substitutions and assumptions
are permitted by Section 425 of the Internal Revenue Code (the "Code") and the
regulations promulgated thereunder. The number of Shares reserved pursuant to
Section 2.2 may be increased by the corresponding number of options assumed and,
in the case of a substitution, by the net increase in the number of Shares
subject to options before and after the substitution.
2.18 Proceeds from Sale of Stock:
Proceeds of the purchase of optioned Shares by an optionee shall be for
the general business purposes of the Company.
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2.19 Terminal Date of Plan:
This Plan shall not extend beyond April 11, 1998.
3. PROVISIONS APPLICABLE SOLELY TO NON-QUALIFIED STOCK OPTIONS:
In addition to the provisions of Section 2 above, the following
paragraphs shall apply to any options granted under this Plan which are not
Incentive Stock Options.
3.1 Option Price:
The option or purchase price of each Share optioned under this Plan
shall be determined by the Board at the time of the action for the granting of
the option.
3.2 Method of Exercise of Option:
The amount to be paid by the Optionee upon exercise of a Non-Qualified
Option shall be the full purchase price thereof provided in the option, together
with the amount of federal, state or local taxes of any kind required to be
withheld by the Company. An Optionee may elect to pay his withholding taxes by
having the Company withhold shares of Company common stock having a value equal
to the amount required to be withheld. The value of the shares to be withheld is
deemed to equal the fair market value of the shares on the day the option is
exercised. An election by an Optionee to have shares withheld for this purpose
will be subject to the following restrictions:
(a) if an Optionee has received multiple option grants, a
separate election must be made for each grant;
(b) the election must be made prior to the day the option is
exercised;
(c) the election will be irrevocable;
(d) the election will be subject to the disapproval of the
Board;
(e) if the Optionee is an officer of the Company within the
meaning of Section 16 of the Securities Exchange Act of 1934 ("Section 16"), the
election may not be made within six months following the grant of the option;
and
(f) if the Optionee is an officer of the Company within the
meaning of Section 16, the election must be made either six months prior to the
day the option is exercised or in the ten-day "window period" beginning on the
third day following the release of the Company's quarterly or annual summary
statement of sales and earnings.
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4. PROVISIONS APPLICABLE SOLELY TO INCENTIVE STOCK OPTIONS:
In addition to the provisions of Section 3 above, the following
paragraphs shall apply to any options granted under this Plan which are
Incentive Stock Options.
4.1 Conformance with Internal Revenue Code:
Options granted under this Plan which are "Incentive Stock Options"
shall conform to, be governed by and interpreted in accordance with Section 422A
of the Code and any regulations promulgated thereunder as well as any amendments
to the Code and Regulations.
4.2 Option Price:
The option or purchase price of each Share optioned under the Incentive
Stock Option provisions of this Plan shall be determined by the Board at the
time of the action for the granting of the option but shall not, in any event,
be less than the fair market value of the Company's common stock on the date of
grant.
4.3 Limitation on Vesting of Incentive Stock Options:
The aggregate fair market value of the Option Shares (determined on the
date of grant) with respect to which an employee's right to exercise vests in
any one calendar year (under this Plan or any other plan of the Company which
authorizes Incentive Stock Options) shall not exceed $100,000.
4.4 Limitation on Grants to Substantial Shareholders:
An employee may not, immediately prior to the grant of an Incentive
Stock Option hereunder, own stock in the Company representing more than ten
percent (10%) of the voting power of all classes of stock of the Company unless
the per share option price specified by the Board for the Incentive Stock
Options granted such an employee is at least one hundred ten percent (110%) of
the fair market value of the Company's stock on the date of grant and such
option, by its terms, is not exercisable after the expiration of five (5) years
from the date such option is granted.
4.5 Method of Exercise of Option:
The amount to be paid by the Optionee upon exercise of an Incentive
Stock Option shall be the full purchase price thereof provided in the option.
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EXHIBIT 10.11
1995 SEAMED CORPORATION
EMPLOYEE STOCK OPTION AND INCENTIVE PLAN
ARTICLE 1. PURPOSE AND DURATION
1.1 PURPOSE. The purpose of the 1995 SeaMED Corporation Employee Stock
Option and Incentive Plan (the "Plan") is to further the growth, development and
financial success of SeaMED Corporation (the "Company") and its Subsidiaries by
aligning the personal interests of key employees, through the ownership of
shares of the Company's Common Stock and through other incentives, to those of
the Company's shareholders. The Plan is further intended to provide flexibility
to the Company in its ability to compensate key employees and to motivate,
attract and retain the services of such key employees who have the ability to
enhance the value of the Company and its Subsidiaries. In addition, the Plan
provides for incentive awards to key employees of Affiliates in those cases
where the success of the Company or its Subsidiaries may be enhanced by the
award of incentives to such persons.
The Plan permits the granting of Stock Options, Stock Appreciation
Rights and Other Stock Based Awards.
1.2 DURATION. Subject to ratification by an affirmative vote of a
majority of the Shares present and entitled to vote at any meeting of
shareholders of the Company, the Plan, if so approved, shall be deemed effective
with the approval of the Board of Directors of the Company on October 26, 1995
(the "Effective Date"), and shall remain in effect, subject to the right of the
Board of Directors to terminate the Plan at any time pursuant to Article 9
herein and the availability of Shares subject to the Plan, until October 26,
2005 (the "Termination Date"). No Award may be granted under the Plan on or
after the Termination Date, but Awards made prior to the Termination Date may be
exercised, vested or otherwise effectuated beyond that date unless otherwise
limited.
ARTICLE 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized:
"Affiliate" means any corporation (other than a Subsidiary),
partnership, association, joint venture or other entity in which the Company or
any Subsidiary participates directly or indirectly in the decisions regarding
the management thereof or the production or marketing of products or services.
"Award" means, individually or collectively, a grant under this Plan of
Stock Options, Stock Appreciation Rights or Other Stock Based Awards.
"Award Agreement" means the document which evidences an Award and which
sets forth the terms, conditions and limitations relating to such Award.
"Board" or "Board of Directors" means the Board of Directors of the
Company.
"Change in Control" means (a) a merger or consolidation wherein the
Company is not the surviving corporation, which merger or consolidation is not
between or among the Company and any Affiliates or Subsidiaries, (b) a tender
offer or takeover bid for the Shares (other than a tender offer by the Company)
subject to the Exchange Act and the rules promulgated thereunder, (c) a sale of
substantially all the assets of the Company, and (d) the dissolution of the
Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time or any successor Code thereto.
<PAGE> 2
"Committee" means the group of three or more individuals administering
the Plan, which shall be the Compensation Committee of the Board (or such
members of the Compensation Committee, including at least two (2) Directors, who
qualify as both "disinterested persons" within the meaning of Rule 16b-3 under
the Exchange Act, or any successor rule thereto and "outside directors" under
Section 162 of the Code) or any other committee of the Board, consisting of at
least two (2) Directors and others, all of whom are "disinterested persons," and
"outside directors" and performing similar functions as appointed from time to
time by the Board and constituted so as to permit the Plan to comply with Rule
16b-3 under the Exchange Act, or any successor rule thereto and Section 162 of
the Code.
"Company" means SeaMED Corporation, a Delaware corporation.
"Consultant" means an individual who performs services for the Company,
a Subsidiary or any Affiliate as an independent contractor.
"Director" means a member of the Board of Directors of Company.
"Director Option" means a Nonqualified Stock Option granted to a
Director, as further described at Section 6.4.
"Effective Date" means October 26, 1995.
"Eligible Employee" means any executive, managerial, professional,
technical or administrative employee of the Company, any Subsidiary or any
Affiliate who is expected to contribute to its success.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor Act thereto.
"Fair Market Value" means the fair market value of the Company's
Shares, which shall be determined by the Board or, in the event that the Shares
are listed on any national exchange, over-the-counter, or other stock trading
market, then, as of any time, based upon the prevailing bid price of the Shares
as of such time.
"Incentive Stock Options" or "ISO" means a Stock Option granted
pursuant to Article 6 herein, which is designated as an Incentive Stock Option
and is intended to meet the requirements of Section 422 of the Code.
"Nonqualified Stock Option" or "NQSO" means a Stock Option granted
pursuant to Article 6 herein, which is not intended to be an Incentive Stock
Option.
"Other Stock Based Award" means an Award, granted pursuant to Article 6
herein, other than a Stock Option or SAR, that is paid with, valued in whole or
in part by reference to, or is otherwise based on Shares.
"Participant" means an Eligible Employee or Consultant selected by the
Committee to receive an Award under the Plan, or a Director who receives
Director Options under the Plan.
"Plan" means the 1995 SeaMED Corporation Employee Stock Option and
Incentive Plan.
"Shares" means the issued or unissued shares of the common stock, par
value of $0.01 per share, of the Company.
"Stock Appreciation Right" or "SAR" means the grant, pursuant to
Article 6 herein, of a right to receive a payment from the Company, in the form
of stock, cash or a combination of both, equal to the difference between the
Fair Market Value of one or more Shares and the exercise price of such Shares
under the terms of such Stock Appreciation Right.
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<PAGE> 3
"Stock Option" means the grant, pursuant to Article 6 herein, of a
right to purchase a specified number of Shares during a specified period at a
designated price, which may be either an Incentive Stock Option or a
Nonqualified Stock Option.
"Subsidiary" means a corporation as defined in Section 424(f) of the
Code with the Company being treated as the employer corporation for purposes of
this definition.
"Termination Date" means the earlier of the date on which all Shares
subject to the Plan have been purchased or acquired according to the Plan's
provisions, the date the Plan is terminated pursuant to Article 9, or October
26, 2005.
"Withholding Event" means an event related to an Award which results in
the Participant being subject to taxation at the federal, state, local or
foreign level.
ARTICLE 3. ADMINISTRATION
3.1 AUTHORITY. The Plan shall be administered by the Committee which
shall have full and exclusive power, except as limited by law or by the Articles
of Incorporation or Bylaws of the Company, as amended, and subject to the
provisions herein, to:
(a) select Eligible Employees and Consultants to whom Awards are
granted;
(b) determine the size and types of Awards;
(c) determine the terms and conditions of such Awards in a manner
consistent with the Plan;
(d) determine whether, to what extent and under what circumstances,
Awards may be settled, paid or exercised in cash, shares, or other Awards, or
other property or canceled, forfeited or suspended;
(e) construe and interpret the Plan and any agreement or instrument
entered into under the Plan;
(f) establish, amend or waive rules and regulations for the Plan's
administration;
(g) amend (subject to the provisions of Section 4.4 and Article 9
herein) the terms and conditions, other than price (which amendment may be made
only by the Board of Directors of the Company pursuant to Article 9), of any
outstanding Award to the extent such terms and conditions are within its
discretion;
(h) provide in the terms of the Award Agreements for acceleration
of exercise or removal of restrictions on exercise in the event of a Change in
Control of the Company; and
(i) make all other determinations which may be necessary or
advisable for the administration of the Plan.
All Awards hereunder shall be made by the Committee.
3.2 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive and binding on
all persons, including the Company, its Subsidiaries and Affiliates, its
shareholders, Participants, and their estates and beneficiaries.
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<PAGE> 4
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.4
herein, no more than one million Shares may be issued under the Plan, of which a
maximum of fifteen percent (15%) of such Shares may be issued pursuant to Other
Stock Based Awards. These Shares may consist, in whole or in part, of authorized
and unissued Shares, or of treasury Shares. No fractional Shares shall be issued
under the Plan; provided, however, that cash may be paid in lieu of any
fractional Shares in settlements of Awards under the Plan.
For purposes of determining the number of Shares available for issuance
under the Plan:
(a) The grant of an Award shall reduce the authorized pool of
Shares by the number of Shares subject to such Award while such Award is
outstanding, except to the extent that such an Award is in tandem with another
Award covering the same or fewer Shares.
(b) Any Shares tendered by a Participant in payment of the
price of a Stock Option or stock option exercised under any other Company plan
shall be credited to the authorized pool of Shares.
(c) To the extent that any Shares covered by SARs are not
issued upon the exercise of such SAR, the authorized pool of Shares shall be
credited for such number of Shares.
(d) To the extent that an Award is settled in cash or any form
other than in Shares, the authorized pool of Shares shall be credited with the
appropriate number of Shares represented by such settlement of the Award, as
determined at the sole discretion of the Committee (subject to the limitation
set forth in Section 4.2 herein).
(e) If Shares are used to pay dividends and dividend
equivalents in conjunction with outstanding Awards, an equivalent number of
Shares shall be deducted from the Shares available for issuance.
4.2 LAPSED AWARDS. If any Award granted under the Plan is canceled,
terminates, expires or lapses for any reason, any Shares subject to such Award
shall again be available for the grant of an Award under the Plan; except,
however, to the extent that such Award was granted in tandem with another Award,
any Shares issued pursuant to the exercise or settlement of such other Award
shall not be credited back. In the event that prior to the Award's cancellation,
termination, expiration, or lapse, the holder of the Award at any time received
one or more "benefits of ownership" pursuant to such Award (as defined by the
Securities and Exchange Commission, pursuant to any rule or interpretation
promulgated under Section 16 of the Exchange Act), the Shares subject to such
Award shall not be made available for regrant under the Plan.
4.3 EFFECT OF ACQUISITION. Any Awards granted by the Company in
substitution for awards or rights issued by a company whose shares or assets are
acquired by the Company or a Subsidiary shall not reduce the number of Shares
available for grant under the Plan.
4.4 ADJUSTMENTS IN AUTHORIZED SHARES. Subject to specific provisions in
any Award Agreement, in the event of any merger, reorganization, consolidation,
recapitalization, separation, spin-off, liquidation, stock dividend, split-up,
Share combination or other change in the corporate or capital structure of the
Company affecting the Shares, such adjustment shall be made in the number and
class of Shares which may be delivered under the Plan, and in the number and
class of and/or price of Shares subject to outstanding Awards granted under the
Plan, as may be determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Award shall always be a whole
number; and provided further that, with respect to Incentive Stock Options,
except with Board approval and in compliance with Article 9, no adjustment shall
be authorized by the Committee to the extent such adjustment would (i) cause the
Plan to violate Section 422 of the Code, or (ii) constitute a "modification"
within the meaning of Section 424(h)(3) of the Code, or any successor provision
thereto, with the effect that such
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modification, if applied, would be considered the granting of a new option under
Section 424(h)(1) of the Code, or any successor provision thereto.
4.5 COMMITTEE DETERMINATION. In determining the number of Shares
available for issuance under the Plan as contemplated by this Article 4, the
Committee shall interpret and apply the provisions of this Article so as to
permit the Plan to comply with Rule 16b-3 under the Exchange Act, or any
successor rule thereto.
ARTICLE 5. PARTICIPATION
5.1 SELECTION OF PARTICIPANTS. Subject to the provisions of the Plan,
the Committee, from time to time, may select from all Eligible Employees and
Consultants, those to whom Awards shall be granted and shall determine the
nature and amount of each Award. No Eligible Employee or Consultant shall have
the right to receive an Award under the Plan, or, if selected to receive an
Award, the right to continue to receive same. Further, no Participant shall have
any rights, by reason of the grant of any award under the Plan to continued
employment by the Company or any Subsidiary or Affiliate. There is no obligation
for uniformity of treatment of Participants under the Plan.
5.2 AWARD AGREEMENT. All Awards granted under the Plan shall be
evidenced by an Award Agreement that shall specify the terms, conditions,
limitations and such other provisions applicable to the Award as the Committee
shall determine.
ARTICLE 6. AWARDS
Except as otherwise provided for in Section 3.1 herein, Awards may be
granted by the Committee to Eligible Employees, and Consultants in the case of
Awards other than Incentive Stock Options, at any time, and from time to time as
the Committee shall determine. The Committee shall have complete discretion in
determining the number of Awards to grant (subject to the Share limitations set
forth in Section 4.1 herein) and, consistent with the provisions of the Plan,
the terms, conditions and limitations pertaining to such Awards.
The Committee may provide that the Participant shall have the right to
utilize Shares to pay all or any part of the purchase price of the exercise of
any Stock Option or option to acquire Shares under any other incentive
compensation plan of the Company, if permitted under such plan; provided,
however, that the number of Shares, bearing restrictive legends, if any, which
are used for such exercise, shall be subject to the same restrictions following
such exercise.
6.1 STOCK OPTIONS. Stock Options may be granted at an exercise price
established by the Compensation Committee, which, in the case of Incentive Stock
Options, shall not be less than one hundred percent (100%) of the Fair Market
Value of a Share on the date that the Stock Option is granted. In the case of
Director Options granted pursuant to Section 6.4 herein, the exercise price
shall be 100% of the Fair Market Value of a Share on the date the Director
Option is granted.
In the case of an Incentive Stock Option granted to an Eligible
Employee who, at the time of grant, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
and its Subsidiaries, the exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value of a Share on the date the Incentive
Stock Option is granted, and the Incentive Stock Option by its terms shall not
be exercisable after the expiration of five (5) years from the date of grant.
Except as provided in the preceding paragraph, a Stock Option may be
exercised at such times as may be specified in an Award Agreement, in whole or
in installments, which may be cumulative and shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no Stock
Option shall be exercisable later than ten (10) years after the date granted.
Prior to the exercise of a Stock Option, the holder thereof shall not have any
rights of a shareholder with respect to any of the Shares covered by the Stock
Option.
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<PAGE> 6
Stock Options shall be exercised by the delivery of a written notice of
exercise to the Chief Financial Officer of the Company, or such other person as
may be specified by the Committee, that sets forth the number of Shares with
respect to which the Stock Option is to be exercised, accompanied by full
payment of the total Stock Option price and any required withholding taxes.
Payment shall be made either (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having a Fair Market Value at the time of exercise
equal to the total price of the Stock Option, or (c) by a combination of (a) and
(b). The Committee also may allow exercises to be made with the delivery of
payment as permitted under Federal Reserve Board Regulation T, subject to
applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and applicable
law. The Committee may provide that the exercise of a Stock Option, by tendering
previously acquired shares, will entitle the exercising Participant to receive
another Stock Option covering the same number of shares tendered and with a
price of no less than the Fair Market Value on the date of grant of such
replacement Stock Option.
6.2 STOCK APPRECIATION RIGHTS. SARs may be granted, at a price which
shall not be less than one hundred percent (100%) of the Fair Market Value of a
Share on the date the SAR is granted, either in tandem with a Stock Option, such
that the exercise of the SAR or related Stock Option will result in a forfeiture
of the right to exercise the related Stock Option for an equivalent number of
shares, or independently of any Stock Option.
An SAR may be exercised at such times as may be specified in an Award
Agreement, in whole or in installments, which may be cumulative and shall expire
at such time as the Committee shall determine at the time of grant; provided,
however, that no SAR shall be exercisable later than ten (10) years after the
date granted.
SARs shall be exercised by the delivery of a written notice of exercise
to the Chief Financial Officer of the Company, or such other person as may be
specified by the Committee, that sets forth the number of Shares with respect to
which the SAR is to be exercised.
6.3 OTHER STOCK BASED AWARDS. Other Stock Based Awards may be granted
to such Eligible Employees, or Consultants where permitted by law, as the
Committee may select, at any time and from time to time as the Committee shall
determine. The Committee shall have complete discretion in determining the
number of Shares subject to such Awards (subject to the Share limitations set
forth in Section 4.1 herein), the consideration for such Awards and the terms,
conditions and limitations pertaining to same including, without limitation,
restrictions based upon the achievement of specific business objectives, tenure,
and other measurements of individual or business performance, and/or
restrictions under applicable federal or state securities laws, and conditions
under which same will lapse. Such Awards may include the issuance of Shares in
payment of amounts earned under other incentive compensation plans of the
Company. The terms, restrictions and conditions of the Award need not be the
same with respect to each Participant.
The Committee, at its sole discretion, may direct the Company to issue
Shares subject to such restrictive legends and/or stop transfer instructions as
the Committee deems appropriate.
6.4 DIRECTOR OPTIONS. Nonqualified Stock Options may be granted at the
discretion of the Board from time to time to each Director of the Company who is
not an Eligible Employee or Consultant (a "Director Option"), subject to the
following terms and conditions:
(a) Each Director Option may be exercised any time after six
(6) months from the date of its grant to ten (10) years from such date, at which
time the Director Option shall lapse and be of no force and effect.
(b) The exercise price of Director Options shall be one
hundred percent (100%) of the Fair Market Value of a Share on the date of grant.
(c) Director Options may be exercised only in whole.
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ARTICLE 7. DIVIDENDS AND DIVIDEND EQUIVALENTS
The Committee may provide that Awards earn dividends or dividend
equivalents. Such dividend equivalents may be paid currently or may be credited
to an account established by the Committee under the Plan in the name of the
Participant. In addition, dividends or dividend equivalents paid on outstanding
Awards or issued Shares may be credited to such account rather than paid
currently. Any crediting of dividends or dividend equivalents may be subject to
such restrictions and conditions as the Committee may establish, including
reinvestment in additional Shares or Share equivalents.
ARTICLE 8. DEFERRALS AND SETTLEMENTS
Payment of Awards may be in the form of cash, Shares, other Awards, or
in such combinations thereof as the Committee shall determine at the time of
grant, and with such restrictions as it may impose. Payment may be made in a
lump sum or in installments as prescribed by the Committee. The Committee may
also require or permit Participants to elect to defer the issuance of Shares or
the settlement of awards in cash under such rules and procedures as it may
establish under the Plan. It may also provide that deferred settlements include
the payment or crediting of interest on the deferral amounts or the payment or
crediting of dividend equivalents on deferred settlements denominated in Shares.
ARTICLE 9. AMENDMENT, MODIFICATION AND TERMINATION
9.1 AMENDMENT, MODIFICATION AND TERMINATION. The Committee may
terminate, amend or modify the Plan at any time and from time to time, with the
approval of the Board of Directors. The termination, amendment or modification
of the Plan may be in response to changes in the Code, the Exchange Act,
national securities exchange regulations or for other reasons deemed appropriate
by the Committee. However, without the approval of the shareholders of the
Company, no amendment or modification may:
(a) Materially increase the total amount of Shares which may
be issued under the Plan, except as provided in Sections 4.3 and 4.4 herein;. or
(b) Cause the Plan not to comply with Rule 16b-3 under the
Exchange Act, or any successor rule thereto.
9.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or
modification of the Plan shall in any manner adversely affect any Award
previously granted under the Plan, without the written consent of the
Participant. Any amendment which would change the exercise price of any
outstanding Awards (other than pursuant to Section 4.4) must be approved by the
Board of Directors.
ARTICLE 10. WITHHOLDING
10.1 TAX WITHHOLDING. The Company stall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
in cash or Shares having a Fair Market Value sufficient to satisfy federal,
state and local taxes (including the Participant's FICA obligation) required by
law to be withheld with respect to any Withholding Event which occurs because of
a grant, exercise or payment made under or as a result of the Plan.
10.2 SHARE WITHHOLDING. Upon a Withholding Event, the Committee may
require one or more classes of Participants to satisfy the withholding
requirement, in whole or in part, by having the Company withhold Shares having a
Fair Market Value, on the date the tax is to be determined, equal to the amount
of withholding (federal, FICA, state or local) which is required by law. Absent
such a mandate, the Committee may allow a Participant to elect Share withholding
for tax purposes subject to such terms and conditions as the Committee shall
establish.
7
<PAGE> 8
ARTICLE 11. TRANSFERABILITY
No Award granted under the Plan may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code, or Title I of the Employee Retirement Income
Security Act, as amended, or the rules thereunder. Further, all Awards granted
to a Participant under the Plan shall be exercisable during the Participant's
lifetime only by the Participant. Notwithstanding the foregoing, the designation
of a beneficiary by a Participant does not constitute a transfer.
ARTICLE 12. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board of Directors, shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by such person in connection with or resulting from any
claim, action, suit or proceeding to which such person may be a party or in
which such person may be involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid by such person
in settlement thereof, with the Company's approval, or paid by such person in
satisfaction of any judgment in any such action, suit or proceeding against such
person, provided such person shall give the Company an opportunity, at its own
expense, to handle and defend the same before such person undertakes to handle
and defend it on such person's own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Articles of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
ARTICLE 13. UNFUNDED PLAN
The Plan shall be unfunded and the Company shall not be required to
segregate any assets that may at any time be represented by Awards under the
Plan. Any liability of the Company to any person with respect to any Award under
the Plan shall be based solely upon any contractual obligations that may be
effected pursuant to the Plan. No such obligation of the Company shall be deemed
to be secured by any pledge of, or other encumbrance on, any property or assets
of the Company.
ARTICLE 14. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 15. SECURITIES LAW COMPLIANCE
The Plan is intended to comply with all applicable conditions of Rule
16b-3 or any successor rule thereto under the Exchange Act. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee. Further, each Award shall be subject to the requirement that, if at
any time the Committee shall determine, in its sole discretion, that the
listing, registration or qualification of any Award under the Plan upon any
securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the grant or
settlement thereof, such Award may not be exercised or settled in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
8
<PAGE> 9
ARTICLE 16. REQUIREMENTS OF LAW
16.1 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be require.
16.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
16.3 GOVERNING LAW. To the extent not preempted by federal law, the
Plan and all Award Agreements, shall be construed in accordance with and
governed by the laws of the State of Washington.
9
<PAGE> 1
EXHIBIT 10.12
SEAMED CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SeaMED Corporation (the "Company") does hereby establish its 1996
Employee Stock Purchase Plan as follows:
1. Purpose of the Plan; Effective Date. The purpose of this Plan is to
provide eligible employees of the Company who wish to become shareholders in the
Company a convenient method of doing so. It is believed that employee
participation in the ownership of the business will be to the mutual benefit of
both the employees and the Company. It is the intention of the Company to have
the Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall, accordingly, be construed so as to extend and limit participation in
a manner consistent with the requirements of that section of the Code. This Plan
shall not be effective until the later of (i) approval by the holders of a
majority of the Company's voting securities, which approval must occur (if at
all) within 12 months of the adoption of this Plan by the Board of Directors and
(ii) the date that the Company's common stock begins to trade on the Nasdaq
Stock Market. If not so approved, the Plan and any rights granted hereunder
shall be void and of no effect.
2. Definitions.
2.1 "Base pay" means regular straight time earnings, plus
review cycle bonuses and overtime payments, payments for incentive compensation,
and other special payments except to the extent that any such item is
specifically excluded by the Board of Directors of the Company (the "Board").
2.2 "Account" shall mean the funds accumulated with respect to
an individual employee as a result of deductions from his paycheck for the
purpose of purchasing stock under this Plan. The funds allocated to an
employee's account shall remain the property of the respective employee at all
times but may be commingled with the general funds of the Company.
