AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEXAR TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 3571
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
04-3268334
(I.R.S. Employer Identification
Number)
182 TURNPIKE ROAD, WESTBOROUGH, MASSACHUSETTS 01581 (508) 836-8700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
ALBERT J. AGBAY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NEXAR TECHNOLOGIES, INC.
182 TURNPIKE ROAD
WESTBOROUGH, MASSACHUSETTS 01581
(508) 836-8700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies to:
STEPHEN K. FOGG, ESQ. MITCHELL C. LITTMAN, ESQ.
WILLIAM C. ROGERS, ESQ. LITTMAN KROOKS ROTH & BALL P.C.
CHOATE, HALL & STEWART 655 THIRD AVENUE
EXCHANGE PLACE, 53 STATE STREET NEW YORK, NEW YORK 10017
BOSTON, MASSACHUSETTS 02109 (212) 490-2020
(617) 248-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| __________________.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| __________________.
If delivery of the Prospectus is expected to be made pursuant to Rule
434, check the following box. |_|
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C A L C U L A T I O N O F R E G I S T R A T I O N F E E
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE (2) PRICE (2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, $0.01 PAR VALUE
(TO BE SOLD BY THE COMPANY) 2,875,000 SHARES (1) $13.00 $37,375,000 $11,325.76
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COMMON STOCK, $0.01 PAR VALUE (TO BE
SOLD BY SELLING SECURITY HOLDERS) 6,700,000 SHARES $13.00 $87,100,000 $26,393.94
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Total.......................................................................................$37,719.70
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(1) Includes 375,000 shares subject to the Underwriters' over-allotment option. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee, in accordance with Rule 457(a) under the
Securities Act.
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--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one
to be used in connection with an offering in the United States and Canada (the
"Company Prospectus") and (ii) one to be used in connection with the secondary
sale from time to time of up to 6,700,000 shares of Common Stock by certain
Selling Security Holders (the "Selling Security Holders' Prospectus"). The
Company Prospectus and the Selling Securities Holders' Prospectus will be
identical in all respects except for the alternate pages for the Selling
Security Holders' Prospectus which are included herein after the final page of
the Company Prospectus and are labelled "Alternate Page for Selling Security
Holders' Prospectus." Final forms of the Prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b).
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 20, 1996
PROSPECTUS
2,500,000 SHARES
[LOGO]
COMMON STOCK
All of the 2,500,000 shares of Common Stock of Nexar Technologies, Inc.
("NEXAR" or the "Company") offered hereby (the "Offering") are being sold by the
Company, a wholly-owned indirect subsidiary of Palomar Medical Technologies,
Inc. ("Palomar"). Following the Offering, Palomar will beneficially own
approximately 71% of the Common Stock, assuming no exercise of the Underwriter's
over-allotment option, including 1,200,000 shares of the Common Stock subject to
a contingent repurchase right of the Company at a nominal price per share in the
event that the Company fails to meet certain performance benchmarks set forth in
an agreement between the Company and Palomar. See "Certain Transactions."
Prior to the Offering, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. Application has been made to have the Common Stock quoted
on the Nasdaq National Market under the symbol "NEXR."
Palomar and The Traveler's Insurance Company ("Travelers"), which
previously acquired 200,000 shares of the Common Stock of the Company from
Palomar in a private transaction exempt from registration under federal and
state securities laws, may sell some or all of their 6,700,000 shares to the
public from time to time in one or more transactions following the Offering. See
"Shares Eligible for Resale." Such transactions are being registered by separate
Prospectus concurrently with the Offering. The Company will not receive any of
the proceeds from any sales of shares by Palomar or Travelers (together, the
"Selling Security Holders").
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $
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(1) Does not reflect additional compensation to the Representative of the
Underwriters by the Company in the form of warrants entitling the
Representative to purchase up to 250,000 shares of Common Stock during
the five-year period commencing on the first anniversary date of this
Prospectus at an exercise price equal to 120% of the initial public
offering price (the "Representative Warrants") and a non-accountable
expense allowance equal to two percent of the aggregate price to the
public of the shares of Common Stock offered hereby. For information
regarding indemnification of the Underwriters, see "Underwriting."
(2) Before deducting expenses estimated at $1,000,000 payable by the Company.
(3) The Company has granted to the Underwriters a 45-day option to purchase
up to 375,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ ____, $_____ and $_____ ,
respectively.
The shares of Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them, and subject to certain conditions. It is expected that certificates for
the shares of Common Stock offered hereby will be available for delivery on or
about ____________, 1997, at the office of Sands Brothers & Co., Ltd., 90 Park
Avenue, New York, New York 10016.
SANDS BROTHERS & CO., LTD.
, 1997
GRAPHIC DEPICTING NEXAR PC INDICATING ALTERNATIVES AVAILABLE WITH
RESPECT TO REPLACEABLE COMPONENTS. THE GRAPHIC CONTAINS THE FOLLOWING
TEXT POINTING TO THE RELEVANT PORTIONS OF THE PC:
* Removable hard drive caddy slides in and out, and locks in place
* DIMM and SIMM memory (RAM) sockets
* Secondary cache socket
* Easy access to CPU socket for upgrades
* Right side, removable panel to access processor, memory, cache and voltage
regulator module
* Left side, removable panel to access modem, video, audio and network
interface cards
* Voltage regulator module socket to accommodate higher performing CPUs
operating at varying voltages
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. Each prospective investor
should carefully consider the information set forth under the heading "Risk
Factors." Unless otherwise indicated herein, the information in this Prospectus
(i) has been adjusted to give effect to a 120-for-1 stock split of the Company's
common stock, $0.01 par value (the "Common Stock"), effective as of December 18,
1996, (ii) gives effect to the conversion of $10,000,000 of indebtedness owed to
related parties into 1,900,000 shares of Common Stock upon closing of the
Offering, and (iii) assumes no exercise of the Underwriters' over-allotment
option. See "Description of Capital Stock," "Certain Transactions" and
"Underwriting."
THE COMPANY
Nexar Technologies, Inc. develops, manufactures and markets
high-performance, competitively-priced desktop personal computers (PCs) based on
patent-pending technologies. Unlike conventional PCs, NEXAR systems permit an
end-user to (i) purchase a custom-configured PC on demand, and (ii) easily
upgrade or switch important components of the PC to accommodate emerging and
future technologies resulting in a significant extension of the computer's
useful life. NEXAR sells a high-performance system platform, which is typically
shipped to resellers fully configured, except for the key system defining
components (microprocessor, memory and hard drive). This approach:
* Enables the end-user, whether corporate or individual, to buy
a system configured exactly to that customer's technical and
budgetary requirements and, later, to effortlessly and
affordably upgrade the PC's key components with
industry-standard products.
* Enables the Company's channel resellers to reduce their
exposure to inventory depreciation caused by rapid advances in
technology and frequent price reductions of the key system
components, which typically account for more than 50% of the
cost of a PC.
* Enables the Company's resellers to compete with direct
marketers, such as Dell Computer and Gateway 2000, because a
NEXAR PC provides resellers with the ability to promptly
deliver a custom-configured, high-performance PC at a
competitive price.
* Enables the Company to maintain profit margins unaffected by
the forecasting risks borne by conventional PC manufacturers
who operate within a several-month-long cycle from (i)
component procurement to (ii) assembly to (iii) date-of-sale,
all conducted in an environment of rapid technological
advances and frequent price reductions. Since the key
components of a NEXAR PC are typically installed by a reseller
immediately prior to use or sale, the Company avoids the loss
of profit margin from making inaccurate predictions of the
most desired mix of key system components in the marketplace
several months in the future, from paying yesterday's higher
prices for components, or from discounting aging technology.
The Company's current PCs are based on an industry-standard, open
architecture design, co-engineered by HCL Hewlett Packard Ltd., which allows the
central processing unit (CPU), random access memory (RAM), and cache memory to
be replaced by end-users without technical assistance and without opening the
entire chassis. The Company's current model accepts Intel Corporation's
Pentium(R) and compatible CPUs, including the soon-to-be-released Pentium
processor with MMX(TM) multimedia extension technology. NEXAR PCs also include,
as a standard feature, a removable hard drive, permitting its replacement and
the further advantages of increased data portability and security, and the use
of multiple operating systems in a single PC.
