================================================================================
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Augment Systems, Inc.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
---------------------------
DELAWARE 04-3089539
(STATE OR OTHER JURISDICTION (I.R.S.
OF INCORPORATION OR EMPLOYER
ORGANIZATION) IDENTIFICATION
7373 NO.)
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
---------------------------
2 ROBBINS ROAD
WESTFORD, MASSACHUSETTS 01886
(508) 392-8626
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
LORRIN G. GALE, PRESIDENT AND CHIEF EXECUTIVE OFFICER
AUGMENT SYSTEMS, INC.
2 Robbins Road
Westford, Massachusetts 01886
(508) 392-8626
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------------------
COPIES TO:
MICHAEL A. HICKEY, ESQ. DAVID ALAN MILLER, ESQ.
JILL M. PECHACEK, ESQ. PETER M. ZIEMBA, ESQ.
WARNER & STACKPOLE LLP GRAUBARD MOLLEN & MILLER
75 State Street 600 Third Avenue
Boston, Massachusetts 02109 New York, New York 10016
Tel:(617)951-9000 Fax:(617)951-9151 Tel:(212)818-8800 Fax:(212)818-8881
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any 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: [x]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please 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: [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share(2) 2,300,000 $ 5.00 $11,500,000 $ 3,484.85
Warrants to purchase one share of
Common Stock(3) 2,300,000 $ 0.10 $ 230,000 $ 69.70
Common Stock issuable upon exercise of
Warrants(3) 2,300,000 $ 6.00 $13,800,000 $ 4,181.82
Underwriter's Purchase Option(4) 1 $100.00 $ 100 --
Common Stock issuable upon exercise of
Underwriters' Purchase Option 200,000 $ 6.00 $ 1,200,000 $ 363.64
Warrants issuable upon exercise of
Underwriter's Purchase Option(4) 200,000 $ 0.12 $ 24,000 --
Common Stock underlying Warrants issuable
upon exercise of Underwriters' Purchase
Option 200,000 $ 6.00 $ 1,200,000 $ 363.64
Total Registration Fee $ 8,463.65
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Includes 300,000 shares of Common Stock which the Underwriters have the
option to purchase from the Registrant to cover over-allotments, if any.
(3) Includes 300,000 Warrants which the Underwriters have the option to purchase
from the Registrant to cover over-allotments, if any.
(4) Pursuant to Rule 457(g), no registration fee is payable.
--------------------------------
Pursuant to Rule 416, there are also being registered hereby such
indeterminate number of additional shares of Common Stock as may be issued as a
result of the antidilution provisions of the Warrants and the Underwriters'
Purchase Option.
--------------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 7, 1997
PROSPECTUS
[LOGO] AUGMENT SYSTEMS, INC.
2,000,000 SHARES OF COMMON STOCK AND
2,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
All of the 2,000,000 shares of common stock ("Common Stock") and 2,000,000
Redeemable Common Stock Purchase Warrants ("Warrants") offered hereby (together,
the "Securities") are being sold by Augment Systems, Inc. ("Company" or
"Augment"). Each Warrant entitles the holder to purchase one share of Common
Stock for $6.00 during the four-year period commencing one year from the date of
this Prospectus. The Company may redeem the Warrants, once they have become
exercisable, at a price of $.01 per Warrant on not less than 30 days' prior
written notice if the last sale price of the Common Stock has been at least 150%
of the then current exercise price of the Warrants (initially $9.00) for the 20
consecutive trading days ending on the third day prior to the date on which such
notice is given. See "Description of Securities."
Prior to this Offering, there has been no public market for the Securities
and there can be no assurance that any such market will develop. See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price of the Securities and the exercise price of
the Warrants. The Company has applied for quotation of the Common Stock and
Warrants on the Nasdaq SmallCap Market under the symbols "AUGS" and "AUGSW,"
respectively, and for listing of the Common Stock and Warrants on the Boston
Stock Exchange under the trading symbols "AUG" and "AUGW," respectively.
---------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 6 AND
"DILUTION" AT PAGE 11 HEREOF.
---------------------------
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.
================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
Per Share $5.00 $.50 $4.50
Per Warrant $.10 $.01 $.09
Total(3) $10,200,000 $1,020,000 $9,180,000
================================================================================
(1) Does not include a 3% nonaccountable expense allowance which the Company has
agreed to pay to the Underwriters. The Company has also agreed to sell the
Underwriters an option to purchase up to 200,000 shares of Common Stock
and/or 200,000 Warrants ("Underwriters' Purchase Option") and to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $306,000 ($351,900 if the
Underwriters' over-allotment option is exercised in full), estimated at
approximately $731,000.
(3) The Company has granted the Underwriters an option, exercisable within 45
business days from the date of this Prospectus, to purchase up to an
additional 300,000 shares of Common Stock and/or 300,000 Warrants on the
same terms as set forth above, solely for the purpose of covering
over-allotments, if any. If such over-allotment option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $11,730,000, $1,173,000 and $10,557,000,
respectively. See "Underwriting."
The Securities are being offered by the Underwriters subject to prior sale,
when, as, and if delivered to and accepted by the Underwriters and subject to
the approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify the Offering
and to reject any order in whole or in part. It is expected that delivery of
certificates representing the Securities will be made against payment therefor
at the offices of Laidlaw Equities, Inc. in New York City on or about , 1997.
LAIDLAW EQUITIES, INC. GKN SECURITIES CORP.
, 1997
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
OR WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Macintosh(R) is a registered trademark of Apple Computer, Inc. and Windows NT(R)
is a registered trademark of Microsoft Corp.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus. Each prospective investor is urged to read this Prospectus in its
entirety. Unless otherwise indicated, the information in this Prospectus has
been adjusted to reflect a .637434-for-1 reverse stock split effective as of
October 30, 1996.
THE COMPANY
Augment Systems, Inc., a development stage company, designs, develops and
sells high-end super server products designed to move large image and text files
rapidly and efficiently over computer networks. The Company's initial target
markets are the electronic publishing industry and the Internet/Intranet market.
The Company commenced sales of its initial products, high-end Macintosh(R)-based
super servers, in February 1997. The Company plans to introduce in 1997 a
Windows NT(R)-based super server targeted to meet the growing demand for Windows
NT-based high performance Internet/Intranet World Wide Web ("World Wide Web" or
"WEB") servers and a super server system designed to support multi-platform
networks comprised of Macintosh, Windows NT and UNIX-based workstations.
Electronic publishing, whether involving the preparation of high quality
color printed documents in print shops, service bureaus and internal corporate
publishing departments or interactive documents on the Internet/Intranet,
requires massive amounts of disk storage and the movement of large text and
image files over networks. The Company's technology has been designed to support
multi-platform environments and is specifically aimed at increasing the transfer
speed of large image and data files over networks. The Company believes that its
products are also well-suited for other markets that require rapid and efficient
movement of large image and data files over networks, such as medical imaging
and geophysical imaging systems ("GIS").
The Company's super server systems move the file management function and
high speed interconnects outside of the processor running the core operating
system. This unique approach produces significant improvements in file transfer
speeds and enables the server system to maintain compatibility with Apple
Computer, Inc. ("Apple") and Microsoft Corp. ("Microsoft") operating systems
while running different application software. The Company's servers have been
designed to incorporate extensive scalable internal storage of up to 100
gigabytes ("GBs") with Redundant Array of Inexpensive Disks ("RAID")
complemented by 96 GBs of automatic tape back-up and archiving capabilities. In
addition, the Company's server systems augment existing networks with a fibre
channel arbitrated loop, estimated by the Company to be up to 20 times faster
than conventional Ethernet networks. The Company believes that users of its
server systems can retrieve files over their networks two to three times faster
than from their hard drives. The Company also believes that the multi-platform
design and scalable storage capacity of its super server systems will allow
users to upgrade easily without expensive outlays for new operating systems and
hardware.
The Company intends to sell its products in the electronic publishing and
Internet/Intranet markets through a direct sales force and through value added
resellers ("VARs"), system integrators and original equipment manufacturers
("OEMs"). The Company also intends to work with OEMs to private label and sell
its products in other markets requiring rapid transfer of large data files.
The Company was incorporated in 1990 to develop and distribute fiber optic
printed circuit boards in the publishing and printing markets. The fiber optic
products had limited success and in 1995 the Company made a strategic shift in
its business operation into the server market. Since October 1995, the Company
has been operating as a development stage company and has been engaged
principally in research and development, recruitment of personnel and financing
activities. The Company's executive offices are located at 2 Robbins Road,
Westford, Massachusetts 01886 and its telephone number is (508) 392-8626.
3
THE OFFERING
Securities Offered ............... 2,000,000 shares of Common Stock and
2,000,000 Warrants. Each Warrant entitles
the registered holder to purchase one
share of Common Stock for $6.00 during
the four-year period commencing one year
from the date of this Prospectus. The
Company may redeem the Warrants, once
they become exercisable, at a price of
$.01 per Warrant on not less than 30
days' prior written notice if the last
sale price of the Common Stock has been
at least 150% of the then current
exercise price of the Warrants (initially
$9.00) for the 20 consecutive trading
days ending on the third day prior to the
date on which such notice is given. See
"Description of Securities."
Common Stock Outstanding
Prior to the Offering .......... 3,820,682 shares
Common Stock to be
Outstanding
After the Offering ............. 5,820,682 shares
Proposed Nasdaq SmallCap
Market Symbols ................ Common Stock: AUGS
Warrants: AUGSW
Proposed Boston Stock
Exchange Symbols ............... Common Stock: AUG
Warrants: AUGW
USE OF PROCEEDS
The Company intends to apply approximately $3,756,000 of the net proceeds of
this Offering to repay outstanding indebtedness, approximately $1,170,000 to
sales and marketing activities, approximately $1,430,000 to product development
and approximately $340,000 to acquire capital equipment. The remaining
$1,753,000 will be used for working capital and general corporate purposes. See
"Use of Proceeds."
RISK FACTORS
The Securities offered hereby involve a high degree of risk, including,
without limitation, the risk that the Company's products will not be accepted in
the marketplace; the risk that the Company will not be successful in developing
future products; the risk of rapid technological changes in the server industry;
the Company's limited operating history, history of losses and accumulated
deficit; the Company's need for additional capital; and the highly competitive
nature of the server industry. An investment in the Securities offered hereby
should be considered only by investors who can afford the loss of their entire
investment. See "Risk Factors."
4
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the
financial statements of the Company appearing elsewhere in the Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30, CUMULATIVE PERIOD FROM
-------------------------- ------------------------- OCTOBER 1, 1995 TO
1995 1996 1995 1996 SEPTEMBER 30, 1996
---------- ------------ ----------- ---------- ----------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and development 438,549 1,388,149 -- 1,204,958 2,593,107
General and administrative 46,210 97,456 47,845 295,073 344,684
Selling and marketing -- -- -- 231,261 231,261
---------- ----------- ---------- ----------- -----------
Total operating expenses 484,759 1,485,605 47,845 1,731,292 3,169,052
---------- ----------- ---------- ----------- -----------
Other income (expense), net 83,904 (51,343) -- (27,069) (78,412)
---------- ----------- ---------- ----------- -----------
Net loss $ (400,855) $(1,536,948) $ (47,845) $(1,758,361) $(3,247,464)
========== =========== ========== =========== ===========
Net loss per share $ (.14) $ (.39) $ (.01) $ (.36) $ (.75)
========== =========== ========== =========== ===========
Weighted average number of shares of Common Stock
and common stock equivalents outstanding 2,925,029 3,948,735 3,725,815 4,887,412 4,302,345
========== =========== ========== =========== ===========
</TABLE>
SEPTEMBER 30, 1996
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
------------ ------------ ------------------
BALANCE SHEET DATA:
Working capital (deficit) $ (438,678) $ 184,485 $ 8,024,792
Total assets 941,223 4,743,469 9,197,098
Total liabilities 1,765,920 3,859,024 841,211
Accumulated deficit (5,626,573) (5,626,573) (6,604,131)
Stockholders' equity (deficit) $ (824,697) $ 884,443 $ 8,355,887
- -----------
(1) Reflects (i) the issuance in October 1996 of 318,717 shares of Common Stock
in the final stage of a private placement of 2,007,917 shares of Common
Stock, (ii) the issuance in November 1996 of 291,165 shares of Common Stock
in connection with the conversion of long term convertible promissory notes
in the aggregate principal amount of $802,000, together with approximately
$72,000 of accrued interest, (iii) the issuance in December 1996 through
February 1997 of units consisting of short term promissory notes with an
aggregate face value of $3,585,000 and warrants to purchase 1,218,900 shares
of Common Stock in a private placement, (iv) the issuance in December 1996
of 10,150 shares of Common Stock upon the conversion of certain indebtedness
in the aggregate amount of $30,450 and (v) the reclassification in October
1996 of 22,734 shares from treasury stock to authorized but unissued Common
Stock.
(2) Reflects the receipt of approximately $8,449,000 in net proceeds from the
sale of the Securities offered hereby and the application thereof to the
repayment of approximately $3,606,000 of short term promissory notes and
long term convertible promissory notes.
Unless otherwise indicated, all shares, per-share and financial information
set forth herein assumes no exercise of (i) the Underwriters' over-allotment
option; (ii) the Warrants; (iii) the Underwriters' Purchase Option; (iv) stock
options to purchase up to 544,854 shares of Common Stock outstanding under the
Company's 1995 Stock Option Plan ("Stock Option Plan"); (v) stock options to
purchase up to 255,146 shares of Common Stock which may be granted under the
Company's Stock Option Plan; (vi) the holders' right to convert outstanding long
term convertible promissory notes and accrued interest into approximately 15,000
shares of Common Stock; and (vii) other outstanding warrants to purchase up to
1,671,407 shares of Common Stock.
5
RISK FACTORS
The Securities offered hereby are speculative and involve a high degree of
risk. Accordingly, in analyzing an investment in the Securities, prospective
investors should carefully consider, along with the other matters referred to
herein, the following risk factors. No investor should participate in this
Offering unless such investor can afford a complete loss of his investment.
Market Acceptance. The Company's initial target markets are the electronic
publishing industry and the Internet/Intranet market. The Company's initial
products, which were first shipped in February 1997, are high-end
Macintosh-based super servers targeted at the electronic publishing industry.
The Company plans to introduce a Windows NT-based version of its server system
during 1997 that is specifically tailored for the Internet/Intranet and to
support multi-platform networks comprised of Macintosh, Windows NT and
UNIX-based workstations. The Company's success is dependent upon its ability to
gain market acceptance of its products, which will depend upon the ability of
the Company to demonstrate the advantages of its products over other technology
offered by other companies. The failure of the Company to penetrate its target
markets would have a material adverse effect upon its operations and prospects.
See "Business--Competition."
No Assurance of Successful Future Product Development; Rapid Technology
Change; Technological Obsolescence; Introduction of New Products. The Company
has not yet completed the development of its Windows NT-based server product nor
has the Company developed the hardware and software needed to support
multi-platform networks comprised of Macintosh, Windows NT or UNIX-based
workstations. If the Company is unsuccessful in developing these products, then
the Company's sales and operations will be adversely affected. There can be no
assurance that any of the Company's future products will be successfully
developed or, if developed, will be successfully marketed. The server market is
characterized by extensive research and development and rapid technological
change resulting in product life cycles of 18 to 24 months. The Company's future
success will depend in large part on the Company's ability to develop and
introduce new products that keep pace with technological developments, achieve
market acceptance and respond to customer requirements that are constantly
evolving. Development by others of new or improved products, processes or
technologies may make the Company's products or proposed products obsolete or
less competitive. The Company will be required to devote substantial efforts and
financial resources to enhance its existing products and to develop new
products. Any failure by the Company to anticipate or respond adequately to
technological developments and customer requirements or any significant delays
in product development or introduction could result in a loss of competitiveness
or could materially and adversely affect the Company's operating results. See
"Business--Research and Development."
Limited Operating History; History of Losses and Accumulated Deficit; No
Assurance of Significant Revenues or Operating Profit; Independent Certified
Public Accountants' Qualified Report. To date, the Company has generated limited
revenues from product sales and has experienced significant operating losses
since inception. As of September 30, 1996, the Company's accumulated deficit was
approximately $5,627,000, its working capital deficit was approximately $439,000
and its stockholders' deficit was approximately $825,000. The Company expects to
incur substantial additional costs, including costs related to ongoing research
and development activities, resulting in operating losses for at least the next
12 months following the completion of this Offering. The Company's ability to
achieve significant revenue and profitability is dependent on successful
marketing of its existing products and successful completion of the development
of its future Windows NT-based server and multi-platform products, of which
there can be no assurance. The report of the Company's independent certified
public accountants with respect to the financial statements of the Company for
the year ended June 30, 1996 contains a paragraph regarding the Company's
ability to continue as a going concern. Among the factors cited by the auditors
as raising substantial doubt as to the Company's ability to continue as a going
concern is that the Company has incurred recurring operating losses and is
dependent on the net proceeds of this Offering to continue its operations. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation," the Financial Statements of the Company and the notes thereto and
the Report of Independent Certified Public Accountants included herein.
6
Need for Additional Capital. The Company's future capital requirements will
depend on many factors, including cash flow from operations, continued progress
in its research and development programs, competing technological and market
developments and the Company's ability to market its products successfully.
Although the Company believes that the proceeds of this Offering will be
sufficient to continue its operations for the 12 months following the completion
of this Offering, there can be no assurance that this will be the case. To the
extent that the funds generated by this Offering are insufficient to fund the
Company's activities, it will be necessary to raise additional funds through
other equity or debt financings. There can be no assurance that the Company will
be able to obtain additional funding on terms favorable to the Company, if at
all. If adequate funds are not available, there would be a material adverse
affect on the Company's ability to continue its operations. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Plan of Operation."
Competition. The high-end super server market is highly competitive. Many of
the Company's competitors, including Sun Microsystems Inc. ("Sun"),
Hewlett-Packard Co. ("Hewlett-Packard"), International Business Machines Corp.
("IBM"), Apple, Digital Equipment Corporation and Silicon Graphics Inc. ("SGI"),
have significantly greater market recognition and greater financial, technical,
marketing and human resources than the Company. The Company's competitors can be
expected to continue to improve the design and performance of their products and
to introduce new products with competitive price-to-performance characteristics.
Competitive pressures often necessitate price reduction which can adversely
affect operating results. Although the Company believes that it presently has
certain technical and other advantages over its competitors, maintaining such
advantages will require a continued high level of investment by the Company in
research and development and sales and marketing. There can be no assurance that
the Company will have sufficient resources to continue to make such investment
or that the Company will be able to make the technological advances necessary to
maintain such competitive advantages. There can be no assurance that the Company
will be able to compete successfully against existing competitors or new
entrants to the marketplace. See "Business--Competition."
Dependence on Suppliers and Manufacturers. The Company will rely on
independent high-volume manufacturers for the production of its components,
which may result in reliance on a single source or a limited group of suppliers.
Although the Company believes that there are a number of manufacturers capable
of producing the hardware components, any delays in obtaining hardware
components on a timely basis could have a material adverse effect on the
Company's sales and operations. The Company currently depends upon Hitachi as
its sole source supplier of customized Application Specific Integrated Circuits
("ASICs"). The Company has no contract with Hitachi requiring Hitachi to supply
the Company with ASICs. The Company's inability to obtain the customized ASICs
would have a material adverse effect on its business. Furthermore, a significant
increase in the price of one or more of these components could adversely affect
the Company's results of operations. See "Business--Manufacturing and
Suppliers."
Dependence on Proprietary Technology of Others. The Company's current
products incorporate technology licensed from Radius, Inc. ("Radius"), a
publicly-held company that manufactures Macintosh controller cards and
accessories. The license is exclusive except as to Radius, which has retained
rights to its technology. If the Company fails to sell the minimum number of
units required to be sold pursuant to the Radius agreement for two consecutive
calendar quarters, Radius may license the technology to other parties. In
addition, if the Company fails to fulfill its other obligations under the Radius
agreement, including its obligation to pay royalties, Radius may terminate the
license. The Company's current products also incorporate certain critical
technology licensed from Polybus Systems Corporation ("Polybus"). If the Company
fails to fulfill its obligations under the Polybus agreement, including its
obligation to pay royalties, Polybus may license the technology to third parties
in the publishing market. See "Business -- Technology."
Proprietary Technology. The Company relies on unpatented proprietary
know-how and trade secrets, and employs various methods, including
confidentiality agreements with employees, consultants and marketing partners,
to protect its trade secrets and know-how. There can be no assurance, however,
that the Company will be able to maintain the confidentiality of any of its
proprietary technology, know-how or trade secrets, or that others will not
independently develop substantially equivalent technology. The failure or
inability to protect these rights could have a material adverse effect on the
Company's results of
7
operations. Moreover, there can be no assurance that the Company's proposed
products will not infringe on the rights of others. The Company may be forced to
expend substantial resources if the Company is required to defend against any
such infringement claims. The Company also may desire or be required to obtain
licenses from others in order to develop new products or applications for its
products. There can be no assurance that such licenses will be obtainable on
commercially reasonable terms, if at all, that the patents underlying such
licenses will be valid and enforceable or that the proprietary nature of the
unpatented technology underlying such licenses will remain proprietary. "See
Business--Technology."
Dependence on Chief Executive Officer; Dependence on Qualified Personnel.
The Company relies on the efforts of Lorrin Gale, its President and Chief
Executive Officer. Although the Company has entered into an employment agreement
with Mr. Gale expiring on December 31, 1998 and has obtained a "key person"
insurance policy on his life in the amount of $1,000,000, under which the
Company will be the beneficiary, the loss of the services of Mr. Gale could have
a material adverse effect on the Company. Additionally, the ability to attract
and retain other highly competent executives, professionals, sales personnel and
other employees is critical to the ongoing success of the Company. The Company
has not experienced any difficulties in attracting and retaining qualified
personnel, although there can be no assurance that it will not encounter such
problems in the future. See "Management."
Significant Portion of Proceeds Used to Satisfy Indebtedness; Broad
Discretion in Application of Proceeds; Benefit to Insiders. Approximately
$3,756,000, or 44.5%, of the net proceeds received by the Company from this
Offering will be used to repay outstanding indebtedness, and, therefore, will
not be available for future operations. Approximately $52,000 of such amount
will be paid to the Stanley A. Young Family Limited Partnership, of which
Stanley A. Young, a director of the Company, is a partner. Approximately
$1,753,000, or 20.8%, of the net proceeds of the Offering has been allocated to
working capital and general corporate purposes. Included in this amount are
accrued consulting fees of approximately $92,000 payable to Young Management
Group, Inc., of which Mr. Young is a majority stockholder. The Company will have
broad discretion regarding how and when the proceeds of this Offering allocated
to working capital and general corporate purposes will be applied and will use a
portion of such proceeds to pay salaries, including salaries of its executive
officers. See "Use of Proceeds" and "Certain Transactions."
Immediate and Substantial Dilution. Purchasers of the Common Stock offered
hereby will incur an immediate and substantial dilution of approximately 72% of
their investment in the Common Stock because the net tangible book value of the
Company's Common Stock after this Offering will be approximately $1.44 per share
as compared with the initial public offering price of $5.10 per share of Common
Stock attributing no value to the Warrant. See "Dilution."
No Prior Market; Potential Loss of Active Trading Market; Arbitrary Offering
Price; Possible Volatility of Stock Price. There has been no prior market for
the Company's Common Stock or Warrants, and there can be no assurance that a
public market for the Common Stock or Warrants will develop or be sustained
after the Offering. Although the Company has applied for quotation of the Common
Stock and Warrants on the Nasdaq SmallCap Market ("Nasdaq"), there can be no
assurance that an active trading market in the Common Stock or Warrants will
develop or be maintained. In order to continue to be quoted on Nasdaq after the
Offering, the Company must satisfy certain maintenance criteria. The failure to
meet these maintenance criteria in the future may result in the Common Stock and
Warrants becoming ineligible for quotation on Nasdaq and trading, if any, of the
Common Stock or Warrants would thereafter be conducted on the OTC Bulletin
Board. As a result of such ineligibility for quotation, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, the Common Stock.
Furthermore, the regulations of the Securities and Exchange Commission
("Commission") promulgated under the Securities Exchange Act of 1934 ("Exchange
Act") require additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
regulations generally define a penny stock to be an equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. Unless
an exception is available, those regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith and impose various sales
practice requirements on broker-dealers who sell penny stocks to persons other
than established
8
customers and accredited investors (generally institutions). In addition,
the broker-dealer must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. Moreover,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. If the Company's securities become subject to the
regulations applicable to penny stocks, the market liquidity for the Company's
securities could be severely affected. In such an event, the regulations on
penny stocks could limit the ability of broker-dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities to
sell their securities in the secondary market.
The public offering price of the Common Stock and Warrants and the exercise
price of the Warrants were established by negotiation between the Company and
the Underwriters and may not be indicative of prices that will prevail in the
trading market. In the absence of an active trading market, purchasers of the
Common Stock and Warrants may experience substantial difficulty in selling their
securities. The trading prices of the Company's Common Stock and Warrants are
expected to be subject to significant fluctuations in response to variations in
quarterly operating results, changes in analysts' earnings estimates, general
conditions in the computer and publishing industries and other factors. In
addition, the stock market is subject to price and volume fluctuations that
affect the market prices for companies and that are often unrelated to operating
performance. See "Description of Securities" and "Underwriting."
Common Stock Eligible for Future Sale; Registration Obligations. Sales of
the Company's Common Stock in the public market after this Offering by existing
stockholders and by holders of outstanding options and warrants could adversely
affect the market price of the Common Stock. The Company has agreed to register,
no later than 13 months after the effective date of this Offering, 2,495,997
shares of issued and outstanding Common Stock and approximately 15,000 shares of
Common Stock issuable upon the conversion of outstanding principal of and
accrued interest on certain long term convertible promissory notes. In
connection with a consulting agreement with Young Management Group, Inc. ("Young
Management"), a Company founded by Stanley A. Young, a director of the Company,
the Company has agreed to use its best efforts to register 239,038 shares of
issued and outstanding Common Stock as part of any registration of securities by
the Company, subject to the discretion of the managing underwriter, if any, to
exclude such shares from registration. In addition, the Company has agreed to
register warrants to purchase 1,218,900 shares of Common Stock and the 1,218,900
shares of Common Stock underlying these warrants no later than 12 months and one
day after the date of this Prospectus. If the shares and warrants are not
registered within 12 months and one day after the date of this Prospectus, then
the Company shall use its best efforts to register these shares and warrants as
part of any other registration of securities by the Company until November 30,
2002. The Company has also agreed to use its best efforts to register the shares
underlying warrants to purchase in the aggregate 423,220 shares of Common Stock
as part of any registration of securities by the Company, subject to the
discretion of the managing underwriter, if any, to exclude such shares from
registration. In addition, the Company has agreed to register the shares
underlying warrants to purchase up to 29,287 shares of Common Stock issued to a
placement agent in connection with a private placement completed in May 1996, no
later than 13 months after the effective date of this Offering. See "Certain
Transactions" and "Shares Eligible for Future Sale."
Effect of Outstanding Options and Warrants. Immediately after the Offering,
assuming full exercise of the Underwriters' over-allotment option, the Company
will have outstanding warrants to purchase an aggregate of up to 3,971,407
shares of Common Stock. This amount includes 2,300,000 shares underlying the
Warrants and 1,671,407 shares underlying warrants outstanding prior to this
Offering with exercise prices between $1.13 per share and $3.75 per share. In
addition, there will be outstanding stock options granted pursuant to the
Company's Stock Option Plan to purchase an aggregate of approximately 545,000
shares of Common Stock at exercise prices ranging from $1.13 per share to $3.00
per share and the Underwriters' Purchase Option pursuant to which the
Underwriters have the right to acquire up to 200,000 shares of Common Stock for
$6.00 per share and 200,000 Warrants for $.12 per Warrant. The exercise of any
such outstanding Warrants, other warrants, stock options or the Underwriters'
Purchase Option will dilute the percentage ownership of the Company's
stockholders, and any sales in the public market of Common Stock underlying such
Warrants, other warrants, stock options and the Underwriters' Purchase Option
may adversely affect prevailing market
9
prices for the Common Stock. Moreover, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected, since the
holders of such outstanding securities can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in such
Warrants, other warrants, stock options and the Underwriters' Purchase Option.
See "Management--Stock Option Plan," "Certain Transactions," "Description of
Securities" and "Underwriting."
Potential Adverse Effects of Issuance of Preferred Stock; Anti-takeover
Provisions. The Company is authorized to issue up to 2,000,000 shares of
preferred stock, $.01 par value ("Preferred Stock"). Preferred Stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the Board of Directors, without further action by stockholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion and
redemption rights and sinking fund provisions. No Preferred Stock is currently
outstanding and the Company has no present plans for the issuance thereof.
Issuance of such Preferred Stock, depending upon the rights, preferences and
designations thereof, may have the effect of delaying, deterring or preventing a
change in control of the Company, or could result in the dilution of the voting
power of the Common Stock purchased in this Offering. In addition, certain
"anti- takeover" provisions of the Delaware General Corporation Law, among other
things, may restrict the ability of the stockholders to effect a merger or
business combination or to obtain control of the Company. See "Descriptions of
Securities--Preferred Stock" and "--Delaware Law."
Possible Influence of Directors and Officers. The Company's directors and
executive officers and certain of their affiliates will beneficially own
approximately 17.0% of the Company's outstanding shares of Common Stock upon
completion of this Offering. Accordingly, these stockholders acting together
will have the ability to influence corporate actions requiring stockholder
approval, including the election of the Company's directors. See "Management,"
"Principal Stockholders" and "Description of Securities."
No Dividends. The Company has never paid any cash dividends on its Common
Stock. The Board of Directors anticipates that for the foreseeable future the
Company's earnings, if any, will be retained for use in the business and that no
cash dividends will be paid on the Common Stock. See "Dividend Policy."
Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants. The Company will be able to issue shares of its Common Stock upon
exercise of the Warrants only if there is then a current prospectus relating to
such Common Stock and only if such Common Stock is qualified for sale or exempt
from qualification under applicable state securities laws of the jurisdictions
in which the various holders of the Warrants reside. The Company has undertaken
to file and keep current a prospectus which will permit the purchase and sale of
the Common Stock underlying the Warrants, but there can be no assurance that the
Company will be able to do so. Although the Company intends to seek to qualify
for sale the shares of Common Stock underlying the Warrants in those states in
which the securities are to be offered, no assurance can be given that such
qualification will occur. The Warrants may be deprived of any value and the
market for the Warrants may be limited if a current prospectus covering the
Common Stock issuable upon the exercise of the Warrants is not kept effective or
if such Common Stock is not qualified or exempt from qualification in the
jurisdictions in which the holders of the Warrants then reside. See
"Underwriting."
Potential Adverse Effect of Redemption of Warrants. The Warrants may be
redeemed by the Company with the prior written consent of the Underwriters at
any time that they are exercisable at a redemption price of $.01 per Warrant on
not less than 30 days' prior written notice if the last sale price of the Common
Stock has been at least 150% of the then-exercise price of the Warrants
(initially $9.00) for the 20 consecutive trading days ending on the third
trading day prior to the date of the notice of redemption. Notice of redemption
of the Warrants could force the holders to exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so, to
sell the Warrants at the current market price when they might otherwise wish to
hold the Warrants, or to accept the redemption price which would be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities--Redeemable Warrants."
DILUTION
The difference between the initial public offering price per share of
Common Stock (attributing no value to the Warrants) and the pro forma net
tangible book value per share of Common Stock after this Offering constitutes
the dilution per share of Common Stock to investors in this Offering. Net
tangible book value per share is determined by dividing the net tangible book
value (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. As of September 30, 1996, based on 3,820,682
shares of Common Stock outstanding, the Company had a pro forma net tangible
book value of $494,827, or approximately $.13 per share of Common Stock. The
3,820,682 pro forma shares of Common Stock outstanding and the pro forma net
tangible book value reflects the 3,223,384 shares issued and outstanding and the
net tangible book value as of September 30, 1996 as adjusted to reflect (i) the
issuance in October 1996 of 318,717 shares of Common Stock in the final stage of
a private placement of 2,007,917 shares of Common Stock, (ii) the issuance in
November 1996 of 291,165 shares of Common Stock in connection with the
conversion of long term convertible promissory notes in the aggregate principal
amount of $802,000, together with approximately $72,000 of accrued interest,
(iii) the issuance in December 1996 through February 1997 of units consisting of
short term promissory notes with an aggregate face value of $3,585,000 and
warrants to purchase 1,218,900 shares of Common Stock in a private placement,
(iv) the issuance in December 1996 of 10,150 shares of Common Stock upon the
conversion of certain indebtedness in the aggregate amount of $30,450 and (v)
the reclassification in December 1996 of 22,734 shares from treasury stock to
authorized but unissued Common Stock. After giving effect to the sale of the
Securities offered hereby (less underwriting discounts and estimated expenses of
this Offering) and the application of the net proceeds therefrom, the pro forma
net tangible book value at that date would have been $8,355,887, or
approximately $1.44 per share. This represents an immediate increase in net
tangible book value of approximately $1.31 per share to existing stockholders
and an immediate dilution of approximately $3.66 per share or approximately 72%
to investors in this Offering.
The following table illustrates the per share dilution without giving effect
to operating results of the Company subsequent to September 30, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price of the Common Stock $ 5.10
Net tangible book value before Offering $(.26)
Increase attributable to pro forma adjustments before Offering $ .39
Pro forma net tangible book value before Offering $ .13
Increase attributable to investors in this Offering $1.31
Pro forma net tangible book value after Offering $ 1.44
Dilution to investors in this Offering $ 3.66
</TABLE>
The following table summarizes the number and percentage of shares of Common
Stock purchased from the Company, the amount and percentage of consideration
paid, and the average price per share paid by existing stockholders and by
investors pursuant to this Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 3,820,682 65.6% $ 5,971,045 36.9% $1.56
Investors in this Offering 2,000,000 34.4 10,200,000 63.1 $5.10
--------- --------- ------------- --------- ---------
Total 5,820,682 100.0% $ 16,171,045 100.0%
========= ========= ============= =========
</TABLE>
The foregoing analysis assumes no exercise of outstanding options or
warrants. In the event any such options or warrants are exercised, the
percentage ownership of the investors in this Offering will be reduced and the
dilution per share of Common Stock to investors in this Offering may increase.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and commissions and estimated
expenses payable by the Company in connection with this offering, are estimated
to be approximately $8,449,000 ($9,780,100 if the Underwriters' over-allotment
option is exercised in full). The Company intends to apply the net proceeds
approximately as follows:
APPLICATION OF PROCEEDS AMOUNT PERCENT
- ----------------------- ---------- --------
Repayment of debt $3,756,000 44.5%
Product development 1,430,000 16.9
Sales and marketing 1,170,000 13.8
Capital expenditures 340,000 4.0
Working capital and general corporate purposes 1,753,000 20.8
---------- --------
Total $8,449,000 100.0%
========== ========
Approximately $3,756,000 of the net proceeds will be used to repay
$3,585,000 of outstanding short term promissory notes, $21,000 of outstanding
long term convertible promissory notes and approximately $150,000 of accrued
interest on such promissory notes, including repayment of principal and interest
of approximately $52,000 owed to the Stanley A. Young Family Limited
Partnership, of which Stanley A. Young, a director of the Company, is a partner.
See "Certain Transactions." The $3,585,000 of short term promissory notes bear
interest at 12% per annum and are due and payable upon the closing of this
Offering. As of the date of this Prospectus, the Company has outstanding long
term convertible promissory notes in the principal amount of $62,258 which bear
interest at 10% per annum. These long term convertible promissory notes plus
accrued interest are to be repaid: (i) one third upon the completion of this
Offering; (ii) one third on the first anniversary of the closing of this
Offering; and (iii) one third on the second anniversary of the closing of this
Offering, unless converted prior to such date. The net proceeds from these
borrowings were used to fund product development and engineering, marketing
activities and working capital. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operation."
Approximately $1,430,000 of the net proceeds will be used to continue the
development of the Company's server products to increase their performance and
capabilities, and to develop a Windows NT-based server and a super server system
to support networks comprised of Macintosh, Windows NT and UNIX-based
workstations. Included in this amount are salaries for product development and
engineering personnel aggregating approximately $1,000,000.
Approximately $1,170,000 of the net proceeds will be used to develop a
direct sales and marketing organization, including the establishment of regional
sales offices in the United States, Europe and the Far East, and for promotional
activities, trade shows and sales materials. Included in this amount are
salaries for marketing and sales personnel aggregating approximately $750,000.
Approximately $340,000 of the net proceeds will be used for the purchase of
capital equipment, including test equipment, sales office demonstration
equipment and personal computers.
The balance of the net proceeds of this Offering will be used for working
capital and general corporate purposes including, among other things, payment of
expenses incurred or to be incurred by the Company in connection with its
operations, costs associated with additional inventory, payment of general
corporate expenses, including salaries of officers, and the payment of
approximately $92,000 in accrued consulting fees payable to Young Management
Group, Inc., a corporation of which Stanley A. Young, a director of the Company,
is the majority stockholder. See "Certain Transactions." If the Underwriters
exercise the Underwriters' over-allotment option in full, the Company will
realize additional net proceeds of approximately $1,331,100, which will be added
to the Company's working capital.
12
Based on its current operating plan, the Company anticipates that the
proceeds of the Offering, together with existing resources and cash generated
from operations will be sufficient to satisfy the Company's contemplated cash
requirements for at least 12 months. There can be no assurance, however, that
the Company's cash requirements during this period will not exceed its available
resources or that these funds will be sufficient to meet the Company's longer
term cash requirements for operations. In the event the Company's plans or
assumptions change or prove to be inaccurate, or the proceeds of the Offering
together with cash generated from future revenues, if any, prove to be
insufficient to fund operations (due to unanticipated expenses, problems or
other factors), the Company may find it necessary and/or advisable to reallocate
some of the proceeds within the above-described categories and therefore
management will have significant discretion regarding how and when such proceeds
will be applied.
Proceeds not immediately required for the purposes described above will be
invested in United States government securities, short term certificates of
deposit, money market funds or other investment grade short term
interest-bearing investments.
13
CAPITALIZATION
The following table sets forth the short term debt and capitalization of the
Company: (i) at September 30, 1996; (ii) pro forma to reflect certain
significant transactions occurring subsequent to September 30, 1996; and (iii)
pro forma as adjusted to reflect the issuance and sale of the Securities offered
hereby and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------
PRO FORMA(1)(2)
ACTUAL PRO FORMA(1) AS ADJUSTED
<S> <C> <C> <C>
Short term debt:
Short term promissory notes $ -- $ 2,997,060 $ --
----------- ------------ ------------
Current portion of obligations under capital leases 13,749 13,749 13,749
----------- ------------ ------------
Long term debt:
Long term convertible promissory notes 864,276 62,258 41,505
----------- ------------ ------------
Obligations under capital leases, less current portion 15,629 15,629 15,629
----------- ------------ ------------
Stockholders' equity:
Preferred Stock, par value $.01 per share; 2,000,000 shares
authorized, no shares issued and outstanding -- -- --
Common Stock, par value $.01 per share; 30,000,000 shares
authorized; 3,223,384 shares issued and outstanding, actual;
3,820,682 shares issued and outstanding, pro forma; 5,820,682
shares issued and outstanding, pro forma as adjusted 32,234 38,207 58,207
Additional paid-in capital 4,769,642 6,472,809 14,901,811
Accumulated deficit (5,626,573) (5,626,573) (6,604,131)
----------- ------------ ------------
Total stockholders' equity (deficit) (824,697) 884,443 8,355,887
----------- ------------ ------------
Total capitalization $ 68,957 $ 3,973,139 $ 8,426,770
=========== ============ ============
</TABLE>
- ----------
(1) Reflects (i) the issuance in October 1996 of 318,717 shares of Common Stock
in the final stage of a private placement of 2,007,917 shares of Common
Stock, (ii) the issuance in November 1996 of 291,165 shares of Common Stock
in connection with the conversion of long term convertible promissory notes
in the aggregate principal amount of $802,000, together with approximately
$72,000 of accrued interest, (iii) the issuance in December 1996 through
February 1997 of units consisting of short term promissory notes with an
aggregate face value of $3,585,000 and warrants to purchase 1,218,900 shares
of Common Stock in a private placement, (iv) the issuance in December 1996
of 10,150 shares of Common Stock upon the conversion of certain indebtedness
in the aggregate amount of $30,450 and (v) the reclassification in October
1996 of 22,734 shares from treasury stock to authorized but unissued Common
Stock.
(2) Reflects the receipt of approximately $8,449,000 in net proceeds from the
sale of the Securities offered hereby and the application thereof to the
repayment of approximately $3,606,000 of short term promissory notes and
long term convertible promissory notes.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and it is currently the intention of the Company not to pay cash dividends
on its Common Stock in the foreseeable future. Management intends to reinvest
earnings, if any, in the development and expansion of the Company's business.
Any future declaration of cash dividends will be at the discretion of the Board
of Directors and will depend upon the earnings, capital requirements and
financial position of the Company, general economic conditions and other
pertinent factors.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATION
The discussion and analysis below should be read in conjunction with the
Financial Statements of the Company and the Notes to Financial Statements
included elsewhere in this Prospectus.
INTRODUCTION
The Company was incorporated in 1990 to develop and distribute fiber optic
printed circuit boards in the publishing and printing markets. The fiber optic
products had limited success and in 1995 the Company made a strategic shift in
its business operation into the server market. In connection therewith, the
Company acquired the rights to server technology developed by Radius. Since
October 1995, the Company has been operating as a development stage company and
has been engaged principally in research and development, recruitment of
personnel and financing activities. The Company has engaged in limited marketing
activities and did not commence sales of its initial products, which are
high-end Macintosh-based super servers, until February 1997.
For the periods October 1, 1995 to September 30, 1996, the Company incurred
a cumulative net loss of $3,247,464. Since September 30, 1996, the Company has
continued to incur losses and anticipates that it will continue to incur
significant losses until, at the earliest, the Company generates sufficient
revenues to offset the substantial up-front capital expenditures and operating
costs associated with developing and commercializing its products. From October
1, 1995 through September 30, 1996, the Company expended $2,593,107 on research
and development.
The initial target market for the Company's super server is the electronic
publishing industry, both for the creation and preparation of printed material
(prepress) and for electronic publishing via the Internet/Intranet. The Company
believes that its products are also well-suited for additional markets such as
medical imaging and GIS. Each of these markets requires the rapid and efficient
movement of large image and data files over networks. The Company plans to
introduce during 1997 a Windows NT-based server targeted to meet the growing
demand for high performance Windows NT-based Internet/Intranet WEB servers.
Additionally, the Company plans to introduce during 1997 a super server system
designed to support a multi-platform network comprised of Macintosh, Windows NT
and UNIX-based workstations.
PLAN OF OPERATION
The Company requires the proceeds of this Offering to continue development
efforts on product enhancements and new products, to commence full scale
marketing of its products, including opening sales offices in the United States,
Europe and the Far East, and to fund inventory purchases and accounts
receivable, as well as other working capital expenditures. The Company expects
that these efforts will require significant up-front expenditures which will
result in losses for the foreseeable future. The Company anticipates that it
will require approximately $3,756,000 of the proceeds of this Offering for the
repayment of outstanding debt, approximately $1,170,000 to establish a marketing
and sales organization and to promote the Company's products, approximately
$1,430,000 for product development efforts, and approximately $1,753,000 for
working capital and general corporate purposes. During the next 12 months, the
Company estimates that it will expend approximately $340,000 for capital
equipment, including hardware and software purchases. See "Use of Proceeds." The
Company's management believes that the net proceeds of this Offering, together
with existing resources and cash generated from operations, will be sufficient
to fund the Company's operations for the next 12 months. The Company may,
however, attempt to supplement its cash position through bank financing for
working capital and lines of credit for capital equipment leasing.
The Company currently has 43 full-time employees and 10 independent
contractors and plans to hire an additional 50 full-time employees in various
capacities during the 12 months following the consummation of this Offering.
Additional personnel may be required depending on the level of business
activity. The Company expects, however, to continue its current practice of
utilizing independent consultants on an as-needed basis rather than exclusively
hiring additional full-time employees. See "Business--Employees."
15
The Company has funded its operations since October 1995 principally from a
combination of debt and equity financings totalling approximately $7,700,000.
From October 1995 through April 1996, the Company issued convertible promissory
notes in the aggregate principal amount of $864,276. Approximately $802,000 of
the principal balance of these notes plus accrued interest were converted into
shares of Common Stock in November 1996 at a conversion price of $3.00 per
share. In December 1996 and January 1997, the Company raised gross proceeds of
$3,585,000 in a private placement of promissory notes and common stock purchase
warrants. The promissory notes bear interest at 12% per annum and are to be
repaid from the proceeds of this Offering. In addition, from September 1995
through August 1996, the Company issued 3,454,752 shares of its Common Stock for
approximately $3,355,000 in gross proceeds.
The Company is in the development stage, and as such, success of future
operations is subject to a number of risks described elsewhere in this
Prospectus. As a result of the Company's recurring losses, the Company's
auditors have expressed substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern is dependent upon the anticipated net proceeds from this Offering or
obtaining financing by alternative means. The accompanying financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," issued by the Financial Accounting Standards Board ("FASB"), is effective
for financial statements for fiscal years beginning after December 15, 1995. The
new standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets and goodwill, should be recognized and how impairment losses
should be measured. The Company does not expect the adoption of this standard to
have a material effect on its financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company
will be required to disclose the pro forma net income or loss and per share
amounts in the notes to the financial statements using the fair-value-based
method beginning in the period ending December 31, 1996, with comparable
disclosures for the year ended June 30, 1996. The Company has not determined the
impact of these pro forma adjustments.
16
BUSINESS
GENERAL
Augment Systems, Inc., a development stage company, designs, develops and
sells high-end super server products designed to move large image and text files
rapidly and efficiently over computer networks. The Company's initial target
markets are the electronic publishing industry and the Internet/Intranet market.
The Company commenced sales of its initial products, high-end Macintosh(R)-based
super servers, in February 1997. The Company plans to introduce in 1997 a
Windows NT-based super server targeted to meet the growing demand for Windows
NT-based high performance Internet/Intranet WEB servers and a super server
system designed to support multi-platform networks comprised of Macintosh,
Windows NT and UNIX-based workstations.
Electronic publishing, whether involving the preparation of high quality
color printed documents in print shops, service bureaus and internal corporate
publishing departments or interactive documents on the Internet/Intranet,
requires massive amounts of disk storage and the movement of large text and
image files over networks. The Company's technology has been designed to support
multi-platform environments and is specifically aimed at increasing the transfer
speed of large image and data files over networks. The Company believes that its
products are also well-suited for other markets that require rapid and efficient
movement of large image and data files over networks, such as medical imaging
and GIS.
The Company's super server products move the file management functions and
high speed interconnects outside of the processor running the core operating
system. This unique approach produces significant improvements in file transfer
speeds and enables the server system to maintain compatibility with Apple and
Microsoft operating systems while running different application software. The
Company's servers have been designed to incorporate extensive scalable internal
storage of up to 100 GBs with RAID complemented by 96 GBs of automatic tape
back-up and archiving capabilities. In addition, the Company's server systems
augment existing networks with a fibre channel arbitrated loop, estimated by the
Company to be up to 20 times faster than conventional Ethernet networks. The
Company believes that users of its server systems can retrieve files over their
networks two to three times faster than from their hard drives. The Company also
believes that the multi-platform design and scalable storage capacity of its
super server systems will allow users to upgrade easily without expensive
outlays for new operating systems and hardware.
INITIAL TARGET MARKETS
ELECTRONIC PUBLISHING
Electronic publishing, whether involving the preparation of high quality
printed documents in print shops, service bureaus and internal corporate
publishing departments or interactive documents on the World Wide Web, requires
massive amounts of disk storage and the ability to transfer large amounts of
data quickly. Consequently, the electronic publishing market is continually
searching for solutions to improve network performance, central storage, and the
management and movement of large image files. Powerful centralized file servers
generally yield higher production efficiencies than networks that use
distributed files.
Color prepress is the publishing industry term for the graphic arts
processes required to design and prepare press film or plates for high quality
multi-color printing. Traditional color prepress operations involve large-format
cameras, masks, color filters, and special films and manual cutting, placement
and photo retouching performed by highly skilled technicians.
The publishing industry is rapidly changing due to the availability of new
technology ranging from fundamental changes in the printing process which enable
low volume print runs and fast turn-around, to the explosive growth of
electronic publishing driven by the Internet/Intranet and the World Wide Web.
The process in today's color prepress industry is almost entirely digital and
electronic, using color scanners, high-powered computer editing systems, digital
image processing, and computer-controlled output directly to paper, film or a
printing plate.
17
Modern digital color prepress operations involve multiple users manipulating
very large data files using specialized software running on powerful computing
systems. General purpose desktop and server technology available on the open
market cannot meet all of the user's needs. The Company's products specifically
address the industry need for high-volume, production-line data handling and
effective job process management. The Company's products, which combine
high-performance interconnect technology and a scalable server, have been
optimized for the production flow of large data files.
The Company's initial products are Macintosh-based high-end servers targeted
at the Macintosh user community. Apple currently dominates specialized markets
such as high-end publishing, graphic design, prepress production, video editing,
imaging and education. According to Apple, there are an estimated 10 to 15
million active Macintosh users in these markets. These users, who have made
significant investments in Apple equipment, need to gain the benefits of a
client server model while preserving file integrity, which is not currently
provided by Apple. The Company believes that Apple's introduction of UNIX-based
file servers has provided a significant market opportunity for the Company's
Macintosh-based servers, which preserve file integrity and do not require
proficiency in UNIX. The Company believes that its server products will provide
solutions sought by the Macintosh user community by eliminating bottlenecks of
large file transfer and by centralizing files and data. Macintosh-networked
systems tend to use distributed files because of inadequate end-to-end
throughput and the users' inability or reluctance to execute Macintosh
applications using other operating systems. The Company's server provides a true
Macintosh solution with a price-to-performance ratio equal to or better than
UNIX-based super servers.
INTERNET/INTRANET
The Internet evolved from a network developed by Bolt Beranek & Newman Inc.
in the late 1970s under government contract to the Defense Advanced Research
Projects Agency. For many years use of the Internet was limited and, even when
released from government control, it was initially slow to come into widespread
use due to its obscure and difficult-to-use user interface that had evolved for
the low bandwidth networks that were available to early designers. The growth in
the use and popularity of the Internet started with the introduction of the
World Wide Web. The WEB is a means of publishing documents on the Internet in a
fashion that makes them interactive and provides a user interface needed for the
network.
The use of the WEB both for Internet and Intranet access is growing at
phenomenal rates. Industrial Data Corp. projects the Internet professional
services market to grow from $600 million in 1996 to $2.9 billion by the year
2000. Microsoft has estimated that 150,000 WEB servers will be sold in 1996,
increasing to 2,000,000 by 1998. The Company believes that this trend will
continue into the foreseeable future with the WEB becoming the dominant means of
distributing information both within companies and on wide area networks,
including the Internet. At the same time that the number of users of this
technology is exploding, the complexity of the information is increasing. The
use of graphics, video, audio, and imaging information within WEB pages is
pushing the requirements for bandwidth and disk storage for WEB servers to
higher levels.
There are currently three platforms for Internet WEB servers: UNIX, Windows
NT and Macintosh. The current installed base is largely UNIX systems, but
Windows NT is rapidly increasing in popularity.
The Company's initial server will support the Macintosh WEB server software.
The Company believes that its product will be popular as a WEB server in market
segments in which Macintosh is popular. The Company believes that the great
majority of WEB servers installed in the foreseeable future however, whether
from Microsoft, Netscape or others, will most likely be Windows NT-based. The
introduction of the Company's Window NT-based WEB server is intended to coincide
with what the Company believes will be an extraordinary demand for very high
performance, scalable systems to meet the requirements of the market. The
Company believes that it will be well positioned with a unique solution that can
cost-effectively meet the demands of that market.
TECHNOLOGY
The Company's technology incorporates (i) end-to-end high-speed fiber
connectivity, (ii) a superior disk storage subsystem, (iii) centralized
input/output ("I/O") services for multiple processors and (iv) file management
software in a server product tuned to transfer large files over a network.
Independent
18
plug-in processors are key elements in the Company's servers, making it possible
to expand the capacity of each server to meet a wide range of needs. Support for
different processor types and operating system environments allows users to
choose among many application software packages. This modular hardware structure
supports incremental expansion and component technology upgrades, largely by
using standard products from major industry suppliers.
The Company's super servers include a high speed file system that appears to
the desktop applications as a local hard drive, but can provide shared access of
up to 100 GBs of data (expandable to more than a terabyte) complemented by 96
GBs of automatic tape back-up and archiving capabilities, and speeds two to
three times faster than a local hard drive. The Company's super servers move the
file management function and the high speed interconnects outside of the
processor running the core operating system. This unique approach produces
significant improvements in file transfer speeds and enables the server system
to maintain compatibility with Apple and Microsoft operating systems while
running different application software.
The Company's server includes a RAID controller driven by customized ASICs
chips that provide both high performance and reliability. The I/O devices and
disk storage can be partitioned among several plug-in processors, or
alternatively, specific devices can be reserved for control by any single
processor. Operating the disk array in RAID mode does not require any additional
software support in the client computers; it is handled transparently by the
file system control processor. Access to the server is provided by an operating
system device driver in each desktop machine. The user's local area network is
complemented with a one gigabit/second fibre channel arbitrated loop to provide
data transfers between the server and the desktop systems at speeds that
significantly exceed local disk transfer rates.
Each server contains (i) an embedded I/O control processor, (ii) a
hardware-assisted parallel disk array, (iii) two NuBus-90 backplanes for
application and network processors and (iv) a power supply, in a deskside
low-boy cabinet. The server supports up to 30 internal 3.5" disks in a parallel
array, two serial ports and a separate SCSI connected to the Macintosh console.
Each backplane supports up to six I/O control processors. The parallel disk
array can operate as five independent SCSI interfaces or in parallel RAID 3
configurations.
The Company's server systems include proprietary software and hardware
developed by the Company, hardware and software components manufactured by third
party vendors, proprietary software and hardware technology licensed from Radius
and proprietary software technology licensed from Polybus.
On September 27, 1995, the Company obtained a worldwide license from Radius
to use certain of Radius' technology in its products. The license is exclusive
except as to Radius, which has retained rights to its technology. Under the
agreement with Radius, the royalties payable by the Company initially are the
greater of $1,500 per unit or two percent of the purchase price per unit for the
first 200 units, declining in increments based on the number of units sold to
the greater of $750 per unit or one percent of the purchase price per unit after
1001 units are sold. Royalties will be paid until the cumulative total of
royalties paid equals $10,000,000 at which time the Company will have a royalty-
free license. If the Company fails to sell the minimum number of units required
to be sold pursuant to the agreement for two consecutive calendar quarters, the
technology may be licensed to other parties. In addition, the Company has
granted to Radius an irrevocable, perpetual, non-exclusive, worldwide,
royalty-free license to any modifications to the Radius technology made by the
Company.
The Company entered into a Development and License Agreement dated August 1,
1996 with Polybus pursuant to which the Company obtained an irrevocable,
perpetual, worldwide, nonexclusive (except as to publishing for which the
license is exclusive) license to a high speed file manager software package in
consideration for royalty payments. The royalties payable by the Company
pursuant to the Development and License Agreement are initially $800 per server
and $400 per workstation, declining in increments based upon the number of
systems sold to $50 per server and $25 per workstation until the first 100,000
systems are sold by the Company. No royalties are payable after the Company
sells 100,000 systems. The initial term of the Development and License Agreement
is 25 years and the agreement may be terminated sooner by Polybus only in the
event of a payment default by the Company. Upon termination of the Development
and License Agreement, Polybus may license the software to third parties in the
publishing market.
19
PRODUCTS
The Company commenced sales of its initial products, the AFX 410 and AFX
210, in February 1997. These products provide optimized Macintosh client support
via a fibre channel arbitrated loop. The fibre channel interconnect is expected
to deliver up to 10-20 MBytes/sec per client workstation. This is two to three
times the file transfer rate currently available from a user's local hard drive
and 20 times faster than local Ethernet networks.
The server's file management system is designed to accelerate and
efficiently administer the movement of large image and text files over a
network. The server incorporates an extensive scalable internal storage system
(up to 100 GBs RAID sub-system) supporting on-line data equivalent to 150 CDs.
This Macintosh-based server sells for between $65,000 to $150,000 per system,
depending upon the functions and configurations required.
The server's architecture has multi-platform capabilities so as to not
become obsolete as new CPUs, operating systems and other emerging technologies
become popular. The initial focus on the Macintosh operating system and user
interface will provide familiarity and ease of use for color prepress shops,
while the server's independent plug in processor capability and parallel RAID
technology overcome the performance weaknesses in the Macintosh desktop systems.
In addition, the plug-in modular architecture of the system allows the user to
expand or upgrade easily, avoiding early platform obsolescence.
A third product, the AFX 410 NT, based on the architecture of the AFX 410
server, will be designed for the Internet/Intranet server market. The Company
plans to introduce the AFX 410 NT during 1997. This system will include Windows
NT running on multiple Pentium Pro processors. The Windows NT server is rapidly
becoming the platform of choice for WEB servers. The Company believes that there
will be two distinct advantages for using the Company's super server: it will
manage the sharing of files across the cluster of NT systems and its
architecture makes predictive WEB page caching possible.
PRODUCT FEATURES
The Company designs its server products to provide the following features:
FEATURE BENEFIT
------- -------
True Windows NT and Macintosh Super 100% compatibility with Apple and
Server-- The Company's server will Microsoft, insuring compatibility
use Windows NT or Macintosh O/S as with the vast array of commercial
the user visible operating third party applications available
environment. for Macintosh O/S and Windows NT.
Server to Workstation Solution--The Performance bottlenecks are addressed
Company delivers end to end by a single vendor, and users are
throughput to the user desktop for not required to integrate their own
maximum performance. systems.
High Speed--The Company's unique Reduces idle time waiting for
architecture and high speed file downloads and improves
system allows its server to deliver productivity. Even the largest of
files to the desktop up to 20 times files are available in seconds.
faster than today's networks and Large files can now be local
two to three times faster than from centralized without losing
local hard drive. performance.
Scalability--Up to 100 GBs in a Users may upgrade their systems as
single box, and the ability to required with minimal disruption to
cascade boxes for additional operations.
capacity. Both processors and disks
may be added as required without
major system reconfigurations.
Integral Tape Backup System--The Easy and quick backup and archive
servers include an integral tape capabilities of all or any portion
backup system (hardware and of the central file system. No
software) for file backup and special setup or integration
archiving. required on the part of the user.
SALES AND MARKETING
The Company plans to advertise its products in trade publications, to
participate in trade shows and conferences, to conduct direct mail campaigns and
to publish and disseminate product literature. The initial focus of these
activities will be the color prepress and Internet/Intranet markets. The
Company's
20
marketing department will be responsible for product planning, product
positioning, pricing, customer training and overall promotion of the Company's
products through industry press coverage, advertising exposure and participation
in industry trade shows.
The Company plans to employ a direct sales force that focuses on product
sales to end users in North America. The Company plans to establish four
regional sales offices in the United States. Because the success of the
Company's direct sales efforts will be dependent in part upon a sophisticated
analysis of a customer's networking requirements, the Company will complement
its direct sales force in North America with system engineers who have expertise
in hardware, software and networking solutions. In the future, as the Company
expands its marketing efforts in the publishing and Internet/Intranet markets,
the Company may utilize a multi-tiered distribution strategy including
distributors and VARs, system integrators and OEMs. The Company also plans to
sell its products to OEMs in both the medical imaging and GIS markets.
The Company plans to establish sales offices in Japan and in Europe and will
primarily focus its sales efforts in these areas on distributors, VARs and third
party integrators who can effectively evaluate and support a customer's
networking requirements.
The Company also plans to develop relationships with independent vendors who
will encourage their customers to purchase the Company's server systems in
conjunction with their products on the basis that overall systems performance
will be enhanced. This sales method will be especially beneficial to software
vendors promoting workflow management and database management who can leverage
the performance of the Company's server products as a complement to improving
overall workflow of information.
CUSTOMER SERVICE AND SUPPORT
The Company's corporate philosophy is based on a commitment to customer
satisfaction and product quality. The Company does not plan to recognize
revenues on system sales to end users until system performance has been accepted
by the customer based on measurement against pre-defined published
specifications.
The Company plans to provide customer training, installation and integration
support, and maintain systems sold directly to end users in North America
through an internal systems integration organization. Unlike other server
companies in the industry, the Company's customer support and systems
integration organization will support various equipment and software in the
customer sites and provide consulting and integration services on a wide
spectrum of equipment. The Company is currently building its direct support
organization and will complement its direct service and support organization
with nationwide and European third party service organizations as the business
expands.
Users that purchase the Company's products through indirect channels will be
serviced by the Company's direct support organization as well as by
distributors, VARs or OEMs. The Company plans to provide direct access to the
Company's service and support organization through a toll-free telephone
hotline. The Company plans to staff its technical support center 24 hours a day,
365 days a year, with highly trained and experienced technical support
engineers.
The Company plans to warrant all of its server products against defects in
material and workmanship for 90 days. During the warranty period, the Company
will repair or replace, within two days, any server component(s) which the
Company identifies as containing defects which do not prevent the continued use
of the server. For defects that do prevent the continued use of the server, the
Company will attempt to repair or replace the identified defective component
within 24 hours. The Company plans to offer service and maintenance contracts to
its customers.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations, located in Westford, Massachusetts,
consist of product assurance, quality control of materials, components and
subassemblies, final assembly and system test. The Company relies on numerous
high-quality ISO 9002 class vendors located in New England for the manufacture
of mechanical subsystems and printed circuit boards. This strategy minimizes
capital investment and overhead expenditures and provides the Company with the
ability to increase production to meet market demand. As volumes increase,
consideration will be given to outsourcing with low cost vendors in the midwest
and Pacific Rim countries.
21
Although the Company generally uses standard parts and components for its
products, a number of key components used in the Company's current products are
currently available or purchased from single source suppliers. These components
include disk drives, microprocessors and ASICs. The Company currently depends
upon Hitachi as its sole source supplier of customized ASICs. The Company has no
contract with Hitachi requiring Hitachi to supply the Company with ASICs. As a
precaution, the Company carries extra inventory of some of its single source
components, including the Hitachi ASICs, to provide additional time to develop
an alternate source or redesign the component, if necessary. The lack of
sufficient quantities of single source components, or the inability to develop
alternative sources for these items, could result in delays or reductions in
product shipments which would have a material adverse affect on the Company's
results of operations. The Company intends to design its future products to
minimize the need to rely on single source suppliers for key components.
RESEARCH AND DEVELOPMENT
The market for the Company's products is characterized by extensive research
and development and rapid technological advances in both hardware and software
development, resulting in product life cycles of 18 to 24 months. The
introduction of products embodying new technology and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
Company believes that the speed of technological advancement in its industry
requires a significant investment in research and development in order to
maintain its competitive position. The Company will continue to invest
substantially in product development as it believes that its future success will
depend upon its ability to develop, manufacture and market new products and
enhancements to existing products on a cost-effective and timely basis. In the
fiscal years ended June 30, 1995 and 1996, the Company expended approximately
$438,500 and $1,388,100 respectively for research and development expenses.
COMPETITION
The Company faces substantial competition from the manufacturers of several
different types of products used as file servers. The Company expects
competition to intensify as more companies enter the market and compete for
market share. In addition, companies currently in the server market will
continue to change product offerings in order to capture further market share.
Many of these companies have substantially greater financial resources, research
and development staffs, manufacturing, marketing and distribution facilities
than the Company. The Company believes that an important competitive factor in
its market is network server performance measured in terms of overall system
throughput and expressed as a function of megabytes per second of data to client
desktop computers. However, equally important are other factors, including
product reliability, availability, scalability, upgradability, price, overall
cost of ownership and technical service and support. The Company's ability to
compete will depend, among other factors, upon its ability to anticipate
industry trends, invest in product research and development, and effectively
manage the introduction of new products into targeted markets.
The Company believes that there are no servers available today that provide
high-performance, high-capacity file service and a Macintosh-compatible
application environment. The Apple Workgroup Servers are aimed at a lower market
tier, with lower performance and limited expansion capability. Apple's "shiner"
series of servers provide higher performance than its workgroup servers,
however, the operating system used is UNIX based and requires specialized
training to operate.
Other servers in the prepress and video market fall into one of three
categories: (i) proprietary operating software systems, (ii) high-end personal
computer architecture systems or (iii) larger UNIX-based systems. "Server"
products offered by the traditional color prepress suppliers are most often
dedicated I/O device servers, rather than general purpose servers. For example,
the Scitex Whisper series of servers are an integral part of the proprietary
Scitex environment, with few and limited external client services. The Company's
servers compare well on a price and features basis, and outperform the
proprietary operating software systems by a significant amount in end to end
throughput. More importantly, in the color prepress market, the Company's server
is the only true Macintosh solution.
High-end personal computer architecture servers are available from a wide
variety of suppliers (ALR Revolution, Hewlett-Packard's NetServer, Compaq
Computer Corporation's ProLiant), with advertised prices in the $5,000 to
$14,000 range. A typical system would include 64 MB memory, 8 GBs of fast disk,
an
22
FDDI interface, and a NetWare or Windows NT license, but unlike the Company's
super servers, would not include a built-in hardware RAID controller or scalable
support up to 100 GBs, and none of these servers would provide end to end
throughput at the level provided by the Company's super servers.
Specialized super servers provide some fault tolerance features and
"hot-swap" disk capability, along with some multiprocessor support. These
features lead to premium entry prices (approximately $25,000 for a mid-size
tower system, approximately $75,000 for a full-size server) and high-priced
expansion options. While the systems are well suited to the typical NetWare
environment (many users needing occasional access to medium or small files),
they are not optimized for handling very large files and high-bandwidth
networks. The Company's servers are directly competitive on entry price and have
the distinct advantage of being able to handle very large files on high
bandwidth networks. The Company's current servers are also Macintosh-based,
provide superior input and output performance and allow a user to upgrade its
server without incurring significant expense for new operating systems or
hardware.
There is also a wide variety of mid-range and high-end systems using
UNIX-based operating systems. Until recently, the color prepress user community
avoided the complexity of UNIX. However, due to the lack of an alternative, UNIX
systems provided by SGI and Sun have made substantial inroads in the high-end
color prepress, imaging and digital video markets. The Company's servers compete
directly in entry price, price to performance and scalability, while offering
the preferred Macintosh or Windows NT (expected in 1997) environments and
ease-of-use features. The Company's I/O performance, even for a basic system, is
equal to or better than all of the mid-range systems. SGI's high-end Challenge
and Power Challenge systems remain the leaders in raw processing capability, but
the prices ($100,000 to $350,000) are significantly greater than the Company's
prices.
EMPLOYEES
As of January 31, 1997, the Company employed 43 full-time employees.
Approximately 20 of these employees are involved in research and development, 10
in sales and service, 2 in marketing, 7 in manufacturing and 4 in finance and
general administration. In addition, the Company has retained 10 independent
contractors on a consulting basis who support engineering and marketing
functions. To date, the Company believes it has been successful in attracting
and retaining skilled and motivated individuals. Competition for qualified
management and technical employees is intense in the computer industry. The
Company's success will depend in large part upon its ability to continue to
attract and retain qualified employees. The Company has never experienced a work
stoppage and its employees are not covered by a collectively bargaining
agreement. The Company believes that it has good relations with its employees.
FACILITIES
The Company has a three-year lease expiring in October 1998 for
approximately 19,400 square feet of space in Westford, Massachusetts, which
currently accommodates the Company's headquarters, development, production,
administrative, and financial functions. The monthly rent is $16,750. The
Company intends to lease an additional 9,000 square feet in the same facility.
The Company also has a lease expiring in August 2000 for a second facility
consisting of approximately 2,000 square feet of office space in San Diego,
California for a monthly base rent of approximately $2,300. The facility is
currently used for engineering support for development of Internet/Intranet
technology and products. The Company believes that its facilities are adequate
to meet its current business requirements and that suitable facilities for
expansion will be available, if necessary, to accommodate further physical
expansion of corporate operations and for additional sales and support offices,
at comparable rates.
LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation or legal
proceedings and is not aware of any material litigation or proceeding pending or
threatened against it.
23
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
---- --- -----------------------------------
LORRIN G. GALE 55 President, Chief Executive Officer
and Chairman of the Board
Duane A. Mayo 45 Chief Financial Officer, Treasurer,
Secretary and Director
Fred L. Chanowski 46 Director
Chappell Cory III 52 Director
Gregory M. Millar 40 Director
Stanley A. Young 69 Director
LORRIN G. GALE co-founded the Company in May 1990. He has served as Chief
Executive Officer and Chairman of the Board since its inception and as President
since July 1994. In August 1981, he co-founded Massachusetts Computer Corp.,
serving as Vice President of Engineering from August 1981 through June 1986 and
as General Manager for end-user business from July 1986 through December 1987.
From January 1988 through May 1990, Mr. Gale was a private investor.
DUANE A. MAYO has served as Vice President of Finance and Administration
since March 1995 and as a director, Chief Financial Officer, Secretary and
Treasurer since May 1995. From April 1993 through February 1995, he served as
Chief Financial Officer for Xerographic Laser Images Corporation, a
publicly-held company involved in development of resolution enhancement
technology. From April 1988 to April 1993, Mr. Mayo was Corporate Controller for
Howtek, Inc., a publicly-held company and supplier of desktop scanners for the
color prepress marketplace.
FRED L. CHANOWSKI has served as a director of the Company since June 1996.
Mr. Chanowski is a Managing Member of Alpha Ventures LLC, a venture capital fund
he founded in 1996, and a partner in Venture Management Consultants, LLC, a
management consulting firm he founded in January 1997. From December 1988
through June 1996, Mr. Chanowski was a telecommunications and information
technology consultant. Mr. Chanowski was the President, Chief Executive Officer
and owner of Telecommunications Management Corp., a management consulting firm
specializing in the areas of telecommunications and information management
technology, from November 1975 until its sale to Computer Task Group in December
1988.