3. Employees Eligible to Participate. Any employee of the Company or
any of its subsidiaries who is in the employ of the Company on one or more
offering dates is eligible to participate in the Plan, provided that they have
been employed by the Company for at least 6 months as of the commencement date
of an offering, except: (a) employees whose customary employment is less than 20
hours per week; and (b) employees whose customary employment is for not more
than five months in any calendar year. With respect to any employee subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, the Company
may impose such conditions on the grant or exercise of any rights hereunder
necessary to satisfy the requirements of such statute or applicable regulations.
4. Offerings. Generally, there will be ten separate consecutive
six-month offerings pursuant to the Plan. The first offering shall commence on
the date that the Company's common stock begins to trade on the Nasdaq Stock
Market and extend through June 30, 1997. Thereafter, offerings shall commence on
each subsequent January 1 and July 1, and the final offering under this Plan
shall commence on July 1, 2001 and terminate on December 31, 2001. In order to
become eligible to purchase shares, an employee must sign an Enrollment
Agreement, and any other necessary papers on or before the commencement date
(except for the initial offering, January 1 or July 1) of the particular
offering in which he wishes to participate. Participation in one offering under
the Plan shall neither limit, nor require, participation in any other offering.
5. Price. The purchase price per share shall be the lesser of (1) 85%
of the fair market value of the stock on the offering date; or (2) 85% of the
fair market value of the stock on the last business day of the offering. Fair
market value shall mean the price at which the Company sells stock in a public
offering or, if no such sales
<PAGE> 2
occur within any offering period, the closing bid price as reported on the
Nasdaq Stock Market or, if the stock is traded on a stock exchange, the closing
price for the stock on the principal such exchange.
6. Offering Date. The "offering date" as used in this Plan shall be the
commencement date of the offering, if such date is a regular business day, or
the first regular business day following such commencement date. A different
date may be set by resolution of the Board.
7. Number of Shares to be Offered. Subject to adjustment as provided
herein, the number of Shares that may be issued under the Plan shall not exceed
350,000 Shares (as such number may be adjusted by any stock split approved by
the Board of Directors). The actual number of Shares to be issued under this
Plan shall be determined in the discretion of the Board of Directors. The shares
to be sold to participants under the Plan will be common stock of the Company.
If the total number of shares for which options are to be granted on any date in
accordance with Section 10 exceeds the number of shares then available under the
Plan (after deduction of all shares for which options have been exercised or are
then outstanding), the Company shall make a pro rata allocation of the shares
remaining available in as nearly a uniform manner as shall be practicable and as
it shall determine to be equitable. In such event, the payroll deductions to be
made pursuant to the authorizations therefor shall be reduced accordingly and
the Company shall give written notice of such reduction to each employee
affected thereby.
8. Participation.
8.1 An eligible employee may become a participant by
completing an Enrollment Agreement provided by the Company and filing it with
the Human Resources Department prior to the commencement of the offering to
which it relates.
8.2 Payroll deductions for a participant shall commence on the
offering date, and shall end on the termination date of such offering unless
earlier terminated by the employee as provided in Paragraph 14.
9. Payroll Deductions.
9.1 At the time a participant files his authorization for a
payroll deduction, he shall elect to have deductions made from his pay on each
payday during the time he is a participant in an offering at a percentage of his
base pay as may be from time to time set by the Board; provided such percentage
shall not exceed 10%.
9.2 All payroll deductions made for a participant shall be
credited to his account under the Plan. A participant may not make any separate
cash payment into such account nor may payment for shares be made other than by
payroll deduction.
9.3 A participant may discontinue his participation in the
Plan as provided in Section 14, but no other change can be made during an
offering and, specifically, a participant may not alter the rate of his payroll
deductions for that offering.
10. Granting of Option. On the offering date, this Plan shall be deemed
to have granted to the participant an option for as many full shares as he will
be able to purchase with the payroll deductions credited to his account during
his participation in that offering. Notwithstanding the foregoing, no
participant may purchase stock the fair market value of which exceeds $25,000
during any calendar year.
11. Exercise of Option. Each employee who continues to be a participant
in an offering on the last business day of that offering shall be deemed to have
exercised his option on such date and shall be deemed to have purchased from the
Company such number of full shares of common stock reserved for the purpose of
the Plan as his accumulated payroll deductions on such date will pay for at the
option price.
12. Employee's Rights. No participating employee shall have any right
as a shareholder with respect to any shares until the shares have been purchased
in accordance with Section 11 above and the stock has been
<PAGE> 3
issued by the Company. Neither the adoption of this Plan nor the granting of
rights pursuant to it shall be deemed to create any right in any employee to be
retained or continued in the employment of the Company or any subsidiary.
13. Evidence of Stock Ownership.
13.1 Promptly following the end of each offering, the number
of shares of common stock purchased by each participant shall be deposited into
an account established in the participant's name at a stock brokerage or other
financial services firm designated by the Company (the "ESPP Broker").
13.2 The participant may direct, by written notice to the
Company at the time of his enrollment in the Plan, that his ESPP Broker account
be established in the names of the participant and one other person designated
by the participant, as joint tenants with right of survivorship, tenants in
common, or community property, to the extent and in the manner permitted by
applicable law.
13.3 A participant shall be free to undertake a disposition
(as that term is defined in Section 424(c) of the US Internal Revenue Code of
1986, as amended (the "Code")) of the shares in his account at any time, whether
by sale, exchange, gift, or other transfer of legal title, but in the absence of
such a disposition of the shares, the shares must remain in the participant's
account at the ESPP Broker until the holding period set forth in Section 423(a)
of the Code has been satisfied. With respect to shares for which the Section
423(a) holding period has been satisfied, the participant may move those shares
to another brokerage account of participant's choosing or request that a stock
certificate be issued and delivered to him.
13.4 A participant who is not subject to payment of U.S.
income taxes may move his shares to another brokerage account of his choosing or
request that a stock certificate be issued and delivered to him at any time,
without regard to the satisfaction of the Section 423(a) holding period.
14. Withdrawal.
14.1 An employee may withdraw from an offering, in whole but
not in part, at any time prior to the last business day of such offering by
delivering a Withdrawal Notice to the Company, in which event the Company will
refund the entire balance of his deductions as soon as practicable thereafter.
14.2 To re-enter the Plan, an employee who has previously
withdrawn must file a new Enrollment Agreement in accordance with Section 8.1.
The employee's re-entry into the Plan will not become effective before the
beginning of the next offering following his withdrawal, and if the withdrawing
employee is an officer of the Company within the meaning of Section 16 of the
Securities Exchange Act of 1934 he may not re-enter the Plan before the
beginning of the second offering following his withdrawal.
15. Carryover of Account. At the termination of each offering the
Company shall automatically re-enroll the employee in the next offering, and the
balance in the employee's account shall be used for option exercises in the new
offering, unless the employee has advised the Company otherwise. Upon
termination of the Plan, the balance of each employee's account shall be
refunded to him.
16. Interest. No interest will be paid or allowed on any money in the
accounts of participating employees.
17. Rights Not Transferable. No employee shall be permitted to sell,
assign, transfer, pledge, or otherwise dispose of or encumber either the payroll
deductions credited to his account or any rights with regard to the exercise of
an option or to receive shares under the Plan other than by will or the laws of
descent and distribution, and such right and interest shall not be liable for,
or subject to, the debts, contracts, or liabilities of the employee. If any such
action is taken by the employee, or any claim is asserted by any other party in
respect of such right and interest whether by garnishment, levy, attachment or
otherwise, such action or claim will be treated as an election to withdraw funds
in accordance with Section 14.
<PAGE> 4
18. Termination of Employment. Upon termination of employment for any
reason whatsoever, including but not limited to death or retirement, the balance
in the account of a participating employee shall be paid to the employee or his
estate.
19. Amendment or Discontinuance of the Plan. The Board shall have the
right to amend, modify, or terminate the Plan at any time without notice,
provided that no employee's existing rights under any offering already made
under Section 4 hereof may be adversely affected thereby, and provided further
that no such amendment of the Plan shall, except as provided in Section 20,
increase above _________ the total number of shares to be offered unless
shareholder approval is obtained therefor.
20. Changes in Capitalization. In the event of reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, offerings of rights, or any other change in the structure of the
common shares of the Company, the Board may make such adjustment, if any, as it
may deem appropriate in the number, kind, and the price of shares available for
purchase under the Plan, and in the number of shares which an employee is
entitled to purchase.
21. Share Ownership. Notwithstanding anything herein to the contrary,
no employee shall be permitted to subscribe for any shares under the Plan if
such employee, immediately after such subscription, owns shares (including all
shares which may be purchased under outstanding subscriptions under the Plan)
possessing 5% or more of the total combined voting power or value of all classes
of shares of the Company or of its parent or subsidiary corporations.
22. Administration. The Plan shall be administered by the Board. The
Board shall be vested with full authority to make, administer, and interpret
such rules and regulations as it deems necessary to administer the Plan, and any
determination, decision, or action of the Board in connection with the
construction, interpretation, administration, or application of the Plan shall
be final, conclusive, and binding upon all participants and any and all persons
claiming under or through any participant.
The Board may delegate any or all of its authority hereunder to such
committee as it may designate.
23. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received by the Human Resources Department of the Company or
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
24. Termination of the Plan. This Plan shall terminate at the earliest
of the following:
24.1 December 31, 2001;
24.2 The date of the filing of a Statement of Intent to
Dissolve by the Company or the effective date of a merger or consolidation
wherein the Company is not to be the surviving corporation, which merger or
consolidation is not between or among corporations related to the Company. Prior
to the occurrence of either of such events, on such date as the Company may
determine, the Company may permit a participating employee to exercise the
option to purchase shares for as many full shares as the balance of his account
will allow at the price set forth in accordance with Section 5. If the employee
elects to purchase shares, the remaining balance of his account will be refunded
to him after such purchase.
24.3 The date the Board acts to terminate the Plan in
accordance with Section 19 above.
24.3 The date when all shares reserved under the Plan have
been purchased.
25. Limitations on Sale of Stock Purchased Under the Plan. The Plan is
intended to provide common stock for investment and not for resale. The Company
does not, however, intend to restrict or influence any
<PAGE> 5
employee in the conduct of his own affairs. An employee, therefore, may sell
stock purchased under the Plan at any time he chooses, subject to compliance
with any applicable federal or state securities laws. THE EMPLOYEE ASSUMES THE
RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.
26. Governmental Regulation and Registration of Shares. The Company's
obligation to sell and deliver shares of the Company's common stock under this
Plan is subject to the approval of, or registration of shares of common stock
with, applicable governmental authorities required in connection with the
authorization, issuance, or sale of such shares.
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
$75,000 Redmond, Washington October 11, 1995
FOR VALUE RECEIVED, W. ROBERT BERG ("Maker") promises to pay to SEAMED
CORPORATION ("Payee"), the principal sum of SEVENTY-FIVE THOUSAND AND NO/100
DOLLARS ($75,000), with interest thereon a per annum rate equal to the
appropriate Applicable Federal Rate, as set forth in Section 1274 of the
Internal Revenue Code of 1986, as amended (the "Interest Rate"). Interest will
be calculated according to the foregoing based on a 365 day year and applied to
the actual number of days elapsed.
The entire balance of this Note, including, without limitation all
principal and any interest with respect thereto, shall be due and payable in
full on the fifth (5th) anniversary of the date of this Note; provided, however,
that, in the event that Maker's employment with Payee shall terminate for any
reason, including, without limitation, a termination due to the death or
permanent disability of Maker, then the entire balance of this Note shall be due
and payable 30 days after the termination (except, in the case of death, this
Note shall be due and payable 120 days after death) of Maker's employment with
Payee without presentment, demand or notice to Maker.
Maker shall have the right to prepay any or all of this Note at any
time without penalty; provided, however, that any partial pre-payment shall be
applied first to unpaid accrued interest and then to principal.
No payment of principal or interest under this Note shall be subject to
any right of set-off, counterclaim, defense, abatement, suspension, deferment or
reduction for any reason whatsoever.
Upon the happening of any of the following events, the holder or owner
of this Note may accelerate the maturity of this Note, including principal,
without presentment, demand or notice to the Maker: (a) the appointment of a
receiver for any part of the property of the Maker; (b) the assignment for the
benefit of creditors of Maker; or (c) the commencement of any proceedings under
any bankruptcy or insolvency laws by or against Maker unless dismissed within
sixty (60) days. If any installment is not paid within ten (10) days after its
due date, the entire balance of this Note shall bear interest from the date of
default until such installment (including all accrued interest through the date
of payment) is paid, at the Interest Rate plus 2%.
Maker and any endorsers of this Note hereby waive demand, grace,
presentment for payment and protest, and agree and contest that this Note may be
renewed and the time of payment extended without notice, and without releasing
any party hereto.
The waiver by holder of any breach or violation of, or default under
any provision of, this Note shall not be a waiver by such party of any provision
or of any subsequent breach or violation of this Note or default hereunder.
<PAGE> 2
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
If suit is brought on this Note, or if it is placed in the hands of an
attorney for collection, after any default in any payment, the undersigned
promises and agrees to pay all costs of collection, including attorneys' fees,
incurred thereby.
This Note is made and executed and is to be interpreted pursuant to the
laws of the State of Washington.
/s/ W. Robert Berg
-----------------------------------------
W. Robert Berg
-2-
<PAGE> 1
EXHIBIT 10.16
SeaMed Corporation
4500 150th Avenue, N.E.
Redmond, Washington 98052
Preferred Stock Purchase Agreement
As of March 28, 1984
To Each of the
Persons Listed on the
Schedule of Purchasers
attached hereto:
The undersigned, SeaMed Corporation, a Delaware corporation (the
"Company"), hereby agrees with you as follows:
SECTION 1
Authorization and Sale of the Shares
1.1 Authorization of the Shares. The Company has, or before the Closing
(as hereinafter defined) will have, authorized the sale and issuance of One
Million Four Hundred Twenty Thousand (1,420,000) shares (the "Shares") of its
Convertible Class A Preferred Stock, of par value one cent ($0.01) per share
("Preferred"), having the rights, restrictions, privileges and preferences as
set forth in the Preferred Stock Resolution of the Company (the "Preferred
Resolution") attached to this Agreement as Exhibit A.
1.2 Sale of The Shares. Subject to the terms and conditions hereof and
in reliance upon the representations, warranties and agreements contained
herein, the Company will issue and sell to each of you, severally and not
jointly, and each of you will purchase from the Company, severally and not
jointly, at the Closing, the number of the Shares set forth opposite your name
on the Schedule of Purchasers attached hereto (the "Schedule of Purchasers")
under the column labelled "Shares," at a purchase price of one dollar ($1.00)
per Share. The persons listed on the Schedule of Purchasers are sometimes
hereinafter referred to as the "Purchasers" and individually as a "Purchaser."
1.3 Sales of Shares to Other Purchasers. The Company also proposes to
enter into purchase agreements (the "Other Agreements"), identical with this
Agreement, with the other purchasers named on the Schedule of Purchasers (the
"Other Purchasers"), providing for the sale of shares of Preferred to the Other
Purchasers as set forth opposite their respective names on the Schedule of
Purchasers. The Company's Agreements with you and each of the Other Purchasers
are separate agreements and the sales of the Shares to you and each of the Other
Purchasers are separate sales. If any Other Purchaser does not purchase any
Shares to be purchased by such
<PAGE> 2
Other Purchaser as set forth on the Schedule of Purchasers, the Company shall
offer to issue and sell such Shares to you and the Other Purchasers (excluding
such defaulting Other Purchaser), pro rata, on the same terms and conditions as
set forth herein; you and each such Other Purchaser shall have a right of
over-allotment such that if you or any such Other Purchaser fails to accept such
offer in full to purchase his pro rata portion of the Shares to have been
purchased by the defaulting Other Purchaser, you and such Other Purchasers may
purchase such Shares on a pro rata basis.
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall be held immediately following the execution and
delivery of this Agreement at the place set forth in Section 2.3 hereof (the
"Closing Date") or at such other time and place as shall be mutually agreed upon
by the Company and the Purchasers. If the Closing does not occur by March 31,
1984, this Agreement will be terminated forthwith and the parties hereto will
have no further obligations to each other under this Agreement, except that the
Company shall nevertheless be obligated to make such payments as provided for in
Section 9.10 hereof.
2.2 Delivery. At the Closing, the Company will deliver to each of you
certificates, in such denominations and registered in your names as set forth in
the Schedule of Purchasers attached, representing the number of the Shares to be
purchased by you from the Company, against payment of the purchase price
therefor by check, wire transfer, cancellation of indebtedness or such other
form of payment as shall be mutually agreed upon by you and the Company, payable
to the order of the Company.
2.3 Place of Closing. The place of the Closing (including the place of
delivery to the Purchasers by the Company of the certificates evidencing all
Shares being purchased and the place of payment to the Company by the Purchasers
of the purchase price therefor) shall be at the offices of Reavis & McGrath, 345
Park Avenue, New York, New York 10154.
SECTION 3
Representations and Warranties of the Company
The Company hereby represents and warrants to you as follows, except as
set forth on the "Schedule of Exceptions" delivered to you prior to the
execution hereof and attached hereto.
3.1 Organization and Standing, Certificate of Incorporation and
By-Laws. The Company is a corporation duly organized and validly existing under
the laws of its state of organization and is in good standing under such laws.
The Company has requisite corporate power to own properties owned by it and to
conduct business as being conducted by it and as contemplated by its business
plan initially prepared in September 1983 in the form heretofore distributed to
each Purchaser (the "Business Plan"). The Company does not own or lease
-2-
<PAGE> 3
property or engage in any activity in any jurisdiction which presently requires
its qualification to do business as a foreign corporation in any jurisdiction
other than the State of Washington. The Company has furnished you with true,
correct and complete copies of its Certificate of Incorporation, By-Laws and all
amendments to each to date. Prior to the Closing, the Company shall have
properly executed, acknowledged, filed and recorded the Preferred Resolution
with the Secretary of State of the State of Delaware.
3.2 Corporate Power. The Company has all requisite corporate power to
enter into this Agreement and will have at the Closing Date all requisite
corporate power to sell the Shares and to carry out and perform its obligations
under the terms of this Agreement, the Other Agreements and the agreements
contemplated hereby and thereby.
3.3 Subsidiaries. The Company has no subsidiaries other than SeaMed
International Corporation, a domestic international sales corporation, add does
not own of record or beneficially any capital stock or equity interest or
investment in any other corporation, association or business entity.
3.4 Capitalization. Immediately prior to the Closing, the Company's
authorized capital stock will consist of (a) Three Million Five Hundred Thousand
(3,500,000) shares of Common Stock, $0.01 par value (the "Common Stock"), of
which One Million Eighty-One Thousand Nine Hundred Fifty-Two (1,081,952) shares
will be issued and outstanding immediately prior to the Closing, and (b) One
Million Five Hundred Thousand (1,500,000) shares of Preferred, none of which
will be issued and outstanding prior to the Closing. All the aforesaid issued
and outstanding shares will have been duly authorized and validly issued, will
be fully paid and nonassessable, will be owned of record and (to the best of the
Company's knowledge and belief) beneficially by the shareholders and in the
amounts set forth in the Schedule of Exceptions, and will have been offered,
issued, sold and delivered by the Company in compliance with applicable federal
and state securities laws. There are no outstanding preemptive, conversion or
other rights, options, warrants or agreements granted or issued by or binding
upon the Company for the purchase or acquisition of any shares of its capital
stock, except with respect to the Preferred in accordance with the provisions of
this Agreement and the Other Agreements and the Preferred Resolution. To the
best of the Company's knowledge and belief, no shareholder has granted options
or other rights to purchase any shares of Common Stock from such shareholder
other than as set forth in the Schedule of Exceptions. The Company does not hold
any shares of its capital stock in its treasury.
3.5 Authorization. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated herein, and for the authorization, issuance and
delivery of the Shares and of the Common Stock issuable upon conversion thereof
has been taken or will be taken prior to the Closing. This Agreement is a valid
and binding obligation of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general application affecting enforcement of creditors' rights
generally. The execution, delivery and performance by the Company of this
Agreement and compliance therewith and the issuance and
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sale of the Shares and Common Stock issuable upon conversion of the Shares will
not result in any violation of and will not conflict with, or result in a breach
of. any of the terms of, or constitute a default under, any provision of state
or federal law to which the Company is subject, the Company's Certificate of
Incorporation, .as amended, or By-Laws, as amended, or any mortgage, indenture,
agreement, instrument, judgment, decree, order, rule or regulation or other
restriction to which the Company is a party or by which it is bound, or result
in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company pursuant to any thereof. No shareholder
has any preemptive rights or rights of first refusal by reason of the issuance
of the Shares. The Shares, when issued in compliance with the provisions of this
Agreement and the Other Agreements, will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances. The shares of
Common Stock issuable upon conversion of the Shares have been duly and validly
reserved and are not subject to any preemptive rights or rights of first refusal
and, upon issuance, will be validly issued, fully paid and nonassessable.
3.6 Financial Information. The unaudited financial statements of the
Company as of January 31, 1984 attached as Exhibit B-1 hereto (the "Financial
Statements"), including the balance sheet as of January 31, 1984 (the "Balance
Sheet"), present fairly the financial position and results of operations of the
Company at the dates and for the periods to which they relate, have been
prepared in accordance with generally accepted accounting principles consistent
with principles followed in preparation of the audited financial statements of
the Company as of June 30, 1983 attached as Exhibit B-2 hereto and show all
material liabilities, absolute or contingent, of the Company required to be
recorded thereon in accordance with generally accepted accounting principles as
at the respective dates thereof.
3.7 Outstanding Debt. The Company has no outstanding indebtedness for
borrowed money except as reflected on the Balance Sheet and is not a guarantor
or otherwise contingently liable for any such indebtedness. There exists no
default under the provisions of any instrument evidencing any indebtedness or
otherwise or of any agreement relating thereto.
3.8 Absence of Undisclosed Liabilities. The Company has no material
liabilities (fixed or contingent, including without limitation any tax
liabilities due or to become due) which are not fully reflected or provided for
on the Balance Sheet. The Company does not know of any material liability of any
nature, direct or indirect, contingent or otherwise, or in any amount not
adequately reflected or reserved against in the Balance Sheet.
3.9 Absence of Certain Changes. At all times since the date of the
Financial Statements up to and including the Closing, there has not been any
event or condition, or any combination of events or conditions, of any character
which has had a material adverse effect on the Company's business, plans or
prospects, including but not limited to:
(a) any adverse change in the condition, assets, liabilities or
business of the Company from that shown on the Balance Sheet;
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(b) any damage, destruction or loss of any of the properties or
assets of the Company (whether or not covered by insurance);
(c) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company; or
(d) any labor trouble.
3.10 Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns and reports required to be filed with the
United States Internal Revenue Service and with the states of Delaware and
Washington, and (except to the extent that the failure to file would not have a
material adverse effect on the condition or operations of the Company) with all
other jurisdictions where such filing is required by law; and the Company has
paid, or made adequate provision in the Balance Sheet for the payment of, all
taxes, interest, penalties, assessments or deficiencies shown to be due or
claimed to be due on or in respect of such tax returns and reports. The Company
does not know of (i) any other tax returns or reports which are required to be
filed which have not been so filed or (ii) any unpaid assessment for additional
taxes for any fiscal period or any basis thereof. The Company's federal income
tax returns have not been audited by the Internal Revenue Service for fiscal
years ending after June 30, 1981.
3.11 Contracts; Insurance. Except as set forth in the Schedule of
Exceptions, the Company does not have any currently existing contract,
obligation, agreement, plan, arrangement, commitment or the like (written or
oral) of any material nature, including without limitation the following:
(a) employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company and agreements among shareholders and the
Company;
(b) loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of the Company's property or any agreement or instrument
evidencing any guaranty by the Company of payment or performance by any other
person;
(c) agreements with dealers, sales representatives, brokers or
other distributors, jobbers, advertisers or sales agencies;
(d) agreements with any labor union or collective bargaining
organization or other labor agreements;
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(e) any contract or series of contracts with the same person for
the furnishing or purchase of machinery, equipment, goods or services, including
without limitation agreements with processors and subcontractors;
(f) any indenture, agreement or other document (-including private
placement brochures) relating to the sale or repurchase of shares;
(g) any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which the Company is a party;
(h) agreements limiting the freedom of the Company to compete in
any line of business or in any geographic area or with any person;
(i) agreements providing for disposition of the business, assets
or shares of the Company, agreements of merger or consolidation to which the
Company is a party or letters of intent with respect to the foregoing;
(j) letters of intent or agreements with respect to the
acquisition of the business, assets or shares of any other business;
(k) insurance policies; and
(l) licenses, assignments and other agreements of any nature
whatsoever, with respect to foreign or domestic patents or applications for
patents, inventions, disclosures, know-how or other proprietary information and
the inventions thereof.
Except as set forth in the Schedule of Exceptions, the Company has
complied with all the material provisions of all said contracts, obligations,
agreements, plans, arrangements, and commitments-and is not in default
thereunder.
The Company maintains insurance which is adequate to protect the
Company and its financial condition against the risks involved in the business
conducted by the Company.
3.12 Shareholders, Directors and Officers; Indebtedness. Set forth on
the Schedule of Exceptions is a correct and complete list or description of all
indebtedness of the Company to its officers, directors or shareholders or any of
their respective relatives and of all indebtedness of such persons to the
Company. To the best of the Company's knowledge and belief, none of the officers
or directors or significant employees or consultants of the Company, or their
respective spouses or relatives, owns directly or indirectly, individually or
collectively, a material interest in any entity which is a competitor, customer
or supplier of (or has any existing contractual relationship with) the Company.
3.13 Litigation and Bankruptcy Proceedings.
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(a) There is neither pending nor, to the Company's knowledge and
belief, threatened any action, suit, proceeding or claim, or any basis therefor
or threat thereof, whether or not purportedly on behalf of the Company, to which
the Company is or may be named as a party or its property is or may be subject
and in which an unfavorable outcome, ruling or finding in any such matter or for
all such matters taken as a whole might have a material adverse effect on the
condition, financial or otherwise, or operations of the Company; and the Company
has no knowledge of any unasserted claim, the assertion of which is likely and
which, if asserted, will seek damages, an injunction or other legal, equitable,
monetary or nonmonetary relief which claim, individually or collectively with
other such unasserted claims, if granted would have a material adverse effect on
the condition, financial or otherwise, or operations of the Company.