The Company's objective is to become the industry leader in designing
and marketing PCs with technology which enables resellers and end-users, in an
easy and cost-effective manner, to upgrade and transition the CPU and the other
key system defining components in accordance with the known and anticipated
roadmaps of various makers of fundamental and leading-edge PC technology.
Accordingly, NEXAR has developed and will soon market a new generation of PCs
featuring the Company's patent-pending Cross-Processor Architecture(TM) (NEXAR
XPA(TM)) in which any one of several state-of-the-art CPUs can be initially
included or later installed, including Intel Corporation's Pentium or Pentium
Pro(R) and compatible CPUs. The NEXAR XPA technology will also accommodate
microprocessors based on other technologies, such as the Alpha(R) CPU made by
Digital Equipment Corporation (DEC) or the PowerPC(R) processor offered jointly
by IBM, Motorola Corporation and Apple Computer.
NEXAR is led by its Chairman and Chief Executive Officer, Albert J.
Agbay, who has more than twenty years experience at various computer companies,
including senior management positions at PC makers such as NEC, Panasonic and
Leading Edge. The Company does not market its products directly to end-users,
but instead distributes its products through a growing network of international,
national and regional distributors, value-added and other resellers, original
equipment manufacturers (OEMs), system integrators, computer superstores, direct
response resellers, and independent dealers.
----------------------------
The Company was incorporated in Delaware in March 1995 as a wholly-owned
subsidiary of Palomar Medical Technologies, Inc., a publicly-held corporation
that develops, manufactures and markets medical laser devices and electronics
products. The Company's principal executive offices are located at 182 Turnpike
Road, Westborough, Massachusetts 01581, and its telephone number is (508)
836-8700. Unless the context otherwise requires, the "Company" and "NEXAR" refer
to Nexar Technologies, Inc. and its wholly-owned subsidiary, Intelesys
Corporation, a Delaware corporation.
3
SUMMARY SELECTED QUARTERLY OPERATING RESULTS
The following table presents unaudited quarterly consolidated financial
data of the Company for each of the first three quarters in 1996. The Company
was incorporated in March 1995 and first began volume shipments of its patent-
pending PCs in the second quarter of 1996. In view of the Company's recent
growth and other factors, the Company believes that quarter-to-quarter
comparisons of its consolidated financial results are not necessarily meaningful
and should not be relied upon as an indication of future performance.
<TABLE>
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FISCAL QUARTER ENDED
--------------------
March 31, June 30, Sept. 30,
1996 1996 1996
------ ------ -----
CONSOLIDATED STATEMENTS OF
OPERATIONS:
<S> <C> <C> <C>
Net revenues............................. $117,468 $2,033,811 $9,190,147
Costs of revenues........................ 116,388 1,798,229 7,423,725
------- --------- ---------
Gross profit............................. 1,080 235,582 1,766,422
-------- ---------- ---------
Operating expenses:
Research and development................. 67,318 102,728 130,961
Selling and marketing.................... 327,284 1,678,727 981,200
General and administrative............... 441,627 634,282 619,979
------- ------- -------
Total operating expenses ................ 836,229 2,415,737 1,732,140
Net income (loss)........................ $(835,149) $(2,180,155) $34,282
========= =========== =======
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<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by the Company........................... 2,500,000 shares
Common Stock to be outstanding after the Offering............. 9,200,000 shares(1)(2)
Use of proceeds............................................... For repayment of $5,000,000 of
indebtedness to related parties and general
corporate purposes, including working
capital, product development and capital
expenditures. See "Use of Proceeds."
Proposed Nasdaq National Market symbol........................ NEXR
</TABLE>
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(1) Based on the number of shares of Common Stock outstanding on December 20,
1996. Excludes (i) 3,855,920 shares of Common Stock issuable upon exercise of
stock options outstanding as of December 20, 1996 at a weighted average exercise
price of $0.51 per share, of which options to purchase 1,061,680 shares were
then exercisable. See "Capitalization," "Management--Stock Plans" and
"Beneficial Ownership of Management." (2) Includes 1,900,000 of shares of Common
Stock which will be issued to related parties upon conversion of $10,000,000 of
indebtedness upon the closing of the Offering. See "Certain Transactions."
4
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL DATA
Period from Inception (March 7, 1995) Nine Months Ended
to December 31, 1995 September 30, 1996
--------------------- -------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<S> <C> <C>
Net revenues................................................ $619,629 $11,341,426
Cost of revenues............................................ 574,611 9,338,342
-------- ---------
Gross profit................................................ 45,018 2,003,084
====== =========
Net loss.................................................... $(2,261,434) $(2,981,022)
============ ============
Pro forma net loss per common and common equivalent share (1): $(0.35)
Pro forma weighted average number of common and common =========
equivalent shares outstanding: 8,421,838
=========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------
Pro Forma
Actual Pro Forma(2) As Adjusted(2)(3)
------ ------------ -----------------
CONSOLIDATED BALANCE SHEETS DATA:
<S> <C> <C> <C>
Cash....................................................... $ 8,147,918 $ 8,147,918 $29,166,918
Working capital............................................ 13,616,663 13,616,663 34,868,663
Total assets............................................... 20,183,318 20,183,318 40,800,318
Amounts due to related parties (4) ....................... 19,568,449 5,000,000 ---
Stockholder's (deficit) equity............................. (5,242,056) 9,326,393 35,176,393
</TABLE>
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(1) Computed on the basis described in Note 3(b) of Notes to Consolidated
Financial Statements.
(2) Presented on a pro forma basis to give effect to the conversion of
indebtedness to related parties totaling $10,000,000 at September 30, 1996
into 1,900,000 shares of common stock and the conversion of $4,568,449 due
to related parties into 45,684 shares of Convertible Preferred Stock. See
"Certain Transactions."
(3) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 2,500,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $12.00 per share and includes the
repayment of $5,000,000 of amounts due to related parties. See "Use of
Proceeds" and "Capitalization."
(4) Represents amounts due to Palomar and Palomar Electronics Corporation
(PEC). See Note 2 of Notes to Consolidated Financial Statements.
RISK FACTORS
Certain statements contained herein expressing the beliefs and
expectations of the Company regarding its future results or performance are
forward-looking statements that involve a number of risks and uncertainties. The
Company's actual results could differ significantly from the results discussed
in such forward-looking statements. For a discussion of important factors that
could cause or contribute to such differences, see "Risk Factors" beginning on
page 6.
5
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following risk factors, as
well as those discussed elsewhere in this Prospectus, before making an
investment decision with respect to the shares of Common Stock offered hereby.
Prospective investors are advised that statements contained herein
expressing the beliefs and expectations of the Company regarding its future
results or performance are forward-looking statements that involve a number of
risks and uncertainties. The Company's actual results could differ significantly
from the results discussed in such forward-looking statements. Factors that
could cause or contribute to such differences include those discussed below and
elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT
The Company was incorporated in March 1995 and commenced selling its PCs
in volume in April 1996. Accordingly, the Company has a limited operating
history upon which an evaluation of the Company and its prospects can be based.
The Company's prospects must be evaluated with regard to the risks encountered
by a company in an early stage of development, particularly in light of the
uncertainties relating to the intensely competitive market in which the Company
operates. As of September 30, 1996, the Company had an accumulated deficit of
$5,242,456. Although the Company anticipates realizing revenue growth during the
first six months of 1997, the Company's ability to generate significant revenue
thereafter is subject to substantial uncertainty. In addition, the Company
anticipates that its operating expenses will increase substantially in the
foreseeable future as it further develops its technology, increases its sales
and marketing activities, creates and expands the distribution channels for its
services and broadens its customer support capabilities. Although the Company
anticipates that it will be profitable in the last half of the current fiscal
year, there can be no assurance that the Company will be able to sustain
operating profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISKS ASSOCIATED WITH INTENSE COMPETITION
The desktop PC industry is intensely competitive and may become more so
as the result of, among other things, the introduction of new competitors
(including large multi-national, diversified companies) and possibly weakening
demand. The Company currently competes in the desktop PC market principally with
Acer, Apple Computer, Compaq Computer, Dell Computer, Gateway 2000,
Hewlett-Packard, IBM and Packard Bell NEC, Inc. In addition, the Company expects
to compete in the network server market commencing in the first quarter of 1997
with a server complementing its desktop PCs against established companies such
as ALR, Compaq Computer, Dell Computer, Hewlett-Packard and IBM. All of these
companies have stronger brand recognition, greater financial, marketing,
manufacturing, technological and distribution resources, broader product lines
and larger installed customer bases than does the Company. Principal competitive
factors include product features, product performance, quality and reliability,
customer service and support, marketing and distribution capabilities and price.