CHAPPELL CORY III co-founded the Company in May 1990 and has served as a
director since its inception and served as President until July 1994. Since July
1994, Mr. Cory has been the General Manager, CDA Division, of Analogic
Corporation, a publicly-held company and supplier of precision data acquisition,
conversion and signal processing equipment.
GREGORY M. MILLAR has served as a director of the Company since October
1995. Since January 1989, Mr. Millar has been Vice President of Engineering and
Chief Technology Officer of Radius, Inc., a publicly-held company that
manufactures Macintosh controller cards and accessories.
STANLEY A. YOUNG has served as a director of the Company since June 1995.
Mr. Young has been a consultant and venture capital investor for the past five
years and has been a principal of Young Management Group, Inc., a management
consulting firm, since its inception in March 1994. Mr. Young serves as a
director on the boards of the following publicly-held companies: Jetform
Corporation, Andyne Computer, Inc. and Cable-SAT Systems, Inc.
24
KEY EMPLOYEES
ROBERT S. ALFORD has served as Vice President of Engineering since July
1995. From January 1990 through June 1995, Mr. Alford was Vice President of AGE
Logic Inc., a supplier of X Server software for personal computers, X Terminals,
and embedded applications.
LAWRENCE D. BEAUPRE has served as Vice President of Manufacturing on a
part-time basis from March 1995 to July 1996 and on a full-time basis since
August 1996. He co-founded QuadTech, Inc., a manufacturer of precision
measurement and calibration instruments in March 1991, serving as its Vice
President of Operations and Chief Operating Officer from April 1991 through June
1995 and as a consultant from July 1995 to August 1996.
COMMITTEES
The Board of Directors has an audit committee comprised of Chappell Cory
III, Gregory Millar and Stanley Young and a compensation committee comprised of
Chappell Cory III, Gregory Millar, Stanley Young and Fred Chanowski. The Audit
Committee reviews the results and scope of the audit and other services provided
by the Company's independent accountants. The Compensation Committee makes all
compensation decisions regarding the compensation of executive officers and
administers the Stock Option Plan.
TERM OF OFFICE
All directors hold office until the next annual meeting of stockholders of
the Company and until their successors have been duly elected and qualified. The
executive officers are appointed annually by, and serve at the discretion of,
the Board of Directors.
DIRECTOR COMPENSATION
The Company's directors do not receive compensation for serving on the Board
of Directors, however, the Company reimburses directors for travel expenses
incurred to attend Board meetings.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal year ended June 30, 1996, the
annual compensation, including salary, bonuses and certain other compensation,
paid by the Company to its Chief Executive Officer. None of the Company's
executive officers received cash compensation in excess of $100,000 in the
fiscal year ended June 30, 1996.
ANNUAL COMPENSATION
--------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY
--------------------------- ------ --------
Lorrin G. Gale Chairman, President and Chief 1996 $58,492
Executive Officer 1995 0
1994 0
EMPLOYMENT CONTRACTS
Effective as of January 1, 1997, the Company entered into a two-year
employment agreement with Mr. Gale. Pursuant to such contract, Mr. Gale will be
paid a base salary of $125,000 and has been granted incentive stock options to
purchase up to 100,000 shares of Common Stock. Options to purchase 20,000 shares
of Common Stock vested upon the execution of the agreement and options to
purchase 40,000 shares of Common Stock vest on each of the first and second
anniversaries of the agreement. All options have an exercise price of $3.00 per
share. Pursuant to his employment agreement, Mr. Gale agrees not to compete with
the Company during the term of his employment and for one year thereafter.
STOCK OPTION PLAN
In July 1995, the Company adopted its 1995 Stock Option Plan (the "Stock
Option Plan") under which the Company may grant incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code") and stock options not intended to qualify as incentive
25
stock options. Stock options may be granted under the Stock Option Plan to
employees, officers, directors, consultants and advisors of the Company. Options
granted to non-employee directors and consultants must be non-qualified stock
options only.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors or successor committee. Subject to the provisions of the
Stock Option Plan, the Compensation Committee (or the Board of Directors) has
the authority to determine (i) to whom options will be granted, (ii) the time
when options may be granted, (iii) the number of shares to be covered by each
option, (iv) when the option becomes exercisable, (v) the exercise price of the
option (which price, in the case of incentive stock options, shall not be less
than the fair market value of the Common Stock on the date of the grant, or in
the case of incentive stock options granted to employees who own, directly or
indirectly, more than 10% of the total combined voting power of all classes of
stock of the Company, 110% of the fair market value of the Common Stock on the
date of grant) and (vi) any restrictions on sale and repurchase rights which
shall be placed on shares purchased upon exercise of an option.
Incentive stock options may not be granted at a price less than the fair
market value of the shares at the grant date (or less than 110% of fair market
value in the case of employees or officers holding 10% or more of the voting
stock) while the nonqualified options may not be granted at a price lower than
the lesser of 85% of the fair market value of the shares at the grant date or
the book value of the shares as of the end of the fiscal year of the Company
immediately preceding the date of the grant. All grants as of June 30, 1996 were
at fair market value or greater. The options generally vest 10% after 30 days
from the date of grant and the balance ratably over a period of four years.
Incentive stock options granted under the plan expire not more than 10 years
from the date of grant and not more than five years in the case of incentive
stock options granted to an employee or officer holding 10% or more of the
voting stock of the Company. All options not exercised at the end of the vesting
period automatically expire. The aggregate number of shares which may be granted
under this plan may not exceed 800,000 shares.
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash and Common Stock or by any method approved by the
Board of Directors consistent with the purposes of the Stock Option Plan and
applicable rules and regulations, without limitation, Section 422 of the Code
and Rule 16b-3 under the Exchange Act. Options are not assignable or
transferable except by will or the laws of descent and distributions.
As of the date of this Prospectus, options to purchase 544,854 shares of
Common Stock were outstanding under the Stock Option Plan.
STOCK OPTION GRANTS
No stock options were granted to Lorrin G. Gale during the fiscal year
ended June 30, 1996, and at June 30, 1996, Mr. Gale did not own any stock
options. As of January 1, 1997, Mr. Gale was granted options to purchase
100,000 shares of Common Stock. See "Management--Employment Contracts."
26
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of the date of this
Prospectus for (i) each person who is known by the Company to own beneficially
5% or more of the outstanding shares of its Common Stock; (ii) each of the
directors and executive officers of the Company; and (iii) all directors and
officers as a group. Unless otherwise indicated, the address for directors,
executive officers and 5% stockholders is 2 Robbins Road, Westford,
Massachusetts 01886.
<TABLE>
<CAPTION>
PERCENTAGE
----------------
NUMBER OF SHARES BEFORE AFTER
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS: BENEFICIALLY OWNED(1) OFFERING OFFERING
- ------------------------------------------------- -------------------- -------- --------
<S> <C> <C> <C>
Lorrin G. Gale 348,275(2) 9.1% 6.0%
Duane A. Mayo 140,235 3.7% 2.4%
Fred L. Chanowski 216,531(3) 5.6% 3.7%
Chappell Cory III 52,133 1.4% *
Gregory M. Millar 15,936 * *
Stanley A. Young 240,482(4) 6.2% 4.1%
Hamburger Bank Alstertor 9 876,472 22.9% 15.1%
Hamburg 20095
Germany
M.M. Warburg & Co. Ferdinandstrasse 75 462,140 12.1% 7.9%
Hamburg 20095
Germany
All directors and executive officers as a group
as a group (6 persons) 1,013,592 25.7% 17.0%
</TABLE>
- ----------------------
* Less than 1%
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be beneficially owned and
outstanding for the purpose of computing the percentage ownership of any
other person shown in the table.
(2) Includes 20,000 shares of Common Stock issuable upon exercise of incentive
stock options.
(3) Includes 39,840 shares of Common Stock issuable upon exercise of warrants.
Also includes 103,386 shares of Common Stock and 15,936 shares of Common
Stock issuable upon exercise of warrants owned by Alpha Ventures LLC of
which Mr. Chanowski is a founder and Managing Member.
(4) Includes (i) 75,886 shares of Common Stock and 31,872 shares of Common Stock
issuable upon exercise of warrants held by the Stanley A. Young Irrevocable
Trust; (ii) 63,275 shares of Common Stock and 17,000 shares of Common Stock
issuable upon exercise of warrants held by the Stanley A. Young Family
Limited Partnership; and (iii) 12,142 shares of Common Stock held by Mr.
Young's wife, as to which Mr. Young disclaims beneficial ownership.
27
CERTAIN TRANSACTIONS
In July 1995, the Company entered into a consulting agreement with Young
Management, a company founded by Stanley A. Young, who subsequently became a
director of the Company in September 1995. In consideration for consulting
services, the Company agreed to pay consulting fees of $7,000 per month, plus
out-of-pocket expenses, of which $3,000 per month is being deferred until
completion of an initial public offering, and sold 239,038 shares of Common
Stock at a price of $.016 per share to Young Management. Consulting fees
expensed in connection with this agreement during the fiscal year ended June 30,
1996 were approximately $85,000, of which $56,000 was accrued and unpaid at June
30, 1996. Consulting fees expensed in connection with this agreement during the
three months ended September 30, 1996 were $21,000 and an aggregate of $77,000
was accrued and unpaid at September 30, 1996. In August 1996, Young Management
transferred all of its shares of Common Stock to certain affiliates of Young
Management, including the Stanley A. Young Irrevocable Trust and the Stanley A.
Young Family Limited Partnership.
In May 1996, the Stanley A. Young Irrevocable Trust purchased warrants to
purchase 31,872 shares of Common Stock in a private placement, and in January
1997, the Stanley A. Young Family Limited Partnership purchased warrants to
purchase 17,000 shares of Common Stock in a private placement. In November 1995,
Mr. Young's wife purchased 5,049 shares of Common Stock and was issued a
convertible promissory note in the amount of $19,297.50 in a private placement.
In October 1996, she converted the principal balance and accrued interest on the
note into 7,093 shares of Common Stock.
In exchange for consulting services rendered, Fred L. Chanowski, a director
of the Company, received (i) warrants to purchase 50,000 shares of Common Stock
in May 1996; and (ii) 40,000 shares of Common Stock in October 1996. In
addition, in October 1996, Mr. Chanowski purchased 62,500 shares of Common Stock
at a price of $1.00 per share in connection with a private placement. Mr.
Chanowski is a 6.675% member in Alpha Ventures LLC which holds 103,386 shares of
the Company's Common Stock and warrants to purchase 15,936 shares of Common
Stock.
The Company has adopted a policy whereby all future transactions between the
Company and its officers, directors, principal stockholders or affiliates will
be approved by a committee of the Board of Directors, a majority of the members
of which shall be independent directors, or, if required by law, a majority of
disinterested directors, and will be on terms no less favorable to the Company
than could be obtained in arm's length transactions from unaffiliated third
parties.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company is 32,000,000 shares, consisting
of 30,000,000 shares of Common Stock, $.01 par value per share, and 2,000,000
shares of Preferred Stock, $.01 par value per share. As of December 31, 1996,
there were 3,820,682 shares of Common Stock outstanding. Upon the completion of
this Offering there will be 5,820,682 shares of Common Stock outstanding. No
shares of Preferred Stock are currently outstanding.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted can elect all of the
directors then being elected. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of liabilities and after provision has been made for each class of stock, if
any, having preference over the Common Stock. Holders of shares of Common Stock,
as such, have no redemption, preemptive or other subscription rights, and there
are no conversion provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby, when issued and paid for as set forth in this Prospectus, will be, fully
paid and nonassessable.
28
PREFERRED STOCK
Preferred Stock may be issued in one or more series, the terms of which may
be determined at the time of issuance by the Board of Directors, without further
action by stockholders, and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion and redemption rights and sinking fund provisions. No
Preferred Stock is currently outstanding and the Company has no present plans
for the issuance thereof. The issuance of any Preferred Stock could affect the
rights of the holders of Common Stock, and therefore, reduce the value of the
Common Stock and make it less likely that holders of Common Stock would receive
a premium for the sale of their shares of Common Stock. In particular, specific
rights granted to future holders of Preferred Stock could restrict the Company's
ability to merge with or sell its assets to a third party.
WARRANTS
Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at a price of $6.00 per share, at any time during the period
commencing one year from the date hereof and expiring on the fifth anniversary
of the date of this Prospectus.
Unless extended by the Company at its discretion, the Warrants will expire
at 5:00 p.m., New York time, on the fifth anniversary of the date of this
Prospectus. In the event a holder of Warrants fails to exercise the Warrants
prior to their expiration, the Warrants will expire and the holder thereof will
have no further rights with respect to the Warrants.
The Company may, with the prior written consent of the Underwriters, redeem
the Warrants, once they become exercisable, at a price of $.01 per Warrant on
not less than 30 days' prior written notice if the last sale price of the Common
Stock has been at least 150% of the then current exercise price of the Warrants
(initially $9.00) for the 20 consecutive trading days ending on the third day
prior to the date on which such notice is given. The Warrants will be
exercisable until the close of business on the date fixed for redemption. The
Warrants will be issued in registered form under a warrant agreement by and
among the Company and Continental Stock Transfer & Trust Company, as warrant
agent. Reference is made to said warrant agreement (which has been filed as an
exhibit to the registration statement of which this Prospectus is a part) for a
complete description of the terms and conditions of the Warrants contained
therein (the description herein contained being qualified in its entirety by
reference thereto).
The exercise price and number of shares of Common Stock or other securities
issuable on exercise of the Warrants are subject to adjustment to protect
against dilution in the event of a stock dividend, stock split,
recapitalization, reorganization, merger or consolidation of the Company or
other similar event. No assurance can be given that the market price of the
Common Stock will exceed the exercise price of the Warrants at any time during
the exercise period.
No Warrant will be exercisable unless at the time of the exercise the
Company has filed with the Commission a current prospectus covering the shares
of Common Stock issuable upon exercise of such Warrant and such shares have been
registered or qualified to be exempt under the securities laws of the state of
residence of the holder of such Warrant. Although the Company has undertaken and
intends to have all shares so qualified for sale in those states where the
Securities are being offered and to maintain a current prospectus relating
thereto until the expiration of the Warrants, subject to the terms of the
Warrant Agreement, there can be no assurance that the Company will be able to do
so.
A holder of Warrants will not have any rights, privileges or liabilities as
a stockholder of the Company prior to the exercise of the Warrants. The Company
is required to keep available a sufficient number of authorized shares of Common
Stock to permit exercise of the Warrants.
OTHER SECURITIES
The Company has outstanding long term convertible promissory notes in the
principal amount of $62,258 which bear interest at 10% per annum. These long
term convertible promissory notes plus accrued interest are to be repaid: (i)
one third upon the completion of this Offering; (ii) one third on the first
anniversary of the closing of this Offering; and (iii) one third on the second
anniversary of the
29
closing of this Offering, unless converted prior to such date. Simultaneously
with the closing of this Offering, the holders of the notes have the right to
convert outstanding principal and accrued interest into shares of Common Stock
at a price equal to the price of the Common Stock in this Offering. At any time
following the closing of this Offering, any portion of the principal and
interest may be converted at a price equal to the price of the Common Stock in
this Offering plus $1.00 per share. However, if the price of the Common Stock is
at least $3.00 above the price of the Common Stock in this Offering for a period
of 10 consecutive trading days, the Company may convert any remaining principal
and accrued interest into shares of Common Stock at a price equal to the price
of the Common Stock in this Offering plus $1.00 per share.
From November 1995 to May 1996, the Company issued (i) warrants to purchase
in the aggregate 325,412 shares of Common Stock at an exercise price of $1.13
per share, of which 28,686 have an expiration date four years from the date of
issuance and 296,726 have an expiration date five years from the date of
issuance; and (ii) warrants (to a placement agent) to purchase an aggregate of
29,287 shares of Common Stock at a price of $1.13 per share and expiring between
November 22, 2000 and May 31, 2001. In July 1996, the Company issued a warrant
to purchase 31,872 shares of Common Stock at an exercise price equal to one half
of the price of the shares of Common Stock in the Company's initial public
offering and with an expiration date five years from the date of issuance. In
October 1996, the Company issued a warrant to purchase 15,936 shares of Common
Stock at an exercise price of $1.57 per share and with an expiration date five
years from the date of issuance. In December 1996, the Company issued a warrant
to purchase 50,000 shares of the Company's Common Stock at an exercise price of
$3.00 per share and with an expiration date five years from the date of
issuance. From December 1996 through February 1997, the Company issued warrants
to purchase in the aggregate 1,218,900 shares of Common Stock, 609,450 of which
have an exercise price of $2.50 per share and 609,450 of which have an exercise
price equal of $3.75 per share. These warrants are exercisable for a period of
three years commencing on December 30, 1997.
The exercise price and number of shares of Common Stock or other securities
issuable upon exercise of the warrants described herein are subject to
adjustments in the event of a stock dividend, stock split, recapitalization,
reorganization, merger or consolidation of the Company or other similar event.
In connection with certain private placement offerings of the Company's
securities, the Company has agreed to register, no later than 13 months after
the effective date of this Offering, 2,495,997 shares of issued and outstanding
Common Stock and approximately 15,000 shares of Common Stock issuable upon the
conversion of outstanding principal of and accrued interest on certain long term
convertible promissory notes. In connection with a consulting agreement with
Young Management, the Company has agreed to use its best efforts to register
239,038 shares of issued and outstanding Common Stock as part of any
registration of securities by the Company, subject to the discretion of the
managing underwriter, if any, to exclude such shares from registration. In
addition, the Company has agreed to register warrants to purchase 1,218,900
shares of Common Stock and the 1,218,900 shares of Common Stock underlying these
warrants no later than 12 months and one day after the date of this Prospectus.
If the shares and warrants are not registered within 12 months and one day after
the date of this Prospectus, then the Company shall use its best efforts to
register these shares and warrants as part of any other registration of
securities by the Company until November 30, 2002. The Company has also agreed
to use its best efforts to register the shares underlying warrants to purchase
in the aggregate 423,220 shares of Common Stock as part of any registration of
securities by the Company, subject to the discretion of the managing
underwriter, if any, to exclude such shares from registration. Finally, the
Company has also agreed to register the shares underlying warrants to purchase
up to 29,287 shares of Common Stock issued to a placement agent in connection
with a private placement completed in May 1996 no later than 13 months after the
effective date of this Offering.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Certificate of Incorporation, as amended, limits the personal liability of a
director or officer to the Company for monetary damages for breach of fiduciary
duty of care as a director. Liability is not eliminated for (i) any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in
30
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) unlawful payment of dividends or stock purchases or redemptions
pursuant to Section 174 of the DGCL, or (iv) any transaction from which the
director derived an improper personal benefit.
The Company's Certificate of Incorporation provides that the Company will
indemnify directors and officers, and may indemnify its employees and other
agents, to the fullest extent permitted by law. Indemnified parties are covered
in all cases except where such indemnification is prohibited by law, or where
the conduct of the indemnified party (i) constitutes willful misconduct or
recklessness, or (ii) is based upon receipt by the indemnified representative
from the Company of a personal benefit to which the indemnified party is not
legally entitled. The Company may pay the expenses incurred in good faith by an
indemnified party, against an undertaking by the indemnified party to repay such
expenses if it is ultimately determined that the indemnified party is not
entitled to indemnification. The Company also maintains liability insurance for
its directors and officers. At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent of the Company
where the Company anticipates indemnification will be required. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
DELAWARE LAW
The Company is subject to Section 203 of the DGCL which prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with a publicly held Delaware corporation for three years
following the date such person became an interested stockholder, unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions); or (iii) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the interested
stockholder.
The provisions of Section 203 of the DGCL could have the effect of delaying,
deferring or preventing a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock and Warrants
is Continental Stock Transfer & Trust Company, New York, New York.
31
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,820,682 shares of
Common Stock outstanding, not including shares of Common Stock issuable upon
exercise of stock options, the Warrants, the Underwriters' Purchase Option and
other warrants and assuming no exercise of the over-allotment option granted to
the Underwriters or options outstanding under the Stock Option Plan. Of these
outstanding shares, the 2,000,000 shares sold to the public in this Offering may
be freely traded without restriction or further registration under the
Securities Act of 1933 ("Securities Act"), except that any shares that may be
held by an "affiliate" of the Company (as that term is defined in the rules and
regulations under the Securities Act) may be sold only pursuant to a
registration under the Securities Act or pursuant to an exemption from
registration under the Securities Act including the exemption provided by Rule
144 adopted under the Securities Act. The 3,820,682 shares of Common Stock
outstanding prior to the date of this Prospectus are "restricted securities" as
that term is defined in Rule 144 under the Securities Act ("Restricted Shares"),
and may not be sold unless such sale is registered under the Securities Act, or
is made pursuant to an exemption from registration under the Securities Act,
including the exemption provided by Rule 144. Of such shares, 1,163,316 will be
available for sale pursuant to Rule 144 commencing July 1997 through October
1997, an additional 275,252 will become available for sale pursuant to Rule 144
commencing November 1997 through May 1998 and an additional 2,382,114 will
become available for sale pursuant to Rule 144 commencing June 1998 through
October 1998.
All of the officers and directors of the Company and all other stockholders
owning 2% or more of the Company's Common Stock immediately prior to this
Offering have agreed that for a period of 13 months from the date of this
Prospectus they will not sell any of their shares without the consent of Laidlaw
Equities, Inc. ("Laidlaw"). Therefore, of the 1,163,316 shares available for
sale pursuant to Rule 144 commencing July 1997 through October 1997, 705,573
cannot be sold without the consent of Laidlaw for a period of 13 months from the
date of this Prospectus and of the 272,252 shares available for sale pursuant to
Rule 144 commencing November 1997 through May 1998, 26,034 cannot be sold
without the consent of Laidlaw for a period of 13 months from the date of this
Prospectus. Since the 13 month sale restriction will have expired, the consent
of Laidlaw will not be required for sale of the 2,382,114 shares available for
sale pursuant to Rule 144 commencing June 1998 through October 1998.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
Restricted Shares for at least two years (including a stockholder who may be
deemed to be an affiliate of the Company), will 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 or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of such sale is given to the Commission, provided certain
public information, manner of sale and notice requirements are satisfied. A
stockholder who is deemed to be an affiliate of the Company, including members
of the Board of Directors and senior management of the Company, will still need
to comply with the restrictions and requirements of Rule 144, other than the two
year holding period requirement, in order to sell shares of Common Stock that
are not Restricted Securities, unless such sale is registered under the
Securities Act. A stockholder (or stockholders whose shares are aggregated) who
is deemed not to have been an affiliate of the Company at any time during the
three month period preceding a sale by such stockholder, and who has
beneficially owned Restricted Shares for at least three years, will be entitled
to sell such shares under Rule 144 without regard to the volume limitations
described above. The Commission is currently considering a reduction in the
required holding periods under Rule 144.
In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory
benefit plan or contract may be entitled to rely on the resale provisions of
Rule 701 under the Securities Act ("Rule 701"). Rule 701 permits affiliates to
sell
32
their shares which are subject to Rule 701 under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell Rule 701 shares in reliance on Rule 144 without having
to comply with the public information, volume limitation or notice provisions of
Rule 144. In both cases, a holder of Rule 701 shares is required to wait until
90 days after the date of this Prospectus. There are currently outstanding
options to purchase 444,854 shares of the Company's Common Stock under the
Company's Stock Option Plan. The shares issued upon exercise of these options
may be sold pursuant to the provisions of Rule 701.
No predictions can be made of the effect, if any, that future sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect the then-prevailing
market price.
In connection with certain private placement offerings of the Company's
securities, the Company has agreed to register, no later than 13 months after
the effective date of this Offering, 2,495,997 shares of issued and outstanding
Common Stock and approximately 15,000 shares of Common Stock issuable upon the
conversion of outstanding principal of and accrued interest on certain long term
convertible promissory notes. In connection with a consulting agreement with
Young Management, the Company has agreed to use its best efforts to register
239,038 shares of issued and outstanding Common Stock as part of any
registration of securities by the Company, subject to the discretion of the
managing underwriter, if any, to exclude such shares from registration. In
addition, the Company has agreed to register warrants to purchase 1,218,900
shares of Common Stock and the 1,218,900 shares of Common Stock underlying these
warrants no later than 12 months and one day after the date of this Prospectus.
If the shares and warrants are not registered within 12 months and one day after
the date of this Prospectus, then the Company shall use its best efforts to
register these shares and warrants as part of any other registration of
securities by the Company until November 30, 2002. The Company has also agreed
to use its best efforts to register the shares underlying warrants to purchase
in the aggregate 423,220 shares of Common Stock as part of any registration of
securities by the Company, subject to the discretion of the managing
underwriter, if any, to exclude such shares from registration. Finally, the
Company has also agreed to register the shares underlying warrants to purchase
up to 29,287 shares of Common Stock issued to a placement agent in connection
with a private placement completed in May 1996 no later than 13 months after the
effective date of this Offering.
33
UNDERWRITING
Laidlaw Equities, Inc. and GKN Securities Corp. (together, the
"Underwriters") have agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company a total of 2,000,000 shares
of Common Stock and 2,000,000 Warrants. Each of the Underwriters has agreed to
purchase one half of such shares of Common Stock and Warrants.
The obligations of the Underwriters under the Underwriting Agreement are
subject to approval of certain legal matters by counsel and various other
conditions precedent, and the Underwriters are obligated to purchase all of the
shares of Common Stock and Warrants offered by this Prospectus (other than the
shares of Common Stock and Warrants covered by the over-allotment option
described below), if any are purchased.
The Underwriters have advised the Company that they propose to offer the
Securities to the public at the initial public offering prices set forth on the
cover page of this Prospectus and to certain dealers at that price less a
concession not in excess of $ per share of Common Stock and $ per Warrant. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share of Common Stock and $ per Warrant to certain other dealers. After
this Offering, the offering price and other selling terms may be changed by the
Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriters an expense allowance on a nonaccountable
basis equal to 3% of the gross proceeds derived from the sale of the Securities
offered by this Prospectus (including the sale of any Securities subject to the
Underwriters' over-allotment option), $60,000 of which has been paid to date.
The Company also has agreed to pay all expenses in connection with qualifying
the Securities offered hereby for sale under the laws of such states as the
Underwriters may designate and registering this Offering with the National
Association of Securities Dealers, Inc., including fees and expenses of counsel
retained for such purposes by the Underwriters.
The Company has granted to the Underwriters an option, exercisable within 45
business days from the date of this Prospectus, to purchase at the offering
price, less underwriting discounts and the nonaccountable expense allowance, up
to an aggregate of 300,000 additional shares of Common Stock and/or 300,000
additional Warrants for the sole purpose of covering over-allotments, if any.
The Company has engaged the Underwriters on a non-exclusive basis as its
agents for the solicitation of the exercise of the Warrants. To the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission, the Company has agreed to pay the Underwriters for bona fide
services rendered a commission equal to 5% of the exercise price for each
Warrant exercised after one year from the date of this Prospectus if the
exercise was solicited by the Underwriters. In addition to soliciting, either
orally or in writing, the exercise of the Warrants, such services may also
include disseminating information, either orally or in writing, to
warrantholders about the Company or the market for the Company's securities, and
assisting in the processing of the exercise of Warrants. No compensation will be
paid to the Underwriters in connection with the exercise of the Warrants if the
market price of the underlying shares of Common Stock is lower than the exercise
price, the Warrants are held in a discretionary account, the Warrants are
exercised in an unsolicited transaction, the warrantholder has not confirmed in
writing that the Underwriters solicited such exercise or the arrangement to pay
the commission is not disclosed in the prospectus provided to warrantholders at
the time of exercise. In addition, unless granted an exemption by the Commission
from Regulation M under the Exchange Act, while soliciting exercise of the
Warrants, the Underwriters will be prohibited from engaging in any market-making
activities or solicited brokerage activities with regard to the Company's
securities unless the Underwriters have waived their right to receive a fee for
the exercise of the Warrants.
In connection with this Offering, the Company has agreed to sell to the
Underwriters for an aggregate of $100, the Underwriters' Purchase Option,
consisting of the right to purchase up to an aggregate of 200,000 shares of
Common Stock and/or 200,000 Warrants. The Underwriters' Purchase
34
Option is exercisable initially at a price of $6.00 per share and $.12 per
Warrant for a period of four years commencing one year from the date hereof. The
Underwriters' Purchase Option may not be transferred, sold, assigned or
hypothecated during the one year period following the date of this Prospectus
except to officers of the Underwriters and the selected dealers and their
officers or partners. The Underwriters' Purchase Option grants to the holders
thereof certain "piggyback" and demand rights for periods of seven and five
years, respectively, from the date of this Prospectus with respect to the
registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the Underwriters' Purchase Option.
Pursuant to the Underwriting Agreement, all of the officers, directors and
all other stockholders owning 2% or more of the Company's Common Stock
immediately prior to this Offering (who hold in the aggregate 2,403,916
outstanding shares of Common Stock) have agreed not to sell any of their shares
of Common Stock until 13 months from the date of this Prospectus without the
consent of Laidlaw. In addition, the Underwriting Agreement provides that, for a
period of three years from the date of this Prospectus, Laidlaw will have the
right to send a representative to observe each meeting of the Board of
Directors. Laidlaw has not yet selected such representative. The Company has
granted to the Underwriters, for a period of 18 months from the date of this
Prospectus, a right of first refusal (i) to underwrite or act as placement agent
for any public sale of debt or equity securities (excluding sales to employees)
of the Company, any subsidiary or successor of the Company, or stockholders
owning 5% or more of the Company's outstanding Common Stock ("Principal
Stockholders"), and (ii) to act as investment banker with respect to any merger,
acquisition, or disposition of assets of the Company, if, in the case of any of
such sales or other transactions by the Company, the Company uses an
underwriter, placement agent, investment banker or other person performing such
functions for a fee. The Underwriters have also been granted a preferential
right for a period of 18 months from the date of this Prospectus to purchase or
to sell for the account of the Company or any of its officers, directors or
Principal Stockholders any securities to be sold pursuant to Rule 144 adopted
under the Securities Act. These sellers must consult with the Underwriters
regarding any such offering and offer the Underwriters the opportunity to
purchase or sell any such securities.
Prior to this Offering, there has been no public market for any of the
Company's securities. Accordingly, the offering prices of the Securities and the
terms of the Warrants have been determined by negotiation between the Company
and the Underwriters and do not bear any relation to established valuation
criteria. Factors considered in determining such prices and terms, in addition
to prevailing market conditions, included an assessment of the prospect for the
industry in which the Company will compete, the Company's management and the
Company's capital structure.
From December 1996 to February 1997, the Underwriters acted as placement
agents in connection with the private placement of units consisting of
promissory notes with an aggregate face value of $3,375,000 and warrants to
purchase an aggregate of 1,218,900 shares of Common Stock, and were paid
commissions of approximately $337,500 (10%) and a nonaccountable expense
allowance of $101,250 (3%).
LEGAL MATTERS
The validity of the securities hereby offered will be passed upon for the
Company by Warner & Stackpole LLP, Boston, Massachusetts. Graubard Mollen &
Miller, New York, New York, has served as counsel to the Underwriters in
connection with this Offering.
EXPERTS
The financial statements of the Company in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report (which contains an explanatory paragraph regarding the Company's
ability to continue as a going concern) appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
35
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2, including
amendments thereto, relating to the Securities offered hereby with the
Securities and Exchange Commission. 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 schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. For further information with respect to the Company and the
securities offered hereby, reference is made to such Registration Statement and
the exhibits thereto. Following the effectiveness of the Registration Statement,
the Company will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith the Company will
file periodic reports, proxy statements and other information with the
Commission. The Registration Statement, reports, proxy statements and other
information filed in accordance with the requirements of the Exchange Act may be
inspected without charge at the public reference facilities of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, New York,
New York, 10048; and Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Section of the Commission upon the payment of certain fees prescribed
by the Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
auditors after the end of each year, commencing with the fiscal year ending
December 31, 1997, and will make available such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
36
AUGMENT SYSTEMS, INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants ......................................................... F-2
Financial Statements:
Balance sheets as of June 30, 1995 and 1996 and September 30, 1996 F-3
Statements of operations for the years ended June 30, 1995 and 1996, the cumulative
period from October 1, 1995 to September 30, 1996 and the three months ended
September 30, 1995 and 1996 ........................................................................... F-4
Statements of stockholders' deficit for the years ended June 30, 1995 and 1996
and the three months ended September 30, 1996 ......................................................... F-5
Statements of cash flows for the years ended June 30, 1995 and 1996, the cumulative
period from October 1, 1995 to September 30, 1996 and the three months ended
September 30, 1995 and 1996 ........................................................................... F-6
Notes to financial statements .......................................................................... F-7 to F-16
</TABLE>
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors
Augment Systems, Inc.
Westford, Massachusetts
We have audited the accompanying balance sheets of Augment Systems, Inc. (a
Development Stage Enterprise) as of June 30, 1995 and 1996 and the related
statements of operations, stockholders' deficit, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Augment Systems, Inc. (a
Development Stage Enterprise) at June 30, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The Company is in the development stage, and as such, success of future
operations is subject to a number of risks. The Company has incurred substantial
losses since inception and there is a substantial doubt about the Company's
ability to continue as a going concern. The Company's ability to continue as a
going concern is dependent upon the anticipated net proceeds from a proposed
initial public offering or obtaining financing by alternative means. These
matters are further discussed in Note 1. The accompanying financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
BDO SEIDMAN, LLP
Boston, Massachusetts
September 10, 1996, except for the fifth
paragraph of Note 7, the third and fourth
paragraph of Note 8 and Note 13 which
are as of February 5, 1997
F-2
AUGMENT SYSTEMS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
--------------------------- SEPTEMBER 30,
1995 1996 1996
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash (Note 2) $ 2,348 $ 889,898 $ 219,647
Inventories (Note 2) -- 113,960 115,791
Prepaid expenses (Note 7) -- 107,300 111,899
------- --------- ---------
Total current assets 2,348 1,111,158 447,337
Property and equipment, net (Notes 2 and 3) 18,033 205,688 359,774
Other assets, net (Note 2) -- 147,874 134,112
------- --------- ---------
Total assets $ 20,381 $ 1,464,720 $ 941,223
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Demand notes payable (Note 4) $ 105,218 $ -- $ --
Accounts payable 63,930 186,434 606,667
Accrued expenses (Notes 5 and 8) 39,456 338,052 246,699
Due to stockholder (Note 8) 5,400 18,900 18,900
Convertible promissory notes (Note 6) -- 425,000 --
Current portion of obligations under capital leases (Note 7) -- 13,400 13,749
------- --------- ---------
Total current liabilities 214,004 981,786 886,015
Convertible promissory notes (Note 6) -- 864,276 864,276
Obligations under capital leases, less current portion (Note 7) -- 19,244 15,629
------- --------- ---------
Total liabilities 214,004 1,865,306 1,765,920
------- --------- ---------
Commitments (Note 7)
Stockholders' deficit (Notes 4, 6, 10 and 11):
Preferred stock, $01. par value; 2,000,000 shares authorized; none issued -- -- --
Common stock, $.01 par value; 30,000,000 shares authorized; 318,717,
2,267,233 and 3,223,384 shares issued and outstanding 3,187 22,672 32,234
Additional paid-in capital 2,134,454 3,444,954 4,769,642
Deficit (2,331,264) (3,868,212) (5,626,573)
---------- ---------- ----------
Total stockholders' deficit (193,623) (400,586) (824,697)
-------- -------- --------
Total liabilities and stockholders' deficit $ 20,381 $ 1,464,720 $ 941,223
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-3
AUGMENT SYSTEMS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30, CUMULATIVE PERIOD FROM
---------------------- ----------------------- OCTOBER 1, 1995 TO
1995 1996 1995 1996 SEPTEMBER 30, 1996
-------- -------- ----------- --------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development expenses
(Note 2) $ 438,549 $ 1,388,149 $ -- $ 1,204,958 $ 2,593,107
General and administrative expenses 46,210 97,456 47,845 295,073 344,684
Selling and marketing expenses -- -- -- 231,261 231,261
---------- ------------ --- ------------ ------------
Total operating expenses 484,759 1,485,605 47,845 1,731,292 3,169,052
---------- ------------ --- ------------ ------------
Operating loss (484,759) (1,485,605) (47,845) (1,731,292) (3,169,052)
---------- ------------ --- ------------ ------------
Other income (expense):
Other income, net 90,069 -- -- -- --
Interest expense (6,165) (51,343) -- (27,069) (78,412)
---------- ------------ --- ------------ ------------
Total other income (expense),
net 83,904 (51,343) -- (27,069) (78,412)
---------- ------------ --- ------------ ------------
Net loss (Note 2) $ (400,855) $(1,536,948) $ (47,845) $(1,758,361) $(3,247,464)
========== =========== =========== =========== ===========
Net loss per share of common stock
(Note 2) $ (.14) $ (.39) $ (.01) $ (.36) $ (.75)
========== =========== ========== =========== ===========
Weighted average number of shares of
common stock and common stock
equivalents outstanding 2,925,029 3,948,735 3,725,815 4,887,412 4,302,345
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
AUGMENT SYSTEMS, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(Notes 4, 6 and 10)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ------------ ADDITIONAL TREASURY STOCK TOTAL
PAID-IN --------------- STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUN DEFICIT
-------- ------- -------- -------- ----------- ------------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 426,257 $ 4,263 302,284 $ 3,023 $ 778,230 $(1,930,409) -- $ -- $(1,144,893)
Issuance of Common Stock in
exchange for certain
liabilities and all
outstanding preferred stock
and common stock (426,257) (4,263) 16,433 164 1,356,224 -- -- -- 1,352,125
Net loss -- -- -- -- -- (400,855) -- -- (400,855)
-------- ------- -------- -------- ----------- ------------ ------ ------- -----------
Balance, June 30, 1995 -- -- 318,717 3,187 2,134,454 (2,331,264) -- -- (193,623)
Issuance of common stock to new
management -- -- 701,177 7,012 3,988 -- -- -- 11,000
Issuance of common stock
in exchange of consulting
services -- -- 258,072 2,580 5,670 -- -- -- 8,250
Issuance of common stock in
exchange of inventories -- -- 30,087 301 100,015 -- -- -- 100,316
Issuance of common stock in
exchange of back rent -- -- 4,461 45 30,280 -- -- -- 30,325
Purchase of treasury stock -- -- -- -- -- -- (4,461) (7,000) (7,000)
Conversion of demand notes
payable and accrued interest
into common stock -- -- 29,216 292 32,708 -- -- -- 33,000
Issuance of common stock in
connection with private
placements -- -- 929,964 9,300 1,144,794 -- -- -- 1,154,094
Retirement of treasury stock -- -- (4,461) (45) (6,955) -- 4,461 7,000 --
Net loss -- -- -- -- -- (1,536,948) -- -- (1,536,948)
-------- ------- -------- -------- ----------- ------------ ------ ------- -----------
Balance, June 30, 1996 -- -- 2,267,233 22,672 3,444,954 (3,868,212) -- -- (400,586)
Issuance of common stock in
connection with private
placements -- -- 812,728 8,128 1,101,122 -- -- -- 1,109,250
Conversion of convertible
promissory notes into common
stock -- -- 143,423 1,434 223,566 -- -- -- 225,000
Net loss -- -- -- -- -- (1,758,361) -- -- (1,758,361)
-------- ------- -------- -------- ----------- ------------ ------ ------- -----------
Balance, September 30, 1996
(Unaudited) -- $ -- 3,223,384 $32,234 $ 4,769,642 $(5,626,573) -- $ -- $ (824,697)
======== ======= ========= ======= =========== ============ ====== ======= ===========
</TABLE>
See accompanying notes to financial statements.
F-5
AUGMENT SYSTEMS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(Note 12)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30, CUMULATIVE PERIOD FROM
------------------------- ------------------------ OCTOBER 1, 1995 TO
1995 1996 1995 1996 SEPTEMBER 30, 1996
-------- ------- --------- --------- -----------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(400,855) $(1,536,948) $(47,845) $(1,758,361) $(3,247,464)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 25,473 56,539 3,134 31,979 85,384
Compensation paid in common stock -- 19,250 14,750 -- 4,500
Changes in operating assets and liabilities:
Inventories -- (13,644) -- (1,831) (15,475)
Prepaid expenses -- (107,300) -- (4,599) (111,899)
Other assets -- (11,079) -- -- (11,079)
Accounts payable (20,860) 152,829 (671) 420,233 573,733
Accrued expenses 390,359 338,052 15,044 (91,353) 231,655
Net cash used for operating activities (5,883) (1,102,301) (15,588) (1,403,932) (2,490,645)
Cash flows from investing activities:
Purchase of property and equipment (4,664) (182,463) -- (172,303) (354,766)
Net cash used for investing activities (4,664) (182,463) -- (172,303) (354,766)
Cash flows from financing activities:
Proceeds from issuance of common stock -- 1,154,094 -- 1,109,250 2,263,344
Proceeds from issuance of convertible promissory
notes -- 1,177,602 -- -- 1,177,602
Proceeds from noninterest bearing loans from
stockholder 5,400 13,500 -- -- 13,500
Proceeds from issuance of promissory notes -- 100,000 100,000 -- --
Payments on capital lease obligations -- (739) -- (3,266) (4,005)
Payments on convertible promissory notes -- -- -- (200,000) (200,000)
Payments on promissory notes -- (100,000) -- -- (100,000)
Purchase of treasury stock -- (7,000) -- -- (7,000)
Deferred financing costs -- (165,143) -- -- (165,143)
--------- ------------ --------- ------------ ------------
Net cash provided by financing activities 5,400 2,172,314 100,000 905,984 2,978,298
--------- ------------ --------- ------------ ------------
Net increase (decrease) in cash (5,147) 887,550 84,412 (670,251) 132,887
Cash, beginning of period 7,495 2,348 2,348 889,898 86,760
--------- ------------ --------- ------------ ------------
Cash, end of period $ 2,348 $ 889,898 $ 86,760 $ 219,647 $ 219,647
========= ============ ========= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND PROPOSED INITIAL PUBLIC OFFERING
Augment Systems, Inc., formerly Augment Systems Incorporated (the
"Company"), a development stage company, designs, develops and sells high-end
super server products designed to move large image and text files rapidly and
efficiently over computer networks. The Company's initial target markets are the
electronic publishing industry and the Internet/Intranet market. The Company
commenced sales of its initial products, high-end Macintosh(R)-based super
servers, in February 1997. The Company plans to introduce in 1997 a Windows
NT(R)-based super server targeted to meet the growing demand for Windows
NT-based high performance Internet/Intranet World Wide Web servers and a super
server system designed to support multi-platform networks comprised of
Macintosh, Windows NT and UNIX-based workstations.
Since October 1995, the Company has been engaged principally in research and
development, recruitment of personnel and financing activities. The Company has
engaged in limited marketing activities and has not generated any revenues and
does not expect to generate revenues until February 1997. The Company is
considered to be in the development stage, and as such, success of future
operations is subject to a number of risks similar to those of other companies
in the same stage of development. Principal among these risks are the risk that
the Company's products will not be accepted in the marketplace; the risk that
the Company will not be successful in developing future products; the risk of
rapid technological changes in the server industry; the Company's limited
operating history, history of losses and accumulated deficit; the Company's need
for additional capital; and the highly competitive nature of the server
industry.
The Company has incurred substantial losses since inception and has been
engaged primarily in product development. The Company has funded these losses
through the private placement of convertible promissory notes and common stock
aggregating approximately $2,300,000 during the year ended June 30, 1996. There
is substantial doubt about the Company's ability to continue as a going concern.
The Company is dependent upon the anticipated net proceeds from a proposed
initial public offering or obtaining financing by alternative means.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
In October 1996 the Company changed its fiscal year-end from June 30 to
December 31.
ESTIMATES AND ASSUMPTIONS
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.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. There were no cash
equivalents at June 30, 1995 and 1996.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
F-7
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets
ranging from three to five years. Property held under capital leases are being
amortized over the lesser of the lease term or their estimated useful lives.
OTHER ASSETS
Other assets include deferred financing costs of $136,795 net of accumulated
amortization of $28,348 at June 30, 1996, related to the convertible promissory
notes discussed in Note 6. These costs are being amortized over 36 months unless
the notes are converted. If converted, the remaining unamortized cost will be
charged against equity.
RESEARCH AND DEVELOPMENT
Research and development costs are expenses as incurred.
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise
Marketed," the Company will capitalize software development costs incurred after
technological feasibility of the software development projects is established
and the realizability of such capitalized costs through future operations is
expected if such costs become material. To date, all of the Company's costs for
research and development of software have been charged to operations as
incurred, as the amount of software development costs incurred subsequent to the
establishment of technological feasibility has been immaterial.
INCOME TAXES
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments, which
include accounts payable, related party accounts, and convertible promissory
notes, approximate their carrying value.
NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock is computed by dividing net loss applicable
to common stockholders by the weighted average number of shares outstanding
during each period presented, as adjusted for the effects of the application of
Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB No.
83"). Pursuant to SAB No. 83, common stock, common stock options and warrants
issued within one year of the initial public offering at a price (or exercise or
conversion price) less than the initial public offering price (estimated at
$5.00 per share) are treated as outstanding for all periods presented. Net loss
per share is computed using the treasury stock method, under which the number of
shares outstanding reflects an assumed use of the proceeds from the issuance of
such shares and from the assumed exercise of such options, to repurchase shares
of the Company's common shares at the initial public offering price. Common
stock equivalents issued prior to this period have not been included since their
effect would be anti-dilutive.
EFFECT OF ACCOUNTING PRONOUNCEMENTS NOT ADOPTED
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
issued by the Financial Accounting Standards Board is effective for financial
statements for fiscal years beginning after December 15, 1995.
F-8
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The new standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets' should be recognized and how impairment losses should be
measured. The Company does not expect the adoption of this standard to have a
material effect on its financial position or results of operations.
The effect of adopting Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("FAS No. 123") has not been
estimated. The Company is required to adopt the disclosure requirements of FAS
No. 123 during the period ended December 31, 1996.
INTERIM FINANCIAL STATEMENTS
The financial statements for the three months ended September 30, 1995 and
1996 are unaudited but, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation. The interim financial statements are not necessarily indicative of
the results of operations for the full fiscal year.
3. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1995 1996 1996
-------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment $115,693 $309,231 $476,043
Furniture and fixtures -- 22,308 27,799
-------- -------- --------
115,693 331,539 503,842
Less accumulated depreciation and amortization 97,660 125,851 144,068
-------- -------- --------
Property and equipment, net $ 18,033 $205,688 $359,774
======== ======== ========
</TABLE>
Property held under capital leases is included in Property and Equipment as
follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1995 1996 1996
-------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment $ -- $33,383 $33,383
Less accumulated amortization -- 564 1,491
------- ------- -------
Net property held under capital leases $ -- $32,819 $31,892
======= ======= =======
</TABLE>
F-9
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
4. DEMAND NOTES PAYABLE
Demand notes payable at June 30, 1995 represented notes issued during 1991
to two venture funds: Massachusetts Technology Development Corporation ("MTDC")
and First Stage Capital Limited Partnership ("First Stage"). The notes bore
interest of 10 percent per annum. In January 1996, MTDC and First Stage
converted the outstanding $105,218 demand notes payable and $39,456 of accrued
interest into $111,674 convertible promissory notes (see Note 6) and 29,216
shares of the Company's common stock at $1.13 per share.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1995 1996 1996
-------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and related taxes $ -- $135,869 $ 52,529
Consulting -- 89,186 77,000
Interest 39,456 47,108 68,715
Other -- 65,889 48,455
Total accrued expenses $39,456 $338,052 $ 246,699
</TABLE>
6. CONVERTIBLE PROMISSORY NOTES
In May 1996, the Company issued $425,000 of convertible promissory notes
that bore interest at the rate of 10 percent per annum. In July 1996, $200,000
of these notes were repaid and in September 1996, $225,000 of these notes were
converted into 143,423 shares of the Company's common stock in accordance with
the notes.
In addition, at June 30, 1996, the Company had outstanding $752,602 of
convertible promissory notes issued to various stockholders of the Company
during September 1995 and May 1996 in connection with a private placement, as
well as $111,674 of convertible promissory notes issued (collectively referred
to as the "Notes") to MTDC and First Stage in connection with the conversion of
demand promissory notes issued in 1991 (see Note 4). The Notes mature three
years from date of issue and bear interest of 10 percent per annum payable at
maturity or upon the earlier of redemption or conversion (see Note 13).
Simultaneous with the closing of the proposed public offering any portion of the
principal and accrued interest of the Notes may be converted to common stock at
the election of the holder at a price equal to the offering price of the
proposed public offering. Following the proposed public offering, any portion of
the principal and interest of the Notes not so converted may be converted at the
option of the holder at the offering price plus $1.00 per share. However, if the
price of the common stock is at least $3.00 above the initial public offering
price for a period of 10 consecutive trading days, the Company may convert any
of the remaining principal and accrued interest at a price equal to $1.00 per
share above the initial public offering price.
F-10
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
7. COMMITMENTS
Leases
The Company leases equipment and its facility under operating leases that
expire through April 1999. Rent expense under these agreements for the years
ending June 30, 1995 and 1996 and the three months ended September 30, 1995 and
1996 was $14,095, $97,049, $3,608 and $72,449, respectively. In addition, the
Company leases certain equipment under capital leases that continue through June
1999. Future minimum payments, by year and in the aggregate, under capital
leases and noncancelable operating leases with initial or remaining terms of one
year or more consisted of the following at June 30, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED JUNE 30, LEASES LEASES
- ------------------- ------ ------
<S> <C> <C>
1997 $ 17,025 $200,433
1998 16,051 200,696
1999 5,340 50,339
Total minimum lease payments 38,416 $451,468
========
Less amount representing interest 5,772
-----
Present value of minimum lease payments 32,644
Less current portion 13,400
------
Long-term portion $ 19,244
========
</TABLE>
In August 1996, the Company entered into non-cancelable operating leases and
capital leases with future minimum lease payments amounting to approximately
$120,000 and $22,000, respectively, that continue through August, 2000.
LICENSE AGREEMENTS
On September 27, 1995, the Company obtained a worldwide license from Radius,
Inc. ("Radius") to use certain of Radius' technology in its products. The
license is exclusive except as to Radius, which has retained rights to its
technology. Under the agreement with Radius, the royalties payable by the
Company initially are the greater of $1,500 per unit or two percent of the
purchase price per unit for the first 200 units, declining in increments based
on the number of units sold to the greater of $750 per unit or one percent of
the purchase price per unit after 1001 units are sold. Royalties will be paid
until the cumulative total of royalties paid equals $10,000,000 at which time
the Company will have a royalty-free license. If the Company fails to sell the
minimum number of units required to be sold pursuant to the agreement for two
consecutive calendar quarters, the technology may be licensed to other parties.
In addition, the Company has granted to Radius an irrevocable, perpetual,
non-exclusive, worldwide, royalty-free license to any modifications to the
Radius technology made by the Company.
The Company entered into a Development and License Agreement dated August 1,
1996 with Polybus Systems Corporation ("Polybus") pursuant to which the Company
obtained an irrevocable, perpetual, worldwide, nonexclusive (except as to
publishing for which the license is exclusive) license to a high speed file
manager software package in consideration for royalty payments. The royalties
payable by the Company pursuant to the Development and
F-11
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
7. COMMITMENTS -- (CONTINUED)
License Agreement are initially $800 per server and $400 per workstation,
declining in increments based upon the number of systems sold to $50 per server
and $25 per workstation until the first 100,000 systems are sold by the Company.
No royalties are payable after the Company sells 100,000 systems. The initial
term of the Development and License Agreement is 25 years and the agreement may
be terminated sooner by Polybus only in the event of a payment default by the
Company. Upon termination of the Development and License Agreement, Polybus may
license the software to third parties in the publishing market. As of June 30,
1996, the Company made advances of $50,000 pursuant to the agreement.
EMPLOYMENT CONTRACT
Effective as of January 1, 1997, the Company entered into a two-year
employment agreement with Mr. Gale, the Company's President and Chief Executive
Officer. Pursuant to such contract, Mr. Gale will be paid a base salary of
$125,000 and has been granted incentive stock options to purchase up to 100,000
shares of Common Stock. Options to purchase 20,000 shares of Common Stock vested
upon the execution of the agreement and options to purchase 40,000 shares of
Common Stock vest on each of the first and second anniversaries of the
agreement. All options have an exercise price of $3.00 per share. Pursuant to
his employment agreement, Mr. Gale agrees not to compete with the Company during
the term of his employment and for one year thereafter.
8. RELATED PARTY TRANSACTIONS
The amounts due to stockholder consist of noninterest-bearing loans to the
Company.
In July 1995, the Company entered into a consulting agreement with Young
Management Group, Inc. ("Young Management"), a company founded by Stanley Young,
who subsequently became a director of the Company in September 1995. Upon the
signing of the agreement, the Company sold 239,038 shares of common stock at
$.016 per share to Young Management. In addition, the Company agreed to pay a
consulting fee of $7,000 per month, plus out-of-pocket expenses, of which $3,000
per month would be deferred until completion of an initial public offering.
Consulting fees expensed in connection with this agreement during the year ended
June 30, 1996 were approximately $85,000 of which $56,000 was accrued at June
30, 1996. Consulting fees expensed in connection with this agreement during the
three months ended September 30, 1996 were $21,000 and an aggregate of $77,000
was accrued at September 30, 1996. In August 1996, Young Management transferred
all of its shares of Common Stock to certain affiliates of Young Management,
including the Stanley A. Young Irrevocable Trust and the Stanley A. Young Family
Limited Partnership.
In May 1996, the Stanley A. Young Irrevocable Trust purchased warrants to
purchase 31,872 shares of Common Stock in a private placement, and in January
1997, the Stanley A. Young Family Limited Partnership purchased warrants to
purchase 17,000 shares of Common Stock in a private placement. In November 1995,
Mr. Young's wife purchased 5,049 shares of Common Stock and was issued a
convertible promissory note in the amount of $19,297 in a private placement. In
October 1996, she converted the principal balance and accrued interest on the
note into 7,093 shares of Common Stock.
In exchange for consulting services rendered, Fred L. Chanowski, a director
of the Company, received (i) warrants to purchase 50,000 shares of Common Stock
in May 1996; and (ii) 40,000 shares of Common Stock in October 1996. In
addition, in October 1996, Mr. Chanowski purchased 62,500 shares of Common Stock
at a price of $1.00 per share in connection with a private placement. Mr.
Chanowski is a 6.125% member in Alpha Ventures LLC which holds 103,386 shares of
the Company's Common Stock and warrants to purchase 15,936 shares of Common
Stock.
F-12
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
At June 30, 1995, the Company had no deferred tax assets or liabilities. At
June 30, 1996, the Company had a gross deferred tax asset of $440,000, related
to a net operating loss carryforward, for which a valuation allowance of
$440,000 was recorded. The Company had no deferred tax liability at June 30,
1996. The increase in the deferred tax asset valuation allowance of $440,000 was
attributable to the increase in the deferred asset related to the net operating
loss carryforward.
Due to operating losses generated, there is no provision for federal and
state income taxes for the years ended June 30, 1995 and 1996.
The difference between the effective tax rate and the United States federal
rate of 34 percent for the years ended June 30, 1995 and 1996 relates to the
limitations applicable to the recognition of tax benefits from the net operating
losses.
At June 30, 1996, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $1,300,000 which expires in 2011.
Net operating loss carryforwards are subject to review and possible adjustment
by the Internal Revenue Service and may be limited in the event of certain
cumulative changes in the ownership interests of significant stockholders over a
three year period in excess of 50 percent. As a result of the change in
ownership of the Company in June 1995, the ultimate utilization of the Company's
net operating losses were substantially eliminated as of June 30, 1995. As a
result of the change in ownership of the Company in June 1996, the ultimate
utilization of the Company's net operating losses are expected to be limited to
approximately $200,000 annually. The Company may experience an additional change
in ownership in excess of 50 percent upon completion of the proposed public
offering which would place further limitations on the utilization of net
operating losses.
10. CAPITAL STOCK
PREFERRED STOCK
During 1990, the Company issued 426,257 shares of preferred stock to several
venture funds and the initial founders of the Company. In May 1995 as part of a
restructuring of the capital structure of the Company, the preferred stock was
converted into common stock. In July 1995, the Board of Directors' approved an
increase in the number of authorized shares of preferred stock from 593,602
shares to 2,000,000 shares.
The preferred stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by the Board of Directors, without
further action by stockholders, and may include voting rights, preferences to
dividends and liquidation, conversion and redemption rights and sinking fund
provisions.
COMMON STOCK
During the year ending June 30, 1995, the Company issued 318,717 shares of
its common stock in exchange for $1,280,596 in accrued salaries, $71,529 in
debt, 426,257 shares of preferred stock, and 302,284 shares of common stock.
F-13
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
10. CAPITAL STOCK -- (CONTINUED)
From September 1995 through April 1996, the Company issued 196,915 shares of
its common stock at a price of $1.13 per share in a private placement of common
stock and convertible promissory notes (see Note 6). Proceeds net of financing
costs of $48,824 were $173,594. From May 1996 through June 1996, the Company
issued 733,049 shares of its common stock at a price of $1.57 per share in a
private placement. Proceeds net of financing costs of $169,500 were $980,500.
In January 1996, demand notes payable and accrued interest were converted
into 29,216 shares of the Company's common stock and convertible promissory
notes (see Note 4). In addition, during the year ended June 30, 1996, the
Company issued 292,620 shares of its common stock as payment for consulting
services, inventories and back rent.
At June 30, 1996, 110,181 shares of common stock were reserved for the
conversion of convertible promissory notes, 277,283 shares were reserved for
issuance under outstanding stock options and 354,699 shares were reserved for
issuance under warrants.
In July 1996, the Board of Directors approved an increase in the number of
authorized shares of common stock from 2,000,000 shares to 15,000,000 shares.
Between July 1996 and September 1996, the Company completed a private
placement of 812,728 shares of its common stock at a price of $1.57 per share.
Proceeds, net of financing costs of $165,750, were $1,109,250.
WARRANTS
From November 1995 to May 1996, the Company issued (i) warrants to purchase
in the aggregate 325,412 shares of Common Stock at an exercise price of $1.13
per share, of which 28,686 have an expiration date four years from the date of
issuance and 296,726 have an expiration date five years from the date of
issuance; and (ii) warrants (to a placement agent) to purchase an aggregate of
29,287 shares of Common Stock at a price of $1.13 per share and expiring between
November 22, 2000 and May 31, 2001. In July 1996, the Company issued a warrant
to purchase 31,872 shares of Common Stock at an exercise price equal to one half
of the price of the shares of Common Stock in the Company's initial public
offering and with an expiration date five years from the date of issuance. In
October 1996, the Company issued a warrant to purchase 15,936 shares of Common
Stock at an exercise price of $1.57 per share and with an expiration date five
years from the date of issuance. In December 1996, the Company issued a warrant
to purchase 50,000 shares of the Company's Common Stock at an exercise price of
$3.00 per share and with an expiration date five years from the date of
issuance. From December 1996 through January 1997, the Company issued warrants
to purchase in the aggregate 1,218,900 shares of Common Stock, 609,450 of which
have an exercise price of $2.50 per share and 609,450 of which have an exercise
price equal of $3.75 per share. These warrants are exercisable for a period of
three years commencing on December 30, 1997.
11. STOCK OPTION PLAN
In July 1995, the Company adopted its 1995 Stock Option Plan. Under this
plan, the Board of Directors, at their discretion, can issue either incentive
stock options or nonqualified options to employees and nonqualified options to
consultants, directors or other nonemployees.
Incentive stock options may not be granted at a price less than the fair
market value of the shares at the grant date (or less than 110% of fair market
value in the case of employees or officers holding 10% or more of the voting
stock) while the nonqualified options may not be granted at a price lower than
the lesser of 50%
F-14
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
11. STOCK OPTION PLAN -- (CONTINUED)
of the fair market value of the shares at the grant date or the book value of
the shares as of the end of the fiscal year of the Company immediately preceding
the date of the grant. All grants as of June 30, 1996 were at fair market value
or greater. The options generally vest 10% after 30 days from the date of grant
and the balance ratably over a period of four years. Incentive stock options
granted under the plan expire not more than 10 years from the date of grant and
not more than five years in the case of incentive stock options granted to an
employee or officer holding 10% or more of the voting stock of the Company. All
options not exercised at the end of the vesting period automatically expire. The
aggregate number of shares which may be granted under this plan may not exceed
800,000 shares.
As of June 30, 1996, the Company had granted 277,283 options, at prices
ranging from $1.13 to $1.57 per share. In addition, at June 30, 1996, there were
522,717 options available for grant and no options exercisable. During the three
months ended September 30, 1996, the Company granted 100,912 options at $1.57
per share and 12,749 options were cancelled at $1.13 per share.
12. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30, CUMULATIVE
-------------------- ------------------------ PERIOD FROM
OCTOBER 1, 1995 TO
1995 1996 1995 1996 SEPTEMBER 30, 1996
---- ---- ---- ---- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental schedule of cash payments:
Cash paid for interest $ -- $ 4,235 $ -- $ 5,462 $ 9,697
Cash paid for income taxes -- -- -- -- --
Supplemental schedule of noncash financing and
investing activities:
Inventories paid with common stock -- 100,316 -- -- 100,316
Property and equipment acquired by capital lease
obligations -- 33,383 -- -- 33,383
Accrued rent paid with common stock -- 30,325 -- -- 30,325
Conversion of demand notes payable and accrued
interest into convertible promissory notes -- 111,674 -- -- 111,674
Conversion of demand notes payable and accrued
interest into common stock -- 33,000 -- -- 33,000
Conversion of convertible promissory notes into
common stock -- -- -- 225,000 225,000
Accrued payroll paid with common stock 1,280,596 -- -- -- --
Debt paid with common stock 71,529 -- -- -- --
</TABLE>
13. SUBSEQUENT EVENTS
In October 1996, the Company completed a private placement of 318,717 shares
of its common stock at a price of $1.57 per share. Proceeds, net of financing
costs of $65,000, were $435,000.
Subsequent to September 30, 1996, the Company granted options to purchase
156,054 shares of Common Stock pursuant to the Stock Option Plan at exercise
prices ranging from $1.57 to $4.00 per share.
F-15
AUGMENT SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996,
AND FOR THE PERIOD FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED)
13. SUBSEQUENT EVENTS -- (CONTINUED)
In October 1996, the Board of Directors declared a .637434-for-one reverse stock
split of the Company's Common Stock and approved an increase in the number of
authorized shares of Common Stock from 15,000,000 shares to 30,000,000 shares.
All Common Stock, Common Stock options and per share information disclosed in
the financial statements and notes have been adjusted to give effect for this
stock split.
On November 30, 1996, the Company converted $802,018 of the outstanding
convertible promissory notes and $71,488 in accrued interest into 291,165 shares
of the Company's Common Stock at a conversion rate of $3.00 per share (see Note
6).
In October 1996, the Company reclassified 22,734 shares from treasury stock
to authorized but unissued Common Stock.
In December 1996, the Company converted (i) $18,900 of outstanding debt due
to a stockholder into 6,300 shares of Common Stock, and (ii) $11,550 of
consulting fees into 3,850 shares of Common Stock.
On January 1, 1997, the Company granted, to the President and Chief
Executive Officer of the Company, options to purchase up to 100,000 shares of
Common Stock in connection with a key employment agreement.
In February 1997, the Company completed a private placement of 71.7 units
consisting of (i) a Class A promissory note in the principal amount of $25,000
bearing interest, payable at maturity, at the rate of 12 percent per annum due
and payable on the earlier of: (a) the closing of an initial public offering
("IPO") of the Company's Common Stock, (b) November 30, 1997; or (c) the sale by
the Company of substantially all of its assets, or upon the sale or merger of
the Company; (ii) a Class A warrant to purchase 8,500 share of Common Stock at
an exercise price of one-half the offering price of the Common Stock in an IPO,
provided that the IPO is completed by May 31, 1997; otherwise $1.00 per share;
(iii) a Class B promissory note in the principal amount of $25,000 bearing
interest, payable at maturity, at the rate of 12 percent per annum due and
payable on the earlier of: (a) the closing of an IPO, if such IPO is completed
by May 31, 1997; (b) May 31, 1998; or (c) the sale by the Company of
substantially all of its assets, or upon the sale or merger of the Company; and
(iv) a Class B warrant to purchase 8,500 share of Common Stock at an exercise
price of three-fourths of the offering price of the Common Stock in an IPO,
provided that the IPO is completed by May 31, 1997; otherwise $1.00 per share.
Proceeds, net of financing costs of $438,750, were $3,146,250.
F-16
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT 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 6
Dilution 11
Use of Proceeds 12
Capitalization 14
Dividend Policy 14
Management's Discussion and Analysis of
Financial Condition and Plan of Operation 15
Business 17
Management 24
Principal Stockholders 27
Certain Transactions 28
Description of Securities 28
Shares Eligible for Future Sale 32
Underwriting 34
Legal Matters 35
Experts 35
Available Information 36
Index to Financial Statements F-1
</TABLE>
-----------------
UNTIL , 1997 (25 CALENDAR DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK AND THE WARRANTS, 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. AUGMENT SYSTEMS, INC.
================================================================================
================================================================================
[Logo)
2,000,000 SHARES OF COMMON STOCK
AND
2,000,000 REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
----------
PROSPECTUS
----------
LAIDLAW EQUITIES, INC.
GKN SECURITIES CORP.
, 1997
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as hereinafter set forth, there is no statute, charter provision,
by-law, contract or other arrangement under which any controlling person,
director or officer of Augment Systems, Inc. ("Registrant") is insured or
indemnified in any manner against liability which he may incur in his capacity
as such.
See the fifth and sixth paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission with respect to
the effect of any indemnification for liabilities arising under the Securities
Act of 1933, as amended ("Securities Act").
The Registrant's Certificate of Incorporation, as amended ("Certificate of
Incorporation"), provides that the Registrant shall indemnify, to the fullest
extent permitted by Section 145 of the General Corporation Law of Delaware, as
amended (the "GCL"), each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
Registrant, or is or was serving, or has agreed to serve, at the request of the
Registrant, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom. Such paragraph provides further that the
indemnification may include payment by the Registrant of expenses in defending
an action or proceeding in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by the person indemnified to repay
such payment if it is ultimately determined that such person is not entitled to
indemnification hereunder, which undertaking may be accepted without reference
to the financial ability of such person to make such repayment. Such paragraph
provides further, however, that the Registrant shall not indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person unless the initiation thereof was approved by its Board
of Directors.
The Certificate of Incorporation provides that the indemnification rights
set forth above (i) shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any law, agreement or vote of
stockholders or disinterested directors or otherwise, and (ii) shall inure to
the benefit of the heirs, executors and administrators of such persons. Such
paragraph provides further that the Registrant may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Registrant or other persons serving the
Registrant and such rights may be equivalent to, or greater or less than, those
set forth in herein.
Section 145 of the GCL provides as follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement,
II-1
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this section.
Such expenses incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section.
II-2
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Registrant also maintains liability insurance for its directors and
officers.
Pursuant to Section [ ] of the Underwriting Agreement, the Underwriters have
agreed to indemnify each director of the Registrant, each officer of the
Registrant who has signed the Registration Statement and any person who controls
the Registrant within the meaning of the Securities Act against certain
liabilities, including liabilities under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered are estimated as follows:
Securities and Exchange Commission Registration Fee $ 8,463.65
NASD Filing Fee 3,295.41
Nasdaq and Boston Stock Exchange Listing Fees 25,000.00
Blue Sky Fees and Expenses 50,000.00
Legal Fees and Expenses 135,000.00
Accounting Fees and Expenses 75,000.00
Printing and Engraving Expenses 100,000.00
Transfer Agent Fees 7,500.00
Miscellaneous Expenses 20,740.94
---------
Total $ 425,000.00
============
The Registrant will bear all expenses shown above.
II-3
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to all securities sold by the Registrant
without registration under the Securities Act within the three years prior to
the filing of this Form SB-2. The number of shares and the price per share have
been restated to reflect a .637434-for-1 reverse split of the Registrant's
Common Stock on October 30, 1996.
(1) On July 1, 1995, the Registrant issued an aggregate of 312,159 shares
of its Common Stock to 17 persons, in lieu of cash payments for
services rendered.
(2) On July 1, 1995, the Registrant issued 95 shares of its Common Stock to
one person in lieu of a cash payment for the repayment of debt.
(3) On July 1, 1995, the Registrant issued an aggregate of 6,463 shares of
its Common Stock to nine persons in lieu of cash payments for services
rendered.
(4) On July 15, 1995, the Registrant issued an aggregate of 940,215 shares
of its Common Stock to ten persons in lieu of cash payments for
services rendered.
(5) On December 1, 1995, the Registrant issued 30,087 shares of its Common
Stock to Radius for certain assets valued by Radius at $100,316 in
connection with a license agreement entered into between the Registrant
and Radius.
(6) On December 8, 1995, the Registrant issued an aggregate of 29,216
shares of its Common Stock and convertible promissory notes in the
aggregate principal amount of $111,674.08 to Massachusetts Technology
Development Corporation and First Stage Capital Limited Partnership
upon the conversion of a portion of prior debt and accrued interest in
the aggregate amount of $144,675.
(7) From November 22, 1995 through May 31, 1996, the Registrant sold an
aggregate of 196,915 shares of Common Stock and issued secured
convertible promissory notes in the aggregate principal amount of
$752,602.50 to 22 accredited investors for an aggregate purchase price
of $975,000 in a private placement. Rickel & Associates, Inc., a New
York corporation, acted as the placement agent for the private
placement and was (i) paid by the Registrant an aggregate of $126,750,
consisting of a selling commission and an expense allowance, and (ii)
issued a warrant to purchase ten percent (10%) of the total number of
shares of Common Stock issued in the offering and shares issuable upon
conversion of the notes, or 29,287 shares of Common Stock, at an
exercise price of $1.13 per share.