(b) The Company has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had a petition in bankruptcy filed against it, been adjudicated
a bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws or any other law or statute of the United
States of America or any other jurisdiction.
3.14 Consents. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority, including the
Securities Commissioners of the States of Washington and New York, is required
in connection with the Company's valid execution, delivery or performance of
this Agreement or the Other Agreements, or the offer, sale or issuance of the
Shares by the Company, the conversion of the Shares, the issuance of Common
Stock upon conversion of the Shares, or the consummation of any other
transaction contemplated on the part of the Company hereby or by the Other
Agreements, except the filing of the Preferred Resolution with the Secretary of
State of the State of Delaware and the recording thereof, and except such
filings listed in the Schedule of Exceptions as have been made prior to the
Closing.
3.15 Title to Properties; Liens and Encumbrances. The Company does not
own any real property. The Company has a valid and indefeasible ownership
interest in all property and assets recorded on the Balance Sheet, free from all
mortgages, pledges, liens, security interests, conditional sale agreements,
encumbrances or charges, except (i) as shown on the Balance Sheet or listed on
the Schedule of Exceptions hereto; and (ii) tax, materialmen's or like liens for
obligations not yet due or payable or being contested in good faith by
appropriate proceedings (for which adequate reserves have been established in
accordance with generally accepted accounting principles), as set forth on the
Schedule of Exceptions.
3.16 Leases. Set forth on the Schedule of Exceptions is a correct and
complete list (including the amount of rents called for and a description of the
leased property) of all material leases under which the Company is a lessee. The
Company enjoys peaceful and undisturbed possession under all such leases, all of
such leases are valid and subsisting and none of them is in default in any
material respect.
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3.17 Business of the Company. There is no pending or to the Company's
knowledge and belief threatened claim or litigation against or affecting the
Company contesting its right to produce, manufacture, sell or use any product,
process, method, substance, part or other material presently produced,
manufactured, sold or used or planned to be produced, manufactured, sold or used
by the Company in connection with the operations of the Company; and the Company
has no knowledge or belief that (i) there exists, or there is pending or
planned, any patent, invention, device, application or principle, or any
statute, rule, law, regulation, standard or code which would materially
adversely affect the condition, financial or otherwise, or the operations of the
Company; or (ii) there is any other factor (other than fire, flood, accident,
act of war or civil commotion, or any other cause or event beyond the control of
the Company) which may materially adversely affect the condition, financial or
otherwise, or the operations of the Company. The Company currently intends to
engage in the business of the type described in the Business Plan.
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights. The
Company has all franchises, permits, licenses and other similar authority
necessary for the conduct of its business as now being conducted and as planned
to be conducted, the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company, and it is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority. The Company possesses all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights and
copyrights necessary to conduct its business as now being conducted and as
planned to be conducted without conflict with or infringement upon any valid
rights of others or the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company, and has not
received any notice of infringement upon or conflict with the asserted rights of
others.
3.19 Issuance Taxes. All taxes imposed by law in connection with the
issuance, sale and delivery of the Shares shall have been fully paid, and all
laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
3.20 Offering. Subject in part to the truth and accuracy of the
Purchasers' representations set forth in this Agreement and the Other
Agreements, the offer, sale and issuance of the Shares as contemplated by this
Agreement and the Other Agreements are exempt from the registration requirements
of the Securities Act of 1933 (the "Securities Act", which term shall include
any successor federal statute) and from the qualification or registration
requirements of the laws of any state or other jurisdiction, and neither the
Company nor anyone acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
3.21 Compliance with Other Instruments. The Company is not in violation
of any term of its Certificate of Incorporation or By-Laws. The Company is not
in violation of any term of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which the
Company is subject and a violation of which would have a material adverse effect
on the condition, financial or otherwise, or operations of the Company.
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<PAGE> 9
3.22 Employees. To the best of the Company's knowledge and belief, no
employee of the Company is, or is now expected to be, in violation of any term
of any employment contract, patent disclosure agreement, non-competition
agreement, or any other contract or agreement or any restrictive covenant or any
other common law obligation to a former employer relating to the right of any
such employee to be employed by the Company because of the nature of the
business conducted or to be conducted by the Company or to the use of trade
secrets or proprietary information of others, and the employment of the
Company's employees does not subject the Company or any Purchaser to any
liability. There is neither pending nor, to the Company's knowledge and belief,
threatened any actions, suits, proceedings or claims, or, to its knowledge and
belief, any basis therefor or threat thereof with respect to any contract,
agreement, covenant or obligation referred to in the preceding sentence. The
Company does not have any collective bargaining agreement covering any of its
employees.
3.23 Registration Rights. Except as provided for in this Agreement and
the Other Agreements, the Company is not under any obligation to register (as
defined in Section 8.2 below) any of its currently outstanding securities or any
of its securities which may hereafter be issued.
3.24 Disclosure. This Agreement, the Schedule of Exceptions, the
Financial Statements and the audited financial statements of the Company as of
June 30, 1983 delivered to the Purchasers, as well as the Business Plan, do not
contain any untrue statement of a material fact and do not omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in the light of the circumstances under which they were
made.
SECTION 4
Representations and Warranties of Purchasers
Each Purchaser represents and warrants to the Company, severally and
not jointly, and only as to itself, as follows:
4.1 Experience. It is experienced in evaluating and investing in newly
organized, high technology companies such as the Company.
4.2 Investment. It is acquiring the Shares for investment for its own
account and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the Shares and the shares of Common
Stock issuable upon conversion of the Shares have not been registered under the
Securities Act by reason of an exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
its investment intent as expressed herein.
4.3 Rule 144. It acknowledges that the Shares must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption
from such registration is available. It has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to
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the satisfaction of certain conditions and has been advised or is aware that
such Rule may not become available for resale of the Shares.
4.4 Access to Data. It has had an opportunity to discuss the Company's
business, management and financial affairs with its management and has had the
opportunity to review the Company's books, records and facilities and has been
given all the information that it has requested in connection therewith.
SECTION 5
Conditions to Purchaser's Obligation to Close
Your obligation to purchase the Shares to be purchased by you at the
Closing is subject to the fulfillment to your satisfaction on or prior to the
Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all respects when made, and shall be true and correct in all respects on the
Closing Date with the same force and effect as if they had been made on and as
of the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with in all respects.
5.3 Opinion of Company's Counsel. You shall have received from counsel
to the Company, which counsel must be satisfactory to the Purchasers, an opinion
addressed to you, dated the Closing Date, and in substantially the form attached
as Exhibit C hereto.
5.4 Legal Investment. At the time of the Closing, the purchase of the
Shares to be purchased by you hereunder shall be legally permitted by all laws
and regulations to which you and the Company are subject.
5.5 Compliance Certificate. The Company shall have delivered to you a
certificate of the President of the Company, dated the Closing Date, certifying
to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement and other matters you reasonably request.
5.6 Shareholders Agreement. All Purchasers shall have executed an
agreement in substantially the form attached hereto as Exhibit D.
5.7 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to you and your counsel.
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5.8 Proprietary Information and Inventions, and Non-Competition
Agreements.
(a) Messrs. William L. Scott and Bengt M. Svensson shall have
executed and delivered to the Company a Proprietary Information and Inventions
Agreement in a form substantially the same as Exhibit E hereto.
(b) Messrs. William L. Scott and Bengt M. Svensson shall have
executed and delivered to the Company an Agreement Not to Compete in
substantially the form of Exhibit F hereto.
5.9 Qualifications. All authorizations, approvals or permits, if any,
including any authorizations, approvals or permits under state securities or
blue sky laws, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Shares pursuant
to this Agreement and the Other Agreements, the conversion of the Shares into
Common Stock and the issuance of such Common Stock upon such conversion shall
have been duly obtained and shall be effective on and as of the Closing.
5.10 Certificate of Incorporation. The Preferred Resolution shall have
been filed with the Secretary of State of the State of Delaware and duly
recorded as provided by the Delaware General Corporation Law.
5.11 Minimum Investment. At the Closing, all the Purchasers shall
purchase all the Shares pursuant to this Agreement and the Other Agreements.
5.12 Amendment of By-Laws. The Company shall have amended its By-Laws
to provide that persons owning Twenty Percent (20%) or more of the Preferred and
the Common Stock issued upon conversion of the Preferred, or any combination
thereof, can call special meetings of shareholders and special meetings of the
Board of Directors and the directors elected by the Preferred can call special
meetings of the Board of Directors.
5.13 Key Man Life Insurance. The Company shall have obtained with
financially sound and reputable insurers term life insurance on the life of Mr.
William L. Scott in the amount of $1,000,000. This policy shall not be
cancelable by the Company except in accordance with Section 7.7 and upon 30 days
prior written notice to the Purchaser.
5.14 Legal Fees. The Company will pay up to $10,000 of the legal fees,
and will pay disbursements and office expenses, including secretarial charges,
of Reavis & McGrath, special counsel to the Purchasers, with respect to this
Agreement and the transactions contemplated hereby.
5.15 Directors. Stephen J. Clearman shall have been elected to the
Board of Directors of the Company as one of the representatives of the
Preferred. The Company shall have amended its By-Laws to fix the number of
directors at eight.
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5.16 Letter Relating to Conversion. Purchasers shall have received a
letter from Pioneer Associates confirming that it will exercise all of its
warrants to purchase Common Stock in January 1985 and prior to the expiration of
such warrants.
SECTION 6
Conditions to Company's Obligation to Close
The Company's obligation to sell the Shares to be purchased at the
Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of each of the following conditions:
6.1 Representations. The representations made by you pursuant to
Section 4 hereof shall be true and correct when made and shall be true and
correct on the Closing Date.
6.2 Legal Investment. At the time of the Closing, the conditions set
forth in Sections 5.9, 5.10 and 5.11 shall have occurred and the purchase of the
Shares to be purchased by you hereunder shall be legally permitted by all laws
and regulations to which you and the Company are subject.
SECTION 7
Covenants of the Company
The Company hereby covenants and agrees as follows:
7.1 Basic Financial Information. The Company will furnish the
following reports to each Purchaser so long as the Purchaser (or its
representative) is a holder of Preferred or Common Stock:
(a) As soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of such
fiscal year, and consolidated statements of income and sources and applications
of funds of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company.
(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of income of the Company and its
subsidiaries for such period and for the current fiscal year to date, prepared
in accordance with generally accepted accounting principles consistently applied
and setting forth in comparative
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form the figures for the corresponding periods of the previous fiscal year,
subject only to normally occurring accruals, all in reasonable detail and
certified by the principal financial or accounting officer of the Company.
(c) From the date the Company becomes subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in
lieu of the financial information required pursuant to Sections 7.1(a) and (b),
copies of its annual reports on Form 10-K and its quarterly reports on Form
10-Q, respectively.
7.2 Additional Information. The Company will permit any person who owns
(or has been designated as the representative of a holder of) 100,000 or more of
the Shares or such number of shares of Common Stock issued upon conversion of
100,000 or more of the Shares, or any combination thereof, to visit and inspect
any of the properties of the Company, including its books of account, and to
discuss its affairs, finances and accounts with the Company's officers and its
independent public accountants, all at such reasonable times and as often as any
such person may reasonably request, provided that such person shall provide the
Company with reasonable advance notice of his desire to so visit and inspect.
Until the earlier to occur of (i) the date on which the Company is subject to
the reporting requirements of Section 13(a) of the Exchange Act, or (ii) the
date on which quotations for the Common Stock of the Company are reported by the
automated quotations system operated by the National Association of Securities
Dealers, Inc., or by an equivalent quotations system, the Company will deliver
the reports described below in this Section 7.2 to each such person:
(a) As soon as practicable after the end of each month and in any
event within thirty (30) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such month, and the
consolidated statements of income of the Company and its subsidiaries, for each
month and for the current fiscal year of the Company to date, prepared in
accordance with generally accepted accounting principles consistently applied,
together with a comparison of such statements to the Company's operating plan
then in effect and approved by its Board of Directors, and certified, subject
only to normally occurring accruals, by the principal financial or accounting
officer of the Company.
(b) As soon as available (but in any event within sixty (60) days
after the commencement of its fiscal year) a summary of the financial plan of
the Company, as contained in its operating plan approved by the Company's board
of directors. Any material changes in such financial plan shall be delivered as
promptly as practicable after such changes have been approved by the board of
directors.
(c) With reasonable promptness, such other information and data
with respect to the Company and its subsidiaries as any such person may from
time to time reasonably request.
The foregoing provisions of this Section 7.2 shall not be in limitation of any
rights which a Purchaser may have with respect to the books and records of the
Company and its subsidiaries, or to inspect their properties or discuss their
affairs, finances and accounts, under the laws of the jurisdictions in which
they are incorporated.
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7.3 Right of First Refusal. The Company hereby grants to each Purchaser
the right of first refusal to purchase, pro rata, all (or any part) of New
Securities (as defined in this Section 7.3) which the Company may, from time to
time, propose to sell and issue. A Purchaser's pro rata share, for purposes of
this right of first refusal, is the ratio of the number of the Shares purchased
by such Purchaser under this Agreement and the Other Agreements to the total
number of Shares. Each Purchaser shall have a right of over-allotment such that
if any Purchaser fails to exercise his right hereunder to purchase his pro rata
portion of New Securities, the Other Purchasers may purchase the non-purchasing
Purchaser's portion on a pro rata basis within five (5) days from the date such
non-purchasing Purchaser fails to exercise his right hereunder to purchase his
pro rata share of New Securities. This right of first refusal shall be subject
to the following provisions:
(a) "New Securities" shall mean any capital stock (including the
Common Stock or the Preferred) of the Company whether or not presently
authorized, and rights, options or warrants to purchase capital stock, and
securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include (i)
securities purchased under this Agreement; (ii) securities offered to the public
pursuant to a registration statement filed pursuant to the Securities Act; (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such corporation following the completion of such
transaction; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features, including
warrants, options, equity participations or "kickers" or other rights to
purchase capital stock, and are not convertible into capital stock of the
Company; or (v) securities issued to employees, consultants or directors of the
Company pursuant to any stock option plan or stock purchase or stock bonus
arrangement.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Purchaser written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Company proposes to issue the same. Each Purchaser shall have thirty
(30) days from the date of receipt of any such notice to agree to purchase the
Purchaser's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(c) In the event the Purchasers fail to exercise the right of first
refusal within said thirty (30) day period and after the expiration of the 5-day
period for the exercise of the over-allotment provisions of this Section 7.3,
the Company shall have one hundred eighty (180) days thereafter to sell or enter
into an agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within one hundred eighty (180) days from the date
of said agreement) to sell the New Securities in respect of which the
Purchasers' option was not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than
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<PAGE> 15
specified in the Company's notice. In the event the Company has not sold within
said 180-day period or entered into an agreement to sell the New Securities
within said 180-day period (or sold and issued New Securities in accordance with
the foregoing within one hundred eighty (180) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Purchasers in the manner provided
above.
(d) The right of first refusal granted under this Agreement shall
expire upon the first sale of Common Stock of the Company to the public at a per
share offering price of at least five times the then existing conversion price
for the Preferred, which sale is effected pursuant to a registration statement
filed with, and declared effective by, the Securities and Exchange Commission
(the "Commission") under the Securities Act in a firm commitment underwritten
public offering, with an aggregate offering price to the public of not less than
$5,000,000.
(e) The right of first refusal set forth in this Section 7.3 is
nonassignable, except that (i) such right is assignable by each Purchaser to any
wholly-owned subsidiary or parent of, or to any corporation or entity which is,
within the meaning of the Securities Act, controlling, controlled by or under
common control with, any such Purchaser, (ii) such right is assignable between
and among any of the Purchasers, and (iii) upon the death of a Purchaser, such
right shall pass with the Shares to the beneficiaries under the deceased
Purchaser's last will and testament or to the distributees of the deceased
Purchaser's estate.
7.4 Prompt Payment of Taxes, etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, or in
conformance with customary trade terms, all other indebtedness incident to
operations of the Company.
7.5 Maintenance of Properties and Leases. The Company will keep its
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
provision of all leases to which any of them is a party or under which any of
them occupies property if the breach of such provision might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company.
7.6 Insurance. The Company will keep its assets and those of its
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company or any subsidiary from
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becoming a co-insurer and not in any event less than 100% of the insurable value
of the property insured; and the Company will maintain, with financially sound
and reputable insurers, insurance against other hazards and risks and liability
to persons and property to the extent and in the manner customary for companies
in similar businesses similarly situated.
7.7 Key Man Life Insurance. The Company will cause to be maintained
the term life insurance required by Sections 5.13 and 7.17 hereof under the
terms and conditions set forth therein, unless otherwise agreed by both the
representatives of the Purchasers on the Board of Directors.
7.8 Accounts and Records. The Company will keep true records and books
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
7.9 Independent Accountants. The Company will retain independent
public accountants of recognized national standing who shall certify the
Company's financial statements at the end of each fiscal year. In the event the
services of the independent public accountants, so selected, or any firm of
independent public accounts hereafter employed by the Company are terminated,
the Company will promptly thereafter notify the Purchasers and will request the
firm of independent public accountants whose services are terminated to deliver
to the Purchasers a letter of such firm setting forth the reasons for the
termination of their services. In the event of such termination, the Company
will promptly thereafter engage another such firm of independent public
accountants. In its notice to the Purchasers the Company shall state whether the
change of accountants was recommended or approved by the Board of Directors or
any committee thereof.
7.10 Compliance with Requirements of Governmental Authorities. The
Company and all its subsidiaries shall duly observe and conform to all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their properties or assets.
7.11 Maintenance of Corporate Existence, etc. The Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use patents, processes, licenses,
trademarks, trade names or copyrights owned or possessed by it or any subsidiary
and deemed by the Company to be necessary to the conduct of their business.
7.12 Availability of Common Stock for Conversion. The Company will,
from time to time, in accordance with the laws of the state of its
incorporation, increase the authorized amount of Common Stock if at any time the
number of shares of Common Stock remaining unissued and available for issuance
shall be insufficient to permit conversion of all the then outstanding shares of
Preferred.
7.13 Notice of Record Dates. In the event of any taking by the Company
of a record of the holders of any class of securities (other than the Preferred)
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, the Company shall mail to each Purchaser at
least ten (10) days prior to such record date, specified herein, a notice
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specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
7.14 Proprietary Information and Inventions, and Non-Competition
Agreements. The Company and each person hereafter employed by it or any
subsidiary with access to confidential information will enter into a Proprietary
Information and Inventions Agreement in substantially the form of Exhibit E
hereto. The Company will require all persons employed by the Company or a
subsidiary, and designated as a "key person" by either of the representatives of
the Purchasers (or the Purchasers' transferees) on the Company's Board to
execute an agreement in substantially the form annexed hereto as Exhibit F as a
condition precedent to the employment of such individuals.
7.15 Employee Stock Purchase Agreement. The Company will not issue any
of its capital stock, or grant an option to purchase any of its capital stock,
to any employee or officer of the Company or a subsidiary except (i) pursuant to
options for 161,489 shares of Common Stock outstanding at the date of this
Agreement under the 1982 Incentive Stock Option Plan of the Company, a copy of
which has been provided to the Purchasers, (ii) pursuant to the Stock
Subscription Agreements described in the Schedule of Exceptions, (iii) up to an
additional 61,011 shares pursuant to options which may be granted under the 1982
Incentive Stock Option Plan as currently in effect, (iv) pursuant to the Special
Incentive Plans, which Plans shall, among other things, provide for the purchase
by Messrs. William L. Scott and Bengt M. Svensson of an aggregate of 72,017
shares of Common Stock at the Closing subject to the execution of an Employee
Stock Purchase Agreement in the form set forth as Exhibit H to this Agreement
and of up to an additional 70,000 shares of Common Stock subject to the
achievement of certain financial goals by the Company or (v) pursuant to a plan
adopted by the Board of Directors, with both representatives of the Purchasers
on the Board of Directors having voted in favor thereof (a "New Plan"). No
issuance or grant shall be made to Messrs. William L. Scott or Bengt M. Svensson
under the 1982 Incentive Stock Option Plan or any New Plan unless both
representatives of the Purchasers on the Board of Directors shall have
specifically approved such grant. All grants of additional options under the
1982 Incentive Stock Option Plan or under a New Plan shall be approved by a
committee consisting of four directors, two of whom shall be the nominees of the
holders of Preferred.
7.16 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares to retire the Company's outstanding indebtedness and to provide
additional funding for operations, research and development, capital equipment
and working capital.
7.17 Key Man Life Insurance. The Company shall, as soon as practicable,
obtain with financially sound and reputable insurers term life insurance on the
life of Mr. Bengt M. Svensson in the amount of $1,000,000. This policy shall not
be cancellable by the company except in accordance with Section 7.7 and then
only upon 30 days prior notice to the Purchasers.
7.18 Duration of Certain Covenants. The covenants and agreements
contained in Sections 7.4 through 7.11, 7.13 through 7.15 and 7.17 shall expire
upon the earlier of (i) the first sale of Common Stock of the Company to the
public at a per share offering price of at least five
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times the existing conversion price for the Preferred, which sale is effected
pursuant to a registration statement filed with and declared effective by the
Commission under the Securities Act in a firm commitment underwritten public
offering, with an aggregate offering price to the public of not less than
$5,000,000 and (ii) March 21, 1990, provided that the Company has theretofore
completed a sale of Common Stock of the Company to the public pursuant to a
registration statement filed with and declared effective by the Commission under
the Securities Act with net proceeds to the Company of at least $2,000,000 and
provided further that the Company continues to be subject to the reporting
requirements of the Exchange Act.
SECTION 8
Restrictions on Transferability of Securities; Compliance with Securities Act
8.1 Restrictions on Transferability. The Shares shall not be
transferable, except upon the conditions specified in this Section 8, which
conditions are intended to insure compliance with the provisions of the
Securities Act or, in the case of Section 8.15 hereof, to assist in an orderly
distribution. Each Purchaser will cause any proposed transferee of Shares held
by that Purchaser to agree to take and hold those securities subject to the
provisions and upon the conditions specified in this Section 8.
8.2 Certain Definitions. As used in this Section 8, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 8.3. hereof.
"Registrable Securities" shall mean (i) the Preferred, (ii) shares of
Common Stock issued or issuable pursuant to the conversion of the Preferred and
(iii) any Common Stock issued in respect of securities issued pursuant to the
conversion of the Shares upon any stock split, stock dividend, recapitalization
or similar event.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Sections 8.5 and 8.6 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for all the selling Holders and other security
holders for a "due diligence" examination of the Company, and the expense of any
special
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audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder.
"Holder" shall mean any holder of the outstanding Shares or Registrable
Securities which have not been sold to the public.
"Initiating Holders" shall mean any Purchasers or their assignees under
Section 8.14 hereof who in the aggregate are Holders of more than fifty percent
(50%) of the Shares or such number of shares of Common Stock issued to the
Purchasers or their assignees under Section 8.14 hereof upon conversion of said
percentage of the Shares, or any combination thereof.
8.3 Restrictive Legend. Each certificate representing (i) the Shares,
or (ii) shares of the Company's Common Stock issued upon conversion of
Preferred, or (iii) any other securities issued in respect of Preferred or the
Common Stock issued upon conversion of Preferred, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Upon request of a holder of such a certificate, the Company shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Company shall
have received either the opinion referred to in Section 8.4(i) or the
"no-action" letter referred to in Section 8.4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws.
8.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 8.5, 8.6, 8.8 and 8.16 hereof), the holder thereof shall give written
notice to the Company of such holder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall
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be accompanied (except in transactions in compliance with Rule 144) by either
(i) a written opinion of Reavis & McGrath or legal counsel who shall be
reasonably satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 8.3 above, except that such certificate shall not bear such restrictive
legend if the opinion of counsel or "no-action" letter referred to above is to
the further effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act.
8.5 Requested Registration.
(a) Request for Registration. If the Company shall receive from
Initiating Holders, at any time or times not earlier than eighteen months
following the Closing a written request that the Company effect any registration
with respect to all or a part of the Registrable Securities, provided such
request includes more than 50% of the Shares or such number of shares of Common
Stock issued upon conversion of more than 50% of the Shares, or any combination
thereof, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 8.5:
(A) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act or applicable rules or
regulations thereunder; or
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(B) after the Company has effected two such registrations
pursuant to this Section 8.5(a) and such registrations have been
declared or ordered effective and the sales of such Registrable
Securities shall have closed.
Subject to the foregoing clauses (A) and (B), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 8.5(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no right to include any of its securities in any such
registration.
(b) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 8.5 and the Company shall include such information in the written notice
referred to in Section 8.5(a)(i) above. The right of any Holder to registration
pursuant to Section 8.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to Section 8.5, or
if holders of securities of the Company who are entitled, by contract with the
Company, to have securities included in such a registration (the "Other
Shareholders") request such inclusion, the Initiating Holders shall, on behalf
of all Holders, offer to include the securities of such officers, directors and
Other Shareholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 8. The Company
shall (together with all Holders, officers, directors and Other Shareholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 8.5, if the representative
advises the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by officers or directors (other than Registrable Securities) of the
Company shall be excluded from such registration to the extent so required by
such limitation and if a limitation of the number of shares is still required,
the securities of the Company issued pursuant to the Purchase and Sale Agreement
dated January 24, 1978, between the Company and Pioneer Investors Corporation
and Doan Resources Corporation (the "Pioneer Securities") shall be excluded from
such registration to the extent so required by such limitation and, if a
limitation of the number of shares is still required, the Initiating Holders
shall so advise all Holders of Registrable Securities and Other Shareholders
whose securities would otherwise be underwritten
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pursuant hereto, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all such Holders and Other Shareholders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities and other
securities which they had requested to be included in such registration at the
time of filing the registration statement, provided that there shall not in any
event be a reduction in the number of shares to be included in the registration
and underwriting in respect of the 10,000 shares of Common Stock issued pursuant
to the Subscription Agreement dated July 9, 1977 between the Company and Robert
M. Bridgforth, Jr., or the 10,000 shares of Common Stock issued pursuant to the
Subscription Agreement dated July 19, 1977 between the Company and Dixon J.
