<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE QUARTER ENDED: SEPTEMBER 30, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission file number: 0-28556
---------------------------
BOREALIS TECHNOLOGY CORPORATION
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 88-0238203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
9790 Gateway Blvd.
Reno, NV 89511
(Address of principal executive offices)
(702) 856-7600
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
equity, as of the latest practicable date:
<TABLE>
<S> <C>
CLASS OUTSTANDING AT
Common Stock - par value $.001 ("Common Stock") September 30, 1998: 8,734,621
Series A-1 Convertible Preferred Stock - par value $.01 September 30, 1998: 2,350
("Convertible Preferred Stock")
</TABLE>
Transitional Small Business Disclosure Format (check one): Yes ; No X .
--- ---
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BOREALIS TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Balance Sheets
September 30, 1998 (unaudited) and December 31, 1997 3
Condensed Statements of Operations (unaudited)
three months and nine months ended September 30, 1998
and 1997 4
Condensed Statements of Cash Flows (unaudited)
nine months ended September 30, 1998 and 1997 5
Notes to Condensed Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Risk Factors 9
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOREALIS TECHNOLOGY CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
ASSETS (Unaudited)
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,656,481 $ 2,080,095
Accounts receivable 187,920 353,580
Certificate of deposit - 650,000
Other current assets 499,003 290,667
------------- --------------
Total current assets 2,343,404 3,374,342
Property and equipment, net 706,050 819,417
Note receivable from an employee 277,474 156,988
Other assets 57,600 52,511
------------- --------------
Total assets $ 3,384,528 $ 4,403,258
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 521,438 $ 80,887
Accrued employee compensation 413,364 596,450
Promissory note - 900,000
Other accrued liabilities 222,801 110,350
Deferred revenue 134,646 113,448
Current portion of capital lease obligation 40,687 67,336
------------- --------------
Total current liabilities 1,332,936 1,868,471
Capital lease obligations 34,986 35,597
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000 24 -
Issued and outstanding - 2,350
Common stock, $.001 par value:
Authorized shares - 30,000,000;
Issued and outstanding shares: 8,734,621
at September 30, 1998, and 5,245,428 at December 31, 1997 8,735 5,245
Additional paid-in capital 22,919,703 16,739,788
Note receivable from stockholder - (93,124)
Accumulated deficit (20,911,856) (14,152,719)
------------- --------------
Total stockholders' equity 2,016,606 2,499,190
------------- --------------
Total liabilities and stockholders' equity $ 3,384,528 $ 4,403,258
============= ==============
</TABLE>
See accompanying notes to condensed financial statements.
3
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BOREALIS TECHNOLOGY CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total revenues $ 217,206 $ 520,927 $ 476,437 $ 728,281
Cost of revenues 12,645 1,061 49,515 37,329
-------------- -------------- -------------- --------------
Gross profit 204,561 519,866 426,922 690,952
Operating expenses:
Sales and marketing 1,543,816 974,667 3,754,792 3,350,743
Research and development 749,066 578,510 2,415,539 1,754,822
General and administrative 308,317 462,482 995,307 1,455,451
-------------- -------------- -------------- --------------
Total operating expenses 2,601,199 2,015,659 7,165,638 6,561,016
Loss from operations (2,396,638) (1,495,793) (6,738,716) (5,870,064)
Interest income (expense) (11,386) 7,256 (20,422) 21,875
-------------- -------------- -------------- --------------
Net loss $(2,408,024) $(1,488,537) $(6,759,138) $(5,848,189)
============== ============== ============== ==============
Basic and diluted net loss
per common share $ (0.37) $ (0.34) $ (0.98) $ (1.64)
============== ============== ============== ==============
Shares used in computing basic and diluted net
loss per common share 6,533,638 4,346,577 6,891,957 3,576,211
============== ============== ============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
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BOREALIS TECHNOLOGY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $(6,759,138) $(5,848,189)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 309,202 255,914
Common stock issued for compensation 123,825 70,006
Recognized portion employee note receivable 162,847 -
Changes in operating assets and liabilities:
Accounts receivable 165,660 (220,308)
Other current assets (76,328) (130,440)
Accounts payable 440,551 (88,980)
Accrued employee compensation and benefits (183,086) 108,483
Other accrued Liabilities 112,451 404,163
Deferred Revenue 21,198 5,302
------------ -----------
Net cash used in operating activities (5,682,818) (5,444,049)
INVESTING ACTIVITIES
Proceeds upon maturity of certificate of deposit 650,000 -
Purchases of property and equipment (195,835) (272,865)
Increase in employee note receivable (425,000) -
Loan to stockholder - (18,125)
Increase in other assets - -
------------ -----------
Net cash provided by (used in) investing activities 29,165 (290,990)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock, net 2,209,998 -
Proceeds from issuance of common stock, net 3,942,729 4,595,987
Proceeds from exercise of common stock options - 1,672
Proceeds from issuance of promissory note - 250,000
Payment of promissory note (900,000) -
Increase in capital lease obligations 34,467 -
Payments under capital lease obligations (57,155) (141,737)
------------ -----------
Net cash provided by financing activities 5,230,039 4,705,922
Net decrease in cash and cash equivalents (423,614) (1,029,117)
Cash and cash equivalents at beginning of period 2,080,095 3,921,506
------------ -----------
Cash and cash equivalents at end of period 1,656,481 2,892,389
============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
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BOREALIS TECHNOLOGY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. For further information, refer to
the 1996 financial statements and footnotes thereto included in the Company's
10-KSB and the Company's registration statement on Form SB-2 declared effective
by the Securities and Exchange Commission on July 21, 1997.
NOTE 2 - FINANCING
On February 20, 1998, the Company successfully completed a private
placement financing. The Company issued 1,001,000 shares of its Common Stock and
warrants to purchase an additional 500,500 at an exercise price of $5 per share
with proceeds net of offering expenses and underwriter's discounts of
approximately $2.2 million.
In August 1998, the Company completed a private placement financing. The
Company issued 2,793,000 shares of its Common Stock, recording proceeds net of
offering expenses of approximately $2.7 million.
In September 1998, the Company successfully completed a third private
placement financing. The Company issued 2,350 shares of its Convertible
Preferred Stock (the "Shares") and warrants to purchase an additional 117,500
shares of Common Stock at an exercise price of $1.50 per share with proceeds net
of offering expenses of approximately $2.2 million. Each Share is convertible at
the option of the holder into that number of shares of Common Stock equal to
$1,000 divided by the Common Stock Price which equals the lesser of : (i) 80% of
the average of the last sales prices for the Company's Common Stock reported by
NASD OTC Bulletin Board for the 5 trading days ending one day prior to the day
of conversion of the Shares into shares of Common Stock or, (ii) $2.50.
In connection with the Company's issuance of Convertible Preferred Stock, a
non-cash financing charge approximating $365,000 will be recorded in the fourth
quarter ended December 31, 1998 in accordance with the Emerging Issues Task
Force ("EITF") Topic No. D-60, "Accounting for the Issuance of Convertible
Preferred Stock and Debt Securities with a Nondetachable Conversion Feature."
NOTE 3 - BASIC AND DILUTED NET LOSS PER COMMON SHARE
Loss per share was computed by dividing the net loss by the weighted
average number of shares of common stock outstanding. Common stock equivalents
from stock options, warrants and convertible preferred stock are excluded from
the computation because their effect is anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which the Company adopted on December 31, 1997. As
a result, the Company changed the method used to compute earnings per share.
Under the new requirements for calculating basic earnings (loss) per share, the
dilutive effect of stock options was excluded. A restatement of prior periods
was not necessary as common equivalent shares from common stock options and
warrants have been excluded from the computation of net loss per share, as their
effect is anti-dilutive.
NOTE 4 - BORROWINGS
In the nine months ending September 30, 1998 the Company paid off a
$650,000 promissory note with proceeds from a certificate of deposit and the
Company paid off a $250,000 bank credit line plus accrued interest.
NOTE 5 - USE OF ESTIMATES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which require the Company's management
to make estimates and assumptions that affect the amounts reported therein.
Actual results could vary from such estimates.
NOTE 6 - ADOPTION ON NEW PRONOUNCEMENTS
As of January 1, 1998, the Company implemented the AICPA's Statement of
Position 97-2, Software Revenue Recognition ("SOP 97-2"). Adoption of SOP 97-2
had no impact on the Company's revenue recognition.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis contains forward-looking statements
regarding future events and the future financial performance of Borealis
Technology Corporation (the "Company") that involve risks and uncertainties.
These statements include, but are not limited to, statements related to the
market acceptance of Arsenal and the adequacy of the Company's cash reserves.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those
set forth herein under "Risk Factors" and elsewhere in this Statement.
The Company has experienced significant operating losses for each of the
fiscal years beginning with fiscal 1994 and for the nine month period ended
September 30, 1998 and expects such losses to continue for the forseeable
future. The Company's sole product, Arsenal, is designed for the customer
relationship management market. To date, the Company has shipped its Arsenal
product to 6 customers. The Company derives substantially all of its revenues
from the sale of Arsenal licenses and maintenance contracts for Arsenal. There
can be no assurance that Arsenal will ever achieve significant market acceptance
or that the Company will ever achieve profitability.
The Company's future operating results will depend on many factors,
including demand for Arsenal, the level of product and price competition,
potential customers' perceptions of the Company's financial position, the
ability of the Company to develop and market new products and to control costs,
the ability of the Company to expand its direct sales force and indirect
distribution channels and the ability of the Company to attract and retain key
personnel. In particular, the ability of the Company to achieve revenue growth
in the future will depend on its success in adding, assimilating and retaining a
substantial number of direct sales personnel and third party integrators in
future periods. Purchases of customer relationship management products, such as
Arsenal, are discretionary and generally involve a significant commitment of
capital. As a result, in the event of any downturn in any potential customer's
business or the economy in general, purchases of the Company's products may be
deferred or canceled, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has generally recognized and expects to recognize product and
license revenue which is not subject to significant obligations upon execution
of a licensing agreement, delivery of the software and when collection is deemed
probable. Service revenues are recognized as services are performed while
maintenance revenues are recognized ratably over the term of the support period.
REVENUES:
Revenues have historically consisted of revenue from the licensing and sale
of products, revenue from service and maintenance agreements and revenue from
consulting and training services. Revenues decreased from $520,927 for the three
months ended September 30, 1997 to $217,206 for the comparable period ended
September 30, 1998. Revenues decreased from $728,281 for the nine months ended
September 30, 1997 to $476,437 for the nine months ended September 30, 1998.
Both of these decreases reflect a slowdown in sales due in part to potential
customers' perceptions of the Company's financial position. The Company's
ability to generate revenues will be dependent upon, among other things, market
acceptance of Arsenal and the Company's ability to attract, retain and
assimilate additional sales personnel and the Company's ability to secure
additional financing.
COST OF REVENUES:
Cost of revenues represent primarily amounts incurred pursuant to royalty
obligations and maintenance agreements on certain technology and the wages of
technical services personnel. The cost of revenues increased from $1,061 for the
three months ended September 30, 1997 to $12,645 for the comparable period ended
September 30, 1998. The cost of revenues increased from $37,329 for the nine
months ended September 30, 1997 to $49,515 for the comparable period ended
September 30, 1998. The Company anticipates that the absolute dollar spending
for cost of revenues will increase in the foreseeable future as the Company
expands its technical services organization to support customer needs. However,
given the limited sales of Arsenal, the Company believes that the ratio of cost
of revenues to revenues is not meaningful in the periods presented or indicative
of future ratios.
7
<PAGE> 8
OPERATING EXPENSES:
Total operating expenses are comprised of sales and marketing, research and
development, and general and administrative expenses. Sales and marketing
expenses increased from $974,667 for the three months ended September 30, 1997
to $1,543,816 for the comparable period ended September 30, 1998. Sales and
marketing expenses increased from $3,350,743 for the nine months ended September
30, 1997 to $3,754,792 for the comparable period ended September 30, 1998. These
increases in sales and marketing expenses are primarily the result of increased
staffing of sales personnel and increased spending on trade shows, advertising
and promotional events. Research and development expenses increased from
$578,510 for the three months ended September 30, 1997 to $749,066 for the
comparable period ended September 30, 1998. Research and development expenses
increased from $1,754,822 for the nine months ended September 30, 1997 to
$2,415,539 for the comparable period ended September 30, 1998. These increases
in research and development expenses are due to an increase in staffing and
expenditures related to the development of enhancements to Arsenal. General and
administrative expenses decreased from $462,482 for the three months ended
September 30, 1997 to $308,317 for the comparable period ended September 30,
1998. General and administrative expenses decreased from $1,455,451 for the nine
months ended September 30, 1997 to $995,307 for the comparable period ended
September 30, 1998. These decreases in general and administrative spending are
primarily due to decreases in staffing.
Based on the Company's research and development process, costs incurred
between the establishment of technical feasibility and general release have not
been material and therefore have not been capitalized in accordance with
Statement of Financial Accounting Standards No. 86. All research and development
costs are expensed as incurred.
NET LOSS:
As a result of the factors discussed above, the net loss increased from
$1,488,537 for the three months ended September 30, 1997 to $2,408,024 for the
comparable period ended September 30, 1998 and increased from $5,848,189 for the
nine months ended September 30, 1997 to $6,759,138 for the comparable period
ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
On February 20, 1998, the Company successfully completed a private
placement financing. The Company issued 1,001,000 shares of its Common Stock and
warrants to purchase an additional 500,500 at an exercise price of $5 per share
with proceeds net of offering expenses and underwriter's discounts of
approximately $2.2 million.