(8) On January 2, 1996, the Registrant issued an aggregate of 19,034 shares
of its Common Stock to two persons in lieu of cash payments for
consulting services rendered.
(9) In January 1996, the Registrant issued three promissory notes in the
aggregate principal amount of $150,000 and warrants to purchase in the
aggregate 28,686 shares of its Common Stock, at an exercise price of
$1.13 per share, to five persons in connection with a private
placement. In the same month, the Registrant repaid the entire
principal amount plus accrued interest to the three note holders.
(10) In February 1996 and April 1996, the Registrant issued warrants to
purchase in the aggregate 97,526 shares of its Common Stock, at an
exercise price of $1.13 per share, to four persons in lieu of cash
payments for services rendered.
(11) In May 1996, the Registrant issued warrants to purchase in the
aggregate 63,744 shares of its Common Stock, at an exercise price of
$1.13 per share, to three persons in lieu of cash payments for services
rendered.
II-4
(12) In May 1996, the Registrant issued convertible promissory notes in the
principal aggregate amount of $425,000 to nine people and warrants to
purchase in the aggregate 135,456 shares of its Common Stock, at an
exercise price of $1.13 per share, to 12 persons in connection with a
private placement. In July and August 1996, the Registrant repaid an
aggregate of $200,000 in principal plus accrued interest to four of the
nine note holders.
(13) From August 1996 to October 1996, the five remaining note holders from
the nine people who were issued convertible promissory notes as
described in paragraph (12) converted their promissory notes, in the
aggregate principal amount of $225,000, into 143,423 shares of the
Registrant's Common Stock.
(14) From June 20, 1996 through October 16, 1996, the Registrant sold an
aggregate of 1,864,494 shares of Common Stock to 17 accredited
investors for an aggregate purchase price of $2,925,000 in a private
placement. Rickel & Associates, Inc., a New York corporation, acted as
the placement agent for the private placement and was paid $387,750 by
the Registrant, consisting of $7,500 for expenses and a nonaccountable
expense allowance and a selling commission.
(15) In July 1996, the Registrant issued a warrant to purchase 31,872 shares
of its Common Stock, at an exercise price of one-half of the price of
the shares of Common Stock, in an initial public offering consumated by
the Registrant, to one person in lieu of cash payment for services
rendered.
(16) In September 1996, the Registrant issued an aggregate of 9,562 shares
of its Common Stock to six persons in lieu of cash payments for
services rendered.
(17) In October 1996, the Registrant issued an aggregate of 63,320 shares of
its Common Stock to 11 persons in lieu of cash payments for services
rendered.
(18) From October 1995 to November 1996, the Registrant granted to certain
of its employees, pursuant to its Stock Option Plan, options to
purchase an aggregate of 431,503 of its Common Stock at an exercise
price of either $1.13 or $1.57 per share.
(19) In October 1996, the Registrant issued a warrant to purchase 15,936
shares of its Common Stock, at an exercise price of $1.57 per share,
effective as of August 1996, to one person in lieu of cash payment for
services rendered.
(20) On November 30, 1996, the Registrant issued an aggregate of 291,165
shares of its Common Stock upon the conversion of the convertible
promissory notes, in the aggregate principal amount of $802,018, held
by the 22 people who were issued such notes in paragraph (6) and (7).
(21) In December 1996, the Registrant issued a warrant to purchase 50,000
shares of its Common Stock, at an exercise price of $3.00 per share, to
one person in lieu of cash payment for services rendered.
(22) From December 1996 through February 1997, the Registrant issued
warrants to purchase in the aggregate 1,218,900 shares of Common Stock,
at an exercise price equal to either (i) $1.00 per share or, (ii) if
the Registrant consummates an initial public offering ("IPO") by a
certain date, either one-half or three-fourths of the offering price of
a share of the Common Stock in the IPO, and issued promissory notes in
the aggregate principal amount of $3,585,000 to 53 accredited investors
for an aggregate purchase price of $3,585,000 in a private placement.
Laidlaw Equities, Inc. acted as the placement agent for the private
placement and was paid approximately $438,750 by the Registrant,
consisting of a nonaccountable expense allowance and a selling
commission.
(23) In December 1996, the Registrant issued an aggregate of 10,150 shares
of its Common Stock to two persons upon the conversion of prior debt in
the aggregate amount of $30,450.
II-5
Except in the transactions described in Items (6), (7), (13), (14), (20) and
(22), the Registrant issued the above securities without registration in
reliance upon the exemption provided by Section 4(2) of the Securities Act as a
transaction to a limited number of investors which did not involve a public
offering, general solicitation or general advertisement. There were no
underwriters involved in any of these transactions other than those described in
Items (7), (14) and (22) as discussed below.
In Items (6), (13) and (20), the Registrant issued the above securities
without registration in reliance upon the exemption provided by Section 3(a)(9)
of the Securities Act as a transaction in which the Registrant exchanged
securities with its existing security holders and no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchange.
In Items (7), (14) and (22), the Registrant issued the above securities
without registration in reliance upon the exemption provided by Rule 506 of
Regulation D of the Securities Act as transactions in which there was no general
solicitation or general advertisement, and the securities were offered and sold
only to accredited investors who represented that they had the necessary
experience and knowledge in financial and business matters to evaluate the
merits and risks of the investment.
ITEM 27. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
*1.1 -- Form of Underwriting Agreement to be entered into by the Underwriters.
3.1 -- Certificate of Incorporation of the Registrant, as amended.
3.2 -- By-laws of Registrant.
*4.1 -- Specimen Common Stock Certificate of Registrant.
*4.2 -- Form of Underwriters' Purchase Option.
*4.3 -- Proposed Specimen Redeemable Common Stock Purchase Warrant.
*4.4 -- Form of Warrant Agreement.
*5 -- Opinion of Warner & Stackpole LLP on legality of securities being registered, dated .
10.1 -- Lease Agreement of Corporate Headquarters in Westford, Massachusetts between New
England Mutual Life Insurance Company and the Registrant dated October 23, 1995.
10.1.1 -- First Amendment to Lease Agreement of Corporate Headquarters dated as of January 31, 1996.
10.2 -- Lease Agreement of Sales Office in San Diego, California between The Parkwest
Partners and the Registrant dated July 1, 1996.
10.3 -- Restated Technology License Agreement between Radius Inc. and the Registrant dated
as of September 27, 1995.
10.3.1 -- First Amendment to Restated Technology Agreement between Radius Inc. and the Registrant
dated as of October 28, 1996.
10.4 -- Software Development and License Agreement between Polybus Systems Corporation and the
Registrant dated as of August 1, 1996.
10.5 -- Form of Warrant as issued to Registrant's other Warrantholders.
10.6 -- Form of Warrant as issued to placement agent in Registrant's private placement
completed in October 1996.
10.7 -- Form of Promissory Note from Registrant's private placement completed in May 1996.
10.8 -- Form of Registration Rights Agreement for shares underlying warrants issued in
Registrant's private placement completed in May 1996.
10.9 -- Form of Registration Rights Agreement for shares of common stock issued in Registrant's
private placement completed in October 1996.
10.10 -- Form of Class A Warrant from Registrant's private placement completed in January
1997.
10.11 -- Form of Class B Warrant from Registrant's private placement completed in January
1997.
10.12 -- Form of Class A Promissory Note from Registrant's private placement completed
in January 1997.
10.13 -- Form of Class B Promissory Note from Registrant's private placement completed
in January 1997.
10.14 -- Consulting Agreement between Young Management Group, Inc. and the Registrant dated
July 1995.
II-6
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
10.15 -- Registrant's 1995 Stock Option Plan.
*10.16 -- Employment Agreement, dated as of January 1, 1997, by and between the Registrant
and Lorrin G. Gale.
10.17 -- Noncompetition, Nondisclosure Agreement, dated as of January 1, 1997 by and between
the Registrant and Duane A. Mayo.
11 -- Computation of Net Loss per share of Common Stock.
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of Warner & Stackpole LLP (included in Exhibit 5).
24 -- Power of Attorney (included in the signature page hereto).
27 -- Financial Data Schedule.
----------
* To be filed by amendment.
</TABLE>
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the Offering of the securities of the securities
at that time to be the initial bona fide Offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
(4) Provide to the Underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(5) For determining any liability under the Securities Act, treat 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 as part of this registration
statement as of the time the Commission declared it effective.
(6) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of the securities at that time as the
initial bona fide Offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-7
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF
WESTFORD, COMMONWEALTH OF MASSACHUSETTS, ON , 1997.
AUGMENT SYSTEMS, INC.
(Registrant)
By:
___________________________________
LORRIN G. GALE,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints Lorrin G.
Gale and Duane A. Mayo and each of them, with full power to act without the
other, his true and lawful attorney-in-fact and agent, 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 to this Registration
Statement (including post-effective amendments and amendments thereto) and any
registration statement relating to the same Offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing,
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM SB-2 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ------ -----
<S> <C> <C>
/s/ Lorrin G. Gale
- ------------------------------------------ CHIEF EXECUTIVE OFFICER, February 7, 1997
LORRIN G. GALE PRESIDENT AND CHAIRMAN
OF THE BOARD
/s/ Duane A. Mayo
- ------------------------------------------
DUANE A. MAYO CHIEF FINANCIAL OFFICER, February 7, 1997
TREASURER, SECRETARY AND
DIRECTOR
/s/ Chapell Cory III
- ------------------------------------------
CHAPELL CORY III DIRECTOR February 7, 1997
/s/ Gregory M. Millar
- ------------------------------------------
GREGORY M. MILLAR DIRECTOR February 7, 1997
/s/ Stanley A. Young
- ------------------------------------------
STANLEY A. YOUNG DIRECTOR February 7, 1997
/s/ Fred L. Chanowski
- ------------------------------------------
FRED L. CHANOWSKI DIRECTOR February 7, 1997
</TABLE>
II-8
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
Lextel, Inc.
FIRST. The name of the Corporation is: Lextel, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 1,000,000 shares of Common Stock, $.0l par value per
share.
FIFTH. The name and mailing address of the sale incorporator are as
follows;
NAME MAILING ADDRESS
---- ---------------
Lorrin G. Gale 22 Circuit Drive
Stow, Massachusetts 01775
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on , the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this
corporation under the provisions of section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH. Except to the extent that the General Corporation Law of the
State of Delaware prohibits the elimination or limitation of liability of
directors for breaches of fiduciary duty, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
NINTH. The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as amended from time to
time, indemnify each person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and the Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Stow, Mass., on April 30, 1990.
/s/ Lorrin G. Gale
-------------------------------
Lorrin G. Gale, Incorporator
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
LEXTEL, INC.
Pursuant to Section 241 of the
General Corporation Law of the State of Delaware
------------------------------------------------
The undersigned, being a majority of the Board of Directors of Lextel, Inc. (the
"Corporation") , a corporation organized and existing under and by virtue of the
provisions of the General Corporation Law of the State of Delaware, the
Certificate of Incorporation of which was filed in the office of the Secretary
of State on May 2, 1990 and received for recording in the office of the Recorder
of Deeds for New Castle County, State of Delaware, on May 29, 1990, DO HEREBY
CERTIFY:
FIRST: That the Corporation has not received any payment for any of its stock.
SECOND: That the Certificate of Incorporation shall be amended to change the
name of the Corporation to Augment Systems Incorporated. Such amendment
shall be effected by amending article FIRST of the Certificate of
Incorporation to read as follows:
"FIRST. The name of the corporation is
Augment Systems Incorporated"
THIRD: That the foregoing amendment of the Certificate of Incorporation has
been duly adopted in accordance with the provisions of Section 241 of
the General Corporation Law of the State of Delaware.
Executed this 15th day of June, 1990.
/s/ Lorrin G. Gale
----------------------------
Lorrin G. Gale
/s/ Theodore G. Johnson
----------------------------
Theodore G. Johnson
/s/ Morton E. Ruberman
----------------------------
Morton E. Ruderman
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AUGMENT SYSTEMS INCORPORATED
Pursuant to Section 242
of the Corporation Law of
the State of Delaware
---------------------
Augment Systems Incorporated (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation a resolution
was duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Certificate of
Incorporation of the Corporation and declaring said amendment to be advisable.
The stockholders of the Corporation duly approved said proposed amendment by
written consent in accordance with Sections 228 and 242 of the General
Corporation Law of the State of Delaware and written notice of such consent has
been given to all stockholders who have not consented in writing to said
amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted and the following Article FOURTH is
inserted in lieu thereof;
FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is (i) 2,000,000 shares of Common
Stock, $.0l par value per share ("Common Stock") and (ii) 593,602 shares of
Preferred Stock $.0l par value per share ("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
-------------
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor an and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. SERIES A PREFERRED STOCK.
-------------------------
Five Hundred Ninety-Three Thousand Six Hundred Two (593,602) shares of
the authorized and unissued Preferred Stock of the Corporation are designated
"Series A Preferred Stock" (the "Series A Preferred Stock") with the following
rights, preferences, powers, privileges and restrictions, qualification and
limitations.
1. Dividends.
----------
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive, prior to any payment of any cash dividend on any shares of
stock of the Corporation, cumulative dividends, which dividends shall accrue
semi-annually from the date of issue at the rate of $.185 per share per annum
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares), and
no more, payable when and as declared by the Board of Directors of the
Corporation on such date as shall be fixed by the Board of Directors. The right
to receive dividends on Series A Preferred Stock shall be cumulative and shall
accrue in the event that no dividend has been declared on the Series A Preferred
Stock in any prior year.
(b) The Corporation shall not declare or pay any dividends or
other distributions (as defined in paragraph (c) below) on shares of Common
Stock until the holders of the Series A Preferred Stock then outstanding shall
have first received a dividend at the rate specified in paragraph (a) of this
Section l, including, without limitation, any accrued but unpaid dividends from
any prior year, whether or not declared by the Board of Directors.
(c) For purposes of this Section 1 unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of capital stock
of the Corporation held by employees or directors of, or consultants to, the
Corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase at a price equal to the original issue
price of such shares and other than redemptions in liquidation or dissolution of
the Corporation) for cash or property, including any such transfer, purchase or
redemption by any subsidiary of this Corporation.
2. Liquidation, Merger and Record Date.
------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders before any
payment shall be made to the holders of Common Stock or any other class or
series of stock ranking on liquidation junior to the Series A Preferred Stock
(such Common Stock and other stock being collectively referred to as "Junior
Stock") by reason of their ownership thereof, an amount equal to $1.57 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any dividends accrued or declared but unpaid thereon. if upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full. Upon payment of the amount called for by this
Section 2(a) the shares of Series A Preferred Stock shall be deemed to have been
redeemed in full and the holders of these shares shall have no further rights as
holders of such shares.
(b) After the payment of all preferential amounts required to be
paid to the holders of Series A, Preferred Stock and any other class or series
of stock of the Corporation ranking on liquidation on a parity with the Series A
Preferred Stock, upon the dissolution liquidation or winding up of the
Corporation, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation available
for distribution to its stockholders,
(c) The merger or consolidation of the Corporation into or with
another corporation (except if the Corporation is the surviving entity and the
holders of capital stock of the Corporation immediately prior to such merger or
consolidation continue to hold at least 51% by voting power of the capital stock
of the surviving Corporation), or the sale of all or substantially all the
assets of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Section 2 if the holders of
at least 66 2/3% of the then outstanding shares of Series A Preferred Stock so
elect within ten days of the receipt of a written notice thereof from the
Corporation before the effective date of such event; provided, however, that if
(i) the holders of at least 66-2/3% of the outstanding shares of Series A
Preferred Stock approve such merger, consolidation or sale and (ii) such merger,
consolidation or sale is effected through an exchange of shares or other
mechanism whereby the Corporation does not receive, at the time of such merger
or consolidation, cash or other property payments sufficient to make the
payments required by Section 2(a), then the holders of Series A Preferred Stock
shall have no right to treat such merger, consolidation or sale as a
liquidation, dissolution or winding-up of the Company and to receive any
payments pursuant to this Section 2 by reason of such merger or consolidation.
The value of such property , rights or other securities shall be determined in
good faith by the Board of Directors of the Corporation.
(d) In the event of:
(i) 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 or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right; or
(ii) any capital reorganization of the Corporation,
any reclassification or recapitalization of the capital stock of the Corporation
or any transfer of all or substantially all of the assets of the Corporation to
any other corporation, or any other entity or person, then and in each such
event, the Corporation shall mail or cause to be mailed to each holder of
Preferred Stock a notice specifying (a) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (b) the date on which any
such reorganization, reclassification recapitalization, transfer consolidation,
merger, dissolution, liquidation or winding up is expected to become effective
and (c) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be mailed at least twenty (20) days prior to the date specified in
such notice on which such action is to be taken.
3. Voting. Except as otherwise provided by the laws of the State of
Delaware, the holders of Series A Preferred Stock shall have no voting rights
and the entire voting power for the election of directors of the Corporation and
for all other purposes shall be vested in the holders of Common Stock.
4. Protective Provisions. So long as any shares of Series A Preferred
Stock are outstanding, the Corporation shall not, without first obtaining the
approval of at least 66-2/3% of the then outstanding shares of Preferred Stock:
(a) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), or declare and pay or
set aside funds for the payment of any dividend with respect to, any share or
shares of Common or Preferred Stock, except as required or permitted under this
Certificate of Incorporation; or
(b) authorize or issue, or obligate itself to authorize or
issue, additional shares of Preferred Stock; or
(c) authorize or issue, or obligate itself to authorize or
issue, any other equity security senior to or on a parity with the Preferred
Stock as to liquidation preferences, dividend rights, conversion rights or
voting rights; or
(d) except as permitted in paragraph 2(c) above, merge or
consolidate with any other corporation, or sell, assign, lease or otherwise
dispose of or voluntarily part with the control of (whether in one transaction
or in a series of related transactions) all, or substantially all, of its assets
(whether now owned or hereafter acquired) except for sales or other dispositions
of assets in the ordinary course of business and except that (i) any wholly
owned subsidiary may merge into or consolidate with or transfer assets to any
other subsidiary and (ii) any wholly owned subsidiary may merge into or transfer
assets to the Corporation; or
(e) alter the size of the Board of Directors of the
Corporation;
(f) authorize the Corporation to transfer any patent,
copyright, trademark, trade secret or other intellectual property right; or
(g) amend this Article FOURTH.
Nothing contained in this Section 4 shall be deemed to limit any rights
which may otherwise be available under the General Corporation Law of the State
of Delaware. The provisions of this Section 4 shall terminate upon the effective
date of a registration statement filed by the Corporation under the Securities
Act of 1933 covering the Corporation's initial public offering of Common Stock
resulting in gross proceeds to the Company, and, if applicable, any selling
stockholders of at least $5,000,000.
5. Optional Redemption by the Holders.
-----------------------------------
(a) Subject to the terms of Subsection 5(d), at any time and
from time to time after December 5, 1995, the holders of 66-2/3% of the
outstanding Series A Preferred Stock may request the Corporation to redeem all
(or any lesser amount requested by such holders) of the Series A Preferred Stock
by paying $1.583 per share (subject to appropriate adjustment for stock splits,
stock dividends, combinations or other similar recapitalizations affecting such
shares), plus any dividends accrued but unpaid thereon, in cash, for each share
of Series A Preferred stock then redeemed (hereinafter referred to as the
"Redemption Price").
(b) At least 30 days prior to the date fixed for any
redemption of Series A Preferred Stock (hereinafter referred to as the
"Redemption Date"), written notice shall be mailed, by first class or registered
mail, postage prepaid, to each holder of record of Series A Preferred Stock to
be redeemed, at his or its address last shown on the records of the transfer
agent of the Series A Preferred Stock (or the records of the Corporation, if it
serves as its own transfer agent) notifying such holder of the election of the
holders of 66-2/3% of the Series A Preferred Stock to compel the Corporation to
redeem such shares, specifying the Redemption Date and calling upon such holder
to surrender to the Corporation, in the manner and at the place designated, his
or its certificate or certificates representing the shares to be redeemed (such
notice is hereinafter referred to as the "Redemption Notice"). On or prior to
the Redemption Date, each holder of Series A Preferred Stock to be redeemed
shall surrender his or its certificate or certificates representing such 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 cancelled. 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 the Series A Preferred
Stock designated for redemption in the Redemption Notice as holders of Series 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) On or prior to the Redemption Date, the Corporation shall
deposit the Redemption Price of all shares of Series A Preferred Stock
designated for redemption in the Redemption Notice and not yet redeemed with a
bank or trust company having aggregate capital and surplus in excess of
$25,000,000 as a trust fund for the benefit of the respective holders of the
shares designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay the Redemption
Price for such shares to their respective holders on or after the Redemption
Date upon receipt of notification from the Corporation that such holder has
surrendered his or its share certificate to the Corporation. The balance of any
monies deposited by the Corporation pursuant to this Subsection 6(c) remaining
unclaimed at the expiration of one year following the Redemption Date shall
thereafter be returned to the Corporation upon its request expressed in a
resolution of its-Board of Directors.
(d) Notwithstanding any of the foregoing, the holders of the
outstanding shares of Series A Preferred Stock may not compel the Company to
redeem any shares of Series A Preferred stock if:
(i) As a result of such redemption the Company's
working capital, determined in accordance
with generally accepted accounting
principals, would be $500,000 or less;
(ii) the Company's ratio of total debt to total
equity, determined in accordance with
generally accepted accounting principals
would exceed 1.5:1; or
(iii) such redemption would cause the Company to
violate the terms of any loan agreement,
indenture or similar instrument to which the
Company is then a party.
(e) In the event that the Corporation, whether by reason of
the limitation contain in Section 5(d) above or otherwise, fails to redeem all
of the Preferred Stock to be redeemed under Section 5(a) below, the Corporation;
(i) shall redeem as much of the Preferred Stock
as it would be able to redeem and still
remain in compliance with said Section 5(d)
and with applicable law, with any partial
redemption being made from each holder of
Preferred Stock pro rata based on the number
of shares held;
(ii) the Corporation shall redeem the remaining
shares of Preferred Stock as soon as it is
able to do so under said Section 5(d) and
applicable law; and
(iii) until all Preferred Stock has been redeemed
in full, the Corporation will not declare or
set aside any sums for the payment of
dividends on any capital stock (other than
the Preferred Stock), will not make any
distribution or payment with respect to any
of its capital stock, will not redeem any
shares of its capital stock and will not
make any loan or advance to any stockholder,
employee, officer or consultant, other than
in the ordinary course of business or in
connection with repurchases of stock from
any employee pursuant to any plan, agreement
or arrangement approved by the Board of
Directors of the Company.
6. Optional Redemption by the Corporation.
---------------------------------------
(a) At any time and from time to time, the Corporation may, at
the option of its Board of Directors, redeem the Series A Preferred Stock, in
whole or in part, by paying $l.583 per share (subject to appropriate adjustment
for stock splits, stock dividends, combinations or other similar
recapitalizations affecting such shares), plus any dividends accrued thereon, in
cash for each share of Series A Preferred Stock then redeemed (hereinafter
referred to as the "Corporation Redemption Price").
(b) In the event of any redemption of only a part of the then
outstanding Series A Preferred Stock, the Corporation shall effect such
redemption pro rata among the holders thereof based on the number of shares of
Series A Preferred Stock held by such holders on the date of the Corporation
Redemption Notice (as defined below).
(c) Corporation Redemptions made pursuant to this Section 6
shall not relieve the Corporation of its obligations to redeem Series A
Preferred Stock in accordance with the provisions of Section 5.
(d) At least 30 days prior to the date fixed for any
redemption of Series A Preferred Stock (hereinafter referred to as the
"Corporation Redemption Date"), written notice shall be mailed, by first class
or registered mail, postage prepaid, to each holder of record of Series A
Preferred Stock to be redeemed, at his or its address last shown on the records
of the transfer agent of the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent), notifying such holder of
the election of the Corporation to redeem such shares, specifying the
Corporation Redemption Date and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, his or its certificate
or certificates representing the shares to be redeemed (such notice is
hereinafter referred to as the "Corporation Redemption Notice"). On or prior to
the Corporation Redemption Date, each holder of Series A Preferred Stock to be
redeemed shall surrender his or its certificate or certificates representing
such shares to the Corporation, in the manner and at the place designated in the
Corporation Redemption Notice and thereupon the Corporation Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Corporation
Redemption Date, unless there shall have been a default in payment of the
Corporation Redemption Price, all rights of the holders of the Series A
Preferred Stock designated for redemption in the Corporation Redemption Notice
as holders of Series A Preferred stock of the Corporation (except the right to
receive the Corporation 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.
(e) On or prior to the Corporation Redemption Date, the
Corporation shall deposit the Corporation Redemption Price of all shares of
Series A Preferred Stock designated for redemption in the Corporation Redemption
Notice and not yet redeemed with a bank or trust company having aggregate
capital and surplus in excess of $25,000,000 as a trust fund for the benefit of
the respective holders of the shares designated for redemption and not yet
redeemed, with irrevocable instructions and authority to the bank or trust
company to pay the Corporation Redemption Price for such shares to their
respective holders on or after the Corporation Redemption Date upon receipt of
notification from the Corporation that such holder has surrendered his or its
share certificate to the Corporation. The balance of any monies deposited by the
Corporation pursuant to this Subsection 6(e) remaining unclaimed at the
expiration of one year following the Corporation Redemption Date shall
thereafter be returned to the Corporation upon its request expressed in a
resolution of its Board of Directors.
(f) Subject to the provisions hereof, the Board of Directors
of the Corporation shall have authority to prescribe the manner in which Series
A Preferred Stock shall be redeemed
from time to time. Any shares of Series A Preferred Stock so redeemed shall
permanently be retired, shall no longer be deemed outstanding and shall not
under any circumstances be reissued, and the Corporation may from time to time
take such appropriate action as may be necessary to reduce the authorized Series
A Preferred Stock accordingly. Nothing herein contained shall prevent or
restrict the purchase by the Corporation, from time to time either at public or
private sale, of the whole or any part of the Series A Preferred Stock at such
price or prices as the Corporation may determine, subject to the provisions of
applicable law.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
and attested by its Secretary this 28th day of November, 1990.
ATTEST: AUGMENT SYSTEMS INCORPORATED
/s/ Alexander Bernhard By: /s/ Chappel Cory III
- ---------------------------------- -----------------------------
Alexander Bernhard, Secretary Chappel Cory III, President
[Corporate Seal]
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AUGMENT SYSTEMS INCORPORATED
AUGMENT SYSTEMS INCORPORATED, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That, by unanimous written consent of the Board of
Directors, a resolution proposing an amendment to the Certificate of
Incorporation of said Corporation to increase the number of authorized shares of
Common Stock, $.01 par value, and Preferred Stock, $.01 par value, was duly
adopted and declared to be advisable.
SECOND: That, in accordance with Section 211 of the General
Corporation Law of the State of Delaware, the holders of the outstanding capital
stock of the Corporation required to amend said Certificate voted, by written
consent dated July 31, 1995, to approve such amendment. The resolution setting
forth the amendment is as follows:
RESOLVED: That Article 4 of the Corporation's Certificate of Incorporation be
amended by deleting said Article 4 thereof in its entirety and
substituting the following therefor:
"4. The total number of all classes of shares of
stock which the corporation shall have authority to issue is
seventeen million (17,000,000) shares, consisting of fifteen
million (15,000,000) shares of Common Stock with a par value
of One Cent ($.01) per share, and two million (2,000,000)
shares of Preferred Stock with a par value of One Cent ($.01)
per share, amounting in the aggregate to One Hundred Seventy
Thousand Dollars ($170,000.00).
"The designations and powers, the rights and
preferences and the qualifications, limitations or
restrictions with respect to each class of stock of the
corporation shall be as determined by the Board of Directors
from time to time."
and that the officers of the Corporation be, and hereby are,
authorized and directed to execute and file a Certificate of
Amendment evidencing said amendment with the Delaware
Secretary of State.
THIRD: That, pursuant to Section 228(d) of the General
Corporation Law of the State of Delaware, written notice of the adoption of said
resolution by written consent of a majority of the outstanding shares of capital
stock of the Corporation was mailed to all stockholders who did not consent in
writing thereto.
FOURTH: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said AUGMENT SYSTEMS, INC.. has caused it
corporate seal to be hereunto affixed and this certificate to be signed by
Lorrin Gale, its President and Duane A. Mayo, its Secretary, this 12th day of
September, 1995.
AUGMENT SYSTEMS INCORPORATED
[SEAL] By: /s/ Lorrin Gale
-------------------------
Lorrin Gale, President
/s/ Duane A. Mayo
- ------------------------------
Duane A. Mayo, Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AUGMENT SYSTEMS INCORPORATED
AUGMENT SYSTEMS INCORPORATED, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That, by unanimous written consent of the Board of
Directors, resolutions proposing amendments to the Certificate of Incorporation
of said Corporation to (a) change the name of the Corporation and (b) increase
the number of authorized shares of Common Stock, $.01 par value, were duly
adopted and declared to be advisable.
SECOND: That, in accordance with Section 211 of the General
Corporation Law of the State of Delaware, the holders of the outstanding capital
stock of the Corporation required to amend said Certificate voted, by written
consent dated October 21, 1996, to approve such amendments. The resolutions
setting forth the amendments are as follows:
RESOLVED: That the name of the Corporation be changed from "Augment
Systems Incorporated" to "Augment Systems, Inc."; and that
Article 1 of the Corporation's Certificate of Incorporation,
as amended, be amended by deleting said Article 1 thereof in
its entirety and substituting the following therefor:
"1. The name of the Corporation shall be Augment
Systems, Inc."
FURTHER
RESOLVED: That the number of shares of Common Stock, $.01 par value that
the Corporation shall have authority to issue be increased
from Fifteen Million (15,000,000) shares to Thirty Million
(30,000,000); and that Article 4 of the Corporation's
Certificate of Incorporation be amended by deleting said
Article 4 thereof in its entirety and substituting the
following therefor:
"4. The total number of all classes of shares of
stock which the corporation shall have authority to issue is
thirty-two million (32,000,000) shares, consisting of thirty
million (30,000,000) shares of Common Stock with a par value
of One Cent ($.01) per share, and two million (2,000,000)
shares of
Preferred Stock with a par value of One Cent ($.01) per share,
amounting in the aggregate to Three Hundred Twenty Thousand
Dollars ($320,000.00).
"The designations and powers, the rights and
preferences and the qualifications, limitations or
restrictions with respect to each class of stock of the
corporation shall be as determined by the Board of Directors
from time to time."
THIRD: That, pursuant to Section 228(d) of the General
Corporation Law of the State of Delaware, written notice of the adoption of said
resolutions by written consent of a majority of the outstanding shares of
capital stock of the Corporation was mailed to all stockholders who did not
consent in writing thereto.
FOURTH: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said AUGMENT SYSTEMS, INC.. has caused it
corporate seal to be hereunto affixed and this certificate to be signed by
Lorrin Gale, its President and Duane A. Mayo, its Secretary, this 29th day of
October, 1996.
AUGMENT SYSTEMS INCORPORATED
[SEAL] By: /s/ Lorrin Gale
------------------------
Lorrin Gale, President
/s/ Duane A. Mayo
- --------------------------
Duane A. Mayo, Secretary
EXHIBIT 3.2
BY-LAWS
OF
AUGMENT SYSTEMS, INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
ARTICLE 1 - Stockholders..................................................................................1
Section .1 Place of Meetings..............................................................1
Section 1.2 Annual Meeting.................................................................1
Section 1.3 Special Meetings...............................................................1
Section 1.4 Notice of Meetings.............................................................1
Section 1.5 Voting List....................................................................2
Section 1.6 Quorum.........................................................................2
Section 1.7 Adjournments...................................................................2
Section 1.8 Voting and Proxies.............................................................2
Section 1.9 Action at Meeting..............................................................3
Section 1.10 Action without Meeting.........................................................3
ARTICLE 2 - Director......................................................................................3
Section 2.1 General Powers.................................................................3
Section 2.2 Number; Election and Qualification.............................................4
Section 2.3 Enlargement of the Board.......................................................4
Section 2.4 Tenure.........................................................................4
Section 2.5 Vacancies......................................................................4
Section 2.6 Resignation....................................................................4
Section 2.7 Regular Meetings...............................................................4
Section 2.8 Special Meetings...............................................................5
Section 2.9 Notice of Special Meetings.....................................................5
Section 2.10 Meetings by Telephone Conference Calls.........................................5
Section 2.11 Quorum.........................................................................5
Section 2.12 Action at Meeting..............................................................5
Section 2.13 Action by Consent..............................................................5
Section 2.14 Removal........................................................................6
Section 2.15 Committees.....................................................................6
Section 2.16 Compensation of Directors......................................................6
ARTICLE 3 - Officers .....................................................................................7
Section 3.1 Enumeration....................................................................7
Section 3.2 Election.......................................................................7
Section 3.3 Qualification..................................................................7
Section 3.4 Tenure.........................................................................7
-i-
Page
----
Section 3.5 Resignation and Removal.........................................................7
Section 3.6 Vacancies.......................................................................7
Section 3.7 Chairman of the Board and
Vice-Chairman of the Board.................................................8
Section 3.8 President.......................................................................8
Section 3.9 Vice Presidents.................................................................8
Section 3.10 Secretary and Assistant Secretaries.............................................8
Section 3.11 Treasurer and Assistant Treasurers..............................................9
Section 3.12 Salaries........................................................................9
ARTICLE 4 - Capital Stock ................................................................................10
Section 4.1 Issuance of Stock..............................................................10
Section 4.2 Certificates of Stock..........................................................10
Section 4.3 Transfers......................................................................10
Section 4.4 Lost, Stolen or Destroyed
Certificates................................................................11
Section 4.5 Record Date....................................................................11
ARTICLE 5 - General Provisions............................................................................12
Section 5.1 Fiscal Year....................................................................12
Section 5.2 Corporate Seal.................................................................12
Section 5.3 Waiver of Notice...............................................................12
Section 5.4 Voting of Securities...........................................................12
Section 5.5 Evidence of Authority..........................................................12
Section 5.6 Certificate of Incorporation...................................................12
Section 5.7 Transactions with Interested Parties...........................................12
Section 5.8 Severability...................................................................13
Section 5.9 Pronouns.......................................................................13
ARTICLE 6 - Amendments ...................................................................................13
Section 6.1 By the Board of Directors......................................................13
Section 6.2 By the Stockholders............................................................14
</TABLE>
-ii-
BY-LAWS
OF
AUGMENT SYSTEMS, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be
held at such place within or without the State of Delaware as may be designated
from time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held within six months after the
end of each fiscal year of the corporation on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be
called at any time by the President, by the Board of Directors, or by any holder
or holders of at least 10% of the outstanding shares of the Common Stock, $.0l
par value per share, of the Corporation. Business transacted at any special
meeting of stockholders shall be limited to matters relating to the purpose or
purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders, whether annual or special, shall
begin not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meeting
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare, at least 10 days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the
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city where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time of the meeting, and
may be inspected by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws, the holders of a majority of the
shares of the capital stock of the corporation issued and outstanding and
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned
to any other time and to any other place at which a meeting of stockholders may
be held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no stockholder
is present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote
for each share of stock entitled to vote held of record by such stockholder and
a proportionate vote for each fractional share so held, unless otherwise
provided in the Certificate of Incorporation. Each stockholder of record
entitled to vote at a meeting of stockholders, or to express consent or dissent
to corporate action in writing without a meeting, may vote or express such
consent or dissent in person or may authorize another person or persons to vote
or act for him by written proxy executed by the stockholder or his authorized
agent and delivered to the Secretary of the corporation. No such proxy shall be
voted or acted upon after three years from the date of its execution, unless the
proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any
meeting, the holders of a majority of the stock present or represented and
voting on a matter (or if there are two or more classes of stock entitled to
vote as separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on a
matter) shall decide any matter to be voted upon by the stockholders at such
meeting, except when a different vote is required by express provision of law,
the Certificate of Incorporation or these By-Laws. Any election by stockholders
shall be determined by a plurality of the votes cast by the stockholders
entitled to vote at the election.
1.10 Action without Meeting. Any action required or permitted
to be taken at any annual or special meeting of stockholders of the corporation
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action
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without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the
corporation shall be managed by or under the direction of a Board of Directors,
who may exercise all of the powers of the corporation except as otherwise
provided by law, the Certificate of Incorporation or these By-Laws. In the event
of a vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board until the
vacancy is filled.
2.2 Number; Election and Qualification. The number of
directors which shall constitute the whole Board of Directors shall be
determined by resolution of the stockholders or the Board of Directors, but in
no event shall be less than one. The number of directors may be decreased at any
time and from time to time either by the stockholders or by a majority of the
directors then in office, but only to eliminate vacancies existing by reason of
the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be
increased at any time and from time to time by the stockholders or by a majority
of the directors then in office.
2.4 Tenure. Each director shall hold office until the next
annual meeting and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders,
any vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
2.7 Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place, either within or
without the State of Delaware, as shall be determined from time to time by the
Board of Directors; provided that any director who is absent when such a
determination is made shall be given notice of the determination. A regular
meeting of the Board of Directors may be held without notice immediately after
and at the same place as the annual meeting of stockholders.
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2.8 Special Meetings. Special meetings of the Board of
Directors may be held at any time and place, within or without the State of
Delaware, designated in a call by the Chairman of the Board, President, two or
more directors, or by one director in the event that there is only a single
director in office.
2.9 Notice of Special Meetings. Notice of any special meeting
of directors shall be given to each director by the Secretary or by the officer
or one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any
members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board
of Directors shall constitute a quorum at all meetings of the Board of
Directors. In the event one or more of the directors shall be disqualified to
vote at any meeting, then the required quorum shall be reduced by one for each
such director so disqualified; provided, however, that in no case shall less
than one-third (1/3) of the number so fixed constitute a quorum. In the absence
of a quorum at any such meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice other than announcement at
the meeting, until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of
Directors at which a quorum is present, the vote of a majority of those present
shall be sufficient to take any action, unless a different vote is specified by
law, the Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Any one or more or all of the directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that the directors elected
by the holders of a particular class or series of stock may be removed without
cause only by vote of the holders of a majority of the outstanding shares of
such class or series.
2.15 Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of
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the directors of the corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist
of a President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be
elected annually by the Board of Directors at its first meeting following the
annual meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two
or more offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the
Certificate of Incorporation or by these By-Laws, each officer shall hold office
until his successor is elected and qualified, unless a different term is
specified in the vote choosing or appointing him, or until his earlier death,
resignation or removal.
3.5 Resignation and Removal. Any officer may resign by
delivering his written resignation to the corporation at its principal office or
to the President or Secretary. Such
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resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
3.6 Any officer may be removed at any time, with or without
cause, by vote of a majority of the entire number of directors then in office.
3.7 Except as the Board of Directors may otherwise determine,
no officer who resigns or is removed shall have any right to any compensation as
an officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the corporation.
3.8 Vacancies. The Board of Directors may fill any vacancy
occurring in any office for any reason and may, in its discretion, leave
unfilled for such period as it may determine any offices other than those of
President, Treasurer and Secretary. Each such successor shall hold office for
the unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
3.9 Chairman of the Board and Vice-Chairman of the Board. The
Board of Directors may appoint a Chairman of the Board and may designate the
Chairman of the Board as Chief Executive Officer. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.10 President. The President shall, subject to the direction
of the Board of Directors, have general charge and supervision of the business
of the corporation. Unless otherwise provided by the Board of Directors, he
shall preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.11 Vice Presidents. Any Vice President shall perform such
duties and possess such powers as the Board of Directors or the President may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the President, the Vice President (or if there shall be more than one,
the Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the President and when so performing shall have all the
powers of and be subject to all the restrictions upon the President. The Board
of Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors.
3.12 Secretary and Assistant Secretaries. The Secretary shall
perform such duties and shall have such powers as the Board of Directors or the
President may from time to time
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prescribe. In addition, the Secretary shall perform such duties and have such
powers as are incident to the office of the secretary, including without
limitation the duty and power to give notices of all meetings of stockholders
and special meetings of the Board of Directors, to attend all meetings of
stockholders and the Board of Directors and keep a record of the proceedings, to
maintain a stock ledger and prepare lists of stockholders and their addresses as
required, to be custodian of corporate records and the corporate seal and to
affix and attest to the same on documents.
3.13 Any Assistant Secretary shall perform such duties and
possess such powers as the Board of Directors, the President or the Secretary
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Secretary, the Assistant Secretary, (or if there shall be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
3.14 In the absence of the Secretary or any Assistant
Secretary at any meeting of stockholders or directors, the person presiding at
the meeting shall designate a temporary secretary to keep a record of the
meeting.
3.15 Treasurer and Assistant Treasurers. The Treasurer shall
perform such duties and shall have such powers as may from time to time be
assigned to him by the Board of Directors or the President. In addition, the
Treasurer shall perform such duties and have such powers as are incident to the
office of treasurer,, including without limitation the duty and power to keep
and be responsible for all funds and securities of the corporation, to deposit
funds of the corporation in depositories selected in accordance with these
By-Laws, to disburse such funds as ordered by the Board of Directors, to make
proper accounts of such funds, and to render as required by the Board of
Directors statements of all such transactions and of the financial condition of
the corporation.
3.16 The Assistant Treasurers shall perform such duties and
possess such powers as the Board of Directors, the President or the Treasurer
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Treasurer, the Assistant Treasurer, (or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
3.17 Salaries. Officers of the corporation shall be entitled
to such salaries, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the
stockholders and subject to the provisions of the Certificate of Incorporation,
the whole or any part of any unissued balance of the authorized capital stock of
the corporation or the whole or any part of any unissued balance of the
authorized capital stock of the corporation held in its treasury may be issued,
sold, transferred or otherwise disposed of by vote of the Board of Directors in
such manner, for such consideration and on such terms as the Board of Directors
may determine.
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4.2 Certificates of Stock. Every holder of stock of the
corporation shall be entitled to have a certificate, in such form as may be
prescribed by law and by the Board of Directors, certifying the number and class
of shares owned by him in the corporation. Each such certificate shall be signed
by, or in the name of the corporation by, the Chairman or Vice-Chairman, if any,
of the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation
may issue a new certificate of stock in place of any previously issued
certificate alleged to have been lost, stolen, or destroyed, upon such terms and
conditions as the Board of Directors may prescribe, including the presentation
of reasonable evidence of such loss, theft or destruction and the giving of such
indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a
date as a record date for the determination of the stockholders entitled to
notice of or to vote at any meeting of stockholders or to express consent (or
dissent) to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action. Such record date shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to any
other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before
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the day on which the meeting is held. The record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating to
such purpose.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
4.6 Right of First Refusal. No stockholder of the Corporation
shall sell, assign, pledge or otherwise transfer (collectively, "transfer") any
of the shares of stock of the Corporation or any right or interest therein,
whether voluntarily or by operation of law, or by gift or otherwise, except by a
transfer which meets the following requirements:
(a) If any stockholder (the "Selling Stockholder")
proposes to transfer any shares of stock of the Corporation (the "Offered
Shares"), then the Selling Stockholder shall first give written notice of the
proposed transfer (the "Transfer Notice") to the Corporation. The Transfer
Notice shall name the proposed transferee and state the number of Offered
Shares, the price per share and all other material terms and conditions of the
transfer.
(b) For 30 days following its receipt of such Transfer
Notice, the Corporation shall have the option to purchase all or any lesser part
of the Offered Shares at the price and upon the terms set forth in the Transfer
Notice. In the event the Corporation elects to purchase all of the Offered
Shares, it shall give written notice of its election to the Selling Stockholder
within such 30-day period and the settlement of the sale of such Offered Shares
shall be made as provided below in Subsection (d).
(c) If the Corporation elects to acquire all, or any
lesser part, of the Offered Shares of the Selling Stockholder's Transfer Notice,
the Corporation shall so notify the Selling Stockholder and settlement shall be
made at the principal office of the Corporation in cash within 60 days after the
Corporation receives the Selling Stockholder's Transfer Notice; provided that if
the terms of payment set forth in the Selling Stockholder's Transfer Notice were
other than cash against delivery, the Corporation shall pay for the Offered
Shares on the same terms and conditions set forth in the Selling Stockholder's
Transfer Notice.
(d) If the Corporation does not elect to acquire all of
the Offered Shares specified in the Selling Stockholder's Transfer Notice, the
Selling Stockholder may, within the 90-day period following the expiration of
the option rights granted to the Corporation, transfer any of the Offered Shares
specified in the Selling Stockholder's Transfer Notice which the Corporation
does not elect to acquire to the proposed transferee, provided that this sale
shall not be on terms and conditions more favorable to the purchaser than those
contained in the Selling Stockholder's Transfer Notice and shall not be made to
any party other than the proposed transferee. Notwithstanding any of the above,
all Offered Shares transferred pursuant to this
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Section shall be subject to the provisions of this Section in the same manner
and to the same extent as before the transfer.
(e) The following transactions shall be exempt from the
provisions of this Section:
(1) A stockholder's transfer of any or all of his
shares either during his lifetime or on death by will or intestacy to his
immediate family or to a trust the beneficiaries of which are exclusively one or
more of the stockholder and a member or members of the stockholder's immediate
family, except any such transfers made pursuant to any divorce or separation
proceedings or settlement. "Immediate family" shall mean spouse, lineal
descendant, father, mother, brother or sister of the stockholder making the
transfer;
(2) A stockholder's bona fide pledge or mortgage of
his or its shares with a commercial lending institution;
(3) A corporate stockholder's transfer of any or all
of its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of substantially all of the stock
or assets of a corporate stockholder;
(4) A corporate stockholder's transfer of any or all
of its shares to any or all of its stockholders;
(5) A transfer by a stockholder which is a
partnership to any or all of its partners or retired partners, or to the estate
of any partner or retired partner;
(6) A transfer pursuant to a person who is already a
holder of the Common Stock of the Corporation.
(7) Any transfer pursuant to a registration statement
filed by the Corporation with the Securities and Exchange Commission; provided,
however, that in any such case, the transferee, assignee, pledgee, mortgagee or
other recipient shall receive and hold such stock subject to the provisions of
this Section and there shall be no further transfer of such stock except in
accordance with this Section.
(f) A stockholder of the Corporation shall be deemed to have
given a Transfer Notice to the Corporation and to have offered to sell all of
the shares of stock of the Corporation then held by such stockholder if such
stockholder:
(1) dies and as a result any transfer of stock is to
be made other than as permitted by Subsection (e)(1) above;
(2) applies for or consents to the appointment of a
receiver, trustees or liquidator of any of his properties;
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(3) admits in writing his inability to pay his debts
as they mature;
(4) make a general assignment for the benefit of
creditors
(5) is adjudicated a bankrupt or insolvent;
(6) files a voluntary petition in bankruptcy or files
a petition or an answer seeking an arrangement with creditors or seeks to take
advantage of any bankruptcy, insolvency, readjustment of debt, or liquidation
law or statute, or files an answer admitting the material allegations of a
petition filed against him in any proceeding under such laws; or if that
stockholder's shares are subject to:
(i) attachment or execution of a judgment;
(ii) any other transfer by operation of law, by
gift or otherwise without consideration
(other than pursuant to Subsection (e)).
If any offer is deemed to have been made
under this Subsection (f), the Corporation may elect to purchase all or any
portion of such Offered Shares in accordance with the procedures described in
Subsection (b) (provided however, that the 30-day period specified therein shall
not begin to run until the Corporation has actual notice of the event or
circumstance which results in an offer being deemed to have been made under this
Subsection (f), and the price to be paid by the Corporation for the Offered
Shares so deemed to be offered shall be (a) if such stock is traded on a
securities exchange, the last reported sale price, regular way, on the principal
exchange on which such stock is traded on the last trading day preceding the
date of purchase; (b) otherwise, if such stock is traded over the counter and is
the subject of regular quotations by a recognized market maker, the average of
the closing bid and asked prices quoted for such stock by the principal market
maker for the ten trading days preceding the date of purchase; or (c) otherwise,
if the Board of Directors shall in good faith have established at any time
preceding the date of purchase a fair market value for such stock (including
without limitation a valuation established as the purchase or exercise price
under an employee stock purchase or stock option plan which requires that the
purchase or exercise price be at fair market value, a valuation established by
an arm's-length sale of such stock by the Corporation, or a valuation
established specifically for purposes of this Subsection), the most recent
valuation for such stock established by the Board of Directors. If the parties
do not agree with the price set by the Board of Directors, then the price shall
be the fair market value of such shares as determined by an appraiser mutually
satisfactory to the Corporation and the Selling Stockholder deemed to be making
such offer or his successors-in-interest, or, if they cannot agree on a single
appraiser, by an appraiser appointed by the Corporation, a second appraiser
appointed by such Selling Stockholder or his successors-in-interest and a third
appraiser appointed by the other two appraisers. Each party shall bear the cost
of his or its own appraiser, and the cost of the third appraiser shall be shared
equally by the parties. If the shares are not purchased by the Corporation but
are transferred to other parties, the transferee shall hold such stock subject
to the provisions of this Subsection and there shall be no further transfer of
such stock except in accordance with this Subsection.
-11-
(g) If any stockholder of the Corporation is deemed to have
offered his stock to the Corporation pursuant to Subsection (f) hereof, the
Corporation may pay for any stock it agrees to purchase with its promissory note
(the "Note"). The Note shall contain the following terms:
(1) The principal amount of the Note shall be payable
in eight quarterly installments, with the last such installment payable on the
second anniversary date of the Note's issuance;
(2) The Note shall bear interest at the same rate as
two-year U.S. Treasury notes issued on or about the same date as the Note, with
accrued interest being payable quarterly;
(3) The Note shall provide for acceleration upon
default for 60 days in the payment of any installment of principal or interest
when due, shall contain customary default provisions in the event of the
Corporation's bankruptcy and similar circumstances and shall be secured by a
pledge of the shares for which the Corporation paid with the Note, provided,
however, that the pledgee shall have no right to vote or receive dividends with
respect to such shares until and unless the pledgee forecloses on such shares
after the occurrence of a default under the Note.
(h) The Corporation may assign its rights to purchase stock in
any particular transaction under this Section to one or more persons or
entities.
(i) Any sale or transfer, or purported sale or transfer, of
securities of the Corporation shall be null and void unless the terms,
conditions and provisions of this Section are strictly observed and followed.
(j) The foregoing rights of first refusal shall terminate upon
the closing of the first public offering of securities of the Corporation which
is effected pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the Securities Act of
1933, as amended (other than an offering registered on Form S-8 or any similar
form) that results in aggregate gross proceeds to the Corporation (aggregate
sales price to the public less underwriters' discounts) of at least $10,000.00.
(k) The Board of Directors of the Corporation, by vote or
action taken in accordance with the provisions of Article 2 of these By-Laws,
may waive the forgoing rights of first refusal on behalf of the Corporation.
(l) The certificates representing shares of stock of the
Corporation shall bear a legend substantially in the following form (in addition
to, or in combination with, any legend required by applicable federal and state
securities laws and agreements relating to the transfer of the Corporation's
securities):
-12-
The shares represented by this certificate are subject to a
right of first refusal in favor of the Corporation as provided
in the By-Laws of the Corporation.
(m) Whenever the neuter, masculine or feminine gender or the
plural or singular number is used herein, it shall be deemed to represent
whatever gender or number the context or circumstances require.
(n) Any notice hereunder shall be in writing and shall be
deemed to have been duly given when mailed by first class mail, or delivered by
hand, (i) if to the Corporation, to its principal executive office, attention:
President; and (ii) if to the Selling Stockholder, to the address of the Selling
Stockholder listed in the stock transfer books of the Corporation.
5. ARTICLE 5 - General Provisions
5.1 Fiscal Year. Except as from time to time otherwise
designated by the Board of Directors, the fiscal year of the corporation shall
begin on the first day of January in each year and end on the last day of
December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form
as shall be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws, a waiver of such notice either in writing signed by the person entitled
to such notice or such person's duly authorized attorney, or by telegraph, cable
or any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may
otherwise designate, the President or Treasurer may waive notice of, and act as,
or appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or
an Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these
By-Laws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as amended and in effect from
time to time.
5.7 Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors
-13-
or officers are directors or officers, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board of Directors
or a committee of the Board of Directors which authorizes the contract or
transaction or solely because his or their votes are counted for such purpose,
if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of
these By-Laws is for any reason inapplicable, illegal or ineffective shall not
affect or invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. These By-Laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
6.2 By the Stockholders. These By-Laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of the
holders of a majority of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote at any regular meeting of
stockholders, or at any special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such special meeting.
-14-
EXHIBIT 10.1
10/18/95
LEASE
LANDLORD: New England Mutual Life Insurance Company
TENANT: Augment Systems, Inc.
DATE: October 23, 1995
This Lease consists of four parts:
Part I Cover Sheet
Part II Standard Lease Provisions
Part III Additional Provisions (if any) and
Part IV Exhibits
EXHIBIT A - Floor Plan of Premises
EXHIBIT B - Legal Description of Lot
EXHIBIT C - Landlord's Notice of Lease Term Dates
EXHIBIT D - Tenant Improvements
EXHIBIT E - Rules and Regulations
PART I
COVER SHEET
The terms listed below shall have the following meanings throughout
this Lease:
DATE OF LEASE: October 23, 1995, the date on which the parties have
signed this Lease
LANDLORD: New England Mutual Life Insurance Company
TENANT: Augment Systems, Inc.
TENANT ADDRESS: 2 Robbins Road
Westford, MA
MANAGING AGENT: Dickinson Development Corporation
MANAGING AGENT'S 1266 Furnace Brook Parkway,
ADDRESS: Quincy, Massachusetts 02169
PREMISES: From October 1, 1995 to March 31, 1996, the Premises will
consist of approximately 9,033 rentable square feet of
space on the first floor of the Building, as shown on
Exhibit A attached, (sometimes referred to as the "Initial
Space").
From April 1, 1996 to September 30, 1998, the Premises
will consist of approximately 19,380 rentable square feet
of space on the first floor of the Building (sometimes
referred to as the "New Space") as shown on Exhibit A
attached. The New Space is subject to timely vacating of
the New Space by the present occupant thereof. The New
Space will not include the Initial Space.
BUILDING: The building in which the Premises are located, with a
street address of 2 Robbins Road, Westford, Massachusetts,
consisting of approximately 59,526 square feet
/s/ KBC /s/ L.G.
- ----------------------- -------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
PROPERTY: The Building, other improvements and land
(the "Lot"), a legal description of which is
set out in Exhibit B attached.
TENANT'S
PERCENTAGE: 15.2% (9,033 rentable square feet in the
Premises divided by 59,526 rentable square
feet in the Building) for the period the
Initial Term (defined below) with an
increase to 32.6% (19,380 rentable square
feet in the Premises divided by 59,526
rentable square feet in the Building) for
the Remaining Term (defined below).
PERMITTED USES: General office, research and development,
light manufacturing and final product
assembly consistent with Paragraph 7.2.
SCHEDULED
COMMENCEMENT
DATE: October 23, 1995
TERM: Three (3) years which is composed of the
initial term of six (6) months or until the
present occupant vacates the New Space,
whichever is later (the "Initial Term") and
the balance of the Term (the "Remaining
Term").
BASE RENT: For the Initial Space at the rate of
$3,387.38 per month (or $4.50 per year per
square foot of the Initial Space) for the
Initial Term; for the New Space at the rate
of $8,882.50 per month (or $5.50 per year
per square foot of the New Space) for the
Remaining Term.
SECURITY DEPOSIT: $9,144.67
PUBLIC LIABILITY
INSURANCE
AMOUNT: $1,000,000.00 Combined Single Limit
BROKER(S): McPherson Corporation and Dickenson
Development Corporation
GUARANTOR(S): None
/s/ KBC /s/ L.G.
- ------------------------ -------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
TABLE OF CONTENTS OF STANDARD LEASE PROVISIONS
<TABLE>
<CAPTION>
<S> <C>
Page
ARTICLE I: PREMISES
1.1 Premises.........................................................................
1.2 Common Areas.....................................................................
ARTICLE II: TERM
2.1 Commencement Without Tenant Improvements.........................................
ARTICLE III:RENT
3.1 Base Rent........................................................................
3.2 Additional Rent for Operating Expenses, Taxes, and Capital Costs.................
ARTICLE IV: DELIVERY OF PREMISES AND TENANT IMPROVEMENTS
4.1 Condition of Premises............................................................
4.2 Delay in Possession..............................................................
4.3 Intentionally Omitted............................................................
4.4 Early Occupancy..................................................................
ARTICLE V: ALTERATIONS AND TENANT'S PERSONAL PROPERTY
5.1 Alterations......................................................................
5.2 Tenant's Personal Property.......................................................
ARTICLE VI: LANDLORD'S COVENANTS
6.1 Services Provided by Landlord....................................................
6.2 Repairs and Maintenance..........................................................
6.3 Quiet Enjoyment..................................................................
6.4 Insurance........................................................................
ARTICLE VII: TENANT'S COVENANTS
7.1 Repairs, Maintenance and Surrender...............................................
7.2 Use..............................................................................
7.3 Assignment; Sublease.............................................................
7.4 Indemnity........................................................................
7.5 Tenant's Insurance...............................................................
i
Page
7.6 Payment of Taxes.................................................................
7.7 Environmental Assurances.........................................................
7.8 Americans With Disabilities Act..................................................
ARTICLE VIII: DEFAULT
8.1 Default..........................................................................
8.2 Remedies of Landlord and Calculation of Damages..................................
ARTICLE IX: CASUALTY AND EMINENT DOMAIN
9.1 Casualty.........................................................................
9.2 Eminent Domain...................................................................
ARTICLE X: RIGHTS OF PARTIES HOLDING SENIOR INTERESTS
10.1 Subordination....................................................................
10.2 Mortgagee's Consent..............................................................
ARTICLE XI: GENERAL
11.1 Representations by Tenant........................................................
11.2 Notices..........................................................................
11.3 No Waiver or Oral Modification...................................................
11.4 Severability.....................................................................
11.5 Requests by Tenant...............................................................
11.6 Estoppel Certificate and Financial Statements....................................
11.7 Waiver of Liability..............................................................
11.8 Execution; Prior Agreements and No Representations...............................
11.9 Brokers..........................................................................
11.10 Successors and Assigns...........................................................
11.11 Applicable Law and Lease Interpretation..........................................
11.12 Costs of Collection, Enforcement and Disputes....................................
11.13 Holdover.........................................................................
11.14 Force Majeure....................................................................
11.15 Limitation On Liability..........................................................
11.16 Notice of Landlord's Default.....................................................
11.17 Lease Not to be Recorded.........................................................
11.18 Security Deposit.................................................................
11.19 Guaranty of Lease................................................................
</TABLE>
ii
PART II STANDARD LEASE PROVISIONS
ARTICLE I PREMISES
1.1 PREMISES.
(a) Demise of Premises. This Lease (the "Lease") is made and entered
into by and between Landlord and Tenant and shall become effective as of the
Date of Lease. In consideration of the mutual covenants made herein, Landlord
hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises,
on all of the terms and conditions set forth in this Lease. Tenant shall have
the exclusive right to use one loading dock as shown on Exhibit A.
(b) Measurement. If, as a result of any subsequent measurement by
Landlord (which measurement shall be completed in accordance with standard
building measurement practices utilized in the area in which the Building is
located), the areas of the Building or the Premises are determined to be more or
less than the areas described in the Lease, then all computations of rent and
other matters described in the Lease where area is a factor shall be recomputed.
All payments required after the date of computation shall be based on the new
computations. Until Landlord remeasures the Building and the Premises, all
measurements of area contained in the Lease shall be deemed to be correct and
binding upon Landlord and Tenant.
(c) Intentionally Deleted.
(d) Access to Premises. Landlord shall have reasonable access to the
Premises, at any time during the Term, to inspect Tenant's performance hereunder
and to perform any acts required of or permitted to Landlord herein, including,
without limitation, (i) the right to make any repairs or replacements Landlord
deems necessary, (ii) the right to show the Premises to prospective purchasers
and mortgagees, and (iii) during the last nine (9) months of the Term, the right
to show the Premises to prospective tenants. Landlord shall at all times have a
key to the Premises, and Tenant shall not change any existing lock(s), nor
install any additional lock(s), without Landlord's prior consent. Except in the
case of any emergency, any entry into the Premises by Landlord shall be on
reasonable advance notice of at least 24 hours.
1.2 COMMON AREAS. Tenant shall have the right to use, in common with
other tenants, the common walkways and driveways and the parking areas for the
Building ("Common Areas"). Tenant's use of the Building parking areas shall be
on an unreserved, non-exclusive basis and solely for Tenant's employees and
visitors. Landlord shall not be liable to Tenant, and this Lease shall not be
affected, if any parking rights of Tenant hereunder are impaired by any law,
ordinance or other governmental regulation imposed after the Date of Lease. If
Landlord grants to any other tenant the exclusive right to use any particular
Parking spaces, neither Tenant nor its visitors shall use such spaces but not to
exceed 10 spaces in the aggregate. Use of the Common Areas shall be only upon
the terms reasonably set forth at any time by Landlord applicable to all tenants
in the building. Landlord may at any time and in any manner make any changes,
additions, improvements, repairs or replacements to the Common Areas that it
1
considers desirable, provided that Landlord shall use reasonable efforts to
minimize interference with Tenant's normal activities and such changes shall not
substantially reduce the size of the parking areas desirable nor eliminate or
reduce the functionality of the use of the other Common Areas. Such actions of
Landlord shall not constitute constructive eviction or give rise to any rent
abatement or liability of Landlord to Tenant.
Tenant acknowledges and agrees that the occupants of the second floor
space in the Building shall, for purposes of providing handicap access only, be
permitted to pass and repass through the Initial Space to and from the elevator
serving the second floor.
ARTICLE II TERM
2.1 COMMENCEMENT DATE. The Scheduled Commencement Date shall be only an
estimate of the beginning of the Term of this Lease. The actual beginning of the
Term (the "Commencement Date") shall be the first to occur of (i) the date the
Premises are offered by Landlord for occupancy following substantial completion
of the Tenant Improvements to be constructed by Landlord pursuant to Paragraph
4.1, as reasonably determined by Landlord, and any certificate or approval
required by local governmental authority or occupancy of the Premises has been
obtained, or (ii) the date the Tenant enters into occupancy of the Premises
provided that if the Premises are not delivered by Landlord to Tenant within
thirty (30) days of the Scheduled Commencement Date, Tenant shall have the right
to terminate this Lease, by notice in writing of its election to terminate given
within ten (10) business days after the expiration of such thirty (30) day
period. The dates upon which the Term shall commence and end shall be confirmed
in Landlord's Notice of Lease Term Dates ("Notice"), substantially in the form
attached as Exhibit C. Landlord shall deliver the Notice to Tenant if the
Landlord offers possession of the Premises to the Tenant or if Tenant enters
into occupancy of the Premises. Tenant shall promptly return to Landlord a
countersigned original of the Notice, provided that Landlord's failure to
deliver the Notice shall not delay the Commencement Date.
ARTICLE III RENT
3.1 BASE RENT.
(a) Payment of Base Rent. Tenant shall pay the Base Rent each month
in advance on the first day of each calendar month during the Term. If the
Commencement Date is other than the first day of the month, Tenant shall pay a
proportionate part of such monthly installment on the Commencement Date. An
adjustment in the Base Rent for the last month of the Term shall be made if the
Term does not end on the last day of the month. All payments shall be made to
Managing Agent at Managing Agent's Address or to such other party or to such
other place as Landlord may designate in writing, without prior demand and
without abatement, deduction or offset. All charges to be paid by Tenant
hereunder, other than Base Rent, shall be
2
considered additional rent for the purposes of this Lease, and the words "rent"
or "Rent" as used in this Lease shall mean both Base Rent and additional rent
unless the context specifically or clearly indicates that only Base Rent is
referenced.
(b) Late Payments. Tenant acknowledges that the late payment by
Tenant to Landlord of any rent or other sums due under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
costs being extremely difficult and impracticable to ascertain. Therefore, if
any rent or other sum due from Tenant is not received when due, Tenant shall pay
to Landlord no later than ten (10) calendar days after the rental due date an
additional sum equal to 5% of such overdue payment. In addition to such late
charge, all such delinquent rent or other sums due to Landlord, including the
late charge, shall bear interest beginning on the date such payment was due at
the then maximum lawful rate permitted to be charged by Landlord. The notice and
cure period provided in Paragraph 8.1(a) of this Lease does not apply to the
foregoing late charges and interest. If payments of any kind are returned for
insufficient funds Tenant shall pay to Landlord an additional handling charge of
$50.00.
3.2 ADDITIONAL RENT FOR OPERATING EXPENSES, TAXES, AND CAPITAL COSTS.
(a) Additional Rent. For each Lease Year, Tenant shall pay to
Landlord as additional rent Tenant's Percentage of Operating Expenses, Taxes,
and Capital Costs ("Tenant's Share of Expenses").
(b) Definitions. As used herein, the following terms shall have
the following meanings:
(i) Lease Year. Each successive 12 month period following the
Commencement Date.
(ii)Operating Expenses. The total cost of operation of the
Property, including, without limitation: (1) premiums and
deductibles for insurance carried with respect to the
Property; (2) all costs of supplies, materials,
equipment, and utilities used in or related to the
operation, maintenance, and repair of the Property or any
part thereof (including utilities, unless the cost of any
utilities is to be paid for separately by Tenant pursuant
to Paragraph 6.1(b)); (3) all labor costs, including
without limitation, salaries, wages, payroll and other
taxes, unemployment insurance costs and employee
benefits; (4) all maintenance, management, janitorial,
inspection, legal, accounting, and service agreement
costs related to the operation, maintenance, and repair
of the Property or any part thereof, including, without
limitation, service contracts with independent
contractors. Any of the above services may be performed
by Landlord or its affiliates, provided that fees for the
performance of such services shall be reasonable and
competitive with fees charged by unaffiliated entities
for the performance of such services in comparable
buildings in the area. Operating
3
Expenses shall not include Taxes; leasing commissions;
repair costs paid by insurance proceeds or by any tenant
or third party; the initial construction cost of the
Building or any depreciation thereof, any debt service or
costs related to sale or financing of the Property; any
capital expenses, except those which normally would be
regarded as operating, maintenance, or repair costs;
tenant improvements provided for any tenant; or any
special services rendered to tenants (including Tenant)
for which a separate charge is made. If the Building is
less than 100% occupied during any Lease Year, then in
determining the Operating Expenses, all Operating
Expenses that may reasonably be determined to vary in
accordance with the occupancy level of the Building,
shall be grossed up to reflect 100% occupancy by
multiplying the amount of such expenses by a fraction,
the numerator of which is the total rentable square feet
in the Building and the denominator of which is the
average square feet in the Building that is occupied by
tenants during the Lease Year.
(iii) Taxes. Any form of assessment, rental tax, license tax,
business license tax, levy, charge, tax or similar
imposition imposed by any authority having the power to
tax, including any city, county, state or federal
government, or any school, agricultural, lighting,
library, drainage, or other improvement or special
assessment district, as against the Property or any part
thereof or any legal or equitable interest of Landlord
therein, or against Landlord by virtue of its interest
therein, and any reasonable costs incurred by Landlord in
any proceedings for abatement thereof, including, without
limitation, attorneys' and consultants' fees, and
regardless of whether any abatement is obtained.
Landlord's income and franchise taxes are excluded from
Taxes.
(iv) Capital Costs. The annual cost of any capital
improvements to the Property made by Landlord that are
designed to increase safety, to reduce Operating
Expenses, or to comply with any governmental law or
regulation imposed after initial completion of the
Building, amortized over such period as Landlord shall
reasonably determine, together with a fixed annual
interest rate equal to the Prime Rate plus 2% on the
unamortized balance. The Prime Rate shall be the prime
rate published in the Wall Street Journal on the date the
cost is incurred.
(c) Estimate of Tenant's Share of Expenses. Before each Lease
Year, and from time to time as Landlord deems appropriate, Landlord shall give
Tenant estimates for the coming Lease Year of Operating Expenses, Taxes, Capital
Costs, and Tenant's Share of Expenses. Landlord shall make reasonable efforts to
provide estimates fifteen (15) days before
4
the beginning of each Lease Year. Tenant shall pay one twelfth (1/12) of the
estimated amount of Tenant's Share of Expenses with each monthly payment of Base
Rent during the Lease Year. Each Lease Year, Landlord shall give Tenant a
statement (the "Share of Expenses Statement") showing the Operating Expenses,
Taxes, and Capital Costs for the prior Lease Year, a calculation of Tenant's
Share of Expenses due for the prior Lease Year and a summary of amounts already
paid by Tenant for the prior Lease Year. Landlord shall make reasonable efforts
to provide the Share of Expenses Statement within one hundred and twenty (120)
days after the end of the prior Lease Year. Any underpayment by Tenant shall be
paid to Landlord within thirty (30) days after delivery of the Share of Expenses
Statement; any overpayment shall be credited against the next installment of
Base Rent due, provided that any overpayment shall be paid to Tenant within
thirty (30) days if the Term has ended. No delay by Landlord in providing any
Share of Expenses Statement shall be deemed a waiver of Tenant's obligation to
pay Tenant's Share of Expenses. Notwithstanding anything contained in this
paragraph, the total rent payable by Tenant shall in no event be less than the
Base Rent.
(d) Partial Year Calculation.
(i) First Lease Year. In the event the Term did not commence
on January lst, Tenant's Share of Expenses for the first
Lease Year will be proportionately reduced. In this case,
Tenant shall pay to Landlord Tenant's Share of Expenses
multiplied by a fraction whose numerator equals the number
of days between the Commencement Date and December 31,
inclusive, and whose denominator equals 365. (For example,
if the Commencement Date is September 1, Tenant shall pay
in the first Lease Year Tenant's Share of Expenses times
122/365.)
(ii)Last Lease Year. In the event the Term does not expire on
December 31st of the last Lease Year, Tenant's Share of
Expenses shall be proportionately reduced.