Smith (the "Bridgforth and Smith Securities"). No Registrable Securities or any
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder of
Registrable Securities, officer, director or Other Shareholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has not
limited the number of Registrable Securities or other securities to be
underwritten, the Company may include its securities for its own account in such
registration if the underwriter so agrees and if the number of Registrable
Securities and other securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
8.6 Company Registration.
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 8.6(b) below. Such written request may specify all or a part of
a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.6(a)(i). In such event the right of any
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Holder to registration pursuant to Section 8.6 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting by
the Company. Notwithstanding any other provision of this Section 8.6, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, and (a) if such registration is the first
registered offering of the Company's securities to the public, the underwriter
may (subject to the allocation priority set forth below) exclude from such
registration and underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant hereto, and (b) if such registration is
other than the first registered offering of the sale of the Company's securities
to the public, the underwriter may (subject to the allocation priority set forth
below) limit the number of Registrable Securities to be included in the
registration and underwriting to not less than fifty percent (50%) of the
securities included therein (based on aggregate market values). The Company
shall so advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
securities of the Company held by officers and directors of the Company (other
than Registrable Securities) shall be excluded from such registration and
underwriting to the extent required by such limitation, and, if a limitation on
the number of shares is still required, the Pioneer Securities shall be excluded
from such registration and underwriting to the extent so required by such
limitation and, if a limitation of the number of shares is still required, the
number of shares that may be included in the registration and underwriting shall
be allocated among all such Holders and Other Shareholders in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities and
other securities which they had requested to be included in such registration at
the time of filing the registration statement, provided that there shall not in
any event be a reduction in the number of Bridgforth and Smith Securities
included in the registration and underwriting. If any Holder of Registrable
Securities or any officer, director or Other Shareholder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
8.7 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 8 shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered; provided, however, that the Company shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by Initiating Holders, the registration
statement does not become effective, in which case the Holders and Other
Shareholders requesting registration shall bear such Registration Expenses pro
rata on the basis of the number of their shares so included in the registration
request, and provided, further, that such registration shall not be counted as a
registration pursuant to Section 8.5(a)(ii)(B).
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8.8 Registration on Form S-2 or Form S-3. The Company shall use its
best efforts to qualify for registration on Form S-2 and Form S-3 or any
comparable or successor form or forms; and to that end the Company shall
register (whether or not required by law to do so) the Common Stock under the
Exchange Act in accordance with the provisions of that Act following the
effective date of the first registration of any securities of the Company on
Form S-1 or Form S-18 or any comparable or successor form or forms. After the
Company has qualified for the use of either Form S-2 or Form S-3 or both, in
addition to the rights contained in the foregoing provisions of this Section 8,
the Holders of Registrable Securities shall have the right to request
registrations on Form S-2 or Form S-3 (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended methods of disposition of such shares by such Holder or Holders).
8.9 Registration Procedures. In the case of each registration effected
by the Company pursuant to Section 8, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day periods shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration in accordance with provisions in
paragraph 8.15 hereof; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120 day-period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act, permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post-effective amendment
which (y) includes any prospectus required by Section 10(a)(3) of the Securities
Act or (z) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (y) and (z)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act in the registration statement;
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.5 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
8.10 Indemnification.
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(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 8, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by him are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act and the rules and regulations thereunder, each other such Holder and Other
Shareholder and each of their officers, directors and partners, and each person
controlling such Holder or Other Shareholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to' be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders, Other
Shareholders, directors, officers, partners, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder or Other Shareholder and stated to be specifically
for use therein; provided, however, that the obligations of .such Holders and
Other Shareholders hereunder shall be limited to an amount equal to the proceeds
to each such Holder or Other Shareholder of securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section 8.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as
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<PAGE> 26
to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 8. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
8.11 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder and the distribution proposed by such Holder or Other Shareholder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 8.
8.12 Limitations on Registration of Issues of Securities. From and
after the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company, provided that this Section
8.12 shall not limit the right of the Company to enter any agreements with any
holder or prospective holder of any securities of the Company giving such holder
or prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder. Any right given by the
Company to any holder or prospective holder of the Company's securities in
connection with the registration of securities shall be conditioned such that it
shall be consistent with the provisions of this Section 8 and with the rights of
the Holders provided in this Agreement.
8.13 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
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<PAGE> 27
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Purchaser owns any Restricted Securities, furnish
to the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
8.14 Transfer or Assignment of Registration Rights. The rights granted
to Purchasers under Sections 8.5, 8.6 and 8.8 to cause the Company to register
their securities may be transferred or assigned by a Purchaser to a transferee
or assignee of any of his Restricted Securities, provided that the Company is
given written notice by the Purchaser at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided further that
the transferee or assignee of such rights is not deemed by the board of
directors of the Company, in its reasonable judgment, to be a competitor of the
Company; and provided further that the transferee or assignee of such rights
assumes the obligations of such Purchaser under this Section 8.
8.15 "Market Stand-off" Agreement. Each Purchaser agrees, if requested
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company during the ninety (90) day period (or such
longer period not to exceed one hundred eighty (180) days as may be requested by
the Company and any such underwriter) following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:
(a) such agreement only applies to the first such registration
statement of the Company including securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all Holders, Other Shareholders and officers and directors of
the Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of any said period.
8.16 Collier Enterprises Shares. Notwithstanding any provision of this
Agreement to the contrary, Collier Enterprises, if it is a Purchaser hereunder,
shall be permitted to transfer, within one year of the date of this Agreement,
free of any limitations on transfer contained in this
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<PAGE> 28
Agreement, all or any of the Shares it acquires hereunder, to a limited
partnership, the general partner of which is Clearman, Lieber & Company or
Stephen Clearman or Irwin Lieber or any entity owned or controlled by Stephen
Clearman or Irwin Lieber, provided that such transferee agrees to be bound as a
Purchaser by the terms of this Agreement.
SECTION 9
Miscellaneous
9.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York.
9.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive (i) any investigation made by any Purchaser and (ii)
the Closing.
9.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, the Company may not assign its rights
hereunder.
9.4 Entire Agreement; Amendment. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the Purchasers; provided, however,
that holders of sixty-seven percent (67%) or more of the Shares sold under this
Agreement and the Other Agreements or such number of shares of Common Stock
issued upon conversion of those sixty-seven percent (67%) of the Shares and not
sold to the public pursuant to Section 8, or any combination thereof, may by
written instrument waive satisfaction of any term or condition which operates
for the benefit of the Purchasers, but in no event shall the obligation of any
Purchaser hereunder be increased, except upon the written consent of such
Purchaser.
9.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered either by hand or by messenger, addressed (a) if
to a Purchaser, as indicated on the Schedule of Purchasers attached hereto, or
at such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares or any Common Stock issued
upon conversion of Shares, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth at
9.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder nor shall it be
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<PAGE> 29
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
9.7 Rights; Separability. Unless otherwise expressly provided herein,
your rights hereunder are several rights, not rights jointly held with any of
the other Purchasers. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
9.8 Agent's Fees.
(a) The Company hereby agrees to indemnify and to hold each
Purchaser harmless of and from any liability for commission or compensation in
the nature of an agent's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
arising from any act by the Company or any of its employees or representatives.
(b) You (i) represent and warrant that you have retained no finder
or broker in connection with the transactions contemplated by this Agreement and
(ii) hereby agree to indemnify and to hold the Company and the other Purchasers
harmless from any liability for any commission or compensation in the nature of
an agent's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which you, or any
of your employees or representatives, are responsible.
9.9 Information Confidential. You acknowledge that the information
received by you pursuant hereto may be confidential and for your use only, and
you will not use such confidential information in violation of the Exchange Act
or reproduce, disclose or disseminate such information to any other person
(other than your employees or agents having a need to know the contents of such
information, and your attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or you are required to disclose such
information by a governmental body.
9.10 Expenses. The Company shall bear its own expenses and legal fees
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby, and the Company will pay the legal fees and disbursements
and office expenses, including secretarial charges, of Reavis & McGrath with
respect to this Agreement and the transactions contemplated hereby to the extent
provided in Section 5.14 hereof.
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<PAGE> 30
9.11 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
Purchasers:
Pioneer Associates
By /s/ R. Scott Asen - General Partner
----------------------------------------
Pioneer III
By /s/ R. Scott Asen - General Partner
----------------------------------------
By /s/ R. Scott Asen - General Partner
----------------------------------------
R. Scott Asen
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<PAGE> 31
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
Purchasers:
Collier Enterprises
By /s/ [unreadable]
--------------------------------
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<PAGE> 32
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
Purchasers:
Gilder, Gagnon & Co.
By /s/ Neil Gagnon
--------------------------------
/s/ Neil Gagnon
--------------------------------
Neil Gagnon
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<PAGE> 33
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ Duff Kennedy
--------------------------------
Purchaser
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<PAGE> 34
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ Robert M. Arnold
--------------------------------
Purchaser
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<PAGE> 35
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ W. Hunter Simpson
--------------------------------
Purchaser
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<PAGE> 36
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ William H. Gates
--------------------------------
Purchaser
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<PAGE> 37
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ Bangt Svensson
---------------------------------
Vice-President
ACCEPTED AND AGREED TO:
By /s/ William Scott
--------------------------------
Purchaser
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<PAGE> 38
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ William D. Ellis
--------------------------------
Purchaser
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<PAGE> 1
EXHIBIT 10.16
SeaMed Corporation
4500 150th Avenue, N.E.
Redmond, Washington 98052
Preferred Stock Purchase Agreement
As of March 28, 1984
To Each of the
Persons Listed on the
Schedule of Purchasers
attached hereto:
The undersigned, SeaMed Corporation, a Delaware corporation (the
"Company"), hereby agrees with you as follows:
SECTION 1
Authorization and Sale of the Shares
1.1 Authorization of the Shares. The Company has, or before the Closing
(as hereinafter defined) will have, authorized the sale and issuance of One
Million Four Hundred Twenty Thousand (1,420,000) shares (the "Shares") of its
Convertible Class A Preferred Stock, of par value one cent ($0.01) per share
("Preferred"), having the rights, restrictions, privileges and preferences as
set forth in the Preferred Stock Resolution of the Company (the "Preferred
Resolution") attached to this Agreement as Exhibit A.
1.2 Sale of The Shares. Subject to the terms and conditions hereof and
in reliance upon the representations, warranties and agreements contained
herein, the Company will issue and sell to each of you, severally and not
jointly, and each of you will purchase from the Company, severally and not
jointly, at the Closing, the number of the Shares set forth opposite your name
on the Schedule of Purchasers attached hereto (the "Schedule of Purchasers")
under the column labelled "Shares," at a purchase price of one dollar ($1.00)
per Share. The persons listed on the Schedule of Purchasers are sometimes
hereinafter referred to as the "Purchasers" and individually as a "Purchaser."
1.3 Sales of Shares to Other Purchasers. The Company also proposes to
enter into purchase agreements (the "Other Agreements"), identical with this
Agreement, with the other purchasers named on the Schedule of Purchasers (the
"Other Purchasers"), providing for the sale of shares of Preferred to the Other
Purchasers as set forth opposite their respective names on the Schedule of
Purchasers. The Company's Agreements with you and each of the Other Purchasers
are separate agreements and the sales of the Shares to you and each of the Other
Purchasers are separate sales. If any Other Purchaser does not purchase any
Shares to be purchased by such
<PAGE> 2
Other Purchaser as set forth on the Schedule of Purchasers, the Company shall
offer to issue and sell such Shares to you and the Other Purchasers (excluding
such defaulting Other Purchaser), pro rata, on the same terms and conditions as
set forth herein; you and each such Other Purchaser shall have a right of
over-allotment such that if you or any such Other Purchaser fails to accept such
offer in full to purchase his pro rata portion of the Shares to have been
purchased by the defaulting Other Purchaser, you and such Other Purchasers may
purchase such Shares on a pro rata basis.
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall be held immediately following the execution and
delivery of this Agreement at the place set forth in Section 2.3 hereof (the
"Closing Date") or at such other time and place as shall be mutually agreed upon
by the Company and the Purchasers. If the Closing does not occur by March 31,
1984, this Agreement will be terminated forthwith and the parties hereto will
have no further obligations to each other under this Agreement, except that the
Company shall nevertheless be obligated to make such payments as provided for in
Section 9.10 hereof.
2.2 Delivery. At the Closing, the Company will deliver to each of you
certificates, in such denominations and registered in your names as set forth in
the Schedule of Purchasers attached, representing the number of the Shares to be
purchased by you from the Company, against payment of the purchase price
therefor by check, wire transfer, cancellation of indebtedness or such other
form of payment as shall be mutually agreed upon by you and the Company, payable
to the order of the Company.
2.3 Place of Closing. The place of the Closing (including the place of
delivery to the Purchasers by the Company of the certificates evidencing all
Shares being purchased and the place of payment to the Company by the Purchasers
of the purchase price therefor) shall be at the offices of Reavis & McGrath, 345
Park Avenue, New York, New York 10154.
SECTION 3
Representations and Warranties of the Company
The Company hereby represents and warrants to you as follows, except as
set forth on the "Schedule of Exceptions" delivered to you prior to the
execution hereof and attached hereto.
3.1 Organization and Standing, Certificate of Incorporation and
By-Laws. The Company is a corporation duly organized and validly existing under
the laws of its state of organization and is in good standing under such laws.
The Company has requisite corporate power to own properties owned by it and to
conduct business as being conducted by it and as contemplated by its business
plan initially prepared in September 1983 in the form heretofore distributed to
each Purchaser (the "Business Plan"). The Company does not own or lease
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<PAGE> 3
property or engage in any activity in any jurisdiction which presently requires
its qualification to do business as a foreign corporation in any jurisdiction
other than the State of Washington. The Company has furnished you with true,
correct and complete copies of its Certificate of Incorporation, By-Laws and all
amendments to each to date. Prior to the Closing, the Company shall have
properly executed, acknowledged, filed and recorded the Preferred Resolution
with the Secretary of State of the State of Delaware.
3.2 Corporate Power. The Company has all requisite corporate power to
enter into this Agreement and will have at the Closing Date all requisite
corporate power to sell the Shares and to carry out and perform its obligations
under the terms of this Agreement, the Other Agreements and the agreements
contemplated hereby and thereby.
3.3 Subsidiaries. The Company has no subsidiaries other than SeaMed
International Corporation, a domestic international sales corporation, add does
not own of record or beneficially any capital stock or equity interest or
investment in any other corporation, association or business entity.
3.4 Capitalization. Immediately prior to the Closing, the Company's
authorized capital stock will consist of (a) Three Million Five Hundred Thousand
(3,500,000) shares of Common Stock, $0.01 par value (the "Common Stock"), of
which One Million Eighty-One Thousand Nine Hundred Fifty-Two (1,081,952) shares
will be issued and outstanding immediately prior to the Closing, and (b) One
Million Five Hundred Thousand (1,500,000) shares of Preferred, none of which
will be issued and outstanding prior to the Closing. All the aforesaid issued
and outstanding shares will have been duly authorized and validly issued, will
be fully paid and nonassessable, will be owned of record and (to the best of the
Company's knowledge and belief) beneficially by the shareholders and in the
amounts set forth in the Schedule of Exceptions, and will have been offered,
issued, sold and delivered by the Company in compliance with applicable federal
and state securities laws. There are no outstanding preemptive, conversion or
other rights, options, warrants or agreements granted or issued by or binding
upon the Company for the purchase or acquisition of any shares of its capital
stock, except with respect to the Preferred in accordance with the provisions of
this Agreement and the Other Agreements and the Preferred Resolution. To the
best of the Company's knowledge and belief, no shareholder has granted options
or other rights to purchase any shares of Common Stock from such shareholder
other than as set forth in the Schedule of Exceptions. The Company does not hold
any shares of its capital stock in its treasury.
3.5 Authorization. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated herein, and for the authorization, issuance and
delivery of the Shares and of the Common Stock issuable upon conversion thereof
has been taken or will be taken prior to the Closing. This Agreement is a valid
and binding obligation of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general application affecting enforcement of creditors' rights
generally. The execution, delivery and performance by the Company of this
Agreement and compliance therewith and the issuance and
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<PAGE> 4
sale of the Shares and Common Stock issuable upon conversion of the Shares will
not result in any violation of and will not conflict with, or result in a breach
of. any of the terms of, or constitute a default under, any provision of state
or federal law to which the Company is subject, the Company's Certificate of
Incorporation, .as amended, or By-Laws, as amended, or any mortgage, indenture,
agreement, instrument, judgment, decree, order, rule or regulation or other
restriction to which the Company is a party or by which it is bound, or result
in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company pursuant to any thereof. No shareholder
has any preemptive rights or rights of first refusal by reason of the issuance
of the Shares. The Shares, when issued in compliance with the provisions of this
Agreement and the Other Agreements, will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances. The shares of
Common Stock issuable upon conversion of the Shares have been duly and validly
reserved and are not subject to any preemptive rights or rights of first refusal
and, upon issuance, will be validly issued, fully paid and nonassessable.
3.6 Financial Information. The unaudited financial statements of the
Company as of January 31, 1984 attached as Exhibit B-1 hereto (the "Financial
Statements"), including the balance sheet as of January 31, 1984 (the "Balance
Sheet"), present fairly the financial position and results of operations of the
Company at the dates and for the periods to which they relate, have been
prepared in accordance with generally accepted accounting principles consistent
with principles followed in preparation of the audited financial statements of
the Company as of June 30, 1983 attached as Exhibit B-2 hereto and show all
material liabilities, absolute or contingent, of the Company required to be
recorded thereon in accordance with generally accepted accounting principles as
at the respective dates thereof.
3.7 Outstanding Debt. The Company has no outstanding indebtedness for
borrowed money except as reflected on the Balance Sheet and is not a guarantor
or otherwise contingently liable for any such indebtedness. There exists no
default under the provisions of any instrument evidencing any indebtedness or
otherwise or of any agreement relating thereto.
3.8 Absence of Undisclosed Liabilities. The Company has no material
liabilities (fixed or contingent, including without limitation any tax
liabilities due or to become due) which are not fully reflected or provided for
on the Balance Sheet. The Company does not know of any material liability of any
nature, direct or indirect, contingent or otherwise, or in any amount not
adequately reflected or reserved against in the Balance Sheet.
3.9 Absence of Certain Changes. At all times since the date of the
Financial Statements up to and including the Closing, there has not been any
event or condition, or any combination of events or conditions, of any character
which has had a material adverse effect on the Company's business, plans or
prospects, including but not limited to:
(a) any adverse change in the condition, assets, liabilities or
business of the Company from that shown on the Balance Sheet;
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<PAGE> 5
(b) any damage, destruction or loss of any of the properties or
assets of the Company (whether or not covered by insurance);
(c) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company; or
(d) any labor trouble.
3.10 Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns and reports required to be filed with the
United States Internal Revenue Service and with the states of Delaware and
Washington, and (except to the extent that the failure to file would not have a
material adverse effect on the condition or operations of the Company) with all
other jurisdictions where such filing is required by law; and the Company has
paid, or made adequate provision in the Balance Sheet for the payment of, all
taxes, interest, penalties, assessments or deficiencies shown to be due or
claimed to be due on or in respect of such tax returns and reports. The Company
does not know of (i) any other tax returns or reports which are required to be
filed which have not been so filed or (ii) any unpaid assessment for additional
taxes for any fiscal period or any basis thereof. The Company's federal income
tax returns have not been audited by the Internal Revenue Service for fiscal
years ending after June 30, 1981.
3.11 Contracts; Insurance. Except as set forth in the Schedule of
Exceptions, the Company does not have any currently existing contract,
obligation, agreement, plan, arrangement, commitment or the like (written or
oral) of any material nature, including without limitation the following:
(a) employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company and agreements among shareholders and the
Company;
(b) loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of the Company's property or any agreement or instrument
evidencing any guaranty by the Company of payment or performance by any other
person;
(c) agreements with dealers, sales representatives, brokers or
other distributors, jobbers, advertisers or sales agencies;
(d) agreements with any labor union or collective bargaining
organization or other labor agreements;
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<PAGE> 6
(e) any contract or series of contracts with the same person for
the furnishing or purchase of machinery, equipment, goods or services, including
without limitation agreements with processors and subcontractors;
(f) any indenture, agreement or other document (-including private
placement brochures) relating to the sale or repurchase of shares;
(g) any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which the Company is a party;
(h) agreements limiting the freedom of the Company to compete in
any line of business or in any geographic area or with any person;
(i) agreements providing for disposition of the business, assets
or shares of the Company, agreements of merger or consolidation to which the
Company is a party or letters of intent with respect to the foregoing;
(j) letters of intent or agreements with respect to the
acquisition of the business, assets or shares of any other business;
(k) insurance policies; and
(l) licenses, assignments and other agreements of any nature
whatsoever, with respect to foreign or domestic patents or applications for
patents, inventions, disclosures, know-how or other proprietary information and
the inventions thereof.
Except as set forth in the Schedule of Exceptions, the Company has
complied with all the material provisions of all said contracts, obligations,
agreements, plans, arrangements, and commitments-and is not in default
thereunder.
The Company maintains insurance which is adequate to protect the
Company and its financial condition against the risks involved in the business
conducted by the Company.
3.12 Shareholders, Directors and Officers; Indebtedness. Set forth on
the Schedule of Exceptions is a correct and complete list or description of all
indebtedness of the Company to its officers, directors or shareholders or any of
their respective relatives and of all indebtedness of such persons to the
Company. To the best of the Company's knowledge and belief, none of the officers
or directors or significant employees or consultants of the Company, or their
respective spouses or relatives, owns directly or indirectly, individually or
collectively, a material interest in any entity which is a competitor, customer
or supplier of (or has any existing contractual relationship with) the Company.
3.13 Litigation and Bankruptcy Proceedings.
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(a) There is neither pending nor, to the Company's knowledge and
belief, threatened any action, suit, proceeding or claim, or any basis therefor
or threat thereof, whether or not purportedly on behalf of the Company, to which
the Company is or may be named as a party or its property is or may be subject
and in which an unfavorable outcome, ruling or finding in any such matter or for
all such matters taken as a whole might have a material adverse effect on the
condition, financial or otherwise, or operations of the Company; and the Company
has no knowledge of any unasserted claim, the assertion of which is likely and
which, if asserted, will seek damages, an injunction or other legal, equitable,
monetary or nonmonetary relief which claim, individually or collectively with
other such unasserted claims, if granted would have a material adverse effect on
the condition, financial or otherwise, or operations of the Company.
(b) The Company has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had a petition in bankruptcy filed against it, been adjudicated
a bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws or any other law or statute of the United
States of America or any other jurisdiction.
3.14 Consents. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority, including the
Securities Commissioners of the States of Washington and New York, is required
in connection with the Company's valid execution, delivery or performance of
this Agreement or the Other Agreements, or the offer, sale or issuance of the
Shares by the Company, the conversion of the Shares, the issuance of Common
Stock upon conversion of the Shares, or the consummation of any other
transaction contemplated on the part of the Company hereby or by the Other
Agreements, except the filing of the Preferred Resolution with the Secretary of
State of the State of Delaware and the recording thereof, and except such
filings listed in the Schedule of Exceptions as have been made prior to the
Closing.
3.15 Title to Properties; Liens and Encumbrances. The Company does not
own any real property. The Company has a valid and indefeasible ownership
interest in all property and assets recorded on the Balance Sheet, free from all
mortgages, pledges, liens, security interests, conditional sale agreements,
encumbrances or charges, except (i) as shown on the Balance Sheet or listed on
the Schedule of Exceptions hereto; and (ii) tax, materialmen's or like liens for
obligations not yet due or payable or being contested in good faith by
appropriate proceedings (for which adequate reserves have been established in
accordance with generally accepted accounting principles), as set forth on the
Schedule of Exceptions.
3.16 Leases. Set forth on the Schedule of Exceptions is a correct and
complete list (including the amount of rents called for and a description of the
leased property) of all material leases under which the Company is a lessee. The
Company enjoys peaceful and undisturbed possession under all such leases, all of
such leases are valid and subsisting and none of them is in default in any
material respect.
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3.17 Business of the Company. There is no pending or to the Company's
knowledge and belief threatened claim or litigation against or affecting the
Company contesting its right to produce, manufacture, sell or use any product,
process, method, substance, part or other material presently produced,
manufactured, sold or used or planned to be produced, manufactured, sold or used
by the Company in connection with the operations of the Company; and the Company
has no knowledge or belief that (i) there exists, or there is pending or
planned, any patent, invention, device, application or principle, or any
statute, rule, law, regulation, standard or code which would materially
adversely affect the condition, financial or otherwise, or the operations of the
Company; or (ii) there is any other factor (other than fire, flood, accident,
act of war or civil commotion, or any other cause or event beyond the control of
the Company) which may materially adversely affect the condition, financial or
otherwise, or the operations of the Company. The Company currently intends to
engage in the business of the type described in the Business Plan.
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights. The
Company has all franchises, permits, licenses and other similar authority
necessary for the conduct of its business as now being conducted and as planned
to be conducted, the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company, and it is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority. The Company possesses all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights and
copyrights necessary to conduct its business as now being conducted and as
planned to be conducted without conflict with or infringement upon any valid
rights of others or the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company, and has not
received any notice of infringement upon or conflict with the asserted rights of
others.
3.19 Issuance Taxes. All taxes imposed by law in connection with the
issuance, sale and delivery of the Shares shall have been fully paid, and all
laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
3.20 Offering. Subject in part to the truth and accuracy of the
Purchasers' representations set forth in this Agreement and the Other
Agreements, the offer, sale and issuance of the Shares as contemplated by this
Agreement and the Other Agreements are exempt from the registration requirements
of the Securities Act of 1933 (the "Securities Act", which term shall include
any successor federal statute) and from the qualification or registration
requirements of the laws of any state or other jurisdiction, and neither the
Company nor anyone acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
3.21 Compliance with Other Instruments. The Company is not in violation
of any term of its Certificate of Incorporation or By-Laws. The Company is not
in violation of any term of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which the
Company is subject and a violation of which would have a material adverse effect
on the condition, financial or otherwise, or operations of the Company.
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<PAGE> 9
3.22 Employees. To the best of the Company's knowledge and belief, no
employee of the Company is, or is now expected to be, in violation of any term
of any employment contract, patent disclosure agreement, non-competition
agreement, or any other contract or agreement or any restrictive covenant or any
other common law obligation to a former employer relating to the right of any
such employee to be employed by the Company because of the nature of the
business conducted or to be conducted by the Company or to the use of trade
secrets or proprietary information of others, and the employment of the
Company's employees does not subject the Company or any Purchaser to any
liability. There is neither pending nor, to the Company's knowledge and belief,
threatened any actions, suits, proceedings or claims, or, to its knowledge and
belief, any basis therefor or threat thereof with respect to any contract,
agreement, covenant or obligation referred to in the preceding sentence. The
Company does not have any collective bargaining agreement covering any of its
employees.