In August 1998, the Company completed a private placement of 2,793,000
shares of its Common Stock, recording proceeds net of offering expenses of
approximately $2.7 million.
In September 1998, the Company completed a third private placement of
shares of Convertible Preferred Stock (the "Shares") at a per share price of
$1,000. The Company issued 2,350 Shares and warrants to purchase an additional
117,500 shares of Common Stock at an exercise price of $1.50 per share with
proceeds net of offering expenses of approximately $2.2 million. Each Share is
convertible at the option of the holder into that number of shares of Common
Stock equal to $1,000 divided by the Common Stock Price which equals the lesser
of : (i) 80% of the average of the last sales prices for the Company's Common
Stock reported by NASD OTC Bulletin Board for the 5 trading days ending one day
prior to the day of conversion of the Shares into shares of Common Stock or;
(ii) $2.50.
In connection with the Company's issuance of Convertible Preferred Stock, a
non-cash financing charge approximating $365,000 will be recorded in the fourth
quarter ended December 31, 1998 in accordance with the Emerging Issues Task
Force ("EITF") Topic No. D-60, "Accounting for the Issuance of Convertible
Preferred Stock and Debt Securities with a Nondetachable Conversion Feature."
The Company's cash and short-term investments totaled $1,656,481 at
September 30, 1998, representing 49% of total assets. The Company used $5.7
million of cash to fund operations for the nine months ended September 30, 1998.
Net cash used in operating activities was primarily for the development, sales
and marketing costs associated with Arsenal. The Company's principal investing
activities consisted of advances to an employee and expenditures for computers
and computer related equipment. During the nine months ending September 30,
1998, the Company paid off a $250,000 outstanding bank credit line as well as a
$650,000 promissory note with proceeds from a certificate of deposit. During the
nine month period the Company received $7.1M in net proceeds from three private
placements.
The Company's existing capital resources and cash generated from
operations, if any, are sufficient to meet the Company's cash requirements only
for the next few weeks at its anticipated level of operations. The Company is
currently seeking additional funding. However, there can be no assurance that
any additional financing will be available on acceptable terms, or at all, as
required by the Company. Moreover, if additional financing is not available, the
Company will be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to investors.
For the quarter ended March 31, 1998, the Company was not able to maintain
the standards for continued quotation on the Nasdaq SmallCap Market. The Company
was granted a temporary exception from the NASDAQ Marketplace net tangible
assets/market capitalization/net income requirements subject to the Company
meeting certain conditions which expired on October 14, 1998. Because the
Company was not able to meet the specified conditions it was removed from
trading on the Nasdaq SmallCap Market in October.
As a result of the de-listing, trading in the Company's Common Stock is now
being conducted in the over-the-counter market on an electronic bulletin board
established for securities that do no meet the Nasdaq SmallCap Market Listing
requirements, or in what are commonly referred to as the "pink sheets".
8
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RISK FACTORS
Going Concern Assumption; Future Capital Needs Uncertain; No Assurance of Future
Financing
The Company's independent auditors' report on the Company's financial
statements at December 31, 1997 and for the years ended December 31, 1996 and
1997 contains an explanatory paragraph indicating that the Company had recurring
operating losses that raise substantial doubt about its ability to continue as a
going concern. In addition, the Company had an accumulated deficit of
$20,911,856 at September 30, 1998. The Company currently requires and in the
future may require substantial additional funds and there can be no assurance
that any independent auditor's report on the Company's future financial
statements will not include a similar explanatory paragraph if the Company is
unable to raise sufficient funds or generate sufficient cash from operations to
cover the cost of its operations. The existence of the explanatory paragraph may
materially adversely affect the Company's relationship with prospective
customers, third party integrators and suppliers, and therefore could have a
material adverse effect on the Company's business financial condition and
results of operations.
In the absence of receiving additional funding, the Company anticipates
that its existing capital resources and cash generated from only operations, if
any, will be sufficient to meet the Company's cash requirements only for the
next few weeks at its anticipated level of operations. There can be no assurance
that any additional financing will be available on acceptable terms, or at all,
as required by the Company. Moreover, if additional financing is not available,
the Company will be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to investors. The Company has experienced in the past,
and may continue to experience, operational difficulties and delays in its
product development due to working capital constraints. Any such difficulties or
delays have a material adverse effect on the Company's business, financial
condition and results of operations.
Complete Dependence on Recent Product Introduction
The Company derives substantially all of its revenues from the sale of
licenses and maintenance contracts for Arsenal. Consequently, the Company is
entirely dependent on the market acceptance of Arsenal. Unless and until Arsenal
receives market acceptance, the Company will have no material source of revenue.
There can be no assurance that Arsenal will achieve market acceptance. The
Company's ability to effectuate market acceptance and sales of Arsenal will be
substantially dependent on the hiring and training of additional personnel, and
there can be no assurance that the Company will be able to successfully hire and
train such personnel. Although the Company has begun to hire additional
personnel, market acceptance of Arsenal will require the Company to successfully
hire and retain sales personnel in a timely manner, of which there can be no
assurance. Any such failure will have a material adverse effect on the Company's
business, financial condition and results of operations. Failure of Arsenal to
achieve significant market acceptance will have a material adverse effect on the
Company's business, financial condition and results of operations.
Illiquidity of Trading Market; Penny Stock
Shares of the Company's common stock are quoted on the NASD OTC Bulletin
Board system. This over-the-counter market on an electronic bulletin board
generally supports quotations for securities of companies that do not meet the
Nasdaq SmallCap Market listing requirements. As a result, investors may find it
more difficult to dispose of, or to obtain accurate price quotations of, the
Company's common stock than they would if the Company's common stock were quoted
on the Nasdaq SmallCap Market. In addition, quotation on the NASD OTC Bulletin
Board depends on the willingness of broker-dealers to make a market in the
Company's common stock. There is no assurance that the Company's common stock
will continue to be so quoted or that there will continue to be a market for
buying and selling of the Company's common stock. Furthermore, if the Company's
net tangible assets fall below $2 million for the next audited financial
statements, or the Company otherwise fails to meet certain criteria of the
Commission, the common stock will become subject to so-called "penny stock"
rules that impose additional sales practice and market making requirements on
broker-dealers who sell and/or make a market in such securities. Such rules may
discourage the ability or willingness of broker-dealers to sell and/or make a
market in the common stock.
Risk of Dilution by Holders of Preferred Stock
In September 1998, the Company issued and sold 2,350 shares of Series A-1
Preferred stock in a private placement financing. Each of these shares of
preferred stock is convertible into such number of shares of common stock as is
determined by dividing $1000.00 by the "Conversion Price" at the time of
conversion. The Conversion Price is equal to 80% of the lesser of (i) the
average of the closing prices for the Company's common stock on the previous
five trading days prior to conversion and (ii) $2.50. For example, if the
average of the closing prices of the Company's common stock for the previous
five days was $1.00, then one share of preferred stock would convert into 1,250
shares of common stock ($1000 divided by ($1.00 times .80)). Because of this
"anti-dilution" conversion feature, the holders of preferred stock may have the
ability to substantially dilute the ownership of the holders of common stock,
particularly if the market price of the common stock decreases significantly due
to sales of common stock, including sales of common stock that was obtained upon
conversion of preferred stock.
Recent Hires of Key Executives; Need to Fill Key Executive Position; Dependence
on Limited Number of Key Personnel
The Company's Chairman of the Board recently assumed the position as Chief
Executive Officer following the resignation of its President and Chief Executive
Officer in March 1998. The Company's future success substantially depends on the
efforts of certain of its officers and key technical and other employees, many
of whom have only recently joined the Company. In particular the Company's Vice
President of Engineering recently joined the Company in February 1998.
Additionally, the Company is currently seeking to hire a Vice President of
Marketing. The Company's future success will require it to recruit additional
key personnel, including additional sales and marketing personnel. The Company
has not entered into employment agreements nor does it have key man life
insurance. The Company believes that its future success depends on its ability
to attract, retain and motivate highly skilled employees, who are in great
demand. There can be no assurance that the Company will be successful in doing
so.
9
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Dependence on Third Party Integrators
Software products that address the customer relationship management needs
of medium- to large-size businesses are typically highly complex and require
significant customization that often results in an extensive implementation
process. The Company's strategy for implementing Arsenal is dependent on the
utilization of third-party integrators to install, customize and service it.
Consequently, third-party integrators are required to undergo a substantial
amount of training to be able to apply the Company's products to the varied
needs of the Company's current and prospective customers. There can be no
assurance that the Company will be able to attract and retain personnel
necessary to train such integrators. In addition, there can be no assurance that
the Company's training will be sufficient or that such integrators will be able
to provide the level or quality of service required to meet the needs of the
Company's current and prospective customers. The Company will likely be
dependent on third-party integrators to complete certain post-delivery
obligations prior to the Company's recognition of revenue. Any failure of such
integrators to complete such obligations could prevent the Company from
recognizing revenue and the failure to so recognize revenue could have a
material adverse effect on the Company's business, financial condition and
results of operations. If the Company is unable to maintain effective, long-term
relationships with these integrators, or if such integrators fail to meet the
needs of the Company's current and prospective customers in a timely fashion, or
at all, such failure would result in a loss of, or delay in, market acceptance
of sales and could result in increased product support costs and an injury to
the Company's reputation, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has not and does not plan to enter into or maintain exclusive
relationships with third-party integrators and, consequently, such integrators
may have existing relationships with, or may undertake new relationships with,
the Company's direct competitors. There can be no assurance that such
integrators will promote Arsenal effectively, or at all. The failure of the
Company to provide sufficient incentive for such integrators may materially and
adversely affect the Company's sales of Arsenal which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Recent Losses; Quarterly Fluctuations in Performance
The Company has experienced significant operating losses in each of the
fiscal years beginning with fiscal 1994 and for the nine months ending September
30, 1998 and expects to incur significant operating losses for the foreseeable
future. In mid 1995, the Company ceased sales and marketing of its entire
product line and shifted its focus to the development of Arsenal and the
establishment of a third-party integrator channel. As a result, the Company
derives substantially all of its revenues from the sales of licenses and
maintenance contracts for Arsenal. Consequently, the Company is entirely
dependent on the market acceptance of Arsenal. Unless and until Arsenal receives
market acceptance, the Company will have no material source of revenue. There
can be no assurance that Arsenal will achieve market acceptance, moreover, there
can be no assurance that the Company will ever achieve profitability.
The Company's operating and other expenses are relatively fixed in the
short term. As a result, variation in the timing of revenues will cause
significant variations in quarterly operating results. Notwithstanding the
difficulty in forecasting future sales, the Company generally must undertake its
development, sales and marketing activities and other commitments months in
advance. Accordingly, any shortfall in revenues in a given quarter may
materially adversely affect the Company's business, financial condition and
results of operations due to the inability to adjust expenses during the quarter
to match the level of revenues for the quarter. Once commitments for such
expenditures are undertaken, the Company may be unable to reduce them quickly if
revenue is less than expected. In addition, the Company's sales expectations are
based entirely on its internal estimates of future demand. Due to these and
other factors, the Company believes that quarter-to-quarter comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.
Operating results may fluctuate as a result of many factors, including
volume and timing of orders received, the extent to which the Company is
required to establish and support a third-party integrator channel or hire
additional sales personnel to supplement such channel, announcements by the
Company and its competitors, the timing of commercial introduction of
enhancements to Arsenal, if any, or competitive products, the impact of price
competition on the Company's average selling prices, and the level of research
and development required to complete any future product enhancements. Almost all
of these factors are beyond the Company's control. In addition, due to the short
product life cycles that characterize the customer resource management software
market, the Company's failure to introduce any Arsenal enhancements in a timely
manner could have a material adverse effect on the Company's business, financial
condition and results of operations.
Rapid Technological Change; Risk of Product Delays or Defects
The customer relationship management software market is characterized by
ongoing technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry standards and practices can render existing products obsolete and
unmarketable. The Company's future success depends in large part upon its
ability to obtain market acceptance of Arsenal, develop enhancements to Arsenal
to address the changing requirements of its customers, educate third-party
integrators regarding Arsenal and anticipate or respond to technological
advances, competitive products and emerging industry standards in a timely,
cost-effective manner. There can be no assurance that the Company will be
successful in marketing and supporting Arsenal or enhancements to Arsenal, if
any, or will not experience difficulties that could delay or prevent the
successful marketing and support of these products, or that Arsenal and any such
product enhancements will adequately meet the requirements of the marketplace
and achieve any significant degree of commercial acceptance. The Company has in
the past experienced delays in product development, including significant delays
in the development of Arsenal. Delays in enhancements to Arsenal, if any, may
result in customer dissatisfaction and delay or loss of product and maintenance
revenues. In addition, there can be no assurance that Arsenal or other future
products will meet the requirements of the marketplace or will conform to
industry standards and requirements. Any delays in the development or
introduction of enhancements to Arsenal or failure to respond to market
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
10
<PAGE> 11
Software products such as Arsenal often contain errors or "bugs" that can
adversely affect the performance of the product or damage a user's data. There
can be no assurance that, despite testing by the Company and by potential
customers, errors will not be found in Arsenal, resulting in a loss, of, or
delay in, market acceptance and sales, diversion of development resources,
injury to the Company's reputation, or increased service and warranty costs, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Competition
The customer relationship management software market is highly competitive,
highly fragmented and characterized by rapid technological change, frequent new
product introductions, short product life cycles and evolving industry
standards, and is expected, in the future, to be characterized by significant
price erosion over the life of a product. Within specific ranges of
functionality, the Company experiences competition from many sources, including:
(i) companies that directly address the sales automation market, (ii)
third-party integrators, that design, develop and implement custom solutions;
(iii) the internal information technology departments of organizations that
develop proprietary applications; and (iv) suppliers of Personal Information
Managers off-the-shelf software specific to personal computers designed to aid
in such activities as time management, contact management and calendaring. In
addition, the Company may experience competition from additional companies, to
the extent such companies enter the customer resource management market, such as
"groupware" vendors, "help-desk" vendors, Local Area Network ("LAN") based
application development tools vendors, remote LAN-access communication vendors
and communications and systems management software vendors. Among the Company's
potential competitors are also a number of large hardware and software companies
that may develop or acquire products that compete in the sales automation
software market.