ARTICLE IV DELIVERY OF PREMISES AND TENANT IMPROVEMENTS
4.1 CONDITION OF PREMISES. Landlord shall deliver the Initial Space to
Tenant upon substantial completion by Landlord of construction of the Tenant
Improvements described in Exhibit D of this Lease ("Tenant Improvements"). Such
Tenant Improvements shall become and remain the property of the Landlord. When
the New Space is delivered to Tenant, it shall be delivered in its As Is
condition.
If Landlord is unable to deliver possession of the Premises to Tenant
on or before the Scheduled Commencement Date for any reason whatsoever, Landlord
shall not be liable to Tenant for any loss or damage resulting therefrom and
this Lease ' shall continue in full force and effect, provided, however, that if
Landlord does not deliver possession of the Premises within 30
5
days after the Scheduled Commencement Date, Tenant shall have the right to
terminate this Lease as provided in Paragraph 2.1 above.
4.2 DELIVERY AND ACCEPTANCE OF POSSESSION. Tenant shall accept
possession and enter in good faith occupancy of the entire Premises and commence
the operation of its business therein within thirty (30) days after the
Commencement Date. Tenant's taking possession of any part of the Premises shall
be deemed to be an acceptance and an acknowledgment by Tenant that (i) Tenant
has had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition, (ii) except as
otherwise specifically provided herein, Tenant accepts possession of the
Premises; in its then existing condition, "as-is," including all patent and
latent defects, (iii) Tenant Improvements have been completed in accordance with
the terms of this Lease, except for defects of which Tenant has given Landlord
written notice prior to the time Tenant takes possession, and except for latent
defects of which Tenant provides notice in writing to Landlord within sixty (60)
days of commencement of occupancy, and (iv) neither Landlord, nor any of
Landlord's agents, has made any oral or written representations or warranties
with respect to such matters other than as set forth in this Lease. Tenant shall
vacate the Initial Space and commence occupancy of the New Space when the
Remaining Term commences.
4.3 INTENTIONALLY OMITTED.
4.4 EARLY OCCUPANCY. If Landlord agrees in writing to allow Tenant or
its contractors to enter the Premises prior to the Commencement Date, Tenant and
its contractors shall do so upon all of the provisions of this Lease (including
Tenant's obligations regarding indemnity and insurance), except those provisions
regarding Tenant's obligation to pay Base Rent, which obligation shall commence
on the Commencement Date.
ARTICLE V ALTERATIONS AND TENANT'S PERSONAL PROPERTY
5.1 ALTERATIONS.
(a) Landlord's Consent. Tenant shall not make any alterations,
additions, installations, substitutes or improvements ("Alterations") in and to
the Premises without first obtaining Landlord's written consent. Landlord shall
not unreasonably withhold or delay its consent; provided, however, that Landlord
shall have no obligation to consent to Alterations of a structural nature or
Alterations that would violate the certificate of occupancy for the Premises or
any applicable law, code or ordinance or the terms of any superior lease or
mortgage affecting the Property. No consent given by Landlord shall be deemed as
a representation or warranty that such Alterations comply with laws, regulations
and rules applicable to the Property ("Laws"). Tenant shall pay Landlord's
reasonable costs of reviewing or inspecting any proposed Alterations and any
other costs that may be incurred by Landlord as a result of such Alterations,
provided that such costs shall be limited to reasonable third party costs and
not to Landlord's internal costs of review.
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(b) Workmanship. All Alterations shall be done at reasonable times
in a first-class workmanlike manner, by contractors approved by Landlord, and
according to plans and specifications previously approved by Landlord. All work
shall be done in compliance with all Laws, and with all regulations of the Board
of Fire Underwriters or any similar insurance body or bodies. Tenant shall be
solely responsible for the effect of any Alterations on the Building's structure
and systems, notwithstanding that Landlord has consented to the Alterations, and
shall reimburse Landlord on demand for any costs incurred by Landlord by reason
of any faulty work done by Tenant or its contractors. Upon completion of
Alterations, Tenant shall provide Landlord with a complete set of "as-built"
plans.
(c) Mechanics and Other Liens. Tenant shall keep the Property and
Tenant's leasehold interest therein free of any liens or claims of liens, and
shall discharge any such liens within ten (10) days of their filing. Before
commencement of any work, Tenant's contractor shall provide payment, performance
and lien indemnity bonds as reasonably required by Landlord, and Tenant shall
provide evidence of such insurance as Landlord may reasonably require, naming
Landlord as an additional insured. Tenant shall indemnify Landlord and hold it
harmless from and against any cost, claim, or liability arising from any work
done by or at the direction of Tenant.
(d) Removal of Alterations. All Alterations affixed to the Premises
shall become part thereof and remain therein at the end of the Term. However, if
Landlord gives Tenant notice, at least thirty (30) days before the end of the
Term, to remove any such Alterations, Tenant shall remove the Alterations, make
any repairs required by such removal, and restore the Premises to its original
condition.
5.2. TENANT'S PERSONAL PROPERTY.
(a) In General. Tenant may provide and install, and shall maintain
in good condition, all trade fixtures, personal property, equipment, furniture
and moveable partitions required in the conduct of its business in the Premises.
All of Tenant's personal property, trade fixtures, equipment, furniture, movable
partitions, and any Alterations not affixed to the Premises shall remain
Tenant's property.
(b) Intentionally Deleted.
(c) Payment of Taxes. Tenant shall pay before delinquency all taxes
levied against Tenant's personal property or trade fixtures in the Premises and
any Alterations installed by or on behalf of Tenant other than alterations to be
undertaken in accordance with Exhibit D. If any such taxes are levied against
Landlord or its property, or if the assessed value of the Premises is increased
by the inclusion of a value placed on Tenant's. property, Landlord may pay such
taxes, and Tenant shall upon demand repay to Landlord the portion of such taxes
resulting from such increase.
ARTICLE VI LANDLORD'S COVENANTS
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6.1 SERVICES PROVIDED BY LANDLORD.
(a) Services. Landlord shall provide services, utilities,
facilities and supplies equal in quality to those customarily provided by
landlords in buildings of a similar design in the area in which the Property is
located. Such services shall include but are not necessarily limited to
janitorial, landscaping and snow plowing. Landlord shall provide the services
described in this Paragraph 6.l(a) and Tenant shall pay for such services either
directly to the utility company, if separately metered, and otherwise as set
forth in Paragraph 3.2.
(b) Graphics and Signs. Landlord shall provide, at Tenant's
expense, identification of Tenant's name and suite numerals at the main entrance
door to the Premises. All signs, notices, graphics and decorations of every kind
or character which are visible in or from the Common Areas or the exterior of
the Premises shall be subject to Landlord's prior written approval, which
Landlord shall have the right to withhold in its absolute and sole discretion.
(c) Right to Cease Providing Services. In case of Force Majeure or
in connection with any repairs, alterations or additions to the Property or the
Premises, or any other acts required of or permitted to Landlord herein,
Landlord may reduce or suspend service of the Building's utilities facilities or
supplies, provided that Landlord shall use reasonable diligence to restore such
utilities, facilities or supplies as soon as possible. No such reduction or
suspension shall constitute an actual or constructive eviction or disturbance of
Tenant's use or possession of the Premises; provided, however, Tenant shall be
entitled to a pro rata rent reduction on account of any such suspension or
reduction which is not caused by Force Majeure or by Tenant and renders the
Premises or part thereof untenantable for more than five (5) business days.
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6.2 REPAIRS AND MAINTENANCE. Landlord shall repair and maintain (i) the
Common Areas, (ii) the structural portions of the Building, (iii) the exterior
walls of the Building (including exterior windows and glazing), (iv) the roof,
and (v) the basic plumbing, electrical and mechanical systems serving the
Premises, in the manner and to the extent customarily provided by landlords in
similar buildings in the area. Tenant shall pay for such repairs as set forth in
Paragraph 3.2. If any maintenance, repair or replacement is required because of
any act, omission or neglect of duty by Tenant or its agents, employees,
invitees or contractors, the cost thereof shall be paid by Tenant to Landlord as
additional rent within thirty (30) days after billing.
6.3 QUIET ENJOYMENT. Upon Tenant's paying the rent and performing its
other obligations, Landlord shall permit Tenant to peacefully and quietly hold
and enjoy the Premises, subject to the provisions of this Lease.
6.4 INSURANCE. Landlord shall insure the Property, including the
Building and Tenant Improvements and approved Alterations, if any, against
damage by fire and standard extended coverage perils, and shall carry public
liability insurance, all in such reasonable amounts as would be carried by a
prudent owner of a similar building in the area. Landlord may carry any other
forms of insurance as it or its mortgagee may deem advisable. Insurance obtained
by Landlord shall not be in lieu of any insurance required to be maintained by
Tenant. Landlord shall not carry any insurance on Tenant's Property, and shall
not be obligated to repair or replace any of Tenant's Property.
ARTICLE VII TENANT'S COVENANTS
7.1. REPAIRS, MAINTENANCE AND SURRENDER.
(a) Repairs and Maintenance. Tenant shall keep the Premises in good
order and condition, and shall promptly repair any damage to the Premises or the
rest of the Property including all glass in windows (except glass in exterior
walls unless damage is attributable to Tenant's negligence or misuse) caused by
Tenant or its agents, employees, or invitees, licensees or independent
contractors. Tenant shall be responsible for the repair and maintenance of the
basic plumbing, electrical, mechanical, and heating, ventilation and air
conditioning systems serving the Premises. Tenant shall obtain and maintain a
HVAC service contract with a reputable HVAC maintenance firm approved by
Managing Agent, and shall insure that all work performed in the Premises is
completed in a first-class workmanlike manner. Tenant shall provide a copy of
such service contract to Landlord on or prior to the Commencement Date.
(b) Surrender. At the end of the Term, Tenant shall peaceably
surrender the Premises in good order, repair and condition, except for
reasonable wear and tear, and Tenant shall remove Tenant's Property and (if
required by Landlord) any Alterations, repairing any damage caused by such
removal and restoring the Premises and leaving them clean and neat. Any property
not so removed shall be deemed abandoned and may be retained by Landlord or may
be removed and disposed of by Landlord in such manner as Landlord shall
determine. Tenant shall be responsible for costs and expenses incurred by
Landlord in removing any
9
Alterations and disposing of any such abandoned property, making any incidental
repairs and replacements to the Premises, and restoring the Premises to its
original conditions.
7.2 USE.
(a) General Use. Tenant shall use the Premises only for the
Permitted Uses, and shall not use or permit the Premises to be used in violation
of any law or ordinance or of any certificate of occupancy issued for the
Building or the Premises, or of the Rules and Regulations. Tenant shall not
cause, maintain or permit any nuisance in, on or about the Property, or commit
or allow any waste in or upon the Property. Tenant shall not use utility
services in excess of amounts reasonably determined by Landlord to be within the
normal range of demand for the Permitted Uses.
(b) Obstructions and Exterior Displays. Tenant shall not obstruct
any of the Common Areas or any portion of the Property outside the Premises, and
shall not, except as otherwise previously approved by Landlord, place or permit
any signs, decorations, curtains, blinds, shades, awnings, aerials or flagpoles,
or the like, that may be visible from outside the Premises. If Landlord
designates a standard window covering for use throughout the Building, Tenant
shall use this standard window covering to cover all windows in the Premises.
(c) Floor Load. Tenant shall not place a load upon the floor of the
Premises exceeding the load per square foot such floor was designed to carry, as
determined by applicable building code.
(d) Compliance with Insurance Policies. Tenant shall not keep or
use any article in the Premises, or permit any activity therein, which is
prohibited by any insurance policy covering the Building, or, if not so
prohibited, would result in an increase in the premiums thereunder unless Tenant
pays such additional premiums.
(e) Rules and Regulations. Tenant shall observe and comply with the
rules and regulations (the "Rules and Regulations"), and all modifications
thereto as made by Landlord and put into effect from time to time. Landlord
shall not be responsible to Tenant for the violation or non-performance by any
other tenant or occupant of the Building of the Rules and Regulations.
7.3. ASSIGNMENT; SUBLEASE. Tenant shall not assign its rights under
this Lease nor sublet the whole or any part of the Premises without Landlord's
prior written consent. In the event that Landlord grants such consent, Tenant
shall remain primarily liable to Landlord for the payment of all rent and for
the full performance of the obligations under this Lease and any excess rents
collected by Tenant shall be paid to Landlord. Any assignment or subletting
which does not conform with this Paragraph 7.3 shall be void and a default
hereunder.
7.4. INDEMNITY. Tenant, at its expense, shall defend (with counsel
satisfactory to Landlord), indemnify and hold harmless Landlord and its agents,
employees, invitees, licensees and contractors from and against any cost, claim,
action, liability or damage of any kind arising from (i) Tenant's use and
occupancy of the Premises or the Property or any activity done or
10
permitted by Tenant in, on, or about the Premises or the Property, (ii) any
breach or default by Tenant of its obligations under this Lease, or (iii) any
negligent, tortious, or illegal act or omission of Tenant, its agents,
employees, invitees, licensees or contractors; provided, however, that Tenant
shall not be obligated to indemnify Landlord against the negligent or
intentional acts of Landlord, its agents, servants or contractors. Landlord
shall not be liable to Tenant or any other person or entity for any damages
arising from any act or omission of any other tenant of the Building. The
obligations of Tenant in this Paragraph shall survive the expiration or
termination of this Lease.
7.5. TENANT'S INSURANCE. Tenant shall maintain in responsible companies
qualified to do business, in good standing in the state in which the Premises
are located and otherwise acceptable to Landlord and at its sole expense the
following insurance: (1) comprehensive general liability insurance covering the
Premises, insuring Landlord as well as Tenant, with limits which shall, at the
commencement of the Term, be at least equal to the Public Liability Insurance
Amount and from time to time during the Term shall be for such higher limits, if
any, as are customarily carried in the area in which the Premises are located
with respect to similar properties; (ii) workers' compensation insurance with
statutory limits covering all of Tenant's employees working in the Premises;
(iii) property insurance insuring Tenant's Property for the full replacement
value of such items and (iv) business interruption insurance. There shall be no
deductible for liability policies and a deductible not greater than $5,000 for
property insurance policies. Tenant shall deposit promptly with Landlord
certificates for such insurance, and all renewals thereof, bearing the
endorsement that the policies will not be canceled until after thirty (30) days'
written notice to Landlord. All policies shall be taken out with insurers with a
rating of A-IX by Best's and otherwise acceptable to Landlord.
7.6. PAYMENT OF TAXES. If at any time during the Term, any political
subdivision of the state in which the Property is located, or any other
governmental authority, levies or assesses against Landlord a tax or excise on
rents or other tax (excluding income tax), however described, including but not
limited to assessments, charges or fees required to be paid, by way of
substitution for or as a supplement to real estate taxes, or any other tax on
rent or profits in substitution for or as a supplement to a tax levied against
the Property, Building or Landlord's personal property, then Tenant will pay to
Landlord as additional rent its proportionate share based on Tenant's Percentage
of said tax or excise.
7.7. ENVIRONMENTAL ASSURANCES.
(a) Covenants.
(i) Tenant shall not cause any Hazardous Materials to be
used, generated, stored or disposed of on, under or
about, or transported to or from, the Premises unless
the same is specifically approved in advance by
Landlord in writing, other than small quantities of
retail, household, and office chemicals customarily
sold over-the-counter to the public and which are
related to Tenant's Permitted Uses.
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(ii) Tenant shall comply with all obligations imposed by
Environmental Laws, and all other restrictions and
regulations upon the use, generation, storage or
disposal of Hazardous Materials at, to or from the
Premises.
(iii) Tenant shall deliver promptly to Landlord true and
complete copies of all notices received by Tenant from
any governmental authority with respect to the use,
generation, storage or disposal by Tenant of Hazardous
Materials at, to or from the Premises and shall
immediately notify Landlord both by telephone and in
writing of any unauthorized discharge of Hazardous
Materials or of any condition that poses an imminent
hazard to the Property, the public or the environment.
(iv) Tenant shall complete fully, truthfully and promptly
any questionnaires sent by Landlord with respect to
Tenant's use of the Premises and its use, generation,
storage and disposal of Hazardous Materials at, to or
from the Premises.
(v) Tenant shall permit entry onto the Premises by Landlord
or Landlord's representatives at any reasonable time
upon reasonable notice to verify and monitor Tenant's
compliance with its covenants set forth in this
Paragraph and to perform other environmental
inspections of the Premises.
(vi) If Landlord conducts any environmental inspections
because it reasonably believes that Tenant's activities
have resulted or are likely to result in a violation of
Environmental Laws or a release of Hazardous Materials
on the Property, then Tenant shall pay to Landlord, as
additional rent, the reasonable costs incurred by
Landlord for such inspections.
(vii) Tenant shall cease immediately upon notice from
Landlord any activity which violates or creates a risk
of violation of any Environmental Laws.
(viii) After notice to and approval by Landlord, Tenant shall
promptly remove, clean up, dispose of or otherwise
remediate, in accordance with Environmental Laws and
good commercial practice, any Hazardous Materials on,
under or about the Property resulting from Tenant's
activities on the Property.
(b) Indemnification. Tenant shall indemnify, defend with counsel
acceptable to Landlord and hold Landlord harmless from and against any claims,
damages, costs, liabilities or losses (including, without limitation, any
decrease in the value of the Property, loss or restriction of any area of the
Property, and adverse impact on the marketability of the Property or
12
Premises) arising out of Tenant's use, generation, storage or disposal of
Hazardous Materials at, to or from the Premises.
(c) Definitions. Hazardous Materials shall include but not be
limited to substances defined as "hazardous substances", "toxic substances", or
"hazardous wastes" in the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; the federal Hazardous
Materials Transportation Act, as amended; and the federal Resource Conservation
and Recovery Act, as amended; those substances defined as "hazardous
substances", "materials", or "wastes" under the law of the state in which the
Premises are located; and as such substances are defined in any regulations
adopted and publications promulgated pursuant to said laws ("Environmental
Laws"); materials containing asbestos or urea formaldehyde; gasoline and other
petroleum products; flammable explosives; radon and other natural gases; and
radioactive materials.
(D) Survival. The obligations of Tenant in this Paragraph shall
survive the expiration or termination of this Lease.
7.8. AMERICANS WITH DISABILITIES ACT. Landlord and Tenant shall comply
with the Americans with Disabilities Act of 1990 ("ADA") and the regulations
promulgated thereunder. Tenant hereby expressly assumes all responsibility for
compliance with the ADA relating to the Premises and the activities conducted by
Tenant within the Premises. Any Alterations to the Premises made by Tenant for
the purpose of complying with the ADA or which otherwise require compliance with
the ADA shall be done in accordance with this Lease, provided that Landlord's
consent to such Alterations shall not constitute either Landlord's assumption,
in whole or in part, of Tenant's responsibility for compliance with the ADA, or
representation or confirmation by Landlord that such Alterations comply with the
provisions of the ADA. Landlord shall be responsible for the compliance of the
Common Areas with the ADA and shall also be responsible for assuring that the
Initial Space at the time delivered to Tenant is in compliance with the ADA.
ARTICLE VIII DEFAULT
8.1. DEFAULT. The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant:
(a)The failure by Tenant to make any payment of Base Rent or
additional rent or any other payment required hereunder, as and when due, where
such failure shall continue for a period of five (5) days after written notice
thereof from Landlord to Tenant; provided, that Landlord shall not be required
to provide such notice more than twice during the Term with respect to
non-payment of Rent, the third such non-payment constituting a default without
requirement of notice;
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(b) The vacating or abandonment of the Premises. Tenant shall be
deemed to have abandoned the Premises if the Premises remain substantially
vacant or unoccupied for a period of thirty (30) consecutive days;
(c) The failure by Tenant to observe or perform any of the express
or implied covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in clauses (a) and (b) above, where such failure
shall continue for a period of more than thirty (30) days' after written notice
thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant
commences such cure within said thirty (30) day period, diligently prosecutes
such cure to completion, and completes such cure no later than sixty (60) days
from the date of such notice from Landlord;
(d) The failure by Tenant, Guarantor (if any), or any present or
future guarantor of all or any portion of Tenant's obligations under this Lease
to pay its debts as they become due, or Tenant or any such Guarantor (if any)
becoming insolvent, filing or having filed against it a petition under any
chapter of the United States Bankruptcy Code, 11 U.S.C. Paragraph 101 et seq.
(or any similar petition under any insolvency law of any jurisdiction) and such
petition is not dismissed within sixty (60) days thereafter, proposing any
dissolution, liquidation, composition, financial reorganization or
re-capitalization with creditors, making an assignment or trust mortgage for the
benefit of creditors, or if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property or business of Tenant
or Guarantor (if any); or
(e) If the leasehold estate under this Lease or any substantial
part of the property or assets of Tenant or of the Guarantor of this leasehold
is taken by execution, or by other process of law, or is attached or subjected
to any involuntary encumbrance if such attachment or other seizure remains
undismissed or undischarged for a period of thirty (30) business days after the
levy thereof.
8.2. REMEDIES OF LANDLORD AND CALCULATION OF DAMAGES.
(a) Remedies. In the event of any default by Tenant, whether or not
the Term shall have begun, in addition to any other remedies available to
Landlord at law or in equity, Landlord may, at its option and without further
notice, exercise any or all of the following remedies:
(i) Terminate this Lease, and upon notice to Tenant of
termination of Lease all rights of Tenant hereunder
shall thereupon come to an end as fully and completely
as if the date such notice is given were the date
originally fixed for the expiration of the Term, and
Tenant shall then quit and surrender the Premises to
Landlord and Landlord shall have the right, subject to
the requirements of law, to re-enter the Premises. No
such expiration or termination of this Lease shall
relieve Tenant of its liability and obligation under
this Lease.
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(ii) Enter the Premises and cure any default by Tenant and
in so doing, Landlord may make any payment of money or
perform any other act. All sums so paid by Landlord,
and all incidental costs and expenses, including
reasonable attorneys' fees, shall be considered
additional rent under this Lease and shall be payable
to Landlord immediately on demand, together with
interest from the date of demand to the date of payment
at the maximum lawful rate permitted to be charged by
Landlord.
(b) Calculation of Damages. If this Lease is terminated as provided
in this Paragraph 8.2 or otherwise, Tenant, agrees to pay to Landlord on demand,
as compensation, the excess of the Base Rent and additional rent reserved for
the residue of the term of this Lease over the rental value of the Premises for
the said residue of the term, discounted at a fixed annual interest rate equal
to the Prime Rate as published in the Wall Street Journal on the date on which
this Lease is terminated by Landlord. Tenant further covenants, as an additional
and cumulative obligation after any such termination, to pay punctually to
Landlord, as damages for Tenant's default, the amount of the annual rent and all
additional rent and other charges which would be payable by Tenant under this
Lease as if still in effect, less the net proceeds of any reletting of the
Premises actually collected by Landlord after deducting all Landlord's expenses
in connection with such reletting, including but not limited to all repossession
costs, brokerage and management commissions, operating expenses, legal expenses,
including reasonable attorneys' fees, alteration costs and expenses of
preparation of the Premises for such reletting. In calculating the amount to be
paid by Tenant under the preceding sentence, Tenant shall be credited (on a pro
rata basis to spread such credit over the residue of the term) any amount paid
to Landlord as compensation under the preceding sentence. Tenant shall pay such
damages to Landlord monthly on the date on which the Base Rent would have been
payable as if this Lease were still in effect, and Landlord shall be entitled to
recover for such damages monthly as the same shall arise. Whether or not this
Lease is terminated, Landlord shall in no way be responsible or liable for any
failure to relet the Premises or for any failure to collect any rent upon such
reletting.
(c) No Limitations. Nothing contained in this Lease shall limit or
prejudice the right of Landlord to prove for and obtain in proceedings for
bankruptcy or insolvency by reason of the termination of this Lease, an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, the damages are to be provided,
whether or not the amount be greater, equal to, or less than the amount of the
loss or damages referred to above.
(d) Cumulative Remedies. Landlord's remedies under this Lease are
cumulative and not exclusive of any other remedies to which Landlord may be
entitled in case of Tenant's default or threatened default under this Lease,
including, without limitation, the remedies of injunction and specific
performance.
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ARTICLE IX CASUALTY AND EMINENT DOMAIN
9.1. CASUALTY.
(a) Casualty in General. If, during the Term, the Premises, the
Building or the Lot, are wholly or partially damaged or destroyed by fire or
other casualty, and the casualty renders the Premises totally or partially
inaccessible or unusable by Tenant in the ordinary conduct of Tenant's business,
then Landlord shall, within thirty (30) days of the date of the damage, give
Tenant a notice ("Damage Notice") stating whether, according to Landlord's good
faith estimate, the damage can be repaired within one hundred thirty-five (135)
days from the date of damage ("Repair Period"), without the payment of overtime
or other premiums. The parties' rights and obligations shall then be governed
according to whether the casualty is an Insured Casualty or an Uninsured
Casualty as set forth in the following paragraphs.
(b) Insured Casualty. If the casualty results from a risk, the loss
to Landlord from which is fully covered by insurance maintained by Landlord or
for Landlord's benefit (except for any deductible amount), it shall be an
"Insured Casualty" and governed by this Paragraph 9.1(b). In such event, if the
Damage Notice states that the repairs can be completed within the Repair Period
without the payment of overtime or other premiums, then Landlord shall promptly
proceed to make the repairs, this Lease shall remain in full force and effect,
and Base Rent shall be reduced, during the period between the casualty and
completion of the repairs, in proportion to the portion of the Premises that is
inaccessible or unusable during that period and which is, in fact, not utilized
by Tenant. Base Rent shall not be reduced by reason of any portion of the
Premises being unusable or inaccessible for a period of five (5) business days
or less. If the Damage Notice states that the repairs cannot, in Landlord's
estimate, be completed within the Repair Period without the payment of overtime
or other premiums, then either party may terminate this Lease by written notice
given to the other within thirty (30) days after the giving of the Damage
Notice. If either party elects to terminate this Lease, this Lease shall
terminate as of the date of the occurrence of such damage or destruction and
Tenant shall vacate the Premises five (5) business days from the date of the
written notice terminating this Lease. If neither party so terminates, then this
Lease shall remain in effect, Landlord shall make repairs, and Base Rent shall
be proportionately reduced as set forth above during the period when the
Premises is inaccessible or unusable and is not used by Tenant.
(c) Uninsured Casualty. If the casualty is not an Insured Casualty
as set forth in the previous paragraph, it shall be an "Uninsured Casualty"
governed by this Paragraph 9.1(c). In such event, if the Damage Notice states
that the repairs can be completed within the Repair Period without the payment
of overtime or other premiums, Landlord may elect, by written notice given to
Tenant within thirty (30) days after the Damage Notice, to make the repairs, in
which event this Lease shall remain in effect and Base Rent shall be
proportionately reduced as set forth above. If Landlord does not so elect to
make the repairs, or if the Damage Notice states that the repairs cannot be made
within the Repair Period, this Lease shall terminate as of the date of the
casualty and Tenant shall vacate the Premises five (5) business days from the
date of Landlord's written notice to Tenant terminating this Lease.
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(d) Casualty Within Final Six Months of Term. Notwithstanding
anything to the contrary contained in this Paragraph 9.1, if the Premises or the
Building is wholly or partially damaged or destroyed within the final six (6)
months of the Term of this Lease, Landlord shall not be required to repair such
casualty and either Landlord or Tenant may elect to terminate this Lease.
(e) Tenant Improvements and Alterations. If Landlord elects to
repair, after a casualty in accordance with this Paragraph 9.1, Landlord shall
cause Tenant Improvements and Alterations which Landlord has approved, to be
repaired and restored at Landlord's sole expense. Landlord shall have no
responsibility for any personal property placed or kept in or on the Premises or
the Building by Tenant or Tenant's agents, employees, invitees or contractors
and Landlord shall not be required to repair any damage to, or make any repairs
to or replacements of, Tenant's personal property.
(F) Exclusive Remedy. This Paragraph 9.1 shall be Tenant's sole and
exclusive remedy in the event of damage or destruction to the Premises or the
Building. No damages, compensation or claim shall be payable by Landlord for any
inconvenience, any interruption or cessation of Tenant's business, or any
annoyance, arising from any damage to or destruction of all or any portion of
the Premises or the Building.
(G) Waiver of Subrogation. Landlord and Tenant shall use reasonable
efforts to cause each insurance policy obtained by each of them to provide that
the insurer waives all right of recovery by way of subrogation against prove
either Landlord or Tenant in connection with any loss or damage covered by such
policy.
9.2. EMINENT DOMAIN.
(A) Eminent Domain in General. If the whole of the Premises, or so
much of the Premises as to render the balance unusable by Tenant, shall be taken
or appropriated under the power of eminent domain or condemnation (a "Taking"),
either Landlord or Tenant may terminate this Lease and the termination date
shall be the date of the Order of Taking, or the date possession is taken by the
Taking authority, whichever is earlier. If any part of the Property is the
subject of a Taking and such Taking materially affects the normal operation of
the Building or Common Areas, Landlord may elect to terminate this Lease. A sale
by Landlord under threat of a Taking shall constitute a Taking for the purpose
of this Paragraph 9.2. Tenant may terminate this Lease by notice in writing to
Landlord in the event that any such Taking shall reduce the parking area by more
than 20% or shall materially impair access to the Building and parking areas,
such termination to take effect the date possession is taken by the Taking
authority. No award for any partial or entire Taking shall be apportioned.
Landlord shall receive (subject to the rights of Landlord's mortgagees) and
Tenant hereby assigns to Landlord any award which may be made and any other
proceeds in connection with such Taking, together with all rights of Tenant to
such award or proceeds, including, without limitation, any award or compensation
for the value of all or any part of the leasehold estate; provided that nothing
contained in this Paragraph 9.2(a) shall be deemed to give Landlord any interest
in or to require Tenant to assign to Landlord any separate award made to Tenant
for (i) the taking of Tenant's
17
personal property, or (ii) interruption of or damage to Tenant's business, or
(iii) Tenant's moving and relocation costs.
(b) Reduction in Base Rent. In the event of a Taking which does not
result in a termination of the Lease, Base Rent shall be proportionately reduced
based on the portion of the Premises rendered unusable, and Landlord shall
restore the Premises or the Building to the extent of available proceeds or
awards from such Taking. Landlord shall not be required to repair or restore any
damage to Tenant's personal property or any Alterations.
(c) Sole Remedies. This Paragraph 9.2 sets forth Tenant's and
Landlord's sole remedies for Taking. Upon termination of this Lease pursuant to
this Paragraph 9.2, Tenant and Landlord hereby agree to release each other from
any and all obligations and liabilities with respect to this Lease except such
obligations and liabilities which arise or accrue prior to such termination.
ARTICLE X RIGHTS OF PARTIES HOLDING SENIOR INTERESTS
10.1. SUBORDINATION. This Lease shall be subject and subordinate to any
and all mortgages, deeds of trust and other instruments in the nature of a
mortgage, ground lease or other matters or record ("Senior Interests") which now
or at any time hereafter encumber the Property and Tenant shall, within twenty
(20) days of Landlord's request, execute and deliver to Landlord such recordable
written instruments as shall be necessary to show the subordination of this
Lease to such Senior Interests. Notwithstanding the foregoing, if any holder of
a Senior Interest succeeds to the interest of Landlord under this Lease, then,
at the option of such holder, this Lease shall continue in full force and effect
and Tenant shall attorn to such holder and to recognize such holder as its
landlord.
10.2. MORTGAGEE'S CONSENT. No assignment of this Lease and no agreement
to make or accept any surrender, termination or cancellation of this Lease and
no agreement to modify so as to reduce the Rent, change the Term, or otherwise
materially change the rights of Landlord under this Lease, or to relieve Tenant
of any obligations or liability under this Lease, shall be valid unless
consented to by Landlord's mortgagees of record, if any.
18
ARTICLE XI GENERAL
11.1 REPRESENTATIONS BY TENANT. Tenant represents and warrants that any
financial statements provided by it to Landlord were true, correct and complete
when provided, and that no material adverse change has occurred since that date
that would render them inaccurate or misleading. Tenant represents and warrants
that those persons executing this Lease on Tenant's behalf are duly authorized
to execute and deliver this Lease on its behalf, and that this Lease is binding
upon Tenant in accordance with its terms, and simultaneously with the execution
of this Lease, Tenant shall deliver evidence of such authority to Landlord in
form satisfactory to Landlord.
11.2.NOTICES. Any notice required or permitted hereunder shall be in
writing. Notices shall be addressed to Landlord c/o Managing Agent at Managing
Agent's Address and to Tenant at Tenant's Address. Any communication so
addressed shall be deemed duly given when delivered by hand, one day after being
sent by Federal Express (or other guaranteed one day delivery service) or three
days after being sent by registered or certified mail, return receipt requested.
Either party may change its address by giving notice to the other.
11.3. NO WAIVER OR ORAL MODIFICATION. No provision of this Lease shall
be deemed waived by Landlord or Tenant except by a signed written waiver. No
consent to an act or waiver of any breach or default, express or implied, by
Landlord or Tenant, shall be construed as a consent to any other act or waiver
of any other breach or default.
11.4. SEVERABILITY. If any provision of this Lease, or the application
thereof in any circumstances, shall to any extent be invalid or unenforceable,
the remainder of this Lease shall not be affected thereby, and each provision
hereof shall be valid and enforceable to the fullest extent permitted by law.
11.5. REQUESTS BY TENANT. Tenant shall pay, on demand, all reasonable
costs incurred by Landlord, including without limitation reasonable attorneys'
fees, in connection with any matter requiring Landlord's review or consent or
any other requests made by Tenant under this Lease, regardless of whether such
request is granted by Landlord.
11.6. ESTOPPEL CERTIFICATE AND FINANCIAL STATEMENTS.
(a) Estoppel Certificate. Within ten (10) days after written
request by either party, the other party shall execute, acknowledge and deliver
to the requesting party a written statement certifying: (i) that this Lease is
unmodified and in full force and effect, or is in full force and effect as
modified and stating the modifications; (ii) the amount of Base Rent and the
date to which Base Rent and additional rent have been paid in advance; (iii) the
amount of any security deposited with Landlord; (iv) that the requesting party
is not in default hereunder or, if the requesting party is claimed to be in
default, stating the nature of any claimed default; and (v) such other matters
as may be reasonably requested by the requesting party. Any such statement may
be relied upon by a purchaser, assignee or lender. Tenant's failure to execute
and deliver such statement within the time required shall be a default under
this Lease. Such
19
Estoppel Certificates shall be furnished if required to be furnished by the
requesting party to a third party (such as but not limited to a purchaser,
assignee or lender).
(b) Financial Statements. Tenant shall, without charge therefore,
at any time, within ten (10) days following a request by Landlord, deliver to
Landlord, or to any other party designated by Landlord, a true and accurate copy
of Tenant's most recent financial statements. All requests made by Tenant
regarding renewals or expansions must be accompanied by Tenant's most recent
financial statements. All requests made by Tenant regarding subleases or
assignments must be accompanied by Tenant's prospective subtenant's and
prospective assignee's most recent financial statements.
11.7. WAIVER OF LIABILITY. Landlord and Tenant each hereby waive all
rights of recovery against the other and against the officers, employees,
agents, and representatives of the other, on account of loss by or damage to the
waiving party or its property or the property of others under its control, to
the extent that such loss or damage is insured against under any insurance
policy that either may have in force at the time of the loss or damage. Each
party shall notify its insurers that the foregoing waiver is contained in this
Lease.
11.8. EXECUTION, PRIOR AGREEMENTS AND NO REPRESENTATIONS. This Lease
shall not be binding and enforceable until executed by authorized
representatives of Landlord and Tenant. This Lease contains all of the
agreements of the parties with respect to the subject matter hereof and
supersedes all prior dealings, whether written or oral, between them with
respect to such subject matter. Each party acknowledges that the other has made
no representations or warranties of any kind except as may be specifically set
forth in this Lease.
11.9. BROKERS. Each party represents and warrants that it has not dealt
with any real estate broker or agent in connection with this Lease. or its
negotiation other than Broker. Each party shall indemnify the other and hold it
harmless from any cost, expense, or liability (including costs of suit and
reasonable attorneys' fees) for any compensation, commission or fees claimed by
any other real estate broker or agent in connection with this Lease or its
negotiation by reason of any act or statement of the indemnifying party.
11.10.SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that only the original Landlord named herein shall
be liable for obligations accruing before the beginning of the Term, and
thereafter the original Landlord named herein and each successive owner of the
Premises shall be liable only for obligations accruing during the period of
their respective owners.
11.11.APPLICABLE LAW AND LEASE INTERPRETATION. This Lease shall be
construed, governed and enforced according to the laws of the state in which the
Property is located. In construing this Lease, Article and Paragraph headings
are for convenience only and shall be disregarded. Any recitals herein or
exhibits attached hereto are hereby incorporated into this Lease by this
reference. Time is of the essence of this Lease and every provision contained
herein. The parties acknowledge that this Lease was freely negotiated by both
parties, each of
20
whom was represented by counsel; accordingly, this Lease shall be construed
according to the fair meaning of its terms, and not against either party.
11.12. COSTS OF COLLECTION, ENFORCEMENT AND DISPUTES. Tenant shall
pay all costs of collection, including reasonable attorneys' fees, incurred by
Landlord in connection with any default by Tenant. If either Landlord or Tenant
institutes any action to enforce the provisions of this Lease or to seek a
declaration of rights hereunder, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and court costs as part of any award.
Landlord and Tenant hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of the par-ties hereto against the other, on or
in respect to any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or
occupancy of the Premises, and/or claim of injury or damage.
11.13. HOLDOVER. If Tenant holds over in occupancy of the Premises
after the expiration of the Term, Tenant shall, at the election of Landlord,
become a tenant at sufferance only, on a month-to-month basis, subject to the
terms and conditions herein specified, so far as applicable. In either case,
Tenant shall pay rent during the holdover period, at a base rental rate equal to
1.5 times the Base Rent in effect at the end of the Term, plus the amount of
Tenant's Share of Expenses then in effect. Tenant shall also be liable for all
damages sustained by Landlord on account of such holding over.
11.14. FORCE MAJEURE. If Landlord or Tenant is prevented from or
delayed in performing any act required of it hereunder, and such prevention or
delay is caused by strikes, labor disputes, inability to obtain labor,
materials, or equipment, inclement weather, acts of God, governmental
restrictions, regulations, or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond such party's reasonable control ("Force Majeure"), the performance of
such act shall be excused for a period equal to the period of prevention or
delay. A party's financial inability to perform its obligations shall in no
event constitute Force Majeure. Nothing in this Paragraph 11.14 shall excuse or
delay Tenant's obligation to pay any rent or other charges due under this Lease.
11.15. LIMITATION ON LIABILITY. Landlord, and its partners,
directors, officers, shareholders, trustees or benefactors, shall not be liable
to Tenant for any damage to or loss of personal property in, or for any personal
injury occurring in, the Premises, unless such damage, loss or injury is the
result of the gross negligence of Landlord or its agents as determined by a
final non-appeal judicial proceeding. The obligations of Landlord under this
Lease do not constitute personal obligations of the individual partners,
directors, officers, shareholders, trustees or beneficiaries of Landlord, and
Tenant shall not seek recourse against the partners, directors, officers,
shareholders, trustees or beneficiaries of Landlord or any of their personal
assets for satisfaction of any liability with respect to this Lease. In the
event of any default by Landlord under this Lease, Tenant's sole and exclusive
remedy shall be against Landlord's interest in the Property.
11.16. NOTICE OF LANDLORD'S DEFAULT. The failure by Landlord to
observe or perform any of the express or implied covenants or provisions of this
Lease to be observed or performed
21
by Landlord shall not constitute a default by Landlord unless such failure shall
continue for a period of more than thirty (30) days after written notice thereof
from Tenant to Landlord specifying Landlord's default; provided, however, that
if the nature of Landlord's default is such that more than thirty (30) days are
reasonably required for its cure, then Landlord shall not be deemed to be in
default if Landlord commences such cure within said thirty (30) day period and
diligently prosecutes such cure to completion. Tenant shall, simultaneously with
delivery to Landlord, provide written notice specifying the Landlord default to
the holder of any first mortgage or deed of trust covering the Premises whose
name and address have been furnished to Tenant in writing.
11.17. LEASE NOT TO BE RECORDED. Tenant agrees that it will not
record this Lease. Both parties shall, upon the request of either, execute and
deliver a notice or short form of this Lease in such form, if any, as may be
permitted by applicable statute. If this Lease is terminated before the Term
expires the parties shall execute, deliver and record an instrument
acknowledging such fact and the actual date of termination of this Lease, and
Tenant hereby appoints Landlord its attorney-in-fact, coupled with an interest,
with full power of substitution to execute such instrument.
11.18. SECURITY DEPOSIT. Upon the execution and delivery of this
Lease, Tenant shall pay to Landlord the Security Deposit, which shall be held as
security for Tenant's performance as herein provided and refunded to Tenant at
the end of the Term subject to Tenant's satisfactory compliance with the
conditions hereof. The Security Deposit may be commingled with other funds of
Landlord and no interest shall accrue thereon or be payable by Landlord with
respect to the Security Deposit. If all or any part of the Security Deposit is
applied to an obligation of Tenant hereunder, Tenant shall immediately upon
request by Landlord restore the Security Deposit to its original amount.
11.19. GUARANTY OF LEASE. If Landlord and Tenant intend for this
Lease to be guaranteed by the Guarantor, upon the execution and delivery of this
Lease, and as a condition to the effectiveness of this Lease, Tenant shall cause
Guarantor, if any, to execute and deliver to Landlord a guaranty in the form
attached as Exhibit E. It shall constitute a default under this Lease if any
Guarantor fails or refuses, upon reasonable request by Landlord, to give: (i)
evidence of the due execution of the guaranty called for by this Lease; (ii)
current financial statements of Guarantor as may from time to time be requested
by Landlord; (iii) an Estoppel certificate; or (iv) written confirmation that
the guaranty is still in effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease, which
includes the cover sheet, the foregoing Standard Provisions, Additional
Provisions, if any, and Exhibits attached to this Lease, with the intent that
each of the parties shall be legally bound thereby and that this Lease shall
become effective as of the Date of Lease.
22
LANDLORD:
NEW ENGLAND MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation
By: /s/ Karen B. Canfield
----------------------------------
Name: Karen B. Canfield
----------------------------------
Title: Asset Manager
----------------------------------
Date: October 24, 1995
----------------------------------
TENANT:
AUGMENT SYSTEMS, INC., a Massachusetts
Corporation
By: /s/ Lorrin Gale
----------------------------------
Name: Lorin Gale
----------------------------------
Title: CEO
----------------------------------
Date: October 20,1995
----------------------------------
23
PART III ADDITIONAL PROVISIONS
The following provisions ("Additional Provisions") identified below and
attached and/or set forth below are included as part of this Lease between
Landlord and Tenant. Capitalized terms used in any of the Additional Provisions
and not otherwise defined shall have the meanings given such terms in Part I and
Part II of this Lease. Unless express reference is made to a provision in Part I
and Part II of this Lease for the purpose of modifying such provision, in the
event of any conflict between the Additional Provisions and the provisions of
Part I and Part II of this Lease, the provisions contained in Parts I and II
shall control.
AP1. Right of First Refusal on Additional Space. . Subject to the terms
and conditions hereof, Landlord hereby grants to Tenant a right of first refusal
(the "Refusal Right") to release the Initial Space. The term of any releasing of
the Initial Space leased pursuant to this provision shall expire on the last day
of the Term of this Lease. The Refusal Right shall be of no force or effect
after April 1, 1997.
If after Tenant vacates the Initial Space, Landlord submits a bona fide
proposal to a third party to lease any portion of the Refusal Space, Landlord
shall notify Tenant immediately of the terms (the "Proposed Terms') of such
third party proposal (the "Proposal Notice"). Tenant shall have seven (7) days
subsequent to the date of receipt of the Proposal Notice (the "Option Period")
in which to notify Landlord in writing of its intent to exercise the Refusal
Right on the Proposed Terms. If Tenant does not exercise the Refusal Right
within the Option Period, then the Refusal Right shall thereafter be null and
void and of no further force or effect throughout the remainder of the Term of
this Lease and any extensions thereof, and Landlord shall be free to lease the
Refusal space to any third party without the obligation of reoccurring the
Refusal Space, or any portion thereof, to Tenant.
Notwithstanding the foregoing, Tenant's right to exercise the Refusal
Right is subject to the additional condition that at the time Tenant exercises
the Refusal Right, and at the time the new lease for the Initial Space
commences, Tenant is not then, and has never been, in default under the Lease
beyond any applicable grace or cure periods. This Refusal Right may only be
exercised by the named Tenant herein, and is not assignable in any way.
/s/ KBC /s/ L.G.
- --------------------- ---------------------
LANDLORD'S INITIALS TENANT'S INITIALS
24
PART IV EXHIBITS
25
ILLUSTRATION ATTACHED
26
EXHIBIT B
LEGAL DESCRIPTION OF LOT
The land with the improvements thereon on the Southerly side of Littleton Road
and the Easterly side of Robbins Road in Westford, Middlesex County,
Massachusetts and being shown as Total Area = 8.8121 Acres on a plan entitled,
"Plan of Land, Westford, Mass., property of Anthony B. & Albert L. Nardone"
Date: March 22, 1985, Scale: 40 Ft to an Inch, Guerriere & Hanlon, Inc.,
Engineering and Land Surveying, 205 East Central Street, Franklin, Mass.,
recorded in Middlesex North District Registry of Deeds Plan Book 149, Plan No.
93 bounded and described as follows:
NORTHERLY by Littleton Road by three (3) lines, measuring respectively
18.00 feet, a radius having a length of 186.36 feet and 245.94
feet;
NORTHWESTERLY by an arc on Robbins Road having a length of 80.90 feet;
WESTERLY by Robbins Road (5) five lines, measuring respectively 77.64
feet, a radius having a length of 80.56 feet, 162.43 feet,186.27
feet and 59.00 feet;
SOUTHWESTERLY by other land of Anthony B. and Albert L. Nardone 157.68 feet;
SOUTHERLY by other land of Anthony B. and Albert L. Nardone 294.38 feet;
WESTERLY by other land of Anthony B. and Albert L. Nardone 140.00 feet;
SOUTHERLY by other land of Anthony B. and Albert L. Nardone 170.00 feet;
EASTERLY by other land of Anthony B. and Albert L. Nardone 190.12 feet;
NORTHERLY by other land of Anthony B. and Albert L. Nardone 60.00 feet;
EASTERLY by other land of Anthony B. and Albert L. Nardone 727.00 feet;
Containing 8.8121 acres and being said Lot however otherwise bounded, measured
or described.
The premises are conveyed together with the right to use Robbins Road, in common
with others, for all purposes for which streets, roads and ways are used in the
Town of Westford, Massachusetts including the installation, use, maintenance and
repair of utilities.
Together with the rights, easements, benefits and appurtenances in the
following:
27
1. An easement given by Anthony B. Nardone and Albert L. Nardone
to New England Telephone and Telegraph Company, dated August
1, 1983, recorded in said Deeds, Book 2640, Page 144.
2. An easement given by Anthony B. Nardone and Albert L. Nardone
to Massachusetts Electric Company, dated March 14, 1985,
recorded in said Deeds, Book 2995, Page 333.
3. An easement given by Anthony B. Nardone and Albert L. Nardone
to Colonial Gas Company, dated May 14, 1985, recorded in said
Deeds, Book 3043, Page 251.
The premises are conveyed subject to an easement, granted to the Town of
Westford, to use Robbins Road for all purposes for which streets, roads and ways
are used in the Town of Westford, granted by Anthony B. Nardone and Albert L.
Nardone, dated July 14, 1967, and recorded in said Deeds, Book 1803, Page 567.
The premises are conveyed subject to an easement given by David Desmond to the
Commonwealth of Massachusetts, dated May 22, 1925, recorded in the Middlesex
North District Registry of Deeds, Book 724, Page 420, for purpose of draining
surface water from Littleton Road.
The premises are conveyed subject to a taking by the Cornmonwealth of
Massachusetts for the widening of Littleton Road, dated November 1, 1925,
recorded in the Middlesex North Registry of Deeds, Book 728, Page 569.
The premises are conveyed subject to a utility easement shown on a plan entitled
"Plan of Land, Westford, Mass., prepared for Smith Gulliver, Inc., Date: August
16, 1985, Scale: 40 FT to an Inch", Guerriere & Hanlon, Inc., Engineering and
Land Surveying, 285 East Central St., Franklin, Mass., recorded in the Middlesex
North District Registry of Deeds, Plan Book 149, Plan No. 94.
28
EXHIBIT C
LANDLORD'S NOTICE OF LEASE TERM DATES
Date: October 23, 1995
-------------------------
[Tenant]
Augment Systems
- ------------------------
- ------------------------
- ------------------------
Re: Lease dated October 23, 1995 between New England Mutual Life
Insurance Company, Landlord, and Augment Systems, Inc. Tenant
(the "Lease") concerning the Premises (as defined in the Lease)
located at 2 Robbins Rd., Westford, Mass.
Ladies and Gentlemen:
In accordance with the Lease, please confirm the following by signing below:
1. The Premises have been accepted by Tenant as being substantially
complete in accordance with the Lease, and there is no deficiency
in construction.
2. Tenant has possession of the Premises. The Commencement Date of
the Lease is October 23, 1995 and the Term shall end on October
22, 1998.
Your rent checks should be made payable to New England Mutual Life
Insurance Co. c/o Dickinson Development (Managing Agent).
AGREED AND ACCEPTED
[TENANT] [MANAGING AGENT]
Augment Systems Dickinson Development Corp
- --------------------------- -----------------------------------
By: /s/ Lorrin Gale By:/s/ Mark Dickinson
------------------------ --------------------------------
Its: CEO Its: President
------------------------ --------------------------------
29
EXHIBIT D
The Premises are to be delivered to Tenant on the Commencement Date in their "AS
IS" condition, except that Landlord shall construct, as soon as reasonably
possible after the execution of this Lease by Landlord and Tenant. The work
shown on Sheet A-1 dated 10/5/95, revised 10/13/95, prepared by Roth and Seelen,
Inc.
30
EXHIBIT E
RULES AND REGULATIONS
1. The entrance, lobbies, passages, corridors, elevators and stairways of
the Building may be used at all times by Tenant, its agents, servants,
employees, licensees, customers and invitees, but shall not be encumbered
or obstructed by Tenant, its agents, servants, employees, licensees,
customers, visitors or invitees or used by them for any purpose other
than for ingress and egress to and from the Premises. The moving in or
out of any safes, freight, furniture or bulky matter of any description
shall take place only during such hours as Landlord shall determine from
time to time. Tenant shall make prior arrangements with Landlord if the
elevator is required for the purpose of carrying any kind of freight.
2. Landlord reserves the right at all times to exclude loiterers, vendors,
solicitors and peddlers from the Building and to require registration or
satisfactory identification or credentials from all persons seeking
access to any part of the Building outside ordinary business hours.
Landlord shall exercise its best judgment in the execution of such
control but shall not be liable for the granting or refusing of such
access.
3. Restroom facilities, water fountains and other water apparatus may be
used at all times by Tenant, its agents, servants, employees, licensees,
customers and invitees, but shall not be used for any purpose other than
those for which they were constructed, and no rubbish or other
obstructing substances shall be thrown into them. Tenant shall be
responsible for the cost of repairing any breakage, stoppage or damage
resulting from a violation of this provision by Tenant or its agents,
servants, employees, licensees, customers and invitees.
4. Landlord will not be responsible for lost or stolen property, equipment,
money or articles taken from the Premises, Building or parking
facilities, regardless of how or when the loss occurs.
5. No curtains, blinds, shades, screens or signs other than those furnished
by Landlord or otherwise permitted under the Lease shall be attached to,
hung in or used in connection with any window or door of the Premises
without the prior written consent of Landlord. Landlord will provide and
install all letters or numerals at the entrance to the Building and/or
Premises pursuant to the terms of the Lease, and no other such letters or
numerals shall be used or permitted by Tenant on the Premises without
Landlord's prior written consent.
6. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by Tenant, nor shall any changes be made in existing
locks or the mechanism thereof without the prior written consent of
Landlord. Upon the termination of its tenancy, Tenant shall return to
Landlord all keys used in connection with the Building or the Premises,
including keys to offices and restrooms, furnished to or otherwise
procured by Tenant, and in the event of the loss of any such keys, Tenant
shall pay to Landlord the cost thereof.
31
7. Canvassing, soliciting and peddling are prohibited in the Building, and
Tenant shall cooperate with Landlord in preventing the same.
8. The normal hours of operation of the Building are from 7:00 a.m. to 6:00
p.m. Monday through Friday and from 8:00 a.m. to 1:00 p.m. on Saturday.
Tenant may request heating and/or air conditioning during periods outside
such normal hours of operation, by submitting its request therefor in
writing to the building manager's office no later than 2:00 p.m. of the
preceding workday (Monday through Friday) on forms available from the
building manager. Each such request shall clearly state the starting and
stopping hours of the requested off-hour services. Tenant shall submit to
the building manager a list of Tenant's personnel who are authorized to
make such requests. Charges for such off-hour services shall be Tenant's
sole expense and shall be determined by the building manager. Such
charges shall be fair and reasonable and reflect the additional operating
involved.
Tenant shall have access to the Building and the Premises after normal
hours of operation and on weekends and holidays by a card-pass or other
like security system.
9. Tenant shall comply with all security measures established from time to
time by Landlord for the Building.
32
EXHIBIT 10.1.1
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is entered into this 31st day of January,
1996, by and between New England Mutual Life Insurance Company ("Landlord"), a
Massachusetts corporation, and AUGMENT SYSTEMS, INC. ("Tenant").
WHEREAS, Landlord and Tenant are parties to that certain lease dated
October 23, 1995 (the "Lease") pursuant to which Tenant is presently leasing the
Initial Space (as defined in the Lease) in the building located at 2 Robbins
Road, Westford, Massachusetts;
WHEREAS, Landlord and Tenant now desire to amend certain provisions of
the Lease as herein provided. Terms not defined herein shall have the meanings
ascribed to them in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Additional Provisions. The following is added as AP2 to Part III of the
Lease:
"AP2. Mandatory Re-leasing of the Initial Space. If the Initial Space
is not leased to Tenant pursuant to the exercise by Tenant of the right
of first refusal as provided in AP1 above, and if Landlord has not,
prior to April 1, 1997, leased all of the Initial Space to a third
party or parties, then Tenant shall lease from Landlord all of the
Initial Space or any portion thereof not so leased to third parties,
for the period commencing on April 1, 1997 and continuing for the
balance of the Remaining Term at the annual Base Rent rate of $5.50 per
year per rentable square foot. In such event, Landlord and Tenant shall
promptly enter into an amendment to the Lease incorporating the Initial
Space (or portion thereof not so leased to third parties) into the
Premises at such annual Base Rent rate for the balance of the Remaining
Term and increasing Tenant's Percentage to account for the space
added."
2. No Further Modifications. Except as amended hereby, all of the terms and
conditions of the Lease shall remain in full force and effect and Landlord and
Tenant hereby ratify and confirm the Lease and all of its terms and conditions
as hereby modified.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the date first set forth above.
LANDLORD: TENANT:
NEW ENGLAND MUTUAL LIFE AUGMENT SYSTEMS, INC.
INSURANCE COMPANY
By: /s/ Karen B. Canfield By: /s/ Lorrin Gale
--------------------------- -----------------------------
Name: Karen B. Canfield Name: Lorrin Gale
--------------------------- -----------------------------
Title: Asset Manager Title: CEO
--------------------------- -----------------------------
EXHIBIT 10.2
OFFICE BUILDING LEASE
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. LEASE OF PREMISES.............................................................................................1
ARTICLE 2. DEFINITIONS...................................................................................................1
ARTICLE 3. EXHIBIT AND ADDENDA...........................................................................................2
ARTICLE 4. DELIVERY OF POSSESSION........................................................................................2
ARTICLE 5. RENT..........................................................................................................2
ARTICLE 6. INTEREST AND LATE CHARGES.....................................................................................3
ARTICLE 7. SECURITY DEPOSIT..............................................................................................3
ARTICLE 8. TENANT'S USE OF THE PREMISES..................................................................................4
ARTICLE 9. SERVICES AND UTILITIES........................................................................................4
ARTICLE 10. CONDITION OF THE PREMISES....................................................................................5
ARTICLE 11. CONSTRUCTION, REPAIRS AND MAINTENANCE........................................................................5
ARTICLE 12. ALTERATIONS AND ADDITIONS....................................................................................6
ARTICLE 13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY....................................................................7
ARTICLE 14. RULES AND REGULATIONS........................................................................................7
ARTICLE 15. CERTAIN RIGHTS RESERVED BY LANDLORD..........................................................................7
ARTICLE 16. ASSIGNMENT AND SUBLETTING....................................................................................8
ARTICLE 17. HOLDING OVER.................................................................................................9
ARTICLE 18. SURRENDER OF PREMISES........................................................................................9
ARTICLE 19. DESTRUCTION OR DAMAGE........................................................................................9
ARTICLE 20. EMINENT DOMAIN...............................................................................................10
ARTICLE 21. INDEMNIFICATION..............................................................................................11
ARTICLE 22. TENANT-S INSURANCE...........................................................................................11
ARTICLE 23. WAIVER OF SUBROGATION........................................................................................12
ARTICLE 24. SUBORDINATION AND ATTORNMENT.................................................................................12
ARTICLE 25. TENANT ESTOPPEL CERTIFICATES.................................................................................12
ARTICLE 26. TRANSFER OF LANDLORD'S INTEREST..............................................................................13
ARTICLE 27. DEFAULT......................................................................................................13
ARTICLE 28. BROKERAGE FEES...............................................................................................15
ARTICLE 29. NOTICES......................................................................................................15
ARTICLE 30. GOVERNMENT ENERGY OR UTILITY CONTROLS........................................................................15
ARTICLE 31. QUIET ENJOYMENT..............................................................................................15
ARTICLE 32. OBSERVANCE OF LAW............................................................................................15
ARTICLE 33. FORCE MAJEURE................................................................................................15
ARTICLE 34. CURING TENANT'S DEFAULTS.....................................................................................16
ARTICLE 35. SIGN CONTROL.................................................................................................16
ARTICLE 36. MISCELLANEOUS................................................................................................16
</TABLE>
This lease between The Parkwest Partners, a limited liability company
("Landlord"), and Augment Systems, a Delaware corporation, ("Tenant"), is dated
July 1, 1996.
1. LEASE OF PREMISES
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A," and further described at Section 21. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e.)
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $27,598.44 per year.
b. Broker(s)
Landlord's: CB Commercial Real Estate Group, Inc.
Tenant's: CB Commercial Real Estate Group, Inc.
In the event that CB Commercial Real Estate Group, Inc. represents both Landlord
and Tenant, Landlord and Tenant hereby confirm that they were timely advised of
the dual representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential information of
the other party.
c. Commencement Date: Upon completion of tenant improvements, currently
estimated to be approximately September 1, 1996.
d. Common Areas: The building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the
right to regulate or restrict the use of the Common Areas.
e. Expiration Date: 48 months from Commencement Date, currently
estimated to be approximately August 31, 2000, unless otherwise sooner
terminated in accordance with the provisions of this Lease.
f. Landlord's Mailing Address: c/o Helm Management, 4668 Nebo Drive,
Suite A, La Mesa, California 91941.
Tenant's Mailing Address: at the premises.
g. Monthly Installments of Base Rent (initial): $2,299.87 per month.
h. Parking: Tenant shall be permitted to park nine (9) cars on a
non-exclusive basis in the area(s) designated by Landlord for parking.
Tenant shall abide by any and all parking regulations and rules
established from time to time by Landlord or Landlord's parking
operator.
i. Premises: That portion of the Building containing approximately 2,371
square feet of Rentable Area, shown by diagonal lines on Exhibit "A,"
located on the second floor of the building and known as Suite 255.
j. Project: The building of which the Premises are a part (the
"Building") and any other buildings or improvements on the real property
(the "Property") located at 16885 West Bernardo Drive, San Diego,
California 92127 and further described at Exhibit "B." The Project is
known as Parkwest Court.
k. Rentable Area: As to both the Premises and the Project, the
respective measurements of floor area as may from time to time be
subject to lease by Tenant and all tenants of the Project, respectively,
as determined by Landlord and applied on a consistent basis throughout
the Project.
l. State: The State of California.
m. Tenant's Proportionate Share: 4.84%. Such share is a fraction, the
numerator of which is the Rentable Area of the Premises, and the
denominator of which is the Rentable Area of the Project, as determined
by Landlord from time to time. The Project consists of one building(s)
containing a total Rentable Area of 49,028 square feet.
n. Tenant's Use Clause (Article 8): General office use consistent with
the City of San Diego zoning.
o. Term: The period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBIT AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" - Floor Plan showing the Premises
b. Exhibit "B" - Site Plan of the Project.
c. Exhibit "D" - Rules and Regulations
d. Addenda: See Addendum
e. Exhibit "F" - Option to Extend
4. DELIVERY OF POSSESSION.
Landlord shall use its best efforts to complete Landlord's work and deliver
possession by September 1, 1996. In the event Landlord's work is not completed
by December 1, 1996 and ready for Tenant's possession, Tenant shall have an
option to terminate this lease by providing written notice to Landlord within
fifteen (15) days of December 1, 1996 of their intention to terminate the lease.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined in Addendum. If Landlord permits
Tenant to enter into possession of the Premises before the Commencement Date,
such possession shall be subject to the provisions of this Lease, including,
without limitation, the payment of Rent.
5. RENT
5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2. Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
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5.3. Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon termination
of the restrictions, Landlord shall, to the extent it is legally permitted,
recover from Tenant the difference between the amounts received during the
period of the restrictions and the amounts Landlord would have received had
there been no restrictions.
5.4. Taxes Payable by Tenant. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or within
the contemplation of the parties, where such taxes are upon, measured by or
reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or for
Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the receipt
of the Rent hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises. If it
becomes unlawful for Tenant to reimburse Landlord for any costs as required
under this Lease, the Base Rent shall be revised to net Landlord the same net
Rent after imposition of any tax or other charge upon Landlord as would have
been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay within five (5) days of when due any Rent or other
amounts which Tenant is obligated to pay under the terms of this Lease, the
unpaid amounts shall bear interest at the maximum rate then allowed by law.
Tenant acknowledges that the late payment of any Monthly Installment of Base
Rent will cause Landlord to lose the use of that money and incur costs and
expenses not contemplated under this Lease, including without limitation,
administrative and collection costs and processing an accounting expenses, the
exact amount of which if extremely difficult to ascertain. Therefore, in
addition to interest, if any such installments is not received by landlord
within ten (10) days from the date it is due, Tenant shall pay Landlord a late
charge equal to ten percent (10%) of such installment. Landlord and Tenant agree
that this late charge represents a reasonable estimate of such costs and
expenses and is fair compensation to Landlord for the loss suffered from such
nonpayment by Tenant. Acceptance of any interest or late charge shall not
constitute a waiver of Tenant's default with respect to such nonpayment by
Tenant nor prevent Landlord from exercising any other rights or remedies
available to Landlord under this Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest on such deposit. Tenant shall
not mortgage, assign, transfer or encumber the Security Deposit without the
prior written consent of Landlord and any attempt by Tenant to do so shall be
void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefore, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant. or. if Tenant
has assigned its interest under this Lease, to the last assignee of Tenant. If
Landlord sells its interest in the Premises. Landlord may deliver this deposit
to the
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purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project; and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any directions
of any governmental agencies or authorities having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or its use or
occupation. A judgment of any court of competent jurisdiction nor the admission
by Tenant in any action or proceeding against Tenant that Tenant has violated
any such laws, ordinance, regulations, rules and/or directions in the use of the
Premises shall be deemed to be a conclusive determination of that fact as
between Landlord and Tenant. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any fire, extended coverage or
other insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of the Insurance Services Office or any other organization
performing a similar function. Tenant shall promptly upon demand reimburse
Landlord for any additional premium charged for such policy by reason of
Tenant's failure to comply with the provisions of this Article. Tenant shall not
do or permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or Project, or injure or annoy them, or use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
9. SERVICES AND UTILITIES.
Tenant shall have access and the ability to turn on electricity and HVAC 24
hours per day, 7 days per week. However, the standard building hours are Monday
through Friday, 8:00 a.m. to 6:00 p.m. and Saturdays from 9:00 a.m. to 1:00 p.m.
In event Tenant utilizes after-hours utilities after the above mentioned hours,
Tenant shall keep track of the number of hours it utilizes each month and
communicate that information to the property manager. The over hours will be
taken into consideration in calculating the pro rata share of utility bills to
be reimbursed to the Landlord.
Provided that Tenant is paying its pro rata share of electricity as outlined in
the Addendum, Landlord agrees to furnish to the Premises during generally
recognized business days, and during hours determined by Landlord in its sole
discretion, and subject to the Rules and Regulations of the Building or Project,
electricity for normal desk top office equipment and normal copying equipment,
and heating, ventilation and air conditioning ("HVAC") as required in Landlord's
judgment for the comfortable use and occupancy of the Premises. If Tenant
desires HVAC at any other time, Landlord shall use reasonable efforts to furnish
such service upon reasonable notice from Tenant and Tenant shall pay Landlord's
charges therefor on demand. Landlord shall also maintain and keep lighted the
common stairs, common entries and restrooms in the Building. Landlord shall not
be in default hereunder or be liable for any damages directly or indirectly
resulting from, nor shall the Rent be abated by reason of (i) the installation,
use or interruption of use of any equipment in connection with the furnishing of
any of the foregoing services, (ii) failure to furnish or delay in furnishing
any such services where such failure or delay is caused by accident or any
condition or event beyond the reasonable control of Landlord, or by the making
of necessary repairs or improvements to the Premises, Building or Project, or
(iii) the limitation, curtailment or rationing of, or restrictions on, use of
water, electricity, gas or any other form of energy serving the Premises,
Building or Project. Landlord shall not be liable under any circumstances for a
loss of or injury to property or business, however occurring, through or in
connection with or incidental to failure to furnish any such services. If Tenant
uses heat generating machines or equipment in the Premises which affect the
temperature otherwise maintained by the HVAC system, Landlord reserves the right
to install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation, operation and maintenance thereof.,
shall be paid by Tenant to Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data processing
machines, punch card machines or machines using in excess of 120 volts,
-4-
which consumes more electricity than is usually furnished or supplied for the
use of premises as general office space, as determined by Landlord. Tenant shall
not connect any apparatus with electric current except through existing
electrical outlets in the Premises. Tenant shall not consume water or electric
current in excess of that usually furnished or supplied for the use Of premises
as general office space (as determined by Landlord), without first procuring the
written consent of Landlord, which Landlord may refuse, and in the event of
consent, Landlord may have installed a water meter or electrical current meter
in the Premises to measure the amount of water or electric current consumed. The
cost of any such meter and of its installation, maintenance and repair shall be
paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand
for all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately metered, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus any
additional expense incurred by Landlord in keeping account of the utilities so
consumed. Tenant shall be responsible for the maintenance and repair of any such
meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies. window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking Possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave Landlord
notice on or before the Commencement Date and latent defects. No promise of
Landlord to alter, remodel, repair or improve the Premises, the Building or the
Project and no representation, express or implied, respecting any matter or
thing relating to the Premises, Building, Project or this Lease (including.
without limitation, the condition of the Premises, the Building or the Project)
have been made to Tenant by Landlord or its Broker or Sales Agent, other than as
may be contained herein or in a separate exhibit or addendum signed by Landlord
and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to the
Premises as described in Addendum. Landlord shall maintain in good
order, condition and repair the Building and all other portions of the
Premises not the obligation of Tenant or of any other tenant in the
Building.
b. Tenant's Obligations.
(1) Tenant at Tenant's sole expense shall, except for services
furnished by Landlord pursuant to Article 9 hereof, maintain the
Premises in good order, condition and repair, including the
interior surfaces of the ceilings, walls and floors, all doors, all
interior windows, all Plumbing, pipes and fixtures, electrical
wiring, switches and fixtures, Building Standard furnishings and
special Items and equipment installed by or at the expense of
Tenant.
(2) Tenant shall be responsible for all repairs and alterations in
and to the Premises, Building and Project and the facilities and
system, thereof, the need for which arises out of (i) Tenant's use
or occupancy of the Premises, (ii) the installation, removal, use
or operation of Tenant's Property (as defined in Article 13) in the
Premises, (iii) the moving of Tenant's Property into or out of the
Building. or (iv) the act, omission, misuse or negligence of
Tenant. Its agents, contractors, employees, or invitees.
(3) If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Tenant notice to do such
acts as are reasonably required to so maintain the Premises. If
Tenant fails to promptly commence such work and diligently
prosecute it to completion, than Landlord shall have the right
-5-
to do such acts and expend such funds at the expense of Tenant as
are reasonably required to perform such work. Any amount so
expended by Landlord shall be paid by Tenant promptly after demand
with interest at the prime commercial rate then being charged by
Bank of America NT & SA plus two percent (2% ) per annum, from the
date of such work, but not to exceed the maximum rate then allowed
by law. Landlord shall have no liability to Tenant for any damage,
inconvenience, or interference with the use of the Premises by
Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, and rules of
any public authority relating to their respective maintenance
obligations as set forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise afford the Tenant the
right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to keep the Premises in good order,
condition and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such
floor was designed to carry, as determined by Landlord or Landlord's
structural engineer. The cost of any such determination made by
Landlord's structural engineer shall be paid for by Tenant upon demand.
Tenant shall not install business machines or mechanical equipment which
cause noise or vibration to such a degree as to be objectionable to
Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this
Lease be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising
from Landlord's making any repairs or changes which Landlord is required
or permitted by this Lease or by any other tenant's lease or required by
law to make in or to any portion of the Project, Building or the
Premises. Landlord shall nevertheless use reasonable efforts to minimize
any interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or
defective condition in any part or appurtenance of the Building's
mechanical, electrical. plumbing, HVAC or other systems serving, located
in, or passing through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant
shall return the Premises to Landlord clean and in the same condition as
on the date Tenant took possession, except for normal wear and tear. Any
damage to the Premises, including any structural damage, resulting from
Tenant's use or from the removal of Tenant's fixtures, furnishings and
equipment pursuant to Section 13b shall be repaired by Tenant at
Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to
the Premises without obtaining the prior written consent of Landlord.
Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations or improvements upon the expiration of the Term
and restoring the Premises to the same condition as on the date Tenant
took possession. All work with respect to any addition, alteration or
improvement shall be done in a good and workmanlike manner by properly
qualified and licensed personnel approved by Landlord, and such work
shall be diligently prosecuted to completion. Landlord may, at
Landlord's option, require that any such work be performed by Landlord's
contractor, in which case the cost of such work shall be paid for before
commencement of the work. Tenant shall pay to Landlord upon completion
of any such work by Landlord's contractor.
b. Tenant shall pay the costs of any work done on the Premises pursuant
to Section 12a, and shall keep the Premises, Building and Project free
and clear of liens of any kind. Tenant shall indemnify, defend against
and keep Landlord free and harmless from all liability, loss, damage,
costs, attorneys' fees and any other expense incurred on account of
claims by any person performing work or furnishing materials or supplies
for Tenant or any person claiming under Tenant.
-6-
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this
Lease, free and clear of all attachment or judgment liens. Before the
actual commencement of any work for which a claim or lien may be filed,
Tenant shall give Landlord notice of the intended commencement date a
sufficient time before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems necessary
for the proper protection of Landlord's interest in the Premises,
Building or the Project, and Landlord shall have the right to enter the
Premises and post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide
to Landlord, at Tenant's expense, a lien and completion bond in an
amount equal to at least one and one-half (1 1/2) times the total
estimated cost of any additions, alterations or improvements to be made
In or to the Premises, to protect Landlord against any liability for
mechanic's and materialmen's liens and to insure timely completion of
the work. Nothing contained in this Section 12c shall relieve Tenant of
its obligation under Section 12b to keep the Premises, Building and
Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section
12a, all additions, alterations and improvements made to the Premises
shall become the property of Landlord and be surrendered with the
Premises upon the expiration of the Term; provided, however, Tenant's
equipment, machinery and trade fixtures which can be removed without
damage to the Premises shall remain the property of Tenant and may be
removed, subject to the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to
or built into the Premises at the commencement of or during the Term,
whether or not by or at the expense of Tenant ("Leasehold
Improvements"), shall be and remain a part of the Premises, shall be the
property of Landlord and shall not be removed by Tenant, except as
expressly provided in Section 13b.
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense
to Landlord, which can be removed without structural damage to the
Building, and all furniture, furnishings and other articles of movable
personal property owned by Tenant and located in the Premises
(collectively "Tenant's Property") shall be and shall remain the
property of Tenant and may be removed by Tenant at any time during the
Term; provided that if any of Tenant's Property is removed, Tenant shall
promptly repair any damage to the Premises or to the Building resulting
from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
-7-
d. At any time during the Term, and on reasonable prior notice to
Tenant, to inspect the Premises, and to show the Premises to any
prospective purchaser or mortgagee of the Project, or to any assignee of
any mortgage on the Project, or to others having an interest in the
Project or Landlord, and during the last six months of the Term, to show
the Premises to prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or
Landlord's interest therein, or as may be necessary or desirable for the
operation or improvement of the Building or in order to comply with
laws, orders or requirements of governmental or other authority.
Landlord agrees to use its best efforts (except in an emergency) to
minimize interference with Tenant's business in the Premises in the
course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord,
assign or hypothecate this Lease or any interest herein or sublet the
Premises or any part thereof, or permit the use of the Premises by any
party other than Tenant. Any of the foregoing acts without such consent
shall be void and shall, at the option of Landlord, terminate this
Lease. This Lease shall not, nor shall any interest of Tenant herein, be
assignable by operation of law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant
shall give notice to Landlord setting forth the terms and provisions of
the proposed assignment or sublease, and the identity of the proposed
assignee or subtenant. Tenant shall promptly supply Landlord with such
information concerning the business background and financial condition
of such proposed assignee or subtenant as Landlord may reasonably
request. Landlord shall have the option, exercisable by notice given to
Tenant within twenty (20) days after Tenant's notice is given, either to
sublet such space from Tenant at the rental and on the other terms set
forth in this Lease for the term set forth in Tenant's notice, or, in
the case of an assignment, to terminate this Lease. If Landlord does not
exercise such option, Tenant may assign the Lease or sublet such space
to such proposed assignee or subtenant on the following further
conditions:
(1) Landlord shall have the right to approve such proposed assignee
or subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth
in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign
or sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as
a result of such assignment or subletting however denominated under
the assignment or sublease, which exceed, in the aggregate, (i) the
total sums which Tenant is obligated to pay Landlord under this
Lease (prorated to reflect obligations allocable to any portion of
the Premises subleased), plus (ii) any real estate brokerage
commissions or fees together with all other reasonable expenses of
assignment or subletting payable in connection with such assignment
or subletting, shall be paid to Landlord as additional rent under
this Lease without affecting or reducing any other obligations of
Tenant hereunder. Pro forma over the life of the assignment or
sublet.
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c. Notwithstanding the provisions of paragraphs a and b above, Tenant
may assign this Lease or sublet the Premises or any portion thereof,
without Landlord's consent and without extending any recapture or
termination option to Landlord, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any
corporation resulting from a merger or consolidation with Tenant, or to
any person or entity which acquires all the assets of Tenant's business
as a going concern, provided that (i) the assignee or sublessee assumes,
in full, the obligations of Tenant under this Lease, (ii) Tenant remains
fully liable under this Lease, and (iii) the use of the Premises under
Article 8 remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to
pay the Rent and to perform all other obligations to be performed by
Tenant hereunder. The acceptance of Rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of
default by an assignee or subtenant of Tenant or any successor of Tenant
in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies
against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments of the Lease or sublettings or amendments or
modifications to the Lease with assignees of Tenant, without notifying
Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto and any such actions shall not relieve Tenant of
liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant
requests the consent of Landlord for any act that Tenant proposes to do,
then Tenant shall, upon demand, pay Landlord an administrative fee of
One Hundred Fifty and No/100ths Dollars ($150.00) plus any attorneys'
fees reasonably incurred by Landlord in connection with such act or
request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written notice
of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as
when Tenant took possession, except for (i) reasonable wear and tear,
(ii) loss by fire or other casualty, and (iii) loss by condemnation.
Tenant shall, on Landlord's request, remove Tenant's Property on or
before the Expiration Date and promptly repair all damage to the
Premises or Building caused by such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the
Premises shall be deemed to be abandoned, and, at Landlord's option,
title shall pass to Landlord under this Lease as by a bill of sale. If
Landlord elects to remove all or any part of such Tenant's Property, the
cost of removal, including repairing any damage to the Premises or
Building caused by such removal, shall be paid by Tenant. On the
Expiration Date Tenant shall surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of
other casualty, Landlord shall, subject to the provisions of this
Article, promptly repair the damage, if such repairs can, in Landlord's
opinion, be completed within (90) ninety days. If Landlord determines
that repairs can be completed within ninety (90) days, this Lease shall
remain in full force and effect, except that if such damage is not the
result of the willful misconduct of Tenant or Tenant's agents,
employees, contractors, licensees or invitees, the Base Rent shall be
abated to the extent Tenant's use of the
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Premises is impaired, commencing with the date of damage and continuing
until completion of the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of
the Building necessary for Tenant's occupancy cannot be Completed within
ninety (90) days. Landlord may elect, upon notice to Tenant given within
thirty (30) days after the date of such fire or other casualty, to
repair such damage, in which event this Lease shall continue in full
force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not so elect to make such
repairs, this Lease shall terminate as of the date of such fire or other
casualty. If, in Landlord's opinion, such repairs to the Premises or
portion of the Building necessary for Tenant's occupancy cannot be
completed within one hundred eighty (180) days, Tenant-shall have the
one-time right to terminate this Lease by providing written notice to
Landlord within thirty (30) days after the date of such fire or
casualty. If repairs to the Premises are not completed within one
hundred eighty (180) days from the initial damage, Tenant shall have a
one-time right to terminate this Lease by providing written notice to
Landlord within thirty (30) days after the end of the 180-day period.
c. If any other portion of the Building or Project is totally destroyed
or damaged to the extent that in Landlord's opinion repair thereof
cannot be completed within ninety (90) days, Landlord may elect upon
notice to Tenant given within thirty (30) days after the date of such
fire or other casualty, to repair such damage, in which event this Lease
shall continue in full force and effect, but the Base Rent shall be
partially abated as provided in Section 19a. If Landlord does not elect
to make such repairs, this Lease shall terminate as of the date of such
fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole
cost and expense for the repair, restoration and replacement of any
other Leasehold Improvements and Tenant's Property. Landlord shall not
be liable for any loss of business, inconvenience or annoyance arising
from any repair or restoration of any portion of the Premises, Building
or Project as a result of any damage from fire or other casualty.
e. This Lease shall be considered an express agreement governing any
case of damage to or destruction of the Premises, Building or Project by
fire or other casualty, and any present or future law which purports to
govern the rights of Landlord and Tenant in such circumstances in the
absence of express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi public
purpose, this Lease shall terminate as of the date of such taking, and
Rent shall be prorated to such date. If less than the whole of the
Building or Premises is so taken, this Lease shall be unaffected by such
taking, provided that (i) Tenant shall have the right to terminate this
Lease by notice to Landlord given within ninety (90) days after the date
of such taking if twenty percent (20%) or more of the Premises is taken
and the remaining area of the Premises is not reasonably sufficient for
Tenant to continue operation of its business, and (ii) Landlord shall
have the right to terminate this Lease by notice to Tenant given within
ninety (90) days after the date of such taking. If either Landlord or
Tenant so elects to terminate this Lease, the Lease shall terminate on
the thirtieth (30th) day after either such notice. The Rent shall be
prorated to the date of termination. If this Lease continues in force
upon such partial taking, the Base Rent and Tenant's Proportionate Share
shall be equitably adjusted according to the remaining Rentable Area of
the Premises and Project.
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgment or settlement payable by the condemning authority
shall be the exclusive property of Landlord, and Tenant hereby assigns
to Landlord all of its right. title and interest in any award, judgment
or settlement from the condemning authority. Tenant, however, shall have
the right, to the extent that Landlord's award is not reduced or
prejudiced, to claim from the condemning authority (but not from
Landlord) such compensation as may be recoverable by Tenant in its own
right for relocation expenses and damage to Tenant's personal property.
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c. In the event of a partial taking of the Premises which does not
result in a termination of this Lease, Landlord shall restore the
remaining portion of the Premises as nearly as practicable to its
condition prior to the condemnation or taking, but only to the extent of
Building Standard Work. Tenant shall be responsible at its sole cost and
expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of
Tenant or any other person, or for any injury to or death of any person,
arising out of: (1) Tenant's use and occupancy of the Premises, or any
work, activity or other things allowed or suffered by Tenant to be done
in, on or about the Premises; (2) any breach or default by Tenant of any
of Tenant's obligations under this Lease: or (3) any negligent or
otherwise tortious act or omission of Tenant, its agents, employees,
invitees or contractors but excepting here from Landlord's gross
negligence or willful misconduct. Tenant shall at Tenant's expense, and
by counsel satisfactory to Landlord, defend Landlord in any action or
proceeding arising from any such claim and shall indemnify Landlord
against all costs, attorneys' fees, expert witness fees and any other
expenses incurred in such action or proceeding. As a material part of
the consideration for Landlord's execution of this Lease, Tenant hereby
assumes all risk of damage or injury to any person or property in, on or
about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be
sustained by the person or property of Tenant, its employees, invitees
or customers, or any other person In or about the Premises, caused by or
resulting from fire, steam, electricity, gas, water or rain which may
leak or flow from or into any part of the Premises, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures,
whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the Building or Project or from other
sources. Landlord shall not be liable for any damages arising from any
act or omission of any other tenant of the Building or Project.
22. TENANTS INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each policy
shall name Landlord, and at Landlord's request any mortgagee of
Landlord, as an additional insured, as their respective interests may
appear. Each policy shall contain (i) a cross-liability endorsement,
(ii) a provision that such policy and the coverage evidenced thereby
shall be primary and non-contributing with respect to any policies
carried by Landlord and that any coverage carried by Landlord shall be
excess insurance, and (iii) a waiver by the insurer of any right of
subrogation against Landlord, its agents, employees and representatives,
which arises or might arise by reason of any payment under such policy
or by reason of any act or omission of Landlord, its agents, employees
or representatives. A copy of each paid up policy (authenticated by the
insurer) or certificate of the insurer evidencing the existence and
amount of each insurance policy required hereunder shall be delivered to
Landlord before the date Tenant is first given the right of possession
of the Premises, and thereafter within thirty (30) days after any demand
by Landlord therefor. Landlord may, at any time and from time to time,
inspect and/or copy any insurance policies required to be maintained by
Tenant hereunder. No such policy shall be cancellable except after
twenty (20) days written notice to Landlord and Landlord's lender.
Tenant shall furnish Landlord with renewals or 'binders" of any such
policy at least ten (10) days prior to the expiration thereof. Tenant
agrees that if Tenant does not take out and maintain such insurance,
Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and charge the Tenant the premiums together with a
twenty-five percent (25%) handling charge, payable upon demand. Tenant
shall have the right to provide such insurance coverage pursuant to
blanket policies obtained by the Tenant, provided such blanket policies
expressly afford coverage to the Premises, Landlord, Landlord's
mortgagee and Tenant as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect policies of casualty insurance
covering (i) all Leasehold Improvements (including any alterations,
additions or improvements as may be made by Tenant pursuant to the
provisions of Article 12 hereof), and (ii) trade fixtures. merchandise
and other
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Personal property from time to time in, on or about the Premises, in an
amount not less than one hundred percent (100%) of their actual
replacement cost from time to time, providing protection against any
peril included within the classification 'Fire and Extended Coverage"
together with insurance against sprinkler damage, vandalism and
malicious mischief. The proceeds of such insurance shall be used for the
repair or replacement of the property so insured. Upon termination of
this Lease following a casualty as set forth herein, the Proceeds under
(i) shall be paid to Landlord, and the proceeds under (ii) above shall
be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the term, pay for and
maintain in effect workers' compensation insurance as required by law
and comprehensive public liability and property damage insurance with
respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in,
on or about the Premises, providing personal injury and broad form
property damage coverage for not less than One Million Dollars
($1,000,000.00) combined single limit for bodily injury, death and
property damage liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
Policy limits for all insurance to be carried by Tenant as set forth in
this Article. In the event Landlord and Tenant cannot mutually agree
upon the amounts of said increases, then Tenant agrees that all
insurance policy limits as set forth in this Article shall be adjusted
for increases in the cost of living in the same manner as is set forth
in Section 5.2 hereof for the adjustment of the Base Rent.
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees. agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust. or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
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26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
may transfer the security deposit or prepaid Rent to Landlord's successor and
upon such transfer. Landlord shall be relieved of any and all further liability
with respect thereto.
27. DEFAULT.
27.1. Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons the Premises without the payment of rent and other
charges; or
b. If Tenant fails to pay any Rent or any other charges required to be
paid by Tenant under this Lease and such failure or five (5) days after
such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure
continues for thirty (30) days after written notice thereof from
Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or on
any of Tenant's Property and is not discharged within twenty (20) days;
or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with
its creditors; or
f. If Tenant files a voluntary petition for relief or if a petition
against Tenant in a proceeding under the federal bankruptcy laws or
other insolvency laws is filed and not withdrawn or dismissed within
forty-five (45) days thereafter, of if under the provisions of any law
providing for reorganization or winding up of corporations, any court of
competent jurisdiction assumes jurisdiction custody or control of Tenant
or any substantial part of its property and such jurisdiction, custody
or control remains in force unrelinquished, unstayed or unterminated for
a period of forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises
or Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (l) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d
through g above.
27.2. Remedies. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall
have no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for
the account of Tenant, and collect any unpaid Rent or other charges
which have or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to
possession of the Premises.
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If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any re-entry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of rent received
from the relenting which is applied against the Rent due hereunder is less than
the amount of the Rent due. Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises, which are not covered by the rent received from the
relating.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which had
been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the amount by
which the unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by which
the unpaid Rent for the balance of the Term after the time of award exceeds
the amount of the rental loss that Tenant proves could be reasonably
avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to,
any costs or expenses (including attorneys' fees), incurred by Landlord in
(a) retaking possession of the Premises, (b) maintaining the Premises after
Tenant's default, (c) preparing the Premises for relating to a now tenant,
including any repairs or alterations, and (d) relating the Premises,
including broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3. Landlord's Default. If Landlord fails to perform any covenant, condition
or agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach; provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgment against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or
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Project, and no other real, personal or mixed property of Landlord (or of any of
the partners which comprise Landlord, if any) wherever situated, shall be
subject to levy to satisfy such judgment. If, after notice to Landlord of
default, Landlord (or any first mortgagee or first dead of trust beneficiary of
Landlord) fails to cure the default as provided herein, then Tenant shall have
the right to cure that default at Landlord's expense. Tenant shall not have the
right to terminate this Lease or to withhold, reduce or offset any amount
against any payments of Rent or any other charges due and payable under this
Lease except as otherwise specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except those noted in
Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of Tenant.
29. NOTICES.
All notices, approvals and demands permitted, or required to be given under this
Lease shall be in writing and deemed duly served or given if Personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premise. Landlord and Tenant may from time
to time by notice to the other designate another place for receipt of future
notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
31. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
32. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
33. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse
-15-
performance of the work by that party for a period equal to the duration of that
prevention, delay or stoppage. Nothing in this Article 33 shall excuse or delay
Tenant's obligation to pay Rent or other charges under this Lease.
34. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant shall
pay Landlord all costs of such performance promptly upon receipt of a bill
therefor.
35. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises. Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
36. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant
or receipt by Landlord of a lesser amount than the Rent provided for in
this Lease shall be deemed to be other than on account of the earliest
due Rent, nor shall any endorsement or statement on any check or letter
accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of the Rent or
pursue any other remedy provided for in this Lease. In connection with
the foregoing, Landlord shall have the absolute right in its solo
discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in
the addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either
party against the other pertaining to or arising out of this Lease, the
finally prevailing party shall be entitled to recover all costs and
expenses, including reasonable attorneys' fees, incurred on account of
such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within
the body of this Lease have been inserted as a matter of convenience and
for reference only and in no way define, limit or enlarge the scope or
meaning of this Lease. All references to Article and Section numbers
refer to Articles and Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall
unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as these changes
do not alter the basic business terms of this Lease or otherwise
materially diminish any rights or materially Increase any obligations of
the party from whom consent to such charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in
accordance with the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the
contrary, Tenant shall have no claim, and hereby waives the right to any
claim against Landlord for money damages by reason of any refusal,
withholding or delaying by Landlord of any consent, approval or
statement of satisfaction, and in such event, Tenant's only remedies
therefor shall be an action for specific performance, injunction or
declaratory judgment to enforce any right to such consent, etc.
h. ?????????????? that he is duly authorized to execute and deliver this
Lease on behalf of the corporation, and that this Lease is binding on
Tenant in accordance with Its terms. Tenant shall, at Landlord's
request, deliver a certified copy of a resolution of its board of
directors authorizing such execution.
-16-
i. Counterparts. This Lease may be executed in multiple counterparts,
all of which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant
shall be for examination purposes only, and does not and shall not
constitute a reservation of or option for Tenant to lease, or otherwise
create any interest of Tenant in the Premises or any other premises
within the Building or Project. Execution of this Lease by Tenant and
its return to Landlord shall not be binding on Landlord notwithstanding
any time interval, until Landlord has in fact signed and delivered the
Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In
order to induce Landlord to enter into this Lease, Tenant agrees that it
shall promptly furnish Landlord, from time to time, upon Landlord's
written request, with financial statements reflecting Tenant's current
financial condition. Tenant represents and warrants that all financial
statements, records and information furnished by Tenant to Landlord in
connection with this Lease are true, correct and complete in all
respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or
registered mail to any first mortgagee or first deed of trust
beneficiary of Landlord whose address has been furnished to Tenant, a
copy of any notice of default served by Tenant on Landlord. If Landlord
fails to cure such default within the time provided for In this Lease,
such mortgagee or beneficiary shall have an additional thirty (30) days
to cure such default; provided that If such default cannot reasonably be
cured within that thirty (30) day period, then such mortgagee or
beneficiary shall have such additional time to cure the default as is
reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the
agreements of the parties with respect to any matter covered or
mentioned in this Lease, and no prior agreement or understanding
pertaining to any such matter shall be effective for any purpose. No
provisions of this Lease may be amended or added to except by an
agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior
written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for
recording purposes.
p. Severability. A final determination by a court of competent
jurisdiction that any provision of this Lease is invalid shall not
affect the validity of any other provision, and any provision so
determined to be invalid shall, to the extent possible, be construed to
accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the
parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy
of Landlord upon any default by Tenant shall impair such right of remedy
or be construed as a waiver of such default.
t. 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 Act, the Comprehensive Environmental Response
Compensation and Liability Act, and The Americans With Disabilities Act.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
-17-
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Premises
and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
Date: July 8, 1996 Date: July 2, 1996
-------------------------------------- ---------------------
Landlord: The Parkwest Partners Tenant: Augment Systems
-------------------------------------- --------------------
By: /s/ Brian Sipe By: /s/ Duane A. Mayo
-------------------------------------- --------------------
Title: Title: CFO
-------------------------------------- --------------------
By: By: Duane A. Mayo
-------------------------------------- --------------------
Title: Title: CFO
-------------------------------------- --------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by CB Commercial as to
the legal sufficiency or tax consequences of this document or the transaction
to which it relates. These are questions for your attorney.
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.
-18-
ADDENDUM
THIS IS AN ADDENDUM TO THAT CERTAIN OFFICE BUILDING LEASE DATED JULY 1, 1996, BY
AND BETWEEN THE PARKWEST PARTNERS, A LIMITED LIABILITY COMPANY, AS LANDLORD, AND
AUGMENT SYSTEMS, A DELAWARE CORPORATION, AS TENANT, FOR THE PROPERTY COMMONLY
KNOWN AS PARKWEST COURT, LOCATED AT 16885 WEST BERNARDO DRIVE, SUITE 255, CITY
OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA.
========================================================
July 1, 1996
In the event of any inconsistency between the Addendum language and the body of
the Lease, the Addendum language shall prevail.
1. UTILITIES: Tenant shall pay its pro rata share of the metered utilities
to the property management.
2. TEMPORARY SPACE: Landlord shall permit Tenant to temporarily occupy
approximately 719 square feet on the second floor (Suite 216) of the
building until the tenant improvements are completed for Suite 255.
Tenant shall accept this space in an "as is" condition at $287.60 per
month, net of utilities (400 per square foot). This Temporary Occupancy
Agreement shall be on all the terms and conditions of this office
building lease dated July 1, 1996, except for applicable rent and
square footage issues.
Tenant shall reimburse Landlord for Landlord's actual costs in
restoring the Premises to their original condition as of the date of the
initial occupancy of the temporary space. In no event shall Tenant pay
any more than $500.00 for any repairs necessary to return the Suite to
its original condition.
3. TENANT IMPROVEMENTS: Landlord, at Landlord's expense, shall provide
building standard tenant improvements per a mutually acceptable space
plan, similar to Exhibit "A." Landlord, at Landlord's expense, shall
install melamine cabinets with Tenant's choice of either white or black
in color, a building standard sink and Formica counter with dimensions
and size as outlined on Exhibit "A." Landlord shall install half-height
interior glass in demo room wall as shown on Exhibit "A."
4. BASE RENT SCHEDULE: The Base Rent schedule shall be as follows:
Months 1 - 24 $2,299.87;
Months 25 - 36 $2,391.86;
Months 37 - 48 $2,487.54.
5. SIGNAGE: Landlord shall pay for Tenant's name to be placed on new
directory signage and lobby directories as well as suite signage for
Suite 255. Should Tenant desire interim signage for the temporary suite
on the 3rd floor, said signage shall be at Tenant's expense.
AGREED AND ACCEPTED:
LANDLORD: TENANT:
THE PARKWEST PARTNERS AUGMENT SYSTEMS
By: /s/ Brian Sipe By: Duane A. Mayo
-------------------------------------- -----------------
Date: July 8, 1996 Date: Juy 2, 1996
-------------------------------------- ----------------
-19-
EXHIBIT "D"
RULES AND REGULATIONS
1. No sign, placard, pictures, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the
outside or inside of the Building without the written consent of Landlord
first had and obtained and Landlord shall have the right to remove any
such sign, placard, picture, advertisement, name or notice without notice
to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved by
Landlord outside the Premises; provided, however, that Landlord may
furnish and install a Building standard window covering at all exterior
windows. Tenant shall not, without prior written consent of Landlord,
cause or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exists, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them
for any purpose other than for ingress and egress from their respective
Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not he
used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and
the expense of any breakage, stoppage or damage resulting from the
violation of the rule shall be borne by the Tenant who, or whose
employees or invitees shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same
into or out of the Building shall be done at such time and in such manner
as Landlord shall designate. Landlord shall have the right to prescribe
the weight, size and position of all safes and other heavy equipment
brought into the Building and also the times arid mariner or moving the
same in and out of the Building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on supports of such thickness as
is necessary to properly distribute the weight. Landlord will not be
responsible for loss of or damage to any such safe or property from any
cause and all damage done to the Building by moving or maintaining any
such safe or other property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substances in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable to
the Landlord or other occupants of the Building by reason of noise, odors
and/or vibrations, or interfere in any way with other tenants or those
having business therein, nor shall any animals or birds be brought in or
kept in or about the Premises or the Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing
clothes, for lodging or for any improper, objectionable or immoral
purposes.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or
use any method of treating or air conditioning other than that supplied
by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of the Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises
shall be subject to the approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the
Building or to the hall, corridors, elevators or stairways in the
Building, or to the Premises may be refused unless the person seeking
access is known to the person or employee of the Building in charge and
has a pass or is properly identified. The Landlord shall in no case be
liable for damages for any
-20-
error with regard to the admission to or exclusion from the Building of
any person. In case of invasion, mob, riot, public excitement, or other
commotion, the Landlord reserves the right to prevent access to the
Building during the continuance of the same by closing of the doors or
otherwise, for the safety of the tenants and protection of property in
the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
the Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the
Building of which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the
tenants, in such manner as it deems best for the benefit of the tenants
generally.
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use. and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
/s/ B.W.S /s/ DAM
-------------------------------------- ---------------------
Landlord's Initials Tenant's Initials
-21-
EXHIBIT "F"
This Rider is attached to and made part of that certain Lease (the "Lease")
dated July 1, 1996 between The Parkwest Partners , as Landlord, and Augment
Systems, as Tenant, covering the Property commonly known as Parkwest Court (the
"Property"). The terms used herein shall have the same definitions as set forth
in the Lease. The provisions of this Rider shall supersede any inconsistent or
conflicting provisions of the Lease.
A. OPTION(S) TO EXTEND TERM.
1. GRANT OF OPTION.
Landlord hereby grants to Tenant one (1) option(s) (the "Option(s)")
to extend the Lease Term for additional term(s) of four (4) years each (the
"Extension(s)"), on the same terms and conditions as set forth in the Lease, but
at an increased rent as set forth below. Each Option shall be exercised only by
written notice delivered to Landlord at least one hundred twenty (120) days
before the expiration of the Lease Term or the preceding Extension of the Lease
Term, respectively. If Tenant fails to deliver Landlord written notice of
exercise of an Option within the prescribed time period, such Option and any
succeeding Options shall lapse, and there shall be no further right to extend
the Lease Term. Each Option shall be exercisable by Tenant on the express
conditions that (a) at the time of the exercise, and at all times prior to the
commencement of such Extension, Tenant shall not be in default under any of the
provisions of the Lease and (b) Tenant has not been ten (10) or more days late
in the payment of rent more than a total of three (3) times during the Lease
Term and all preceding Extensions.
2. PERSONAL OPTIONS.
The Option(s) are personal to the Tenant named in Section 1.03 of the
Lease or any Tenant's Affiliate described in Section 9,02 of the Lease. If
Tenant subleases any portion of the Property or assigns or otherwise transfers
any interest under the Lease to an entity other than a Tenant Affiliate prior to
the exercise of an Option (whether with or without Landlord's consent), such
Option and any succeeding Options shall lapse. If Tenant subleases any portion
of the Property or assigns or otherwise transfers any interest of Tenant under
the Lease to an entity other than a Tenant Affiliate after the exercise of an
Option but prior to the commencement of the respective Extension (whether with
or without Landlord's consent), such Option and any succeeding Options shall
lapse and the Lease Term shall expire as if such Option were not exercised. If
Tenant subleases any portion of the Property or assigns or otherwise transfers
any interest of Tenant under the Lease in accordance with Article 9 of the Lease
after the exercise of an Option and after the commencement of the Extension
related to such Option, then the term of the Lease shall expire upon the
expiration of the Extension during which such sublease or transfer occurred and
only the succeeding Options shall lapse.
B. CALCULATION OF RENT.
The Base Rent during the Extension(s) shall be determined by one or a
combination of the following methods (INDICATE METHOD UPON EXECUTION OF THE
LEASE):
[ ] 1. COST OF LIVING ADJUSTMENT (Section B. 1, below)
Rental Adjustment Date(s): The first day of the __________________
month(s) of the _________________ Extension(s) of the Lease Term.
[X] 2. Fair Rental Value Adjustment (Section B.2, below) as
determined by broker.
Rental Adjustment Date(s): The first day of the __________________
month(s) of the _________________ Extension(s) of the Lease Term.
[ ] 3. Fixed Adjustment
The Base Rent shall be increased to the following amounts (the
"Adjusted Base Rent(s)") on the dates (the "Rental Adjustment
Date(s)") set forth below:
Rental Adjustment Date(s) Adjusted Base Rent(s)
--------------------------- -----------------------
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--------------------------- -----------------------
--------------------------- -----------------------
--------------------------- -----------------------
1. COST OF LIVING ADJUSTMENT.
The Base Rent shall be increased on the dates specified in Section
B.1, above (the "Rental Adjustment Date(s)") by reference to the Index defined
in Section 3.02 of the Lease or the substitute Index described in Paragraph
3.02(b) of the Lease, as follows: The Base Rent In effect Immediately prior to
the applicable Rental Adjustment Date (the "Comparison Base Rent") shall be
increased by the percentage that the Index has increased from the month in which
the payment of the Comparison Base Rent commenced through the month in which the
applicable Rental Adjustment Date occurs. In no event shall the Base Rent be
reduced by reason of such computation.
The Base Rent shall be increased on the date(s) specified in Section
B.2, above (the "Rental Adjustment Date(s)") to the "fair rental value" of the
Property, determined in the following manner:
(a) Not later than one hundred (100) days prior to any applicable
Rental Adjustment Date, Landlord and Tenant shall meet in an effort to
negotiate, in good faith, the fair rental value of the Property as of
such Rental Adjustment Date. It Landlord and Tenant have not agreed
upon the fair rental value of the Property at least ninety (90) days
prior to the applicable Rental Adjustment Date, the fair rental value
shall be determined by appraisal, by one or more appraisers or brokers
(herein called "Appraiser(s)"), as provided in Section B.2(b), below,
if appraiser(s) are used, such appraiser(s) shall have at least five
(5) years' experience In the appraisal of commercial/lindustrial real
property in the area in which the Property is located and shall be
members of professional organizations such as MAI or equivalent. If
broker(s) are used, such broker(s) shall have at least five (5) years'
experience in the sales and leasing of commercial /industrial real
property in the area in which the Property is located and shall be
members of professional organizations such as the Society of Industrial
and Office Realtors or equivalent.
(b) If Landlord and Tenant are not able to agree upon the fair rental
value of the Property within the prescribed time period, then Landlord
and Tenant shall attempt to agree in good faith upon a single Appraiser
not later than seventy-five (75) days prior to the applicable Rental
Adjustment Date. If Landlord and Tenant are unable to agree upon a
single Appraiser within such time period, then Landlord and Tenant
shall each appoint one Appraiser not later than sixty-five (65) days
prior to the applicable Rental Adjustment Date. Within ten (10) days
thereafter, the two (2) appointed Appraisers shall appoint a third
(3rd) Appraiser. It either Landlord or Tenant fails to appoint its
Appraiser within the prescribed time period, the single Appraiser
appointed shall determine the fair rental value of the Property. If
both parties fail to appoint Appraisers within the prescribed time
periods, then the first Appraiser thereafter selected by a party shall
determine the fair rental value of the Properly. Each party shall bear
the cost of its own Appraiser and the parties shall share equally the
cost of the single or third Appraiser, if applicable.
(c) For the purposes of such appraisal, the term "fair market value"
shall mean the price that a ready and willing tenant would pay, as of
the applicable Rental Adjustment Date, as monthly rent to a ready and
willing landlord of property comparable to the Property if such
property were exposed for lease on the open market for a reasonable
period of time and taking into account all of the purposes for which
such property may be used. If a single Appraiser is chosen, then such
Appraiser shall determine the fair rental value of the Property.
Otherwise, the fair rental value of the Property shall be the
arithmetic average of the two (2) of the three (3) appraisals which are
closest in amount, and the third appraisal shall be disregarded. In no
event, however, shall the Base Rent be reduced by reason of such
computation. Landlord and Tenant shall instruct the Appraiser(s) to
complete the determination of the fair rental value not later than
thirty (30) days prior to the applicable Rental Adjustment Date. If the
fair rental value is not determined prior to the applicable Rental
Adjustment Date, then Tenant shall continue to pay to Landlord the Base
Rent applicable to the Property immediately prior to such Extension,
until the fair rental value is determined. When the fair rental value
of the Property is determined, Landlord shall deliver notice thereof to
Tenant, and Tenant shall pay to Landlord, within ten (10) days after
receipt of such notice, the difference between the Base Rent actually
paid by Tenant to Landlord and the new Base Rent determined hereunder.
-23-
EXHIBIT 10.3
RESTATED TECHNOLOGY LICENSE AGREEMENT
-------------------------------------
This Restated Technology License Agreement (the "Agreement") is made and
entered into as of September 27, 1995 (the "Effective Date") by and between
Radius Inc. with its principal place of business at 215 Moffett Park Drive,
Sunnyvale, California 94089 ("Radius"), and Augment Systems Inc., a Delaware
corporation, with its principal place of business at 19 Crosby Drive, Bedford,
Massachusetts 01730 ("Augment").
RECITALS
--------
A. On July 29, 1994, Radius and Augment entered into a License Agreement
which was subsequently amended on July 25, 1995 (the "Original Agreement").
Under the Original Agreement, Radius granted Augment a limited, non-exclusive
license to develop certain Radius technology known as Skylab.
B. Augment is in the process of soliciting financing as more fully
described in its private placement memorandum dated August 1995 (the
"Financing").
C. Radius and Augment desire to amend and supersede the Original Agreement
with (i) this Agreement and (ii) that certain Sales Agreement executed on even
date herewith and attached hereto as Exhibit A (the "Augment Sales Agreement").
NOW, THEREFORE, in consideration of mutual promises contained herein, the
parties agree as follows:
1. DEFINITIONS
1.1. "APPLE TECHNOLOGY" is the Apple Computer, Inc. ("Apple") proprietary
technology contained in Skylab.
1.2. "RADIUS TECHNOLOGY" is the Radius proprietary technology relating to
Skylab and/or Rocket, including the Skylab chassis, packaging, power supply,
motherboard, disk array subsystem, software code that runs on top of the Vertex
real-time kernel, and Rocket technology consisting of NuBus-based multiprocessor
cards, daughtercards and software.
1.3. "CONFIDENTIAL INFORMATION" means information disclosed by one party to
the other which is confidential and proprietary to the disclosing party.
Confidential Information includes but is not limited to trade secrets, source
code, schematic diagrams, technical information and business and marketing
plans.
1.4. "SKYLAB" means a multiprocessing file and compute server product
developed by and proprietary to Radius which consists of several types of
technology including the Radius Technology and the Apple Technology (as defined
herein).
1.5. "INTELLECTUAL PROPERTY RIGHTS" means patent rights, rights in patent
applications, copyright rights (including, but not limited to, rights in
audiovisual works and the right to make derivative works), mask work rights,
trade secret rights, and any other intellectual property rights.
1.6. "LICENSED SOFTWARE" means the software related to Skylab and/or Rocket
provided to Augment by Radius under either (i) the Original Agreement or (ii)
this Agreement, or owned by Radius as a result of Section 3.2 of the Original
Agreement.
1.7. "MODIFIED TECHNOLOGY" means any and all modifications made by or on
behalf of Augment to the Radius Technology, the Licensed Software, and (to the
extent any agreement between Augment and Apple is consistent herewith) the Apple
Technology. A modification means any change to the hardware or software as
described in the engineering documentation provided by Radius for Skylab and
Rocket products.
1.8. "MORAL RIGHTS" mean any rights of paternity or integrity, any right to
claim authorship of any works of authorship, materials or writings, to object to
any distortion, mutilation or other modification of, or other derogatory action
in relation to, any works of authorship, materials or writings, and any similar
right, existing under judicial or statutory law of any country in the world, or
under any treaty, regardless of whether or not such right is denominated or
generally referred to as a "moral right."
2. TECHNOLOGY LICENSES
2.1. HARDWARE LICENSE. Subject to the terms and conditions of this
Agreement, Radius hereby grants Augment, and Augment accepts a limited,
exclusive (except as to Radius and subject to the limitations and restrictions
set forth in this Agreement), worldwide, non-transferable, royalty-bearing
license (i) to use, modify, and otherwise create derivative works of Skylab and
(ii) to reproduce, manufacture, market, and distribute products based on Skylab.
2.2. SOFTWARE LICENSE. Subject to the terms and conditions of this
Agreement, Radius hereby grants Augment, and Augment accepts a limited,
exclusive (except as to Radius and subject to the limitations and restrictions
set forth in this Agreement), worldwide, non-transferable, royalty-bearing
license (i) to use, modify, and otherwise create derivative works of the
Licensed Software in source code form and (ii) to reproduce, manufacture,
market, distribute, and sublicense (without the right to reproduce, unless
Augment notified Radius of the sublicensee's name, address, telephone number,
and individual contact, in writing prior to granting a sublicense with the right
to reproduce) software based on the Licensed Software only in object code form
and only in connection with the distribution and marketing of products based on
Skylab.
2.3. LICENSES. The licenses granted pursuant to sections 2.1 and 2.2 shall
be referred to as the "Radius Licenses."
2.4. LIMITATIONS ON THE RADIUS LICENSES. The Radius licenses shall be
subject to the following additional limitations:
-2-
i) Augment shall not attempt to reverse engineer any portions of the
Licensed Software which may be provided to Augment only in object code form.
ii) Augment may not distribute any source code incorporating any of
the Radius Technology.
iii) Notwithstanding the exclusivity provisions in the Radius
Licenses, Radius retains the right to do what it has licensed Augment to do.
iv) Augment understands that portions of the Radius Technology may be
incorporated into existing, planned, or future Radius products. Augment agrees
that Radius remains free to use the Radius Technology in any of its existing,
planned, or future products, whether sold under Radius' brand or OEMs'.
2.5. TERMINATION OF EXCLUSIVITY. The Radius Licenses shall become
non-exclusive without notice to Augment immediately if the number of Royalty
Bearing Units is less than the minimum amounts stated in Exhibit B for any two
consecutive quarters and Augment fails to pay the minimum royalty due in
accordance with Exhibit B.
2.6. RADIUS ATTRIBUTION. Augment will indicate on products based on the
Radius Technology or Modified Technology that are distributed and on all related
collateral material, in a manner that is agreed to by both parties, that Radius
is the developer and licensor of the Radius Technology. In providing such
attribution, Augment will comply with such reasonable trademark usage guidelines
and policies as Radius may determine from time to time. Nothing contained in
this Agreement shall give Augment any rights in any Radius trademark, trade
name, logo, or trade designation. Radius shall have the right to approve or
disapprove any product or collateral material on which Radius or its trademarks
are used before Augment's public distribution of such product or collateral
material, such approval shall not be unreasonably withheld.
2.7. RESERVATION. Radius reserves all rights and licenses in and to the
Radius Technology not expressly granted to Augment herein.
3. OWNERSHIP AND PROPRIETARY RIGHTS.
3.1. OWNERSHIP OF LICENSED SOFTWARE. All right, title, and interest
(including all know-how and all world-wide Intellectual Property Rights), in and
to the Licensed Software shall remain in Radius or its licensors. This Agreement
is not intended to and shall not be interpreted as transferring any ownership
right in the Radius Technology to Augment.
3.2. OWNERSHIP OF MODIFIED TECHNOLOGY AND LICENSE TO RADIUS. Subject to
Radius' (and, if applicable, Apple's) Intellectual Property Rights in the
underlying technology, all right, title, and interest (including all know-how
and all world-wide Intellectual Property Rights), in and to the Modified
Technology shall belong to Augment.
-3-
3.3. LICENSE TO RADIUS. Augment hereby grants to Radius an irrevocable,
permanent, nonexclusive, worldwide, fully paid-up, royalty-free right and
license (the "License Back to Radius") under the Intellectual Property Rights to
the Modified Technology to reproduce, make derivative works of, display
publicly, make, use, import, sell, lease or otherwise dispose of products
covered by such Intellectual Property Rights and to practice any process or
method covered by such Intellectual Property Rights, and to authorize others to
do any of the above. The License Back to Radius includes, without limitation,
the right to sell products with, or intended for use in combination with
apparatuses or in a method where such combination or method is covered by such
Intellectual Property Rights.
3.4. PROPRIETARY NOTICES. All proprietary notices, labels or marks relating
to Radius' Intellectual Property Rights (the "Notices") incorporated in, marked
for fixed to the Radius Technology shall not be removed, altered or obliterated
by Augment. Augment shall duplicate any such Notices on any copies, whether made
in whole or in part, in any form. Augment shall only distribute software based
on the Licensed Software with an appropriate copyright notice. Augment shall
(for the duration of any patent and not longer) include such patent notice(s) in
the packaging, documentation, software and/or products as Radius requests (e.g.,
U.S. Patent No. X,XXX,XXX).
3.5. APPLE TECHNOLOGY. Augment understands that a portion of Skylab is
composed of the Apple Technology which is proprietary to Apple. The Apple
Technology was licensed to Radius. Augment understands that the license from
Apple does not allow Radius to sublicense or transfer Radius' rights to the
Apple Technology. Augment understands that it must contact Apple regarding
rights to the Apple Technology, and that Radius is in no way responsible for
Apple's decision with respect thereto.
4. COMPENSATION
4.1. ROYALTIES. Augment shall pay Radius royalties for each unit sold of
products based on the Radius Technology or the Modified Technology, as set forth
below:
For Units 1-200: The greater of (i) one thousand five- hundred
dollars ($1,500.00) or (ii) the amount calculated by multiplying two percent
(0.02) and the purchase price (in United States dollars at the F.O.B. point)
paid to Augment therefor.
For Units 201-1000: The greater of (i) one thousand dollars
($1,000.00) or (ii) the amount calculated by multiplying one and one-half
percent (0.015) and the purchase price (in United States dollars at the F.O.B.
point) paid to Augment therefor.
For Units 1001 and over: The greater of (i) seven- hundred and fifty
dollars ($750.00) or (ii) the amount calculated by multiplying one percent
(0.01) and the purchase price (in United States dollars at the F.O.B. point)
paid to Augment therefor.
Royalties will not accrue in connection with any units distributed by
Augment without consideration (such as demo units or loaners), or used
internally for testing and quality
-4-
assurance purposes (collectively, "Non-Royalty Bearing Units"). All other units
shall bear royalties ("Royalty Bearing Units").
Royalties shall continue to accrue until the cumulative total of
Royalties paid by Augment to Radius under this Agreement shall equal ten million
dollars ($10,000,000.00), in which event Augment's duty to pay Royalties and its
duties under Section 4.4 shall cease.
At any time, in Augment's sole discretion, Augment may make advance
payments of Royalties. Radius shall accept such Royalties and credit Augment
therefor. Augment shall notify Radius regarding the allocation of such advance
Royalties to actual Royalties as they accrue. In no event shall advanced
Royalties paid by Augment be refundable or refunded.
4.2. PAYMENT. Augment shall make payments of all royalties due to Radius,
within thirty (30) days following the end of each calendar quarter. On any
overdue payments, Augment shall pay a one and one-half percent (11/2% per month
finance charge, or, if lower, the highest rate then permitted by law upon the
unpaid balance until the date of payment. All payments shall be made in United
States dollars.
4.3. TAXES. In addition to the royalties set forth above, Augment will pay
all sales, use, and other taxes, if any, imposed as a result of payment of the
royalties, other than taxes measured by Radius' net income.
4.4. RECORDS AND REPORTS
4.4.1. RECORDS. Augment shall keep accurate books and records, in
accordance with generally accepted accounting principles consistently applied,
which are reasonably necessary in order to ascertain the amount of royalties
payable to Radius.
4.4.2. QUARTERLY ROYALTY REPORTS. Augment shall report to Radius on a
calendar quarterly basis the number of units sold and the total amount of
royalties due and owing to Radius for such the calendar quarter. The reports
described in this section 4.4.2 shall also report the number of units
distributed without consideration or used internally for testing and quality
assurance purposes. The reports described in this section 4.4.2 shall be made to
Radius no later than thirty (30) days after the close of each calendar quarter
and shall accompany the quarterly royalty payment set forth above.
4.4.3. AUDIT. Radius shall have the right to make no more than once per
calendar year an examination and audit, as its own expense, during normal
business hours, of Augment's books and records which may contain information
bearing upon the royalty amounts due hereunder for a period of time up to three
(3) years prior to the date of the audit. Prompt adjustment shall be made by
Augment for any underpayments disclosed by such audit. In the event that any
quarterly report understates the number claimed to be Non-Royalty Bearing Units,
it shall be conclusively established that the units covered by such
understatement are Royalty Bearing Units. In the event that any quarterly report
understates the compensation due to Radius for any calendar quarter by more than
five percent (5%), Augment shall pay any shortfall indicated by such audit plus
reimburse Radius for the cost of such audit.
-5-
5. WARRANTIES AND DISCLAIMERS
5.1. LIMITED WARRANTY. Radius warrants to Augment that to the best of its
knowledge, with the exception of rights held by Apple, (i) it has sufficient
right, title and authority to grant to Augment all licenses and rights that it
grants under this Agreement and (ii) it has not received notice of any claim
that the Radius Technology violates or infringes the Intellectual Property
Rights of any third party.
5.2. DISCLAIMER OF OTHER WARRANTIES. THE PARTIES ACKNOWLEDGE AND AGREE THAT
THE LICENSED SOFTWARE AND THE RADIUS TECHNOLOGY ARE IN ALL RESPECTS PROVIDED ON
AN "AS IS" BASIS. THE PARTIES DISCLAIM ANY AND ALL WARRANTIES RELATING TO THE
RADIUS TECHNOLOGY, THE LICENSED SOFTWARE, AND THE MODIFIED TECHNOLOGY, INCLUDING
ANY UPDATES TO ANY OF THESE. WHETHER EXPRESS, IMPLIED, ARISING FROM COURSE OF
DEALING OR USAGE OF TRADE, OR STATUTORY, INCLUDING, BUT NOT LIMITED TO ANY
WARRANTY OF NONINFRINGEMENT OF THIRD PARTY RIGHTS, WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, OR WARRANTY OF MERCHANTABILITY.
6. LIMITATION OF LIABILITY
6.1. GENERAL LIMITATION. EXCEPT IN THE EVENT OF A MATERIAL BREACH BY EITHER
PARTY OF SECTION 10, NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA, OR
USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN
CONTRACT OR TORT (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PARTY OR ANY OTHER
PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING
THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.
6.2. ABSOLUTE LIMIT. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT,
RADIUS' LIABILITY FOR DAMAGES HEREUNDER FOR ANY CAUSE WHATSOEVER SHALL IN NO
EVENT EXCEED THE AMOUNTS RECEIVED BY RADIUS FROM AUGMENT UNDER THIS AGREEMENT
DURING THE TWELVE (12) MONTH PERIOD PRECEDING THE OCCURRENCE OF ANY EVENT WHICH
GIVES RISE TO THE CAUSE OF ACTION.
7. THIRD PARTY CLAIMS
7.1. CLAIMS BY THIRD PARTIES. The parties will promptly notify each other
in the event that any party becomes aware of the assertion of, or the
probability of the assertion of, any claim of any kind by a third party against
either party arising from or in connection with the Radius Technology, the
Modified Technology, or this Agreement.
-6-
7.2. INFRINGEMENT BY THIRD PARTIES.
7.2.1. NOTIFICATION. The parties will promptly notify each other in
the event that any party becomes aware of any infringement of any right in the
Radius Technology or the Modified Technology by a third party.
7.2.2. ENFORCEMENT PROCEEDINGS. Radius will have the first option to
take appropriate legal action to remedy such infringement. Augment, in its sole
discretion, may provide Radius with assistance in such action. If Radius fails
to initiate and pursue such action in a reasonably prompt manner following
Augment's written request that it do so, then Augment will have the right to
initiate and pursue such action. Radius, in its sole discretion, may provide
Augment with assistance in such action.
7.2.3. PROCEEDS. If Radius institutes legal action against third party
infringers, it shall retain any proceeds therefrom. If Augment institutes legal
action against third party infringers, any proceeds therefrom shall be allocated
first to Augment's costs and legal fees, next to Radius' costs and legal fees if
it provides assistance under Section 7.2.2, and the remainder divided as
follows: if no licenses to Intellectual Property Rights owned by Radius are
granted in connection with any settlement of the action, two percent (2%) to
Radius and the remainder to Augment.
8. GOVERNMENT REGULATION
8.1. EXPORT CONTROLS. Augment understands that the Radius Technology and
Modified Technology may be restricted by the United States Government from
export to certain countries and Augment agrees that it will not export the
Radius Technology or the Modified Technology in any way that will violate any of
the export control laws or regulations of the United States.
8.2. FEDERAL GOVERNMENT. In no event will Augment deliver the software
related to the Radius Technology or Modified Technology, or any portion thereof,
to any branch or agency of the U.S. Government without a written contract clause
stating that such items will be protected by restricted rights as set forth in
DFAR 252.227-7013 or equivalent rights and without taking all required actions
to preserve such rights including, without limitation, (i) marking the software
with the then-currently prescribed Restricted Rights Legend, and (ii) ensuring
that the contract with the government agency contains the standard Department of
Defense "Rights in Technical Data and Computer Software" clause at DFAR
252.227-7013 or the equivalent clauses for other government agencies.
9. NONSOLICITATION OF EMPLOYEES
During the term of this Agreement, neither party will solicit for hire any
employee of the other unless authorized by the other in writing. Unless
otherwise prohibited by law, this provision will remain in force for one year
following the termination of this Agreement unless such termination occurs
pursuant to Section 11.2(i).
-7-
10. CONFIDENTIAL INFORMATION
10.1. NONDISCLOSURE. The receiving party shall not use the disclosing
party's Confidential Information except as expressly set forth herein or
otherwise authorized in writing by the disclosing party, shall implement
reasonable procedures to prohibit the disclosure, unauthorized duplication,
misuse or removal of the disclosing party's Confidential Information and shall
not disclose such Confidential Information to any third party unless expressly
authorized in accordance with this Section 10. Without limiting the foregoing,
each of the parties shall use at least the same degree of care which it uses to
protect its own proprietary information to prevent the disclosure of
Confidential Information disclosed to it by the other party under this
Agreement, but in no event less than reasonable care.
10.2. EXCEPTIONS. Notwithstanding the above, neither party shall have
liability to the other with regard to any Confidential Information of the other
which:
i) was in the public domain at the time it was disclosed or becomes
in the public domain through no fault of the receiver;
ii) was known to the receiver at the time of disclosure as shown by
the files of the receiver in existence at the time of disclosure;
iii) is disclosed with the prior written approval of the disclosing
party;
iv) was independently developed by the receiver without any use of
the Confidential Information of the other party; or
v) becomes known to the receiver from a source other than the
disclosure without breach of this Agreement by the receiver and otherwise not in
violation of the discloser's rights.
10.3. REMEDIES. Each party acknowledges that any breach of any of its
obligations under this Section 10 is likely to cause or threaten irreparable
harm to the other party, and, accordingly, each party agrees that in such event
the non- breaching party shall be entitled to seek equitable relief to protect
its interests, including but not limited to preliminary and permanent injunctive
relief, as well as monetary damages.
11. TERM
11.1. TERM. This Agreement will commence on the Effective Date and will
continue until terminated as provided in Section 11.2.
11.2. TERMINATION.
i) Either party may immediately terminate this Agreement after giving
written notice (a) upon any proceeding being commenced by or against the other
under any bankruptcy or other law relating to insolvency receivership,
liquidation, or assignment for the benefit of creditors which is not dismissed
within sixty (60) days, (b) if the other party shall
-8-
make a composition with its creditors or an assignment for the benefit of
creditors, (c) if the other party liquidates, dissolves, or ceases as a going
concern, (d) if the other party shall have a receiver appointed over the whole
or any part of its assets.
ii) Either party may immediately terminate this Agreement without
further notice, if the other party materially breaches this Agreement and fails
to cure that breach within thirty (30) days after receiving written notice of
the breach.
iii) Radius may terminate this Agreement at any time following
December 31, 1995, after giving thirty (30) days' prior written notice, if
Augment has not received at least $400,000 in new financing. iv) Radius may
terminate this Agreement at any time following September 30, 1996, after giving
(30) days' prior written notice, if Augment has not delivered at least one unit
of product for beta testing.
11.3. EFFECT OF TERMINATION
i) The licenses granted to Augment under Section 2 shall immediately
terminate upon termination of this Agreement.
ii) Each party shall return or destroy all copies of the Confidential
Information of the other party within thirty (30) days after the effective date
of the termination. At the request of either party, an officer of the other
party will certify in writing that such other party has complied with its
obligations hereunder.
iii) In addition to any Sections which by their express terms survive
termination of this Agreement, Sections 1, 2, 7, 3.1, 3.2, 4, 5, 6, 7.2 (if and
only if legal action has begun, and then only with respect to such on-going
legal action), 8, 9, 10, 11, and 12 will survive the termination of this
Agreement.
12. MISCELLANEOUS
12.1. RELATIONSHIP OF THE PARTIES. Augment's relationship with Radius
during the term of this Agreement will be that of an independent contractor.
Nothing contained herein shall in anyway constitute any association,
partnership, or joint venture between the parties hereto, or be construed to
evidence the intention of the parties to establish any such relationship.
Neither party has any power, right or authority to bind the other party or to
assume or create any obligation or responsibility, express or implied, on behalf
of the other party or in the name of the other party.
12.2. ASSIGNMENT. This Agreement is not assignable by either party without
the prior written consent of the other party, which shall not be unreasonably
withheld, and any attempted assignment in violation of this Section 12.2 will be
null and void. The provisions hereof shall be binding upon and inure to the
benefit of the parties, their successors and permitted assigns.
-9-
12.3. CONTROLLING TERMS AND MODIFICATION. The terms and conditions set
forth in this Agreement will supersede the terms of any purchase order or other
business forms notwithstanding an acceptance or acknowledgment of such business
forms. No modification to this Agreement nor any waiver of any rights shall be
effective unless agreed to in writing by the party to be charged. The waiver of
any breach or default shall not constitute a waive of any other right hereunder
or of any subsequent breach or default.
12.4. NOTICES. All notices and other communications required or permitted
under this Agreement will be in writing and sent via certified, registered, or
overnight mail or by Federal Express, DHL or other overnight delivery carrier to
the other party at the address indicated below or to such other address as a
party may designate by written notice to the other:
To Augment: Augment Systems Inc.
19 Crosby Drive
Bedford, MA 01730
Attention: President
Fax: (617) 275-4461
To Radius: Radius Inc.
215 Moffett Park Drive
Sunnyvale, CA 94089
Attention: President
Copy to: General Counsel
Fax: (408) 541-5838
Notices will be deemed served when delivered, or if delivery is not
accomplished because of some fault of the addressee, when tendered.
12.5. EQUITABLE RELIEF. Augment acknowledges that Radius owns or has rights
to the Radius Technology. Augment further acknowledges that any breach of its
obligations under this Agreement with respect to these proprietary rights will
cause Radius irreparable injury for which there are inadequate remedies at law
and for which Radius will be entitled to equitable relief in addition to all
other remedies provided by this Agreement or available at law.
12.6. FORCE MAJEURE. Neither party shall be responsible for any failure to
perform due to unforeseen circumstances or to causes beyond its control,
including but not limited to acts of God, war, riot, embargoes, acts of civil or
military authorities, fire, floods, earthquakes, accidents, strikes, or
shortages of transportation, facilities, fuel, energy, labor or materials. In
the event of any such delay, the affected party shall promptly notify the other
in writing and may defer performance under this Agreement for a period equal to
the time of such delay.
12.7. ENTIRE AGREEMENT AND WAVIER. This Agreement and the exhibits hereto
(which are fully incorporated herein by this reference) constitute the entire
agreement between the parties pertaining to the subject matter hereof, and
supersede in their entirety any prior or contemporaneous written or oral
agreements between the parties (other than the Augment Sales Agreement), whether
written or oral, including, without limitation, the Statement of Intent
-10-
Between Radius and Augment dated June 16, 1994 and the Original Agreement.
Verbal statements by either party or its representative will not constitute an
obligation of such party. The parties acknowledge that they are not entering
into this Agreement on the basis of any representations not expressly contained
herein. Any modifications of this Agreement must be in writing and signed by
both parties hereto. The waiver by one party of any default of the other party
shall not waive subsequent defaults of the same or different kind.
12.8. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the United States and the State of California as
applied to agreements entered into and to be performed entirely within
California between California residents.
12.9. CONSTRUCTION AND INTERPRETATION. This Agreement has been negotiated
by the parties and their respective counsel. This Agreement will be interpreted
fairly in accordance with its terms and without any strict construction in favor
of or against any party. In the event any provision, or portion thereof, of this
Agreement is determined to be invalid or unenforceable by a court of competent
jurisdiction, that provision will remain effective to the extent it remains
valid and enforceable. In such event, it is the intention of the parties hereto
that the remainder of the Agreement remain valid and enforceable and, the
parties hereto agree to negotiate in good faith to substitute a valid and
enforceable provision that preserves the intent and economic effect of the
original provision. If the parties cannot agree on such a substitute provision,
the court will draft a provision that is enforceable that follows the parties'
expressed intent and economic effect of the unenforceable clause as closely as
possible.
12.10. DISPUTES; JURISDICTION AND VENUE. The parties hereby submit to the
jurisdiction of, and waive any venue objections against, the United States
District Court for the Northern District of California, the Superior Court of
the State of California for the County of Santa Clara, and the Santa Clara
Municipal Court in any litigation arising out of or related to this Agreement.
The parties expressly waive their rights to a trial by jury in any such
litigation.
12.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives.
RADIUS INC. AUGMENT SYSTEMS INC.
By: /s/ Greg Millar By: /s/ Lorrin Gale
----------------------- ---------------------------
Name: Greg Millar Name: Lorrin Gale
----------------------- ---------------------------
Title: Vice President Title: CEO
----------------------- ---------------------------
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-12-
EXHIBIT A
AUGMENT SALES AGREEMENT
-----------------------
This Sales Agreement (the "Augment Sales Agreement") is made and entered into as
of August ___, 1995 (the "Effective Date") by and between Radius Inc. with its
principal place of business at 215 Moffett Park Drive, Sunnyvale, California
94089 ("Radius"), and Augment Systems, Inc., a Delaware corporation with its
principal place of business at 19 Crosby Drive, Bedford, Massachusetts 01730
("Augment").
1. DEFINITIONS. Unless otherwise noted, capitalized terms shall have the same
meaning as in the Restated Technology License Agreement.
2. SALE AND PURCHASE. Radius will sell and Augment will purchase assets as set
forth in Exhibit 1 hereto (the "Assets"). The purchase price shall be
$100,316.00. Such purchase price shall be paid by issuance to Radius by Augment
of forty-seven thousand two hundred (47,200) nonassessable shares of Augment
Common Stock par value $0.01 per share. Augment represents and warrants that
such shares will be and are validly issued in compliance with all state and
federal securities laws and fully authorized by the board of directors. Augment
shall provide Radius with a copy of the board of directors resolutions
pertaining to the issuance of such shares. In addition to the purchase price set
forth, Augment will pay all shipping charges (including insurance) and all
sales, use, and other taxes, if any, imposed as a result of the sale.
3. PROPRIETARY RIGHTS. Augment acknowledges that the Assets are proprietary to
Radius and contain Radius Technology and are subject to Radius' Intellectual
Property Rights. Nothing contained herein is intended to or shall be construed
to give any license under any of Radius' Intellectual Property Rights contained
in or related to the Assets. Augment's use, sale, or other disposal of the
Assets sold hereunder shall be governed by the Restated Technology License
Agreement.
4. DISCLAIMER OR WARRANTIES: INDEMNIFICATION. THE PARTIES ACKNOWLEDGE AND AGREE
THAT THE ASSETS ARE IN ALL RESPECTS PROVIDED ON AN "AS IS" BASIS. RADIUS
DISCLAIMS ANY AND ALL WARRANTIES RELATING TO THE ASSETS. WHETHER EXPRESS,
IMPLIED, ARISING FROM COURSE OF DEALING OR USAGE OF TRADE, OR STATUTORY,
INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF NONINFRINGEMENT OF THIRD PARTY
RIGHTS, WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, OR WARRANTY OF
MERCHANTABILITY.
5. NO CONSEQUENTIAL DAMAGES. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS,
REVENUE, DATA, OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN
AN ACTION IN CONTRACT OR TORT (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PARTY OR
ANY OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.
6. ABSOLUTE LIMIT OF LIABILITY. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AUGMENT SALES AGREEMENT, RADIUS' LIABILITY FOR DAMAGES HEREUNDER FOR ANY CAUSE
WHATSOEVER SHALL IN NO EVENT EXCEED THE AMOUNTS RECEIVED BY RADIUS FROM AUGMENT
UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTH PERIOD PRECEDING THE
OCCURRENCE OF AN EVENT WHICH GIVES RISE TO THE CAUSE OF ACTION.
7. INCORPORATION. The terms and conditions of Section 12 of the Restated
Technology License are incorporated herein as though repeated here in full.
IN WITNESS WHEREOF, the parties have caused this Augment Sales Agreement to
be executed by their duly authorized representatives.
RADIUS INC. AUGMENT SYSTEMS INC.
By: /s/ Greg Millar By: /s/ Lorrin Gale
----------------------- ---------------------------
Name: Greg Millar Name: Lorrin Gale
----------------------- ---------------------------
Title: Vice President Title: CEO
----------------------- ---------------------------
EXHIBIT B
MINIMUM SALES
-------------
Calendar Quarter Minimum Royalty
- ---------------- Bearing Units
-------------
Q1 1996 --
Q2 1996 --
Q3 1996 Beta
Q4 1996 FCS
Q1 1997 0
Q2 1997 1
Q3 1997 6
Q4 1997 15
Q1 1998 28
Q2 1998 40
Q3 1998 54
Q4 1998 71
Q1 1999 79
Q2 1999 83
Q3 1999 91
Q4 1999 96
Q1 2000 100
Q2 2000 110
Q3 2000 122
Q4 2000 136
Q1 2001 157
Q2 2001 165
Q3 2001 174
Q4 2001 182
Q1 2002 191
Q2 2002 and beyond 200/quarter
EXHIBIT 10.3.1
FIRST AMENDMENT TO
------------------
RESTATED TECHNOLOGY LICENSE AGREEMENT
-------------------------------------
This amendment is entered into as of October 28, 1996. It amends the
Restated Technology License Agreement (the "Agreement") which was entered into
as of September 27, 1995 by and between Radius Inc. with its principal place of
business at 215 Moffett Park Drive, Sunnyvale, California 94089 ("Radius"), and
Augment Systems Inc., a Delaware corporation, with its principal place of
business at 2 Robbins Road, Westford, MA 01886 ("Augment").
RECITALS
--------
A. Radius and Augment desire to amend the Agreement due to Augment's
inability to deliver at least one unit for Beta testing on or before September
30, 1996.
B. Radius, as a shareholder of Augment, wishes to amend the Agreement to
benefit Radius and the other Augment shareholders.
NOW, THEREFORE, in consideration of mutual promises contained herein, the
parties agree as follows:
Section 11.2(iv) of the Agreement is deleted and replaced with the following new
Section 11.2(iv):
"Radius may terminate this Agreement at any time following December 31, 1996
after giving thirty days' prior written notice, if Augment has not delivered at
least one unit of product for beta testing."
The Agreement is in all other respects ratified and affirmed.
This Amendment may be executed in counterparts, each of which shall be
deemed an original, but which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
under seal by their duly authorized representatives.
RADIUS INC. AUGMENT SYSTEMS INC.
By: CW Berger By: Lorrin Gale
--------------------- -----------------------
Name: /s/ CW Berger Name: /s/ Lorrin Gale
------------------- ---------------------
Title: Chairman & CEO Title: President
------------------ --------------------
EXHIBIT 10.4
SOFTWARE DEVELOPMENT
AND LICENSE AGREEMENT
AUGMENT SYSTEMS INCORPORATED
POLYBUS SYSTEMS CORPORATION
AS OF AUGUST 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
INTRODUCTION PAGE
- ------------ ----
<S> <C>
1. SOFTWARE DEVELOPMENT..................................................................... 1
2. DELIVERY, TESTING AND ACCEPTANCE......................................................... 1
(a) Delivery...................................................................... 1
(b) Testing....................................................................... 2
(c) Acceptance.................................................................... 2
3. MODIFICATIONS............................................................................ 2
4. PROJECT MANAGEMENT....................................................................... 2
(a) Progress Reviews.............................................................. 2
(b) Status Reports................................................................ 2
(c) Project Staffing.............................................................. 3
5. WARRANTY; MAINTENANCE AND SUPPORT; TRAINING; ENHANCEMENTS................................ 3
(a) Warranty...................................................................... 3
(b) Maintenance and Support....................................................... 3
(c) Support and Training.......................................................... 4
(d) Enhancements and Modifications................................................ 4
6. OWNERSHIP OF SOFTWARE.................................................................... 4
7. GRANT OF LICENSE AND PAYMENTS OF ROYALTIES............................................... 5
(a) The License................................................................... 5
(b) The Binary License............................................................ 5
(c) The Source License............................................................ 6
(d) Prepaid Royalties............................................................. 6
8. REPRESENTATIONS AND WARRANTIES........................................................... 6
(a) No Conflict................................................................... 6
(b) Ownership..................................................................... 6
(c) Functional Specifications..................................................... 7
(d) Conformity, Performance and Compliance........................................ 7
(e) No Restrictions on Software. ................................................. 7
9. INDEMNIFICATION.......................................................................... 7
10. LIMITATIONS............................................................................. 8
11. CONFIDENTIALITY......................................................................... 8
12. NONCOMPETITION.......................................................................... 9
13. TERM.................................................................................... 10
14. TERMINATION............................................................................. 10
15. MISCELLANEOUS PROVISIONS................................................................ 11
(a) Waiver........................................................................ 11
(b) Governing Law................................................................. 11
(c) Force majeure................................................................. 11
(d) Severability.................................................................. 11
-i-
INTRODUCTION PAGE
- ------------ ----
(e) No Assignment................................................................. 11
(f) Required Approvals............................................................ 11
(g) Amendments in Writing......................................................... 11
(h) Counterparts.................................................................. 12
(i) Notice........................................................................ 12
(j) Headings...................................................................... 12
(k) Schedules and Exhibits........................................................ 12
(l) Authority..................................................................... 12
(m) Entire Agreement.............................................................. 12
(n) Legal and Equitable Remedies.................................................. 12
</TABLE>
SCHEDULE A - PROJECT DESCRIPTION
SCHEDULE B - TIMETABLE AND PREPAID ROYALTY PAYMENTS
SCHEDULE C - COMPLETION CRITERIA
SCHEDULE D - ROYALTY SCHEDULE
SCHEDULE E - SOFTWARE COMPONENT OWNERSHIP
SCHEDULE F - SOFTWARE MAINTENANCE AND SUPPORT FEES
SCHEDULE G - EXAMPLES OF THE PRINTING AND PUBLISHING INDUSTRY APPLICATIONS
EXHIBIT A - FIREBIRD FILE MANAGER SOFTWARE SPECIFICATION AND PROJECT PLAN
-ii-
SOFTWARE DEVELOPMENT
AND LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of August 1, 1996 between
Augment Systems, Incorporated ("AUGMENT"), a Delaware corporation having its
principal place of business in Westford, Massachusetts and Polybus Systems
Corporation ("POLYBUS"), a Delaware corporation having its principal place of
business in Hudson, New Hampshire.
INTRODUCTION
AUGMENT is in the business of designing, developing, manufacturing and
selling super servers for the printing and publishing market. POLYBUS
specializes in software development and has the ability and expertise to develop
file management software. Both parties desire to establish a relationship for
the purpose of developing the software necessary for AUGMENT's hardware products
utilizing complementary skills and strengths which each party may provide.
The purpose of this Agreement, therefore, is to set forth the terms and
conditions upon which POLYBUS agrees with AUGMENT to develop, integrate and
deliver the Software (as defined in Schedule A hereto) for a File Management
Software System which will be fully integrated into the hardware products of
AUGMENT for sale as a combined hardware/software product (the "System").
In consideration of the mutual covenants set forth in this Agreement,
and other good and valuable consideration, the parties agree as follows:
1. SOFTWARE DEVELOPMENT.
a) POLYBUS agrees to undertake and complete the development, integration, and
delivery of the Software which meets the functional specifications and
requirements included on Schedule A attached hereto (the "Functional
Specifications") in accordance with the timetable set forth in Schedule B
hereto. POLYBUS acknowledges and agrees that time is of the essence in
performing its obligations under this Agreement.
b) The Software delivered by POLYBUS shall be useable on and compatible with
AUGMENT's hardware products, shall be delivered in binary and source form,
shall include all data files, make files, and other information required to
build the executable software from the source, and shall include
enhancements, improvements, modifications and additions thereto, as agreed
to in Section 5 herein.