There can be no assurance that the Company will be able to maintain or improve
its current position with respect to any of these or other competitive factors.
This intense competition could result in loss of customers or pricing pressures,
which would negatively affect the Company's results of operations.
The Company's ability to compete favorably is dependent, in significant
part, upon its ability to control costs, react timely and appropriately to
short- and long-term trends and competitively price its products while
preventing erosion of its margins, and there is no assurance that the Company
will be able to do so. Many of the Company's competitors can devote greater
managerial and financial resources than the Company can to develop, promote and
distribute products and provide related consulting and training services. Some
of the Company's competitors have established, or may establish, cooperative
arrangements or strategic alliances among themselves or with third parties, thus
enhancing their ability to compete with the Company. There can
6
be no assurance that the Company will be able to compete successfully against
current or future competitors or that the competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
and financial condition. See "Business--Competition."
DEPENDENCE ON SUBSTANTIAL CUSTOMER
In the nine months ended September 30, 1996, one customer of the Company,
Government Technology Services, Inc. (GTSI), a leading supplier of desktop
systems to United States government agencies, accounted for a majority of the
Company's revenues. The Company expects that GTSI will continue to be an
important customer, but that sales to GTSI as a percentage of total revenues
will decline substantially as the Company further expands its distribution
network and increases its overall sales. The Company has entered into an
agreement with GTSI pursuant to which GTSI serves as the Company's exclusive
federal reseller with respect to Government Services Administration (GSA)
scheduled purchases, provided that GTSI purchases at least $35 million of the
Company's products in 1997. GTSI is under no obligation, however, to purchase
any products of the Company. If GTSI makes fewer purchases in 1997 than the
Company anticipates, that would have a material adverse effect on the Company.
See "Business--Customers" and "Business--Strategy."
MANAGEMENT OF GROWTH
The anticipated rapid growth in the size, geographic scope and complexity
of the Company's business and development of its customer base are expected to
place a significant strain on the Company's management, operations and capital
needs. The Company's continued growth, if any, will require it to attract,
motivate and retain additional highly skilled technical, managerial, consulting,
sales and marketing personnel both in the United States and abroad, and will
also require the Company to enhance its financial and managerial controls and
reporting systems. There is no assurance that the Company can manage its growth
effectively or that the Company will be able to attract and retain the necessary
personnel to meet its business challenges. If the Company is unable to manage
its growth effectively, the Company's business, financial condition and
operating results would be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition of Results of Operations."
SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's capital requirements in connection with its development and
marketing activities have been and will continue to be significant. Although the
Company believes that its existing capital resources, including working capital
lines of credit it expects to be available, together with the proceeds of the
Offering and interest earned thereon, will be adequate to satisfy its capital
requirements for at least the next twelve months, the Company's future capital
requirements will depend on many factors, some of which are not within the
control of the Company. These factors include sales of its existing products,
the continued progress in, and magnitude of, its research and product
development programs, the costs involved in filing, prosecuting, enforcing and
defending patent claims, competing technological and market developments and the
costs and success of commercialization activities. There can be no assurance
that the Company may not in the future require additional funding. If the
Company requires additional funding, there can be no assurance that it will be
able to obtain such funding on acceptable terms, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
7
DEPENDENCE ON NEW PRODUCTS; MARKET ACCEPTANCE
The Company's future success will be highly dependent upon its ability to
develop, produce and market products that incorporate new technology, are priced
competitively and achieve significant market acceptance. There can be no
assurance that the Company's products will be technically advanced or
commercially successful due to the rapid improvements in computer technology and
resulting product obsolescence. There is also no assurance that the Company will
be able to deliver commercial quantities of new products in a timely manner. The
success of new product introductions is dependent on a number of factors,
including market acceptance, the Company's ability to anticipate and manage
risks associated with product transitions, effective product marketing, proper
management of inventory levels in line with anticipated product demand and the
timely manufacturing of products in appropriate quantities to meet anticipated
demand. In addition, although the Company plans to offer in the second quarter
of 1997 a network server complementing its desktop PCs, and plans to commence
shipment of NEXAR XPA PCs by mid-1997, the Company currently has no other
product lines, such as notebook computers or other computer related products,
planned. The failure of the Company to develop, produce and market commercially
viable products could result in the Company's business, operating results and
financial condition being materially and adversely affected. See
"Business--Product Development" and "--Products."
PRODUCT DEVELOPMENT RISKS
The Company's product development efforts will continue to require
substantial investments by the Company for third-party development, refinement
and testing, and there can be no assurance that the Company will have the
resources sufficient to make such investments. Participants in the PC industry
generally rely on the creation and implementation of technology standards to win
the broadest market acceptance for their products. The Company must successfully
monitor and participate in the development of standards while continuing to
differentiate its products in a manner valued by customers. Industry
participants generally accept, and may encourage, the use of their intellectual
property by third parties under license, nonetheless, when intellectual property
owned by competitors or suppliers becomes accepted as an industry standard, the
Company must obtain a license, purchase components utilizing such technology
from the owners of such technology or their licensees, or otherwise acquire
rights to use such technology. The failure of the Company to license, purchase
or otherwise acquire rights to such technologies could result in the Company's
business, operating results and financial condition being materially and
adversely affected. See "Business--Product Development" and "--Products."
DEPENDENCE ON OUTSIDE PRODUCT ENGINEERING
The Company currently has only a limited product development staff. The
Company has entered into a Development Agreement with GDA Technologies,
Inc.(GDA), a provider of computer engineering services, to develop its new
patent-pending NEXAR XPA technology and to implement this technology on several
motherboards to be introduced for use in its PCs by mid-1997. Although the
Company believes that it could find and engage equivalent development and
engineering services elsewhere within a reasonable period of time, or hire
sufficient capable engineers to perform such development work in-house, the
inability of GDA to adequately perform such services on a timely basis could
have a material adverse effect on the Company. See "Business--Product
Development."
UNCERTAINTY REGARDING INTELLECTUAL PROPERTY RIGHTS; POTENTIAL LITIGATION WITH
FORMER EXECUTIVE
The Company's success is dependent, in part, upon its licensed and owned
intellectual property rights. While the Company has applied for a patent on its
Cross-Processor Architecture(TM) (NEXAR XPA(TM)) technology, no such patent has
issued. Likewise, while Technovation Computer Labs, Inc. (Technovation)
represents that
8
it has applied for a patent on the technology it licenses to the Company as
discussed further in the following paragraph, the Company has not been notified
that any such patent has been issued. Accordingly, the Company currently relies
on copyrights, unpatented trade secrets and trademarks to protect its
proprietary technology. No assurance can be given that the Company's competitors
will not independently develop or otherwise acquire substantially equivalent
techniques or otherwise gain access to the Company's proprietary technology or
that the Company can ultimately protect its rights to such proprietary
technology. In addition, there can be no assurance that the Company will be able
to afford the expense of any litigation which may be necessary to enforce its
rights under any such patent. The Company also relies on confidentiality
agreements with its collaborators, employees, advisors, vendors and consultants
to protect its proprietary technology. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become
known or be independently developed by competitors. Failure to obtain or
maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Intellectual Property."