Current and potential competitors have established and may establish
cooperative relationships with third parties to increase the ability of their
products to address the needs of the Company's current and prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Many of the
Company's current and potential competitors have significantly greater
financial, technical, marketing, name recognition and other resources than the
Company. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products than
can the Company. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that competitive
pressures will not materially adversely affect the Company's business, financial
condition and results of operations.
11
<PAGE> 12
YEAR 2000 COMPLIANCE
Many computer systems were not designed to handle any dates beyond the year
1999, and therefore computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. Borealis has completed a
Year 2000 compliance review for all Arsenal products released through September
30, 1998. The Company does not anticipate that addressing the year 2000 problem
for Arsenal products will have a material impact on operations or financial
results. To date, costs incurred in remediating identified Year 2000 issues
have not been material.
Despite design review and ongoing testing, Arsenal products may contain
undetected errors or defects associated with Year 2000 date handling. Known or
unknown errors or defects in Arsenal products could result in: (i) delay or loss
of revenue; (ii) diversion of development resources; (iii) damage to reputation;
and (iv) increased service and warranty costs.
Year 2000 issues may also affect the computer systems used internally by
the Company to manage and operate its business. Borealis has completed a Year
2000 compliance review of its internal systems and is not aware of any material
costs or operational issues associated with Year 2000 issues affecting internal
systems. To date the Company has not incurred and does not believe that it will
incur significant operating expenses or be required to invest heavily in
computer systems improvements to be Year 2000 compliant. However, the Company
may experience significant unanticipated problems and costs caused by undetected
errors or defects in internal systems. The worst-case scenario if such problems
occur would be the inability to ship products and record revenue.
The Company does not currently have any information concerning the Year
2000 compliance status of its customers or prospective customers. If current or
future customers fail to achieve Year 2000 compliance or if they divert
technology expenditures (especially technology expenditures that were reserved
for software and services) to address Year 2000 compliance issues, the Company's
business, results of operations or financial condition would be materially
adversely affected.
The Company has funded its Year 2000 activities from available cash and has
not separately accounted for these costs in the past. To date, these costs have
not been material. The Company may incur additional costs for administrative,
customer support, internal IT and product engineering activities to address
ongoing internal and product-related Year 2000 issues. In addition, the Company
may experience problems and costs with Year 2000 compliance that could
materially adversely affect its business, results of operations, and financial
condition. The Company has not yet fully developed a contingency plan to address
situations that may result if it is unable to achieve Year 2000 readiness of
critical operations. The cost of developing and implementing such a plan may
itself be material. Finally, the Company is also subject to external forces that
might generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failures and related service interruptions.
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1(1) Agreement and Plan of Merger between
Borealis Corporation, a Nevada corporation,
and Borealis Technology Corporation, a
Delaware corporation, dated June 7, 1996.
3.1 (1) Registrant's Certificate of Incorporation, as currently in effect.
3.2 Certificate of Designations of Series A Convertible Preferred Stock.
3.3 Certificate of Designations of Series A-1 Convertible Preferred Stock.
3.4 (1) Registrant's Bylaws, as currently in effect.
4.1(1) Specimen Certificate of Registrant's Common Stock
4.2(1) Form of WSGR Warrant
4.3(1) Form of Warrant issued to H.J. Meyers & Co., Inc. in connection with the Registrant's
initial public offering
4.4(1) Registrant's Contingent Rights Plan
4.5(2) Form of Warrant issued to H.J. Merers & Co., Inc. in connection with the Registrant's July
1997 public offering
10.1 (1) Real Property Lease between Registrant and Incline Investors Group, dated June 15, 1995.
10.2 (1) Real Property Sublease between Registrant and U.S. Bank of Nevada, dated November 7, 1995.
10.3 (1) 1994 Stock Plan.
10.4 (1) 1996 Stock Plan.
10.5 (1) 1996 Director Option Plan.
10.6 (1) Form of Indemnification Agreement.
10.7 (1) Asset License and Purchase Agreement between the Registrant and
Sales Technologies, Inc., dated April 15, 1994.
10.8 (1) Lease between the Registrant and DBB Holdings, Inc., dated June 11, 1996.
10.9 (3) Promissory Note between the Registrant and US Bank dated July 11, 1996.
10.10(4) 1997 Employee Stock Purchase Plan
10.11(1) Form of Warrant for 2000 shares granted to Peter Pitsker on June 11, 1996
10.12(1) Form of Warrant for 7,000 shares granted to Jerry Brooks on June 11, 1996
10.13(2) Solution Provider Agreement between the Registrant and American Technology Corporation,
dated October 4, 1996
10.14(2) Promissory Note issued to Oxbow LLC
10.15(2) Warrant issued to Oxbow LLC
10.16(2) Rights Agreement between the Registrant and Oxbow LLC
10.17(5) Form of Unit Purchase Agreement for 1997-98 private placement
10.18(5) Form of Warrant for 1997-98 private placement
10.19(6) Form of Purchase Agreement for June 1998 private placement
10.20 Form of Purchase Agreement for September 1998 private placement
10.21 Form of Warrants issued to investors for September 1998 private placement
10.22 Real Sublease Agreement between Registrant and Bingo Technology Corporation
10.23 Real Sublease Agreement between Registrant and Connecticut Surety Group
27.1 Financial Data Schedule
</TABLE>
------------------------
(1) Incorporated by reference to exhibits filed with
Registrant's Registration Statement on Form SB-2
which became effective on June 20, 1996.
(2) Incorporated by reference to exhibits with
Registrant's Registration Statement on Form SB-2
which became effective on July 21, 1997.
(3) Incorporated by reference to exhibits filed with
Registrant's Registration Statement on Form 10-QSB
filed August 13, 1996
(4) Incorporated by reference to annex filed with
Registrant's Definitive Proxy Statement on Schedule
14A filed April 11, 1997.
(5) Incorporated by reference to exhibits filed with
Registrant's Registration Statement on Form 10-QSB
filed May 15, 1998
(6) Incorporated by reference to exhibits filed with
Registrant's Registration Statement on Form 10-QSB
filed August 13, 1998
(b) Reports on Form 8-K.
Borealis filed a Current Report on Form 8-K on September 29, 1998,
relating to a private placement.
12
<PAGE> 14
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BOREALIS TECHNOLOGY CORPORATION
Registrant
BY: /s/ Elizabeth J. Gasper
-------------------------------------
Elizabeth J. Gasper
Executive Vice President
Chief Financial Officer
Date: November__, 1998
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Document Description
- ------- --------------------
<S> <C>
3.2 Certificate of Designations of Series A Convertible Preferred
Stock
3.3 Certificate of Designations of Series A1 Convertible Preferred
Stock
10.20 Form of Purchase Agreement for September 1998 private placement
10.21 Form of Warrants issued to investors for September 1998 private
placement
10.22 Real sublease agreement between Registrant and Bingo Technology
Corporation
10.23 Real sublease agreement between Registrant and Connecticut
Surety Group
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PREFERRED STOCK
OF BOREALIS TECHNOLOGY CORPORATION
The undersigned, Patrick Grady and Elizabeth Gasper do hereby certify:
1. That they are the duly elected and acting President and Secretary,
respectively, of Borealis Technology Corporation, a Delaware corporation (the
"CORPORATION").
2. That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the said Corporation, the said Board of
Directors has adopted the following resolution creating a series of 10,000
shares of Preferred Stock designated as Series A Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Restated Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a series of Preferred
Stock of the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "SERIES A PREFERRED STOCK." The Series A Preferred Stock shall
have a par value of $0.01 per share, and the number of shares constituting such
series shall be 10,000.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive when, as and if declared by the Board of Directors out of
funds legally available for the purpose, dividends payable in cash on the last
day of January, April, July and October in each year (each such date being
referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the aggregate per share amount of all cash
dividends declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Preferred Stock.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (a) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock).
1
<PAGE> 2
(c) Dividends shall begin to accrue on outstanding shares of Series
A Preferred Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of Series A Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. Except as otherwise provided herein or
required by law, the holders of shares of Series A Preferred Stock shall have no
right to vote on any matter. So long as at least 4,000 shares of Series A
Preferred Stock (appropriately adjusted for stock splits and the like) shall be
outstanding, the Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of a majority of the outstanding shares
of the Series A Preferred Stock: (a) issue or authorize shares of any class or
series of stock having a preference or priority as to dividends or assets which
is superior to the preferences or priorities of the Series A Preferred Stock;
(b) amend or repeal any provision of, or add any provision to, the Corporation's
Certificate of Incorporation if such action would materially and adversely alter
or change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series A Preferred Stock or (c) increase the
number of shares of Series A Preferred Stock authorized hereby.
Section 4. Conversion.
(a) Each share of Series A Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after the date 90 days after the
earlier of (a) such time as all shares of Series A Preferred Stock authorized
hereby are issued and outstanding or (b) such time as the Corporation designates
the termination of its Series A Preferred Stock financing in a writing executed
by the President or Secretary of the Corporation (which writing shall be kept
available at the principal offices of the Corporation), at the office of the
Corporation or any transfer agent for the Series A Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $1000.00 (as adjusted for any stock split or similar event with
regard to the Series A Preferred Stock) by 80 % of the Conversion Price,
determined as hereinafter provided, in effect at the time of the conversion. The
"CONVERSION PRICE" shall be equal to the value of one share of the Corporation's
Common Stock determined as follows:
2
<PAGE> 3
(i) If traded on a securities exchange or the National Market
System or SmallCap Market of the National Association of Securities Dealers,
Inc., the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the five (5) trading day period one (1) day
prior to the date of determination;
(ii) If actively traded over the counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the five (5) trading day period ending one (1) day prior to the
date of determination; and
(iii) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by the Board of Directors of
the Corporation as of the date of determination.
(b) Each share of outstanding Series A Preferred Stock shall,
without any action by the holders thereof, automatically convert into shares of
the Corporation's Common Stock pursuant to the terms of subparagraph (a) hereof
immediately prior to the occurrence of any of the following events:
(i) The acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
(other than the Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation) of the
"beneficial ownership" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Corporation representing fifty percent (50%) or
more of the total voting power represented by the Corporation's then outstanding
voting securities in a transaction approved by the Board of Directors of the
Corporation; or
(ii) A merger or consolidation of the Corporation with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Corporation outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Corporation
or such surviving entity outstanding immediately after such merger or
consolidation, or the approval by the stockholders of the Corporation of a plan
of complete liquidation of the Corporation or of an agreement for the sale or
disposition by the Corporation of all or substantially all the Corporation's
assets.
(c) Upon conversion, all declared and unpaid dividends on the Series
A Preferred Stock shall be paid, to the extent funds are legally available
therefor, either in cash or in shares of Common Stock, at the election of the
Corporation, wherein the shares of Common Stock shall be valued at the
Conversion Price.
(d) No fractional shares of Common Stock shall be issued upon
conversion of Series A Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled (after aggregating all shares of
Series A Preferred Stock held by such holder such that the
3
<PAGE> 4
maximum number of whole shares of Common Stock is issued to such holder upon
conversion), the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price. Before any holder of Series A Preferred
Stock shall be entitled to voluntarily convert the same into full shares of
Common Stock and to receive certificates therefor, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock, and shall
give written notice to the Corporation at such office that he elects to convert
the same, provided, however, that in the event of an automatic conversion
pursuant to subparagraph (b) hereof, the outstanding shares of Series A
Preferred Stock shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent, and provided
further that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing such shares of Series A Preferred Stock are
either delivered to the Corporation or its transfer agent as provided above, or
the holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates.
(e) The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Series A Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which he shall be entitled as
aforesaid and a check payable to the holder in the amount of any cash amounts
payable as the result of a conversion into fractional shares of Common Stock.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock to be converted, or, in the case of automatic conversion, immediately
prior to the event triggering such conversion, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
converted, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the conversion or
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein and, in the Corporation's Certificate of Incorporation, as then
amended.
Section 6. Liquidation, Dissolution or Winding Up.