2. DELIVERY, TESTING AND ACCEPTANCE.
a) Delivery. POLYBUS shall deliver the Alpha, Beta and final versions of the
Software to AUGMENT according to the timetable in Schedule B attached
hereto. POLYBUS shall memorialize each delivery in a written confirmation
that sets forth the nature and condition of the Software, the medium of
delivery, and the date of delivery. Receipt of the Software shall
-License Agreement - Page 1-
occur when AUGMENT countersigns each confirmation which countersigning will
not be unreasonably withheld or delayed.
b) Testing. AUGMENT shall have ten (10) business days from the date of delivery
of the applicable version of the Software to inspect, evaluate and test the
Software to determine whether it conforms to the Functional Specifications
and meets the Completion Criteria set forth in Schedule C.
c) Acceptance. Upon completion of evaluation and testing of each of the Alpha,
Beta and final versions of the Software, AUGMENT shall issue a notice of
acceptance or rejection of that version of the Software. In the event of
rejection, AUGMENT shall give its reasons for rejection in reasonable
detail. POLYBUS shall use all reasonable effort to correct any material
deficiencies or nonconformities and resubmit the rejected items within ten
(10) business days. Upon acceptance, AUGMENT shall deliver to POLYBUS a
signed, written Acceptance Certification indicating that the applicable
Completion Criteria are met. The applicable version of the Software shall be
considered accepted and the milestones defined in Schedule B shall be
considered met only after AUGMENT has provided POLYBUS with a signed
Acceptance Certification, or in the case of the final version of the
Software, upon the earlier of (i) the delivery of the final Acceptance
Certification to POLYBUS or (ii) the initial commercial shipment of the
final product which incorporates the final version of the Software (in
either event, acceptance of the final version shall hereinafter be the
"Acceptance Date").
3. MODIFICATIONS.
Neither party shall have the right to modify the Functional Specifications as
defined in Schedule A without the prior written authorization of the other party
and AUGMENT's Vice President of Engineering. POLYBUS agrees to notify AUGMENT
promptly of any factor, occurrence or event coming to its attention that may
affect POLYBUS' ability to meet its obligations under this Agreement, including,
but not limited to, any loss or reassignment of Key Employees, major equipment
failure or any other event or set of circumstances which may result in a change
of schedule.
4. PROJECT MANAGEMENT.
a) Progress Reviews. POLYBUS shall work closely with the AUGMENT engineering
staff throughout the development of the Software and shall allow AUGMENT
personnel reasonable access to POLYBUS' documentation and personnel for
design review, "walkthroughs," and discussions concerning the status and
conduct of work being performed.
b) Status Reports. Upon the request of AUGMENT, Herb Jacobs of POLYBUS will
provide AUGMENT with a weekly verbal status report either in person or by
telephone (the "Weekly Status Report"), consisting of a brief discussion of
each of the following four areas:
(1) Priorities: the current short term priorities.
-License Agreement - Page 2-
(2) Progress: the tasks accomplished in the past week.
(3) Plans: the tasks to be worked on in the next week.
(4) Problems: the problems, if any, that need AUGMENT's attention and the
problems that may delay the achievement of a milestone set forth in
Schedule B. POLYBUS shall provide a detailed explanation of any
anticipated delays and a revised target completion date, if necessary.
In addition, at the request of the AUGMENT Vice President of Engineering or
the AUGMENT Senior Engineering Manager, POLYBUS personnel will attend review
meetings as scheduled by AUGMENT, until final acceptance of the project.
These meetings are to be held at AUGMENT's Westford facility and at mutually
agreeable times.
c) Project Staffing.
(i) POLYBUS agrees to assign and commit Herb Jacobs and Stanley Rabinowitz
as the two engineers to develop and complete the Software. Both of these
individuals shall be deemed "Key Employees". As long as POLYBUS performs its
obligations pursuant to this Agreement, POLYBUS reserves the right to change
its key employees due to unforeseen circumstances.
(ii) AUGMENT agrees to provide the equivalent of at least one full-time
engineer to participate in the development of the Software.
(iii) The parties shall obtain and maintain in effect written agreements
with their employees who participate in the development of the Software.
Such agreements shall contain terms sufficient for each party to comply with
the provisions of this Agreement and to support all grants and assignments
of rights and ownership hereunder, and shall impose an obligation of
confidentiality on such employees with respect to the Software and the other
party's Proprietary Information (as defined herein).
5. WARRANTY; MAINTENANCE AND SUPPORT; TRAINING; ENHANCEMENTS.
a) Warranty. POLYBUS represents and warrants for a period of ninety (90) days
from the Acceptance Date (the "Warranty Period") that the Software is free
of material defects in material and workmanship. POLYBUS further warrants
that during the Warranty Period the Software shall operate substantially in
accordance with the Functional Specifications. If during the Warranty
Period, a defect in the Software appears, POLYBUS will provide maintenance
and support to remedy the defect. If, during the Warranty Period, AUGMENT
requests that POLYBUS assist AUGMENT with a defect that is later determined
to be attributable to hardware or software solely developed by AUGMENT,
AUGMENT will pay POLYBUS for such work at POLYBUS's standard hourly rate.
b) Maintenance and Support. AUGMENT may purchase continued maintenance and
support for the Software from POLYBUS for one year periods following the end
of the Warranty Period
-License Agreement - Page 3-
for the purpose of prompt correction to remedy any and all design, interface
or implementation errors or problems with the Software reported in writing
by AUGMENT to POLYBUS. The term "errors" shall mean any deviations from the
Functional Specifications and any deviations from commonly accepted
standards for normal and current operation of computer software, even if not
explicitly mentioned in such Functional Specifications. This service does
not include requests for new features, support for new hardware, support for
new operating systems, version changes in the operating system, or any other
change to the software which is not a bug fix. The cost of the maintenance
and support service for the first year after the end of the Warranty Period
shall be as set forth in Schedule F hereto, such fee is not to exceed the
lowest fee paid by other POLYBUS customers for like service. The cost for
the service in future years is to be a fairly negotiated price based on the
actual costs of the maintenance in the preceding year, which may be either
higher or lower than the prior year's maintenance costs.
c) Support and Training. During the development phase, during the Warranty
Period and while the Software is under a maintenance and support agreement,
POLYBUS agrees to furnish promptly to AUGMENT full written responses to
AUGMENT's questions regarding the design, operation and content of the
Software. This support shall not be for training new AUGMENT employees.
Additionally, POLYBUS agrees to provide up to five (5) business days of
training for AUGMENT personnel and marketing assistance. Such training shall
be provided without charge and shall be scheduled to occur within ninety
(90) days after the Acceptance Date. Thereafter any further training shall
be subject to POLYBUS' standard charges.
d) Enhancements and Modifications. For a period of one year following the
Acceptance Date, POLYBUS will provide any bug fixes it may make to the
licensed Software to AUGMENT at no additional charge, unless such bug fixes
are specifically made in response to requests by AUGMENT and AUGMENT agrees
to additional fees in writing. All enhancements and modifications made by
POLYBUS will be owned by POLYBUS. AUGMENT may modify or enhance the Software
at any time. All enhancements and modifications to the Software made by
AUGMENT after the Acceptance Date will be owned by AUGMENT.
6. OWNERSHIP OF SOFTWARE.
a) The Software shall be owned by POLYBUS, and, all modifications and software
enhancements developed by POLYBUS after the Acceptance Date, including bug
fixes, shall be owned by POLYBUS.
b) All software independently developed by AUGMENT that is not included in the
definition of Software as set forth in Schedule A hereto shall be owned by
AUGMENT. In addition, AUGMENT shall own all enhancements to the Software
developed by AUGMENT subsequent to the Acceptance Date with the exception of
bug fixes made by AUGMENT to the Software within one year of the Acceptance
Date, which shall be owned by POLYBUS.
-License Agreement - Page 4-
c) Schedule E hereto sets forth additional information regarding the ownership
of the component parts of the Software and the ownership of Derivative
Works.
7. GRANT OF LICENSE AND PAYMENT OF ROYALTIES.
a) The License. The Binary License and the Source License as defined and set
forth below in this Section 7 (together, the "License") apply to the
Software, and all other software developed or integrated with the AUGMENT
hardware product, and all other software required to build the project,
including all additions, improvements and enhancements thereto and
modifications thereof made by or for POLYBUS during the term of this
Agreement and within one year after the Acceptance Date, and all proprietary
rights based thereon or resulting therefrom.
b) The Binary License. Subject to the royalty payments provided for in Schedule
D hereto (the "Royalties"), POLYBUS hereby grants to AUGMENT, and AUGMENT
hereby accepts, the following (the "Binary License"):
(1) a perpetual, irrevocable, royalty-free, nonexclusive right and license
to use the Software (and the Documentation) and all additions,
improvements and enhancements thereto and modifications thereof in
binary code form for internal use by AUGMENT for testing, development
and demonstration purposes.
(2) a perpetual, irrevocable, royalty-free, nonexclusive right and license
for up to ten (10) units of the Software (and the Documentation) and
all additions, improvements and enhancements thereto and modifications
thereof in binary code form for internal production use by AUGMENT.
(3) a perpetual, worldwide, irrevocable, nonexclusive right and license to
manufacture and distribute the Software in binary code form in
conjunction with the AUGMENT hardware products, with the right and
license to grant sub-licenses to third parties pursuant to shrink wrap
license agreements in connection therewith without account to POLYBUS
on a royalty basis in accordance with Schedule D hereto. Within 45 days
of the end of each calendar quarter, AUGMENT agrees to provide POLYBUS
with a report indicating Royalties due along with full payment of
Royalties for all Units shipped by AUGMENT during the calendar quarter.
(4) a perpetual, worldwide, irrevocable right and license to grant
sub-licenses to AUGMENT's OEM and VAR customers to manufacture and
distribute the Software in Binary Code form in conjunction with the
AUGMENT hardware products, with a right and license to grant
sub-licenses to third parties in connection therewith without account
to POLYBUS on a royalty basis in accordance with Schedule D hereto.
AUGMENT agrees to require all such OEM and VAR customers to sign a
license agreement with a requirement that they provide royalty reports
and payments to AUGMENT within 30 days of the end of each calendar
quarter. Within 45 days of the end of each calendar quarter,
-License Agreement - Page 5-
AUGMENT agrees to provide to POLYBUS a report indicating Royalties due
and full payment of Royalties for all Units shipped during the calendar
quarter.
c) The Source License. POLYBUS hereby grants to AUGMENT, and AUGMENT hereby
accepts, the following (the "Source License"):
(1) a perpetual, irrevocable, nonexclusive fully-paid right and license to
the full source code version of the Software and all additions,
improvements and enhancements thereto and modifications thereof for a
one time charge of $20,000.00 to be paid within thirty (30) days of
delivery and acceptance of the Software and Source Code.
(2) a perpetual, irrevocable, nonexclusive right and license to
manufacture, distribute and sub-license to AUGMENT's OEM and VAR
customers source code copies of the Software for the OEM and VAR
customers' internal use only and only for use in conjunction with the
AUGMENT hardware products purchased from AUGMENT. For each such
sublicense granted, AUGMENT shall pay POLYBUS a fee in the amount equal
to the greater of (i) twenty percent (20%) of any license fee collected
by AUGMENT from an OEM or VAR customer or (ii) $10,000.00.
d) Prepaid Royalties. AUGMENT shall pay to POLYBUS the amounts set forth in
Schedule B hereto. Such payments are not due until the satisfactory
completion and acceptance of the milestones indicated, and shall be prepaid
royalties to be credited against Royalties due to POLYBUS as set forth in
Schedule D at a rate of 50% of Royalties due and payable until exhausted. If
AUGMENT is more than fifteen (15) days late in supplying POLYBUS with the
required AUGMENT-developed hardware and software, then both parties will
meet to negotiate and modify the milestone dates or milestone definitions to
allow timely payment to POLYBUS.
e) Late payments of royalties or any other payment to POLYBUS accrue interest at
the then current prime rate of interest.
8. REPRESENTATIONS AND WARRANTIES.
POLYBUS makes the following representations and warranties for the benefit of
AUGMENT, as a present and ongoing affirmation of facts in existence at all times
when this Agreement is in effect:
a) No Conflict. POLYBUS represents and warrants that it has full right and
authority to enter into this Agreement and that it is under no obligation or
restriction, nor will it assume any such obligation or restriction that does
or would in any way interfere or conflict with, or that does or would
present a conflict of interest concerning, the work to be performed by
POLYBUS under this Agreement.
-License Agreement - Page 6-
b) Ownership. POLYBUS represents and warrants (i) that it owns (and to the
extent developed during the term of this Agreement, that it will own) all
right, title and interest in and to, including but not limited to all
intellectual property rights, the Software and all other property needed to
perform its obligations under this Agreement (including pre-existing works),
and (ii) that the Software does not and will not infringe any patents,
copyrights, trademark, or other intellectual property rights (including
trade secrets), privacy or similar rights of any third party, nor has any
claim (whether or not embodied in an action, past or present) of such
infringement been threatened or asserted, nor is such a claim pending,
against POLYBUS or, insofar as POLYBUS is aware, any entity from which
POLYBUS has obtained such rights.
c) Functional Specifications. POLYBUS represents and warrants, that within ten
(10) business days of delivery of the final version of the Software, POLYBUS
will demonstrate that the Software meets the Functional Specifications and
other written representations by POLYBUS to AUGMENT, and that errors that
prevent useful operation in the Software will be corrected by POLYBUS using
every reasonable effort within ten (10) business days after notice by
AUGMENT, and all other errors will be corrected within ninety (90) days.
d) Conformity, Performance and Compliance. POLYBUS represents and warrants (i)
that all Software shall be prepared in a workmanlike manner and with
professional diligence; (ii) that all Software will function on the machines
and with operating systems for which they are specified; (iii) that all
Software will conform to the Functional Specifications and functions set
forth in the Functional Specifications; and (iv) that POLYBUS will perform
all work called for herein in compliance with applicable law.
e) No Restrictions on Software. POLYBUS warrants that there is no program code,
other than that stated in the Functional Specifications that will restrict
AUGMENT's use of its License to the Software.
9. INDEMNIFICATION.
a) POLYBUS shall indemnify AUGMENT and hold AUGMENT harmless from and against
any and all demands, claims, damages, losses, and expenses (including court
costs and reasonable fees of attorneys, accountants, and expert witnesses)
arising out of or resulting from any negligent act or omission or willful
conduct of POLYBUS or POLYBUS employees or agents in connection with this
Agreement.
b) POLYBUS shall also indemnify AUGMENT and hold it harmless from and against
all demands, claims, damages, losses, and expenses (including reasonable
costs, fees of attorneys, accountants, and expert witnesses) arising out of
or resulting from any action by a third party against AUGMENT that is based
on any claim that the Software provided by POLYBUS hereunder infringes upon
any patent, copyright, trademark or other proprietary rights of any person
or entity.
c) AUGMENT shall indemnify POLYBUS and hold POLYBUS harmless from and against
any and all demands, claims, damages, losses, and expenses (including court
costs and reasonable
-License Agreement - Page 7-
fees of attorneys, accountants, and expert witnesses) arising out of or
resulting from any negligent act or omission or willful conduct of AUGMENT
or AUGMENT employees or agents in connection with this Agreement.
10. LIMITATIONS.
Neither party shall be entitled to indirect, incidental, or consequential
damages, including lost profits based on any breach or default under this
Agreement.
11. CONFIDENTIALITY.
a) Each party acknowledges that the Proprietary Information (as defined herein)
is a highly confidential and valuable asset of its owner which has been and
will continue to be developed by the owner, and which represents and will
continue to represent a material investment of the owner's time and money.
Further, each party acknowledges that such Proprietary Information either
has been or will be made available to the other party on a confidential
basis and that the recipient has or will accept such Proprietary Information
on such basis, thereby establishing a confidential relationship and a
position of trust with regard to same. During the development and
integration of the Software, and after the development and integration are
ended, and for a period of five (5) years after the term of this Agreement,
the recipient agrees not to:
(1) publish, communicate, disclose or divulge to any person, firm,
corporation or other legal entity directly or indirectly, any of the
Proprietary Information, except as otherwise permitted herein;
(2) use the Proprietary Information for its own benefit, directly or
indirectly except as required in the course of the project, or use the
Proprietary Information, directly or indirectly, for the benefit of any
person, firm, corporation or other legal entity, directly or indirectly;
(3) use any of the Proprietary Information or take any other action to
divert, or attempt to divert, any business of or any customers of the
other party to itself or any other competitive person or legal entity,
by direct or indirect inducement or otherwise; or to induce or attempt
to induce any present or past customer of the other party to discontinue
using the services of the other party; and
(4) employ or seek to employ any person who is employed by the other party
or to otherwise directly or indirectly induce such persons to leave
employment of the other party.
b) The recipient shall disclose Proprietary Information only to those agents,
employees or representatives within its own organization or professional
advisors who have a need to receive said information in connection with the
project so long as all such persons agree to abide and be bound by the terms
of this Agreement.
-License Agreement - Page 8-
c) The parties agree that all Source Code shall be treated as confidential
Proprietary Information subject to the license provisions of this Agreement.
d) "Proprietary Information" shall mean all confidential, technical, business
and economic information or data owned or developed by either party,
including, but not limited to, that party's products, processes, and
services, including research, development, compilations of information,
records and Functional Specifications, management information systems,
techniques, formulae, computer programs, product applications, documentation
of such produce applications and methods, manuals, financial data, data
processing, marketing plans, selling procedures, prospect lists, customer
base list, sponsors list, sales strategies, policies, scripts, literature,
and audiovisual materials, software and documentation and Functional
Specifications thereof, and other information of any nature and in any form.
Proprietary Information as defined herein shall not include the following:
(1) Information which either party legally had in its
possession prior to the other party's disclosure of such
information to it;
(2) Information which is furnished to either party by a third
party as a matter of right without restriction on
disclosure and which was not received directly or
indirectly from the other party;
(3) Any other information once it becomes part of the public
domain by publication or otherwise through no act of the
recipient;
(4) Information approved in writing for release or disclosure
by the nondisclosing party; or
(5) Information disclosed by reason of order of a court of
competent jurisdiction.
12. NONCOMPETITION.
a) POLYBUS shall not to enter into direct competition with AUGMENT during the
term of this Agreement in the publishing market, and it shall not license,
sell or transfer the Software to any party for a purpose that competes with
AUGMENT in the publishing market without the express written consent of
AUGMENT. For the purpose of this Agreement, the publishing market shall
include, but not be limited to, the areas listed in Schedule G hereto and
shall specifically exclude video and entertainment markets and software
publishing (the electronic "publishing" of software packages).
b) AUGMENT agrees to sublicense the Software only in conjunction with AUGMENT
hardware products marketed and sold by AUGMENT.
13. TERM.
-License Agreement - Page 9-
a) This Agreement shall be effective upon execution by both parties and shall
continue until terminated in accordance with the provisions of this
Agreement. The term of any rights or licenses under proprietary rights
granted hereunder shall be for the full term of such proprietary rights.
b) Unless sooner terminated as hereinafter provided, this Agreement shall
continue in force for an initial term of twenty-five (25) years from the
date hereof. Thereafter said term shall automatically extend for an
indefinite period unless and until terminated as hereinafter provided.
14. TERMINATION.
a) This Agreement may be terminated only:
(1) By AUGMENT upon POLYBUS's failure to satisfy any of its
material obligations hereunder (a "default") including, but not
limited to, failure to satisfy any of the specific milestones as
specified in Schedule B, which failure is not caused by some act,
delay or omission to act, on the part of AUGMENT. Upon a default
by POLYBUS, AUGMENT shall provide written notice to POLYBUS of
such default, and POLYBUS shall have sixty (60) days to cure such
default. If POLYBUS fails to cure such default within said sixty
(60) day period, AUGMENT may immediately terminate this Agreement.
In the event of termination by AUGMENT as provided for herein,
POLYBUS will deliver all Software developed under this Agreement
in source code form, in the then current state to AUGMENT and
AUGMENT shall be deemed to have a fully paid-up, irrevocable,
nonexclusive, worldwide license to said Software with no further
payments due to POLYBUS. Nothing herein contained shall prohibit
POLYBUS in any way from exercising its other rights retained in
this Agreement with respect to the Software, as long as such
rights are exercised in compliance with the provisions of this
Agreement.
(2) By AUGMENT prior to final acceptance, upon POLYBUS's filing of
or consenting to the filing against it a Petition in Bankruptcy or
a petition to take advantage of any insolvency act, or making an
assignment for the benefit of creditors, which Petition is not
dismissed within ninety (90) days. In such event, the amounts paid
to date by AUGMENT shall be considered a fully paid-up license fee
for the Software developed to date and POLYBUS shall provide the
Software including the source code to AUGMENT as a fully paid up,
nonexclusive, irrevocable, worldwide license with no further
payments due to POLYBUS. Nothing herein contained shall prohibit
POLYBUS in any way from exercising its other rights retained in
this Agreement with respect to the Software, as long as such
rights are exercised in compliance with the provisions of this
Agreement.
-License Agreement - Page 10-
(3) By POLYBUS upon AUGMENT's failure to make payment or satisfy
any of its obligations hereunder (a "default") in any material
respect and such default shall not have been cured within sixty
(60) days following delivery of notice of such default. In the
event of termination by POLYBUS as provided for herein, AUGMENT
will certify that all copies of the Software delivered to date
under this Agreement have been destroyed. All rights to the
Software shall remain with POLYBUS.
b) Survival. Upon any termination of this Agreement, all rights and obligations
of the parties under this Agreement shall cease except that the provisions
of Sections 6, 9, 10, 11 and 12 shall survive and not be affected by such
termination. Notwithstanding the foregoing, in the event of termination of
this Agreement pursuant to section 14(a)(3) hereto, the provisions of
Section 6, 9, 10 and 11 only shall survive and not be affected by such
termination.
15. MISCELLANEOUS PROVISIONS.
a) Waiver. No provision of this Agreement may be waived except in writing by
both parties hereto. No failure or delay by either party hereto in
exercising any right or remedy hereunder or under applicable law will
operate as a waiver thereof, or a waiver of a particular right or waiver of
any right or remedy on any subsequent occasion.
b) Governing Law. This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Massachusetts. Both parties
hereto agree to submit to personal jurisdiction in the Commonwealth of
Massachusetts and to accept and agree to venue in that state.
c) Force majeure. Either party shall be excused from delays in performing or
from its failure to perform hereunder to the extent that such delays or
failures result from causes beyond the reasonable control of such party;
provided that, in order to be excused from delay or failure to perform, such
party must act diligently to remedy the cause of such delay or failure.
d) Severability. In the event that any provision of this Agreement, or any part
hereof, is found invalid or unenforceable, the remainder of this Agreement
will be binding on the parties hereto, and will be construed as if the
invalid or unenforceable provision or part thereof had been deleted, and the
Agreement shall be deemed modified to the extent necessary to render the
surviving provisions enforceable to the fullest extent permitted by law.
e) No Assignment. Except as otherwise specifically set forth in this Agreement,
neither party may, without the prior written consent of the other party,
assign or transfer this Agreement or any obligation incurred hereunder,
except by merger, reorganization, consolidation, or sale of all or
substantially all of such party's assets. Any attempt to do so in
contravention of this provision shall be void and of no force and effect.
Any permitted assignee shall assume all obligations of its assignor under
this Agreement. No assignment shall relieve either party of responsibility
for the performance of any accrued obligation which such party then has
hereunder.
-License Agreement - Page 11-
The above notwithstanding, POLYBUS retains the right to assign this
Agreement to a new Corporation, Limited Liability Company, or Limited
Liability Partnership, providing that Herb Jacobs is a principal of said
Corporation, Company or Partnership.
f) Required Approvals. Where agreement, approval, acceptance, or consent by
either party is required by any provision of this Agreement, such action
shall not be unreasonably delayed or withheld.
g) Amendments in writing. No amendment, modification, or waiver of any
provision of this Agreement shall be effective unless it is set forth in a
writing that refers to the provisions so affected and is executed by an
authorized representative of the party accepting any such waiver, or, in the
case of an amendment or modification, by authorized representatives of both
parties.
h) Counterparts. This Agreement may be executed in duplicate counterparts, each
of which shall be deemed to be an original and both of which shall
constitute one and the same Agreement.
i) Notice. All communications between the parties with respect to any of the
provisions of this Agreement will
be sent to the addresses set forth below or to other addresses as notified
by the parties for the purpose of this clause, by prepaid certified mail.
If to AUGMENT, at:
Augment Systems Incorporated
Two Robbins Road
Westford, Massachusetts 01886
Attn: Lorrin Gale
If to POLYBUS, at:
Polybus Systems Corporation
17 Sunrise Drive
Hudson, New Hampshire 03051
Attn: Herb Jacobs
j) Headings. The paragraph headings are for convenience only and will not be
deemed to affect in any way the language of the provisions to which they
refer.
k) Schedules and Exhibits. The Schedules and Exhibits referred to herein and
attached hereto, are incorporated herein to the same extent as if set forth
in full herein.
l) Authority. The undersigned represent that they are authorized to sign this
Agreement on behalf of the parties hereto. The parties each represent that
no provision of this Agreement will
-License Agreement - Page 12-
violate any other agreement that a party may have with any other person or
company. Each party has relied on that representation in entering into this
Agreement.
m) Entire Agreement. This Agreement, including the Schedules (and Exhibits)
appended hereto, contains the entire understanding of the parties relating
to the matters referred to herein, and may only be amended by a written
document, duly executed on behalf of the respective parties.
n) Legal and Equitable Remedies. Because the development of the Software by
POLYBUS is personal and unique and because POLYBUS may have access to and
become acquainted with the confidential Proprietary Information of AUGMENT,
AUGMENT shall have the right to enforce this Agreement and any of its
provisions by injunction, specific performance, or other equitable relief
without prejudice to any other rights and remedies that AUGMENT may have for
breach of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
AUGMENT SYSTEMS INCORPORATED
By: /s/ Lorrin Gale
-------------------------------------
Lorrin Gale, President and CEO
POLYBUS SYSTEMS CORPORATION
By: /s/Herb Jacobs
-------------------------------------
Herb Jacobs, President
-License Agreement - Page 13-
SCHEDULE A
PROJECT DESCRIPTION
SOFTWARE:
POLYBUS shall develop and provide a high speed file system consisting of the
following components (the "Software"):
Server File System Software - To run on the server and provide file
management services. This includes software to mount and dismount disk
system extents and to startup and shutdown a server. The server shall
consist of a RAID disk subsystem, block I/O processor, one or more file I/O
processors each connected to a FibreChannel Arbitrated Loop, and Macintosh
console system. The server shall not include user interface access to this
Software;
Client Software - To run on the user's Macintosh desktop and redirect file
access and I/O for server based files;
Client Chooser - To run on the client Macintosh system and provide chooser
functionality in conjunction with the server;
Server Utility Software - To initialize, verify, and rebuild file
structures on the disks, but does not include user interface access to this
Software;
All POLYBUS-Developed Test Scripts and Tools - To test the functionality of
the code delivered;
Performance Measurement Tools - To measure the performance of the software
delivered.
DOCUMENTATION:
For purposes of this Agreement, Software shall also include the following:
Firebird File Management Software Specification and Project Plan
Final Design Document
All software will be delivered in source and binary form and include all data
files, make files, and other information required to build the executable
software from the source. All final documentation will be delivered in both
printed and electronic form in a format to be agreed upon.
CAPABILITIES:
The Software shall have the following capabilities:
- License Agreement - Schedule A -
1. Compatibility - Provide server file access to desktop applications in a
manner transparent to the applications so that all commercial desktop
applications will perform properly with the AUGMENT's hardware
products. Compatibility with the Apple Macintosh environment is the
initial requirement. It is intended that this software will be used
with other clients utilizing future Macintosh Operating Systems such as
Copland, and Microsoft Operating Systems such as Windows and Windows
NT, and various versions of UNIX. Two objectives of this development
are to design the server (a) such that additional client targets may be
supported by using the existing client software as a framework for
constructing new clients appropriate to the target platform, and (b) so
that when additional server functionality is needed by new clients, it
can be easily added without significant work, and without redoing any
existing server functionality;
2. Performance - Provide end to end throughput of at least 75% of the
underlying hardware and software for large files to/from a single
client. When multiple clients access the server simultaneously the
total system throughput will be shared between the clients with no
client being blocked for excessive periods;
3. Multi-Access - Ability to handle multiple clients accessing the same or
different files simultaneously;
4. Multi-Extents - Ability to handle multiple disk system extents on a
single processor, where each extent is a contiguous area of the disk
storage and may contain multiple partitions. Each extent will be
managed by one and only one processor at a time, but the management of
an extent may be moved from one processor to another through an
administrator function which may require a reboot of the file
management system. The maximum number of extents to be handled by any
processor is a compile time option;
5. Large File Stores - Ability to handle file stores of up to 1 terabyte
and files of up to 100 gigabytes. (It is agreed and understood that the
current MAC OS software can not handle files greater than 2 gigabytes
in size);
6. Robust Operation - Provide reliable file service under normal operating
conditions without any loss of data. Provide for fast recovery in the
event of a system or power failure.
ENVIRONMENT:
The Software must operate on AUGMENT's super server 68040 processor cards
running the VRTX operating system (to be supplied by AUGMENT). It is intended
that the code will be ported to other environments and processors in the future,
and within reasonable design parameters, will be designed and implemented to
minimize the effort required to accomplish this objective.
- License Agreement - Schedule A -
ADDITIONAL FUNCTIONAL SPECIFICATIONS:
Incorporate EXHIBIT A information if necessary.
- License Agreement - Schedule A -
SCHEDULE B
TIMETABLE AND PREPAID ROYALTY PAYMENTS*
<TABLE>
<CAPTION>
MILESTONE # MILESTONE AMOUNT TARGET MILESTONE PAYMENT DATE
- ----------- --------- ------ ---------------- ------------
DATE
----
<S> <C> <C> <C> <C>
1 Signing of Letter of Intent $20,000 2/9/96 Paid
2 Delivery of Project Plan $10,000 3/24/96 Paid
and Specification
3 Signing of Contract $20,000 8/1/96 Paid
4 Alpha Delivery to Augment for $10,000 6/2/96 8/1/96
Quality Assurance Testing
5 Alpha Two Delivery to Augment $10,000 8/5/96 + 14 days
Quality Assurance Testing
6 Alpha Two plus Mac based Fibre $10,000 8/19/96 + 14 days
Channel and pre-show test system
7 Show System $10,000 9/2/96 + 14 days
8 Final Delivery $10,000` 9/30/96 + 14 days
</TABLE>
*Prepaid royalty payments are tied to actual milestone completion dates. Prepaid
royalty payments shall be credited against future royalty payments due at the
rate of 50% of royalty payments due until exhausted.
- License Agreement - Schedule B -
SCHEDULE C
COMPLETION CRITERIA
The Completion Criteria for Alpha, Beta, and Final release are as follows:
1. ALPHA RELEASE:
a) PLATFORM:
The platform for the Alpha release will be Apple Power Macintosh systems
for both the server and the clients. The environment will consist of three
Power Mac systems (two clients and one server) connected via a Fibre
Channel Arbitrated Loop and Ethernet. All hardware for the Alpha system
will be provided by AUGMENT and the acceptance will be performed at the
facility of AUGMENT's choice.
FUNCTIONALITY:
The Alpha system will include all functionality that can reasonably be
implemented using a single Macintosh server. At a minimum the system will
be capable of running a selected number of applications on the clients,
accessing memory on the server.
b) PERFORMANCE:
The alpha system is not subject to a specific performance criteria, but
should perform in a manner that is indicative to both POLYBUS and AUGMENT
engineers that the performance objectives for the final product will be
achieved.
c) ROBUSTNESS:
The Alpha system should perform without crashing for sessions of up to 1
hour. It is not required to be bug free, but must be sufficiently so to
demonstrate the functionality of the system.
d) DOCUMENTATION:
The Alpha system will be accompanied with a set of release notes suitable
for use by development engineers at AUGMENT.
2. BETA RELEASE:
a) PLATFORM:
The platform for the Beta release will be Apple Power Macintosh client and
the Augment Super server. The test environment will consist of two Power
Mac systems and one Super server with two processors, connected via a Fibre
Channel Arbitrated Loop and Ethernet. All hardware for the test system will
be provided by AUGMENT and the acceptance will be performed at the facility
of AUGMENT's choice.
- License Agreement - Schedule C -
FUNCTIONALITY:
The Beta system will include all of the functionality specified for the
final delivery. At a minimum the system will be capable of running a
selected number of applications on the clients, accessing files on the
server.
b) PERFORMANCE:
The beta system should meet the performance criteria specified for the
final product. If this can not be achieved, POLYBUS must provide a plan
that shows to AUGMENT's satisfaction how the performance criteria will be
achieved in the final product.
c) ROBUSTNESS:
The beta system will be installed at customer sites and used for
demonstration purposes. It must remain function, under script driven loads,
for a minimum of 8 hours without failure. Minor known bugs that do not
interfere with the operation of the machine, and/or for which there are
defined work-arounds that do not interfere with the normal operation of the
machine, are acceptable.
d) DOCUMENTATION:
The beta system will be accompanied with a set of release notes suitable
for use by AUGMENT and the beta sites.
3. FINAL RELEASE:
a) PLATFORM:
The platform for the Final release will be Apple Power Macintosh clients
and the Augment Super server. The test environment will consist of multiple
Power Mac systems and one Super server with two or more processors,
connected via a Fibre Channel Arbitrated Loop and Ethernet connected to
clients and the console. All hardware for the test system will be provided
by AUGMENT and the acceptance will be performed at AUGMENT's facilities.
FUNCTIONALITY:
The Final system will include all of the functionality specified for the
final delivery. At a minimum the system will be capable of running a random
number of applications on the clients, accessing files on the server. The
server must remain operational and error free running under script driven
load for a period of 24 hours, during which random amounts of interactive
operations are performed.
b) PERFORMANCE:
The beta system should meet the performance criteria specified for the
final product.
c) ROBUSTNESS:
All known "material" problems must be resolved for final acceptance
- License Agreement - Schedule C -
d) DOCUMENTATION:
The final system will be accompanied with a set of release notes suitable
for use by AUGMENT. In addition the final delivery will include a final
design document describing the software as implemented.
- License Agreement - Schedule C -
SCHEDULE D
ROYALTY SCHEDULE
AUGMENT will pay royalties to POLYBUS according to the following schedule:
TOTAL SERVER UNITS SHIPPED TO DATE
<TABLE>
<CAPTION>
FROM TO ROYALTY PER SERVER ROYALTY PER CLIENT TYPE
1-10 Users
<S> <C> <C> <C>
1 100 $800 $400
101 300 $400 $200
301 600 $200 $100
601 1000 $100 $50
1001 100,000 $50 $25
Greater than 100,000 No Royalty No Royalty
</TABLE>
A server is one physical AUGMENT server box that contains one RAID subsystem
consisting of multiple disks and one or more control processors each running a
copy of the Software.
A Client Type is computer and operating system type such as Macintosh, Windows
NT or UNIX. For example, a single AUGMENT server that contained 3 controller
cards and was connected to 15 Macintosh computers and 2 NT systems would require
1 server license + 2 Macintosh client licenses + 1 NT client license.
- License Agreement - Schedule D -
SCHEDULE E
SOFTWARE COMPONENT OWNERSHIP
POLYBUS will own the following software components developed as part of this
project. These components are subject to the royalty provisions of this
Agreement. The components in (1) and (2) are server software. The components (3)
and (4) are part of the client software.
1. The file manager software including the File System Process, the File
Extend Process, the Read/Write Process, the Transaction Journal
Process, and the Ping Process, and all related software components
developed by POLYBUS, as described in Exhibit A.
2. Structure Verify and Rebuild Tools and Library.
3. The Super Server Chooser as developed by POLYBUS.
4. The File System Client Extension as developed by POLYBUS.
5. The File Server Protocols. The protocols are represented in Exhibit N
to the Project Plan and may be entered or changed as necessary through
the product cycle.
POLYBUS will own the following software components developed as part of this
project. These components are for development and QA purposes and provided to
AUGMENT without any royalty charges.
1. Test scripts and test tools developed by POLYBUS as part of this
project.
2. Performance measurement tools developed by POLYBUS as part of this
project.
AUGMENT will own the following software components:
1. The Fibre Channel communications software.
2. All Super server motherboard based software.
3. All Super server diagnostic software.
4. All Super server console software developed by AUGMENT.
5. User interface developed by AUGMENT.
- License Agreement - Schedule E -
Derivative Works shall be owned by the party that develops such Derivative Work.
a) NT Client - AUGMENT intends to implement a Windows NT client to
work with the server. This software will utilize parts of the
Macintosh Client software developed and owned by POLYBUS. It will
therefore be a Derivative Work, owned by AUGMENT, subject to
royalty payments to POLYBUS as client software according to
Schedule D.
b) Apple Share extension - AUGMENT intends to enhance the Software
to support Apple Share access. This software will be an
enhancement to the Software, owned by Augment.
- License Agreement - Schedule E -
SCHEDULE F
SUPPORT AND MAINTENANCE FEES FOR THE FIRST YEAR
Updates, No Support $5,000
Support and Updates $30,000
For each week of support $3,500
or an hourly rate of $100
- License Agreement - Schedule F -
SCHEDULE G
EXAMPLES OF THE PRINTING AND PUBLISHING INDUSTRY APPLICATIONS
Newspapers
Magazines
Periodicals
Book Publishing
Book Printing
Commercial Printing
Business Forms
Greeting Cards
Blankbooks and Looseleaf
Typesetting
Platemaking
In-House (corporate)
Art & Design Services
DTP Service Bureaus
Color Separators
- License Agreement - Schedule G -
EXHIBIT A
FIREBIRD FILE MANAGER SOFTWARE SPECIFICATION AND PROJECT PLAN
- License Agreement - Exhibit A -
EXHIBIT 10.5
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN STANDARD TIME, ON ______________.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
AUGMENT SYSTEMS, INC.
FOR VALUE RECEIVED, AUGMENT SYSTEMS, INC. (the "Company"), a Delaware
corporation, hereby certifies that __________________ or his permitted assigns,
is entitled to purchase from the Company, at any time or from time to time
commencing on the date hereof, and prior to 5:00 P.M., Eastern Standard Time, on
______________, a total of ______________ (______) fully paid and nonassessable
shares of the Common Stock, par value $.01 per share, of the Company for an
aggregate purchase price of $______ (computed on the basis of $.72 per share).
(Hereinafter, (i) said Common Stock, together with any other equity securities
which may be issued by the Company with respect thereto or in substitution
therefor, is referred to as the "Common Stock", (ii) the shares of the Common
Stock purchasable hereunder are referred to as the "Warrant Shares", (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred to
as the "Aggregate Warrant Price", (iv) the price payable hereunder for each of
the Warrant Shares is referred to as the "Per Share Warrant Price", (v) this
Warrant, and all warrants hereafter issued in exchange or substitution for this
Warrant are referred to as the "Warrant" and (vi) the holder of this Warrant is
referred to as the "Holder".) The Per Share Warrant Price is subject to
adjustment as hereinafter provided. In the event of any such adjustment, the
number of Warrant Shares shall be adjusted by dividing the Aggregate Warrant
Price by the Per share Warrant Price in effect immediately after such
adjustment.
1. Exercise of Warrant. This Warrant may be exercised, in whole at any
time or in part from time to time, commencing on the date hereof and prior to
5:00 P.M., Eastern Standard Time, on ________, ____, by the Holder of this
Warrant by the surrender of this Warrant (with the subscription form at the end
hereof duly executed) at
-1-
the address set forth in Subsection 9(a) hereof, together with proper payment of
the Aggregate Warrant Price, or the proportionate part thereof if this Warrant
is exercised in part. Payment for Warrant Shares shall be made by certified or
official bank check payable to the order of the Company. If this Warrant is
exercised in part, this Warrant must be exercised for a minimum of 100 shares of
the Common Stock, and the Holder is entitled to receive a new Warrant covering
the number of Warrant Shares in respect of which this Warrant has not been
exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (a) issue a certificate or certificates in the name of the
Holder for the largest number of whole shares of the Common Stock to which the
Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of
any fractional share of the Common Stock to which the Holder shall be entitled,
cash equal to the fair value of such fractional share (determined in such
reasonable manner as the Board of Directors of the Company shall determine), and
(b) deliver the proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of the Warrant.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on ________, ______.
2. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock as from time to time
shall be receivable upon the exercise of this Warrant.
3. Anti-Dilution Provisions.
(a) If, at any time or from time to time after the date of
this Warrant, the Company shall distribute to the holders of the Common Stock
(i) securities, other than shares of the Common Stock, or (ii) property, other
than cash, without payment therefor, with respect to the Common Stock, then, and
in each such case, the Holder, upon the exercise of this Warrant, shall be
entitled to receive the securities and properties which the Holder would hold on
the date of such exercise if, on the date of this Warrant, the Holder had been
the holder of record of the number of shares of the Common Stock subscribed for
upon such exercise and, during the period from the date of this Warrant to and
including the date of such exercise, had retained such shares and the securities
and properties receivable by the Holder during such period. Notice of each such
distribution shall be forthwith mailed to the Holder.
(b) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Per Share Warrant Price in effect
immediately prior to such action shall be adjusted so that if the Holder
-2-
surrendered this Warrant for exercise immediately thereafter, the Holder would
be entitled to receive the number of shares of Common Stock or other capital
stock of the Company which he would have owned immediately following such action
had such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this subsection (b) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
subsection (b), the Holder of this Warrant shall become entitled to receive
shares of two or more classes of capital stock or shares of Common Stock and
other capital stock of the Company, the Board of Directors (whose determination
shall be conclusive and shall be described in a written notice to the Holder of
this Warrant promptly after such adjustment) shall determine the allocation of
the adjusted Per Share Warrant Price between or among shares of such classes of
capital stock or shares of Common Stock and other capital stock.
(c) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to another
entity of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), the Holder shall have the right thereafter
to convert this Warrant into the kind and amount of securities, cash or other
property which he would have owned or have been entitled to receive immediately
after such consolidation, merger, statutory exchange, sale or conveyance had
such Warrant been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale or conveyance and in any such
case, if necessary, appropriate adjustment shall be made in the application of
the provisions set forth in this Section 3 with respect to the rights and
interests thereafter of the Holder to the end that the provisions set forth in
this Section 3 shall thereafter correspondingly be made applicable, as nearly as
may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of this Warrant. The above
provisions of this subsection (c) shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances. Notice of
any such consolidation, merger, statutory exchange, sale or conveyance and of
said provisions so proposed to be made, shall be mailed to the Holder not less
than 30 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(d) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the Holder
of this Warrant in accordance with this Section 3, the Company shall promptly
prepare a certificate of an officer of the Company, setting forth the Per Share
Warrant Price and the number of Warrant Shares after such adjustment or
modification, a brief statement of the facts
-3-
requiring such adjustment or modification and the manner of computing the same
and cause a copy of such certificate to be mailed to the Holder.
(e) If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Stock, other
than out of earned surplus, the Company shall mail notice thereof to the Holder
not less than 15 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non-assessable, and not
subject to preemptive rights, and the Company will take all such actions as may
be necessary to assure that the par value or stated value, if any, per share of
the Common Stock is at all times equal to or less than the then Per Share
Warrant Price. The Company further covenants and agrees that it will pay, when
due and payable, any and all Federal and state stamp, original issue or similar
taxes that may be payable in respect of the issue of any Warrant Share or
certificate therefor.
5. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act") or under any state
securities laws and unless so registered may not be transferred, sold, pledged,
hypothecated or otherwise disposed of unless an exemption from such registration
is available. In the event Holder desires to transfer this Warrant or any of the
Warrant Shares issued, the Holder must give the Company prior written notice of
such proposed transfer including the name and address of the proposed
transferee. Such transfer may be made only either (i) upon publication by the
Securities and Exchange Commission (the "Commission") of a ruling,
interpretation, opinion or "no action letter" based upon facts presented to said
Commission, or (ii) upon receipt by the Company of an opinion of counsel to the
Company in either case to the effect that the proposed transfer will not violate
the provisions of the Securities Act, the Securities Exchange Act of 1934, as
amended, or the rules and regulations promulgated under either such act, or in
the case of clause (ii) above, to the effect that the Warrant or Warrant Shares
to be sold or transferred has been registered under the Securities Act of 1933,
as amended, and that there is in effect a current prospectus meeting the
requirements of Subsection 10(a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Warrant or Warrant Stock to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the Securities Act, the Holder will,
if requested by the Company, deliver
-4-
to the Company (i) an investment covenant signed by the proposed transferee,
(ii) an agreement by such transferee to the impression of the restrictive
investment legend set forth herein on the certificate or certificates
representing the securities acquired by such transferee, (iii) an agreement by
such transferee that the Company may place a "stop transfer order" with its
transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(d) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 5, and the Holder
hereby agrees to indemnify and hold harmless the Company, its representatives
and each officer and director thereof from and against any and all loss, damage
or liability (including all attorneys' fees and costs incurred in enforcing this
indemnity provision) due to or arising out of (a) the inaccuracy of any
representation or the breach of any warranty of the Holder contained in, or any
other breach of, this Warrant, (b) any transfer of the Warrant or any of the
Warrant Shares in violation of the Securities Act, the Securities Exchange Act
of 1934, as amended, or the rules and regulations promulgated under either of
such acts, (c) any transfer of the Warrant or any of the Warrant Shares not in
accordance with this Warrant or (d) any untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to counsel to
the Company upon which its opinion as to a proposed transfer shall have been
based.
(e) Transfer. Except as restricted hereby, this Warrant and
the Warrant Shares issued may be transferred by the Holder in whole or in part
at any time or from time to time. Upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any, with assignment
documentation duly executed and funds sufficient to pay any transfer tax, and
upon compliance with the foregoing provisions, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named in
such instrument of assignment, and this Warrant shall promptly be cancelled. Any
assignment, transfer, pledge, hypothecation or other disposition of this Warrant
attempted contrary to the provisions of this Warrant, or any levy of execution,
attachment or other process attempted upon the Warrant, shall be null and void
and without effect.
(f) Legend and Stop Transfer Orders. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the shares of Warrant Shares, the Company
shall instruct its transfer agent to enter stop transfer orders with respect to
such shares, and all certificates representing Warrant Shares shall bear on the
face thereof substantially the following legend, insofar as is consistent with
Delaware law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as amended,
and may not be sold, offered for sale, assigned, transferred or
otherwise disposed of unless registered
-5-
pursuant to the provisions of that Act or an opinion of counsel to the
Company is obtained stating that such disposition is in compliance with
an available exemption from such registration."
6. "Piggy-Back" Registrations. If at any time the Company shall
determine to register any of its securities under the Securities Act, other than
on Form S-8 or Form S-4 or their then equivalents, it shall send to each Holder
of the Common Stock or Warrant Shares (the "Registrable Shares"), including each
Holder who has the right to acquire Registrable Shares, written notice of such
determination and, if within 10 days after receipt of such notice, such Holder
shall so request in writing, the Company shall use its best efforts to include
in such registration statement all or any part of the Registrable Shares such
Holder requests to be registered therein, except that if, in connection with any
offering involving an underwriting of Common Stock to be issued by the Company,
the managing underwriter shall impose a limitation on the number of shares of
such Common Stock which may be included in any such registration statement
because, in its judgment, such limitation is necessary to effect an orderly
public distribution, and such limitation is imposed pro rata with respect to all
securities whose holders have a contractual, incidental ("piggy-back") right to
include such securities in the registration statement and as to which inclusion
has been requested pursuant to such right, then the Company shall be obligated
to include in such registration statement only such limited portion (which may
be none) of the Registrable Shares with respect to which such Holder has
requested inclusion hereunder.
7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
8. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
9. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is mailed by first-class
mail, postage prepaid, addressed to:
(a) the Company at 2 Robbins Road, Westford, Massachusetts 01886,
or such other address as the Company has designated in writing to the Holder, or
(b) the Holder at _______________________________________, or such
other address as the Holder has designated in writing to the Company.
-6-
10. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, AUGMENT SYSTEMS, INC., has caused this Warrant to
be signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this ____ day of _____________, 1995.
ATTEST: AUGMENT SYSTEMS, INC.
By:
---------------------------
- ---------------------------------- President
Secretary
[Corporate Seal]
-7-
SUBSCRIPTION
The undersigned,_____________________ , pursuant to the provisions of
the foregoing Warrant, hereby agrees to subscribe for the purchase of _______
shares of the Common Stock of Augment Systems, Inc. covered by said Warrant, and
makes payment therefor in full at the price per share provided by said Warrant.
Dated: Signature
--------- ----------------------------
Address
----------------------------
----------------------------
ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and
transfers unto ________________ the foregoing Warrant and all rights evidenced
thereby, and does irrevocably constitute and appoint _____________________,
attorney, to transfer said Warrant on the books of Augment Systems, Inc..
Dated: Signature
--------- ----------------------------
Address
----------------------------
----------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________ hereby assigns and transfers unto
_________________ the right to purchase________ shares of the Common Stock of
Augment Systems, Inc. by the foregoing Warrant, and a proportionate part of said
Warrant and the rights evidenced hereby, and does irrevocably constitute and
appoint _____________________, attorney, to transfer that part of said Warrant
on the books of Augment Systems, Inc.
Dated: Signature
--------- ----------------------------
Address
----------------------------
----------------------------
-8-
THE WARRANTS AND COMMON STOCK ISSUABLE UPON EXERCISE OF
WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED (THE "ACT"), AND THE WARRANTS AND COMMON STOCK ISSUABLE
ON EXERCISE OF WARRANTS MAY NOT BE SOLD UNLESS THERE IS A
REGISTRATION STATEMENT IN EFFECT COVERING THE WARRANTS AND
COMMON STOCK OR THERE IS AVAILABLE AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT
Void after 5:00 P.M., New York City time, on __________, 199__
WARRANT TO PURCHASE ________ SHARES OF COMMON STOCK
OF
AUGMENT SYSTEMS, INCORPORATED
This is to certify that, for value received, _________________________
__________, having offices at ____________________________________________, or
assigns (the "Holder" or "Holders") is entitled to purchase, subject to the
provisions of this warrant, from Augment Systems Incorporated, a Delaware
corporation (the "Company"), having a principal place of business located at 2
Robbins Road, Westford, Massachusetts 01866, _____________ (_______) shares (the
"Warrant Shares" or the "Shares") of the common stock of the Company (the
"Common Stock"), at an exercise price of Seventy-Two Cents ($.72) per share, at
any time during the period commencing _______________, 199__ (the "Exercise
Commencement Date") until 5: 00 P.M., New York City time, on ____________,
______ (which shall be referred to herein as the "Exercise Term"), subject to
adjustment as set forth hereinafter. This warrant, and any warrant resulting
from a transfer or subdivision of this warrant shall sometimes hereinafter be
referred to as a "Warrant." The number of shares of Common Stock to be received
upon the exercise of this Warrant and the price to be paid for a share of Common
Stock may be adjusted from time to time as set forth in Section 7 below.
1. EXERCISE OF WARRANT. Each Warrant shall entitle the Holder thereof
to purchase one share of Common Stock at an exercise price of $.72 per share of
Common Stock (as the same may be adjusted from time to time, the "Purchase
Price"). This Warrant may also be exercised in whole or in part at any time or
from time to time during the period commencing on the Exercise Commencement Date
through the last day of the Exercise Term, or if such day is a
1
day on which banking institutions in the State of New York are authorized by law
to close, then on the next succeeding day which shall not be such a day, by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, in each case during regular
business hours with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Purchase Price for the number of shares specified
in such form. If this Warrant should be exercised in part only, if permitted by
the terms hereof, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder. Upon
receipt by the Company of this Warrant at its office, or by the stock transfer
agent of the Company at its office, in proper form for exercise and accompanied
by a validly executed Purchase Form and the appropriate payment for the Warrant
Shares issuable upon such exercise, the Holder shall be deemed to be the holder
of record of such Warrant Shares, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder. Certificates
for the Warrant Shares shall be delivered to the Holder within a reasonable
time, not to exceed five (5) business days following the exercise of this
Warrant or such greater time as the Company's stock transfer agent, if any, may
reasonably require.
2. RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant,
such number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of this Warrant.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. Subject to
Section 7(h) hereof, any fraction of a share called for upon any exercise hereof
shall be canceled.
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense other than as provided in this Section 4, at the
option of the Holder, upon presentation and surrender hereof to the Company at
its office or at the office of its stock transfer agent, if any, for other
Warrants of different denominations entitling the Holder
2
thereof to purchase in the aggregate the same number of shares of Common Stock
as are purchasable hereunder. Subject to Section 9 hereof, upon surrender of
this Warrant to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay the applicable transfer tax, if any, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation thereof at the office of
the Company or at the office of its stock transfer agent, if any, together with
a written notice signed by the Holder hereof specifying the names and
denominations in which new Warrants are to be issued. Upon receipt by the
Company of evidence satisfactory to it in its sole discretion of the loss,
theft, destruction or mutilation of this Warrant, and, in the case of loss,
theft or destruction, of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company until exercise hereof.
6. REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrant Shares
issuable upon exercise of this warrant are subject to a Registration Rights
Agreement of even date, the terms of which are incorporated by reference into
this Warrant as if such terms are set forth at length herein.
7. ADJUSTMENTS OF PURCHASE PRICE AND NUMBER OF SHARES.
(a) COMPUTATION OF ADJUSTED PRICE. Except as hereinafter
provided, in case the Company shall at any time after the date hereof issue or
sell any shares of Common Stock (other than the issuance or sales referred to in
Section 7(f) hereof), including shares held in the Company's treasury and shares
of Common Stock issued upon the exercise of any warrants, rights or options to
subscribe for shares of Common Stock (other than the issuances or sales of
Common Stock pursuant to rights to subscribe for such Common Stock distributed
to all the
3
shareholders of the Company and Holders of Warrants) and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock, for a consideration per share less than the Purchase
Price in effect immediately prior to the issuance or sale of such shares or
without consideration, then forthwith upon such issuance or sale, the Purchase
Price shall (until another such issuance or sale) be reduced to the price
(calculated to the nearest full cent) equal to the quotient derived by dividing
(A) an amount equal to the sum of (X) the product of (a) the total number of
shares of Common Stock outstanding immediately prior to such issuance or sale,
multiplied by (b) the Purchase Price in effect immediately prior to such
issuance or sale plus, (Y) the aggregate of the amount of all consideration, if
any, received by the Company upon such issuance or sale, by (B) the total number
of shares of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Purchase Price be adjusted
pursuant to this computation to an amount in excess of the Purchase Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 7(c)
hereof.
For the purposes of any computation to be made in accordance with this
Section 7(a), the following provisions shall be applicable:
In case of the issuance or sale of shares of Common Stock for a
consideration, part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be
4
the value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 7(a).
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable upon the
exercise of warrants, rights, options and upon the conversion or exchange of
convertible or exchangeable securities.
(b) WARRANTS, RIGHTS, OPTIONS AND CONVERTIBLE AND EXCHANGEABLE
SECURITIES. Except as provided in Section 7(f) and in the case of the Company
issuing rights to subscribe for shares of Common Stock distributed to all the
shareholders of the Company and Holders of warrants, if the Company shall at any
time after the date hereof issue warrants, rights or options to subscribe for
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock, (i) for a consideration per share less than (a) the
Purchase Price in effect immediately prior to the issuance of such warrants,
rights or options, or such convertible or exchangeable securities, or (ii)
without consideration, the Purchase Price in effect immediately prior to the
issuance of such warrants, rights or options, or such convertible or
5
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of Section
7(a) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock, as the case
may be, issuable under all the outstanding warrants, rights or options shall be
deemed to be issued and outstanding at the time all such outstanding warrants,
rights or options were issued, and for a consideration equal to the minimum
exercise price per share provided for in the warrants, rights or options at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with the
terms of such warrants, rights or options), if any, received by the Company for
such warrants, rights or options, and if no minimum exercise price is provided
in the warrants, rights or options, then the consideration shall be equal to
zero; provided, however, that upon the expiration or other termination of such
warrants, rights or options, if any thereof shall not have been exercised, the
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this subsection (A) shall be reduced by such number of shares as to which
warrants, warrants and/or options shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be readjusted
and thereafter be the price which it would have been had adjustment been made on
the basis of the issuance only of shares actually issued or issuable upon the
exercise of those warrants, rights or options as to which the exercise rights
shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable securities shall
be deemed to be issued and outstanding at the time of issuance of such
securities, and for a consideration equal to the consideration (determined in
the same manner as consideration received on the issue or sale of shares of
Common Stock in accordance with the terms of such convertible or exchangeable
securities) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the expiration or termination of the right
to convert or exchange such convertible or exchangeable securities (whether by
reason of redemption or otherwise), the number of shares
6
deemed to be issued and outstanding pursuant to this subsection (B) shall be
reduced by such number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued or issuable upon the conversion or exchange of those
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price per share provided for in
any of the warrants, rights or options referred to in subsection (A) of this
Section 7(b), or in the price per share at which the securities referred to in
subsection (B) of this Section 7(b) are convertible or exchangeable, the
warrants, rights or options or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new warrants, rights or options or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such warrants, rights or options or the conversion
or exchange of such convertible or exchangeable securities.
(c) SUBDIVISION AND COMBINATION. In case the Company shall at any time
subdivide the outstanding shares of Common Stock, the Purchase Price shall
forthwith be proportionately increased or decreased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Purchase Price pursuant to the provisions of this Section 7, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted down to the
nearest full Share by multiplying a number equal to the Purchase Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Purchase Price.
7
(e) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of all or a substantial part
of the property of the Company, the Holder shall thereafter have the right to
purchase the kind and number of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance as if the Holder were the owner of the shares of Common Stock
underlying the warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares issuable upon exercise of the Warrants
and (y) the Purchase Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holder had exercised the Warrants.
(f) NO ADJUSTMENT OF PURCHASE PRICE IN CERTAIN CASES. No adjustment of
the Purchase Price shall be made: (i) that would result in the Purchase Price
being below par value; (ii) upon the issuance or sale of shares of Common Stock
upon the exercise of warrants and options outstanding as of the date hereof; or
(iii) upon the issuance of options granted pursuant to the Company's Stock
Option Plan (the "Plan"); or (iv) upon the issuance of warrants to purchase
Common Stock, with an exercise price equal to not less than the fair market
value of the Common Stock, subsequent to the date hereof or the sale of any
shares of Common Stock pursuant to the exercise of any such warrants; or (v)
upon the issuance of any shares of capital stock by the Company to any of its
subsidiaries.
(g) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO OUTSTANDING
SECURITIES. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock or a cash dividend
8
or distribution payable out of current or retained earnings) or otherwise
distribute to its shareholders any monies, assets, property, rights, evidences
of indebtedness, securities (other than shares of Common Stock), whether issued
by the Company or by another person or entity, or any other thing of value, the
Holder or Holders of the unexercised warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities receivable upon the
exercise thereof, to receive, upon the exercise of such Warrants, the same
monies, property, assets, rights, evidences of indebtedness, securities or any
other thing of value that they would have been entitled to receive at the time
of such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Subsection (7)(g).
(h) FRACTIONAL SHARES. As to any fraction of a share which the holder
of this Warrant would be entitled to purchase upon exercise of this Warrant, the
Company shall pay, in lieu of such fractional interest, an amount in cash equal
to the current market value of such fractional interest, to the nearest
one-hundredth of a share computed on the basis of the Market Price, as set forth
below. The Holder, by his acceptance hereof, expressly waives any right to
receive any fractional share of stock or fractional Warrant upon exercise of
this Warrant.
As used herein, the phrase "Market Price" at any date shall be deemed
to be the average of the last reported sale prices for the last three (3)
trading days prior to such date, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or as reported in NASDAQ, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted on NASDAQ, the
average of the closing bid prices for the last three (3) trading days prior to
such date as furnished by the National Association of Securities Dealers, Inc.,
through NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or if the Common Stock is not quoted on NASDAQ, as determined in
good faith by resolution of the Board of Directors of the Company, based on the
best information available to it.
(i) WARRANT CERTIFICATE AFTER ADJUSTMENT. Irrespective of any change
pursuant to this Section 7 in the Purchase Price or in the number, kind or class
of shares or other securities or
9
other property obtainable upon exercise of this Warrant, this Warrant may
continue to express as the Purchase Price and as the number of shares obtainable
upon exercise, the same price and number of shares as are stated herein.
(j) STATEMENT OF CALCULATION. Whenever the Purchase Price shall be
adjusted pursuant to the provisions of this Section 7, the Company shall
forthwith file at its principal office, a statement signed by an executive
officer of the Company specifying the adjusted Purchase Price determined as
above provided in such section and a certificate of the independent public
accountants regularly retained by the Company. Such statement shall show in
reasonable detail the method of calculation of such adjustment and the facts
requiring the adjustment and upon which the calculation is based. The Company
shall forthwith cause a notice setting forth the adjusted Purchase Price to be
sent by certified mail, return receipt requested, postage prepaid, to the
Holder.
8. DEFINITION OF "COMMON STOCK". For the purpose of this Warrant, the
term "Common Stock" shall mean, in addition to the class of stock designated as
the Common Stock, $0.01 par value, of the Company on the date hereof, any class
of stock resulting from successive changes or reclassifications of the Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. If at any time, as a result of an
adjustment made pursuant to one or more of the provisions of Section 7 hereof,
the shares of stock or other securities or property obtainable upon exercise of
this Warrant shall include securities of the Company other than shares of Common
Stock or securities of another corporation, then thereafter the amount of such
other securities so obtainable shall be subject to adjustment from time to time
in a manner and upon terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in Section 7 hereof and all other
provisions of this Warrant with respect to Common Stock shall apply on like
terms to any such other shares or other securities.
10
9. TRANSFER TO COMPLY WITH THE ACT. This Warrant or the Shares or any
other security issued or issuable upon exercise of this Warrant may not be sold
or otherwise disposed of except as follows:
(a) to a person who, in the opinion of counsel for the Company, is a
person to whom this Warrant or Warrant Shares may legally be transferred without
registration and without the delivery of a current prospectus under the Act with
respect thereto and then only against receipt of a letter from such person in
which such person represents that he is acquiring the Warrants or Warrant Shares
for his own account for investment purposes and not with a view to distribution,
and in which such person agrees to comply with the provisions of this Section
(9) with respect to any resale or other disposition of such securities; or
(b) to any person upon delivery of a prospectus then meeting the
requirements of the Act relating to such securities and the offering thereof for
such sale or disposition.
10. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holder or Holders the right to vote or
to consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) The Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any warrant,
right or option to subscribe therefor; or
11
(c) A dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation or merger) or a sale of all or substantially
all of its property, assets and business shall be proposed; or
(d) There shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company with
another entity; then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, warrants or options, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, warrants or options, or any
proposed dissolution, liquidation, winding up or sale.
11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the Holder, at the address set forth in the preamble of
this Warrant; or
(b) If to the Company, to the address set forth in the preamble of
this Warrant; or
(c) In each case to such other address as either party may
designate by notice to the other party.
12
12. SUCCESSORS. All the covenants and provisions of this Warrant by or
for the benefit of the Holder shall inure to the benefit of his successors and
assigns hereunder.
13. TERMINATION. This Warrant will terminate on the expiration of the
Exercise Term or on any earlier date when it has been entirely exercised.
14. GOVERNING LAW. This Warrant shall be deemed to be made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State.
15. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Warrant and all
attachments hereto and all incorporation by references set forth herein, set
forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take any action herein required to be performed by it, and any breach of any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or waiver of the Holder. No course of
dealing between or among any persons having any interest in this Warrant will be
deemed effective to modify, amend or discharge any part of this Warrant or any
rights or obligations of any person under or by reason of this Warrant.
AUGMENT SYSTEMS INCORPORATED
By ____________________________
Name:_______________________
Title:________________________
Dated:_____________________
Attest:
___________________________
13
AUGMENT SYSTEMS INCORPORATED
ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
(Name and address of assignee must be printed or typewritten) the rights of the
undersigned represented by this Warrant, to the extent of ________ (___) shares
of Common Stock of Augment Systems Incorporated (the "Company") hereby
irrevocably constituting and appointing Attorney to make such transfer on the
books of the Company, with full power of substitution in the premises.
Dated: ___________, 199__ __________________________________
Signature of Registered Holder
Signature Guaranteed:
_________________________
Note: The above signature must correspond with the name as it appears upon the
front page of this Warrant in every particular, without alteration or
enlargement or any change whatever.
14
AUGMENT SYSTEMS INCORPORATED
PURCHASE FORM
Augment Systems Incorporated
2 Robbins Road
Westford, Massachusetts 01886
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by this Warrant for, and to purchase hereunder, shares of
Common Stock of Augment Systems Incorporated (the "Shares") provided for herein,
and requests that certificates for the Shares be issued in the name of:________
_______________________________________________________________________________
(Please print name, address and social security number) and, if said number of
Shares shall not be all the Shares purchasable hereunder, that a new Warrant for
the balance of the Shares purchasable under this Warrant be registered in the
name of the undersigned Warrantholder or his Assignee as below indicated and
delivered to the address stated below.
Dated:________________, 199__
Name of Warrantholder or Assignee: _____________________________________________
(Please print)
Address: ______________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Signature: ____________________________________________________________________
Signature Guaranteed:
_____________________________
Note: The above signature must correspond with the name as it appears upon the
front page of this Warrant in every particular, without alteration or
enlargement or any change whatever, unless this Warrant has been assigned.
15
EXHIBIT 10.7
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAS BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF
INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE 1933 ACT, AND UNDER
ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, PLEDGED,
TRANSFERRED OR ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS
OF THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT; AND IN THE CASE OF ANY EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF THIS NOTE.
AUGMENT SYSTEMS INCORPORATED
_____________, 1996 Westford, Massachusetts
$
SECURED CONVERTIBLE PROMISSORY NOTE
AUGMENT SYSTEMS INCORPORATED, a Delaware corporation (the
"Company"), for value received, hereby promises to pay
to_________________________ or registered assigns (the "Holder") the principal
and accrued interest on this Note three years from the date hereof (the
"Maturity Date"), at the principal offices of the Company, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts; provided, however, in
the event the Company effects an initial public offering of the Company's
securities (an "IPO") (i) 33.3% of the principal and accrued interest thereon
shall be payable on the closing of an IPO ("IPO Closing"); (ii) 33.3% of the
principal and accrued interest thereon shall be payable one year from an IPO
Closing, and (iii) the balance of the principal and accrued interest thereon
shall be paid two years from an IPO Closing. Interest on the outstanding
principal sum hereof shall be payable at the rate of ten percent (10%) per annum
based on a 360 day year until the Company's obligation with respect to the
payment of such principal sum shall be discharged as herein provided. In the
event that for any reason whatsoever any interest or other consideration payable
with respect to this Note shall be deemed to be usurious by a court of competent
jurisdiction under the laws of the State of New York or the laws of any other
state governing the repayment hereof, then so much of such interest or other
consideration as shall be deemed to be usurious shall be applied for the
repayment of the principal amount hereof or shall otherwise be waived. This Note
is one of several Notes issued in connection with the Company's Private
Placement, as set forth in the Private Placement Memorandum dated September 25,
1995, as amended.
1. Transfers of Note to Comply with the 1933 Act
The Holder agrees that this Note may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except as follows:
(1) to a person who, in the opinion of counsel to the Company, is a person to
whom the Note may legally be transferred without registration and without
delivery of a current prospectus under the 1933 Act with respect thereto and
then only against receipt of an agreement of such person to comply with the
provisions of this Section 1 with respect to any resale or other disposition of
the Note; or (2) to any person who complies with the provisions of this Section
1 with respect to any resale or other disposition of the Note; or (3) to any
person upon delivery of a prospectus then meeting the requirements of the 1933
Act relating to such securities and the offering thereof for such sale or
disposition, and thereafter to all successive assignees.
2. Prepayment
The principal amount of this Note may not be prepaid
by the Company, in whole or in part, without the consent of the Holder. Upon any
prepayment of the principal amount due under this Note, all accrued, but unpaid,
interest shall be paid to the Holder on the date of prepayment.
In the event all or substantially all of the
Company's assets are to be sold or otherwise disposed of other than in a merger
in which the Company is the surviving corporation, this Note and all accrued
interest thereon shall be paid in full from the proceeds of the transfer of such
assets.
3. Security
This Note, as well as other notes offered in
connection with the Company's $500,000 minimum and $1,150,000 maximum private
placement of securities (the "Private Placement Notes") shall be secured, on a
pro rata basis, by all of the assets of the Company, which security interest
shall be automatically subordinate to all present and future senior bank
2
debt of the Company. The Holder agrees to take all necessary steps and execute
all documents necessary to evidence such subordination. The Holder also appoints
Rickel & Associates, Inc., as attorney in fact, to execute all subordination
documents on behalf of the Holder.
4. Issuance of Common Stock and Conversion of Note
a. Simultaneously with the execution of this Note,
the Holder shall receive from the Company 15,842 shares of common stock ("Common
Stock"). The Common Stock shall be subject to that certain Registration Rights
Agreement of even date among the Holders hereof and the Company, as outlined in
Section 5 hereof.
b. Simultaneously with the closing of an IPO, any
portion of the principal and accrued interest of this Note may be converted to
Common Stock at the election of the Holder at a price equal to the IPO price of
the Common Stock. At any time following an IPO, any portion of the principal and
interest of this Note not so converted may be converted at the option of the
Holder at the IPO price of the Common Stock plus $1.00 per share (the
"Conversion Shares"). However, if the price of the Common Stock is at least
$3.00 above the IPO price for a period of 10 consecutive trading days, the
Company may convert any remaining principal and accrued interest of the Note
into Conversion Shares at a price equal to $1.00 per share above the IPO price.