The Company's current PCs are shipped with motherboards based on
technology licensed from Technovation, which, to the best of the Company's
knowledge, is owned by Babar Hamirani, a former executive officer of the Company
whose employment was terminated by the Company on November 29, 1996. Although no
formal claim has been made, an attorney representing Mr. Hamirani has informed
the Company that Mr. Hamirani may file a lawsuit against the Company regarding
Mr. Hamirani's employment termination and the license agreement with
Technovation. Under the terms of its license agreement with Technovation, which
the Company believes it is in compliance with in every material respect, the
Company has the exclusive right to use the licensed technology through August
1998 in exchange for a per unit sold royalty amount, and a non-exclusive right
to use such technology for up to seven additional years at the same royalty
rate. The Company intends to cease manufacturing PCs with motherboards
originally designed under the technology licensed from Technovation by mid-1997
after it begins shipping PCs with its new patent-pending NEXAR XPA technology,
but the Company does intend to continue to pay royalties to Technovation to the
extent required under the license agreement. In addition, patent counsel for Mr.
Hamirani has informed the Company that such counsel is in the process of
prosecuting a continuation to Technovation's patent application covering
additions and improvements to the original invention which is the subject of
such application. Such counsel has informed the Company of the nature of such
additions and improvements and it appears to the Company that they may have
aspects in common with the Company's new NEXAR XPA technology. While the Company
has not had an opportunity to review this continuation, it appears that it may
conflict with the Company's patent application. Any litigation initiated by Mr.
Hamirani as to his employment termination or the license agreement with
Technovation could become extremely protracted and expensive even if the Company
ultimately prevails, and involvement in such litigation and related diversion of
management attention and resources could have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business--Intellectual Property" and "Certain Transactions."
POTENTIAL INFRINGEMENT OF PROPRIETARY TECHNOLOGY
Although the Company believes that its products do not infringe patents
or other proprietary rights of third parties, there can be no assurance that the
Company is aware of all patents or other proprietary rights that may be
infringed by the Company's products, that any infringement does not exist or
that infringement may not be alleged by third parties in the future. If
infringement is alleged, there can be no assurance that the necessary licenses
would be available on acceptable terms, if at all, or that the Company would
prevail in any related litigation. Patent litigation can be extremely protracted
and expensive even if the Company ultimately prevails, and involvement in such
litigation and related diversion of Management attention and resources could
have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business--Intellectual Property."
RISK OF TECHNOLOGICAL OBSOLESCENCE
There can be no assurance that products or technologies of the Company's
competitors will not render the Company's products or technologies
noncompetitive or obsolete. Although the Company's product lines have been
designed to forestall such obsolescence, there can be no assurance that the
Company's products will
9
be competitive with products offered by other manufacturers. In addition, delays
in access to technology developed by competitors and suppliers could slow the
Company's design and manufacture of components and subsystems that distinguish
its products. If the Company is unable for technological or other reasons to
develop and introduce new or enhanced products and services in a timely and
effective manner, the Company's business, operating results and financial
condition would be materially and adversely affected. See "Business--Product
Development" and "--Products."
FORECASTING ISSUES
Because of the pace of technological advances in the computer industry,
the Company must introduce on a timely basis new products that offer customers
competitive technologies while managing the production and marketing cycles of
its existing products. Forecasting demand for newly-introduced products is
complicated by the availability of different product models, which may include
various types of built-in peripherals and software in certain markets. As a
result, while overall demand may be in line with the Company's projections and
manufacturing implementation, local market variations can lead to differences
between expected and actual demand and resulting delays in shipment, which can
affect the Company's financial results. See "Business--Strategy"
and"--Products."
DEPENDENCE UPON WANG LABORATORIES TO PERFORM SERVICE OBLIGATIONS
All of the Company's products are sold with a three year limited hardware
warranty with one year on-site service. The Company currently lacks the
capability to provide technical support for its PCs in the field and has
contracted with Wang Laboratories, Inc. ("Wang") to perform all of the Company's
warranty obligations with respect to its products. Wang provides NEXAR's
customers on-site hardware support, including diagnostics and repair and also
provides telephone support for software products bundled with NEXAR's systems
for a period of 90 days. While the Company selected Wang based on its belief
that Wang has the capability to perform these warranty obligations on a timely
and efficient basis, the failure of Wang to meet the demands of the end-users of
the Company's products could materially and adversely affect the reputation of
the Company and its products, which in turn could result in lower sales and
profits. See "Business--Customer Service and Support."
DEPENDENCE ON MARKET SUCCESS OF THIRD PARTY CHANNEL DISTRIBUTION
The Company does not sell its products directly to end-users, but relies
instead on a variety of distribution channels, primarily distributors,
value-added and other resellers, OEMs, systems integrators, direct response
resellers, and independent dealers. The Company's revenue is dependent, among
other things, upon the ability of these distribution channels to sell the
Company's products to end-users. Factors affecting the ability of these
distribution channels to develop and sell their products include competition,
their ability to offer products that meet user requirements at acceptable prices
and overall economic conditions in both the United States and foreign markets.
The Company's business, results of operations and financial condition would be
materially adversely affected if these distribution channels are unsuccessful in
selling the Company's products. See "Business--Sales and Marketing."
RELIANCE ON SUPPLIERS; RISK OF DELAY
The Company's manufacturing process requires a high volume of quality
components that are procured from third party suppliers. Reliance on suppliers,
as well as industry supply conditions generally, involves several risks,
including the possibility of defective parts, a shortage of components,
increases in component costs and reduced control over delivery schedules, any or
all of which could adversely affect the Company's financial results. As part of
the manufacturing process, the Company uses industry standard components for its
products. Most of these components are generally available from multiple
sources; however, the Company relies on two
10
outside contractors to manufacture motherboards used in its PCs and relies on a
sole outside contractor to manufacture the motherboards used in its server
product. In addition, the Company has several other single supplier
relationships for less critical components, and the lack of availability of
timely and reliable supply of components from these sources could adversely
affect the Company's business. In some cases, alternative sources of supply are
not readily available for some of the Company's single-sourced components. In
other cases, the Company may establish a working relationship with a single
source, even when multiple suppliers are available, if the Company believes it
is advantageous to do so due to performance, quality, support, delivery,
capacity or price considerations. Where alternative sources are available,
qualification of the alternative suppliers and establishment of reliable
supplies could result in delays, which could adversely affect the Company's
manufacturing processes and results of operations.
The Company occasionally experiences delays in receiving certain
components, which can cause delays in the shipment of some products to
customers. During November 1996, the Company did not have in inventory and was
unable to obtain sufficient quantities of certain key components to meet
outstanding purchase orders, which caused the financial results for such period
to be adversely affected and may adversely affect future sales to customers
whose orders were not promptly shipped. There can be no assurance that the
Company will be able to continue to obtain additional supplies of reliable
components in a timely or cost-effective manner. See "Business--Manufacturing."
RISKS ASSOCIATED WITH INVENTORY LEVELS
Although the design of the NEXAR PC provides the Company with the ability
to operate with reduced inventories of components and finished goods, shifts in
technology and market demand may nevertheless result in excess inventory,
declining inventory values or even obsolescence. Maintaining a low inventory
level is dependent upon the Company's ability to achieve targeted revenue and
product mix. There can be no assurance that the Company will be able to maintain
optimal inventory levels in future periods. See "Business--Manufacturing."
CONCENTRATION OF OWNERSHIP BY PALOMAR AND MANAGEMENT
Upon completion of the Offering, Palomar will indirectly own
approximately 71% of the Company's Common Stock (approximately 68% if the
overallotment option granted to the Underwriters is exercised in full) including
1,200,000 shares which are subject to a repurchase right of the Company at a
nominal price per share in the event the Company fails to meet certain
performance benchmarks set forth in an agreement among the Company and Palomar.