3.23 Registration Rights. Except as provided for in this Agreement and
the Other Agreements, the Company is not under any obligation to register (as
defined in Section 8.2 below) any of its currently outstanding securities or any
of its securities which may hereafter be issued.
3.24 Disclosure. This Agreement, the Schedule of Exceptions, the
Financial Statements and the audited financial statements of the Company as of
June 30, 1983 delivered to the Purchasers, as well as the Business Plan, do not
contain any untrue statement of a material fact and do not omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in the light of the circumstances under which they were
made.
SECTION 4
Representations and Warranties of Purchasers
Each Purchaser represents and warrants to the Company, severally and
not jointly, and only as to itself, as follows:
4.1 Experience. It is experienced in evaluating and investing in newly
organized, high technology companies such as the Company.
4.2 Investment. It is acquiring the Shares for investment for its own
account and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the Shares and the shares of Common
Stock issuable upon conversion of the Shares have not been registered under the
Securities Act by reason of an exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
its investment intent as expressed herein.
4.3 Rule 144. It acknowledges that the Shares must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption
from such registration is available. It has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to
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the satisfaction of certain conditions and has been advised or is aware that
such Rule may not become available for resale of the Shares.
4.4 Access to Data. It has had an opportunity to discuss the Company's
business, management and financial affairs with its management and has had the
opportunity to review the Company's books, records and facilities and has been
given all the information that it has requested in connection therewith.
SECTION 5
Conditions to Purchaser's Obligation to Close
Your obligation to purchase the Shares to be purchased by you at the
Closing is subject to the fulfillment to your satisfaction on or prior to the
Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all respects when made, and shall be true and correct in all respects on the
Closing Date with the same force and effect as if they had been made on and as
of the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with in all respects.
5.3 Opinion of Company's Counsel. You shall have received from counsel
to the Company, which counsel must be satisfactory to the Purchasers, an opinion
addressed to you, dated the Closing Date, and in substantially the form attached
as Exhibit C hereto.
5.4 Legal Investment. At the time of the Closing, the purchase of the
Shares to be purchased by you hereunder shall be legally permitted by all laws
and regulations to which you and the Company are subject.
5.5 Compliance Certificate. The Company shall have delivered to you a
certificate of the President of the Company, dated the Closing Date, certifying
to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement and other matters you reasonably request.
5.6 Shareholders Agreement. All Purchasers shall have executed an
agreement in substantially the form attached hereto as Exhibit D.
5.7 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to you and your counsel.
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5.8 Proprietary Information and Inventions, and Non-Competition
Agreements.
(a) Messrs. William L. Scott and Bengt M. Svensson shall have
executed and delivered to the Company a Proprietary Information and Inventions
Agreement in a form substantially the same as Exhibit E hereto.
(b) Messrs. William L. Scott and Bengt M. Svensson shall have
executed and delivered to the Company an Agreement Not to Compete in
substantially the form of Exhibit F hereto.
5.9 Qualifications. All authorizations, approvals or permits, if any,
including any authorizations, approvals or permits under state securities or
blue sky laws, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Shares pursuant
to this Agreement and the Other Agreements, the conversion of the Shares into
Common Stock and the issuance of such Common Stock upon such conversion shall
have been duly obtained and shall be effective on and as of the Closing.
5.10 Certificate of Incorporation. The Preferred Resolution shall have
been filed with the Secretary of State of the State of Delaware and duly
recorded as provided by the Delaware General Corporation Law.
5.11 Minimum Investment. At the Closing, all the Purchasers shall
purchase all the Shares pursuant to this Agreement and the Other Agreements.
5.12 Amendment of By-Laws. The Company shall have amended its By-Laws
to provide that persons owning Twenty Percent (20%) or more of the Preferred and
the Common Stock issued upon conversion of the Preferred, or any combination
thereof, can call special meetings of shareholders and special meetings of the
Board of Directors and the directors elected by the Preferred can call special
meetings of the Board of Directors.
5.13 Key Man Life Insurance. The Company shall have obtained with
financially sound and reputable insurers term life insurance on the life of Mr.
William L. Scott in the amount of $1,000,000. This policy shall not be
cancelable by the Company except in accordance with Section 7.7 and upon 30 days
prior written notice to the Purchaser.
5.14 Legal Fees. The Company will pay up to $10,000 of the legal fees,
and will pay disbursements and office expenses, including secretarial charges,
of Reavis & McGrath, special counsel to the Purchasers, with respect to this
Agreement and the transactions contemplated hereby.
5.15 Directors. Stephen J. Clearman shall have been elected to the
Board of Directors of the Company as one of the representatives of the
Preferred. The Company shall have amended its By-Laws to fix the number of
directors at eight.
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5.16 Letter Relating to Conversion. Purchasers shall have received a
letter from Pioneer Associates confirming that it will exercise all of its
warrants to purchase Common Stock in January 1985 and prior to the expiration of
such warrants.
SECTION 6
Conditions to Company's Obligation to Close
The Company's obligation to sell the Shares to be purchased at the
Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of each of the following conditions:
6.1 Representations. The representations made by you pursuant to
Section 4 hereof shall be true and correct when made and shall be true and
correct on the Closing Date.
6.2 Legal Investment. At the time of the Closing, the conditions set
forth in Sections 5.9, 5.10 and 5.11 shall have occurred and the purchase of the
Shares to be purchased by you hereunder shall be legally permitted by all laws
and regulations to which you and the Company are subject.
SECTION 7
Covenants of the Company
The Company hereby covenants and agrees as follows:
7.1 Basic Financial Information. The Company will furnish the
following reports to each Purchaser so long as the Purchaser (or its
representative) is a holder of Preferred or Common Stock:
(a) As soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of such
fiscal year, and consolidated statements of income and sources and applications
of funds of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company.
(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of income of the Company and its
subsidiaries for such period and for the current fiscal year to date, prepared
in accordance with generally accepted accounting principles consistently applied
and setting forth in comparative
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form the figures for the corresponding periods of the previous fiscal year,
subject only to normally occurring accruals, all in reasonable detail and
certified by the principal financial or accounting officer of the Company.
(c) From the date the Company becomes subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in
lieu of the financial information required pursuant to Sections 7.1(a) and (b),
copies of its annual reports on Form 10-K and its quarterly reports on Form
10-Q, respectively.
7.2 Additional Information. The Company will permit any person who owns
(or has been designated as the representative of a holder of) 100,000 or more of
the Shares or such number of shares of Common Stock issued upon conversion of
100,000 or more of the Shares, or any combination thereof, to visit and inspect
any of the properties of the Company, including its books of account, and to
discuss its affairs, finances and accounts with the Company's officers and its
independent public accountants, all at such reasonable times and as often as any
such person may reasonably request, provided that such person shall provide the
Company with reasonable advance notice of his desire to so visit and inspect.
Until the earlier to occur of (i) the date on which the Company is subject to
the reporting requirements of Section 13(a) of the Exchange Act, or (ii) the
date on which quotations for the Common Stock of the Company are reported by the
automated quotations system operated by the National Association of Securities
Dealers, Inc., or by an equivalent quotations system, the Company will deliver
the reports described below in this Section 7.2 to each such person:
(a) As soon as practicable after the end of each month and in any
event within thirty (30) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such month, and the
consolidated statements of income of the Company and its subsidiaries, for each
month and for the current fiscal year of the Company to date, prepared in
accordance with generally accepted accounting principles consistently applied,
together with a comparison of such statements to the Company's operating plan
then in effect and approved by its Board of Directors, and certified, subject
only to normally occurring accruals, by the principal financial or accounting
officer of the Company.
(b) As soon as available (but in any event within sixty (60) days
after the commencement of its fiscal year) a summary of the financial plan of
the Company, as contained in its operating plan approved by the Company's board
of directors. Any material changes in such financial plan shall be delivered as
promptly as practicable after such changes have been approved by the board of
directors.
(c) With reasonable promptness, such other information and data
with respect to the Company and its subsidiaries as any such person may from
time to time reasonably request.
The foregoing provisions of this Section 7.2 shall not be in limitation of any
rights which a Purchaser may have with respect to the books and records of the
Company and its subsidiaries, or to inspect their properties or discuss their
affairs, finances and accounts, under the laws of the jurisdictions in which
they are incorporated.
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7.3 Right of First Refusal. The Company hereby grants to each Purchaser
the right of first refusal to purchase, pro rata, all (or any part) of New
Securities (as defined in this Section 7.3) which the Company may, from time to
time, propose to sell and issue. A Purchaser's pro rata share, for purposes of
this right of first refusal, is the ratio of the number of the Shares purchased
by such Purchaser under this Agreement and the Other Agreements to the total
number of Shares. Each Purchaser shall have a right of over-allotment such that
if any Purchaser fails to exercise his right hereunder to purchase his pro rata
portion of New Securities, the Other Purchasers may purchase the non-purchasing
Purchaser's portion on a pro rata basis within five (5) days from the date such
non-purchasing Purchaser fails to exercise his right hereunder to purchase his
pro rata share of New Securities. This right of first refusal shall be subject
to the following provisions:
(a) "New Securities" shall mean any capital stock (including the
Common Stock or the Preferred) of the Company whether or not presently
authorized, and rights, options or warrants to purchase capital stock, and
securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include (i)
securities purchased under this Agreement; (ii) securities offered to the public
pursuant to a registration statement filed pursuant to the Securities Act; (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such corporation following the completion of such
transaction; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features, including
warrants, options, equity participations or "kickers" or other rights to
purchase capital stock, and are not convertible into capital stock of the
Company; or (v) securities issued to employees, consultants or directors of the
Company pursuant to any stock option plan or stock purchase or stock bonus
arrangement.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Purchaser written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Company proposes to issue the same. Each Purchaser shall have thirty
(30) days from the date of receipt of any such notice to agree to purchase the
Purchaser's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(c) In the event the Purchasers fail to exercise the right of first
refusal within said thirty (30) day period and after the expiration of the 5-day
period for the exercise of the over-allotment provisions of this Section 7.3,
the Company shall have one hundred eighty (180) days thereafter to sell or enter
into an agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within one hundred eighty (180) days from the date
of said agreement) to sell the New Securities in respect of which the
Purchasers' option was not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than
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specified in the Company's notice. In the event the Company has not sold within
said 180-day period or entered into an agreement to sell the New Securities
within said 180-day period (or sold and issued New Securities in accordance with
the foregoing within one hundred eighty (180) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Purchasers in the manner provided
above.
(d) The right of first refusal granted under this Agreement shall
expire upon the first sale of Common Stock of the Company to the public at a per
share offering price of at least five times the then existing conversion price
for the Preferred, which sale is effected pursuant to a registration statement
filed with, and declared effective by, the Securities and Exchange Commission
(the "Commission") under the Securities Act in a firm commitment underwritten
public offering, with an aggregate offering price to the public of not less than
$5,000,000.
(e) The right of first refusal set forth in this Section 7.3 is
nonassignable, except that (i) such right is assignable by each Purchaser to any
wholly-owned subsidiary or parent of, or to any corporation or entity which is,
within the meaning of the Securities Act, controlling, controlled by or under
common control with, any such Purchaser, (ii) such right is assignable between
and among any of the Purchasers, and (iii) upon the death of a Purchaser, such
right shall pass with the Shares to the beneficiaries under the deceased
Purchaser's last will and testament or to the distributees of the deceased
Purchaser's estate.
7.4 Prompt Payment of Taxes, etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, or in
conformance with customary trade terms, all other indebtedness incident to
operations of the Company.
7.5 Maintenance of Properties and Leases. The Company will keep its
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
provision of all leases to which any of them is a party or under which any of
them occupies property if the breach of such provision might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company.
7.6 Insurance. The Company will keep its assets and those of its
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company or any subsidiary from
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becoming a co-insurer and not in any event less than 100% of the insurable value
of the property insured; and the Company will maintain, with financially sound
and reputable insurers, insurance against other hazards and risks and liability
to persons and property to the extent and in the manner customary for companies
in similar businesses similarly situated.
7.7 Key Man Life Insurance. The Company will cause to be maintained
the term life insurance required by Sections 5.13 and 7.17 hereof under the
terms and conditions set forth therein, unless otherwise agreed by both the
representatives of the Purchasers on the Board of Directors.
7.8 Accounts and Records. The Company will keep true records and books
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
7.9 Independent Accountants. The Company will retain independent
public accountants of recognized national standing who shall certify the
Company's financial statements at the end of each fiscal year. In the event the
services of the independent public accountants, so selected, or any firm of
independent public accounts hereafter employed by the Company are terminated,
the Company will promptly thereafter notify the Purchasers and will request the
firm of independent public accountants whose services are terminated to deliver
to the Purchasers a letter of such firm setting forth the reasons for the
termination of their services. In the event of such termination, the Company
will promptly thereafter engage another such firm of independent public
accountants. In its notice to the Purchasers the Company shall state whether the
change of accountants was recommended or approved by the Board of Directors or
any committee thereof.
7.10 Compliance with Requirements of Governmental Authorities. The
Company and all its subsidiaries shall duly observe and conform to all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their properties or assets.
7.11 Maintenance of Corporate Existence, etc. The Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use patents, processes, licenses,
trademarks, trade names or copyrights owned or possessed by it or any subsidiary
and deemed by the Company to be necessary to the conduct of their business.
7.12 Availability of Common Stock for Conversion. The Company will,
from time to time, in accordance with the laws of the state of its
incorporation, increase the authorized amount of Common Stock if at any time the
number of shares of Common Stock remaining unissued and available for issuance
shall be insufficient to permit conversion of all the then outstanding shares of
Preferred.
7.13 Notice of Record Dates. In the event of any taking by the Company
of a record of the holders of any class of securities (other than the Preferred)
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, the Company shall mail to each Purchaser at
least ten (10) days prior to such record date, specified herein, a notice
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specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
7.14 Proprietary Information and Inventions, and Non-Competition
Agreements. The Company and each person hereafter employed by it or any
subsidiary with access to confidential information will enter into a Proprietary
Information and Inventions Agreement in substantially the form of Exhibit E
hereto. The Company will require all persons employed by the Company or a
subsidiary, and designated as a "key person" by either of the representatives of
the Purchasers (or the Purchasers' transferees) on the Company's Board to
execute an agreement in substantially the form annexed hereto as Exhibit F as a
condition precedent to the employment of such individuals.
7.15 Employee Stock Purchase Agreement. The Company will not issue any
of its capital stock, or grant an option to purchase any of its capital stock,
to any employee or officer of the Company or a subsidiary except (i) pursuant to
options for 161,489 shares of Common Stock outstanding at the date of this
Agreement under the 1982 Incentive Stock Option Plan of the Company, a copy of
which has been provided to the Purchasers, (ii) pursuant to the Stock
Subscription Agreements described in the Schedule of Exceptions, (iii) up to an
additional 61,011 shares pursuant to options which may be granted under the 1982
Incentive Stock Option Plan as currently in effect, (iv) pursuant to the Special
Incentive Plans, which Plans shall, among other things, provide for the purchase
by Messrs. William L. Scott and Bengt M. Svensson of an aggregate of 72,017
shares of Common Stock at the Closing subject to the execution of an Employee
Stock Purchase Agreement in the form set forth as Exhibit H to this Agreement
and of up to an additional 70,000 shares of Common Stock subject to the
achievement of certain financial goals by the Company or (v) pursuant to a plan
adopted by the Board of Directors, with both representatives of the Purchasers
on the Board of Directors having voted in favor thereof (a "New Plan"). No
issuance or grant shall be made to Messrs. William L. Scott or Bengt M. Svensson
under the 1982 Incentive Stock Option Plan or any New Plan unless both
representatives of the Purchasers on the Board of Directors shall have
specifically approved such grant. All grants of additional options under the
1982 Incentive Stock Option Plan or under a New Plan shall be approved by a
committee consisting of four directors, two of whom shall be the nominees of the
holders of Preferred.
7.16 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares to retire the Company's outstanding indebtedness and to provide
additional funding for operations, research and development, capital equipment
and working capital.
7.17 Key Man Life Insurance. The Company shall, as soon as practicable,
obtain with financially sound and reputable insurers term life insurance on the
life of Mr. Bengt M. Svensson in the amount of $1,000,000. This policy shall not
be cancellable by the company except in accordance with Section 7.7 and then
only upon 30 days prior notice to the Purchasers.
7.18 Duration of Certain Covenants. The covenants and agreements
contained in Sections 7.4 through 7.11, 7.13 through 7.15 and 7.17 shall expire
upon the earlier of (i) the first sale of Common Stock of the Company to the
public at a per share offering price of at least five
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<PAGE> 18
times the existing conversion price for the Preferred, which sale is effected
pursuant to a registration statement filed with and declared effective by the
Commission under the Securities Act in a firm commitment underwritten public
offering, with an aggregate offering price to the public of not less than
$5,000,000 and (ii) March 21, 1990, provided that the Company has theretofore
completed a sale of Common Stock of the Company to the public pursuant to a
registration statement filed with and declared effective by the Commission under
the Securities Act with net proceeds to the Company of at least $2,000,000 and
provided further that the Company continues to be subject to the reporting
requirements of the Exchange Act.
SECTION 8
Restrictions on Transferability of Securities; Compliance with Securities Act
8.1 Restrictions on Transferability. The Shares shall not be
transferable, except upon the conditions specified in this Section 8, which
conditions are intended to insure compliance with the provisions of the
Securities Act or, in the case of Section 8.15 hereof, to assist in an orderly
distribution. Each Purchaser will cause any proposed transferee of Shares held
by that Purchaser to agree to take and hold those securities subject to the
provisions and upon the conditions specified in this Section 8.
8.2 Certain Definitions. As used in this Section 8, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 8.3. hereof.
"Registrable Securities" shall mean (i) the Preferred, (ii) shares of
Common Stock issued or issuable pursuant to the conversion of the Preferred and
(iii) any Common Stock issued in respect of securities issued pursuant to the
conversion of the Shares upon any stock split, stock dividend, recapitalization
or similar event.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Sections 8.5 and 8.6 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for all the selling Holders and other security
holders for a "due diligence" examination of the Company, and the expense of any
special
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<PAGE> 19
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder.
"Holder" shall mean any holder of the outstanding Shares or Registrable
Securities which have not been sold to the public.
"Initiating Holders" shall mean any Purchasers or their assignees under
Section 8.14 hereof who in the aggregate are Holders of more than fifty percent
(50%) of the Shares or such number of shares of Common Stock issued to the
Purchasers or their assignees under Section 8.14 hereof upon conversion of said
percentage of the Shares, or any combination thereof.
8.3 Restrictive Legend. Each certificate representing (i) the Shares,
or (ii) shares of the Company's Common Stock issued upon conversion of
Preferred, or (iii) any other securities issued in respect of Preferred or the
Common Stock issued upon conversion of Preferred, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Upon request of a holder of such a certificate, the Company shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Company shall
have received either the opinion referred to in Section 8.4(i) or the
"no-action" letter referred to in Section 8.4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws.
8.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 8.5, 8.6, 8.8 and 8.16 hereof), the holder thereof shall give written
notice to the Company of such holder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall
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<PAGE> 20
be accompanied (except in transactions in compliance with Rule 144) by either
(i) a written opinion of Reavis & McGrath or legal counsel who shall be
reasonably satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 8.3 above, except that such certificate shall not bear such restrictive
legend if the opinion of counsel or "no-action" letter referred to above is to
the further effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act.
8.5 Requested Registration.
(a) Request for Registration. If the Company shall receive from
Initiating Holders, at any time or times not earlier than eighteen months
following the Closing a written request that the Company effect any registration
with respect to all or a part of the Registrable Securities, provided such
request includes more than 50% of the Shares or such number of shares of Common
Stock issued upon conversion of more than 50% of the Shares, or any combination
thereof, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 8.5:
(A) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act or applicable rules or
regulations thereunder; or
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<PAGE> 21
(B) after the Company has effected two such registrations
pursuant to this Section 8.5(a) and such registrations have been
declared or ordered effective and the sales of such Registrable
Securities shall have closed.
Subject to the foregoing clauses (A) and (B), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 8.5(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no right to include any of its securities in any such
registration.
(b) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 8.5 and the Company shall include such information in the written notice
referred to in Section 8.5(a)(i) above. The right of any Holder to registration
pursuant to Section 8.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to Section 8.5, or
if holders of securities of the Company who are entitled, by contract with the
Company, to have securities included in such a registration (the "Other
Shareholders") request such inclusion, the Initiating Holders shall, on behalf
of all Holders, offer to include the securities of such officers, directors and
Other Shareholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 8. The Company
shall (together with all Holders, officers, directors and Other Shareholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 8.5, if the representative
advises the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by officers or directors (other than Registrable Securities) of the
Company shall be excluded from such registration to the extent so required by
such limitation and if a limitation of the number of shares is still required,
the securities of the Company issued pursuant to the Purchase and Sale Agreement
dated January 24, 1978, between the Company and Pioneer Investors Corporation
and Doan Resources Corporation (the "Pioneer Securities") shall be excluded from
such registration to the extent so required by such limitation and, if a
limitation of the number of shares is still required, the Initiating Holders
shall so advise all Holders of Registrable Securities and Other Shareholders
whose securities would otherwise be underwritten
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<PAGE> 22
pursuant hereto, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all such Holders and Other Shareholders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities and other
securities which they had requested to be included in such registration at the
time of filing the registration statement, provided that there shall not in any
event be a reduction in the number of shares to be included in the registration
and underwriting in respect of the 10,000 shares of Common Stock issued pursuant
to the Subscription Agreement dated July 9, 1977 between the Company and Robert
M. Bridgforth, Jr., or the 10,000 shares of Common Stock issued pursuant to the
Subscription Agreement dated July 19, 1977 between the Company and Dixon J.
Smith (the "Bridgforth and Smith Securities"). No Registrable Securities or any
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder of
Registrable Securities, officer, director or Other Shareholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has not
limited the number of Registrable Securities or other securities to be
underwritten, the Company may include its securities for its own account in such
registration if the underwriter so agrees and if the number of Registrable
Securities and other securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
8.6 Company Registration.
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 8.6(b) below. Such written request may specify all or a part of
a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.6(a)(i). In such event the right of any
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<PAGE> 23
Holder to registration pursuant to Section 8.6 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting by
the Company. Notwithstanding any other provision of this Section 8.6, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, and (a) if such registration is the first
registered offering of the Company's securities to the public, the underwriter
may (subject to the allocation priority set forth below) exclude from such
registration and underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant hereto, and (b) if such registration is
other than the first registered offering of the sale of the Company's securities
to the public, the underwriter may (subject to the allocation priority set forth
below) limit the number of Registrable Securities to be included in the
registration and underwriting to not less than fifty percent (50%) of the
securities included therein (based on aggregate market values). The Company
shall so advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
securities of the Company held by officers and directors of the Company (other
than Registrable Securities) shall be excluded from such registration and
underwriting to the extent required by such limitation, and, if a limitation on
the number of shares is still required, the Pioneer Securities shall be excluded
from such registration and underwriting to the extent so required by such
limitation and, if a limitation of the number of shares is still required, the
number of shares that may be included in the registration and underwriting shall
be allocated among all such Holders and Other Shareholders in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities and
other securities which they had requested to be included in such registration at
the time of filing the registration statement, provided that there shall not in
any event be a reduction in the number of Bridgforth and Smith Securities
included in the registration and underwriting. If any Holder of Registrable
Securities or any officer, director or Other Shareholder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
8.7 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 8 shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered; provided, however, that the Company shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by Initiating Holders, the registration
statement does not become effective, in which case the Holders and Other
Shareholders requesting registration shall bear such Registration Expenses pro
rata on the basis of the number of their shares so included in the registration
request, and provided, further, that such registration shall not be counted as a
registration pursuant to Section 8.5(a)(ii)(B).
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<PAGE> 24
8.8 Registration on Form S-2 or Form S-3. The Company shall use its
best efforts to qualify for registration on Form S-2 and Form S-3 or any
comparable or successor form or forms; and to that end the Company shall
register (whether or not required by law to do so) the Common Stock under the
Exchange Act in accordance with the provisions of that Act following the
effective date of the first registration of any securities of the Company on
Form S-1 or Form S-18 or any comparable or successor form or forms. After the
Company has qualified for the use of either Form S-2 or Form S-3 or both, in
addition to the rights contained in the foregoing provisions of this Section 8,
the Holders of Registrable Securities shall have the right to request
registrations on Form S-2 or Form S-3 (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended methods of disposition of such shares by such Holder or Holders).
8.9 Registration Procedures. In the case of each registration effected
by the Company pursuant to Section 8, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day periods shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration in accordance with provisions in
paragraph 8.15 hereof; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120 day-period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act, permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post-effective amendment
which (y) includes any prospectus required by Section 10(a)(3) of the Securities
Act or (z) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (y) and (z)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act in the registration statement;
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.5 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
8.10 Indemnification.
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<PAGE> 25
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 8, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by him are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act and the rules and regulations thereunder, each other such Holder and Other
Shareholder and each of their officers, directors and partners, and each person
controlling such Holder or Other Shareholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to' be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders, Other
Shareholders, directors, officers, partners, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder or Other Shareholder and stated to be specifically
for use therein; provided, however, that the obligations of .such Holders and
Other Shareholders hereunder shall be limited to an amount equal to the proceeds
to each such Holder or Other Shareholder of securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section 8.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as
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<PAGE> 26
to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 8. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
8.11 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder and the distribution proposed by such Holder or Other Shareholder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 8.
8.12 Limitations on Registration of Issues of Securities. From and
after the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company, provided that this Section
8.12 shall not limit the right of the Company to enter any agreements with any
holder or prospective holder of any securities of the Company giving such holder
or prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder. Any right given by the
Company to any holder or prospective holder of the Company's securities in
connection with the registration of securities shall be conditioned such that it
shall be consistent with the provisions of this Section 8 and with the rights of
the Holders provided in this Agreement.
8.13 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
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<PAGE> 27
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Purchaser owns any Restricted Securities, furnish
to the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
8.14 Transfer or Assignment of Registration Rights. The rights granted
to Purchasers under Sections 8.5, 8.6 and 8.8 to cause the Company to register
their securities may be transferred or assigned by a Purchaser to a transferee
or assignee of any of his Restricted Securities, provided that the Company is
given written notice by the Purchaser at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided further that
the transferee or assignee of such rights is not deemed by the board of
directors of the Company, in its reasonable judgment, to be a competitor of the
Company; and provided further that the transferee or assignee of such rights
assumes the obligations of such Purchaser under this Section 8.