(a) In the event of any dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, before any distribution or
payment is made to or upon any shares of Common Stock, from the available net
assets of the Corporation, the holders of Series A Preferred Stock shall
receive, pari passu, for each share of such stock then held, property or cash in
an amount equal to the sum of (i) $500.00 per share of Series A Preferred Stock
(as originally issued and
4
<PAGE> 5
appropriately adjusted for stock splits and the like) plus (ii) all declared but
unpaid dividends thereon, if any, through the date of such payment. If upon any
dissolution, liquidation or winding up of the Corporation, the net assets
available for distribution to the Corporation's stockholders pursuant to this
subparagraph (a) shall be insufficient to permit payment to the holders of
Series A Preferred Stock of the amount distributable as aforesaid, the entire
net assets of the Corporation to be so distributed shall be distributed to the
holders of Series A Preferred Stock, and as among such holders, in proportion to
the number of shares of Series A Preferred Stock held by each.
(b) Upon any such liquidation, dissolution or winding up, after the
holders of Series A Preferred Stock shall have been paid in full the amount to
which they shall be entitled pursuant to subparagraph (a) above, from the
remaining net assets of the Corporation, the holders of Common Stock shall
receive, pari passu, for each share of such stock then held, property or cash in
an amount equal to the sum of (i) 50% of the Conversion Price as of the date of
such distribution plus (ii) all declared but unpaid dividends thereon, if any,
through the date of such payment. If upon any dissolution, liquidation or
winding up of the Corporation, and following the distribution set forth in
subparagraph (a) hereof, the remaining net assets available for distribution to
the Corporation's stockholders pursuant to this subparagraph (b) shall be
insufficient to permit payment to the holders of Common Stock of the amount
distributable as aforesaid, the entire remaining net assets of the Corporation
to be so distributed shall be distributed to the holders of Common Stock, and as
among such holders, in proportion to the number of shares of Common Stock held
by each.
(c) Upon any such liquidation, dissolution or winding up, after the
holders of Series A Preferred Stock and Common Stock shall have been paid in
full the amounts to which they shall be entitled pursuant to subparagraphs (a)
and (b) above, the holders of Common Stock and Series A Preferred Stock shall
receive the remaining net assets of the Corporation available for distribution
pro rata in proportion to the number of shares of Common Stock held by them or
issuable to them upon conversion of Series A Preferred Stock as of the date five
days prior to such distribution.
Section 7. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 8. Fractional Shares. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
5
<PAGE> 6
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this Corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
We further declare under penalty of perjury that the matters set forth
in the foregoing Certificate of Designation are true and correct of our own
knowledge.
Executed at _______________ on ____________ ____, 1998.
--------------------------------------------------
Patrick Grady, President
--------------------------------------------------
Elizabeth Gasper, Secretary
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF DESIGNATIONS OF RIGHTS,
PREFERENCES AND PRIVILEGES OF
SERIES A-1 PREFERRED STOCK
OF BOREALIS TECHNOLOGY CORPORATION
The undersigned, Patrick Grady and Elizabeth Gasper do hereby certify:
1. That they are the duly elected and acting President and Secretary,
respectively, of Borealis Technology Corporation, a Delaware corporation (the
"CORPORATION").
2. That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the said Corporation, the said Board of
Directors has adopted the following resolution creating a series of 10,000
shares of Preferred Stock designated as Series A-1 Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Restated Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock of
the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "SERIES A-1 PREFERRED STOCK." The Series A-1 Preferred Stock shall
have a par value of $0.01 per share, and the number of shares constituting such
series shall be 10,000.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series A-1 Preferred Stock shall be
entitled to receive when, as and if declared by the Board of Directors out of
funds legally available for the purpose, dividends payable in cash on the last
day of January, April, July and October in each year (each such date being
referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A-1 Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the aggregate per share amount of all
cash dividends declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A-1 Preferred Stock.
(b) The Corporation shall declare a dividend or distribution on the
Series A-1 Preferred Stock as provided in paragraph (a) above immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue on outstanding shares of Series
A-1 Preferred Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of
1
<PAGE> 2
Series A-1 Preferred Stock, unless the date of issue of such shares is prior to
the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A-1 Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A-1
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A-1 Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. Except as otherwise provided herein or required
by law, the holders of shares of Series A-1 Preferred Stock shall have no right
to vote on any matter. So long as any shares of Series A-1 Preferred Stock
(appropriately adjusted for stock splits and the like) shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of a majority of the outstanding shares of the Series A-1
Preferred Stock: (a) issue or authorize shares of any class or series of stock
having a preference or priority as to dividends or assets which is superior to
the preferences or priorities of the Series A-1 Preferred Stock; (b) amend or
repeal any provision of, or add any provision to, the Corporation's Certificate
of Incorporation if such action would materially and adversely alter or change
the preferences, rights, privileges or powers of, or the restrictions provided
for the benefit of, the Series A-1 Preferred Stock or (c) increase the number of
shares of Series A-1 Preferred Stock authorized hereby.
Section 4. Conversion.
(a) Each holder of Series A-1 Preferred Stock may, at its option
after the earlier or (i) 90 days after the Closing or (ii) after the
Registration Statement has been declared effective, convert any or all of its
shares of Series A-1 Preferred Stock into Common Stock as follows (an "Optional
Conversion"). Each share of Series A-1 Preferred Stock shall be convertible into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Stated Value thereof by the then effective Conversion
Price (as defined below). The "Conversion Price shall be the lesser of (i) 80%
of the Market Price (as defined herein)(the "Variable Conversion Price") and
(ii) $2.50 (the "Fixed Conversion Price"). "Market Price" shall mean the average
of the Closing bid prices of the Common Stock on the Nasdaq Stock Market or on
the principal securities exchange or other market on which the Common Stock is
then being traded (in each case, as reported by Bloomberg), for the five (5)
consecutive Trading Days ending on the last Trading Day prior to the date of
conversion, which shall be the date that the Notice of Conversion is sent by a
holder to the Corporation and received by the Corporation via facsimile or other
means.
(b) Each share of outstanding Series A-1 Preferred Stock shall,
without any action by the holders thereof, automatically convert into shares of
the Corporation's Common Stock pursuant
2
<PAGE> 3
to the terms of subparagraph (a) hereof immediately prior to the occurrence of a
merger or consolidation of the Corporation with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or the approval by
the stockholders of the Corporation of a plan of complete liquidation of the
Corporation or of an agreement for the sale or disposition by the Corporation of
all or substantially all the Corporation's assets.
(c) Upon conversion, all declared and unpaid dividends on the Series
A-1 Preferred Stock shall be paid, to the extent funds are legally available
therefor, either in cash or in shares of Common Stock, at the election of the
Corporation, wherein the shares of Common Stock shall be valued at the
Conversion Price.
(d) No fractional shares of Common Stock shall be issued upon
conversion of Series A-1 Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled (after aggregating all shares of
Series A-1 Preferred Stock held by such holder such that the maximum number of
whole shares of Common Stock is issued to such holder upon conversion), the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series A-1 Preferred Stock
shall be entitled to voluntarily convert the same into full shares of Common
Stock and to receive certificates therefor, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for the Series A-1 Preferred Stock, and shall give written
notice to the Corporation at such office that he elects to convert the same,
provided, however, that in the event of an automatic conversion pursuant to
subparagraph (b) hereof, the outstanding shares of Series A-1 Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, and provided further that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such automatic conversion unless the
certificates evidencing such shares of Series A-1 Preferred Stock are either
delivered to the Corporation or its transfer agent as provided above, or the
holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates.
(e) The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Series A-1 Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A-1 Preferred Stock to be converted, or, in the case of automatic
conversion, immediately prior to the event triggering such conversion, and the
person or persons entitled to receive
3
<PAGE> 4
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
Section 5. Reacquired Shares. Any shares of Series A-1 Preferred Stock
converted, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the conversion or
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein and, in the Corporation's Certificate of Incorporation, as then
amended.
Section 6. Liquidation, Dissolution or Winding Up.
(a) In the event of any dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, before any distribution or
payment is made to or upon any shares of Common Stock, from the available net
assets of the Corporation, the holders of Series A-1 Preferred Stock shall
receive, pari passu, for each share of such stock then held, property or cash in
an amount equal to the sum of (i) $1000.00 per share of Series A-1 Preferred
Stock (as originally issued and appropriately adjusted for stock splits and the
like) plus (ii) all declared but unpaid dividends thereon, if any, through the
date of such payment. If upon any dissolution, liquidation or winding up of the
Corporation, the net assets available for distribution to the Corporation's
stockholders pursuant to this subparagraph (a) shall be insufficient to permit
payment to the holders of Series A-1 Preferred Stock of the amount distributable
as aforesaid, the entire net assets of the Corporation to be so distributed
shall be distributed to the holders of Series A-1 Preferred Stock, and as among
such holders, in proportion to the number of shares of Series A-1 Preferred
Stock held by each.
(b) Upon any such liquidation, dissolution or winding up, after the
holders of Series A-1 Preferred Stock shall have been paid in full the amount to
which they shall be entitled pursuant to subparagraph (a) above, from the
remaining net assets of the Corporation, the holders of Common Stock shall
receive, pari passu, for each share of such stock then held, property or cash in
an amount equal to the sum of (i) 50% of the Conversion Price as of the date of
such distribution plus (ii) all declared but unpaid dividends thereon, if any,
through the date of such payment. If upon any dissolution, liquidation or
winding up of the Corporation, and following the distribution set forth in
subparagraph (a) hereof, the remaining net assets available for distribution to
the Corporation's stockholders pursuant to this subparagraph (b) shall be
insufficient to permit payment to the holders of Common Stock of the amount
distributable as aforesaid, the entire remaining net assets of the Corporation
to be so distributed shall be distributed to the holders of Common Stock, and as
among such holders, in proportion to the number of shares of Common Stock held
by each.
(c) Upon any such liquidation, dissolution or winding up, after the
holders of Series A-1 Preferred Stock and Common Stock shall have been paid in
full the amounts to which they shall be entitled pursuant to subparagraphs (a)
and (b) above, the holders of Common Stock and Series A-1 Preferred Stock shall
receive the remaining net assets of the Corporation available for distribution
pro
4
<PAGE> 5
rata in proportion to the number of shares of Common Stock held by them or
issuable to them upon conversion of Series A-1 Preferred Stock as of the date
five days prior to such distribution.
Section 7. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 8. Fractional Shares. Series A-1 Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A-1 Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this Corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
We further declare under penalty of perjury that the matters set forth in
the foregoing Certificate of Designation are true and correct of our own
knowledge.
Executed at _______________ on ____________ ____, 1998.
--------------------------------------------
Patrick Grady, President
--------------------------------------------
Elizabeth Gasper, Secretary
5
<PAGE> 1
EXHIBIT 10.20
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
Borealis Technology Corporation
4070 Silver Sage Drive
Carson City, NV 89701
Ladies and Gentlemen:
The undersigned (the "Purchaser"), hereby confirms its agreement with you
as follows:
1. This Preferred Stock and Warrant Purchase Agreement (the "Agreement")
is made as of the date set forth below between Borealis Technology Corporation,
a Delaware corporation (the "Company"), and the Purchaser.
2. The Company has authorized the sale and issuance of shares of its
Series A Preferred Stock up to an amount whose aggregate purchase price shall
not exceed $10,000,000 (the "Shares").
3. The purchase price per Share (the "Price per Share") will be $1000.00.
The Company and the Purchaser agree that the Purchaser will purchase and the
Company will sell, at such Price per Share, the number of Shares whose aggregate
purchase price equals the amount set forth below and a Warrant to purchase 50
shares of the Company's Common Stock for each Share purchased hereunder pursuant
to the Terms and Conditions for Purchase of Shares attached hereto as Annex I
and incorporated herein by reference as if fully set forth herein. Unless
otherwise requested by the Purchaser, certificates representing the Shares
purchased by the Purchaser will be registered in the Purchaser's name and
address as set forth below.
Please confirm that the foregoing correctly sets forth the agreement
between us by signing in the space provided below for that purpose.
--------------------------------------------
PURCHASER
By:
----------------------------------
Title:
----------------------------------
Address:
----------------------------------
--------------------------------------------
--------------------------------------------
Tax ID No.:
---------------------------------
Number of Shares Purchased:
-----------------
Warrant Shares:
-----------------------------
Aggregate Purchase Price
(@$1000/Share):$
------------------
AGREED AND ACCEPTED:
- -----------------------------------
BOREALIS TECHNOLOGY CORPORATION
By:
----------------------------
Title:
----------------------------
Date:
----------------------------
<PAGE> 2
ANNEX I
TERMS AND CONDITIONS FOR PURCHASE OF SHARES
1. Authorization and Sale of Shares and Warrants
1.1 Authorization. The Company has authorized the sale and issuance of
shares of its Series A Preferred Stock, $0.01 par value, up to an amount whose
aggregate purchase price shall not exceed $10,000,000 (the "Shares") and
warrants to purchase up to 500,000 Shares of Common Stock in the form attached
hereto as Exhibit B (the "Warrants"), pursuant to the Preferred Stock and
Warrant Purchase Agreement to which this Annex I is attached (the "Agreement").
1.2 Filing of Certificate of Designations. Prior to the First Closing (as
defined below), the Company will file with the Delaware Secretary of State an
Amended and Restated Certificate of Designations (the "Certificate of
Designations") designating the rights, preferences, restrictions and limitations
of the Shares, in substantially the form attached hereto as Exhibit A.