5. Registration Rights
a. The Company will use its best efforts to register
under the 1933 Act all of the shares of Common Stock issuable to the Holders
pursuant to Section 4 above concurrently with an IPO, as set forth in that
certain Registration Rights Agreement of even date.
b. The Company undertakes to keep such registration
statement effective and "current" until the earlier of (y) the public sale of
all of the Holders' Common Stock; or (z) until all of the Holders' Common Stock
may be sold pursuant to Rule 144 promulgated under the 1933 Act. The Company,
will at its sole expense, use its best efforts to "Blue Sky" the Holders'
3
Common Stock in such states as the Placement Agent shall reasonably request,
including but not limited to each state in which the Notes are sold.
6. Covenants of Company
a. The Company covenants and agrees that, so long as
this Note shall be outstanding, it will:
(i) Promptly pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon the Company or upon
its income and profits, or upon any of its property, before the same shall
become a lien upon the Company's assets or property, as well as all lawful
claims for labor, materials and supplies which, if unpaid, would become a lien
or charge upon such properties or any part thereof; provided, however, that the
Company shall not be required to pay or discharge, any such tax, assessment,
charge, levy or claim, so long as the validity thereof shall be contested in
good faith by appropriate proceedings, and the Company shall set aside on its
books adequate reserves with respect to any such tax, assessment, charge, levy
or claim so contested;
(ii) Do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence, rights
and franchises and comply with all laws applicable to the Company as its counsel
may advise;
(iii) At all times maintain, preserve, protect and
keep its property used and useful in the conduct of its business so that the
business carried on in connection therewith may be properly and advantageously
conducted in the ordinary course at all times;
(iv) Keep adequately insured by financially sound
insurers, all property of a character usually insured by similar corporations
and carry such other insurance as is usually carried by similar corporations;
(v) At all times keep true and correct books,
records and accounts; and
4
(vi) File, on a timely basis, all reports required
to be filed pursuant to the Securities and Exchange Act of 1934, as amended, if
such may be required.
7. Events of Default
a. This Note shall become due and payable immediately
upon any of the following events, hereinafter called "Events of Default":
(i) Default in the payment of the principal or
accrued interest on this Note, when and as the same shall become due and
payable, whether by acceleration or otherwise, if such default shall continue
uncured for 10 days.
(ii) Default in the due observance or performance
of any covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the terms hereof, if such default shall
continue uncured for 15 days.
(iii) Default in the payment of any principal or
interest due in connection with any secured or institutional indebtedness now or
hereinafter due and owing by the Company;
(iv) The entry of a final judgment, arbitration
award or order against the Company in an amount exceeding $100,000 which
judgment remains unsatisfied for thirty (30) days after the date of such entry;
(v) Application for, or consent to, the
appointment of a receiver, trustee or liquidator for the Company or of its
property;
(vi) Except as disclosed in the Confidential Term
Sheet, admission in writing of the Company's inability to pay its debts as they
mature;
(vii) General assignment by the Company for the
benefit of creditors;
5
(viii) Filing by the Company of a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization, or an
arrangement with creditors; or
(ix) Entering against the Company of a court order
approving a petition filed against it under the federal bankruptcy laws, which
order shall not have been vacated or set aside or otherwise terminated within 60
days.
b. The Company agrees that it shall give notice to
the Holder at his or her registered address by certified mail, of the occurrence
of any Event of Default within five (5) business days after such Event of
Default shall have occurred.
c. In case any one or more of the Events of Default
specified above shall happen or be continuing, the Holder may proceed to protect
and enforce his or her right by suit in the specific performance of any covenant
or agreement contained in this Note or in aid of the exercise of any power
granted in this Note or may proceed to enforce the payment of this Note or to
enforce any other legal or equitable rights as such Holder may have, including
such rights as set forth in that certain security agreement of even date between
the Company and Rickel & Associates, Inc. as agent for the several Holders.
8. Miscellaneous
a. This Note has been issued by the Company pursuant
to authorization of the Board of Directors of the Company.
b. The Company may consider and treat the person in
whose name this Note shall be registered as the absolute owner thereof for all
purposes whatsoever (whether or not this Note shall be overdue) and the Company
shall not be affected by any notice to the contrary. Subject to the limitations
herein stated, the registered owner of this Note shall have the right to
transfer this Note by assignment, and the transferee shall, upon his
registration as owner of this Note, become vested with all the powers and rights
of the transferor. Registration of any new owners shall take place upon
presentation of this Note to the Company at its principal offices, together with
a duly
6
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed, and only in accordance with Paragraph 1 hereof.
Communications sent to any registered owner shall be effective as against all
holders or transferees of the Note not registered at the time of sending the
communication.
c. Except as set forth in Section 4 above, the Holder
shall not, by virtue hereof, be entitled to any rights of a shareholder in the
Company, whether at law or in equity, and the rights of the Holder are limited
to those expressed in this Note.
d. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Note,
and (in the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Note, if mutilated,
the Company shall execute and deliver a new Note of like tenor and date.
e. This Note shall be construed and enforced in
accordance with the laws of the State of New York. The Company and the Holder
hereby consent to the jurisdiction of the courts of the State of New York and
the United States District Courts situated therein in connection with any action
concerning the provisions of this Note instituted by the Holder against the
Company.
f. No recourse shall be had for the payment of the
principal or interest of this Note against any incorporator or any past, present
or future stockholder, officer, director, agent or attorney of the Company, or
of any successor corporation, otherwise, all such liability of the
incorporators, stockholders, officers, directors, attorneys and agents being
waived, released and surrendered by the Holder hereof by the acceptance of this
Note.
g. The Company shall pay all reasonable costs and
expenses incurred by the Holder to enforce any of the
7
provisions of this Note, including attorneys' fees and other expenses of
collection.
IN WITNESS WHEREOF, AUGMENT SYSTEMS INCORPORATED, has caused
this Note to be signed in its name by its President.
AUGMENT SYSTEMS INCORPORATED
By:
----------------------------
Lorrin Gale,
President
8
EXHIBIT 10.8
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT, by and between Augment
Systems Incorporated, a Delaware corporation (the "Company"), and the person
whose name appears on the signature page attached hereto (individually a
"Holder" and collectively, with the holders of other Units issued in the private
placement offering, (the "Holders").
WHEREAS, pursuant to a subscription agreement between the
Company and the Holders (the "Subscription Agreement"), in connection with the
proposed private placement (the "Private Placement") of the Company's $50,000
units ("Units"), each Unit comprised of (i) 15,842 shares of common stock
("Common Stock") of the Company (the "Unit Shares") and (ii) a 10% secured
convertible promissory note in the principal amount of $38,595 (the "Notes");
and
WHEREAS, the principal and accrued interest of the Notes may
be converted into Common Stock under certain circumstances (the "Conversion
Shares"); and
WHEREAS, pursuant to the terms of and in order to induce the
Holders to enter into the Subscription Agreement, the Company and the Holders
have agreed to enter into this Agreement; and
WHEREAS, it is intended by the Company and the Holders that
this Agreement shall become effective immediately upon the acquisition by the
Holders of the Notes.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company hereby agrees as follows:
1. Piggyback Registration. If the Company at any time proposes
to register any of its securities under the Securities Act of 1933, as amended
(the "1933 Act"), including its contemplated initial public offering (other than
pursuant to Form S-8 or other comparable form), the Company shall use its best
efforts to include the Unit Shares and the Conversion Shares (collectively
referred to as the "Registerable Securities"), in such registration. The Company
shall at such time give prompt
written notice to all Holders of its intention to effect such registration and
of such Holders' rights under such proposed registration, and upon the request
of any Holder delivered to the Company within twenty (20) days after giving of
such notice (which request shall specify the Registerable Securities intended to
be disposed of by such Holder and the intended method of disposition thereof),
the Company shall include such Registerable Securities held by each such Holder
requested to be included in such registration; provided, however, that if, at
any time after giving such written notice of the Company's intention to register
any of the Holder's Registerable Securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay the
registration of such Registerable Securities, the Company may give written
notice of such determination to each Holder and thereupon shall be relieved of
its obligation to register any Registerable Securities issued or issuable in
connection with such registration (but not from its obligation to pay
registration expenses in connection therewith or to register the Registerable
Securities in a subsequent registration); and in the case of a determination to
delay a registration shall thereupon be permitted to delay registering any
Registerable Securities for the same period as the delay in respect of
securities being registered for the Company's own account, provided however,
that no such delay may exceed thirty days after written notice has been sent to
the Holder. Notwithstanding any other provisions of this Agreement, the Holder
shall not be required to request that his Registrable Securities be included in
the registration of securities by the Company in connection with its initial
public offering.
2. Option to Include Registrable Securities in Offering.
Notwithstanding anything contained in Section 1 of this Agreement, the Company
shall not be required to include any of the Holders' Registerable Securities in
an underwritten offering of the Company's securities unless such Holders accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (provided such terms are usual and customary for
selling stockholders) and the Holders agree to execute and/or deliver such
documents in connection with such registration as the Company or the managing
underwriter may reasonably request. Nothing contained herein however, shall
2
require any Holder to execute an agreement to refrain from selling the
Registerable Securities for more than a period of twelve months from the
effective date of a Registration Statement.
3. Mandatory Registration. In the event the Holders have not
had all of their Registerable Securities registered in connection with a
registration statement pursuant to Sections 1 and 2 hereof, the Company shall
effect the registration of all remaining Registerable Securities as soon as
practicable, but not later than 365 days after the effective date of such
registration statement; provided, however, that such period may be extended or
delayed by the Company for one period of up to 30 days if, upon the advice of
counsel at the time such registration is required to be filed, or at the time
the Company is required to exercise its best efforts to cause such registration
statement to become effective, such delay is advisable and in the best interests
of the Company because of the existence of non-public material information, or
to allow the Company to complete any pending audit of its financial statements.
4. Cooperation with Company. Holders will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registerable Securities.
5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to use its best efforts to
effect the registration of any of the Registerable Securities under the 1933
Act, the Company shall (except as otherwise provided in this Agreement), as
expeditiously as possible:
a. prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement and shall use its best
efforts to cause such registration statement to become effective and remain
effective until all the Registerable Securities are sold or become capable of
being publicly sold without registration under the 1933 Act.
3
b. prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the 1933 Act with respect to the
sale or other disposition of all securities covered by such registration
statement whenever the Holder or Holders of such securities shall desire to sell
or otherwise dispose of the same (including prospectus supplements with respect
to the sales of securities from time to time in connection with a registration
statement pursuant to Rule 415 of the Commission);
c. furnish to each Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the 1933 Act, and such other documents, as such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
d. use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each Holder shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable such Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Holder, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process;
e. use its best efforts to list such securities on any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
f. enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
4
g. notify each Holder of Registerable Securities
covered by such registration statement, at any time when a prospectus relating
thereto covered by such registration statement is required to be delivered under
the 1933 Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; and
h. furnish, at the request of any Holder on the date
such Registerable Securities are delivered to the underwriters for sale pursuant
to such registration or, if such Registerable Securities are not being sold
through underwriters, on the date the registration statement with respect to
such Registerable Securities becomes effective, (i) an opinion, dated such date,
of the counsel representing the Company for the purpose of such registration,
addressed to the underwriters, if any, and to the Holder making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as the Holder of such Registerable Securities may
reasonably request and are customarily included in such an opinion and (ii)
letters, dated, respectively, (1) the effective date of the registration
statement and (2) the date such Registerable Securities are delivered to the
underwriters, if any, for sale pursuant to such registration from a firm of
independent certified public accountants of recognized standing selected by the
Company, addressed to the underwriters, if any, and to the Holder making such
request, covering such financial, statistical and accounting matters with
respect to the registration in respect of which such letters are being given as
the Holder of such Registerable Securities may reasonably request and are
customarily included in such letters; and
i. take such other actions as shall be reasonably
requested by any Holder to facilitate the registration and sale of the
Registerable Securities; provided, however, that the Company shall not be
obligated to take any actions not specifically required elsewhere herein which
in the aggregate would cost in excess of $5,000.
5
6. Restrictions on Transfer of Registerable Securities. The
Holder agrees that he will not sell or transfer any of the Registerable
Securities for a period of twelve months from the Effective Date of any
registration statement in which such Registrable Securities are included without
the prior written consent of Rickel & Associates, Inc.
7. Expenses. All expenses incurred in any registration of the
Holders' Registerable Securities under this Agreement shall be paid by the
Company, including, without limitation, printing expenses, fees and
disbursements of counsel for the Company, expenses of any audits to which the
Company shall agree or which shall be necessary to comply with governmental
requirements in connection with any such registration, all registration and
filing fees for the Holders' Registerable Securities under federal and State
securities laws, and expenses of complying with the securities or blue sky laws
of any jurisdictions pursuant to Section 5(h)(i); provided, however, the Company
shall not be liable for (a) any discounts or commissions to any underwriter; (b)
any stock transfer taxes incurred with respect to Registerable Securities sold
in the Offering or (c) the fees and expenses of counsel for any Holder.
8. Indemnification. In the event any Registerable Securities
are included in a registration statement pursuant to this Agreement:
a. Company Indemnity. Without limitation of any other
indemnity provided to any Holder, either in connection with the Offering or
otherwise, to the extent permitted by law, the Company shall indemnify and hold
harmless each Holder, the affiliates, officers, directors and partners of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder, and each
person, if any, who controls such Holder or underwriter (within the meaning of
the 1933 Act or the Securities Exchange Act of 1934 (the "Exchange Act"),
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the 1933 Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue
6
statement of a material fact contained in such registration statement including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, (iii) any violation or alleged violation by the
Company of the 1933 Act, the Exchange Act, or (iv) any state securities law or
any rule or regulation promulgated under the 1933 Act, the Exchange Act or any
state securities law, and the Company shall reimburse each such Holder,
affiliate, officer or director or partner, underwriter or controlling person for
any legal or other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable to any Holder in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder or any other officer, director or controlling
person thereof.
b. Holder Indemnity. Each Holder shall indemnify and
hold harmless the Company, its affiliates, its counsel, officers, directors,
shareholders and representatives, any underwriter (as defined in the 1933 Act)
and each person, if any, who controls the Company or the underwriter (within the
meaning of the 1933 Act or liabilities (joint or several) to which they may
become subject under the 1933 Act, the Exchange Act or any state securities law,
and the Holder shall reimburse the Company, affiliate, officer or director or
partner, underwriter or controlling person for any legal or other expenses
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; insofar as such losses, claims, damages or
liabilities (or actions and respect thereof) arise out of or are based upon any
statements or information provided by such Holder to the Company in connection
with the offer or sale of Registerable Securities.
c. Notice; Right to Defend. Promptly after receipt by
an indemnified party under this Section 8 of notice of the commencement of any
action (including any governmental action), such indemnified party shall, if a
claim in respect
7
thereof is to be made against any indemnifying party under this Section 8,
deliver to the indemnifying party a written notice of the commencement thereof.
The indemnifying party shall have the right to participate in and, if the
indemnifying party agrees in writing that it will be responsible for any costs,
expenses, judgments, damages and losses incurred by the indemnified party with
respect to such claim, jointly with any other indemnifying party similarly
noticed, assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Agreement only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Agreement.
d. Contribution. If the indemnification provided for in
this Agreement is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other hand in connection with the statements or omissions which
resulted in such loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relevant fault of the indemnifying party
and the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to
8
state a material fact relates to information supplied by the indemnifying party
or by the indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount any Holder shall be obligated to
contribute pursuant to the Agreement shall be limited to an amount equal to the
proceeds to such Holder of the Registerable Securities sold pursuant to the
registration statement which gives rise to such obligation to contribute (less
the aggregate amount of any damages which the Holder has otherwise been required
to pay in respect of such loss, claim, damage, liability or action or any
substantially similar loss, claim, damage, liability or action arising from the
sale of such Registerable Securities).
e. Survival of Indemnity. The indemnification provided
by this Agreement shall be a continuing right to indemnification and shall
survive the registration and sale of any Registerable Securities by any person
entitled to indemnification hereunder and the expiration or termination of this
Agreement.
9. Limitation on Other Registration Rights. Except as
otherwise allowed by this Agreement, the Company shall not, without the prior
written consent of the Holders of Registerable Securities representing a
majority thereof held by all the Holders, file any registration statement on
behalf of any person (including the Company) other than a Holder during any
period when the Company is not in compliance with this Agreement.
10. Remedies.
a. Time is of Essence. The Company agrees that time is
of the essence of each of the covenants contained herein and that, in the event
of a dispute hereunder, this Agreement is to be interpreted and construed in a
manner that will enable the Holders to sell their Registerable Securities as
quickly as possible after such Holders have indicated to the Company that they
desire their Registerable Securities to be registered. Any delay on the part of
the Company not expressly permitted under this Agreement, whether material or
not, shall be deemed a material breach of this Agreement.
9
b. Remedies Upon Default or Delay. The Company
acknowledges the breach of any part of this Agreement may cause irreparable harm
to a Holder and that monetary damages alone may be inadequate. The Company
therefore agrees that the Holder shall be entitled to injunctive relief or such
other applicable remedy as a court of competent jurisdiction may provide.
Nothing contained herein will be construed to limit a Holder's right to any
remedies at law, including recovery of damages for breach of any part of this
Agreement.
11. Notices.
a. All communications under this Agreement shall be in
writing and shall be mailed by first class mail, postage prepaid, or telegraphed
or telexed with confirmation of receipt or delivered by hand or by overnight
delivery service,
b. If to the Company, at:
Augment Systems Incorporated
2 Robbins Road
Westford, Massachusetts 01886
Attention: Lorrin Gale, President
with a copy to:
Warner & Stackpole
75 State Street
Boston, Massachusetts 02109
Attention: Michael A. Hickey, Esq.
If to Rickel & Associates, Inc., at:
875 Third Avenue
New York, New York 10022
Attention: Elliot J. Smith
with a copy to:
Schneck Weltman Hashmall & Mischel LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Felice F. Mischel, Esq.
10
or at such other address as may be furnished in writing
to the Holders of Registerable Securities at the time outstanding, or
c. if to any Holder of any Registerable Securities, to
the address of such Holder as it appears in the stock or warrant ledger of the
Company.
d. Any notice so addressed, when mailed by registered
or certified mail shall be deemed to be given three days after so mailed, when
telegraphed or telexed shall be deemed to be given when transmitted, or when
delivered by hand or overnight shall be deemed to be given when delivered.
12. Successors and Assigns. Except as otherwise expressly
provided herein, this Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of the Company and each of the
Holders.
13. Amendment and Waiver. This Agreement may be amended, and
the observance of any term of this Agreement may be waived, but only with the
written consent of the Company and the Holders of securities representing a
majority of the Registerable Securities; provided, however, that no such
amendment or waiver shall take away any registration right of any Holder of
Registerable Securities or reduce the amount of reimbursable costs to any Holder
of Registerable Securities in connection with any registration hereunder without
the consent of such Holder; further provided, however, that without the consent
of any other Holder of Registerable Securities, any Holder may from time to time
enter into one or more agreements amending, modifying or waiving the provisions
of this Agreement if such action does not adversely affect the rights or
interest of any other Holder of Registerable Securities. No delay on the part of
any party in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by any party of any
right, power or remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
11
14. Counterparts. One or more counterparts of this Agreement
may be signed by the parties, each of which shall be an original but all of
which together shall constitute one and same instrument.
15. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of New York,
without giving effect to conflicts of law principles.
16. Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
17. Headings. The headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof.
IN WITNESS WHEREOF, the Company and the Holder
undersigned have executed this Agreement as of the day of ,1996.
AUGMENT SYSTEMS INCORPORATED
By:
------------------------------ -------------------------
Lorrin Gale, Print Name of Holder
President
-------------------------
Signature of Holder
12
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT
AUGMENT SYSTEMS INCORPORATED
THIS REGISTRATION RIGHTS AGREEMENT, by and between Augment
Systems Incorporated, a Delaware corporation (the "Company"), and the person
whose name appears on the signature page attached hereto (individually a
"Holder" and collectively, with the holders of other Units issued in the private
placement offering, the "Holders").
WHEREAS, the Company and the Holders have entered into a
subscription agreement (the "Subscription Agreement"), in connection with the
proposed private placement (the "Private Placement") of units ("Units"),
consisting of 50,000 shares of common stock ("Common Stock") of the Company (the
"Shares") and having a purchase price of $50,000 per Unit; and
WHEREAS, pursuant to the terms of and in order to induce the
Holders to enter into the Subscription Agreement, the Company and the Holders
have agreed to enter into this Agreement; and
WHEREAS, it is intended by the Company and the Holders that
this Agreement shall become effective immediately upon the acquisition by the
Holders of the Shares.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company hereby agrees as follows:
1. Piggyback Registration. If the Company at any time proposes
to register any of its securities under the Securities Act of 1933, as amended
(the "1933 Act"), including its contemplated initial public offering (other than
pursuant to Form S-8 or other comparable form), the Company shall use its best
efforts to include the Shares (the "Registerable Securities"), in such
registration. The Company shall at such time give prompt written notice to all
Holders of its intention to effect such registration and of such Holders' rights
under such proposed registration, and upon the request of any Holder delivered
to the Company within twenty (20) days after giving of such notice (which
request shall specify the Registerable Securities intended to be
disposed of by such Holder and the intended method of disposition thereof), the
Company shall include such Registerable Securities held by each such Holder
requested to be included in such registration; provided, however, that if, at
any time after giving such written notice of the Company's intention to register
any of the Holder's Registerable Securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay the
registration of such Registerable Securities, the Company may give written
notice of such determination to each Holder and thereupon shall be relieved of
its obligation to register any Registerable Securities issued or issuable in
connection with such registration (but not from its obligation to pay
registration expenses in connection therewith or to register the Registerable
Securities in a subsequent registration); and in the case of a determination to
delay a registration shall thereupon be permitted to delay registering any
Registerable Securities for the same period as the delay in respect of
securities being registered for the Company's own account, provided however,
that no such delay may exceed thirty days after written notice has been sent to
the Holder. Notwithstanding any other provisions of this Agreement, the Holder
shall not be required to request that his Registrable Securities be included in
the registration of securities by the Company in connection with its initial
public offering.
2. Option to Include Registrable Securities in Offering.
Notwithstanding anything contained in Section 1 of this Agreement, the Company
shall not be required to include any of the Holders' Registerable Securities in
an underwritten offering of the Company's securities unless such Holders accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (provided such terms are usual and customary for
selling stockholders) and the Holders agree to execute and/or deliver such
documents in connection with such registration as the Company or the managing
underwriter may reasonably request. Nothing contained herein however, shall
require any Holder to execute an agreement to refrain from selling the
Registerable Securities for more than a period of twelve months from the
effective date of a Registration Statement.
2
3. Mandatory Registration. In the event the Holders have not
had all of their Registerable Securities registered in connection with a
registration statement pursuant to Sections 1 and 2 hereof, the Company shall
effect the registration of all remaining Registerable Securities as soon as
practicable, but not later than 365 days after the effective date of such
registration statement; provided, however, that such period may be extended or
delayed by the Company for one period of up to 30 days if, upon the advice of
counsel at the time such registration is required to be filed, or at the time
the Company is required to exercise its best efforts to cause such registration
statement to become effective, such delay is advisable and in the best interests
of the Company because of the existence of non-public material information, or
to allow the Company to complete any pending audit of its financial statements.
4. Cooperation with Company. Holders will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registerable Securities.
5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to use its best efforts to
effect the registration of any of the Registerable Securities under the 1933
Act, the Company shall (except as otherwise provided in this Agreement), as
expeditiously as possible:
a. prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement and shall use its best
efforts to cause such registration statement to become effective and remain
effective until all the Registerable Securities are sold or become capable of
being publicly sold without registration under the 1933 Act.
b. prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the 1933 Act with respect to the
sale or other
3
disposition of all securities covered by such registration statement whenever
the Holder or Holders of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 of the Commission);
c. furnish to each Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the 1933 Act, and such other documents, as such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
d. use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each Holder shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable such Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Holder, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process;
e. use its best efforts to list such securities on any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
f. enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
g. notify each Holder of Registerable Securities
covered by such registration statement, at any time when a prospectus relating
thereto covered by such registration statement is required to be delivered under
the 1933 Act, of the happening of any event of which it has knowledge as a
result of which the
4
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
h. furnish, at the request of any Holder on the date
such Registerable Securities are delivered to the underwriters for sale pursuant
to such registration or, if such Registerable Securities are not being sold
through underwriters, on the date the registration statement with respect to
such Registerable Securities becomes effective, (i) an opinion, dated such date,
of the counsel representing the Company for the purpose of such registration,
addressed to the underwriters, if any, and to the Holder making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as the Holder of such Registerable Securities may
reasonably request and are customarily included in such an opinion and (ii)
letters, dated, respectively, (1) the effective date of the registration
statement and (2) the date such Registerable Securities are delivered to the
underwriters, if any, for sale pursuant to such registration from a firm of
independent certified public accountants of recognized standing selected by the
Company, addressed to the underwriters, if any, and to the Holder making such
request, covering such financial, statistical and accounting matters with
respect to the registration in respect of which such letters are being given as
the Holder of such Registerable Securities may reasonably request and are
customarily included in such letters; and
i. take such other actions as shall be reasonably
requested by any Holder to facilitate the registration and sale of the
Registerable Securities; provided, however, that the Company shall not be
obligated to take any actions not specifically required elsewhere herein which
in the aggregate would cost in excess of $5,000.
6. Restrictions on Transfer of Registerable Securities. The
Holder agrees that he will not sell or transfer any of the Registerable
Securities for a period of twelve months from the Effective Date of any
registration statement in which
5
such Registrable Securities are included without the prior written consent of
the underwriter.
7. Expenses. All expenses incurred in any registration of the
Holders' Registerable Securities under this Agreement shall be paid by the
Company, including, without limitation, printing expenses, fees and
disbursements of counsel for the Company, expenses of any audits to which the
Company shall agree or which shall be necessary to comply with governmental
requirements in connection with any such registration, all registration and
filing fees for the Holders' Registerable Securities under federal and state
securities laws, and expenses of complying with the securities or blue sky laws
of any jurisdictions pursuant to Section 5(d); provided, however, the Company
shall not be liable for (a) any discounts or commissions to any underwriter; (b)
any stock transfer taxes incurred with respect to Registerable Securities sold
in the Offering or (c) the fees and expenses of counsel for any Holder.
8. Indemnification. In the event any Registerable Securities
are included in a registration statement pursuant to this Agreement:
a. Company Indemnity. Without limitation of any other
indemnity provided to any Holder, either in connection with the Offering or
otherwise, to the extent permitted by law, the Company shall indemnify and hold
harmless each Holder, the affiliates, officers, directors and partners of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder, and each
person, if any, who controls such Holder or underwriter (within the meaning of
the 1933 Act or the Securities Exchange Act of 1934 (the "Exchange Act"),
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the 1933 Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact
6
required to be stated therein, or necessary to make the statements therein not
misleading, (iii) any violation or alleged violation by the Company of the 1933
Act, the Exchange Act, or (iv) any state securities law or any rule or
regulation promulgated under the 1933 Act, the Exchange Act or any state
securities law, and the Company shall reimburse each such Holder, affiliate,
officer or director or partner, underwriter or controlling person for any legal
or other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to any Holder in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder or any other officer, director or controlling
person thereof.
b. Holder Indemnity. Each Holder shall indemnify and
hold harmless the Company, its affiliates, its counsel, officers, directors,
shareholders and representatives, any underwriter (as defined in the 1933 Act)
and each person, if any, who controls the Company or the underwriter (within the
meaning of the 1933 Act or liabilities (joint or several) to which they may
become subject under the 1933 Act, the Exchange Act or any state securities law,
and the Holder shall reimburse the Company, affiliate, officer or director or
partner, underwriter or controlling person for any legal or other expenses
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; insofar as such losses, claims, damages or
liabilities (or actions and respect thereof) arise out of or are based upon any
statements or information provided by such Holder to the Company in connection
with the offer or sale of Registerable Securities.
c. Notice; Right to Defend. Promptly after receipt by
an indemnified party under this Section 8 of notice of the commencement of any
action (including any governmental action), such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 8, deliver to the indemnifying party a written notice of the
commencement thereof. The indemnifying party shall have the right to participate
in and, if the indemnifying party agrees in
7
writing that it will be responsible for any costs, expenses, judgments, damages
and losses incurred by the indemnified party with respect to such claim, jointly
with any other indemnifying party similarly noticed, assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if the indemnified party
reasonably believes that representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall relieve such indemnifying party of any liability to the
indemnified party under this Agreement only if and to the extent that such
failure is prejudicial to its ability to defend such action, and the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Agreement.
d. Contribution. If the indemnification provided for in
this Agreement is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other hand in connection with the statements or omissions which
resulted in such loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relevant fault of the indemnifying party
and the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding
8
the foregoing, the amount any Holder shall be obligated to contribute pursuant
to the Agreement shall be limited to an amount equal to the proceeds to such
Holder of the Registerable Securities sold pursuant to the registration
statement which gives rise to such obligation to contribute (less the aggregate
amount of any damages which the Holder has otherwise been required to pay in
respect of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the sale of such
Registerable Securities).
e. Survival of Indemnity. The indemnification provided
by this Agreement shall be a continuing right to indemnification and shall
survive the registration and sale of any Registerable Securities by any person
entitled to indemnification hereunder and the expiration or termination of this
Agreement.
9. Limitation on Other Registration Rights. Except as
otherwise allowed by this Agreement, the Company shall not, without the prior
written consent of the Holders of Registerable Securities representing a
majority thereof held by all the Holders, file any registration statement on
behalf of any person (including the Company) other than a Holder during any
period when the Company is not in compliance with this Agreement.
10. Remedies.
a. Time is of Essence. The Company agrees that time is
of the essence of each of the covenants contained herein and that, in the event
of a dispute hereunder, this Agreement is to be interpreted and construed in a
manner that will enable the Holders to sell their Registerable Securities as
quickly as possible after such Holders have indicated to the Company that they
desire their Registerable Securities to be registered. Any delay on the part of
the Company not expressly permitted under this Agreement, whether material or
not, shall be deemed a material breach of this Agreement.
b. Remedies Upon Default or Delay. The Company
acknowledges the breach of any part of this Agreement may cause irreparable harm
to a Holder and that monetary damages alone may be inadequate. The Company
therefore agrees that the Holder shall be entitled to injunctive relief or such
other applicable remedy
9
as a court of competent jurisdiction may provide. Nothing contained herein will
be construed to limit a Holder's right to any remedies at law, including
recovery of damages for breach of any part of this Agreement.
11. Notices.
a. All communications under this Agreement shall be in
writing and shall be mailed by first class mail, postage prepaid, or telegraphed
or telexed with confirmation of receipt or delivered by hand or by overnight
delivery service,
b. If to the Company, at:
Augment Systems Incorporated
2 Robbins Road
Westford, Massachusetts 01886
Attention: Lorrin G. Gale, President
with a copy to:
Warner & Stackpole LLP
75 State Street
Boston, Massachusetts 02109
Attention: Michael A. Hickey, Esq.
If to Rickel & Associates, Inc., at:
875 Third Avenue
New York, New York 10022
Attention: Elliot J. Smith
with a copy to:
Schneck Weltman Hashmall & Mischel LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Felice F. Mischel, Esq.
or at such other address as may be furnished in writing
to the Holders of Registerable Securities at the time outstanding, or
10
c. if to any Holder of any Registerable Securities, to
the address of such Holder as it appears in the stock or warrant ledger of the
Company.
d. Any notice so addressed, when mailed by registered
or certified mail shall be deemed to be given three days after so mailed, when
telegraphed or telexed shall be deemed to be given when transmitted, or when
delivered by hand or overnight shall be deemed to be given when delivered.
12. Successors and Assigns. Except as otherwise expressly
provided herein, this Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of the Company and each of the
Holders.
13. Amendment and Waiver. This Agreement may be amended, and
the observance of any term of this Agreement may be waived, but only with the
written consent of the Company and the Holders of securities representing a
majority of the Registerable Securities; provided, however, that no such
amendment or waiver shall take away any registration right of any Holder of
Registerable Securities or reduce the amount of reimbursable costs to any Holder
of Registerable Securities in connection with any registration hereunder without
the consent of such Holder; further provided, however, that without the consent
of any other Holder of Registerable Securities, any Holder may from time to time
enter into one or more agreements amending, modifying or waiving the provisions
of this Agreement if such action does not adversely affect the rights or
interest of any other Holder of Registerable Securities. No delay on the part of
any party in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by any party of any
right, power or remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
14. Counterparts. One or more counterparts of this Agreement
may be signed by the parties, each of which shall be an original but all of
which together shall constitute one and same instrument.
11
15. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the Commonwealth of
Massachusetts, without giving effect to conflicts of law principles.
16. Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
17. Headings. The headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof.
IN WITNESS WHEREOF, the Company and the Holder undersigned
have executed this Agreement as of _______________ ,1996.
AUGMENT SYSTEMS INCORPORATED
By:
----------------------- -----------------------
Lorrin G. Gale, Print Name of Holder
President
-----------------------
Signature of Holder
12
EXHIBIT 10.10
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT THERETO UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED. THE COMPANY'S SUBSCRIPTION AGREEMENT
WITH THE HOLDER CONTAINS ADDITIONAL PROVISIONS RESTRICTING THE TRANSFER OF THIS
WARRANT. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY'S
OFFICE.
For the Purchase of
No._______________ ________ shares of
Common Stock
CLASS A WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
AUGMENT SYSTEMS, INC.
(A DELAWARE CORPORATION)
Augment Systems, Inc., a Delaware corporation ("Company"), hereby
certifies that ________________, or his, her or its registered assigns
("Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time during the period
commencing December 1, 1997 ("Commencement Date") and ending on November 30,
2000 ("Expiration Date"), ______ shares of Common Stock, $.01 par value, of the
Company ("Common Stock"), at an initial exercise price equal to $1.00 per share
(subject to adjustment as provided below); provided, however, that if the
Company consummates an initial public offering of its securities ("IPO") by May
30, 1997, then the per-share exercise price of the Warrant shall be adjusted to
be equal to one-half of the offering price of a share of Common Stock in the
IPO. The number of shares of Common Stock purchasable upon exercise of this
Warrant, and the exercise price per share, each as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Stock" and the "Exercise Price," respectively.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form appended
hereto as
Exhibit I duly executed by such Registered Holder, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Exercise Price payable in respect of the number of shares of Warrant Stock being
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which the
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Stock shall be issuable upon such exercise as provided
in subsection 1(c) below shall be deemed to have become the holder or holders of
record of the Warrant Stock represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within 10 days thereafter, the Company at
its expense will cause to be issued in the name of, and delivered to, the
Registered Holder, or, subject to the terms and conditions hereof, as such
Holder (upon payment by such Holder of any applicable transfer taxes) may
direct:
(i) a certificate or certificates for the number of
full shares of Warrant Stock to which such Registered Holder shall be
entitled upon such exercise, and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in
the aggregate on the face or faces thereof for the number of shares of
Warrant Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant,
minus the number of such shares purchased by the Registered Holder upon
such exercise as provided in subsection 1(a) above.
(d) In lieu of the payment of the Exercise Price in the manner
required by Section 1(a), the Holder shall have the right (but not the
obligation) to pay the Exercise Price for the shares of Common Stock being
purchased with this Warrant upon exercise by the surrender to the Company of any
exercisable but unexercised portion of this Warrant having a "Value" (as defined
below), at the close of trading on the last trading day immediately preceding
the exercise of this Warrant, equal to the Exercise Price multiplied by the
number of shares of Common Stock being purchased upon exercise ("Cashless
Exercise Right"). The sum of (x) the number of shares of Common Stock being
purchased upon exercise of the non-surrendered portion of this Warrant pursuant
to this Cashless Exercise Right and (y) the number of shares of Common Stock
underlying the portion of this Warrant being surrendered, shall not in any event
be greater than the total number of shares of Common Stock purchasable upon the
complete exercise of this Warrant if the Exercise Price were paid in cash. The
"Value" of the portion of the Warrant being surrendered shall equal the
remainder
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derived from subtracting (x) the Exercise Price multiplied by the number of
shares of Common Stock underlying the portion of this Warrant being surrendered
from (y) the Market Price of a share of Common Stock multiplied by the number of
shares of Common Stock underlying the portion of this Warrant being surrendered.
As used in this Warrant, the term "Market Price" at any date shall be deemed to
be the last reported sale price of the Common Stock on such date, or, in case no
such reported sale takes place on such day, the average of the last reported
sale price for the immediately preceding three trading days, in either case as
officially reported by the national securities exchange on which the Common
Stock is trading, or, if the Common Stock is not principally traded on any
national securities exchange, the last reported sale price as furnished by the
NASD through the Nasdaq National Market or SmallCap Market, or, if applicable,
the OTC Bulletin Board, or if the Common Stock is not listed or admitted to
trading on the Nasdaq National Market or SmallCap Market or OTC Bulletin Board
or similar organization, as determined in good faith by resolution of the Board
of Directors of the Company, based on the best information available to it. The
Cashless Exercise Right may be exercised by the Holder on any business day on or
after the Commencement Date and not later than the Expiration Date by delivering
the Warrant with a duly executed exercise form attached hereto with the cashless
exercise section completed to the Company, exercising the Cashless Exercise
Right and specifying the total number of shares of Common Stock being purchased
pursuant to such Cashless Exercise Right.
2. Adjustments to Exercise Price and Number of Securities.
(a) If the outstanding shares of the Company's Common Stock
shall be subdivided or split into a greater number of shares, or a dividend in
Common Stock shall be paid in respect of Common Stock, the Exercise Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
split or immediately after the record date of such dividend be proportionately
reduced. If the outstanding shares of Common Stock shall be combined or
reverse-split into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination or reverse-split shall, simultaneously
with the effectiveness of such combination or reverse-split, be proportionately
increased.
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, or the
payment of a liquidating distribution, then, as part of any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution,
lawful provision shall be made so that the Registered Holder of this Warrant
shall have the right thereafter to receive upon the exercise hereof (to the
extent, if any, still exercisable) the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale or liquidating
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distribution, as the case may be, such Registered Holder had held the number of
shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined by
the Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the Registered Holder of this Warrant such that the provisions set forth in
this Section 2 (including provisions with respect to adjustment of the Exercise
Price) shall thereafter be applicable, as nearly as practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
(c) When any adjustment is required to be made in the Exercise
Price, the number of shares of Warrant Stock purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately prior to such adjustment, by (ii) the Exercise Price in effect
immediately after such adjustment.
(d) No adjustment in the per share Exercise Price shall be
required unless such adjustment would require an increase or decrease in the
Exercise Price of at least $0.01; provided, however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 2 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be. Anything in this Section 2 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
per share Exercise Price, in addition to those required by this Section 2 as in
its discretion it shall deem to be advisable in order that any stock dividend,
subdivision of shares or distribution rights to purchase stock or securities
convertible or exchangeable for stock hereafter made by the Company to its
stockholders shall not be taxable.
(e) Except as hereinafter provided, in case the Company shall
at any time after the date hereof, but prior to the effective date of the IPO,
issue or sell any shares of Common Stock, including shares held in the Company's
treasury, for a consideration per share less than either the Exercise Price or
the Market Price in effect immediately prior to the issuance or sale of such
shares, or without consideration, then forthwith upon such issuance or sale, the
Exercise Price shall (until another such issuance or sale) be reduced to the
price (calculated to the nearest full cent) equal to the quotient derived by
dividing (i) an amount equal to the sum of (x) the number of shares of Common
Stock outstanding immediately prior to such issuance or sale multiplied by the
lesser of the Exercise Price per share in effect immediately prior to such
issuance or sale or the Market Price in effect on the date immediately prior to
such issuance or sale, plus (y) the aggregate of the amount of all
consideration, if any, received by the Company upon such issuance or sale, by
(ii) the number of shares of Common Stock outstanding immediately after such
issuance or sale; provided, however, that in no event shall the Exercise Price
be adjusted pursuant to this
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computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation.
(f) Upon the happening of any event requiring an adjustment of
the Exercise Price hereunder, the Company shall forthwith give written notice
thereto to the Registered Holder of this Warrant stating the adjusted Exercise
Price and the adjusted number of shares purchasable upon the exercise hereof
resulting from such event and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(g) For the purposes of any computation to be made in
accordance with Section 2, the following provisions shall be applicable:
(i) Cash Consideration. In case of the issuance or
sale by the Company of shares of Common Stock for a consideration part
or all of which shall be cash, the amount of the cash consideration
therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by
the Company for subscription, the subscription price, or, if either of
such securities shall be sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price), before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) Other Than Cash Consideration. In case of the
issuance or sale (otherwise than as a dividend or other distribution on
any stock of the Company) of shares of Common Stock for a consideration
part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value
of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Outstanding Shares. The number of shares of
Common Stock at any one time outstanding shall include the aggregate
number of shares issued or issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise of any and all outstanding
options, rights, warrants to purchase shares of Common Stock and upon
the conversion or exchange of any and all outstanding securities
convertible or exchangeable into shares of Common Stock.
(h) In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than either the Exercise Price
Per Share or the Market Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, or without consideration, the Exercise Price Per Share in effect
immediately prior to the issuance of such options, rights or
-5-
warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making a computation in accordance
with the provisions of this Section 2 hereof, provided that:
(i) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under such options, rights or
warrants shall be deemed to be issued and outstanding at the time such
options, rights or warrants were issued, and for a consideration equal
to the minimum purchase price per share provided for in such options,
rights or warrants at the time of issuance, plus the consideration, if
any, received by the Company for the issuance of such options, rights
or warrants.
(ii) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding at
the time of issuance of such securities, and for a consideration equal
to the consideration received by the Company for the issuance of such
securities, plus the minimum consideration, if any, receivable by the
Company upon the conversion or exchange thereof.
(iii) If any change shall occur in the exercise price
per share provided for in any of the options, rights or warrants
referred to in clause (i) of Section 2(h), or in the price per share at
which the securities referred to in clause (ii) of Section 2(h) are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities at the new price in respect of
the number of shares issuable upon the exercise of such options, rights
or warrants or the conversion or exchange of such convertible or
exchangeable securities.
(i) No adjustment of the Exercise Price shall be made:
(i) Upon the issuance or sale of the shares of Common
Stock issuable upon the exercise of (i) the Warrants, (ii) convertible
debt, warrants and options outstanding on the date hereof and described
in the Company's Confidential Private Placement Memorandum, dated
October __ 1996; or (iii) Options granted under the Company's 1996
Stock Option Plan, provided that the exercise price of such options
shall be not less than 85% of the Market Price on the date of grant of
such options.
3. Fractional Shares. The Company shall not be required to issue
certificates representing fractions of shares of Common Stock or Warrants upon
the exercise or transfer of the Purchase Option, nor shall it be required to
issue scrip or pay
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cash in lieu of any fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of Warrants, shares of Common Stock or other
securities, properties or rights.
4. Limitation on Sales, etc. Each holder of this Warrant acknowledges
that this Warrant and the Warrant Stock have not been registered under the
Securities Act of 1933, as now in force or hereafter amended, or any successor
legislation ("Act"), and agrees not to sell, pledge, distribute, offer for sale,
transfer or otherwise dispose of this Warrant or any Warrant Stock issued upon
its exercise in the absence of (a) an effective registration statement under the
Act as to this Warrant and the Warrant Stock issued upon its exercise and
registration or qualification of this Warrant or such Warrant Stock under any
applicable Blue Sky or state securities law then in effect, or (b) an opinion of
counsel, satisfactory to the Company, that such registration and qualification
are not required.
Without limiting the generality of the foregoing, unless the
offering and sale of the Warrant Stock to be issued upon the exercise of the
Warrant shall have been effectively registered under the Act, the Company shall
be under no obligation to issue the shares covered by such exercise unless and
until the Registered Holder shall have executed an investment letter in form and
substance reasonably satisfactory to the Company, including a warranty at the
time of such exercise that it is acquiring such shares for its own account, for
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, in which event the Registered Holder shall be
bound by the provisions of a legend or legends to such effect which shall be
endorsed upon the certificate(s) representing the Warrant Stock issued pursuant
to such exercise.
5. Certain Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock
("Property Dividend"), then the Company will pay or distribute to the Registered
Holder of this Warrant, upon the exercise hereof, in addition to the Warrant
Stock purchased upon such exercise, the Property Dividend which would have been
paid to such Registered Holder if the Registered Holder had been the owner of
record of such shares of Warrant Stock immediately prior to the date on which a
record is taken for such Property Dividend or, if no record is taken, the date
as of which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
6. Registration Rights of Warrant Holder.
(a) In the event that the Company consummates an IPO with
Laidlaw Equities, Inc. or any of its affiliates, then it shall file twelve full
calendar months and one day from the effective date ("Effective Date") of the
IPO a Registration Statement under the Act ("Registration Statement") with the
Securities and Exchange Commission
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registering for resale the Warrants and the underlying shares of Common Stock
("Registrable Securities"). On such occasion, the Company will use its best
efforts to have such registration statement declared effective promptly
thereafter. Should this registration or the effectiveness thereof be delayed by
the Company, the exercisability of the Warrants shall be extended ("Delay
Extension") for a period of time equal to the delay in registering the
Registrable Securities provided, however, that such extension date shall not
extend beyond five years from the Effective Date. Moreover, if the Company fails
to comply with the provisions of this Section 6, the Company shall, in addition
to any other equitable or other relief available to the holders of the Warrants
("Holders"), be liable for any and all incidental, special and consequential
damages sustained by the Holder(s).
(b) In addition to the registration rights granted in
subsection (a) above, the Holders shall have the right until November 30, 2002
to include the Registrable Securities as part of any other registration of
securities filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8 or
any equivalent form).
(c) The Company shall bear all fees and expenses attendant to
registering the Registrable Securities, but the Holders shall pay any and all
underwriting commissions and the expenses of any legal counsel selected by the
Holders to represent them in connection with the sale of the Registrable
Securities. The Company agrees to use its best efforts to cause the filing
required herein to become effective promptly and to qualify or register the
Registrable Securities in such States as are reasonably requested by the
Holder(s); provided, however, that in no event shall the Company be required to
register the Registrable Securities in a State in which such registration would
cause (i) the Company to be obligated to register or license to do business in
such State, or (ii) the principal stockholders of the Company to be obligated to
escrow their shares of capital stock of the Company. The Company shall cause any
registration statement filed pursuant to the rights granted under this Section 6
to remain effective until the earliest of (i) November 30, 2003, (ii) the date
by which all of the Registrable Securities have been sold pursuant to the
registration statement, or (iii) the date by which all of the Registrable
Securities are eligible for resale without restriction pursuant to Rule 144(K)
promulgated under the Act.
(d) The Company shall indemnify the Holder(s) of the
Registrable Securities to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement. The Holder(s) of the
Registrable Securities to be sold pursuant to such registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company,
-8-
against all loss, claim, damage, expense or liability (including all reasonable
attorneys' fees and other expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, in
writing, for specific inclusion in such registration statement.
(e) Nothing contained in this Warrant shall be construed as
requiring the Holder(s) to exercise their Warrants prior to or after the initial
filing of any registration statement or the effectiveness thereof.
(f) The Company shall furnish to each Holder participating in
any of the foregoing offerings and to each underwriter of any such offering, if
any, a signed counterpart, addressed to such Holder or underwriter, of (i) an
opinion of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under any underwriting agreement
related thereto), and (ii) a "cold comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities. The Company shall also deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(g) The Company shall enter into an underwriting agreement
with the managing underwriter(s) selected by a majority of Holders whose
Registrable Securities are being registered pursuant to this Section 6(a). Such
agreement shall be reasonably satisfactory in form and substance to the Company,
each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the
-9-
Company and such other terms as are customarily contained in agreements of that
type used by the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their Registrable
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders, their shares and their intended methods of distribution.
(h) Each of the Holder(s) participating in any of the
foregoing offerings shall furnish to the Company a completed and executed
questionnaire provided by the Company requesting information customarily sought
of selling securityholders.
7. Redemption of Warrants by the Company.
(a) Redemption. If an IPO has not been consummated by May 30,
1997, the Warrants may be redeemed, at the option of the Company, as a whole at
any time prior to the Expiration Date, at the executive office of the Company,
upon the notice referred to in Section 7(b) at the price of $.25 per Warrant
("Redemption Price"), provided that (i) the Warrants and the underlying Common
Stock are registered on Form SB-2, S-1 or other form of registration statement
used by the Company, and (ii) the Class A and Class B Promissory Notes have been
paid in full.
(b) Date Fixed for and Notice of Redemption. Notice of
redemption shall be mailed by first class mail, postage prepaid, by the Company
or the Company's agent at its discretion not less than 30 days from the date
fixed for redemption to the Registered Holders of the Warrants to be redeemed at
their last address as they shall appear on the registration books. Any notice
mailed in the manner herein provided shall be conclusively presumed to have been
duly given whether or not the registered holder received such notice.
(c) Exercise After Notice of Redemption. The Warrants may be
exercised in accordance with Section 1 of this Agreement at any time after
notice of redemption shall have been given to the Company pursuant to Section
7(b) hereof and prior to the date fixed for redemption. On and after the
redemption date, the record holder of the Warrants shall have no further rights
except to receive, upon surrender of the Warrants, the Redemption Price.
8. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other securities at the time issuable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution (other than a dividend or distribution payable solely in
capital stock of the Company or out of
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funds legally available therefor), or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company; then, and in each such case, the Company will mail
or cause to be mailed to the Registered Holder of this Warrant a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the effective
date on which such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place, and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
such other stock or securities as are at the time issuable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the record date or effective date, for the event specified in
such notice, provided that the failure to mail such notice shall not affect the
legality or validity of any such action.
9. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such shares of Warrant Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Transfers, etc. The Company will maintain a register containing the
names and addresses of the Registered Holders of this Warrant and of the holders
of other warrants of like tenor issued simultaneously hereunder. Any Registered
Holder may change its, his or her address as shown on the warrant register by
written notice to the Company requesting such change.
Until any transfer of this Warrant is made in the warrant register,
the Company may treat the Registered Holder of this Warrant as the absolute
owner hereof for all purposes; provided, however, that if and when this Warrant
is properly assigned
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in blank, the Company may (but shall not be obligated to) treat the bearer
hereof as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary.
12. Mailing of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, sent by reputable
overnight delivery or by facsimile to the address furnished to the Company in
writing by the last Registered Holder of this Warrant who shall have furnished
an address to the Company in writing. All notices and other communications from
the Registered Holder of this Warrant or in connection herewith to the Company
shall be mailed by first-class certified or registered mail, postage prepaid,
sent by reputable overnight delivery or by facsimile to the Company at its
offices at, 2 Robbins Road, Westford Massachusetts 01886 or such other address
as the Company shall so notify the Registered Holder.
13. No Rights as Stockholders. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against whom enforcement of
the change or waiver is sought.
15. Headings. The headings of this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the law of the State of New York without regard to the
principles of conflict of law.
17. Venue. The Company (a) agrees that any legal suit, action or
proceeding arising out of or relating to this Warrant shall be instituted
exclusively in New York State Supreme Court, County of New York or in the United
States District Court for the Southern District of New York, (b) waives any
objection to the venue of any such suit, action or proceeding and the right to
assert that such forum is not a convenient forum, and (c) irrevocably consents
to the jurisdiction of the New York State Supreme Court, County of New York, and
the United States District Court for the Southern District of New York in any
such suit, action or proceeding. The Company further agrees to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in the New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York and
agrees that service of process upon it mailed by certified mail to its address
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding.
Dated: __________, 1996 AUGMENT SYSTEMS, INC.
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By:
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Duane A. Mayo, Chief Financial Officer
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EXHIBIT I
PURCHASE FORM
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To: AUGMENT SYSTEMS, INC.
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Dated:
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In accordance with the provisions set forth in the attached Warrant
(No. __), the undersigned hereby irrevocably elects to purchase ________ shares
of the Common Stock covered by such Warrant and herewith makes payment of
$_______, representing the full Exercise Price for such shares at the price per
share provided for in such Warrant.
or
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase _________ shares of Common Stock of Augment
Systems, Inc. by surrender of the unexercised portion of the within Purchase
Option (with a "Value" of $__________ based on a "Market Price" of
$___________).
The undersigned has had the opportunity to ask questions of and receive
answers from the officers of the Company regarding the affairs of the Company
and related matters, and has had the opportunity to obtain additional
information necessary to verify the accuracy of all information so obtained.
The undersigned understands that the shares have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
other jurisdiction, and hereby represents to the Company that the undersigned is
acquiring the shares for its own account, for investment, and not with a view
to, or for sale in connection with, the distribution of any such shares.
Signature
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Address
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EXHIBIT 10.11
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT THER ETO UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED. THE COMPANY'S SUBSCRIPTION AGREEMENT
WITH THE HOLDER CONTAINS ADDITIONAL PROVISIONS RESTRICTING THE TRANSFER OF THIS
WARRANT. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY'S
OFFICE.
For the Purchase of
No._______________ ________ shares of
Common Stock
CLASS B WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
AUGMENT SYSTEMS, INC.
(A DELAWARE CORPORATION)
Augment Systems, Inc., a Delaware corporation ("Company"), hereby certifies
that ________________, or his, her or its registered assigns ("Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time during the period commencing
December 1, 1997 ("Commencement Date") and ending on November 30, 2000
("Expiration Date"), ______ shares of Common Stock, $.01 par value, of the
Company ("Common Stock"), at an initial exercise price equal to $1.00 per share
(subject to adjustment as provided below); provided, however, that if the
Company consummates an initial public offering of its securities ("IPO") by May
30, 1997, then the per-share exercise price of the Warrant shall be adjusted to
be equal to three-fourths of the offering price of a share of Common Stock in
the IPO. The number of shares of Common Stock purchasable upon exercise of this
Warrant, and the exercise price per share, each as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Stock" and the "Exercise Price," respectively.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the purchase form appended hereto
as Exhibit I duly executed by such Registered Holder, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Exercise Price payable in respect of the number of shares of Warrant Stock being
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which the
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Stock shall be issuable upon such exercise as provided
in subsection 1(c) below shall be deemed to have become the holder or holders of
record of the Warrant Stock represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company at its
expense will cause to be issued in the name of, and delivered to, the Registered
Holder, or, subject to the terms and conditions hereof, as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full shares
of Warrant Stock to which such Registered Holder shall be entitled upon
such exercise, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on
the face or faces thereof for the number of shares of Warrant Stock equal
(without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant, minus the number of such
shares purchased by the Registered Holder upon such exercise as provided in
subsection 1(a) above.
(d) In lieu of the payment of the Exercise Price in the manner
required by Section 1(a), the Holder shall have the right (but not the
obligation) to pay the Exercise Price for the shares of Common Stock being
purchased with this Warrant upon exercise by the surrender to the Company of any
exercisable but unexercised portion of this Warrant having a "Value" (as defined
below), at the close of trading on the last trading day immediately preceding
the exercise of this Warrant, equal to the Exercise Price multiplied by the
number of shares of Common Stock being purchased upon exercise ("Cashless
Exercise Right"). The sum of (x) the number of shares of Common Stock being
purchased upon exercise of the non-surrendered portion of this Warrant pursuant
to this Cashless Exercise Right and (y) the number of shares of Common Stock
underlying the portion of this Warrant being surrendered, shall not in
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any event be greater than the total number of shares of Common Stock purchasable
upon the complete exercise of this Warrant if the Exercise Price were paid in
cash. The "Value" of the portion of the Warrant being surrendered shall equal
the remainder derived from subtracting (x) the Exercise Price multiplied by the
number of shares of Common Stock underlying the portion of this Warrant being
surrendered from (y) the Market Price of a share of Common Stock multiplied by
the number of shares of Common Stock underlying the portion of this Warrant
being surrendered. As used in this Warrant, the term "Market Price" at any date
shall be deemed to be the last reported sale price of the Common Stock on such
date, or, in case no such reported sale takes place on such day, the average of
the last reported sale price for the immediately preceding three trading days,
in either case as officially reported by the national securities exchange on
which the Common Stock is trading, or, if the Common Stock is not principally
traded on any national securities exchange, the last reported sale price as
furnished by the NASD through the Nasdaq National Market or SmallCap Market, or,
if applicable, the OTC Bulletin Board, or if the Common Stock is not listed or
admitted to trading on the Nasdaq National Market or SmallCap Market or OTC
Bulletin Board or similar organization, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it. The Cashless Exercise Right may be exercised by the
Holder on any business day on or after the Commencement Date and not later than
the Expiration Date by delivering the Warrant with a duly executed exercise form
attached hereto with the cashless exercise section completed to the Company,
exercising the Cashless Exercise Right and specifying the total number of shares
of Common Stock being purchased pursuant to such Cashless Exercise Right.
2. Adjustments to Exercise Price and Number of Securities.
(a) If the outstanding shares of the Company's Common Stock shall be
subdivided or split into a greater number of shares, or a dividend in Common
Stock shall be paid in respect of Common Stock, the Exercise Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall simultaneously with the effectiveness of such subdivision or split or
immediately after the record date of such dividend be proportionately reduced.
If the outstanding shares of Common Stock shall be combined or reverse-split
into a smaller number of shares, the Exercise Price in effect immediately prior
to such combination or reverse-split shall, simultaneously with the
effectiveness of such combination or reverse-split, be proportionately
increased.
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, or the
payment of a liquidating distribution, then, as part of any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution,
lawful provision shall be made so that the Registered Holder of this Warrant
shall have the right there after to receive upon the exercise hereof (to the
extent, if any,
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still exercisable) the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger, sale or liquidating distribution, as the case may be, such Registered
Holder had held the number of shares of Common Stock which were then purchasable
upon the exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined by the Board of Directors of the Company) shall be made in
the applica tion of the provisions set forth herein with respect to the rights
and interests thereafter of the Registered Holder of this Warrant such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Exercise Price) shall thereafter be applicable, as nearly as
practicable, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Exercise Price,
the number of shares of Warrant Stock purchasable upon the exercise of this
Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately prior to such adjustment, by (ii) the Exercise Price in effect
immediately after such adjustment.
(d) No adjustment in the per share Exercise Price shall be required
unless such adjustment would require an increase or decrease in the Exercise
Price of at least $0.01; provided, however, that any adjustments which by reason
of this paragraph are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section 2
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be. Anything in this Section 2 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the per share Exercise
Price, in addition to those required by this Section 2 as in its discretion it
shall deem to be advisable in order that any stock dividend, subdivision of
shares or distribution rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(e) Except as hereinafter provided, in case the Company shall at any
time after the date hereof, but prior to the effective date of the IPO, issue or
sell any shares of Common Stock, including shares held in the Company's
treasury, for a consideration per share less than either the Exercise Price or
the Market Price in effect immediately prior to the issuance or sale of such
shares, or without consideration, then forthwith upon such issuance or sale, the
Exercise Price shall (until another such issuance or sale) be reduced to the
price (calculated to the nearest full cent) equal to the quotient derived by
dividing (i) an amount equal to the sum of (x) the number of shares of Common
Stock outstanding immediately prior to such issuance or sale multiplied by the
lesser of the Exercise Price per share in effect immediately prior to such
issuance or sale or the Market Price in effect on the date immediately prior to
such issuance or sale, plus (y) the aggregate of the amount of all
consideration, if any,
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received by the Company upon such issuance or sale, by (ii) the number of shares
of Common Stock outstanding immediately after such issuance or sale; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation.
(f) Upon the happening of any event requiring an adjustment of the
Exercise Price hereunder, the Company shall forthwith give written notice
thereto to the Registered Holder of this Warrant stating the adjusted Exercise
Price and the adjusted number of shares purchasable upon the exercise hereof
resulting from such event and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(g) For the purposes of any computation to be made in accordance with
Section 2, the following provisions shall be applicable:
(i) Cash Consideration. In case of the issuance or sale by the
Company of shares of Common Stock for a consideration part or all of which
shall be cash, the amount of the cash consideration therefor shall be
deemed to be the amount of cash received by the Company for such shares
(or, if shares of Common Stock are offered by the Company for subscription,
the subscription price, or, if either of such securities shall be sold to
underwriters or dealers for public offering without a subscription
offering, the initial public offering price), before deducting therefrom
any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others perform ing similar
services, or any expenses incurred in connection therewith.
(ii) Other Than Cash Consideration. In case of the issuance or
sale (otherwise than as a dividend or other distribution on any stock of
the Company) of shares of Common Stock for a consideration part or all of
which shall be other than cash, the amount of the consideration therefor
other than cash shall be deemed to be the value of such consideration as
determined in good faith by the Board of Directors of the Company.
(iii) Outstanding Shares. The number of shares of Common Stock at
any one time outstanding shall include the aggregate number of shares
issued or issuable (subject to readjustment upon the actual issuance
thereof) upon the exercise of any and all outstanding options, rights,
warrants to purchase shares of Common Stock and upon the conversion or
exchange of any and all outstanding securities convertible or exchangeable
into shares of Common Stock.
(h) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share less than either the Exercise Price Per Share or the
Market
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Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration, the Exercise Price Per Share in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of this
Section 2 hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in such options, rights or warrants at the
time of issuance, plus the consideration, if any, received by the Company
for the issuance of such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and out standing at the time of
issuance of such securities, and for a consideration equal to the
consideration received by the Company for the issuance of such securities,
plus the minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(iii) If any change shall occur in the exercise price per share
provided for in any of the options, rights or warrants referred to in
clause (i) of Section 2(h), or in the price per share at which the
securities referred to in clause (ii) of Section 2(h) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
(i) No adjustment of the Exercise Price shall be made:
(i) Upon the issuance or sale of the shares of Common Stock
issuable upon the exercise of (i) the Warrants, (ii) convertible debt,
warrants and options outstanding on the date hereof and described in the
Company's Confidential Private Placement Memorandum, dated as of October
30, 1996; or (iii) Options granted under the Company's 1996 Stock Option
Plan, provided that the exercise price of such options shall be not less
than 85% of the Market Price on the date of grant of such options.
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3. Fractional Shares. The Company shall not be required to issue
certificates representing fractions of shares of Common Stock or Warrants upon
the exercise or transfer of the Purchase Option, nor shall it be required to
issue scrip or pay cash in lieu of any fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Warrants, shares of Common Stock or
other securities, properties or rights.
4. Limitation on Sales, etc. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Stock have not been registered under the Securities
Act of 1933, as now in force or hereafter amended, or any successor legislation
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant and the Warrant Stock issued upon its exercise and registration or
qualification of this Warrant or such Warrant Stock under any applicable Blue
Sky or state securities law then in effect, or (b) an opinion of counsel,
satisfactory to the Company, that such registration and qualification are not
required.
Without limiting the generality of the foregoing, unless the offering
and sale of the Warrant Stock to be issued upon the exercise of the Warrant
shall have been effectively registered under the Act, the Company shall be under
no obligation to issue the shares covered by such exercise unless and until the
Registered Holder shall have executed an investment letter in form and substance
reasonably satisfactory to the Company, including a warranty at the time of such
exercise that it is acquiring such shares for its own account, for investment
and not with a view to, or for sale in connection with, the distribution of any
such shares, in which event the Registered Holder shall be bound by the
provisions of a legend or legends to such effect which shall be endorsed upon
the certificate(s) representing the Warrant Stock issued pursuant to such
exercise.
5. Certain Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock
("Property Dividend"), then the Company will pay or distribute to the Registered
Holder of this Warrant, upon the exercise hereof, in addition to the Warrant
Stock purchased upon such exercise, the Property Dividend which would have been
paid to such Registered Holder if the Registered Holder had been the owner of
record of such shares of Warrant Stock immediately prior to the date on which a
record is taken for such Property Dividend or, if no record is taken, the date
as of which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
6. Registration Rights of Warrant Holder.
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(a) In the event that the Company consummates an IPO with Laidlaw
Equities, Inc. or any of its affiliates, then it shall file twelve full calendar
months and one day from the effective date ("Effective Date") of the IPO a
Registration Statement under the Act ("Registration Statement") with the
Securities and Exchange Commission registering for resale the Warrants and the
underlying shares of Common Stock ("Registrable Securities"). On such occasion,
the Company will use its best efforts to have such registration statement
declared effective promptly thereafter. Should this registration or the
effectiveness thereof be delayed by the Company, the exercisability of the
Warrants shall be extended ("Delay Extension") for a period of time equal to the
delay in registering the Registrable Securities provided, however, that such
extension date shall not extend beyond five years from the Effective Date.
Moreover, if the Company fails to comply with the provisions of this Section 6,
the Company shall, in addition to any other equitable or other relief available
to the holders of the Warrants ("Holders"), be liable for any and all
incidental, special and consequential damages sustained by the Holder(s).
(b) In addition to the registration rights granted in subsection (a)
above, the Holders shall have the right until November 30, 2002 to include the
Registrable Securities as part of any other registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8 or any equivalent
form).
(c) The Company shall bear all fees and expenses attendant to
registering the Registrable Securities, but the Holders shall pay any and all
underwriting commissions and the expenses of any legal counsel selected by the
Holders to represent them in connection with the sale of the Registrable
Securities. The Company agrees to use its best efforts to cause the filing
required herein to become effective promptly and to qualify or register the
Registrable Securities in such States as are reasonably requested by the
Holder(s); provided, however, that in no event shall the Company be required to
register the Registrable Securities in a State in which such registration would
cause (i) the Company to be obligated to register or license to do business in
such State, or (ii) the principal stockholders of the Company to be obligated to
escrow their shares of capital stock of the Company. The Company shall cause any
registration statement filed pursuant to the rights granted under this Section 6
to remain effective until the earliest of (i) November 30, 2003, (ii) the date
by which all of the Registrable Securities have been sold pursuant to the
registration statement, or (iii) the date by which all of the Registrable
Securities are eligible for resale without restriction pursuant to Rule 144(K)
promulgated under the Act.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement hereunder and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably incurred
in investigating, preparing or defending
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against any claim whatsoever) to which any of them may become subject under the
Act, the Exchange Act or otherwise, arising from such registration statement.
The Holder(s) of the Registrable Securities to be sold pursuant to such
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, prepar ing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such Holders,
or their successors or assigns, in writing, for specific inclusion in such
registration statement. (e) Nothing contained in this Warrant shall be construed
as requiring the Holder(s) to exercise their Warrants prior to or after the
initial filing of any registration statement or the effectiveness thereof.
(f) The Company shall furnish to each Holder participating in any of
the foregoing offerings and to each underwriter of any such offering, if any, a
signed counterpart, addressed to such Holder or underwriter, of (i) an opinion
of counsel to the Com pany, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offer ing,
an opinion dated the date of the closing under any under writing agreement
related thereto), and (ii) a "cold comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities. The Company shall also deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
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(g) The Company shall enter into an underwriting agreement with the
managing underwriter(s) selected by a majority of Holders whose Registrable
Securities are being registered pursuant to this Section 6(a). Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such under writers shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make any
repre sentations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders, their shares and their
intended methods of distribution.
(h) Each of the Holder(s) participating in any of the foregoing
offerings shall furnish to the Company a completed and executed questionnaire
provided by the Company requesting information customarily sought of selling
securityholders.
7. Redemption of Warrants by the Company.
(a) Redemption. If an IPO has not been consummated by May 30, 1997,
the Warrants may be redeemed, at the option of the Company, as a whole at any
time prior to the Expiration Date, at the executive office of the Company, upon
the notice referred to in Section 7(b) at the price of $.25 per Warrant
("Redemption Price"), provided that (i) the Warrants and the underlying Common
Stock are registered on Form SB-2, S-1 or other form of registration statement
used by the Company, and (ii) the Class A and Class B Promissory Notes have been
paid in full.
(b) Date Fixed for and Notice of Redemption. Notice of redemption
shall be mailed by first class mail, postage prepaid, by the Company or the
Company's agent at its discretion not less than 30 days from the date fixed for
redemption to the Registered Holders of the Warrants to be redeemed at their
last address as they shall appear on the registration books. Any notice mailed
in the manner herein provided shall be conclusively presumed to have been duly
given whether or not the registered holder received such notice.
(c) Exercise After Notice of Redemption. The Warrants may be exercised
in accordance with Section 1 of this Agreement at any time after notice of
redemption shall have been given to the Company pursuant to Section 7(b) hereof
and prior to the date fixed for redemption. On and after the redemption date,
the record holder of the Warrants shall have no further rights except to
receive, upon surrender of the Warrants, the Redemption Price.
8. Notices of Record Date, etc. In case:
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(a) the Company shall take a record of the holders of its Common Stock
(or other securities at the time issuable upon the exercise of this Warrant) for
the purpose of entitling or enabling them to receive any dividend or other
distribution (other than a dividend or distribution payable solely in capital
stock of the Company or out of funds legally available therefor), or to receive
any right to subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company; then, and in each such case, the Company will mail or
cause to be mailed to the Registered Holder of this Warrant a notice specifying,
as the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such other
stock or securities as are at the time issuable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the record date or effective date, for the event specified in
such notice, provided that the failure to mail such notice shall not affect the
legality or validity of any such action.
9. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such shares of Warrant Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Transfers, etc. The Company will maintain a register containing the
names and addresses of the Registered Holders of this Warrant and of the holders
of other warrants of like tenor issued simultaneously hereunder. Any Registered
Holder
-11-
may change its, his or her address as shown on the warrant register by written
notice to the Company requesting such change.
Until any transfer of this Warrant is made in the warrant register,
the Company may treat the Registered Holder of this Warrant as the absolute
owner hereof for all purposes; pro vided, however, that if and when this Warrant
is properly as signed in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
12. Mailing of Notices, etc. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, sent by reputable overnight
delivery or by facsimile to the address furnished to the Company in writing by
the last Registered Holder of this Warrant who shall have furnished an address
to the Company in writing. All notices and other communications from the
Registered Holder of this Warrant or in connection herewith to the Company shall
be mailed by first-class certified or registered mail, postage prepaid, sent by
reputable overnight delivery or by facsimile to the Company at its offices at, 2
Robbins Road, Westford Massachusetts 01886 or such other address as the Company
shall so notify the Registered Holder.