8.15 "Market Stand-off" Agreement. Each Purchaser agrees, if requested
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company during the ninety (90) day period (or such
longer period not to exceed one hundred eighty (180) days as may be requested by
the Company and any such underwriter) following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:
(a) such agreement only applies to the first such registration
statement of the Company including securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all Holders, Other Shareholders and officers and directors of
the Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of any said period.
8.16 Collier Enterprises Shares. Notwithstanding any provision of this
Agreement to the contrary, Collier Enterprises, if it is a Purchaser hereunder,
shall be permitted to transfer, within one year of the date of this Agreement,
free of any limitations on transfer contained in this
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<PAGE> 28
Agreement, all or any of the Shares it acquires hereunder, to a limited
partnership, the general partner of which is Clearman, Lieber & Company or
Stephen Clearman or Irwin Lieber or any entity owned or controlled by Stephen
Clearman or Irwin Lieber, provided that such transferee agrees to be bound as a
Purchaser by the terms of this Agreement.
SECTION 9
Miscellaneous
9.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York.
9.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive (i) any investigation made by any Purchaser and (ii)
the Closing.
9.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, the Company may not assign its rights
hereunder.
9.4 Entire Agreement; Amendment. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the Purchasers; provided, however,
that holders of sixty-seven percent (67%) or more of the Shares sold under this
Agreement and the Other Agreements or such number of shares of Common Stock
issued upon conversion of those sixty-seven percent (67%) of the Shares and not
sold to the public pursuant to Section 8, or any combination thereof, may by
written instrument waive satisfaction of any term or condition which operates
for the benefit of the Purchasers, but in no event shall the obligation of any
Purchaser hereunder be increased, except upon the written consent of such
Purchaser.
9.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered either by hand or by messenger, addressed (a) if
to a Purchaser, as indicated on the Schedule of Purchasers attached hereto, or
at such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares or any Common Stock issued
upon conversion of Shares, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth at
9.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder nor shall it be
-28-
<PAGE> 29
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
9.7 Rights; Separability. Unless otherwise expressly provided herein,
your rights hereunder are several rights, not rights jointly held with any of
the other Purchasers. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
9.8 Agent's Fees.
(a) The Company hereby agrees to indemnify and to hold each
Purchaser harmless of and from any liability for commission or compensation in
the nature of an agent's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
arising from any act by the Company or any of its employees or representatives.
(b) You (i) represent and warrant that you have retained no finder
or broker in connection with the transactions contemplated by this Agreement and
(ii) hereby agree to indemnify and to hold the Company and the other Purchasers
harmless from any liability for any commission or compensation in the nature of
an agent's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which you, or any
of your employees or representatives, are responsible.
9.9 Information Confidential. You acknowledge that the information
received by you pursuant hereto may be confidential and for your use only, and
you will not use such confidential information in violation of the Exchange Act
or reproduce, disclose or disseminate such information to any other person
(other than your employees or agents having a need to know the contents of such
information, and your attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or you are required to disclose such
information by a governmental body.
9.10 Expenses. The Company shall bear its own expenses and legal fees
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby, and the Company will pay the legal fees and disbursements
and office expenses, including secretarial charges, of Reavis & McGrath with
respect to this Agreement and the transactions contemplated hereby to the extent
provided in Section 5.14 hereof.
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<PAGE> 30
9.11 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
Purchasers:
Pioneer Associates
By /s/ R. Scott Asen - General Partner
----------------------------------------
Pioneer III
By /s/ R. Scott Asen - General Partner
----------------------------------------
By /s/ R. Scott Asen - General Partner
----------------------------------------
R. Scott Asen
-30-
<PAGE> 31
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
Purchasers:
Collier Enterprises
By /s/ [unreadable]
--------------------------------
-31-
<PAGE> 32
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
Purchasers:
Gilder, Gagnon & Co.
By /s/ Neil Gagnon
--------------------------------
/s/ Neil Gagnon
--------------------------------
Neil Gagnon
-32-
<PAGE> 33
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ Duff Kennedy
--------------------------------
Purchaser
-33-
<PAGE> 34
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ Robert M. Arnold
--------------------------------
Purchaser
-34-
<PAGE> 35
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ W. Hunter Simpson
--------------------------------
Purchaser
-35-
<PAGE> 36
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ William H. Gates
--------------------------------
Purchaser
-36-
<PAGE> 37
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ Bangt Svensson
---------------------------------
Vice-President
ACCEPTED AND AGREED TO:
By /s/ William Scott
--------------------------------
Purchaser
-37-
<PAGE> 38
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William Scott
---------------------------------
President
ACCEPTED AND AGREED TO:
By /s/ William D. Ellis
--------------------------------
Purchaser
-38-
<PAGE> 1
EXHIBIT 10.17
FIRST AMENDMENT TO
PREFERRED STOCK PURCHASE AGREEMENT
FOR CLASS A PREFERRED STOCK
This amendment is made as of July 31, 1986, by and among SeaMED
Corporation, a Delaware corporation (the "Company") and the other parties who
have executed this Amendment, said other parties being all of the present
holders of shares of the Company's Class A Preferred Stock who purchased
pursuant to those Certain Preferred Stock Purchase Agreements dated March 28,
1984 (each, a "Class A Preferred Stock Purchase Agreement"), to which this
amendment shall be attached.
RECITALS
A. The Company and the other parties entered into the Class A
Preferred Stock Purchase Agreements on or after March 28, 1984.
B. The Company now proposes to issue and sell up to 450,000 shares of
Class B Preferred Stock, and in connection therewith desires to amend each Class
A Preferred Stock Purchase Agreement.
AGREEMENT
For good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the parties hereto agree that each Class A Preferred
Stock Purchase Agreement shall be amended as follows:
1. Right of First Refusal. From and after the date of this Amendment,
and notwithstanding anything else in the Class A Preferred Stock Purchase
Agreement, Section 7.3 of the Class A Preferred Stock Purchase Agreement is
amended to read as follows:
7.3 Right of First Refusal; Additional Financing. The parties
recognize the Company has need for additional financing and may thus
issue an additional class of Preferred Stock to be known as "Class B
Preferred Stock." The Company hereby grants to each Purchaser of Class
A Preferred Stock a right of first refusal to purchase in common with
the purchasers of the Class B Preferred Stock, pro rata, all or any
part of New Securities (as defined in Section 7.3(a)) which the Company
may, from time to time, propose to issue and sell. A Purchaser's pro
rata share, for the purposes of this right of first refusal, is the
ratio of (i) the number of Shares purchased by Purchaser under this
Agreement plus the number of shares of stock purchased by Purchaser
under the Preferred Stock Purchase Agreement for Class B Preferred
Stock executed by the Company granting this same right of first
refusal, to (ii) the total of the number of Shares purchased by all
Purchasers under this Agreement and the Other Agreements plus the
number of shares of stock purchased by all purchasers under all
Preferred Stock Purchase
<PAGE> 2
Agreements for Class B Preferred Stock executed by the Company granting
this same right of first refusal. Each Purchaser shall have a right of
over-allotment such that if any Purchaser fails to exercise his right
hereunder or under the Preferred Stock Purchase Agreement for Class B
Preferred Stock giving him this same right of first refusal, the other
purchasers under this Agreement and the other purchasers under the
Preferred Stock Purchase Agreement for Class B Preferred Stock having
this same right of first refusal may purchase the non-purchasing
Purchaser's portion on a pro rata basis within five days from the date
such non-purchasing Purchaser fails to exercise his right hereunder to
purchase his pro rata share of the New Securities. This right of first
refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including the
Common Stock or any Preferred Stock) of the Company whether or not
presently authorized, and rights, options, or warrants to purchase
capital stock and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New
Securities" does not include (i) securities purchased under this
Agreement or the Other Agreements, or under any agreement relative to
any of the shares of Preferred Stock presently authorized; (ii)
securities offered to the public pursuant to a registration statement
filed pursuant to the Securities Act; (iii) securities issued pursuant
to the acquisition of another corporation by the Company by merger,
purchase of substantially all the assets or other reorganization
whereby the Company owns not less than fifty-one percent (51%) of the
voting power of such corporation following the completion of such
transaction; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type
of debt instrument, provided such borrowings do not have any equity
features, including warrants, options, equity participations or
"Kickers" or other rights to purchase capital stock, and are not
convertible into capital stock of the Company; or (v) securities issued
to employees, consultants or directors of the Company pursuant to any
stock option plan, stock purchase agreement, or stock bonus
arrangement.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Purchaser hereunder and under the
Preferred Stock Purchase Agreements for Class B Preferred Stock written
notice of its intention, describing the type of New Securities, the
price and the general terms upon which the Company proposes to issue
the same. Each Purchaser shall have thirty (30) days from the date of
receipt of any such notice to agree to purchase their pro rata share of
such New Securities, the price and the general terms upon which the
Company proposes to issue the same. Each Purchaser shall have thirty
(30) days from the date of receipt of any such notice to agree to
purchase the Purchaser's pro rata share of such New Securities for the
price and upon the general terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(c) In the event one or more Purchasers fail to exercise the
right of first refusal within said thirty (30) day period and after the
expiration of the 5-day period for the exercise of the over-allotment
provisions of this Section 7.3, the Company shall have one
-2-
<PAGE> 3
hundred eighty (180) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within one hundred eighty (180) days from the date
of said agreement) to sell the New Securities in respect of which the
Purchasers' option was not exercised, at a price and upon general terms
no more favorable to the purchasers thereof than specified in the
Company's notice. In the event the Company has not sold the New
Securities within said 180-day period or entered into an agreement to
sell the New Securities within said 180-day period (or sold and issued
New Securities in accordance with the foregoing within one hundred
eighty (180) days from the date of said agreement), the Company shall
not thereafter issue or sell any New Securities, without first offering
such securities to the Purchasers hereunder and under the Preferred
Stock Purchase Agreement for Class B Preferred Stock in the manner
provided above.
(d) The right of first refusal granted under this Agreement shall
expire (i) with respect to each share of Preferred, upon conversion of
such share to Common Stock, and (ii) with respect to all shares, upon
the first sale of Common Stock of the Company to the public at a per
share offering price of at least five times the then existing
conversion price for the Preferred, which sale is effected pursuant to
a registration statement filed with, and declared effective by, the
Securities and Exchange Commission (the "Commission") under the
Securities Act in a firm commitment underwritten public offering, with
an aggregate offering price to the public of not less than $5,000,000.
(e) The right of first refusal set forth in this Section 7.3 is
nonassignable, except that (i) such right is assignable by each
Purchaser to any wholly-owned subsidiary or parent of, or to any
corporation or entity which is, within the meaning of the Securities
Act, controlling, controlled by or under common control with, any such
Purchaser, (ii) such right is assignable between and among any of the
Purchasers hereunder or under the Preferred Stock Purchase Agreements
for Class B Preferred Stock, and (iii) upon the death of a Purchaser,
such right shall pass with the Shares to the beneficiaries under the
deceased Purchaser's last will and testament or to the distributees of
the deceased Purchaser's estate.
AGREED to and accepted:
SEAMED CORPORATION PURCHASER
By /s/ [unreadable] By /s/ William D. Ellis
-------------------------------- --------------------------------
-3-
<PAGE> 1
EXHIBIT 10.18
SECOND AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENT
CLASS A PREFERRED STOCK
THIS SECOND AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENT FOR CLASS A
PREFERRED STOCK (the "Amendment") is made as of this 28th of October, 1994,
by and between the individuals set forth on the signature pages hereto (the
"Purchasers") and SEAMED CORPORATION (the "Company"). Unless otherwise defined
herein, all capitalized terms shall have the meanings that are ascribed to them
in the Agreement, as defined below.
RECITALS
A. The Purchasers and the Company are parties to that certain
Preferred Stock Purchase Agreement dated March 28, 1984, as amended by that
certain first Amendment to Preferred Stock Purchase Agreement for Class A
Preferred Stock dated as of July 31, 1986 (so amended, the "Agreement").
B. The Company has engaged an investment banking firm, Allen &
Company, to raise an additional $2,000,000 of equity financing through the sale
of Class D Convertible Preferred Stock (the "Class D Stock"). The Company shall
use the proceeds from such sale to reduce its outstanding borrowings under its
various credit lines, to purchase equipment and as general working capital.
C. As shareholders of the Company, the Purchasers expect to benefit,
directly and indirectly, from the sale of the Class D Stock.
D. In order to facilitate the sale of the Class D Stock, the parties
desire to amend the Agreement pursuant to the terms and conditions of this
Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Section 7.2 is hereby amended and restated as follows:
7.2 Additional Information. The Company will permit any person who
owns (or has been designated as the representative of holder of)
100,000 or more of the Shares or such number of shares of Common Stock
issued upon conversion of 100,000 or more of the Shares, or any
combination thereof, to visit and inspect any of the properties of the
Company, including its books of account, and to discuss its affairs,
finances and accounts with the Company's officers and its
<PAGE> 2
independent public accountants, all at such reasonable times and as
often as any such person may reasonably request, provided that such
person shall provide the Company with reasonable advance notice of his
desire to so visit and inspect. Until the earlier to occur of (i) the
date on which the Company is subject to the reporting requirements of
Section 13(a) of the Exchange Act, or (ii) the date on which quotations
for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities
Dealers, Inc., or by an equivalent quotations system, the Company will
deliver to each such person, as soon as practicable after the end of
the month and in any event within thirty (30) days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any,
as at the end of such month, and the consolidated statements of income
of the Company and its subsidiaries, for each month and for the current
fiscal year of the Company to date, prepared in accordance with
generally accepted accounting principles consistently applied together
with a comparison of such statements to the Company's operating plan
then in effect and approved by its Board of Directors, and certified,
subject only to normally occurring accruals, by the principal financial
or accounting officer of the Company.
The foregoing provisions of this Section 7.2 shall not be in limitation
of any rights which a Purchaser may have with respect to books and
records of the Company and its subsidiaries, or to inspect their
properties or discuss their affairs, finances and accounts, under the
laws of the jurisdictions in which they are incorporated.
2. Section 7.3 is hereby amended and restated as follows:
7.3 Right of First Refusal; Additional Financing. The parties
recognize the Company previously issued Class B Preferred Stock and has
need for additional financing and may thus issue an additional class of
preferred stock to be known as Class D Convertible Preferred Stock
(together, the "Other Preferred Classes") which was, or will be, sold
to purchasers according to the preferred stock purchase agreements for
the Other Preferred Classes (the "Stock Purchase Agreements") which
allow for a common right of first refusal with respect to New
Securities (as defined in Section 7.3(a)). The Company hereby grants to
each Purchaser of Class A Preferred Stock a right of first refusal to
purchase in common with the purchasers (or transferees thereof) of the
Other Preferred Classes, pro rata, all or any part of New Securities
(as defined in Section 7.3(a)) which the Company may, from time to
time, propose to issue and sell. A Purchaser's pro rata share, for the
purposes of this right of first refusal, is the ratio of (i) the number
of Shares purchased by such Purchaser under this Agreement plus the
number of shares of stock purchased by Purchaser under the Stock
Purchase Agreements, to (ii) the total number of Shares purchased by
all Purchasers under this Agreement and the Other Agreements plus the
number of shares of stock purchased by all purchasers under all the
Stock Purchase Agreements. Each Purchaser shall have a right of
over-allotment such that if any
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<PAGE> 3
Purchaser or purchaser (or transferee thereof) of Other Preferred
Classes fails to exercise his right of first refusal , the other
Purchasers under this Agreement and the other purchasers (or
transferees thereof) under the Stock Purchase Agreements may purchase
the non-purchasing purchaser's portion on a pro rata basis within five
days from the date such non-purchasing purchaser fails to exercised his
right to purchase his pro rata share of the New Securities. This right
of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including
the Common Stock or any Preferred Stock) of the Company whether or not
presently authorized, and right, options, or warrants to purchase
capital stock and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New
Securities" does not include (i) securities purchased under this
Agreement and the Other Agreements, or under any agreement relative to
any of the shares of preferred stock presently authorized; (ii)
securities offered to the public pursuant to a registration statement
filed pursuant to the Securities Act; (iii) securities issued pursuant
to the acquisition of another corporation by the Company by merger,
purchase of substantially all the assets or other reorganization
whereby the Company owns not less than fifty-one percent (51%) of the
voting power of such corporation following the completion of such
transaction; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type
of debt instrument, provided such borrowings do not have any equity
features, including warrants, options, equity participation or
"kickers" or other rights to purchase capital stock, and are not
convertible into capital stock of the Company; or (v) securities issued
to employees, consultants, or directors of the Company pursuant to any
stock option plan, stock purchase agreement, or stock bonus
arrangement.
(b) In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Purchaser hereunder and
each purchaser (or transferee thereof) under the Stock Purchase
Agreements written notice of its intention, describing the type of New
Securities, the price and the general terms upon which the Company
proposes to issue the same. Each Purchaser shall have fifteen (15) days
from the date of receipt of any such notice to agree to purchase their
pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be
purchased.
(c) In the event one or more Purchasers fail to exercise the
right of first refusal within said fifteen (15) day period and after
the expiration of the 5-day period for the exercise of the
over-allotment provisions of this Section 7.3, the Company shall have
one hundred eighty (180) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within one hundred eighty (180) days from
the date of said
-3-
<PAGE> 4
agreement) to sell the New Securities in respect of which the
Purchasers' option was not exercised, at a price and upon general terms
no more favorable to the purchasers thereof than specified in the
Company's notice. In the event the Company has not sold the New
Securities within said 180-day period or entered into an agreement to
sell the New Securities within said 180-day period (or sold and issued
New Securities in accordance with the foregoing within one hundred
eighty (180) days from the date of said agreement), the Company shall
not thereafter issue or sell any New Securities, without first offering
such securities to the Purchasers hereunder in the manner provided
above.
(d) The right of first refusal granted under this Agreement
shall expire (i) with respect to each share of Preferred, upon
conversion of such share to Common Stock, and (ii) with respect to all
shares of Preferred, upon the first sale of Common Stock of the Company
to the public at a per share offering price of at least five times the
then existing conversion price for the Preferred, which sale is
effected pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission (the "Commission")
under the Securities Act in a firm commitment underwritten public
offering, with an aggregate offering price to the public of not less
than $5,000,000.
(e) The right of first refusal set forth in this Section 7.3
is nonassignable, except that (i) such right is assignable by each
Purchaser to any wholly-owned subsidiary or parent of, or to any
corporation or entity which is, within the meaning of the Securities
Act controlling, controlled by, or under common control with, any such
Purchaser, (ii) such right is assignable between and among any of the
Purchasers hereunder or the purchasers (or transferees thereof) under
the Stock Purchase Agreements, and (iii) upon the death of a Purchaser,
such right shall pass with the Shares to the beneficiaries under the
deceased Purchaser's last will and testament or the distributees of the
deceased Purchaser's estate.
3. Section 8.12 is hereby amended and restated as follows:
8.12 Limitations on Registration of Issuers Securities. From
and after the date of this Agreement, but excluding any agreement
between the Company and the holders of Class D Preferred Stock, the
Company shall not enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder
or prospective holder the right to require the Company to initiate any
registration of any securities of the Company, provided, that this 8.12
shall not limit the right of the Company to enter any agreements with
any holder or prospective holder of any securities of the Company
giving such holder or prospective holder the right to require the
Company, upon any registration of any of its securities, to include,
among the securities which the Company is then registering, securities
owned by such holder. Any right given by the Company to any holder or
prospective holder of the Company's securities in connection with
-4-
<PAGE> 5
the registration of securities shall be conditioned such that it shall
be consistent with the provisions of this Section 8 and with the rights
of the Holders provided in this Agreement.
4. Except as modified by this Amendment, all provisions of the
Agreement are unchanged and remain in full force and effect and are ratified and
confirmed by the parties hereto.
5. This Amendment may be signed in several counterparts, each of which
shall be deemed an original and all such counterparts together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the day and year first written above.
SEAMED CORPORATION
By /s/ W. Robert Berg
----------------------------------
Its Pres/C.E.O.
-------------------------------
STOCKHOLDERS:
/s/ R. Scott Asen /s/ Robert M. Arnold
- ----------------------------------- ------------------------------------
R. Scott Asen Robert M. Arnold
COLLIER ENTERPRISES
By /s/ [unreadable] /s/ William D. Ellis
--------------------------------- ------------------------------------
Its William D. Ellis
------------------------------
/s/ Neil Gagnon /s/ William H. Gates
- ----------------------------------- ------------------------------------
Neil Gagnon William H. Gates
-5-
<PAGE> 6
GEOCAPITAL VENTURES
By /s/ Stephen J. Clearman /s/ Dorothy Mae Kennedy
--------------------------------- ------------------------------------
Its Dorothy Mae Kennedy
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PIONEER ASSOCIATES PIONEER III
By /s/ R. Scott Asen By /s/ R. Scott Asen
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Its GP Its GP
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PIONEER IV
By /s/ R. Scott Asen /s/ Allen Puckett
--------------------------------- ------------------------------------
Its GP Allen Puckett
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/s/ Albert T. Robinson
- -----------------------------------
Albert T. Robinson
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<PAGE> 1
EXHIBIT 10.19
SeaMed Corporation
11801 North Creek Parkway North
Building Number 4 Bothell, Washington 98011
Preferred Stock Purchase Agreement
Class B Preferred Stock
As of August 25, 1986
To Each of the Persons Listed on the Schedule of Purchasers attached hereto:
The undersigned, SeaMed Corporation, a Delaware corporation (the
"Company"), hereby agrees with you as follows:
SECTION 1
Authorization and Sale of the Shares
1.1 Authorization of the Shares. The Company has, or before the Closing
(as hereinafter defined) will have, authorized the sale and issuance of Four
Hundred Fifty Thousand (450,000) shares (the "Shares") of its Convertible Class
B Preferred Stock, of par value one cent ($0.01) per share ("Preferred"), having
the rights, restrictions, privileges and preferences as set forth in the Class B
Preferred Stock Resolution of the Company (the "Preferred Resolution") attached
to this Agreement as Exhibit A.
1.2 Sale of the Shares. Subject to the terms and conditions hereof and
in reliance upon the representations, warranties and agreements contained
herein, the Company will issue and sell to each of you, severally and not
jointly, and each of you will purchase from the Company, severally and not
jointly, at the closing of the purchase and sale of Shares hereunder (the
"Closing"), the number of the Shares set forth opposite your name on the
Schedule of Purchasers attached hereto (the "Schedule of Purchasers") under the
column labelled "Shares," at a purchase price of one dollar ($1.00) per Share.
The persons listed on the Schedule of Purchasers are sometimes hereinafter
referred to as the "Purchasers" and individually as a "Purchaser."
1.3 Sales of Shares to Other Purchasers. The Company also proposes to
enter into purchase agreements (the "Other Agreements"), identical with this
Agreement, with certain other purchasers, some of which are named on the portion
of the Schedule of Purchasers dated August 25, 1986 and others of which may be
named on a later dated portion of the Schedule of Purchasers (the "Other
Purchasers"), providing for the sale of Shares of Preferred to the Other
Purchasers as set forth opposite their respective names on the Schedule of
Purchasers. The Company's Agreements with you and each of the Other Purchasers
are separate agreements and the sales of the Shares to you and each of the Other
Purchasers are separate sales. If any Other
<PAGE> 2
Purchaser does not purchase any Shares to be purchased by such Other Purchaser
as set forth on the Schedule of Purchasers, the Company shall offer to issue and
sell such Shares to you and the Other Purchasers (excluding such defaulting
Other Purchaser), pro rata, on the same terms and conditions as set forth
herein; you and each such Other Purchaser shall have a right of over-allotment
such that if you or any such Other Purchaser fails to accept such offer in full
to purchase his pro rata portion of the Shares to have been purchased by the
defaulting Other Purchaser, you and such Other Purchasers may purchase such
Shares on a pro rata basis.
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The Closing of the purchase and sale of the Shares
hereunder shall be held immediately following the execution and delivery of this
Agreement at the place set forth in Section 2.3 hereof (the "Closing Date") or
at such other time and place as shall be mutually agreed upon by the Company and
the Purchasers. If the Closing of the sale of at least 350,000 Shares does not
occur by September 22, 1986, this Agreement will be terminated forthwith and the
parties hereto will have no further obligations to each other under this
Agreement, except that the Company shall nevertheless be obligated to make such
payments as provided for in Section 9.10 hereof. It is agreed that the closings
under this Agreement and the Other Agreements may take place on more than one
date. In the event that there shall be more than one Closing in order to
consummate the purchases of all Shares as herein contemplated, then all
references herein to the Closing Date shall, as to each Purchaser, be deemed to
have reference to the date on which such Purchaser's investment was actually
closed pursuant to this Agreement.
2.2 Delivery. At the Closing, the Company will deliver to each of you
certificates, in such denominations and registered in your names as set forth in
the Schedule of Purchasers attached, representing the number of the Shares to be
purchased by you from the Company, against payment of the purchase price
therefor by check, wire transfer, cancellation of indebtedness or such other
form of payment as shall be mutually agreed upon by you and the Company, payable
to the order of the Company.
2.3 Place of Closing. The place of the Closing (including the place of
delivery to the Purchasers by the Company of the certificates evidencing all
Shares being purchased and the place of payment to the Company by the Purchasers
of the purchase price therefor) shall be at the offices of Shidler McBroom Gates
& Lucas, 3500 First Interstate Center, 999 Third Avenue, Seattle, Washington
98104.
SECTION 3
Representations and Warranties of the Company
The Company hereby represents and warrants to you as follows, except as
set forth on the "Schedule of Exceptions" dated July 31, 1986, delivered to you
prior to the execution hereof and attached hereto:
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<PAGE> 3
3.1 Organization and Standing, Certificate of Incorporation and Bylaws.
The Company is a corporation duly organized and validly existing under the laws
of its state of organization and is in good standing under such laws. The
Company has requisite corporate power to own properties owned by it and to
conduct business as being conducted by it. The Company does not own or lease
property or engage in any activity in any jurisdiction which presently requires
its qualification to do business as a foreign corporation in any jurisdiction
other than the State of Washington. The Company has furnished you with true,
correct and complete copies of its Certificate of Incorporation, Bylaws and all
amendments to each to date. Prior to the Closing, the Company shall have
properly executed, acknowledged, filed and recorded the Preferred Resolution
with the Secretary of State of the State of Delaware.
3.2 Corporate Power. The Company has all requisite corporate power to
enter into this Agreement and will have at the Closing Date all requisite
corporate power to sell the Shares and to carry out and perform its obligations
under the terms of this Agreement, the Other Agreements and the agreements
contemplated hereby and thereby.