1.3 Sale of Shares and Warrants. Subject to the terms and conditions of
the Agreement, the Company agrees to issue and sell to each Purchaser and each
Purchaser severally agrees to purchase from the Company the number of Shares set
forth in the Agreement. In addition, each Purchaser shall receive a Warrant to
purchase up to 50 Shares of Common Stock for each Share purchased hereunder. The
Warrants shall be exercisable until September __, 2000 and shall have a purchase
price of $1.50 per Share.
2. Closing Dates; Delivery
2.1 Closings. The first closing of the purchase and sale of the Shares and
Warrants hereunder (the "First Closing") shall be held at a time and on a date
reasonably designated by the Company at the offices of Wilson, Sonsini, Goodrich
& Rosati, P.C., 650 Page Mill Road, Palo Alto, California, or at such other
place as shall be mutually agreed upon by the Company and the Purchasers
purchasing a majority of the Shares at the First Closing. The Company may at its
option schedule additional closings of the purchase and sale of up to the
balance of the Shares not sold at the First Closing (the "Subsequent Closings,"
each, together with the First Closing, referred to herein as a "Closing") on
such date or dates as the Company may determine.
2.2 Delivery. At each Closing, the Company will deliver to each Purchaser
certificates, registered in the Purchaser's name and address as shown in this
Agreement, representing the number of Shares and the Warrants to be purchased by
the Purchaser. Such delivery shall be against payment therefor by wire transfer
of the aggregate purchase price of the Shares and Warrants set forth in the
Agreement to an escrow account established by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, escrow agent for the Company (the "Escrow Agent"). All
payments received by the Escrow Agent prior to each date of Closing (each a
"Closing Date") shall be held in a trust account for the benefit of the
Purchasers pending such Closing.
3. Representations and Warranties of the Company
The Company represents and warrants to the Purchasers as of the date of
the Agreement as follows:
3.1 Organization; Standing; Qualification to Do Business. The Company is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing as a domestic corporation
under the laws of said state. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the
<PAGE> 3
conduct of its business requires such qualification, except where the failure to
be so qualified or be in good standing is not reasonably likely to have a
material adverse effect on the Company.
3.2 Corporate Power; Authorization. The Company has all requisite
corporate power and has taken all requisite corporate action to execute and
deliver the Agreement, to sell and issue the Shares and to carry out and perform
all of its obligations under the Agreement. The Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except (a) as rights to indemnification and contribution hereunder may be
limited by applicable law, equitable principles or public policy, (b) as limited
by applicable bankruptcy, insolvency, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally and (c) as limited
by equitable principles generally. To the Company's knowledge, the execution and
delivery of the Agreement does not, and the performance of the Agreement and the
compliance with the provisions hereof and the issuance, sale and delivery of the
Shares by the Company will not materially conflict with, or result in a material
breach or violation of the terms, conditions or provisions of, or constitute a
material default under the Certificate of Incorporation or Bylaws of the
Company.
3.3 Issuance and Delivery of the Shares. The Shares, when issued in
compliance with the provisions of the Agreement, and the shares of Common Stock
issuable upon conversion of the Shares (the "Conversion Shares") and the Shares
of Common Stock issuable upon exercise of the Warrants, when issued in
compliance with the Agreement, the Warrant and the Certificate of Designations,
will be validly issued, fully paid and nonassessable.
3.4 Private Placement Offering Memorandum; SEC Documents; Financial
Statements. The Company has filed in a timely manner all documents that the
Company was required to file with the Securities and Exchange Commission (the
"SEC") under Sections 13, 14(a) and 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), during the 12 months preceding the date
of the Agreement. As of their respective filing dates, all documents filed by
the Company with the SEC (the "SEC Documents") complied in all material respects
with the requirements of the Exchange Act or the Securities Act of 1933, as
amended (the "Securities Act"), as applicable. The SEC Documents, when read
together, do not include an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents (the "Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto. The Financial Statements have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present the consolidated financial position of the Company and any subsidiaries
at the dates thereof and the consolidated results of their operations and
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, recurring adjustments).
3.5 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal or state governmental authority on the part of the Company is required
in connection with the consummation of the transactions contemplated by the
Agreement, except for (a) compliance with the securities and blue sky laws in
the states in which Shares are offered and/or sold, (b) the filing of a
registration statement and any amendments thereto with the SEC as contemplated
by Section 7.1 of the Agreement and (c) the filing of the Certificate of
Designations with the Delaware Secretary of State.
3.6 No Material Adverse Change. Except as otherwise disclosed herein or in
the Company's Private Placement Offering Memorandum prepared on or about August
20, 1998 (such Private Placement Offering Memorandum, including all exhibits
thereto, being hereinafter referred to as the "Memorandum"), since August
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<PAGE> 4
20, 1998, there has not been (a) any changes in the assets, liabilities,
financial condition, business prospects or operations of the Company which,
individually and in the aggregate, have had a material adverse effect on the
Company or (b) any declaration or payment of any dividend or other distribution
of assets of the Company.
3.7 Litigation. Except as set forth in the Memorandum or the SEC
Documents, and except for matters relating to the Nasdaq SmallCap Market, there
are no actions, suits, proceedings or investigations pending against the Company
or any of its properties before or by any court or arbitrator or any
governmental body, agency or official that (a) would reasonably be expected to
have a material adverse effect on the Company and its subsidiaries considered as
one enterprise or (b) would reasonably be expected to impair the ability of the
Company to perform in any material respect its obligations under the Agreement.
3.8 Private Placement. Assuming the accuracy of the representations and
warranties of the Purchasers, and compliance by the Purchasers of all of their
covenants and agreements contained in the Agreement, the offer, sale and
issuance by the Company of the Shares to the Purchasers as contemplated in the
Agreement constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act.
3.9 Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Shares will increase
in certain circumstances. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Shares in accordance with this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
3.10 Reservation of Stock Issuable Upon Conversion. The Company shall take
all action necessary to at all times have authorized and reserved for the
purpose of issuance, the number of shares of Common Stock needed to provide for
the issuance of the Conversion Shares upon the conversion of all outstanding
Shares. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
Shares, the Company will take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose. Should a conversion not be
possible for 30 days because there are not enough shares authorized then the
Company shall pay to the Purchaser as liquidated damages for such failure and
not as a penalty, two (2%) percent of the Purchase Price of the then outstanding
Shares for the first thirty (30) day period, and three (3%) percent of the
Purchase Price of the then outstanding Shares for every thirty (30) days
thereafter until the appropriate number of Shares has been authorized and
reserved.
4. Representations, Warranties and Covenants of the Purchasers
Each Purchaser hereby severally represents and warrants, and covenants and
agrees with, to the Company, as of the Closing Date, as follows:
4.1 Authorization. Purchaser has all requisite legal and corporate or
other power and capacity and has taken all requisite corporate or other action
to execute and deliver the Agreement, to purchase the Shares to be purchased by
it and to carry out and perform all of its obligations under the Agreement. The
Agreement constitutes the legal, valid and binding obligation of the Purchaser,
enforceable in accordance with its terms, except (a) as rights to
indemnification and contribution hereunder may be limited by applicable law,
equitable principles or public policy, (b) as limited by applicable bankruptcy,
insolvency, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally and (c) as limited by equitable
principles generally.
-3-
<PAGE> 5
4.2 Investment Experience. RBB Bank represents and warrants that it does
not buy any of the shares itself but only acts as investment advisor for more
than 40 independent, accredited non US investors, who are the beneficial owners
of the shares but whose identity cannot be disclosed due to Austrian bank
secrecy laws. RBB Bank represents that no Investor will ever beneficially own
more than 4.9% of the outstanding common shares of the Company. RBB Bank has the
authority from each Investor to enter into this agreement and the term Investor
shall always refer to the individual investor. RBB Bank does not have voting
control or power of disposition over securities owned by the Investors and no
Investor is an affiliate of another Investor. RBB Bank warrants that all
investors are accredited investors as that term is defined in the Rule 501(a)
under the Securities Act. RBB Bank is aware of the Company's business affairs
and financial condition and has had access to and has acquired sufficient
information about the Company to reach an informed and knowledgeable decision to
acquire the Shares. RBB Bank has such business and financial experience as is
required to give it the capacity to protect its own interests in connection with
the purchase of the Shares.
4.3 Investment Intent. RBB Bank represents and warrants for itself and
each investor represented by RBB Bank that each such investor is purchasing the
Shares for its own account as principal, for investment purposes only, and not
with a present view to, or for, resale, distribution or fractionalization
thereof, in whole or in part, within the meaning of the Securities Act. Each
such investor understands that its acquisition of the Shares has not been
registered under the Securities Act or registered, qualified under any state
securities law in reliance on specific exemptions therefrom and has not been
registered or qualified under any foreign securities laws, which exemptions may
depend upon, among other things, the bona fide nature of each such investor's
investment intent as expressed herein. RBB Bank represents and warrants that
each investor represented by RBB Bank has, in connection with its decision to
purchase the number of Shares set forth in the Agreement, relied solely upon the
representations and warranties of the Company contained herein. Each such
investor will not, directly or indirectly, offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Shares or Conversion Shares except in
compliance with the Securities Act and the rules and regulations promulgated
thereunder.
4.4 Registration or Exemption Requirements. Purchaser further acknowledges
and understands that the Shares and the Conversion Shares may not be resold or
otherwise transferred except in a transaction registered under the Securities
Act or unless an exemption from such registration is available. Purchaser
understands that the certificates evidencing the Shares and the Conversion
Shares will be imprinted with a legend that prohibits the transfer of the Shares
or the Conversion Shares unless (a) such transaction is registered or such
registration is not required, and (b) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Securities Act, and if
the Company shall so request in writing, an opinion reasonably satisfactory to
the Company of counsel reasonably satisfactory to the Company is obtained to the
effect that the transaction is so exempt.
4.5 Restriction on Sales, Short Sales and Hedging Transactions. Purchaser
will not, prior to the effectiveness of the Registration Statement, sell, offer
to sell, solicit offers to buy, dispose of, loan, pledge, or grant any right
with respect to (collectively, a "Disposition"), the Shares, the Conversion
Shares or any other shares of the Common Stock of the Company, nor will
Purchaser engage in any hedging or other transaction which is designed to or
could reasonably be expected to lead to or result in a Disposition of any such
securities by the Purchaser or any other person or entity. Such prohibited
hedging or other transactions would include without limitation effecting any
short sale or having in effect any short position (whether or not such sale or
position is against the box and regardless of when such position was entered
into) or any purchase, sale or grant of any right (including without limitation
any put or call option) with respect to any such securities or with respect to
any security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from any such
securities.
-4-
<PAGE> 6
4.6 No Legal, Tax or Investment Advice. Purchaser understands that nothing
in the Memorandum, the Agreement or any other materials presented to Purchaser
in connection with the purchase and sale of the Shares constitutes legal, tax or
investment advice. Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Shares.
5. Conditions to Closing of Purchasers
Each Purchaser's obligation to purchase the Shares at the Closing is, at
the option of such Purchaser, subject to the fulfillment or waiver as of the
Closing Date of the following conditions:
5.1 Representations and Warranties. The representations and warranties
made by the Company in Section 3 hereof shall be true and correct in all
material respects when made and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of the Closing Date.
5.2 Covenants. All covenants, agreements and conditions contained in the
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all respects.
5.3 Blue Sky. The Company shall have obtained all necessary blue sky law
permits and qualifications, or secured exemptions therefrom, required by any
state or foreign or other jurisdiction for the offer and sale of the Shares.
6. Conditions to Closing of Company
The Company's obligation to sell and issue the Shares at the Closing is,
at the option of the Company, subject to the fulfillment or waiver of the
following conditions:
6.1 Representations and Warranties. The representations and warranties
made by each Purchaser in Section 4 hereof shall be true and correct in all
material respects when made and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of the Closing Date.
6.2 Covenants. All covenants, agreements and conditions contained in the
Agreement to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.3 Blue Sky. The Company shall have obtained all necessary blue sky law
permits and qualifications, or secured exemptions therefrom, required by any
state or foreign or other jurisdiction for the offer and sale of the Shares.
7. Affirmative Covenants
The Company and the Purchasers hereby respectively covenant and agree as
follows:
7.1 Registration Requirements.
-5-
<PAGE> 7
(a) The Company shall use its best efforts to file, within
forty-five (45) days after the Closing Date, a registration statement on Form
S-3 (or such other form as may be appropriate) with the SEC under the Securities
Act (the "Registration Statement") to register the resale of the Conversion
Shares (collectively, the "Registerable Securities"). The Company shall use its
best efforts to cause the Registration Statement to be declared effective by the
SEC within 105 days of the Closing Date. The number of shares designated in the
Registration Statement or any amendment thereto, to be registered, shall be two
hundred percent (200%) of the number of Securities that would be required if all
the Registrable Securities were issued on the day before the filing of the
Registration Statement, plus 100,000 shares of Common Stock.
(b) The Company shall pay all Registration Expenses (as defined
below) in connection with any registration, qualification or compliance
hereunder, and each Purchaser shall pay all Selling Expenses (as defined below)
and other expenses that are not Registration Expenses relating to the
Registerable Securities resold by such Purchaser. "Registration Expenses" shall
mean all expenses, except for Selling Expenses, incurred by the Company in
complying with the registration provisions herein described, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses and the expense of any special audits incident to or required by
any such registration. "Selling Expenses" shall mean all selling commissions,
underwriting fees and stock transfer taxes applicable to the Registerable
Securities and all fees and disbursements of counsel for any Purchaser.