13. No Rights as Stockholders. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against whom enforcement of
the change or waiver is sought.
15. Headings. The headings of this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the law of the State of New York without regard to the
principles of conflict of law.
17. Venue. The Company (a) agrees that any legal suit, action or proceeding
arising out of or relating to this Warrant shall be instituted exclusively in
New York State Supreme Court, County of New York or in the United States
District Court for the Southern District of New York, (b) waives any objection
to the venue of any such suit, action or proceeding and the right to assert that
such forum is not a convenient forum, and (c) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceeding. The Company further agrees to accept and acknowledge
service of any and all process which may be served in any such suit, action or
proceeding in the New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York and
-12-
agrees that service of process upon it mailed by certified mail to its address
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding.
Dated: __________, 1996 AUGMENT SYSTEMS, INC.
By:________________________________________
Duane A. Mayo, Chief Financial Officer
-13-
EXHIBIT I
PURCHASE FORM
-------------
To: AUGMENT SYSTEMS, INC.
----------------------
----------------------
----------------------
Dated:________________________________
In accordance with the provisions set forth in the attached Warrant (No.
__), the undersigned hereby irrevocably elects to purchase ________ shares of
the Common Stock covered by such Warrant and herewith makes payment of $_______,
representing the full Exercise Price for such shares at the price per share
provided for in such Warrant.
or
The undersigned hereby elects irrevocably to exercise the within Purchase
Option and to purchase _________ shares of Common Stock of Augment Systems, Inc.
by surrender of the unexercised portion of the within Purchase Option (with a
"Value" of $__________ based on a "Market Price" of $___________).
The undersigned has had the opportunity to ask questions of and receive
answers from the officers of the Company regarding the affairs of the Company
and related matters, and has had the opportunity to obtain additional
information necessary to verify the accuracy of all information so obtained.
The undersigned understands that the shares have not been registered under
the Securities Act of 1933, as amended, or the securities laws of any other
jurisdiction, and hereby represents to the Company that the undersigned is
acquiring the shares for its own account, for investment, and not with a view
to, or for sale in connection with, the distribution of any such shares.
Signature______________________
Address ______________________
______________________
EXHIBIT 10.12
AUGMENT SYSTEMS, INC.
CLASS A PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD,
ASSIGNED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT THERETO UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED. THE COMPANY'S SUBSCRIPTION AGREEMENT
WITH THE HOLDER CONTAINS ADDITIONAL PROVISIONS RESTRICTING THE TRANSFER OF THIS
NOTE. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY'S
OFFICE.
$_________________ _____________, 1996
FOR VALUE RECEIVED, AUGMENT SYSTEMS, INC., a Delaware
corporation ("the Company"), with its principal office at 2 Robbins Road,
Westford, Massachusetts 01886, promises to pay to the order of
____________________________ residing at _________________________________
("Holder"), or registered assigns, on the earliest of (i) November 30, 1997,
(ii) the date of consummation by the Company for an initial public offering
("IPO") of its securities, as described in Section 4.1, or (iii) the date of
consummation of a sale by the Company of substantially all of its assets or
certain mergers or consolidations of the Company as described in Section 4.2 (in
any such event, "Maturity Date"), the principal amount of ________________
Dollars ($____________), in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public or private debts, together with interest on the unpaid balance of said
principal amount from time to time outstanding at the rate of twelve (12%)
percent per annum; provided, however, that if the Company has not consummated an
IPO by May 30, 1997, then the interest rate shall be fourteen (14%) percent per
annum, assessed retroactively to the date hereof. In the event that this Note is
not paid in full on or before the Maturity Date, interest shall accrue on the
outstanding principal of and, to the extent permitted by law, interest on the
Note from the Maturity Date up to and including the date of payment
at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum
interest rate allowed under applicable law. This Note shall be paid pro rata
with certain additional notes of like tenor being issued simultaneously
herewith. Payments of principal and interest are to be made at the address of
the Holder designated above or at such other place as the Holder shall have
notified the Company in writing at least five days before such payment is due.
This Note is issued pursuant to a subscription agreement
between the Company and the Holder ("Subscription Agreement"). Reference herein
to the Subscription Agreement shall in no way impair the absolute and
unconditional obligation of the Company to pay both principal and interest
hereon as provided herein.
1. Use of Proceeds. The Company agrees that the proceeds of this Note
shall not be used to prepay any indebtedness for borrowed money or to pay for
Related Party Obligations (as hereinafter defined). "Related Party Obligations"
shall mean all of the Company's obligations, including indebtedness (including
principal and any interest thereon) for borrowed funds and unpaid salaries, fees
or other compensation, owed to any of its officers, directors, stockholders or
their affiliates, for whatever purpose made and whether or not evidenced by a
note, bond, debenture or other formal instrument, excluding, for the purposes
hereof, any salaries or fees payable on a current basis to officers and
directors in the ordinary course of the Company's business.
2. Events of Default.
(a) Upon the occurrence of any of the following events (herein
called "Events of Default"):
(i) The Company shall fail to pay the principal of or
interest on this Note on the Maturity Date;
(ii) (A) The Company shall commence any proceeding or
other action relating to it in bankruptcy or seek reorganization,
arrangement, readjustment of its debts, receivership, dissolution,
liquidation, winding-up, composition or any other relief under any
bankruptcy law, or under any other insolvency, reorganization,
liquidation, dissolution, arrangement, composition, readjustment of
debt or any other similar act or law, of any jurisdiction, domestic or
foreign, now or hereafter existing; or (B) the Company shall admit the
material allegations of any petition or pleading in connection with any
such proceeding; or (C) the Company shall apply for, or consent or
acquiesce to, the appointment of a receiver, conservator, trustee or
similar officer for it or for all or a substantial part of its
property; or (D) the Company shall make a general assignment for the
benefit of creditors;
-2-
(iii) (A) The commencement of any proceedings or the
taking of any other action against the Company in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts, liquidation,
dissolution, arrangement, composition, or any other relief under any
bankruptcy law or any other similar act or law of any jurisdiction,
domestic or foreign, now or hereafter existing and the continuance of
any of such events for sixty (60) days undismissed, unbonded or
undischarged; or (B) the appointment of a receiver, conservator,
trustee or similar officer for the Company for any of its property and
the continuance of any of such events for sixty (60) days undismissed,
unbonded or undischarged; or (C) the issuance of a warrant of
attachment, execution or similar process against any of the property of
the Company and the continuance of such event for sixty (60) days
undismissed, unbonded and undischarged;
(iv) Any breach of any of the Company's
representations or warranties contained in the Subscription Agreement
or the Agency Agreement dated _____________ ___, 1996 between the
Company and Laidlaw Equities, Inc.;
(v) The Company shall fail to perform any obligation
of the Company contained in the Subscription Agreement or the Agency
Agreement, after giving effect to any applicable notice provisions and
cure periods;
(vi) The Company shall fail to comply with any of its
obligations under this Note; provided, however, that with respect to a
failure to comply with any of the provisions of Sections 3.1(a) and (c)
of this Note, only if such failure is not remedied within thirty (30)
days after the Company's receipt of written notice of same;
(vii) The Company shall default with respect to any
indebtedness for borrowed money (other than under this Note) if either
(a) the effect of such default is to accelerate the maturity of such
indebtedness (giving effect to any applicable grace periods) or (b) the
holder of such indebtedness declares the Company to be in default
(giving effect to any applicable grace periods); or
(viii) Any judgment or judgments against the Company
or any attachment, levy or execution against any of its properties for
any amount in excess of $25,000 in the aggregate shall remain unpaid,
or shall not be released, discharged, dismissed, stayed or fully bonded
for a period of 30 days or more after its entry, issue or levy, as the
case may be;
then, and in any such event, the Holder at its option and without written notice
to the Company, may declare the entire principal amount of this Note then
outstanding together with accrued unpaid interest thereon immediately due and
payable, and the same shall forthwith become immediately due and payable without
presentment, demand, protest,
-3-
or other notice of any kind, all of which are expressly waived. The Events of
Default listed herein are solely for the purpose of protecting the interests of
the Holder of this Note. If the Note is not paid in full upon acceleration, as
required above, interest shall accrue on the outstanding principal of and, to
the extent permitted by law, interest on this Note from the date of the Event of
Default up to and including the date of payment at a rate equal to the lesser of
eighteen (18%) percent per annum or the maximum interest rate permitted by
applicable law.
(b) Non-Waiver and Other Remedies. No course of dealing or
delay on the part of the Holder of this Note in exercising any right hereunder
shall operate as a waiver or otherwise prejudice the right of the Holder of this
Note. No remedy conferred hereby shall be exclusive of any other remedy referred
to herein or now or hereafter available at law, in equity, by statute or
otherwise.
(c) Collection Costs; Attorney's Fees. In the event this Note
is turned over to an attorney for collection, the Company agrees to pay all
reasonable costs of collection, including reasonable attorney's fees and
expenses and all out of pocket expenses incurred in connection with such
collection efforts, which amounts may, at the Holder's option, be added to the
principal hereof.
3. Obligation to Pay Principal and Interest; Covenants. No provision of
this Note shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and interest on this Note at the
place, at the respective times, at the rates, and in the currency herein
prescribed.
3.1. Affirmative Covenants. The Company covenants and agrees
that, while this Note is outstanding, it shall:
(a) Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income and profits, or upon any
properties belonging to it before the same shall be in default; provided,
however, that the Company shall not be required to pay any such tax, assessment,
charge or levy which is being contested in good faith by proper proceedings and
adequate reserves for the accrual of same are maintained if required by
generally accepted accounting principles;
(b) Preserve its corporate existence and continue to engage in
business of the same general type as conducted as of the date hereof;
(c) Comply in all respects with all statutes, laws,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations and requirements ("Requirement(s)") of all
governmental bodies, departments, commissions, boards, companies or associates
insuring the premises, courts, authorities, officials, or officers, which are
applicable to the Company; except wherein the failure to comply would not have a
material adverse effect on the Company; provided that nothing
-4-
contained herein shall prevent the Company from contesting the validity or the
application of any Requirements.
3.2. Negative Covenants. The Company covenants and agrees that
while this Note is outstanding it will not directly or indirectly:
(a) Guaranty or otherwise in any way become or be responsible
for indebtedness for borrowed money or for obligations of any of its officers,
directors or principal stockholders or any of their affiliates, contingently or
otherwise, other than such guaranties existing as of the date hereof;
(b) Declare or pay cash dividends;
(c) Sell, transfer or dispose of, any of its assets other than
in the ordinary course of its business and for fair value;
(d) Purchase, redeem, retire or otherwise acquire for value
any of its capital stock now or hereafter outstanding; or
(e) Prepay any indebtedness for borrowed funds or pay Related
Party Obligations.
4. Repayment.
4.1. Initial Public Offering. This Note shall be paid in full,
without premium but with all interest accrued thereon, in the event, and on the
date, that the Company successfully consummates an initial public offering of
securities of the Company ("IPO"). The words "successful consummation," for this
purpose, shall mean the date on which the Company receives the first net
proceeds of the offering.
4.2. Consolidation or Merger; Sale of Assets. This Note shall
be paid in full, without premium but with all interest accrued thereon, in the
event (a) the Company consolidates or merges with another corporation, unless
(i) the Company shall be the surviving corporation in such consolidation or
merger or (ii) the other corporation controls, is under common control with or
is controlled by the Company immediately prior to the consolidation or merger
whether or not the Company shall be the surviving corporation in such
consolidation or merger, in which event this Note shall remain outstanding as an
obligation of the consolidated or surviving corporation, or (b) the Company
consummates a sale of all or substantially all of its assets, or (c) there
occurs a sale of all or substantially all of the Company's outstanding Common
Stock.
-5-
5. Required Consent. The Company may not modify any of the terms of
this Note without the prior written consent of the Holder.
6. Lost Documents. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such Note,
if mutilated, the Company will make and deliver in lieu of such Note a new Note
of like tenor and unpaid principal amount and dated as of the original date of
the Note.
7. Miscellaneous.
7.1. Benefit. This Note shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
7.2. Notices and Addresses. All notices, offers, acceptances
and any other acts under this Note (except payment) shall be in writing, and
shall be sufficiently given if delivered to the addressee in person, by Federal
Express or similar receipted delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
To Holder: To Holder's address on page 1 of this Note
To The Company: Augment Systems, Inc.
2 Robbins Road
Westford, Massachusetts 01886
Attn: Lorrin G. Gale, President and Chief
Executive Officer
Fax: 508-392-8636
In either case with copies to: Warner & Stackpole LLP
75 State Street
Boston, Massachusetts 02109
Attn: Michael A. Hickey, Esq.
Fax: 617-951-9151
Graubard Mollen & Miller
600 Third Avenue, 31st Floor
New York, NY 10016
Attn: Peter M. Ziemba, Esq.
Fax: 212-818-8881
-6-
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be,
delivery or, if mailed, ______ (__) business days after mailing.
(a) Governing Law. The Company (i) agrees that this Note and
any dispute, disagreement, or issue of construction or interpretation arising
hereunder whether relating to its execution, its validity, its obligations
provided herein or performance shall be governed and interpreted according to
the law of the State of New York and (ii) agrees that service of process upon it
mailed by certified mail to its address shall be deemed in every respect
effective service of process upon it in any such suit, action or proceeding.
(b) Jurisdiction and Venue. The Company (i) agrees that any
legal suit, action or proceeding arising out of or relating to this Note shall
be instituted exclusively in New York State Supreme Court, County of New York or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding, and the Company further agrees to accept
and acknowledge service of any and all process which may be served in any such
suit, action or proceeding in New York State Supreme Court, County of New York,
or in the United States District Court for the Southern District of New York and
agrees that service of process upon it mailed by certified mail to its address
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding.
(c) Section Headings. Section headings herein have been
inserted for reference only and shall not be deemed to limit or otherwise
affect, in any matter, or be deemed to interpret in whole or in part any of the
terms or provisions of this Note.
(d) Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements contained herein shall survive
the delivery of this Note.
IN WITNESS WHEREOF, this Note has been executed and delivered
on the date specified above by the duly authorized representative of the
Company.
AUGMENT SYSTEMS, INC.
By:
----------------------------------------
Duane A. Mayo, Chief Financial Officer
-7-
-8-
EXHIBIT 10.13
AUGMENT SYSTEMS, INC.
CLASS B PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD,
ASSIGNED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT THERETO UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED. THE COMPANY'S SUBSCRIPTION AGREEMENT
WITH THE HOLDER CONTAINS ADDITIONAL PROVISIONS RESTRICTING THE TRANSFER OF THIS
NOTE. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY'S
OFFICE.
$_________________ _____________, 1996
FOR VALUE RECEIVED, AUGMENT SYSTEMS, INC., a Delaware
corporation ("the Company"), with its principal office at 2 Robbins Road,
Westford, Massachusetts 01886, promises to pay to the order of
_________________________________ residing at ____________________________
("Holder"), or registered assigns, on the earliest of (i) May 31, 1998, (ii) 12
months following the date of consummation by the Company for an initial public
offering ("IPO") of its securities, as described in Section 4.1, or (iii) the
date of consummation of a sale by the Company of substantially all of its assets
or certain mergers or consolidations of the Company as described in Section 4.2
(in any such event, "Maturity Date"), the principal amount of ________________
Dollars ($____________), in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public or private debts, together with interest on the unpaid balance of said
principal amount from time to time outstanding at the rate of twelve (12%)
percent per annum; provided, however, that if the Company has not consummated an
IPO by May 30, 1997, then the interest rate shall be fourteen (14%) percent per
annum, assessed retroactively to the date hereof. In the event that this Note is
not paid in full on or before the Maturity Date, interest shall accrue on the
outstanding principal of and, to the extent permitted by law, interest on the
Note from the Maturity Date up to and
including the date of payment at a rate equal to the lesser of eighteen percent
(18%) per annum or the maximum interest rate allowed under applicable law. This
Note shall be paid pro rata with certain additional notes of like tenor being
issued simultaneously herewith. Payments of principal and interest are to be
made at the address of the Holder designated above or at such other place as the
Holder shall have notified the Company in writing at least five days before such
payment is due.
This Note is issued pursuant to a subscription agreement
between the Company and the Holder ("Subscription Agreement"). Reference herein
to the Subscription Agreement shall in no way impair the absolute and
unconditional obligation of the Company to pay both principal and interest
hereon as provided herein.
1. Use of Proceeds. The Company agrees that the proceeds of this Note
shall not be used to prepay any indebtedness for borrowed money or to pay for
Related Party Obligations (as hereinafter defined). "Related Party Obligations"
shall mean all of the Company's obligations, including indebtedness (including
principal and any interest thereon) for borrowed funds and unpaid salaries, fees
or other compensation, owed to any of its officers, directors, stockholders or
their affiliates, for whatever purpose made and whether or not evidenced by a
note, bond, debenture or other formal instrument, excluding, for the purposes
hereof, any salaries or fees payable on a current basis to officers and
directors in the ordinary course of the Company's business.
2. Events of Default.
(a) Upon the occurrence of any of the following events (herein
called "Events of Default"):
(i) The Company shall fail to pay the principal of or
interest on this Note on the Maturity Date;
(ii) (A) The Company shall commence any proceeding or
other action relating to it in bankruptcy or seek reorganization,
arrangement, readjustment of its debts, receivership, dissolution,
liquidation, winding-up, composition or any other relief under any
bankruptcy law, or under any other insolvency, reorganization,
liquidation, dissolution, arrangement, composition, readjustment of debt
or any other similar act or law, of any jurisdiction, domestic or
foreign, now or hereafter existing; or (B) the Company shall admit the
material allegations of any petition or pleading in connection with any
such proceeding; or (C) the Company shall apply for, or consent or
acquiesce to, the appointment of a receiver, conservator, trustee or
similar officer for it or for all or a substantial part of its property;
or (D) the Company shall make a general assignment for the benefit of
creditors;
-2-
(iii) (A) The commencement of any proceedings or the
taking of any other action against the Company in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts, liquidation,
dissolution, arrangement, composition, or any other relief under any
bankruptcy law or any other similar act or law of any jurisdiction,
domestic or foreign, now or hereafter existing and the continuance of
any of such events for sixty (60) days undismissed, unbonded or
undischarged; or (B) the appointment of a receiver, conservator, trustee
or similar officer for the Company for any of its property and the
continuance of any of such events for sixty (60) days undismissed,
unbonded or undischarged; or (C) the issuance of a warrant of
attachment, execution or similar process against any of the property of
the Company and the continuance of such event for sixty (60) days
undismissed, unbonded and undischarged;
(iv) Any breach of any of the Company's representations or
warranties contained in the Subscription Agreement or the Agency
Agreement dated _____________ ___, 1996 between the Company and Laidlaw
Equities, Inc.;
(v) The Company shall fail to perform any obligation of
the Company contained in the Subscription Agreement or the Agency
Agreement, after giving effect to any applicable notice provisions and
cure periods;
(vi) The Company shall fail to comply with any of its
obligations under this Note; provided, however, that with respect to a
failure to comply with any of the provisions of Sections 3.1(a) and (c)
of this Note, only if such failure is not remedied within thirty (30)
days after the Company's receipt of written notice of same;
(vii) The Company shall default with respect to any
indebtedness for borrowed money (other than under this Note) if either
(a) the effect of such default is to accelerate the maturity of such
indebtedness (giving effect to any applicable grace periods) or (b) the
holder of such indebtedness declares the Company to be in default
(giving effect to any applicable grace periods); or
(viii) Any judgment or judgments against the Company or
any attachment, levy or execution against any of its properties for any
amount in excess of $25,000 in the aggregate shall remain unpaid, or
shall not be released, discharged, dismissed, stayed or fully bonded for
a period of 30 days or more after its entry, issue or levy, as the case
may be;
then, and in any such event, the Holder at its option and without written notice
to the Company, may declare the entire principal amount of this Note then
outstanding together with accrued unpaid interest thereon immediately due and
payable, and the same shall forthwith become immediately due and payable without
presentment, demand, protest,
-3-
or other notice of any kind, all of which are expressly waived. The Events of
Default listed herein are solely for the purpose of protecting the interests of
the Holder of this Note. If the Note is not paid in full upon acceleration, as
required above, interest shall accrue on the outstanding principal of and, to
the extent permitted by law, interest on this Note from the date of the Event of
Default up to and including the date of payment at a rate equal to the lesser of
eighteen (18%) percent per annum or the maximum interest rate permitted by
applicable law.
(b) Non-Waiver and Other Remedies. No course of dealing or
delay on the part of the Holder of this Note in exercising any right hereunder
shall operate as a waiver or otherwise prejudice the right of the Holder of this
Note. No remedy conferred hereby shall be exclusive of any other remedy referred
to herein or now or hereafter available at law, in equity, by statute or
otherwise.
(c) Collection Costs; Attorney's Fees. In the event this Note
is turned over to an attorney for collection, the Company agrees to pay all
reasonable costs of collection, including reasonable attorney's fees and
expenses and all out of pocket expenses incurred in connection with such
collection efforts, which amounts may, at the Holder's option, be added to the
principal hereof.
3. Obligation to Pay Principal and Interest; Covenants. No provision of
this Note shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and interest on this Note at the
place, at the respective times, at the rates, and in the currency herein
prescribed.
3.1. Affirmative Covenants. The Company covenants and agrees
that, while this Note is outstanding, it shall:
(a) Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income and profits, or upon any
properties belonging to it before the same shall be in default; provided,
however, that the Company shall not be required to pay any such tax, assessment,
charge or levy which is being contested in good faith by proper proceedings and
adequate reserves for the accrual of same are maintained if required by
generally accepted accounting principles;
(b) Preserve its corporate existence and continue to engage in
business of the same general type as conducted as of the date hereof;
(c) Comply in all respects with all statutes, laws,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations and requirements ("Requirement(s)") of all
governmental bodies, departments, commissions, boards, companies or associates
insuring the premises, courts, authorities, officials, or officers, which are
applicable to the Company; except wherein the failure to comply would not have a
material adverse effect on the Company; provided that nothing
-4-
contained herein shall prevent the Company from contesting the validity or the
application of any Requirements.
3.2. Negative Covenants. The Company covenants and agrees that
while this Note is outstanding it will not directly or indirectly:
(a) Guaranty or otherwise in any way become or be responsible
for indebtedness for borrowed money or for obligations of any of its officers,
directors or principal stockholders or any of their affiliates, contingently or
otherwise, other than such guaranties existing as of the date hereof;
(b) Declare or pay cash dividends;
(c) Sell, transfer or dispose of, any of its assets other than
in the ordinary course of its business and for fair value;
(d) Purchase, redeem, retire or otherwise acquire for value
any of its capital stock now or hereafter outstanding; or
(e) Prepay any indebtedness for borrowed funds or pay Related
Party Obligations.
4. Repayment.
4.1. Initial Public Offering. This Note shall be paid in full,
without premium but with all interest accrued thereon, in the event, and on the
date, that the Company successfully consummates an initial public offering of
securities of the Company ("IPO"). The words "successful consummation," for this
purpose, shall mean the date on which the Company receives the first net
proceeds of the offering.
4.2. Consolidation or Merger; Sale of Assets. This Note shall
be paid in full, without premium but with all interest accrued thereon, in the
event (a) the Company consolidates or merges with another corporation, unless
(i) the Company shall be the surviving corporation in such consolidation or
merger or (ii) the other corporation controls, is under common control with or
is controlled by the Company immediately prior to the consolidation or merger
whether or not the Company shall be the surviving corporation in such
consolidation or merger, in which event this Note shall remain outstanding as an
obligation of the consolidated or surviving corporation, or (b) the Company
consummates a sale of all or substantially all of its assets, or (c) there
occurs a sale of all or substantially all of the Company's outstanding Common
Stock.
-5-
5. Required Consent. The Company may not modify any of the terms of
this Note without the prior written consent of the Holder.
6. Lost Documents. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such Note,
if mutilated, the Company will make and deliver in lieu of such Note a new Note
of like tenor and unpaid principal amount and dated as of the original date of
the Note.
7. Miscellaneous.
7.1. Benefit. This Note shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
7.2. Notices and Addresses. All notices, offers, acceptances
and any other acts under this Note (except payment) shall be in writing, and
shall be sufficiently given if delivered to the addressee in person, by Federal
Express or similar receipted delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
To Holder: To Holder's address on page 1 of this Note
To The Company: Augment Systems, Inc.
2 Robbins Road
Westford, Massachusetts 01886
Attn: Lorrin G. Gale, President and Chief
Executive Officer
Fax: 508-392-8636
In either case with copies to: Warner & Stackpole LLP
75 State Street
Boston, Massachusetts 02109
Attn: Michael A. Hickey, Esq.
Fax: 617-951-9151
Graubard Mollen & Miller
600 Third Avenue, 31st Floor
New York, NY 10016
Attn: Peter M. Ziemba, Esq.
Fax: 212-818-8881
-6-
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be,
delivery or, if mailed, ______ (__) business days after mailing.
(a) Governing Law. The Company (i) agrees that this Note and
any dispute, disagreement, or issue of construction or interpretation arising
hereunder whether relating to its execution, its validity, its obligations
provided herein or performance shall be governed and interpreted according to
the law of the State of New York and (ii) agrees that service of process upon it
mailed by certified mail to its address shall be deemed in every respect
effective service of process upon it in any such suit, action or proceeding.
(b) Jurisdiction and Venue. The Company (i) agrees that any
legal suit, action or proceeding arising out of or relating to this Note shall
be instituted exclusively in New York State Supreme Court, County of New York or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding, and the Company further agrees to accept
and acknowledge service of any and all process which may be served in any such
suit, action or proceeding in New York State Supreme Court, County of New York,
or in the United States District Court for the Southern District of New York and
agrees that service of process upon it mailed by certified mail to its address
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding.
(c) Section Headings. Section headings herein have been
inserted for reference only and shall not be deemed to limit or otherwise
affect, in any matter, or be deemed to interpret in whole or in part any of the
terms or provisions of this Note.
(d) Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements contained herein shall survive
the delivery of this Note.
IN WITNESS WHEREOF, this Note has been executed and delivered
on the date specified above by the duly authorized representative of the
Company.
AUGMENT SYSTEMS, INC.
By:
-------------------------------------------
Duane A. Mayo, Chief Financial Officer
-7-
EXHIBIT 10.14
CONSULTING AGREEMENT
AGREEMENT is made as of this 1st day of July, 1995, by and between, Augment
Systems Inc., a Delaware corporation with its principal place of business
located at 19 Crosby Drive, Bedford, Massachusetts (the "Company"), and Young
Management Group, Inc., a Massachusetts corporation with its principal place of
business located at 8 New England Executive Park, Burlington, Massachusetts
01803 ("Consultant").
RECITALS
WHEREAS, the Company has agreed to engage Consultant as a Consultant to
render advice and services from time to time regarding the preparation, review
and development of a business plan for the Company; the preparation, review and
development of marketing plans and strategies; assistance with investor and
stockholder relations; the writing of internal reports regarding corporate
finance; and general business advice requested from time to time by the Company;
WHEREAS, Consultant and the Company agree that certain information
regarding the trade secrets, marketing plans and strategies, business and
operations of the Company that Consultant may obtain, prepare, review or develop
during the course of its relationship with the Company should be used
exclusively for the benefit of the Company and are deemed to be "works for hire"
for the Company.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and conditions herein contained, the parties hereto agree as follows:
1. Consultant's Services
a) The Company hereby retains Consultant, and its officers and employees,
to perform the following consulting and advisory services (the "Services") upon
the terms and conditions set forth in this Agreement.
b) Consultant's Services to be rendered to the Company shall include the
following: advice and consultation regarding the preparation, review, critique,
and development of a business plan for the Company; advice and assistance for
enhancing the Company's management structure and operation plan; assistance in
recruiting executive officers and key employees for the Company; the preparation
of a financial plan; assistance in the evaluation by the Company of various
financing options, including the assessment of various forms of financing,
whether through bank lines of credit, private placements, public offering,
merger or acquisition; the preparation, review and development of a strategic
marketing plan and financial plan; the preparation, review, evaluation, and
development of a private placement memorandum; the identification of, and
introduction of the Company to commercial banks, investment banks and investment
advisors; assistance in structuring and negotiating any such acquisitions;
assistance in preparing, drafting and reviewing offering literature and business
plans for private placements of
the Company's debt or equity securities; evaluation and critique of the
Company's operations, marketing strategies and management; and such other
general business advice and assistance relating to the Company's capital
structure, operations, finance and administration, sales and marketing, research
and development, marketing plans, management and working capital requirements as
may be requested from time to time by the Board of Directors and senior
executive officers of the Company.
c) Consultant will assist the Company in identifying a registered
broker-dealer that will act as placement agent of a private placement by the
Company for the purpose of raising $1.1 million in first round financing. The
securities to be offered in the placement will be:
i) $850,000 convertible subordinated debentures at 10% interest. The
debentures will be redeemed 1/3 ($283,333.33) at the time of the
closing of the Company's initial public offering (IPO) and 1/3 at the
end of each year subsequent to the IPO or in three years, whichever is
earlier. The debenture holder may elect to convert any portion of his
outstanding debt to common stock of the Company at a price equal to
$1.00 above the IPO price, and the Company may call for the conversion
of the debt at such price at any time the Company's stock price is
equal to or greater than $3.00 above the IPO price.
ii) $250,000 for 15% of the Company's post money common stock, or 330,882
shares of the Company's expected recapitalized shares.
Consultant will also assist the Company in identifying a strategic partner or
registered broker-dealer that will act as placement agent of a private placement
by the Company for the purpose of raising $1.1 million in second round
financing. The securities to be offered in the placement will be similar in
nature to (i) and (ii) above, except the equity portion will purchase 5% of the
Company's common stock. Such financing shall be planned for approximately five
months from round one funding.
Consultant will also assist the Company in the selection of an investment banker
to underwrite a public offering of the Company's securities with a view to
raising from $5 million to $6 million in gross proceeds within four to five
months from round two funding, depending on market conditions. The Company will
target selling 20% - 25% of its common stock, or a post money valuation of $20
million - $30 million.
2. Independent Contractor. It is expressly understood that the
relationship of Consultant to the Company is that of an independent contractor
and consultant. Nothing contained herein shall be construed to create an
employer and employee or principal and agent relationship between the Company
and Consultant. Consultant shall have sole and exclusive responsibility for the
payment of all federal, state and local taxes and for all employment and
disability insurance, Social Security to Consultant or Consultant's officers,
employees and agents. Consultant shall assume and accept all responsibilities
which are imposed upon an independent contractor by any statute, regulation,
rule of law or otherwise. Consultant is not authorized to bind the Company, to
incur any obligation or liability on behalf of the Company, or to use the
Company's name except as expressly authorized in writing by the Company or as
contemplated by this Agreement.
-2-
3. Compensation for Services. For the performance of the Services to
be rendered to the Company during the term of this Agreement, the Company shall
pay and provide Consultant, as full and complete compensation for the Services,
compensation as follows:
a) Cash Compensation. For each month during the term of this
Agreement, Consultant shall be paid cash compensation in the amount of $7,000
(seven thousand dollars). Consultant agrees that the Company may accrue $3,000
per month of the cash compensation until the sooner of an IPO, a third round of
financing, or a mutually agreed upon time, at which time all accrued and unpaid
cash compensation shall be due and payable immediately. For any period during
the term of this Agreement that is less than a full month, the payment shall be
prorated.
b) Equity Participation. The Company sells to Consultant, concurrent
with the execution of this Agreement, 375,000 shares of common stock to Young
Management Group or its designees at a price of $.01 per share as per attached
Schedule "A".
4. Expenses. The Company shall reimburse Consultant for all reasonable
and necessary out-of-pocket expenses incurred by Consultant in connection with
the Services rendered hereunder, provided that such expenses are deductible to
the Company and are properly documented in reasonable, itemized detail.
Consultant's expenses shall in no event exceed $1,000 per month unless such
expenses are authorized in advance and in writing by the Company.
5. Nondisclosure of Proprietary Information.
a) Proprietary Information. For purposes of this Agreement, the term
"Proprietary Information" shall mean all knowledge and information which
Consultant has acquired or may acquire as a result of, or related to, or arising
from its relationship with the Company concerning the Company's business,
finances, operations, marketing plans and marketing strategies, research and
development activities, software designs and specifications, products, services,
trade secrets, and cost and pricing policies. Notwithstanding the foregoing
sentence, such Proprietary Information does not include (i) information which is
or becomes publicly available or is a matter for the public domain (except as
may be disclosed by Consultant in violation of this Agreement); (ii) information
acquired by Consultant from a source other than the Company or any of its
employees, which source legally acquired such information directly from the
Company without any obligation of nondisclosure; or (iii) information known to
Consultant prior to the date hereof.
b) Nondisclosure Obligation. Consultant agrees that it will not at any
time, either during or after the term or any termination of this Agreement,
without the prior written consent of the Company, divulge or disclose to anyone
outside the Company, or appropriate for its own use or the use of any third
party, any such Proprietary Information, and will not during its engagement by
the Company hereunder, or at any time thereafter, disclose or use, or attempt to
use, any such Proprietary Information for its own benefit, or the benefit of any
third party, or in any manner which may injure or cause loss, or may be
calculated to injure or cause loss, to the Company. Consultant shall obtain from
all employees, Consultants, agents, or other representatives employed or engaged
by it to do any work for the benefit of the Company a
-3-
written agreement obligating them to the same restrictions on the disclosure of
Proprietary Information as set forth in this Section.
c) Works for Hire. Consultant and the Company agree that any and all
reports, business plans, memoranda, notes, drawings, private placement memoranda
or other written materials conceived, devised, developed or otherwise obtained
by Consultant for the benefit of the Company during the course of rendering
Services to the Company hereunder are "works for hire" and are hereby assigned
to the Company. Such materials shall be the sole and exclusive property of the
Company as consideration for any and all compensation paid to Consultant under
this Agreement.
6. Term. The term of this Agreement shall be for one year commencing
on July 1, 1995 and shall automatically extend thereafter from year-to-year
until the earlier of (i) the dissolution, liquidation or cessation of business
in the ordinary course of Consultant or the Company, or (ii) termination as
provided in Section 7 below. The term of the Agreement may be extended and
renewed by mutual, written agreement of the parties.
7. Termination. Either party may terminate this Agreement upon (i)
five (5) days prior written notice in the event of a material breach of the
terms of this Agreement; or (ii) at any time subsequent to June 30, 1996, upon
30 days prior written notice. The Company may terminate this Agreement "for just
cause" upon five (5) days prior written notice to Consultant. "Just cause" shall
mean any one or more of the following: (a) the substantial and continuing
failure of Consultant to render Services to the Company in accordance with its
obligations under this Agreement for a continuous period of thirty (30) days;
(b) willful misconduct, malfeasance, misfeasance or gross negligence of
Consultant (or any of Consultant's employees, consultants or agents) in
connection with the performance of such Services; (c) the conviction of
Consultant (or any of Consultant's employees, Consultants or agents) of a
felony, either in connection with the performance of its obligations to the
Company or which shall adversely affect Consultant's ability to perform such
obligations; (d) disloyalty, dishonesty or breach of fiduciary duty to the
Company; or (e) the commission of an act of embezzlement, fraud or deliberate
disregard of the rules or policies of the Company which results in loss, damage
or injury to the Company. After any termination becomes effective, both the
Company and Consultant shall thereafter be relieved of any further obligations
pursuant to this Agreement.
8. Registration Rights. The Company hereby grants the following rights
with respect to any securities issuable to Consultant under this Agreement.
a) "Piggy-Back" Registrations. If at any time the Company shall
determine to register under the Securities Act of 1933 any of its common stock
(other than on Form S-8 or Form S-4 or their then equivalents relating to shares
of common stock issuable in connection with any stock option or other employee
benefits plan or shares of common stock to be issued solely in connection with
an acquisition of any entity or business), it shall send to Consultant written
notice of such determination and, if within 15 days after receipt of such
notice, Consultant so requests in writing, the Company shall use its best
efforts to include in such registration statement all or any part of the
Registrable Shares, as defined below, that Consultant requests be included in
the registration statement. Notwithstanding the foregoing, if in
-4-
connection with underwritten offering, the managing underwriter shall impose a
limitation on the number of shares of common stock which may be included in any
such registration statement because, in its judgment, such limitation is
necessary to effect an orderly public distribution of the common stock and to
maintain a stable market for the securities of the Company then the Company
shall be obligated to include in such registration statement only such limited
portion (which may be none) of the Registrable Shares with respect to which
Consultant has requested registration. The obligations of the Company under this
Section shall expire and terminate at such time as Consultant shall be entitled
to sell such securities without restriction and without registration under the
Securities Act, including, without limitations, pursuant to any of the
provisions of Rule 144 as promulgated by the Securities and Exchange Commission.
For purposes of this Section 9, "Registrable Shares" shall mean the securities
of the Company issued and issuable to Consultant hereunder pursuant to Section 3
hereof.
b) Expenses. In the case of a registration under this Section, the
Company shall bear all costs and expenses of each such registration, including,
but not limited to, printing, legal and accounting expenses, Securities and
Exchange Commission and NASD filing fees, and "Blue Sky" fees and expenses;
provided, however, that the Company shall have no obligation to pay or otherwise
bear any portion of the underwriters commissions or discounts attributable to
the Registrable Shares offered and sold by Consultant, or the fees and expenses
of any counsel for Consultant in connection with the registration of the
Registrable Shares.
9. Indemnification and Contribution. Each party (the "Indemnifying
Party") agrees to indemnify and hold harmless the other party (the "Indemnified
Party") and each of the Indemnified Party's directors, officers, agents,
employees and controlling persons (as such persons are defined in the Securities
Act) against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) related to or arising out of any actions or
omissions committed by the Indemnifying Party hereunder (including any violation
of applicable federal and state securities laws), and will reimburse the
Indemnified Party and each other person indemnified hereunder for all legal and
other expenses incurred in connection with investigating or defending any such
loss, claim, damage, liability, action or proceeding in connection with pending
or threatened litigation or other actions or investigations in which the
Indemnified Party or any of its directors, officers, agents, employees and
controlling persons is a party; provided however, that the Indemnifying Party
will not be liable in any such case for losses, claims, damages, liabilities or
expense that a court of competent jurisdiction shall have found to have arisen
primarily from the recklessness, negligence or willful misconduct, malfeasance,
misfeasance of the Indemnified Party or any party claiming a right to
indemnification.
In case any proceeding shall be instituted involving any person in
respect of whom indemnity may be sought, the Indemnified Party shall promptly
notify the Indemnifying Party, and the Indemnifying Party, upon the request of
the Indemnified Party, shall retain counsel reasonably satisfactory to the
Indemnified Party to represent the Indemnified Party and any others the
Indemnified Party may designate in such proceeding and shall pay as incurred the
fees and expenses of such counsel related to such proceeding. In any such
proceeding, the Indemnified Party shall have the right to retain its own counsel
at its own expense. In no event shall the Indemnifying Party be liable for the
fees and expenses of more than one counsel for all Indemnified Parties in
connection with any one action or separate but similar or related actions in
-5-
the same or other jurisdictions arising out of the same general allegations or
circumstances. The Indemnifying Party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Indemnifying
Party agrees to indemnify the Indemnified Party to the extent set forth in this
Section.
In the event a claim for indemnification under this Section is
determined to be unenforceable by a final judgment of a court of competent
jurisdiction, then the Indemnifying Party shall contribute to the aggregate
losses, claims, damages or liabilities to which the Indemnified Party or its
officers, directors, agents, employees or controlling persons may be subject in
such amount as is appropriate to reflect the relative benefits received by each
of the Indemnifying Party and the party seeking contribution on the one hand the
relative faults of the Indemnified Party and the party seeking contribution on
the other, as well as any other relevant equitable contributions; provided,
however, that no person adjudged guilty of fraudulent judicial determination
shall be entitled to contribution from the Indemnifying Party. The provisions of
this Section shall survive any termination of this Agreement and shall be
binding upon any successors or assigns of the Company and Consultant.
10. Absence of Conflicting Agreements. Consultant represents and
warrants that it is not a party to any agreement or arrangement, whether oral or
written, which conflicts with this Agreement or would prevent it from satisfying
completely its obligations to the Company under this Agreement.
11. General. This Agreement constitutes the entire Agreement between
the parties relative to the subject matter hereof, and supersedes all proposals,
letters of intent or agreements, written or oral, and all other communications
between the parties relating to the subject matter of this Agreement.
No provision of this Agreement shall be waived, amended, modified,
superseded, canceled, renewed or extended except in a written instrument signed
by the party against whom any of the foregoing actions is asserted. Any waiver
shall be limited to the particular instance and for the particular purpose when
and for which it is given.
The invalidity, illegality or unenforceability of any provision of
this Agreement shall in no way effect the validity, legality or enforceability
or any other provision of this Agreement. This Agreement is entered into subject
to compliance by Consultant with all applicable federal and state securities
laws, including the Securities Act of 1933, the Securities Exchange Act of 1934,
the Investment Company Act of 1940, and the Investment Advisors of 1940. The
Services rendered by Consultant shall be limited to the services described
herein and shall not extend to the placement of securities or otherwise offering
or soliciting the purchase of any of the Company's securities. Consultant shall
not act as a "broker", "dealer" or "finder" and the compensation payable to
Consultant thereunder shall be paid regardless of the consummation of any
financing of the Company.
This Agreement, Consultant's Services to be performed thereunder, and
all rights thereunder are personal to Consultant and may not be transferred or
assigned by Consultant at any time without the prior written consent of the
Company.
-6-
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the internal laws of The
Commonwealth of Massachusetts.
All notices provided for in this Agreement shall be given in writing
and shall be effective when either served by personal delivery, electronic
facsimile transmission, express overnight courier service or by registered or
certified mail, return receipt requested, addressed to the parties at their
respective addresses herein set forth, or to such other address or addresses as
either party may later specify by written notice to the other.
This Agreement may be executed in duplicate counterparts, which, when
taken together, shall constitute one instrument and each of which shall be
deemed to be an original instrument.
The provisions of Sections 5 and 9 shall survive the termination or
expiration of this Agreement as a continuing covenant and obligation of the
Company and Consultant.
Any dispute, controversy or claim arising out of, in connection with,
or in relation to this Agreement or the breach of any of the provisions hereof
shall be settled by binding arbitration in Boston, Massachusetts, pursuant to
the rules then obtaining of the American Arbitration Association. Any award
shall be final, binding and conclusive upon the parties and a judgment rendered
thereon may be entered in any court having competent jurisdiction thereof. The
prevailing party shall be entitled to recover all reasonable fees and expenses
of the costs of such arbitration (including reasonable attorneys' fees), and if
no party shall be determined by the arbitrator(s) to have successfully
prevailed, or to be less at fault than the other party, then each party shall
bear its own costs and expenses (including attorneys' fees). The parties agree
to use their best efforts to settle any and all disputes without resort to
arbitration and litigation.
IN WITNESS WHEREOF, Parties have executed this Agreement as of the day
and year first above written.
AUGMENT SYSTEMS, INC. YOUNG MANAGEMENT GROUP, INC.
By: /s/ Lorrin Gale By: /s/ Stanley A. Young
---------------------------- -------------------------------
Lorrin Gale, President and Stanley A. Young,
Chairman
Chief Executive Officer
-7-
SCHEDULE A
STOCK PURCHASE ALLOCATION
Young Management Group, Inc. 50,000 shares
Stanley A. Young Irrevocable 150,000 shares
Trust for Issue
Stanley A. Young 100,000 shares
Adam D. Young 50,000 shares
David Smith 25,000 shares
-------------
375,000 shares
-8-
EXHIBIT 10.15
AUGMENT SYSTEMS INCORPORATED
1995 STOCK OPTION PLAN
1. Purpose of Plan.
The purpose of this 1995 Stock Option Plan (the "Plan") is to promote
the interests of Augment Systems Incorporated, a Delaware corporation (the
"Company", including for the purposes of this paragraph any affiliated
companies), by providing a method whereby employees of the Company, and others
providing material assistance to the Company may be given compensation or
additional compensation for their efforts on behalf of or assistance to the
Company, and to aid the Company in attracting and retaining capable personnel.
2. Scope and Duration of the Plan.
Options granted under this Plan may contain such terms as will qualify
the options as incentive stock options ("ISO's") within the meaning of section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or in the
form of non-statutory stock options ("NSO's"). Unless otherwise indicated,
references in this Plan to "options" include ISO's and NSO's. Subject to
adjustment as provided in Section 11 hereof, the maximum number and kind of
shares of the Company's capital stock with respect to which options may be
granted under this Plan shall be 800,000 shares of Common Stock, $.01 par value
per share ("Common Stock"). Until termination of this Plan, the Company shall at
all times reserve a sufficient number of shares to meet the requirements of the
Plan. Such shares may be authorized and unissued shares or shares held in the
Company's treasury.
There shall become available for subsequent grants under this Plan any
shares of Common Stock underlying an option which cease for any reason to be
subject to purchase under such option. No ISO shall be granted under this Plan
more than 10 years after its adoption by the Board of Directors.
3. Administration of Plan.
The Plan shall be administered by the Board of Directors or by a
Compensation Committee or any successor thereto appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall be qualified as
required by Rule 16b-3, as amended, and other applicable rules under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
at such time as the provisions thereof may be applicable to the Company. The
Committee shall be comprised of two or more members of the Board of Directors
(or the
-1-
entire Board acting as the Committee). The Committee shall have full power and
authority to: (i) designate the employees and other persons to whom options
shall be granted; (ii) designate options or any portion thereof as ISO's; (iii)
determine the number of shares of Common Stock for which options may be granted
and the option price or prices; (iv) determine the other terms and provisions of
option agreements (which need not be identical) including, but not limited to,
provisions concerning the time or times when and the extent to which the options
may be exercised and the nature and duration of restrictions as to
transferability or constituting substantial risks of forfeiture, provided that
with respect to ISO's such time or times shall not occur before approval of this
Plan by the stockholders of the Company in the manner provided under Section 15
below; (v) amend or modify any option, with the consent of the holder thereof;
(vi) accelerate the right of an optionee to exercise in whole or in part any
previously granted option; and (vii) interpret the provisions and supervise the
administration of this Plan.
Options may be granted singly or in combination. The Committee shall
have the authority to grant in its discretion to the holder of an outstanding
option in exchange for the surrender and cancellation of such option, a new
option in the same or a different form and containing such terms as the
Committee may deem appropriate, including without limitation a price which is
different (either higher or lower) than any price provided in the option so
surrendered and canceled.
In connection with the grant of an NSO, the Committee may in its
discretion, concurrently or after grant of the NSO, grant or agree to grant a
tax offset bonus to the optionee to offset in whole or in part the tax liability
of the optionee realized upon exercise of the NSO, provided that any such grant
or agreement to grant a tax offset bonus shall be authorized only if the
Committee anticipates in good faith that the Company would receive a net
after-tax economic benefit from the grant of such bonus and NSO instead of the
grant of an ISO of similar tenor.
All decisions and selections made by the Committee pursuant to the
provisions of this Plan shall be made by a majority of its members except that
any decision with respect to the grant of an option to a member of the Committee
shall be made by a majority of the other members of the Committee who are not
the holders of options issued pursuant to this Plan, and if there be no such
members, pursuant to vote of a majority of the members of the Board of Directors
who are not the holders of options issued pursuant to this Plan. Any decision
reduced to writing and signed by all of the members of the Committee who are
authorized to make such decision shall be as fully effective as if it had been
made by a majority at a duly held meeting of the Committee.
The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of such persons. All
actions taken and all interpretations and determinations made by the Committee
in good faith shall be final and binding upon the Company, all persons who
receive grants of options, and all other interested persons. No member or agent
of the Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to this Plan or grants hereunder.
Each member of
-2-
the Committee shall be indemnified and held harmless by the Company against any
cost or expense (including counsel fees) reasonably incurred by him or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with this Plan
unless arising out of such member's own fraud or bad faith. Such indemnification
shall be in addition to any rights of indemnification the members of the
Committee may have as directors or otherwise under the by-laws of the Company,
or any agreement, vote of stockholders or disinterested directors, or otherwise.
4. Designation of Participants.
Options may be granted only to employees, including officers who are
employees, of the Company or any parent or subsidiary of the Company, and other
individuals, including consultants and non-employee Directors, who are
determined by the Committee to contribute, or have the potential to contribute,
materially to the success of the Company or any parent or subsidiary, provided
that ISO's shall be granted only to persons who are employees of the Company or
any parent or subsidiary of the Company.
5. Option Price.
(a) The purchase price of each share of Common Stock subject to an
option or any portion thereof which has been designated as an ISO shall not be
less than 100% (or 110%, if at the time of grant the optionee owns more than 10%
of the total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation) of the fair market value of such share on the
date the option is granted, determined without regard to any restriction other
than a restriction which, by its terms, will never lapse. The purchase price of
each share of Common Stock subject to an NSO shall be such price as the
Committee shall determine in its sole discretion.
(b) The fair market value of a share of Common Stock on a particular
date shall be the mean between the highest and lowest quoted selling prices on
such date (the "valuation date") on the securities market where the Common Stock
of the Company is traded, or if there were no sales on the valuation date, on
the next preceding date within a reasonable period (as determined in the sole
discretion of the Committee) on which there were sales. In the event that there
were no sales in such a market within a reasonable period, the fair market value
shall be as determined in good faith by the Board of Directors in its sole
discretion.
6. Term and Exercise of Options.
(a) The term of each ISO granted under this Plan shall be not more than
ten years from the date of grant, or five years from the date of grant if at the
time of grant the optionee owns more than 10% of the total combined voting power
of all classes of stock of the Company or any parent or subsidiary corporation.
The term of each NSO granted under this Plan shall be such period of time as the
Committee shall determine in its sole discretion.
-3-
(b) An option shall be exercisable at such time or times as shall be
determined by the Committee. An option may be exercised only by written notice
of intent to exercise such option with respect to a specified number of shares
of Common Stock and payment to the Company of the amount of the option price for
the number of shares of Common Stock as to which such notice applies. Payment
for such shares shall be paid at the time of purchase (i) in cash, (ii) with
shares of Common Stock to be valued at the fair market value thereof on the date
of such exercise, determined as provided in Section 5(b), (iii) by written
notice to the Company to withhold from those shares of Common Stock that would
otherwise be obtained on the exercise of such option, the number of shares
having a fair market value on the date of exercise equal to the option exercise
price, (iv) by any other means, including the promissory note of the holder of
the option, which the Committee determines to be consistent with the purpose of
this Plan and applicable law, or (v) a combination of the foregoing. Upon
receipt of payment, the Company shall deliver to the person exercising such
option a certificate or certificates for such shares. It shall be a condition of
the Company's obligation to issue Common Stock upon exercise of an option that
the person exercising the option pay, or make provision satisfactory to the
Company for the payment of, any taxes which the Company is obligated to collect
with respect to the issue of Common Stock upon such exercise. Anything in this
paragraph to the contrary notwithstanding, an option granted to an optionee who
is subject to Section 16(b) of the Exchange Act shall provide that a period of
at least six months must elapse between the date of grant of the option and the
date of disposition of shares acquired upon exercise of the option.
The Committee, subject to Board of Director approval, may establish a
program through which optionees can borrow funds with which to purchase Common
Stock pursuant to exercise of an option.
(c) The proceeds of the sale of Common Stock subject to options are to
be added to the general funds of the Company and used for its general corporate
purposes.
7. Incentive Stock Options.
(a) To the extent required under Section 422 of the Code for ISO
treatment, the aggregate fair market value (determined as of the time of grant)
of stock with respect to which ISO's are exercisable for the first time by an
optionee during any calendar year (under this Plan and under all other plans of
the Company and any parent and subsidiary corporations) shall not exceed
$100,000.
(b) In the event of amendments to the Code or applicable rules and
regulations thereunder relating to incentive stock options subsequent to the
date hereof, the Company may amend the provisions of this Plan, and the Company
and the employees holding options may agree to amend outstanding option
agreements, to reflect such amendments.
8. Transfer of Options.
-4-
An option or portion thereof designated as an ISO shall not be
transferable by an optionee otherwise than by will or the laws of descent and
distribution, and shall be exercisable during his lifetime only by him. An NSO
shall not be transferable by an optionee otherwise than by will or the laws of
descent and distribution, except that an optionee who is not subject to Section
16(b) of the Exchange Act may transfer, assign or otherwise dispose of an option
(i) to his spouse, parents, siblings and lineal descendants, (ii) to a trust for
the benefit of the optionee and any of the foregoing, or (iii) to any
corporation or partnership controlled by the optionee, or (iv) pursuant to a
"qualified domestic relations order" as defined in the Code, provided that no
such disposition shall affect any conditions for vesting of rights granted
pursuant to such option.
9. Termination of Employment.
(a) If the employment of an optionee terminates for any reason other
than for cause, or his death, disability (as may be determined by the Committee
under Section 9(c) below), retirement at age 65 or over, or retirement at less
than age 65 with the consent of the Company or any parent or subsidiary company
by which he was employed, he may for a period of three months after the date of
termination of his employment (unless a longer period is allowed by the
Committee) exercise options held by him to the extent he was entitled to
exercise such options on the date when his employment terminated. In no event,
however, may such optionee exercise an option at a time when the option would
not be exercisable had the optionee remained an employee. For purposes of this
Section 10, an optionee's employment will not be considered terminated (i) if
the Committee in the exercise of its discretion shall so determine in the case
of sick leave or other bona fide leave of absence approved by the Company or any
parent or subsidiary company or (ii) in the case of a transfer by such optionee
to the employment of an affiliated company of the employing company.
(b) If an optionee dies at a time when he is entitled to exercise an
option, then at any time or times within one year after his death, such option
may be exercised, as to all or any of the shares which the optionee was entitled
to purchase immediately prior to his death, by his executor or administrator or
the person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution. In no event, however, may any
option be exercised after the expiration of such option by its terms, except as
the Committee may otherwise allow for a period up to one year after such
optionee's death.
(c) If an optionee retires from the service of the Company or any
parent or subsidiary company by which he was employed at age 65 or older or
retires at less than age 65 with the consent of the Company or such parent or
subsidiary, or becomes disabled at a time when he is entitled to exercise an
option, then (i) with respect to each NSO, at any time or times within three
years of the date of such retirement or disability, and (ii) with respect to
each ISO, at any time or times within three months after the date of such
retirement or within one year after the date of such disability, he may exercise
such option as to all or any of the shares which he was entitled to purchase
under such option immediately prior to his retirement or disability. In no
event, however, may any option be exercised after the expiration of such option
by its terms. The
-5-
Committee shall have authority to determine whether or not an optionee has
retired from the service of the Company or any parent or subsidiary company by
which he was employed with the consent of the Company or such parent or
subsidiary, and whether or not an optionee has become disabled (as such term may
be used in the Code); and its determination shall be binding on all concerned.
(d) If termination of employment of an optionee shall be for cause or
in violation of an agreement by the optionee to remain in the employ of the
Company or any parent or subsidiary company, the options held by such optionee
shall terminate forthwith. If an optionee shall breach in a material respect an
agreement to refrain from competition with the Company or any parent or
subsidiary company, or to refrain from solicitation of the Company's customers,
suppliers or employees of the Company or any parent or subsidiary company, the
options, and any shares of Common Stock issued pursuant to the exercise of
options, held by such optionee shall at the option of the Company be forfeited
by the optionee and deemed not to be outstanding.
10. Rights of Stockholders.
The holders of options shall not be or have any of the rights or
privileges of stockholders of the Company in respect of any shares of Common
Stock purchasable upon the exercise of any option until such option shall have
been validly exercised.
11. Adjustments.
Notwithstanding any other provision of this Plan, the Committee may at
any time make or provide for such adjustments to this Plan, to the number and
class of shares available hereunder or to any outstanding options, as it shall
deem appropriate to prevent dilution or enlargement of rights, including
adjustments in the event of distributions to holders of Common Stock of other
than a normal cash dividend, changes in the outstanding Common Stock by reason
of stock dividends, split-ups, recapitalizations, mergers, consolidations,
combinations or exchanges of shares, separations, reorganizations, liquidations
and the like. In the event of any general offer to holders of Common Stock
relating to the acquisition of their shares, the Committee may make such
adjustment as it deems equitable in respect of outstanding options, including in
the Committee's discretion revision of outstanding options, so that they may be
exercisable for the consideration payable in the acquisition transaction. Any
such determination by the Committee shall be conclusive.
12. Amendments or Termination.
The Company's Board of Directors may amend, alter, or discontinue this
Plan, except that no amendment or alteration requiring stockholder approval
pursuant to the Code's provisions with respect to ISO's or applicable provisions
of the Exchange Act shall be made without the approval of the Company's
stockholders.
-6-
13. Foreign Nationals.
The Committee may in order to fulfill the purposes of this Plan modify
grants to participants who are foreign nationals or employed outside the United
States to accommodate differences in applicable law, tax policy, or custom.
14. Governing Law.
This Plan shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware to the extent that such laws, as
applicable to the Plan, are not superseded by or inconsistent with Federal law.
15. Effective Date.
This Plan is effective as of July 15, 1995, the date of its adoption by
the Company's Board of Directors and Shareholders.
-7-
----------------------
NONCOMPETITION, NONDISCLOSURE AGREEMENT
----------------------
AGREEMENT made as of January 1, 1997 by and between Augment Systems,
Inc., a Delaware corporation with a principal place of business at 2 Robbins
Road, Westford, Massachusetts 01886 (along with its affiliates, if any, "the
Company") and Duane A. Mayo, an individual residing at 22 Bachelor Street, West
Newbury, Massachusetts 01985 ("Employee").
Whereas, the Company wishes to retain the continued services of
Employee upon the terms set forth in this Agreement; and
Whereas, Employee desires to continue to serve in the employ of the
Company upon the terms and conditions provided in this Agreement;
NOW, THEREFORE, for valuable consideration, including an increase in
Employee's annaul salary from $85,000 to $100,000 per year, the receipt of which
is hereby acknowledged, the Company and Employee agree as follows:
SECTION 1. NONCOMPETITION, NONDISCLOSURE AND INVENTIONS.
(a) NONCOMPETITION. During the period of his employment by the Company,
and for a period of one (1) year after the termination of such employment,
Employee agrees that he will not, directly or indirectly, alone or as a partner,
officer, director or employee of any company or business organization, or the
holder of more than 5% of the outstanding voting securities of, or ownership
interests in, any company or business organization, engage in any business
activity, in any geographic areas in which the Company is then conducting
business which is directly competitive with the business of the Company.
(b) CONFIDENTIALITY; RETURN OF CONFIDENTIAL MATERIALS. Employee
understands that his relationship with the Company and its officers and
employees is one of trust and confidence and that during the period of
employment he may acquire or may have already acquired, knowledge of, or access
to, information which relates to the business, operations or plans of the
Company which is not known to the general public (hereinafter "Confidential
Information"). Confidential Information may include, but is not limited to,
information about products, technologies, methods, designs and other
intellectual property, source code, trade secrets, know-how, manufacturing
processes, marketing plans, customers budget costs, prices, vendor lists and the
Company's financial affairs. Employee will not at any time, whether during or
after the termination of employment, reveal to any person, association or
company any Confidential Information of the Company so far as it has come or may
come to his knowledge, except as may be required in the ordinary course of
performing his duties as a employee of the Company or except as may be in the
public domain through no fault of his, and Employee will keep
secret all matters entrusted to him and shall not use or attempt to use any such
Confidential Information in any manner which may injure or cause loss or may be
reasonably expected to injure or cause loss, whether directly or indirectly, to
the Company.
Further, Employee agrees that during his engagement, he shall not make,
use or permit to be used any notes, memoranda, records, files, computer
programs, data or any other materials of any nature relating to any matter
within the scope of the business of the Company or concerning any of its
dealings or affairs otherwise than for the benefit of the Company. In addition,
Employee agrees that he shall not, after the termination of employment, use or
permit to be used, any such notes, memoranda, records, files, computer programs,
data or other materials, it being agreed that any of the foregoing shall be, and
remain, the sole and exclusive property of the Company and that immediately upon
the termination of employment, Employee shall deliver all of the foregoing, and
all copies thereof, to the Company, at its main office.
(C) ASSIGNMENT OF INVENTIONS. Employee hereby acknowledges and agrees
that the Company is the owner of all Inventions, as defined below. In order to
protect the Company's rights to such Inventions, by executing this Agreement,
Employee hereby irrevocably assigns to the Company all my right, title and
interest in and to all Inventions to the Company.
For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, techniques, technologies, devices, or
improvements in any of the foregoing, whether or not patentable or copyrightable
and whether or not reduced to practice, made or conceived by Employee (whether
solely or jointly with others) during the period of employment by the Company
which relate in any manner to the actual or demonstrably anticipated business,
work, or research and development of the Company, or result from or are
suggested by any task assigned to Employee or any work performed by him for or
on behalf of the Company.
Any discovery, process, design, method, technique, technology, device,
or improvements in any of the foregoing or other ideas, whether or not
patentable or copyrightable and whether or not reduced to practice, made or
conceived by Employee (whether solely or jointly with others) which he develops
entirely on his own time not using any of the Company's equipment, supplies,
facilities, or trade secret information ("Personal Invention") is excluded from
this Agreement provided such Personal Invention (i) does not relate to the
actual or demonstrably anticipated business, research and development of the
Company, and (ii) does not result, directly or indirectly, from any work
performed by Employee for or on behalf of the Company.
(D) DISCLOSURE OF INVENTIONS. Employee agrees that in connection with
any Invention, he will promptly disclose such Invention to the Board of
Directors of the Company in order to permit the Company to enforce its property
rights to such Invention in accordance with this Agreement.
2
(E) PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS. Upon request,
Employee agrees to assist the Company or its nominee (at its expense) during and
at any time subsequent to employment in every reasonable way to obtain for its
own benefit patents and copyrights for Inventions in any and all countries. Such
patent and copyrights shall be and remain the sole and exclusive property of the
Company or its nominee. Employee agrees to perform such lawful acts as the
Company deems to be necessary to allow it to exercise all right, title and
interest in and to such patents and copyrights.
In connection with this Agreement, Employee agrees to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
(F) MAINTENANCE OF RECORDS. It is understood that all Personal
Inventions, if any, whether patented or unpatented, which Employee made prior to
employment by the Company, are excluded from this Agreement. To preclude any
possible uncertainty, Employee has set forth in Schedule 1 attached hereto a
complete list of all of prior Personal Inventions, including numbers of all
patents and patent applications and a brief description of all unpatented
Personal Inventions which are not the property of a previous employer. Employee
represents and covenants that the list is complete and that, if no items are on
the list, Employee have no such prior Personal Inventions.
Employee agrees to notify the Company in writing before making any
disclosure or performing any work on behalf of the Company which appears to
threaten or conflict with proprietary rights he claims in any Personal
Invention. In the event of Employee's failure to give such notice, Employee
agrees that he will make no claim against the Company with respect to any such
Personal Invention.
(G) TRADE SECRETS OF OTHERS. Employee represents that his performance
of all the terms of this Agreement and as an employee of the Company does not
and will not breach any agreement to keep confidential proprietary information,
knowledge or data acquired by him in confidence or in trust prior to his
employment by the Company, and Employee will not disclose to the Company, or
induce the Company to use, any confidential or proprietary information or
material belonging to any previous employer or others. Employee agrees not to
enter into any agreement either written or oral in conflict herewith.
(H) SOLICITATION. Employee will not at any time during the one (1) year
period following the termination of his employment with the Company solicit or
encourage any employee of the Company to terminate his or her employment in
order to work for a business which competes or intends to compete with the
Company and Employee will use his best efforts to ensure that his then employer
does not do so.
3
(I) CONFLICTS. Employee further represents that his performance of all
of the terms of this Agreement and as an employee of the Company does not and
will not breach any agreement to maintain in confidence proprietary information
acquired by him in confidence or in trust prior to employment by the Company.
Employee has not entered into, and he agrees that he will not enter into, any
agreement, either written or oral, in conflict herewith.
(J) BREACH. Employee agrees that any breach of this Agreement by him
could cause irreparable damage and that in the event of such breach the Company
shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of his obligations hereunder.
SECTION 2. CONFLICTING AGREEMENTS.
Employee represents and warrants that he is free to enter into this
Agreement, and that he has not made and will not make any agreements in conflict
with this Agreement.
SECTION 3. ASSIGNMENT.
(A) NONASSIGNABILITY. Neither this Agreement nor any right or interest
hereunder may be assigned by Employee, his beneficiaries or legal
representatives, without the Company's prior written consent.
(B) BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the Company and any successor to or assignee of the Company,
and any such successor or assignee shall be deemed to be substituted for the
Company under the provisions of this Agreement.
SECTION 4. SEVERABILITY.
If any provision of this Agreement shall be declared invalid or
unenforceable, the remainder of this Agreement, or the application of such
provision in circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each provision of this
Agreement shall be valid and be enforceable to the fullest extent permitted by
law. If any provision contained in this Agreement shall be held to be
excessively broad as to scope, activity or subject so as to be unenforceable at
law, such provision shall be construed by limiting and reducing it so as to be
enforceable to the extent compatible with the applicable law as it shall then
appear.
SECTION 5. NOTICE.
All notices, requests, demands and communications with are or may be
given under this Agreement shall be deemed given if and when delivered in hand
or mailed by registered or certified mail to the Company or Employee at their
respective addresses as first referenced above, with a copy to Michael A.
Hickey, Esquire, Warner & Stackpole
4
LLP, 75 State Street, Boston, Massachusetts 02109, or to such other address as
may be designated by each party as his or its new address in writing to the
other party hereto.
SECTION 6. WAIVERS.
The failure of either party to require the performance of any term or
obligation of this Agreement, or the waiver by either party of any breach of
this Agreement, shall not prevent any subsequent enforcement of such term or
obligation or be deemed a waiver of any subsequent breach.
SECTION 7. ENTIRE AGREEMENT.
This Agreement constitutes the entire understanding of Employee and the
Company with respect to noncompetition and nondisclosure. As of the commencement
of its term, this Agreement supersedes any prior agreement or arrangement
relative to Employee's employment with the Company. No modifications or waiver
of any provisions of this Agreement shall be made unless made in writing and
signed by Employee and such other person on behalf of the Company as the Board
of Directors may designate for such purpose.
SECTION 8. GOVERNING LAW.
The interpretation, construction and application of this Agreement
shall be governed and construed in accordance with the internal laws of the
Commonwealth of Massachusetts.
SECTION 9. SURVIVAL.
Employee's obligations under this Agreement shall survive the
termination of employment regardless of the manner of such termination and shall
be binding upon Employee's heirs, executors and administrators.
SECTION 10. REMEDIES.
Each of the parties to this Agreement will be entitled to enforce his
or its rights under this Agreement specifically, to recover damages (including,
without limitation, reasonable fees and expenses of counsel) by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in his or its favor. The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach or threatened breach
of the provisions of this Agreement and that any party may in his or its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
5
SECTION 11. CAPTIONS.
The captions set forth in this Agreement are for convenience only, and
shall not be considered as part of this Agreement or as in any way limiting or
amplifying the terms and provisions hereof.
SECTION 12. COUNTERPARTS.
This Agreement may be signed in two counterparts, each of which shall
be deemed an original and both of which shall together constitute one agreement.
[THIS SPACE LEFT INTENTIONALLY BLANK]
6
IN WITNESS WHEREOF, the parties have signed, sealed and delivered this
Agreement as of the date first above written.
AUGMENT SYSTEMS, INC.
By: /s/ Lorrin G. Gale
-----------------------
Name: President
Title:
/s/ Duane A. Mayo
------------------------
Duane A. Mayo
7
SCHEDULE 1
Personal Inventions of Duane A. Mayo
None
A-1
EXHIBIT 11
AUGMENT SYSTEMS, INC.
COMPUTATION OF NET LOSS PER SHARE
OF COMMON STOCK
Cummulative
Year Ended Three Months Ended Period From
June 30, September 30, 10/1/95
--------------- ------------------- to 9/30/96
1995 1996 1995 1996
- --------------------------------------------------------------------------------
Weighted average
number of shares
of common stock
outstanding 304,850 1,386,804 1,105,636 2,696,981 1,790,486
Application of SAB
No. 83(1) 2,620,179 2,561,931 2,620,179 2,190,431 2,511,859
- --------------------------------------------------------------------------------
Shares used in
computing net
loss per share
of common stock 2,925,029 3,948,735 3,725,815 4,887,412 4,302,345
- --------------------------------------------------------------------------------
Net loss applicable
to common stock $ (400,855)$(1,536,948) $(47,845)$(1,758,361)$(3,247,464)
- --------------------------------------------------------------------------------
Net loss per share
of common stock $ (0.14)$ (0.39) $ (0.01)$ (0.36)$ (0.75)
- --------------------------------------------------------------------------------
- ------------------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, ("SAB No. 83") common stock issued within one year of the initial public
offering price less than the initial public offering price (estimated at $5.00
per share) is treated as outstanding for all periods presented.
Exhibit 23.1
Consent of Independent Certified Public Accountants
Augment Systems, Inc.
Westford, Massachusetts
We hereby consent to the use in the Prospectus constitution a part of
this Registration Statement of our report dated September 10, 1996, except for
the fifth paragraph of Note 7, the third and fourth paragraphs of Note 8, and
Note 13 which are as of February 5, 1997, relating to the financial statements
of Augment Systems, Inc., which is contained in that Prospectus. Our report
contains an explanatory paragraph regarding the Company's ability to continue
as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Boston, Massachusetts
February 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> SEP-30-1996 JUN-30-1996
<CASH> 219647 889898
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 115791 113960
<CURRENT-ASSETS> 447337 1111158
<PP&E> 359774 205688
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 941223 1464720
<CURRENT-LIABILITIES> 886015 981786
<BONDS> 0 0
0 0
0 0
<COMMON> 32234 22672
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 941223 1464720
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1758361 1536948
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1758361) (1536948)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1758361) (1536948)
<EPS-PRIMARY> (.36) (.39)
<EPS-DILUTED> (.36) (.39)
</TABLE>