In addition, 45,684 shares of Convertible Preferred Stock will be issued to
Palomar upon the closing in exchange for retirement of $4,568,449 of
indebtedness owed by the Company to Palomar. Such shares of Convertible
Preferred Stock shall be convertible into shares of Common Stock at the option
of the holders thereof at a price per share equal to 125% of the initial public
offering price of the Common Stock. At an assumed initial public offering price
of $12.00 per share, the 45,684 shares of Convertible Preferred Stock issued to
Palomar upon the closing would be convertible into 304,563 shares of Common
Stock. Prior to any such conversion, the holders of such Convertible Preferred
Stock shares shall have voting rights equal to the number of shares of Common
Stock such Convertible Preferred Stock are convertible into on the record date
of any matter voted on by the stockholders of the Company. Accordingly, Palomar
does and will be able to control the Company through its ability to determine
the outcome of elections of the Company's directors, amend the Company's
Restated Charter and By-laws and take certain other actions requiring the vote
or consent of stockholders of the Company. This concentration of ownership may
have the effect of delaying or preventing a change in control of the Company. In
addition, upon completion of the Offering, the current executive officers and
directors of the Company will hold stock options exercisable for an aggregate
number of shares of Common Stock equal to approximately 26.3% of the Common
Stock assuming the exercise of all such options (approximately 25.6% if the
over-allotment option is exercised in full). Approximately 65.7% of the
11
shares subject to such options are subject to vesting based on the option
holder's length of service with the Company. See "Principal Stockholder,"
"Certain Transactions" and "Beneficial Ownership of Management."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on certain
key personnel, including its Chairman and Chief Executive Officer, Albert J.
Agbay, and its other executive officers and certain technical, managerial,
consulting, sales and marketing personnel. The loss of the services of any of
these individuals or group of individuals could have a material adverse effect
on the Company's business, operating results and financial condition. The
Company does not have, and is not contemplating securing, any significant amount
of key-man life insurance on any of its executive officers or other key
employees. See "Business--Strategy" and "Management" and "--Products."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly revenues, expenses and operating results are
likely to vary considerably in the future. Such fluctuations can be traced to
many factors, including the timing and terms of large transactions, delays in
customer acceptance, delays in receiving components, the length of sales cycles,
changes in the level of operating expenses, demand for the Company's products
and services, the introduction of new products and product enhancements by the
Company and its competitors, changes in customer budgets, competitive conditions
in the industry and general economic conditions. For example, during November
1996, the Company did not have in inventory and was unable to obtain sufficient
quantities of key components to meet outstanding purchase orders, which caused
the financial results for such period to be adversely affected and may adversely
affect future sales to customers whose orders were not promptly shipped. The
Company budgets its product development and other expenses anticipating future
revenues. If revenues fall below expectations, the Company's business, operating
results and financial condition are likely to be materially and adversely
affected because a proportionately smaller amount of the Company's expenses vary
with its revenues. As a result, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon to predict future performance. Although the Company
anticipates achieving operating profitability in the last half of the current
fiscal year, there can be no assurance that the Company will be able to sustain
profitability on an annual or periodic basis. Due to the foregoing factors, it
is likely that, in some future quarters, the Company's operating results will
fall below the market's or investors' expectations, and, in such event, the
price of the Common Stock would likely be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
The Company plans to expand its business into international markets. To
date, the Company has minimal experience in marketing and distributing its
products internationally and plans to establish alliances with sales
representative organizations and resellers with particular experience in
international markets. Accordingly, the Company's success in international
markets will be substantially dependent upon the skill and expertise of such
international participants in marketing the Company's products. There can be no
assurance that the Company will be able to successfully market, sell and deliver
its products in these markets. In addition, there are certain risks inherent in
doing business in international markets, such as unexpected changes in
regulatory requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, political instability
and fluctuations in currency exchange rates and potentially adverse tax
consequences, which could adversely impact the success of the Company's
international operations. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, financial
condition or operating results. See "Business--Sales and Marketing."
12
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering. The initial
offering price will be determined by negotiation between the Company and the
Underwriters based upon several factors. See "Underwriting." The market price of
the Company's Common Stock is likely to be highly volatile and could be subject
to wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, changes in financial estimates by securities analysts, or other
events or factors, many of which are beyond the Company's control. In addition,
the stock market has experienced significant price and volume fluctuations that
have particularly affected the market prices of equity securities of many high
technology companies and that often have been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. In the past, following
periods of volatility in the market price for a company's securities, securities
class action litigation has often been instituted. Such litigation could result
in substantial costs and a diversion of management attention and resources which
could have a material adverse effect on the Company's business, financial
condition or operating results.
RISKS ASSOCIATED WITH UNSPECIFIED USE OF PROCEEDS
The principal purposes of the Offering are to increase the Company's
working capital and financial flexibility, to facilitate future access by the
Company to public equity markets and to provide increased visibility,
credibility and name recognition for the Company in a marketplace where many of
its competitors are publicly-held companies. The Company intends to use the net
proceeds to repay certain indebtedness and for working capital and other general
corporate purposes. A portion of the proceeds may be used for the acquisition
and/or development of complementary products, technologies and/or businesses.
The Company has not as yet identified specific uses for a majority of the net
proceeds, and, pending such uses, the Company expects that it will invest net
proceeds in short-term, interest-bearing, investment-grade securities.
Accordingly, the Company's management will have broad discretion as to the use
of such net proceeds without any action or approval of the Company's
stockholders. See "Use of Proceeds."
EFFECT OF ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Charter") and Amended and Restated By-laws (the "By-laws") and of Delaware
law could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that investors might be
willing to pay in the future for Common Stock. These provisions will require
that the Company have a Board of Directors comprised of three classes of
directors with staggered terms of office, provide for the issuance of "blank
check" preferred stock by the Board of Directors without stockholder approval,
require super-majority approval to amend certain provisions in the Charter and
By-laws, require that all stockholder actions be taken at duly called annual or
special meetings and not by written consent, and impose various procedural and
other requirements that could make it more difficult for stockholders to effect
certain corporate actions. Furthermore, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person first becomes an "interested stockholder,"
unless the business combination is approved in a prescribed manner. The
application of Section 203 could also have the effect of delaying or preventing
a change of control of the Company. See "Description of Capital Stock."
13
SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price for the
Common Stock. Upon the closing of the Offering, the Company will have an
aggregate of 9,200,000 shares of Common Stock outstanding, assuming no exercise
of the Underwriters' over-allotment option and no exercise of outstanding
options to purchase Common Stock. All of these shares, including the 2,500,000
shares sold in the Offering, are freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). Also, as of the date of this Prospectus, employees and directors of the
Company hold options exercisable for the acquisition of 3,855,920 shares of
Common Stock (27.5% of which were exercisable as of December 20, 1996 the date
of this Prospectus), which shares the Company intends to register for resale
under the Securities Act. "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Certain Transactions."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution of $8.68 per share, assuming an initial public offering
price of $12.00 per share, in net tangible book value per share of Common Stock
from the initial public offering. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company pursuant to the Offering are estimated to be
$25,850,000 million ($29,877,500 million if the Underwriters exercise their
over-allotment option in full), assuming an initial public offering price of
$12.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company.
The principal purposes of the Offering are to increase the Company's
equity capital and to create a public market for the Company's Common Stock,
which will facilitate future access by the Company to the public equity markets,
enhance the ability of the Company to use its Common Stock as consideration for
acquisitions and as a means for attracting and retaining key employees. The
Company intends to use the proceeds of the Offering for general corporate
purposes, including working capital, product development and capital
expenditures and to repay $5,000,000 of non-interest bearing demand indebtedness
to related parties. See "Certain Transactions." The amount and timing of
expenditures may vary significantly depending upon numerous factors including
the success of the Company's currently marketed product, the continued progress
in, and magnitude of the Company's research and product development programs,
market acceptance of the Company's new products, the timing and costs involved
in obtaining regulatory clearances and approvals, the costs involved in filing,
prosecuting, enforcing and defending patent claims, and competing technological
and market developments and the costs and success of its commercialization
activities. Based upon its current operating plan, the Company believes that its
existing capital resources together with the proceeds of the Offering and
interest earned thereon, will be adequate to satisfy its capital requirements
for at least the next twelve months.
A portion of the net proceeds of the Offering may also be used for
investments in or acquisitions of complementary businesses, products or
technologies, although the Company has not entered into any commitments or
negotiations with respect to any such transactions. Pending such use, the
Company expects to invest the net proceeds in short-term, interest-bearing,
investment grade securities.