(c) In connection with the registration effected by the Company
pursuant to these registration provisions, the Company will use its commercially
reasonable efforts to: (i) keep such registration effective until the earlier of
(A) the second anniversary of the First Closing, (B) such date as all of the
Registerable Securities have been resold or (C) such time as all of the
Registerable Securities held by the Purchasers can be sold within a given
three-month period without compliance with the registration requirements of the
Securities Act pursuant to Rule 144 promulgated thereunder ("Rule 144"); (ii)
prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
Registration Statement; (iii) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as a Purchaser from time to time may reasonably request; (iv) cause
the Conversion Shares to be listed on each securities exchange and quoted on
each quotation service on which similar securities issued by the Company are
then listed or quoted; (v) provide a transfer agent and registrar for all
securities registered pursuant to the Registration Statement; (vi) otherwise use
its best efforts to comply with all applicable rules and regulations of the SEC;
and (vii) file the documents required of the Company and otherwise use its
commercially reasonable efforts to maintain requisite blue sky clearance in (X)
all jurisdictions in which any of the Shares are originally sold and (Y) all
other states specified in writing by a Purchaser, provided, however, that the
Company shall not be required to qualify to do business or consent to service of
process in any state in which it is not now so qualified or has not so
consented.
(d) In the event the Registration Statement to be filed by the
Company pursuant to Section 7.1(a) above is not filed with the Commission within
forty-five (45) days from the Closing Date and/or the Registration Statement is
not declared effective by the Commission within one hundred five (105) days from
the Closing, then the Company will pay Purchaser (pro rated on a daily basis),
as liquidated damages for such failure and not as a penalty, two (2%) percent of
the Purchase Price of the then outstanding Securities for the first thirty (30)
day period that such filing and/or effectiveness is delayed, and three (3%)
percent of the Purchase Price of the then outstanding Securities for every
thirty (30) days thereafter until the Registration Statement has been filed
and/or declared effective. Such payment of the liquidated damages shall be made
to the Purchaser in cash,
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<PAGE> 8
immediately upon demand, provided, however, that the payment of such liquidated
damages shall not relieve the Company from its obligations to register the
Securities pursuant to this Section.
If the Company does not remit the damages to the Purchaser as
set forth above, the Company will pay the Purchaser's reasonable costs of
collection, including attorneys fees, in addition to the liquidated damages. The
registration of the Securities pursuant to this provision shall not affect or
limit Purchaser's other rights or remedies as set forth in this Agreement.
(e) During the effectiveness of the Registration Statement, the
Company may require that Purchasers delay sales of any Registerable Securities
pursuant to the Registration Statement for an period not to exceed sixty (60)
days; provided, however, that in order to exercise this right, the Company must
deliver a certificate in writing to the Purchaser to the effect that a delay in
such sale is necessary because a sale pursuant to such Registration Statement in
its then-current form would not be in the best interests of the Company and its
shareholders due to disclosure obligations of the Company. Notwithstanding the
foregoing, the Company shall not be entitled to exercise its right to delay a
sale more than three (3) times in any calendar year. Each Purchaser hereby
covenants and agrees that it will not sell any Registerable Securities pursuant
to the Registration Statement during the periods the Registration Statement is
withdrawn as set forth in this Section 7.1(d).
7.2 Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Purchaser
from and against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which such Purchaser may become subject
(under the Securities Act or otherwise) insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, any untrue statement of a material fact or omission to state a
material fact in the Registration Statement on the effective date thereof, or
arise out of any failure by the Company to fulfill any undertaking included in
the Registration Statement, and the Company will, as incurred, reimburse such
Purchaser for any legal or other expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim; provided,
however, that the Company shall not be liable in any such case to the extent
that such loss, claim, damage or liability arises out of, or is based upon (i)
an untrue statement or omission in such Registration Statement in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such Purchaser specifically for use in preparation of the Registration
Statement, (ii) the failure of such Purchaser to comply with the covenants and
agreements contained in Sections 7.1(d), 8.3 or 8.4 hereof, or (iii) an untrue
statement or omission in any prospectus that is corrected in any subsequent
prospectus, or supplement or amendment thereto, that was delivered to the
Purchaser prior to the pertinent sale or sales by the Purchaser.
(b) Each Purchaser, severally and not jointly, agrees to indemnify
and hold harmless the Company from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which the Company
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon (i) an untrue statement of a material
fact or omission to state a material fact in the Registration Statement in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Purchaser specifically for use in preparation of
the Registration Statement, (ii) the failure of such Purchaser to comply with
the covenants and agreements contained in Sections 7.1(d), 8.3 or 8.4 hereof, or
(iii) an untrue statement or omission in any prospectus that is corrected in any
subsequent prospectus, or supplement or amendment thereto, that was delivered to
the Purchaser prior to the pertinent sale or sales by the Purchaser, and each
Purchaser, severally and not jointly,
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<PAGE> 9
will, as incurred, reimburse the Company for any legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim.
(c) Promptly after receipt by any indemnified person of a notice of
a claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 7.2, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified person. After notice from the
indemnifying person to such indemnified person of the indemnifying person's
election to assume the defense thereof, the indemnifying person shall not be
liable to such indemnified person for any legal expenses subsequently incurred
by such indemnified person in connection with the defense thereof.
(d) If the indemnification provided for in this Section 7.2 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and the Purchasers on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or a Purchaser on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Purchasers agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro rata
allocation (even if the Purchasers were treated as one entity for such purpose)
or by any other method of allocation which does not take into account the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Purchasers' obligations in this subsection (d) to
contribute are several in proportion to their respective sales of Registrable
Securities to which such loss relates and not joint.
8. Restrictions on Transferability of Shares and Conversion Shares;
Compliance with Securities Act
8.1 Restrictions on Transferability. The Shares and the Conversion Shares
shall not be transferable in the absence of registration under the Securities
Act or an exemption therefrom or in the absence of compliance with any term of
the Agreement. The Company shall be entitled to give stop transfer instructions
to its transfer agent with respect to the Shares and the Conversion Shares in
order to enforce the foregoing restrictions.
8.2 Restrictive Legend. Each certificate representing the Shares and the
Conversion Shares shall bear substantially the following legends (in addition to
any legends required under applicable state securities laws):
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<PAGE> 10
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
8.3 Transfer of Shares and Conversion Shares. Each Purchaser hereby
covenants with the Company not to make any sale of the Shares or the Conversion
Shares except either (a) a sale of Conversion Shares in accordance with the
Registration Statement, in which case the Purchaser covenants to comply with the
requirement of delivering a current prospectus, (b) a sale of Shares, or
Conversion Shares in accordance with Rule 144, in which case the Purchaser
covenants to comply with Rule 144, or (c) subject to such conditions as the
Company in its sole discretion shall impose, in accordance with another
exemption from the registration requirements of the Securities Act. Each
Purchaser further acknowledges and agrees that such Shares and Conversion Shares
are not transferable on the books of the Company unless the certificate
submitted to the Company's transfer agent evidencing such Shares or Conversion
Shares is accompanied by such additional certification, documentation or
information as the Company in its sole discretion shall require in order to
effect such sale in accordance with the Registration Statement, Rule 144 or such
other exemption from the registration requirements of the Securities Act.
9. Miscellaneous
9.1 Waivers and Amendments. The terms of the Agreement may be waived or
amended with the written consent of the Company and the record holders of more
than 50% of the Conversion Shares issued or issuable upon conversion of the
Shares, the terms of the Agreement may be waived or amended and any such
amendment or waiver shall be binding upon the Company and all holders of Shares
or Conversion Shares.
9.2 Broker's Fee. Each Purchaser acknowledges that the Company intends to
pay a fee to Salomon Smith Barney, Inc. or certain dealers selected by it in
respect of the sale of the Shares to the Purchasers as described in the
Memorandum. Each of the parties hereto hereby represents that, on the basis of
any actions and agreements by it, there are no other brokers or finders entitled
to compensation in connection with the sale of the Shares to the Purchasers.
9.3 Governing Law. The Agreement shall be governed in all respects by and
construed in accordance with the laws of the State of Delaware without regard to
conflicts of laws principles.
9.4 Survival. The representations, warranties, covenants and agreements
made in the Agreement shall survive any investigation made by the Company or the
Purchasers and shall survive the Closing.
9.5 Successors and Assigns. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to the Agreement, provided, however, that the
provisions hereof shall not inure to the benefit of subsequent holders of Shares
or Conversion Shares purchasing pursuant to Section 8.3. Notwithstanding the
foregoing, no Purchaser shall assign the Agreement without the prior written
consent of the Company.
9.6 Entire Agreement. The Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
9.7 Indemnification of Escrow Agent. The Company and each of the
Purchasers jointly and severally agree to indemnify and hold harmless Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation and all
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<PAGE> 11
partners, employees, agents and affiliates thereof ("WSG&R") against any and all
losses, claims, damages, liabilities, costs, expenses and disbursements
(including fees and expenses of counsel) (collectively, "Losses") arising out of
or in connection with WSG&R's services hereunder. Each of the Company and the
Purchasers further agree that WSG&R shall not have any liability whatsoever
(whether direct or indirect, in contract or tort or otherwise) to the Company or
any Purchaser (or any party claiming through either of them) arising out of or
in connection with its services hereunder. The Company and the Purchasers
further agree that WSG&R shall be entitled to rely on their respective
representations, warranties, covenants and agreements herein and pursuant
hereto. The Company and the Purchasers acknowledge and agree that WSG&R is an
intended third-party beneficiary of this Section 9.7.
9.8 Notices, etc. All notices and other communications required or
permitted under the Agreement shall be in writing and may be delivered in
person, by telecopy, overnight delivery service or United States mail, addressed
to the Company or the Purchasers, as the case may be, at their respective
addresses set forth in the Agreement, or at such other address as the Company or
the Purchasers shall have furnished to the other party in writing. All notices
and other communications shall be effective upon the earlier of (a) actual
receipt thereof by the person to whom notice is directed or (b) (i) in the case
of notices and communications sent by personal delivery or telecopy, the time
such notice or communication arrives at the applicable address or is
successfully sent to the applicable telecopy number, (ii) in the case of notices
and communications sent by overnight delivery service, at noon (local time) on
the second business day following the day such notice or communication is sent,
and (iii) in the case of notices and communications sent by United States mail,
five days after such notice or communication is deposited in the United States
mail.
9.9 Severability of the Agreement. If any provision of the Agreement shall
be judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
9.10 Counterparts. The Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.11 Further Assurances. Each party to the Agreement shall do and perform
or cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as the other party hereto may reasonably request in order to carry out
the intent and accomplish the purposes of the Agreement and the consummation of
the transactions contemplated hereby.
9.12 Expenses. The Company and each such Purchaser shall bear its own
expenses incurred on its behalf with respect to the Agreement and the
transactions contemplated hereby, including fees of legal counsel.
9.13 Currency. All references to "dollars" or "$" in the Agreement shall
be deemed to refer to United States dollars.
* * *
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<PAGE> 12
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATIONS
<PAGE> 1
EXHIBIT 10.21
THIS WARRANT AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED PURSUANT TO
THE EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT OR UNLESS SOLD PURSUANT TO RULE 144 PROMULGATED UNDER
SAID ACT.
BOREALIS TECHNOLOGY CORPORATION
WARRANT TO PURCHASE SHARES OF COMMON STOCK
This Warrant is being issued to__________________ (the "Holder") in
connection with the Preferred Stock and Warrant Purchase Agreement dated
_____________, 1998 between the Holder and Borealis Technology Corporation, a
Delaware corporation (the "Company"). This Warrant entitles the Holder to
subscribe for and purchase up to __________ shares (the "Maximum Number of
Shares") of fully paid and nonassessable Common Stock of the Company (the
"Shares") (as adjusted pursuant to Section 3 hereof) at the price of $1.50 per
share (the "Exercise Price") (as adjusted pursuant to Section 3 hereof) subject
to the provisions and upon the terms and conditions hereinafter set forth.
1. Method of Exercise; Payment; Issuance of New Warrant. This Warrant
may be exercised by the Holder hereof at any time on or prior to ___________,
2000. Exercise shall be made, in whole or in part, by the surrender of this
Warrant (with the notice of exercise form attached hereto as Exhibit A duly
executed) at the principal office of the Company and by the payment to the
Company of an amount equal to the Exercise Price multiplied by the number of
Shares being purchased, which amount may be paid in cash or by check. In the
event of any exercise of the rights represented by this Warrant, certificates
for the Shares so purchased shall be delivered to the Holder hereof within a
reasonable time and, unless this Warrant has been fully exercised or expired, a
new Warrant representing that portion of the Shares, if any, with respect to
which this Warrant shall not then have been exercised, shall also be issued to
the Holder within such reasonable time.
2. Stock Fully Paid; Reservation of Shares. All of the Shares issuable
upon the exercise of the rights represented by this Warrant will, upon issuance
and receipt of the Exercise Price therefor, be fully paid and nonassessable.