3.3 Subsidiaries. The Company has no subsidiaries other than SeaMed
International Corporation, a domestic international sales corporation, and does
not own of record or beneficially any capital stock or equity interest or
investment in any other corporation, association or business entity.
3.4 Capitalization. Immediately prior to the Closing, the Company's
authorized capital stock will consist of (a) Three Million Nine Hundred Fifty
Thousand (3,950,000) shares of Common Stock, $0.01 par value (the "Common
Stock"), of which One Million Seven Hundred Forty-seven Thousand Nine Hundred
Fifty-Two (1,747,952) shares will be issued and outstanding immediately prior to
the Closing, (b) One Million Five Hundred Thousand (1,500,000) shares of Class A
Preferred Stock, $0.01 par value (the "Class A Preferred Stock") of which One
Million Four Hundred Fifty-Eight Thousand, Five Hundred (1,458,500) will be
issued and outstanding prior to the Closing, and (c) Four Hundred Fifty Thousand
(450,000) shares of Preferred, none of which will be issued and outstanding
prior to the Closing. All the aforesaid issued and outstanding shares will have
been duly authorized and validly issued, will be fully paid and nonassessable,
will be owned of record and to the best of the Company's knowledge and belief)
beneficially by the shareholders and in the amounts set forth in the Schedule of
Exceptions, and will have been offered, issued, sold and delivered by the
Company in compliance with applicable federal and state securities laws. There
are no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon the Company for the purchase or
acquisition of any shares of its capital stock, except, with respect to Common
Stock, as set forth in the Schedule of Exceptions, with respect to the Class A
Preferred Stock, in accordance with the provisions of those certain Preferred
Stock Purchase Agreements dated March 28, 1984 executed by and between the
Company and various Purchasers (the "Class A Preferred Purchase Agreements"),
and, with respect to the Preferred, in accordance with the provisions of this
Agreement and the Other Agreements and the Class B Preferred Resolution. To the
best of the Company's knowledge and belief, no shareholder has granted options
or other rights to purchase any shares of Common Stock from such shareholder
other than as set forth in
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<PAGE> 4
the Schedule of Exceptions. The Company does not hold any shares of its capital
stock in its treasury.
3.5 Authorization. All corporate actions on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance by the Company of this Agreement and the consummation
of the transactions contemplated herein, and for the authorization, issuance and
delivery of the Shares and of the Common Stock issuable upon conversion thereof
has been taken or will be taken prior to the Closing. This Agreement is a valid
and binding obligation of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general application affecting enforcement of creditors' rights
generally. The execution, delivery and performance by the Company of this
Agreement and compliance therewith and the issuance and sale of the Shares and
Common Stock issuable upon conversion of the Shares will not result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, any provision of state or federal law
to which the Company is subject, the Company's Certificate of Incorporation, as
amended, or Bylaws, as amended, or any mortgage, indenture, agreement,
instrument, judgment, decree, order, rule or regulation or other restriction to
which the Company is a party or by which it is bound, or result in the creation
of any mortgage, pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company pursuant to any thereof. No shareholder has any
preemptive rights or rights of first refusal with respect to issuance of the
Shares, except holders of Class A Preferred Stock to the extent of rights
granted to such holders pursuant to the provisions of the Class A Preferred
Purchase Agreements. The Shares, when issued in compliance with the provisions
of this Agreement and the Other Agreements, will be validly issued, fully paid
and nonassessable, and will be free of any liens or encumbrances. The shares of
Common Stock issuable upon conversion of the Shares have been duly and validly
reserved and are not subject to any preemptive rights or rights of first refusal
and, upon issuance, will be validly issued, fully paid and nonassessable.
3.6 Financial Information. The unaudited financial statements of the
Company as of May 31, 1986 attached as Exhibit B-1 hereto (the "Financial
Statements"), including the balance sheet as of May 31, 1986 (the "Balance
Sheet"), present fairly the financial position and results of operations of the
Company at the dates and for the periods to which they relate, have been
prepared in accordance with generally accepted accounting principles consistent
with principles followed in preparation of the audited financial statements of
the Company as of June 30, 1985 attached as Exhibit B-2 hereto and show all
material liabilities, absolute or contingent, of the Company required to be
recorded thereon in accordance with generally accepted accounting principles as
at the respective dates thereof.
3.7 Outstanding Debt. The Company has no outstanding indebtedness for
borrowed money except as reflected on the Balance Sheet or on the Schedule of
Exceptions and is not a guarantor or otherwise contingently liable for any such
indebtedness. There exists no default under the provisions of any instrument
evidencing any indebtedness or otherwise or of any agreement relating thereto.
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<PAGE> 5
3.8 Absence of Undisclosed Liabilities. The Company has no material
liabilities (fixed or contingent, including without limitation any tax
liabilities due or to become due) which are not fully reflected or provided for
on the Balance Sheet or are not shown on the Schedule of Exceptions. The Company
does not know of any material liability of any nature, direct or indirect,
contingent or otherwise, or in any amount not adequately reflected or reserved
against in the Balance Sheet or not shown on the Schedule of Exceptions.
3.9 Absence of Certain Changes. At all times since the date of the
Financial Statements up to and including the Closing, there has not been any
event or condition, or any combination of events or conditions, of any character
which has had a material adverse effect on the Company's business, plans or
prospects, including but not limited to:
(a) any adverse change in the condition, assets, liabilities or
business of the Company from that shown on the Balance Sheet;
(b) any damage, destruction or loss of any of the properties or
assets of the Company (whether or not covered by insurance);
(c) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company; or
(d) any labor trouble.
3.10 Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns and reports required to be filed with the
United States Internal Revenue Service and with the states of Delaware and
Washington, and (except to the extent that the failure to file would not have a
material adverse effect on the condition or operations of the Company) with all
other jurisdictions where such filing is required by law; and the Company has
paid, or made adequate provision in the Balance Sheet for the payment of, all
taxes, interest, penalties, assessments or deficiencies shown to be due or
claimed to be due on or in respect of such tax returns and reports. The Company
does not know of (i) any other tax returns or reports which are required to be
filed which have not been so filed or (ii) any unpaid assessment for additional
taxes for any fiscal period or any basis thereof. The Company's federal income
tax returns have not been audited by the Internal Revenue Service for fiscal
years ending after June 30, 1981.
3.11 Contracts; Insurance. Except as set forth in the Schedule of
Exceptions, the Company does not have any currently existing contract,
obligation, agreement, plan, arrangement, commitment or the like (written or
oral) of any material nature, including without limitation the following:
(a) employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or
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<PAGE> 6
similar plans, including agreements evidencing rights to purchase securities of
the Company and agreements among shareholders and the Company;
(b) loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of the Company's property or any agreement or instrument
evidencing any guaranty by the Company of payment or performance by any other
person;
(c) agreements with dealers, sales representatives, brokers or
other distributors, jobbers, advertisers or sales agencies;
(d) agreements with any labor union or collective bargaining
organization or other labor agreements;
(e) any contract or series of contracts with the same person for
the furnishing or purchase of machinery, equipment, goods or services, including
without limitation agreements with processors and subcontractors;
(f) any indenture, agreement or other document (including private
placement brochures) relating to the sale or repurchase of shares;
(g) any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which the Company is a party;
(h) agreements limiting the freedom of the Company to compete in
any line of business or in any geographic area or with any person;
(i) agreements providing for disposition of the business, assets
or shares of the Company, agreements of merger or consolidation to which the
Company is a party or letters of intent with respect to the foregoing;
(j) letters of intent or agreements with respect to the
acquisition of the business, assets or shares of any other business;
(k) insurance policies; and
(1) licenses, assignments and other agreements of any nature
whatsoever, with respect to foreign or domestic patents or applications for
patents, inventions, disclosures, know-how or other proprietary information and
the inventions thereof.
Except as set forth in the Schedule of Exceptions, the Company has
complied with all the material provisions of all said contracts, obligations,
agreements, plans, arrangements, and commitments and is not in default
thereunder.
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<PAGE> 7
The Company maintains insurance which is adequate to protect the
Company and its financial condition against the risks involved in the business
conducted by the Company.
3.12 Shareholders, Directors and Officers; Indebtedness. Set forth on
the Schedule of Exceptions is a correct and complete list or description of all
indebtedness of the Company to its officers, directors or shareholders or any of
their respective relatives and of all indebtedness of such persons to the
Company. To the best of the Company's knowledge and belief, none of the officers
or directors or significant employees or consultants of the Company, or their
respective spouses or relatives, owns directly or indirectly, individually or
collectively, a material interest in any entity which is a competitor, customer
or supplied or (or has any existing contractual relationship with) the Company.
3.13 Litigation and Bankruptcy Proceedings.
(a) There is neither pending nor, to the Company's knowledge and
belief, threatened any action, suit, proceeding or claim, or any basis therefor
or threat thereof, whether or not purportedly on behalf of the Company, to which
the Company is or may be named as a party or its property is or may be subject
and in which an unfavorable outcome, ruling or finding in any such matter or for
all such matters taken as a whole might have a material adverse effect on the
condition, financial or otherwise, or operations of the Company; and the Company
has no knowledge of any unasserted claim, the assertion of which is likely and
which, if asserted, will seek damages, an injunction or other legal, equitable,
monetary or nonmonetary relief which claim, individually or collectively with
other such unasserted claims, if granted would have a material adverse effect on
the condition, financial or otherwise, or operations of the Company.
(b) The Company has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had a petition in bankruptcy filed against it, been adjudicated
a bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws or any other law or statute of the United
States of America or any other jurisdiction.
3.14 Consents. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority, including the
Securities Commissioners of the States of Washington and New York, is required
in connection with the Company's valid execution, delivery or performance of
this Agreement or the Other Agreements, or the offer, sale or issuance of the
Shares by the Company, the conversion of the Shares, the issuance of Common
Stock upon conversion of the Shares, or the consummation of any other
transaction contemplated on the part of the Company hereby or by the Other
Agreements, except the filing of the Preferred Resolution with the Secretary of
State of the State of Delaware and the recording thereof, and except such
filings listed in the Schedule of Exceptions as have been made prior to the
Closing.
3.15 Title to Properties; Liens and Encumbrances. The Company does not
own any real property. The Company has a valid and indefeasible ownership
interest in all property and assets
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<PAGE> 8
recorded on the Balance Sheet, free from all mortgages, pledges, liens, security
interests, conditional sale agreements, encumbrances or charges, except (i) as
shown on the Balance Sheet or listed on the Schedule of Exceptions; and (ii)
tax, materialmen's or like liens for obligations not yet due or payable or being
contested in good faith by appropriate proceedings (for which adequate reserves
have been established in accordance with generally accepted accounting
principles), as set forth on the Schedule of Exceptions.
3.16 Leases. Set forth on the Schedule of Exceptions is a correct and
complete list (including the amount of rents called for and a description of the
leased property) of all material leases under which the Company is a lessee. The
Company enjoys peaceful and undisturbed possession under all such leases, all of
such leases are valid and subsisting and none of them is in default in any
material respect.
3.17 Business of the Company. There is no pending or to the Company's
knowledge and belief threatened claim or litigation against or affecting the
Company contesting its right to produce, manufacture, sell or use any product,
process, method, substance, part or other material presently produced,
manufactured, sold or used or planned to be produced, manufactured, sold or used
by the Company in connection with the operations of the Company; and the Company
has no knowledge or belief that (i) there exists, or there is pending or
planned, any patent, invention, device, application or principle, or any
statute, rule, law, regulation, standard or code which would materially
adversely affect the condition, financial or otherwise, or the operations of the
Company; or (ii) there is any other factor (other than fire, flood, accident,
act of war or civil commotion, or any other cause or event beyond the control of
the Company) which may materially adversely affect the condition, financial or
otherwise, or the operations of the Company.
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights. The
Company has all franchises, permits, licenses and other similar authority
necessary for the conduct of its business as now being conducted and as planned
to be conducted, the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company, and it is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority. Subject to the information set forth on the
Schedule of Exceptions, which should not materially effect the following
assertion, the Company possesses all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights and copyrights necessary to
conduct its business as now being conducted and as planned to be conducted
without conflict with or infringement upon any valid rights of others or the
lack of which could materially and adversely affect the operations or condition,
financial or otherwise, of the Company, and has not received any notice of
infringement upon or conflict with the asserted rights of others.
3.19 Issuance Taxes. All taxes imposed by law in connection with the
issuance, sale and delivery of the Shares shall have been fully paid, and all
laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
3.20 Offering. Subject in part to the truth and accuracy of the
Purchasers' representations set forth in this Agreement and the Other
Agreements, the offer, sale and issuance
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<PAGE> 9
of the Shares as contemplated by this Agreement and the Other Agreements are
exempt from the registration requirements of the Securities Act of 1933 (the
"Securities Act," which term shall include any successor federal statute) and
from the qualification or registration requirements of the laws of any state or
other jurisdiction, and neither the Company nor anyone acting on its behalf will
take any action hereafter that would cause the loss of such exemption.
3.21 Compliance with Other Instruments. The Company is not in violation
of any term of its Certificate of Incorporation or Bylaws. The Company is not in
violation of any term of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which the
Company is subject and a violation of which would have a material adverse effect
on the condition, financial or otherwise, or operations of the Company, except
as set forth in the Schedule of Exceptions.
3.22 Employees. To the best of the Company's knowledge and belief, no
employee of the Company is, or is now expected to be, in violation of any term
of any employment contract, patent disclosure agreement, non-competition
agreement, or any other contract or agreement or any restrictive covenant or any
other common law obligation to a former employer relating to the right of any
such employee to be employed by the Company because of the nature of the
business conducted or to be conducted by the Company or to the use of trade
secrets or proprietary information of others, and the employment of the
Company's employees does not subject the Company or any Purchaser to any
liability. There is neither pending nor, to the Company's knowledge and belief,
threatened any actions, suits, proceedings or claims, or, to its knowledge and
belief, any basis therefor or threat thereof with respect to any contract,
agreement, covenant or obligation referred to in the preceding sentence. The
Company does not have any collective bargaining agreement covering any of its
employees.
3.23 Registration Rights. Except as provided for in this Agreement, in
the Other Agreements, and in the Class A Preferred Purchase Agreements, the
Company is not under any obligation to register (as defined in Section 8.2
below) any of its currently outstanding securities or any of its securities
which may hereafter be issued.
3.24 Disclosure. This Agreement, the Schedule of Exceptions, and the
Financial Statements and the audited financial statements of the Company as of
June 30, 1985 delivered to the Purchasers, do not contain any untrue statement
of a material fact and do not omit to state a material fact necessary in order
to make the statements contained herein or therein not misleading in the light
of the circumstances under which they were made.
SECTION 4
Representations and Warranties of Purchasers
Each Purchaser represents and warrants to the Company, severally and
not jointly, and only as to itself, as follows:
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<PAGE> 10
4.1 Experience. It is experienced in evaluating and investing in newly
organized, high technology companies such as the Company.
4.2 Investment. It is acquiring the Shares for investment for its own
account and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the Shares and the shares of Common
Stock issuable upon conversion of the Shares have not been registered under the
Securities Act by reason of an exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
its investment intent as expressed herein.
4.3 Rule 144. It acknowledges that the Shares must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption
from such registration is available. It has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions and has been advised or is aware that such
Rule may not become available for resale of the Shares.
4.4 Access to Data. It has had an opportunity to discuss the Company's
business, management and financial affairs with its management and has had the
opportunity to review the Company's books, records and facilities and has been
given all the information that it has requested in connection therewith.
SECTION 5
Conditions to Purchaser's Obligation to Close
Your obligation to purchase the Shares to be purchased by you at the
Closing is subject to the fulfillment to your satisfaction on or prior to the
Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all respects when made, and shall be true and correct in all respects on the
Closing Date with the same force and effect as if they had been made on and as
of the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with in all respects.
5.3 Opinion of Company's Counsel. You shall have received from counsel
to the Company, which counsel must be satisfactory to the Purchasers, an opinion
addressed to you, dated the Closing Date, and in substantially the form attached
as Exhibit C hereto.
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5.4 Legal Investment. At the time of the Closing, the purchase of the
Shares to be purchased by you hereunder shall be legally permitted by all laws
and regulations to which you and the Company are subject.
5.5 Compliance Certificate. The Company shall have delivered to you a
certificate of the President of the Company, dated the Closing Date, certifying
to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement and other matters you reasonably request.
5.6 Shareholders Agreement. All Purchasers shall have executed an
agreement in substantially the form attached hereto as Exhibit D.
5.7 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to you and your counsel.
5.8 Qualifications. All authorizations, approvals or permits, if any,
including any authorizations, approvals or permits under state securities or
blue sky laws, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Shares pursuant
to this Agreement and the Other Agreements, the conversion of the Shares into
Common Stock and the issuance of such Common Stock upon such conversion shall
have been duly obtained and shall be effective on and as of the Closing.
5.9 Certificate of Incorporation. The Preferred Resolution shall have
been filed with the Secretary of State of the State of Delaware and duly
recorded as provided by the Delaware General Corporation Law.
5.10 Minimum Investment. At the Closing, all the Purchasers shall
purchase all the Shares pursuant to this Agreement and the Other Agreements.
SECTION 6
Conditions to Company's Obligation to Close
The Company's obligation to sell the Shares to be purchased at the
Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of each of the following conditions:
6.1 Representations. The representations made by you pursuant to
Section 4 hereof shall be true and correct when made and shall be true and
correct on the Closing Date.
6.2 Legal Investment. At the time of Closing, the conditions set forth
in Sections 5.8, 5.9 and 5.10 shall have occurred and the purchase of the Shares
to be purchased by you hereunder shall be legally permitted by all laws and
regulations to which you and the Company are subject.
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<PAGE> 12
SECTION 7
Covenants of the Company
The Company hereby covenants and agrees as follows:
7.1 Basic Financial Information. The Company will furnish the following
reports to each Purchaser so long as the Purchaser (or its representative) is a
holder of Preferred or Common Stock:
(a) As soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of such
fiscal year, and consolidated statements of income and sources and applications
of funds of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company.
(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of income of the Company and its
subsidiaries for such period and for the current fiscal year to date, prepared
in accordance with generally accepted accounting principles consistently applied
and setting forth in comparative form the figures for the corresponding periods
of the previous fiscal year, subject only to normally occurring accruals, all in
reasonable detail and certified by the principal financial or accounting officer
of the Company.
(c) From the date the Company becomes subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in
lieu of the financial information required pursuant to Sections 7.1(a) and (b),
copies of its annual reports on Form 10-K and its quarterly reports on Form
10-Q, respectively.
7.2 Additional Information. The Company will permit any person who owns
(or has been designated as the representative of a holder of) 100,000 or more of
the Shares or such number of shares of Common Stock issued upon conversion of
100,000 or more of the Shares, or any combination thereof, to visit and inspect
any of the properties of the Company, including its books of account, and to
discuss its affairs, finances and accounts with the Company's officers and its
independent public accountants, all at such reasonable times and as often as any
such person may reasonably request, provided that such person shall provide the
Company with reasonable advance notice of his desire to so visit and inspect.
Until the earlier to occur of (i) the date on which the Company is subject to
the reporting requirements of Section 13(a) of the Exchange Act, or (ii) the
date on which quotations for the Common Stock of the Company are reported by the
automated quotations system operated by the National Association of Securities
Dealers, Inc.,
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or by an equivalent quotations system, the Company will deliver the reports
described below in this Section 7.2 to each such person:
(a) As soon as practicable after the end of each month and in any
event within thirty (30) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such month, and the
consolidated statements of income of the Company and its subsidiaries, for each
month and for the current fiscal year of the Company to date, prepared in
accordance with generally accepted accounting principles consistently applied
together with a comparison of such statements to the Company's operating plan
then in effect and approved by its Board of Directors, and certified, subject
only to normally occurring accruals, by the principal financial or accounting
officer of the Company.
(b) As soon as available (but in any event within sixty (60) days
after the commencement of its fiscal year) a summary of the financial plan of
the Company, as contained in its operating plan approved by the Company's board
of directors. Any material changes in such financial plan shall be delivered as
promptly as practicable after such changes have been approved by the board of
directors.
(c) With reasonable promptness, such other information and data
with respect to the Company and its subsidiaries as any such person may from
time to time reasonably request.
The foregoing provisions of this Section 7.2 shall not be in limitation
of any rights which a Purchaser may have with respect to the books and records
of the Company and its subsidiaries, or to inspect their properties or discuss
their affairs, finances and accounts, under the laws of the jurisdictions in
which they are incorporated.
7.3 Right of First Refusal; Additional Financing. The parties recognize
the Company previously issued "Class A Preferred Stock" which was sold to
purchasers according to a form of Preferred Stock Purchase Agreement for Class A
Preferred Stock in form substantially similar to this Agreement which, as
amended, allows for the issuance of Class B Preferred Stock and allows for a
common right of first refusal with respect to New Securities (as defined in
Section 7.3(a)). The Company hereby grants to each Purchaser of Class B
Preferred Stock a right of first refusal to purchase in common with the
purchasers of the Class A Preferred Stock pro rata, all or any part of New
Securities which the Company may, from time to time, propose to issue and sell.
A Purchaser's pro rata share, for the purposes of this right of first refusal,
is the ratio of (i) the number of Shares purchased by Purchaser under this
Agreement plus the number of shares of stock purchased by Purchaser under the
Preferred Stock Purchase Agreement for Class A Preferred Stock executed by the
Company granting this same right of first refusal, to (ii) the total of the
number of Shares purchased by all Purchasers under this Agreement and the Other
Agreements plus the number of shares of stock purchased by all purchasers under
all Preferred Stock Purchase Agreements for Class A Preferred Stock executed by
the Company granting this same right of first refusal. Each Purchaser shall have
a right of over-allotment such that if any Purchaser fails to exercise his right
hereunder or under the Preferred Stock Purchase Agreement for Class A Preferred
Stock giving him this same right of first refusal, the other purchasers under
this Agreement and the other purchasers under the Preferred Stock Purchase
Agreement for
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<PAGE> 14
Class A Preferred Stock having this same right of first refusal may purchase the
non-purchasing Purchaser's portion on a pro rata basis within five days from the
date such non-purchasing Purchaser fails to exercise his right hereunder to
purchase his pro rata share of the New Securities. This right of first refusal
shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including the
Common Stock or any Preferred Stock) of the Company whether or not presently
authorized, and rights, options, or warrants to purchase capital stock and
securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include (i)
securities purchased under this Agreement or the Other Agreements, or under any
agreement relative to any of the shares of Preferred Stock presently authorized;
(ii) securities offered to the public pursuant to a registration statement filed
pursuant to the Securities Act; (iii) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all the assets or other reorganization whereby the Company owns
not less than fifty-one percent (51%) of the voting power of such corporation
following the completion of such transaction; (iv) any borrowings, direct or
indirect, from financial institutions or other persons by the Company, whether
or not presently authorized, including any type of loan or payment evidenced by
any type of debt instrument, provided such borrowings do not have any equity
features, including warrants, options, equity participations or "Kickers" or
other rights to purchase capital stock, and are not convertible into capital
stock of the Company; or (v) securities issued to employees, consultants, or
directors of the Company pursuant to any stock option plan, stock purchase
agreement, or stock bonus arrangement.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Purchase hereunder and under the Preferred
Stock Purchase Agreements for Class A Preferred Stock written notice of its
intention, describing the type of New Securities, the price and the general
terms upon which the Company proposes to issue the same. Each Purchaser shall
have thirty (30) days from the date of receipt of any such notice to agree to
purchase their pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(c) In the event one or more Purchasers fail to exercise the right
of first refusal within said thirty (30) day period and after the expiration of
the 5-day period for the exercise of the over-allotment provisions of this
Section 7.3, the Company shall have one hundred eighty (180) days thereafter to
sell or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within one hundred eighty (180) days
from the date of said agreement) to sell the New Securities in respect of which
the Purchasers' option was not exercised, at a price and upon general terms no
more favorable to the purchasers thereof than specified in the Company's notice.
In the event the Company has not sold the New Securities within said 180-day
period or entered into an agreement to sell the New Securities within said
180-day period (or sold and issued New Securities in accordance with the
foregoing within one hundred eighty (180) days from the date of said agreement),
the Company shall not thereafter issue or sell any New Securities, without first
offering such securities to the Purchasers hereunder
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<PAGE> 15
and under the Preferred Stock Purchase Agreements for Class A Preferred Stock in
the manner provided above.
(d) The right of first refusal granted under this Agreement shall
expire (i) with respect to each share of Preferred, upon conversion of such
share to Common Stock, and (ii) with respect to all shares of Preferred, upon
the first sale of Common Stock of the Company to the public at a per share
offering price of at least five times the then existing conversion price for the
Preferred, which sale is effected pursuant to a registration statement filed
with, and declared effective by, the Securities and Exchange Commission (the
"Commission") under the Securities Act in a firm commitment underwritten public
offering, with an aggregate offering price to the public of not less than
$5,000,000.
(e) The right of first refusal set forth in this Section 7.3 is
nonassignable, except that (i) such right is assignable by each Purchaser to any
wholly-owned subsidiary or parent of, or to any corporation or entity which is,
within the meaning of the Securities Act, controlling, controlled by, or under
common control with, any such Purchaser, (ii such right is assignable between
and among any of the Purchasers hereunder or under the Preferred Stock Purchase
Agreements for Class A Preferred Stock, and (iii) upon the death of a Purchaser,
such right shall pass with the Shares to the beneficiaries under the deceased
Purchaser's last will and testament or to the distributees of the deceased
Purchaser's estate.
7.4 Prompt Payment of Taxes, etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, or in
conformance with customary trade terms, all other indebtedness incident to
operations of the Company.
7.5 Maintenance of Properties and Leases. The Company will keep its
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
provision of all leases to which any of them is a party or under which any of
them occupies property if the breach of such provision might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company.
7.6 Insurance. The Company will keep its assets and those of its
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company or any subsidiary from
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<PAGE> 16
becoming a co-insurer and not in any event less than 100% of the insurable value
of the property insured; and the Company will maintain, with financially sound
and reputable insurers, insurance against other hazards and risks and liability
to persons and property to the extent and in the manner customary for companies
in similar businesses similarly situated.
7.7 Accounts and Records. The Company will keep true records and books
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
7.8 Independent Accountants. The Company will retain independent
public accountants of recognized national standing who shall certify the
Company's financial statements at the end of each fiscal year. In the event the
services of the independent public accountants, so selected, or any firm of
independent public accounts hereafter employed by the Company are terminated,
the Company will promptly thereafter notify the Purchasers and will request the
firm of independent public accountants whose services are terminated to deliver
to the Purchasers a letter of such firm setting forth the reasons for the
termination of their services. In the event of such termination, the Company
will promptly thereafter engage another such firm of independent public
accountants. In its notice to the Purchasers the Company shall state whether the
change of accountants was recommended or approved by the Board of Directors or
any committee thereof.