14
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i)
actual as of September 30, 1996 (ii) pro forma to give effect to the conversion
of $4,568,449 due to related parties into 45,684 shares of Convertible Preferred
Stocks and (iii) pro forma as adjusted to give effect to the sale of 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share and the receipt of the net proceeds therefrom, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company. See "Use of Proceeds." This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
As of September 30, 1996
-----------------------------------------------------
Pro Forma as
Actual Pro Forma(1) Adjusted(1)(2)
------ ------------ --------------
<S> <C> <C> <C>
Amounts due to related parties(1)................................... $19,568,449 $5,000,000 ---
----------- ---------- ----------
Stockholder's (Deficit) Equity:
Preferred Stock, par value $0.01 per share, 10,000,000
shares authorized; no shares issued and outstanding,
actual; 45,684 issued and outstanding, pro forma and
pro forma as adjusted........................................... --- 457 457
Common Stock, par value $0.01 per share,
30,000,000 shares authorized; 4,800,000 shares issued
and outstanding, actual; 6,700,000 shares issued and
outstanding, pro forma; and 9,200,000 shares issued
and outstanding, pro forma as adjusted......................... 48,000 67,000 92,000
Additional paid-in capital........................................ (47,600) 14,501,392 40,326,392
Accumulated deficit............................................... (5,242,456) (5,242,456) (5,242,456)
----------- ----------- -----------
Total Stockholder's (Deficit) Equity................................ (5,242,056) 9,326,393 35,176,393
----------- --------- ----------
Total Capitalization............................................. $14,326,393 $14,326,393 $35,176,393
=========== =========== ===========
</TABLE>
- -------------------
(1) Adjusted to give effect to the conversion of indebtedness to related
parties totaling $10,000,000 at September 30, 1996 into 1,900,000 shares
of Common Stock. See "Certain Transactions."
(2) Adjusted to give effect to the receipt of the net proceeds from the sale
of the 2,500,000 shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $12.00 per share and the
repayment of $5,000,000 of amounts due to related parties and the
conversion of $4,568,449 due to related parties into 45,684 shares of
Convertible Preferred Stock. See "Use of Proceeds" and "Certain
Transactions."
15
DILUTION
The adjusted pro-forma net tangible book value of the Company at
September 30, 1996 was $4,331,033 or $0.65 per share of Common Stock. Adjusted
pro forma net tangible book value per share is equal to the Company's total
tangible assets less total liabilities, divided by the total number of shares of
Common Stock outstanding and includes the effect of the conversion upon the
closing of the Offering of $10,000,000 of indebtedness to related parties into
1,900,000 shares of Common Stock). Net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in the Offering made hereby and the adjusted pro forma
net tangible book value per share of Common Stock immediately after completion
of the Offering. After giving effect to the sale by the Company of the 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share, and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses, the pro forma net
tangible book value of the Company as of September 30, 1996 would have been
$30,582,944 or $3.32 per share of Common Stock. This represents an immediate
increase in such adjusted net tangible book value of $2.67 per share to existing
stockholders and an immediate dilution of $8.68 per share to new investors
purchasing shares in the Offering. If the initial public offering price is
higher or lower, the dilution to the new investors will be, respectively,
greater or less. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share..................... $12.00
Adjusted pro forma net tangible book value per share as of
September 30, 1996........................................... $0.65
Increase per share attributable to new investors.................... 2.67
----
Pro forma net tangible book value per share after the offering .... 3.32
-----
Dilution per share to new investors................................. $ 8.68
======
</TABLE>
The following table summarizes on the pro forma basis described above,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by its
existing stockholder and by new investors (assuming an initial public offering
price of $12.00 per share):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration (1)
---------------- ----------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 6,700,000 72.8% $ 10,000,400 25.0% $ 1.49
New investors....................... 2,500,000 27.2 30,000,000 75.0% 12.00
--------- ---- ---------- ----
Total............................... 9,200,000 100.0% $40,000,400 100.0%
========= ====== =========== ======
</TABLE>
- ------------------
(1) Gives effect to the conversion of indebtedness to related parties totalling
$10,000,000 at September 30, 1996 into 1,900,000 shares of Common Stock.
The foregoing table excludes 3,855,920 shares of Common Stock issuable upon
exercise of stock options outstanding as of December 20, 1996, at a weighted
average exercise price of $0.51 per share, of which options to purchase
1,061,680 shares were then exercisable. See "Management--Stock Plans,"
"Beneficial Ownership of Management" and "Certain Transactions."
16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
period from inception (March 7, 1995) to December 31, 1995, and for the nine
months ended September 30, 1996, are derived from consolidated financial
statements of the Company audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report thereon included elsewhere in this
Prospectus. The selected consolidated financial data presented below should be
read in conjunction with, and are qualified by reference to, the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the full year or
for any future period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Period from Inception
(March 7, 1995) Nine Months Ended
to December 31, 1995 September 30, 1996
-------------------- ------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<S> <C> <C>
Net revenues............................................... $ 619,629 $ 11,341,426
Cost of revenues........................................... 574,611 9,338,342
------- ---------
Gross profit....................................... 45,018 2,003,084
Operating expenses:
Research and development.............................. 104,383 301,007
Selling and marketing ................................ 581,482 2,987,211
General and administrative............................ 1,620,587 1,695,888
--------- ---------
Total operating expenses................................... 2,306,452 4,984,106
Net loss................................................ $(2,261,434) $(2,981,022)
============ ============
Pro forma net loss per common and common equivalent share (1): $(0.35)
======
Pro forma weighted average number of common and common
equivalent shares outstanding: 8,421,838
=========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------
Pro Forma As
Actual Pro Forma(2) Adjusted(2)(3)
------ ------------ --------------
CONSOLIDATED BALANCE SHEETS DATA:
<S> <C> <C> <C>
Cash .................................................. $8,147,918 $8,147,918 $29,166,918
Working capital........................................ 13,616,663 13,616,663 34,868,663
Total assets........................................... 20,183,318 20,183,318 40,800,318
Amounts due to related parties (4)..................... 19,568,449 5,000,000 ---
Stockholder's (deficit) equity......................... (5,242,056) 9,326,393 35,176,393
</TABLE>
- -------------------
(1) Computed on the basis described in Note 3(b) of Notes to Consolidated
Financial Statements.
(2) Presented on a pro forma basis to give effect to the conversion of
indebtedness to related parties totaling $10,000,000 at September 30, 1996
into 1,900,000 shares of Common Stock and the conversion of $4,568,449 due
to related parties into 45,684 shares of Convertible Preferred Stock. See
"Certain Transactions."
(3) Adjusted to give effect to the receipt of the net proceeds from the sale
of the 2,500,000 shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $12.00 per share and includes
the repayment of $5,000,000 of amounts due to related parties. See "Use of
Proceeds," "Capitalization" and Certain Transactions."
(4) Represents amounts due to Palomar and Palomar Electronics Corporation
(PEC). See Note 2 of Notes to Consolidated Financial Statements.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operation of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and the other financial
information included elsewhere in this Prospectus.
OVERVIEW
The Company was incorporated in Delaware on March 7, 1995. Since the
commencement of operations in March 1995, the Company has focused on developing
its products and its marketing and distribution strategies and did not generate
material revenues until April 1996. As a result the Company incurred substantial
losses principally from expenses incurred from the development of its products,
the establishment of its manufacturing operations, sales administration
organization and obtaining key personnel to adequately support the Company's
expected growth. Total revenues from the sale of its PCs for the first nine
months of 1996 were $11,341,426. For the three and six month periods ended
September 30, 1996, the Company generated total revenues of $9,190,147 and
$11,223,958, respectively. For the remainder of 1996, the Company expects its
selling and marketing, general and administrative expenses and its research and
development expenses will increase significantly. Selling and marketing expenses
are expected to increase significantly as a result of continued expansion of
distribution channels, strategic relationships, headcount, and marketing
programs. Increases in general and administrative expenses are planned as the
Company expands its executive management, finance and administration support,
information systems and other administrative functions required to support the
Company's operations and the costs associated with being a publicly-held
company. The Company's expected levels of research and development expenditures
are based on a plan for current product enhancements and new product
development.
The Company commenced shipment of its proprietary PCs in April of 1996.