During the period within which the rights represented by this Warrant may be
exercised, the Company shall at all times have authorized and reserved for
issuance sufficient shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
3. Adjustment of Exercise Price and Number of Shares. Subject to the
provisions of Section 1 hereof, the number and kind of securities purchasable
upon the exercise of this Warrant and the Exercise Price therefor shall be
subject to adjustment from time to time upon the occurrence of certain events,
as follows:
(a) In the event the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock dividend on its
outstanding Common Stock, the number of Shares issuable upon exercise of this
Warrant immediately prior to such subdivision or to the issuance of such stock
dividend shall be proportionately increased, and the Exercise Price shall be
proportionately decreased, and in the event the Company shall at any time
combine the outstanding shares of Common Stock, the number of shares issuable
upon exercise of this Warrant immediately prior to such combination shall be
proportionately decreased, and the Exercise Price
<PAGE> 2
will be proportionately increased, effective at the close of business on the
date of such subdivision, stock dividend or combination, as the case may be.
(b) If the Company is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or smaller
number of shares, the number of shares of Common Stock for which this Warrant
may be exercised shall be increased or reduced in the same proportion as the
increase or decrease in the outstanding shares of Common Stock and the then
applicable Exercise Price shall be adjusted by multiplying such number of shares
of Common Stock purchasable upon exercise hereof immediately prior to such
subdivision or combination and the denominator of which shall be the number of
shares of Common Stock purchasable immediately following such subdivision or
combination.
(c) Whenever the number of shares shall be adjusted as required by
the provisions of this Section 3, the Company forthwith shall file in the
custody of its secretary or an assistant secretary, at its principal office, an
Officer's Certificate showing the adjusted number of shares and setting forth in
reasonable detail the circumstances requiring the adjustment. Each such
Officer's Certificate shall be made available at all reasonable times during
reasonable hours for inspection by the Holder.
4. Fractional Shares. No fractional Shares will be issued in connection
with an exercise hereunder, but in lieu of such fractional Shares the Company
shall make a cash payment therefor upon the basis of the Exercise Price then in
effect.
5. Transfer, Exchange, Assignment or Loss of Warrant.
(a) This Warrant may not be assigned or transferred except as
provided in this Section 6 and in accordance with and subject to the provisions
of the Securities Act of 1933, as amended, and the Rules and Regulations
promulgated thereunder (said Act and such Rules and Regulations being
hereinafter collectively referred to as the "Act"). Any purported transfer or
assignment made other than in accordance with this Section 6 shall be null and
void and of no force and effect.
(b) Prior to any transfer of this Warrant, other than in an offering
registered under the Act, the Holder shall notify the Company of its intention
to effect such transfer, indicating the circumstances of the proposed transfer
and upon request furnish the Company with an opinion of counsel, in form and
substance reasonably satisfactory to counsel for the Company, to the effect that
the proposed transfer may be made without registration under the Act or
qualification under any applicable state securities law.
(c) Each certificate for Shares or for any other security issued or
issuable upon exercise of this Warrant shall contain a legend substantially to
the following effect:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES
MAY NOT BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT
IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL, SUCH
TRANSFER MAY BE MADE PURSUANT TO RULE 144 OR REGISTRATION UNDER THE
ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE
ACT."
(d) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
attached hereto as Exhibit B duly executed. In such
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<PAGE> 3
event the Company shall, without charge for any issuance or transfer tax or
other cost incurred by the Company with respect to such transfer, 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 principal office of the Company together with a
written notice signed by the Holder thereof, specifying the names and
denominations in which new warrants are to be issued.
(e) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and of indemnity
satisfactory to it, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor and
date and any such lost, stolen, or destroyed Warrant shall thereupon become
void.
6. Rights of Shareholders. No holder of this Warrant shall be entitled,
as a Warrant holder, to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value or change of stock to no par value, consideration, merger, conveyance,
or otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised and
the Shares purchasable upon the exercise hereof shall have become deliverable,
as provided herein.
7. Notices, Etc. All notices and other communications from the Company
to the Holder shall be mailed by first class registered or certified mail,
postage prepaid, sent by facsimile or delivered personally by hand or by a
nationally recognized courier addressed to the Holder at the address last shown
on the records of the Company for the Holder. All such notices and other written
communications shall be effective on the earlier of the date of mailing,
confirmed facsimile transfer, delivery to the Holder or delivery to a nationally
recognized courier.
8. Governing Law, Headings. This Warrant is being delivered in the
State of Delaware and shall be construed and enforced in accordance with and
governed by the laws of such State. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
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<PAGE> 4
Issued this ________, 1998.
BOREALIS TECHNOLOGY CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
ACCEPTED AND AGREED
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 5
EXHIBIT A
NOTICE OF EXERCISE
TO: Borealis Technology Corporation
4070 Silver Sage Drive
Carson City, NV 89701
Attn: Chief Financial Officer
The undersigned hereby elects to purchase __________ shares of Common
Stock of Borealis Technology Corporation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
Name:
------------------------------
Address:
---------------------------
The undersigned hereby represents and warrants that the aforesaid
shares of Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or, for resale in connection with the
distribution thereof, and that the undersigned has no present intention of
distributing or reselling such shares.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
<PAGE> 6
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns and transfers to _______________________________________________________
(Name and Address) the right to purchase Shares represented by this Warrant to
the extent of __________ shares of Common Stock and does hereby irrevocably
constitute and appoint ______________________________________
____________________, attorney, to transfer the same on the books of the Company
with full power of substitution in the premises.
Dated: __________, ____
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 10.22 - Real Sublease Agreement
between Registrant and
Bingo Technology Corporation
[CB COMMERCIAL LOGO] SUBLEASE
1. PARTIES.
This Sublease, dated August , 1998, is made between Borealis Technology
Corporation ("Sublessor"), and Bingo Technology Corporation ("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated June 11, 1996, wherein
DBB Holding, Inc. ("Lessor") leased to Sublessor the real property located
in the City of Carson City, County of Carson City, State of Nevada,
described as 19,105 square foot building at 4070 Silver Sage Drive ("Master
Premises"). Said lease has been amended by the following amendments None;
said lease and amendments are herein collectively referred to as the
"Master Lease" and are attached hereto as Exhibit "A."
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): Entire Building.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default or breach of any of the provisions of the Master Lease,
and that Sublessor has no knowledge of any claim by Lessor that Sublessor
is in default or breach of any of the provisions of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on November 15, 1998
("Commencement Date"), or when Lessor consents to this Sublease (if such
consent is required under the Master Lease), whichever shall last occur,
and end on April 15, 2000 ("Termination Date"), unless otherwise sooner
terminated in accordance with the provisions of this Sublease. In the event
the Term commences on a date other than the Commencement Date, Sublessor
and Sublessee shall execute a memorandum setting forth the actual date of
commencement of the Term. Possession of the Premises ("Possession") shall
be delivered to Sublessee on the commencement of the Term. If for any
reason Sublessor does not deliver Possession to Sublessee on the
commencement of the Term, Sublessor shall not be subject to any liability
for such failure, the Termination Date shall not be extended by the delays,
and the validity of this Sublease shall not be impaired, but rent shall
abate until delivery of Possession. Notwithstanding the foregoing, if
Sublessor has not delivered Possession to Sublessee within thirty (30) days
after the Commencement Date, then at any time thereafter and before
delivery of Possession, Sublessee may give written notice to Sublessor of
Sublessee's intention to cancel this Sublease. Said notice shall set forth
an effective date for such cancellation which shall be at least ten (10)
days after delivery of said notice to Sublessor. If Sublessor delivers
Possession to Sublessee on or before such effective date, this Sublease
shall remain in full force and effect. If Sublessor fails to deliver
Possession to Sublessee on or before such effective date, this Sublease
shall be cancelled, in which case all consideration previously paid by
Sublessee to Sublessor on account of this Sublease shall be returned to
Sublessee, this Sublease shall thereafter be of no further force or effect,
and Sublessor shall have no further liability to Sublessee on account of
such delay or cancellation. If Sublessor permits Sublessee to take
Possession prior to the commencement of the Term, such early Possession
shall not advance the Termination Date and shall be subject to the
provisions of this Sublease, including without limitation the payment of
rent.
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent,
without deduction, setoff, notice, or demand, at DBB Holdings, Inc.,
PO Box 7096, Incline Village, Nevada 89452-7096 or at such other place
as Sublessor shall designate from time to time by notice to Sublessee,
the sum of See Attachment A - Rent Schedule Dollars ($_____) per
month, in advance of the first day of each month of the Term,
Sublessee shall pay to Sublessor upon execution of this Sublease the
sum of Sixteen Thousand Two Hundred Fifty-Two and 50/100 Dollars
($16,252.50) as rent for November, 1998. If the Term begins or ends on
a day other than the first or last day of a month, the rent for the
partial months shall be prorated on a per diem basis. Additional
provisions:
--------------------------------------------------------------------
--------------------------------------------------------------------
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building
and/or project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance, then
Sublessee shall pay to Sublessor as additional rent __________ percent
(100%) of the amounts payable by Sublessor for Operating Costs
incurred during the Term. Such
<PAGE> 2
additional rent shall be payable as and when Operating Costs are
payable by Sublessor to Lessor. If the Master Lease provides for the
payment by Sublessor of Operating Costs on the basis of an estimate
thereof, then as and when adjustments between estimated and actual
Operating Costs are made under the Master Lease, the obligations of
Sublessor and Sublessee hereunder shall be adjusted in a like manner;
and if any such adjustment shall occur after the expiration or earlier
termination of the Term, then the obligations of Sublessor and
Sublessee under this Subsection 6.2 shall survive such expiration or
termination. Sublessor shall, upon request by Sublessee, furnish
Sublessee with copies of all statements submitted by Lessor of actual
or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Sixteen Thousand Two Hundred Fifty-Two and 50/100 Dollars
($16,252.50) as security for Sublessee's faithful performance of
Sublessee's obligations hereunder ("Security Deposit"). If Sublessee fails
to pay rent or other charges when due under this Sublease, or fails to
perform any of its other obligations hereunder, Sublessor may use or apply
all or any portion of the Security Deposit for the payment of any rent or
other amount when due hereunder and unpaid, for the payment of any other
sum for which Sublessor may become obligated by reason of Sublessee's
default or breach, or for any loss or damage sustained by Sublessor as a
result of Sublessee's default or breach. If Sublessor so uses any portion
of the Security Deposit, Sublessee shall, within ten (10) days after
written demand by Sublessor, restore the Security Deposit to the full
amount originally deposited, and Sublessee's failure to do so shall
constitute a default under this Sublease. Sublessor shall not be required
to keep the Security Deposit separate from its general accounts, and shall
have no obligation or liability for payment of interest on the Security
Deposit. In the event Sublessor assigns its interest in this Sublease,
Sublessor shall deliver to its assignee so much of the Security Deposit as
is then held by Sublessor. Within ten (10) days after the Term has
expired, or Sublessee has vacated the Premises, or any final adjustment
pursuant to Subsection 6.2 hereof has been made, whichever shall last
occur, and provided Sublessee is not then in default of any of its
obligations hereunder, the Security Deposit, or so much thereof as had not
theretofore been applied by Sublessor, shall be returned to Sublessee or
to the last assignee, if any, of Sublessee's interest hereunder.
8. USE OF PREMISES.
The Premises shall be used and occupied only for computer software
technology, research and development, general office, sales, and storage,
and for no other use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master
Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder, Sublessee the lessee thereunder, and the Premises the Master
Premises, except for the following:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Sublessee assumes and agrees to perform the lessee's obligations under the
Master Lease during the Term to the extent that such obligations are
applicable to the Premises, except that the obligation to pay rent to
Lessor under the Master Lease shall be considered performed by Sublessee
to the extent and in the amount rent is paid to Sublessor in accordance
with Section B of this Sublease. Sublessee shall not commit or suffer any
act or omission that will violate any of the provisions of the Master
Lease. Sublessor shall exercise due diligence in attempting to cause
Lessor to perform its obligations under the Master Lease for the benefit
of Sublessee. If the Master Lease terminates, this Sublease shall
terminate and the parties shall be relieved of any further liability or
obligation under this Sublease, provided however, that if the Master Lease
terminates as a result of a default or breach by Sublessor or Sublessee
under this Sublease and/or the Master Lease, then the defaulting party
shall be liable to the nondefaulting party for the damage suffered as a
result of such termination. Notwithstanding the foregoing, if the Master
Lease gives Sublessor any right to terminate the Master Lease in the event
of the partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
11. ATTORNEYS' FEES.
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorney's fees.
12. AGENCY DISCLOSURE:
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except; CS
COMMERCIAL REAL ESTATE GROUP, INC, who represents Borealis Technology
Corporation and CB Richard Ellis, Inc., who represents Singo Technology
Corporation. In the event that CB COMMERCIAL REAL ESTATE GROUP, INC.
represents both Sublessor and Sublessee, Sublessor and Sublessee 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.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with
Sublessor's contract with Broker for the subleasing of the Premises, if
any, and otherwise in the amount of based on rent schedules in Attachment A
______________________________________________ Dollars ($________________),
for services rendered in effecting this Sublease. Broker is hereby made a
third party beneficiary of this Sublease for the purpose of enforcing its
right to said commission. Commission due at move in date.