7.9 Compliance with Requirements of Governmental Authorities. The
Company and all its subsidiaries shall duly observe and conform to all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their properties or assets.
7.10 Maintenance of Corporate Existence, etc. The Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use patents, processes, licenses,
trademarks, trade names or copyrights owned or possessed by it or any subsidiary
and deemed by the Company to be necessary to the conduct of their business.
7.11 Availability of Common Stock for Conversion. The Company will,
from time to time, in accordance with the laws of the state of its
incorporation, increase the authorized amount of Common Stock if at any time the
number of shares of Common Stock remaining unissued and available for issuance
shall be insufficient to permit conversion of all the then outstanding shares of
Preferred.
7.12 Notice of Record Dates. In the event of any taking by the Company
of a record of the holders of any class of securities (other than the Preferred)
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, the Company shall mail to each Purchaser at
least ten (10) days prior to such record date, specified herein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
7.13 Proprietary Information and Inventions, and Non-Competition
Agreements. The Company and each person hereafter employed by it or any
subsidiary with access to confidential
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<PAGE> 17
information will enter into a Proprietary Information and Inventions Agreement
in substantially the form of Exhibit E hereto. The Company will require all
persons employed by the Company or a subsidiary, and designated as a "key
person" by either of the representatives of the Purchasers of Class A Preferred
Stock on the Company's Board to execute an agreement in substantially the form
annexed hereto as Exhibit F as a condition precedent to the employment of such
individuals.
7.14 Employee Stock Purchase Agreement. The Company will not issue any
of its capital stock, or grant an option to purchase any of its capital stock,
to any employee or officer of the Company or a subsidiary except (i) pursuant to
options for 158,350 shares of Common Stock outstanding at the date of this
Agreement under the 1982 Incentive Stock Option Plan of the Company, a copy of
which has been provided to the Purchasers, (ii) up to an additional 64,150
shares pursuant to options which may be granted under the 1982 Incentive Stock
Option Plan as currently in effect, or (iii) pursuant to a plan (a "New Plan")
or stock purchase agreement approved, authorized, and adopted by the Board of
Directors, with both representatives of the holders of Class A Preferred Stock
on the Board of Directors having voted in favor thereof. All grants of
additional options under the 1982 Incentive Stock Option Plan or under a New
Plan shall be approved by a committee consisting of four directors, two of whom
shall be the nominees of the holders of Class A Preferred Stock.
7.15 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares to retire the Company's outstanding indebtedness and to provide
additional funding for operations, research and development, capital equipment,
and working capital.
7.16 Duration of Certain Covenants. The covenants and agreements
contained in Sections 7.4 through 7.10 and 7.12 through 7.14 shall expire upon
the earlier of (i) the first sale of Common Stock of the Company to the public
at a per share offering price of at least five times the existing conversion
price for the Preferred, which sale is effected pursuant to a registration
statement filed with and declared effective by the Commission under the
Securities Act in a firm commitment under written public offering, with an
aggregate offering price to the public of not less than $5,000,000 and (ii)
March 21, 1992, provided that the Company has theretofore completed a sale of
Common Stock of the Company to the public pursuant to a registration statement
filed with an declared effective by the Commission under the Securities Act with
net proceeds to the Company of at least $2,000,000 and provided further that the
Company continues to be subject to the reporting requirements of the Exchange
Act.
SECTION 8
Restrictions on Transferability of Securities; Compliance with Securities Act
8.1 Restrictions on Transferability. The Shares shall not be
transferable, except upon the conditions specified in this Section 8, which
conditions are intended to insure compliance with the provisions of the
Securities Act or, in the case of Section 8.14 hereof, to assist in an orderly
distribution. Each Purchaser will cause any proposed transferee of Shares held
by that Purchaser to agree to take and hold those securities subject to the
provisions and upon the conditions specified in this Section 8.
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<PAGE> 18
8.2 Certain Definitions. As used in this Section 8, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 8.3 hereof.
"Registrable securities" shall mean (i) the Preferred, (ii) shares of
Common Stock issued or issuable pursuant to the conversion of the Preferred and
(iii) any Common Stock issued in respect of securities issued pursuant to the
conversion of the Shares upon any stock split, stock dividend, recapitalization
or similar event.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 8.5 hereof, including, without limitations all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for all the selling Holders and other security
holders for a "due diligence" examination of the Company, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder.
"Holder" shall mean any holder of the outstanding Shares or Registrable
Securities which have not been sold to the public.
8.3 Restrictive Legend. Each certificate representing (i) the Shares,
or (ii) shares of the Company's Common Stock issued upon conversion of
Preferred, or (iii) any other securities issued in respect of Preferred or the
Common Stock issued upon conversion of Preferred, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY
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<PAGE> 19
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 8.4(i) or
the "no-action" letter referred to in Section 8.4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws.
8.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 8.5, 8.7 and 8.15 hereof), the holder thereof shall give written notice
to the Company of such holder's intention to effect such transfer. Each such
notice shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of legal counsel who
shall be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act; or (ii) a "no action" letter from
the Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to tile
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 8.3 above, except that such certificate shall not bear such restrictive
legend if the opinion of counsel or "no-action" letter referred to above is to
the further effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act.
8.5 Company Registration.
(a) If the Company shall determine to register any of its
securities for its own account, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Commission Rule
145 transaction, or a registration on any registration form which does not
permit secondary sales or does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
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(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 8.5(b) below. Such written request may specify all or a part of
a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.5(a)(i). In such event the right of any Holder to
registration pursuant to this Section 8.5 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall, together with the Company and with all holders of securities of the
Company who are entitled, by contract with the Company, to have securities
included in such a registration (the "Other Shareholders"), enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company.
Notwithstanding any other provision of this Section 8.5, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, (i) if such registration is the first registered
offering of the Company's securities to the public, the underwriter may (subject
to the allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto, and (ii) if such registration is other than the
first registered offering of the sale of the Company's securities to the public,
the underwriter may (subject to the allocation priority set forth below) limit
the number of Registrable Securities to be included in the registration and
underwriting to not less than fifty percent (50%) of the securities included
therein (based on aggregate market values). Also, in the event of such
limitation, the Company shall advise all holders of securities requesting
registration of the limitation, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner: The securities of the Company held by officers and
directors of the Company (other than Registrable Securities) shall be excluded
from such registration and underwriting to the extent required by such
limitation, and, if a limitation on the number of shares is still required, the
securities of the Company issued pursuant to the Purchase and Sale Agreement
dated January 24, 1978, between the Company and Pioneer Investors Corporation
and Daon Resources Corporation (the "Pioneer Securities") shall be excluded from
such registration and underwriting to the extent so required by such limitation
and, if a limitation of the number of shares is still required, the number of
shares that may be included in the registration and underwriting shall be
allocated among all such Holders and Other Shareholders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities and other
securities which they had requested to be included in such registration at the
time of filing the registration statement, provided that there shall not in any
event be a reduction in the number of shares to be included in the registration
and underwriting in respect. of the 10,000 shares of Common Stock issued
pursuant to the Subscription Agreement dated July 9, 1977 between the Company
and
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<PAGE> 21
Robert M. Bridgforth, Jr., or the 10,000 shares of Common Stock issued pursuant
to the Subscription Agreement dated July 19, 1977 between the Company and Dixon
J. Smith (the "Bridgforth and Smith Securities"). If any Holder of Registrable
Securities or any officer, director or Other Shareholder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
8.6 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 8 shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered.
8.7 Registration on Form S-2 or Form S-3. The Company shall use its
best efforts to qualify for registration on Form S-2 and Form S-3 or any
comparable or successor form or forms; and to that end the Company shall
register (whether or not required by law to do so) the Common Stock under the
Exchange Act in accordance with the provisions of that Act following the
effective date of the first registration of any securities of the Company on
Form S-1 or Form S-18 or any comparable or successor form or forms. After the
Company has qualified for the use of either Form S-2 or Form S-3 or both, in
addition to the rights contained in the foregoing provisions of this Section 8,
the Holders of Registrable Securities shall have the right to request
registrations on Form S-2 or Form S-3 (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended methods of disposition of such shares by such Holder or Holders).
8.8 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Section 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day periods shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration in accordance with provisions in
paragraph 8.13 hereof; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act, permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post-effective amendment
which (x) includes any prospectus required by Section 10(a)(3) of the Securities
Act or (y) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (x) and (y)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act in the registration statement; and
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(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
8.9 Indemnification.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 8, and each underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by him are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act and the rules and regulations thereunder, each other such Holder and Other
Shareholder and each of their officers, directors and partners, and each person
controlling such Holder or Other Shareholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders, Other
Shareholders, directors, officers, partners, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder or Other Shareholder and stated to be specifically
for use therein; provided, however, that the obligations
-22-
<PAGE> 23
of such Holders and Other Shareholders hereunder shall be limited to an amount
equal to the proceeds to each such Holder or Other Shareholder of securities
sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.9
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 8. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
8.10 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder and the distribution proposed by such Holder or Other Shareholder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 8.
8.11 Right of Company to Allow Shareholder to be Included in
Registration of Issues of Securities. This Section 8 shall not limit the right
of the Company to enter any agreements with any holder or prospective holder of
any securities of the Company giving such holder or prospective holder the right
to require the Company, upon any registration of any of its securities, to
include, among the securities which the Company is then registering, securities
owned by such holder; provided, however, that any such right given by the
Company to any holder or prospective holder of the Company's securities in
connection with the registration of securities shall be conditioned such that it
shall be consistent with the provisions of this Section 8 and with the rights of
the Holders provided in this Agreement.
8.12 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days
-23-
<PAGE> 24
following the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Purchaser owns any Restricted Securities, furnish
to the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
8.13 Transfer or Assignment of Registration Rights. The rights granted
to Holders under Sections 8.5 and 8.7 to request the Company to register
securities may be transferred or assigned by a Holder to a transferee or
assignee of any of his Restricted Securities, provided that the Company is given
written notice by the Holder at the time of or within a reasonable time after
said transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and provided further that the
transferee or assignee of such rights is not deemed by the board of directors of
the Company, in its reasonable judgment, to be a competitor of the Company; and
provided further that the transferee or assignee of such rights assumes the
obligations of such Holder under this Section 8.
8.14 "Market Stand-off" Agreement. Each Purchaser agrees, if requested
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company during the ninety (90) day period (or such
longer period not to exceed one hundred eighty (180) days as may be requested by
the Company and any such underwriter) following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:
(a) such agreement only applies to the first such registration
statement of the Company including securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all Holders, Other Shareholders and officers and directors of
the Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of any said period.
-24-
<PAGE> 25
SECTION 9
Miscellaneous
9.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York.
9.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive (i) any investigation made by any Purchaser and (ii)
the Closing.
9.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, the Company may not assign its rights
hereunder.
9.4 Entire Agreement; Amendment. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the Purchasers; provided, however,
that holders of sixty-seven percent (67%) or more of the Shares sold under this
Agreement and the Other Agreements or such number of shares of Common Stock
issued upon conversion of those sixty-seven percent (67%) of the Snares and not
sold to the public pursuant to Section 8, or any combination thereof, may by
written instrument waive satisfaction of any term or condition which operates
for the benefit of the Purchasers, but in no event shall the obligation of any
Purchaser hereunder be increased, except upon the written consent of such
Purchaser.
9.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered either by hand or by messenger, addressed (a) if
to a Purchaser, as indicated on the Schedule of Purchasers attached hereto, or
at such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares or any Common Stock issued
upon conversion of Shares, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth above, or at such other address as the Company may have furnished
Purchaser in writing.
9.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach of default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default
-25-
<PAGE> 26
under this Agreement, or any waiver on the part of any holder of any provisions
or conditions of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
9.7 Rights; Separability. Unless otherwise expressly provided herein,
your rights hereunder are several rights, not rights jointly held with any of
the other Purchasers. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
9.8 Agent's Fees.
(a) The Company hereby agrees to indemnify and to hold each
Purchaser harmless of and from any liability for commission or compensation in
the nature of an agent's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
arising from any act by the Company or any of its employees or representatives.
(b) You, the Purchaser, (i) represent and warrant that you have
retained no finder or broker in connection with the transactions contemplated by
this Agreement and (ii) hereby agree to indemnify and to hold the Company and
the Other Purchasers harmless from any liability for any commission or
compensation in the nature of an agent's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which you, or any of your employees or representatives, are
responsible.
9.9 Information Confidential. You, the Purchaser, acknowledge that the
information received by you pursuant hereto may be confidential and for your use
only, and you will not use such confidential information in violation of the
Exchange Act or reproduce, disclose or disseminate such information to any other
person (other than your employees or agents having a need to know the contents
of such information, and your attorneys), except in connection with the exercise
of rights under this Agreement, unless the Company has made such information
available to the public generally or you are required to disclose such
information by a governmental body.
9.10 Expenses. The Company shall bear its own expenses and legal fees
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby.
9.11 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
-26-
<PAGE> 27
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ Travis K. Anderson
---------------------------------
8/22/86, Purchaser
-27-
<PAGE> 28
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ Robert M. Arnold
---------------------------------
Purchaser
-28-
<PAGE> 29
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ [unreadable]
---------------------------------
Managing Partner, Purchaser
Collier Enterprises
-29-
<PAGE> 30
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ Neil Gagnon
---------------------------------
8/21/86, Purchaser
-30-
<PAGE> 31
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ William H. Gates
---------------------------------
________________, Purchaser
-31-
<PAGE> 32
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ Irwin Lieber for Geocapital
---------------------------------
________________, Purchaser
-32-
<PAGE> 33
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ R. Scott Asen
---------------------------------
Pioneer Association, Purchaser
-33-
<PAGE> 34
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ R. Scott Asen
---------------------------------
Pioneer III, Purchaser
-34-
<PAGE> 35
If you are in agreement with the foregoing, please sign where indicated
below and thereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
SeaMed Corporation
By /s/ William D. Ellis
---------------------------------------
William D. Ellis, President
ACCEPTED .AND AGREED TO:
By /s/ R. Scott Asen
---------------------------------
Pioneer IV, Purchaser
-35-
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENT
CLASS B PREFERRED STOCK
THIS FIRST AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENT CLASS B
PREFERRED STOCK (the "Amendment") is made as of this 28th day of October, 1994,
by and between the individuals set forth on the signature pages hereto (the
"Purchasers") and SEAMED CORPORATION (the "Company"). Unless otherwise defined
herein, all capitalized terms shall have the meanings that are ascribed to them
in the Agreement, as defined below.
RECITALS
A. The Purchasers and the Company are parties to that certain
Preferred Stock Purchase Agreement Class B Preferred Stock dated August 25, 1986
(the "Agreement").
B. The Company has engaged an investment banking firm, Allen &
Company, to raise an additional $2,000,000 of equity financing through the sale
of Class D Convertible Preferred Stock (the "Class D Stock"). The Company shall
use the proceeds from such sale to reduce its outstanding borrowings under its
various credit lines, to purchase equipment and as general working capital.
C. As shareholders of the Company, the Purchasers expect to benefit,
directly and indirectly, from the sale of the Class D Stock.
D. In order to facilitate the sale of the Class D Stock, the parties
desire to amend the Agreement pursuant to the terms and conditions of this
Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Section 7.2 is hereby amended and restated as follows:
7.2 Additional Information. The Company will permit any person who
owns (or has been designated as the representative of holder of)
100,000 or more of the Shares or such number of shares of Common Stock
issued upon conversion of 100,000 or more of the Shares, or any
combination thereof, to visit and inspect any of the properties of the
Company, including its books of account, and to discuss its affairs,
finances and accounts with the Company's officers and its independent
public accountants, all at such reasonable times and as often as any
such person may reasonably request, provided that such person shall
provide the
<PAGE> 2
Company with reasonable advance notice of his desire to so visit and
inspect. Until the earlier to occur of (i) the date on which the
Company is subject to the reporting requirements of Section 13(a) of
the Exchange Act, or (ii) the date on which quotations for the Common
Stock of the Company are reported by the automated quotations system
operated by the National Association of Securities Dealers, Inc., or by
an equivalent quotations system, the Company will deliver to each such
person, as soon as practicable after the end of the month and in any
event within thirty (30) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as at the end of such
month, and the consolidated statements of income of the Company and its
subsidiaries, for each month and for the current fiscal year of the
Company to date, prepared in accordance with generally accepted
accounting principles consistently applied together with a comparison
of such statements to the Company's operating plan then in effect and
approved by its Board of Directors, and certified, subject only to
normally occurring accruals, by the principal financial or accounting
officer of the Company.
The foregoing provisions of this Section 7.2 shall not be in limitation
of any rights which a Purchaser may have with respect to books and
records of the Company and its subsidiaries, or to inspect their
properties or discuss their affairs, finances and accounts, under the
laws of the jurisdictions in which they are incorporated.
2. Section 7.3 is hereby amended and restated as follows:
7.3 Right of First Refusal; Additional Financing. The parties
recognize the Company previously issued "Class A Preferred Stock" and
has need for additional financing and may thus issue an additional
class of preferred stock to be known as Class D Convertible Preferred
Stock (together, the "Other Preferred Classes") which was, or will be,
sold to purchasers according to the preferred stock purchase agreements
for the Other Preferred Classes (the "Stock Purchase Agreements") which
allow for a common right of first refusal with respect to New
Securities (as defined in Section 7.3(a)). The Company hereby grants to
each Purchaser of Class B Preferred Stock a right of first refusal to
purchase in common with the purchasers (or transferees thereof) of the
Other Preferred Classes, pro rata, all or any part of New Securities
which the Company may, from time to time, propose to issue and sell. A
Purchaser's pro rata share, for the purposes of this right of first
refusal, is the ratio of (i) the number of shares purchased by such
Purchaser under this Agreement plus the number of shares of stock
purchased by Purchaser under the Stock Purchase Agreements, to (ii) the
total of the number of Shares purchased by all Purchasers under this
Agreement and the Other Agreements plus the number of shares of stock
purchased by all purchasers under all the Stock Purchase Agreements.
Each Purchaser shall have a right of over-allotment such that if any
Purchaser or purchaser (or transferee thereof) of Other Preferred
Classes fails to exercise his right of first refusal, the other
Purchasers under this Agreement and the other purchasers (or
transferees thereof) under the
-2-
<PAGE> 3
Stock Purchase Agreements may purchase the non-purchasing purchaser's
portion on a pro rata basis within five days from the date such
non-purchasing purchaser fails to exercised his right to purchase his
pro rata share of the New Securities. This right of first refusal shall
be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including
the Common Stock or any Preferred Stock) of the Company whether or not
presently authorized, and right, options, or warrants to purchase
capital stock and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New
Securities" does not include (i) securities purchased under this
Agreement or the Other Agreements, or under any agreement relative to
any of the shares of Preferred Stock presently authorized; (ii)
securities offered to the public pursuant to a registration statement
filed pursuant to the Securities Act; (iii) securities issued pursuant
to the acquisition of another corporation by the Company by merger,
purchase of substantially all the assets or other reorganization
whereby the Company owns not less than fifty-one percent (51%) of the
voting power of such corporation following the completion of such
transaction; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type
of debt instrument, provided such borrowings do not have any equity
features, including warrants, options, equity participation or
"kickers" or other rights to purchase capital stock, and are not
convertible into capital stock of the Company; or (v) securities issued
to employees, consultants, or directors of the Company pursuant to any
stock option plan, stock purchase agreement, or stock bonus
arrangement.
(b) In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Purchaser hereunder and
each purchaser (or transferee thereof) under the Stock Purchase
Agreements written notice of its intention, describing the type of New
Securities, the price and the general terms upon which the Company
proposes to issue the same. Each Purchaser shall have fifteen (15) days
from the date of receipt of any such notice to agree to purchase their
pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be
purchased.
(c) In the event one or more Purchasers fail to exercise the
right of first refusal within said fifteen (15) day period and after
the expiration of the 5-day period for the exercise of the
over-allotment provisions of this Section 7.3, the Company shall have
one hundred eighty (180) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within one hundred eighty (180) days from
the date of said agreement) to sell the New Securities in respect of
which the Purchasers' option was not exercised, at a price and upon
general terms no more favorable to the purchasers thereof than
specified in the Company's notice. In the event the
-3-
<PAGE> 4
Company has not sold the New Securities within said 180-day period or
entered into an agreement to sell the New Securities within said
180-day period (or sold and issued New Securities in accordance with
the foregoing within one hundred eighty (180) days from the date of
said agreement), the Company shall not thereafter issue or sell any New
Securities, without first offering such securities to the Purchasers
hereunder in the manner provided above.
(d) The right of first refusal granted under this Agreement
shall expire (i) with respect to each share of Preferred, upon
conversion of such share to Common Stock, and (ii) with respect to all
shares of Preferred, upon the first sale of Common Stock of the Company
to the public at a per share offering price of at least five times the
then existing conversion price for the Preferred, which sale is
effected pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission (the "Commission")
under the Securities Act in a firm commitment underwritten public
offering, with an aggregate offering price to the public of not less
than $5,000,000.
(e) The right of first refusal set forth in this Section 7.3
is nonassignable, except that (i) such right is assignable by each
Purchaser to any wholly-owned subsidiary or parent of, or to any
corporation or entity which is, within the meaning of the Securities
Act controlling, controlled by, or under common control with, any such
Purchaser, (ii) such right is assignable between and among any of the
Purchasers hereunder or the purchasers (or transferees thereof) under
the Stock Purchase Agreements, and (iii) upon the death of a Purchaser,
such right shall pass with the Shares to the beneficiaries under the
deceased Purchaser's last will and testament or the distributees of the
deceased Purchaser's estate.
3. Except as modified by this Amendment, all provisions of the
Agreement are unchanged and remain in full force and effect and are ratified and
confirmed by the parties hereto.
4. This Amendment may be signed in several counterparts, each of
which shall be deemed an original and all such counterparts together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the day and year first written above.
-4-
<PAGE> 5
SEAMED CORPORATION
By /s/ W. Robert Berg
----------------------------------
Its President/C.E.O.
STOCKHOLDERS:
/s/ Travis Anderson /s/ Robert M. Arnold
- ----------------------------------- -----------------------------------
Travis Anderson Robert M. Arnold
COLLIER ENTERPRISES
/s/ R. Scott Asen By /s/ [unreadable]
- ----------------------------------- ---------------------------------
R. Scott Asen Its
/s/ Neil J. Gagnon /s/ William H. Gates
- ----------------------------------- -----------------------------------
Neil Gagnon William H. Gates
GEOCAPITAL VENTURES GILDER, GAGNON & CO.
By /s/ Stephen J. Clearman
---------------------------------
Its General Partner By /s/ Neil J. Gagnon
------------------------------ ---------------------------------
Its
------------------------------
PIONEER ASSOCIATES PIONEER III
By /s/ R. Scott Asen By /s/ R. Scott Asen
--------------------------------- ---------------------------------
Its GP Its GP
------------------------------ ------------------------------
-5-
<PAGE> 6
PIONEER IV
By /s/ R. Scott Asen /s/ Albert T. Robinson
--------------------------------- -----------------------------------
Its GP Albert T. Robinson
------------------------------
-6-
<PAGE> 1
EXHIBIT 11.1
SEAMED CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Primary:
Weighted average common shares outstanding...................... 454,324 530,681 606,353
Class B and C convertible redeemable preferred stock classified
as common stock equivalents................................... 1,376,559 1,376,559 1,376,559
Net effect of dilutive stock options based on the treasury stock
method using average market price............................. 280,650 288,786 253,996
Net incremental effect of stock options granted or exercised at
less than the offering price during the 12 months prior to the
Company's filing of its initial public offering, calculated
using the treasury stock method at an offering price of $11
per share, and treated as outstanding for all periods
presented..................................................... 112,257 106,333 93,831
---------- --------- ----------
Total weighted average shares outstanding....................... 2,223,790 2,302,359 2,330,739
========== ========= ==========
Net income...................................................... $1,007,278 $ 774,763 $1,240,454
Less accretion of cumulative preferred stock dividends.......... (145,850) (203,005) (263,050)
---------- --------- ----------
Adjusted income for computation of primary earnings per share... $ 861,428 $ 571,758 $ 977,404
========== ========= ==========
Primary net income per share.................................... $ 0.39 $ 0.25 $ 0.42
========== ========= ==========
Fully diluted:
Weighted average common shares outstanding...................... 454,324 530,681 606,353
Weighted average of all convertible redeemable preferred stock
outstanding................................................... 2,543,363 2,734,403 2,934,029
Net effect of dilutive stock options based on the treasury stock
method using the greater of average or ending market price.... 298,916 289,178 261,165
Net effect of dilutive stock warrants based on the treasury
stock method using the greater of average or ending market
price......................................................... -- -- 586
Net incremental effect of stock options granted or exercised at
less than the offering price during the 12 months prior to the
Company's filing of its initial public offering, calculated
using the treasury stock method at an offering price of $11
per share, and treated as outstanding for all periods
presented..................................................... 112,257 106,287 91,110
---------- --------- ----------
Total weighted average shares outstanding....................... 3,408,860 3,660,549 3,893,243
========== ========= ==========
Net income...................................................... $1,007,278 $ 774,763 $1,240,454
========== ========= ==========
Fully diluted net income per share.............................. $ 0.30 $ 0.21 $ 0.32
========== ========= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH AUDITED FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,912
<SECURITIES> 0
<RECEIVABLES> 6,128,159
<ALLOWANCES> 252,226
<INVENTORY> 6,697,248
<CURRENT-ASSETS> 13,264,850
<PP&E> 5,251,112
<DEPRECIATION> 2,595,847
<TOTAL-ASSETS> 16,064,335
<CURRENT-LIABILITIES> 8,268,214
<BONDS> 1,285,782
5,279,514
0
<COMMON> 886,828
<OTHER-SE> 343,997
<TOTAL-LIABILITY-AND-EQUITY> 16,064,335
<SALES> 26,130,235
<TOTAL-REVENUES> 26,130,235
<CGS> 21,092,679
<TOTAL-COSTS> 21,092,679
<OTHER-EXPENSES> 2,930,891
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 198,274
<INCOME-PRETAX> 1,908,391
<INCOME-TAX> 667,937
<INCOME-CONTINUING> 1,240,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,240,454
<EPS-PRIMARY> .42
<EPS-DILUTED> .32
</TABLE>