For the three months ended June 30, 1996 and September 30, 1996, the Company
sold 2,606 and 8,533 units, respectively. All of the Company's working capital
to date has been from loans made to it by Palomar and Palomar's wholly-owned
subsidiary, Palomar Electronics Corporation (PEC), which is the direct parent of
the Company. The Company's prospects must be considered in light of the risks,
expenses, difficulties and delays frequently encountered in connection with the
formation and early phases of operations of a new business, combined with the
development and commercialization of new products based on innovative technology
and rapid technological change and the high level of competition in the PC
industry. To address these risks, the Company must, among other things, respond
to competitive developments, continue to attract, retain and motivate qualified
management and other employees, continue to upgrade its technologies and
commercialize products and services which incorporate such technologies, and
achieve market acceptance for its PCs. There can be no assurance that the
Company will be successful in addressing such risks. See "Risk Factors."
The Company has achieved only limited revenues to date and its ability to
generate significant revenues is subject to substantial uncertainty. The limited
operating history of the Company makes the prediction of future results of
operations difficult or impossible, and therefore, there can be no assurance
that the Company will sustain revenue growth or profitability. Due to all of the
foregoing factors, it is possible that in some future quarter, the Company's
operating results may be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock could be
materially and adversely affected.
18
RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated quarterly financial
data for each of the four quarters in 1995 and for the three quarters in 1996
and such information expressed as a percentage of the Company's total revenues.
This unaudited quarterly information has been prepared on the same basis as the
audited financial information presented elsewhere herein and, in management's
opinion, includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of the
information for the quarters presented. In view of the Company's recent growth
and other factors, the Company believes that quarter-to-quarter comparisons of
its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.
<TABLE>
<CAPTION>
PERIOD FROM FISCAL QUARTER ENDED
INCEPTION --------------------------------------------------------------------------------
(MARCH 7, 1995) TO June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
MARCH 31, 1995 1995 1995 1995 1996 1996 1996
-------------- ---- ---- ---- ---- ---- ----
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues................. $ - $ 212,120 $ 51,379 $ 356,130 $ 117,468 $2,033,811 $9,190,147
Cost of revenues............. - 194,030 33,857 346,724 116,388 1,798,229 7,423,725
--------------- --------- --------- --------- --------- --------- ---------
Gross profit................. - 18,090 17,522 9,406 1,080 235,582 1,766,422
--------- --------- ---------- ---------- -------- ----------
Operating expenses:
Research and development.. - - 24,263 80,120 67,318 102,728 130,961
Selling and marketing..... 6,746 123,486 169,845 281,405 327,284 1,678,727 981,200
General and administrative - 185,230 291,163 1,144,194 441,627 634,282 619,979
------------ ------- ------- --------- ------- ------- -------
Total operating expenses 6,746 308,716 485,271 1,505,719 836,229 2,415,737 1,732,140
----- ------- ------- --------- ------- --------- ---------
Net income (loss)............ $ (6,746) $ (290,626) $(467,749) $ (1,496,313) $ (835,149) $(2,180,155) $34,282
============== =========== ========== ============= =========== ============ =======
AS A PERCENTAGE OF NET
REVENUES:
Net revenues................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............. 91.5 65.9 97.4 99.1 88.4 80.8
---- ---- ---- ---- ---- ----
Gross profit................. 8.5 34.1 2.6 0.9 11.6 19.2
Operating expenses:
Research and development.. 0.0 47.2 22.5 57.3 5.1 1.4
Selling and marketing..... 58.2 330.6 79.0 278.6 82.5 10.7
General and administrative 87.3 566.7 321.3 376.0 31.2 6.7
-------- -------- -------- ----- -------- -------
Total operating expenses.. 145.5% 944.5% 422.8% 711.9% 118.8% 18.8%
------ ------ ------ ------ ------ -----
Net income (loss)............ -- -- -- -- -- 0.4%
==== ==== ==== ==== ==== ====
</TABLE>
Prior to April 1996 the Company only had minimal revenues from sales of
a non-proprietary PC. In addition the Company's operations through April 1996
consisted principally of start-up activity associated with the design,
development, manufacturing and marketing of its upgradeable PC. Accordingly, the
Company generated significant operating losses through June 30, 1996. The
quarter ended September 30, 1996 was the Company's first entire quarter of
manufacturing and shipments of its products. The Company's gross profit as a
percentage of revenues for the three months ended September 30, 1996 was 19.2%.
The Company believes that its gross profit as a percentage of revenues will
continue to improve as the Company realizes labor and material costs savings and
efficiencies from full scale manufacturing operations.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors. These factors
include, among others, the demand for the Company's products, the distribution
of the Company's products, the timing of the introduction of products by the
19
Company's competitors, the timing and rate at which the Company increases its
expenditures to support projected growth, competitive conditions in the industry
and general economic conditions. The Company believes that period-to-period
comparisons of its operating results are not meaningful and should not be relied
upon as any indication of future performance. Due to the foregoing factors,
among others, it is likely that the Company's future quarterly operating results
from time to time will not meet the expectations of market analysts or
investors, which may have an adverse effect on the price of the Company's Common
Stock.
PERIOD FROM INCEPTION (MARCH 7, 1995) TO DECEMBER 31, 1995 AND THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1996
Net Revenues. Net revenues increased to $11,341,426, for the nine
months ended September 30, 1996 from $619,629 for the period from inception to
December 31, 1995. The majority of the revenues generated in 1995 were from the
sale of non-proprietary PCs. The Company stopped the production of these PCs in
June of 1995 to concentrate on the development of its upgradeable PCs. The
increase in revenues during the period ended September 30, 1996 from the period
ended December 31, 1995 was principally due to the introduction of the Company's
upgradeable PC in April 1996. The Company anticipates that revenues will
continue to increase as the Company further expands its production capabilities,
marketing and distribution efforts.
Gross Profit. Gross profit was $2,003,084, or 17.7% of net revenues,
for the nine months ended September 30, 1996 as compared to $45,018, or 7.3% of
net revenues, for the period ended December 31, 1995. The Company began full
scale production of its patent-pending PCs during the second quarter of 1996.
The increase in gross profit was primarily attributable to this introduction and
initial volume shipments of the Company's upgradeable PC in April 1996. As the
Company continues to expand its manufacturing operations and achieve economies
of scale, its gross profit is expected to improve.
Research and Development. Research and development expenses consists
primarily of expenses incurred for the design and development of the Company's
upgradeable PCs. Research and development expenses increased to $301,007, or
188.4%, during the period ended September 30, 1996 from the period ended
December 31, 1995. The Company anticipates a substantial increase in its
research and development expenses to continue its development of its NEXAR XPA
technology and other technologies related to the development of its products.
Selling and Marketing. Selling and marketing expenses consist primarily
of salaries, commissions, consulting fees, trade show expenses and advertising
and marketing costs. Selling and marketing expenses increased 413.7% to
$2,987,211 for the period ended September 30, 1996 from $581,482 for the period
ended December 31, 1995. This increase in selling and marketing expenses was the
result of the addition of sales and marketing personnel, related to establishing
the Company's distribution channels and supporting the introduction of the
Company's upgradeable PC. The Company intends to increase the amount of
expenditures for selling and marketing as a result of its expected growth,
however as a percentage of sales this amount may decrease as revenues are
expected to increase at a greater rate than the expenses incurred for selling
and marketing.
General and Administrative. General and administrative expenses consist
primarily of expenses for finance, office operations, administration and general
management activities including legal, accounting and other professional fees.
General and administrative expenses increased 4.7% to $1,695,888 for the period
ended September 30, 1996 from $1,620,587 for the period ended December 31, 1995.
This increase in expenses during the period ended September 30, 1996 was
attributable to the additional expenditures for
20
general and administrative expenses as a result of the Company's anticipated
growth. The Company anticipates that general and administrative expenses will
continue to increase due to its forecasted growth.
INCOME TAXES
The Company files a tax return included in the consolidated group with
Palomar. The Company has generated federal net operating loss carryforwards for
federal income tax purposes of approximately $4,976,000. Utilization of the net
operating losses may be subject to an annual limitation due to the changes in
the Company's ownership resulting from the Offering. See Note 5 of the Notes to
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed all of its operations
primarily through loans from related parties, which have provided aggregate net
proceeds to the Company of approximately $19,499,000. At September 30, 1996, the
Company had approximately $8,148,000 in cash and cash equivalents. The Company
has no credit facilities with unaffiliated lenders and is currently negotiating
a line of credit with a commercial lender.