14. NOTICE.
All notices and demands may or are to be required or permitted to be given
by either party on the other hereunder shall be in writing. All notices
and demands by the Sublessor to Sublessee shall be sent by United States
Mail, postage prepaid, addressed to the Sublessee at the Premises, and to
the address hereinbelow, or to such other place as Sublessee may from
2
<PAGE> 3
time to time designate in a notice to the Sublessor. All notices and demands by
the Sublessee to Sublessor shall be sent by United States Mail, postage prepaid,
addressed to the Sublessor at the address set forth herein, and to such other
person or place as the Sublessor may from time to time designate in a notice to
the Sublessee.
To Sublessor:___________________________________________________________________
To Sublessee: BTC, P.O. Box 5367, Stateline, NV 89449 ATTN: Jerilyn Fry
15. CONSENT BY LESSOR. THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS
CONSENTED TO BY LESSOR WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH
CONSENT IS REQUIRED UNDER THE TERMS OF THE MASTER LEASE.
18. 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
American With Disabilities Act.
Sublessor: Borealis Technology Corp. Sublessee: Bingo Technology Corp.
By: Elizabeth J. Gasper By: [SIG]
Title: CFO Title: C.O.O.
By:_________________________________ By:_________________________________
Title:______________________________ Title: President
Date:_______________________________ Date: 9/3/98
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease without waiver of any restriction in the Master Lease
concerning further assignment or subletting. Lessor certifies that, as of the
date of Lessor's execution hereof, Sublessor is not in default or breach of any
of the provisions of the Master Lease, and that the Master Lease has not been
amended or modified except as expressly set forth in the foregoing Sublease.
Lessor:__________________________
By:______________________________
Title:___________________________
By:______________________________
Title:___________________________
Date:____________________________
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker 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.
- --------------------------------------------------------------------------------
<PAGE> 4
ATTACHMENT A
RENT SCHEDULE
<TABLE>
<S> <C>
Months 1 through 3 $16,252.50
Months 4 through 12 $17,031.34
Months 13 through 15 $23,031.34
Months 16 through 27 $23,837.44
Months 28 through 39 $24,671.75
</TABLE>
Sublessor [SIG] Date 9/22/98
------------------------- ---------
Sublessee [SIG] Date 9/3/98
------------------------- ---------
<PAGE> 5
ATTACHMENT B
This lease is for 15 months, terminating April 1, 2000, with two one year
options.
Sublessee agrees to two, one year options, commencing April 1, 2000,
terminable under the following conditions: Sublease can terminate the options by
notifying Sublessor of intent to do so 90 days prior to the end of the lease
period. That is, if on or before January 1, 2000, Sublessee notifies Sublessor
of intent to terminate said options, said options shall expire and become
non-enforceable. If on or before January 1, 2001, Sublessee notifies Sublessor
of intent to terminate the second option (commencing April 1, 2001) said second
option shall expire and become non-enforceable. Notice to terminate first option
is considered proper notice to terminate second option. No extension shall go
past January 31, 2002, the date of the original lease.
If notice of termination is not given to Sublessor by the dates outlined
above, the option will automatically roll to another year.
Sublessor ELIZABETH J. GASPER Date 9/22/98
------------------------ ---------
Sublessee [SIG] Date 9/15/98
------------------------ ---------
<PAGE> 1
EXHIBIT 10.23
[CB COMMERCIAL LOGO] SUBLEASE
1. PARTIES.
This Sublease, dated September , 1998, is made between Connecticut Surety
Group ("Sublessor"), and Borealis Technology Corporation ("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated October 1, 1996,
wherein Rahlves and Rahlves, Inc. ("Lessor") leased to Sublessor the real
property located in the City of Reno, County of Washoe, State of Nevada,
described as Suite 200, a 10,296 square foot suite at 9790 Gateway Drive
("Master Premises"). Said lease has been amended by the following
amendments None; said lease and amendments are herein collectively referred
to as the "Master Lease" and are attached hereto as Exhibit "A."
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): all of Suite 200.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default or breach of any of the provisions of the Master Lease,
and that Sublessor has no knowledge of any claim by Lessor that Sublessor
is in default or breach of any of the provisions of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on November 7, 1998
("Commencement Date"), or when Lessor consents to this Sublease (if such
consent is required under the Master Lease), whichever shall last occur,
and end on May 6, 1999 ("Termination Date"), unless otherwise sooner
terminated in accordance with the provisions of this Sublease. In the
event the Term commences on a date other than the Commencement Date,
Sublessor and Sublessee shall execute a memorandum setting forth the actual
date of commencement of the Term. Possession of the Premises
("Possession") shall be delivered to Sublessee on the commencement of the
Term. If for any reason Sublessor does not deliver Possession to Sublessee
on the commencement of the Term, Sublessor shall not be subject to any
liability for such failure, the Termination Date shall not be extended by
the delay, and the validity of this Sublease shall not be impaired, but
rent shall abate until delivery of Possession. Notwithstanding the
foregoing, if Sublessor has not delivered Possession to Sublessee within
thirty (30) days after the Commencement Date, then at any time thereafter
and before delivery of Possession, Sublessee may give written notice to
Sublessor of Sublessee's intention to cancel this Sublease. Said notice
shall set forth an effective date for such cancellation which shall be at
least ten (10) days after delivery of said notice to Sublessor. If
Sublessor delivers Possession to Sublessee on or before such effective
date, this Sublease shall remain in full force and effect. If Sublessor
fails to deliver Possession to Sublessee on or before such effective date,
this Sublease shall be cancelled, in which case all consideration
previously paid by Sublessee to Sublessor on account of this Sublease
shall be returned to Sublessee, this Sublease shall thereafter be of no
further force or effect, and Sublessor shall have no further liability to
Sublessee on account of such delay or cancellation. If Sublessor permits
Sublessee to take Possession prior to the commencement of the Term, such
early Possession shall not advance the Termination Date and shall be
subject to the provisions of this Sublease, including without limitation
the payment of rent.
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent,
without deduction, setoff, notice, or demand, at CityPlace II, 15th
Floor, 185 Asylum Street, Hartford, CT 06103-3403 or at such other
place as Sublessor shall designate from time to time by notice to
Sublessee, the sum of per Attachment A Rent Schedule Dollars ($_____)
per month, in advance of the first day of each month of the Term.
Sublessee shall pay to Sublessor upon execution of this Sublease the
sum of Eighty Five Thousand Seven Hundred Fourteen Dollars
($85,714.00) as rent for term of lease. If the Term begins or ends on
a day other than the first or last day of a month, the rent for the
partial months shall be prorated on a per diem basis. Additional
provisions: None
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building
and/or project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance, then
Sublessee shall pay to Sublessor as additional rent One Hundred
percent (100%) of the amounts payable by Sublessor for Operating Costs
incurred during the Term. Such
<PAGE> 2
additional rent shall be payable as and when Operating Costs are
payable by Sublessor to Lessor. If the Master Lease provides for the
payment by Sublessor of Operating Costs on the basis of an estimate
thereof, then as and when adjustments between estimated and actual
Operating Costs are made under the Master Lease, the obligations of
Sublessor and Sublessee hereunder shall be adjusted in a like manner;
and if any such adjustment shall occur after the expiration or earlier
termination of the Term, then the obligations of Sublessor and
Sublessee under this Subsection 6.2 shall survive such expiration or
termination. Sublessor shall, upon request by Sublessee, furnish
Sublessee with copies of all statements submitted by Lessor of actual
or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Fourteen Thousand Two Hundred Eighty-Five Dollars ($14,285.00) as
security for Sublessee's faithful performance of Sublessee's obligations
hereunder ("Security Deposit"). If Sublessee fails to pay rent or other
charges when due under this Sublease, or fails to perform any of its other
obligations hereunder, Sublessor may use or apply all or any portion of the
Security Deposit for the payment of any rent or other amount then due
hereunder and unpaid, for the payment of any other sum for which Sublessor
may become obligated by reason of Sublessee's default or breach, or for any
loss or damage sustained by Sublessor as a result of Sublessee's default or
breach. If Sublessor so uses any portion of the Security Deposit, Sublessee
shall, within ten (10) days after written demand by Sublessor, restore the
Security Deposit to the full amount originally deposited, and Sublessee's
failure to do so shall constitute a default under this Sublease. Sublessor
shall not be required to keep the Security Deposit separate from its
general accounts, and shall have no obligation or liability for payment of
interest on the Security Deposit. In the event Sublessor assigns its
interest in this Sublease, Sublessor shall deliver to its assignee so much
of the Security Deposit as is then held by Sublessor. Within ten (10) days
after the Term has expired, or Sublessee has vacated the Premises, or any
final adjustment pursuant to Subsection 6.2 hereof has been made, whichever
shall last occur, and provided Sublessee is not then in default of any of
its obligations hereunder, the Security Deposit, or so much thereof as had
not theretofore been applied by Sublessor, shall be returned to Sublessee
or to the last assignee, if any, of Sublessee's interest hereunder.
8. USE OF PREMISES.
The Premises shall be used and occupied only for General office and
computer software development, and for no other use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master
Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder, Sublessee the lessee thereunder, and the Premises the Master
Premises, except for the following:
none
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sublessee assumes and agrees to perform the lessee's obligations under the
Master Lease during the Term to the extent that such obligations are
applicable to the Premises, except that the obligation to pay rent to
Lessor under the Master Lease shall be considered performed by Sublessee
to the extent and in the amount rent is paid to Sublessor in accordance
with Section 6 of this Sublease. Sublessee shall not commit or suffer any
act or omission that will violate any of the provisions of the Master
Lease. Sublessor shall exercise due diligence in attempting to cause
Lessor to perform its obligations under the Master Lease for the benefit
of Sublessee, if the Master Lease terminates, this Sublease shall
terminate and the parties shall be relieved of any further liability or
obligation under this Sublease, provided however, that if the Master Lease
terminates as a result of a default or breach by Sublessor or Sublessee
under this Sublease and/or the Master Lease, then the defaulting party
shall be liable to the nondefaulting party for the damage suffered as a
result of such termination. Notwithstanding the foregoing, if the Master
Lease gives Sublessor and right to terminate the Master Lease in the event
of the partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
11. ATTORNEYS' FEES.
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorney's fees.
12. AGENCY DISCLOSURE:
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except: CB
COMMERCIAL REAL ESTATE GROUP, INC. who represents Borealis Technology
Corporation and CB Richard Ellis, Inc., who represents Connecticut Surety
Group. In the event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents
both Sublessor and Sublessee, Sublessor and Sublessee 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.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with
Sublessor's contract with Broker for the subleasing of the Premises, if
any, and otherwise in the amount of per listing agreement ________________
Dollars ($________________), for services rendered in effecting this
Sublease. Broker is hereby made a third party beneficiary of this Sublease
for the purpose of enforcing its right to said commission.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be sent by United
States Mail, postage prepaid, addressed to the Sublessee at the Premises,
and to the address hereinbelow, or to such other place as Sublessee may
from
2
<PAGE> 3
time to time designate in a notice to the Sublessor. All notices and demands by
the Sublessee to Sublessor shall be sent by United States Mail, postage prepaid,
addressed to the Sublessor at the address set forth herein, and to such other
person or place as the Sublessor may from time to time designate in a notice to
the Sublessee.
To Sublessor: CITYPLACE II, 15th Floor, 185 Asylum Street, Hartford, CT 06103
To Sublessee: 9790 Gateway Drive, Suite 200, Reno, Nevada 89511
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER
THE TERMS OF THE MASTER LEASE.
16. 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.
Sublessor: Connecticut Surety Corp. Sublessee: Borealis Technology
By: /s/ JOSEPH R. BRENNER By: /s/ E. J. GASPER
Title: Vice President Title: CFO
By:_________________________________ By:_________________________________
Title:______________________________ Title:______________________________
Date:_______________________________ Date:_______________________________
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease without waiver of any restriction in the Master Lease
concerning further assignment or subletting. Lessor certifies that, as of the
date of Lessor's execution hereof, Sublessor is not in default or breach of any
of the provisions of the Master Lease, and that the Master Lease has not been
amended or modified except as expressly set forth in the foregoing Sublease.
Lessor:__________________________
By:______________________________
Title:___________________________
By:______________________________
Title:___________________________
Date:____________________________
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker 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.
- --------------------------------------------------------------------------------
<PAGE> 4
EXHIBIT 10.23
ATTACHMENT A
RENT SCHEDULE
Months 1 through 6 $85,714.00 for the six month term payable in
advance. Payment to be received by 5:00 PM EST,
Friday, October 2, 1998.
Sublessor /s/ Joseph L. Breuner Date 10-5-98
--------------------------- -----------
Sublessee /s/ Illegible Date 10-6-98
--------------------------- -----------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,656,481
<SECURITIES> 0
<RECEIVABLES> 187,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,343,404
<PP&E> 1,533,410
<DEPRECIATION> 827,360
<TOTAL-ASSETS> 3,384,528
<CURRENT-LIABILITIES> 1,232,936
<BONDS> 0
0
2
<COMMON> 8,735
<OTHER-SE> 2,107,869
<TOTAL-LIABILITY-AND-EQUITY> 3,384,528
<SALES> 287,920
<TOTAL-REVENUES> 476,437
<CGS> 0
<TOTAL-COSTS> 49,515
<OTHER-EXPENSES> 2,415,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,490
<INCOME-PRETAX> (6,759,138)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,759,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,759,138)
<EPS-PRIMARY> (.98)
<EPS-DILUTED> (.98)
</TABLE>