Net cash used in operating activities was approximately $1,860,000
during the period from inception to December 31, 1995. The combination of
continuing the development of its product and initial manufacturing production,
the increase in its selling and marketing efforts to penetrate its channels of
distribution, as well as the payment of $525,000 to settle a 1995 complaint
regarding a business dispute brought against the Company and its Chief Executive
Officer, resulted in approximately $9,064,000 of cash used in operating
activities during the nine months ended September 30, 1996.
The Company's investing activities used net cash of approximately
$103,000 and $225,000 during the period from inception to December 31, 1995 and
the nine month period ended September 30, 1996, respectively. Expenditures for
property and equipment were approximately $103,000 for the period from inception
to December 31, 1995 and $134,000 for the nine months ended September 30, 1996.
The Company has no material commitments other than its facility and equipment
leases. The Company anticipates a substantial increase in its capital
expenditures for the remainder of 1996 and the first six months of 1997.
The Company currently anticipates that its available cash resources
combined with the net proceeds of the Offering as well as anticipated funds from
operations will be sufficient to meet its presently anticipated working capital
and capital expenditure requirements for at least the next 12 months.
Thereafter, the Company may need to raise additional funds. The Company may need
to raise additional funds sooner in order to fund more rapid expansion, to
develop new or enhanced products, to respond to competitive pressures or to
acquire complementary businesses or technologies. If additional funds are raised
through the issuance of equity securities, the percentage ownership of the
stockholders of the Company will be reduced, stockholders may experience
additional dilution, or such equity securities may have rights, preferences or
privileges senior to those of the holders of the Common Stock. There can be no
assurance that additional financing will be available when needed on terms
favorable to the Company or at all. If adequate funds are not available or are
not available on acceptable terms, the Company may be unable to develop or
enhance products or services, take advantage of future opportunities, or respond
to competitive pressures, which could have a material adverse effect on the
Company's business, financial condition or operating results. See "Risk Factors"
and "Dilution."
21
BUSINESS
Nexar Technologies, Inc. develops, manufactures and markets
high-performance, competitively-priced desktop personal computers (PCs) based on
patent-pending technologies. Unlike conventional PCs, NEXAR systems permit an
end-user to (i) purchase a custom-configured PC on demand, and (ii) easily
upgrade or switch important components of the PC to accommodate emerging and
future technologies resulting in a significant extension of the computer's
useful life. NEXAR sells a high-performance system platform, which is typically
shipped to resellers fully configured, except for the key system defining
components (microprocessor, memory and hard drive). This approach:
* Enables the end-user, whether corporate or individual, to buy
a system configured exactly to that customer's technical and
budgetary requirements and, later, to effortlessly and
affordably upgrade the PC's key components with
industry-standard products.
* Enables the Company's channel resellers to reduce their
exposure to inventory depreciation caused by rapid advances in
technology and frequent price reductions of the key system
components, which typically account for more than 50% of the
cost of a PC. Because NEXAR PCs allow the key components to be
installed by the reseller at the point of sale, the reseller
benefits from improved and more stable profit margins and
reduced reliance on an inventory of multiple pre-configured
systems.
* Enables the Company's resellers to compete with direct
marketers, such as Dell Computer and Gateway 2000, because a
NEXAR PC provides resellers with the ability to promptly
deliver a custom-configured, high-performance PC at a
competitive price.
* Enables the Company to maintain profit margins unaffected by
the forecasting risks borne by conventional PC manufacturers
who operate within a several-month-long cycle from (i)
component procurement to (ii) assembly to (iii) date-of-sale,
all conducted in an environment of rapid technological
advances and frequent price reductions. Since the key
components of a NEXAR PC are typically installed by a reseller
immediately prior to use or sale, the Company avoids the loss
of profit margin from making inaccurate predictions of the
most desired mix of key system components in the marketplace
several months in the future, from paying yesterday's higher
prices for components, or from discounting aging technology.
The Company's current PCs are based on an industry-standard, open
architecture design, co-engineered by HCL Hewlett Packard Ltd., which allows the
central processing unit (CPU), random access memory (RAM), and cache memory to
be replaced by end-users without technical assistance and without opening the
entire chassis. The Company's current model accepts Intel Corporation's
Pentium(R) and compatible CPUs, including the soon-to-be-released Pentium
processor with MMX(TM) multimedia extension technology. NEXAR PCs also include,
as a standard feature, a removable hard drive, permitting its replacement and
the further advantages of increased data portability and security, and the use
of multiple operating systems in a single PC.
The Company's objective is to become the industry leader in designing
and marketing PCs with technology which enables resellers and end-users, in an
easy and cost-effective manner, to upgrade and transition the CPU and the other
key system defining components in accordance with the known and anticipated
roadmaps of various makers of fundamental and leading-edge PC technology.
Accordingly, NEXAR has developed and will soon market a new generation of PCs
featuring the Company's patent- pending Cross-Processor Architecture(TM) (NEXAR
XPA(TM)) in which any one of several state-of-the-art CPUs can be initially
included or later installed, including Intel Corporation's Pentium or Pentium
Pro(R) and compatible CPUs. The NEXAR XPA technology will also accommodate
microprocessors based on other
22
technologies, such as the Alpha(R) CPU made by Digital Equipment Corporation
(DEC) or the PowerPC(R) processor offered jointly by IBM, Motorola Corporation
and Apple Computer.
NEXAR is led by its Chairman and Chief Executive Officer, Albert J.
Agbay, who has more than twenty years experience at various computer companies,
including senior management positions at PC makers such as NEC, Panasonic and
Leading Edge. The Company does not market its products directly to end-users,
but instead distributes its products through a growing network of international,
national and regional distributors, value-added and other resellers, original
equipment manufacturers (OEMs), system integrators, computer superstores, direct
response resellers, and independent dealers. The Company has entered into an
agreement with Wang Laboratories, Inc. (Wang), pursuant to which Wang provides
end-users of NEXAR's PCs with hardware and software support, including
diagnostics and repair, covered by the Company's three-year limited warranty and
optional extended service contracts.
The Company was founded in March 1995 as a wholly-owned subsidiary of
Palomar Medical Technologies, Inc., a publicly-held corporation that develops,
manufactures and markets medical laser devices and electronics products.
INDUSTRY BACKGROUND
The market for PCs is large and growing at a strong rate. According to
forecasts by International Data Corporation (IDC), an independent industry
analyst, 81.6 million PCs with a value of $189.7 billion, including 66 million
desktop PCs (worth $141 billion), will be shipped worldwide in 1997, an increase
of 17.3% over estimated 1996 shipments. In the United States, IDC forecasts that
in 1997, 30.9 million PCs (worth $78.8 billion), including 24.8 million desktops
(worth $59.4 billion), will be shipped. IDC forecasts that worldwide, in the
year 2000, 117.2 million PCs (worth $262.8 billion), including 92.2 million
desktops (worth $192 billion), will be shipped. In the United States, IDC
forecasts that in the year 2000, 42.8 million PCs (worth $111.0 billion),
including 33.1 million desktops (worth $83.4 billion), will be shipped. These
estimates indicate that desktop PCs will continue to represent more than 75% of
worldwide PC sales through the year 2000.
Factors driving the PC industry's growth include continued
price/performance improvements of fundamental PC technologies fueled by intense
competition, the growth of the Internet, and the convergence of content,
technologies, and communications on the PC which broadens its base of
applications and users. Also contributing to growth are the aging installed base
of 386 and 486 CPU systems, the introduction of next generation CPUs, and the
development of applications that more fully utilize the capabilities of the more
advanced microprocessors and require ever increasing amounts of storage
capabilities. The Company believes that as businesses recognize the benefits of
distributed computing and thus increase their interest in distributed
enterprise-wide networks (e.g., "intranets"), and as small business and home
office markets grow worldwide, demand for PCs will further increase.
The PC market has been characterized by intense competition and
substantial technological advances occurring over short periods of time.
Hundreds of vendors compete in today's PC marketplace. Leading manufacturers
include Acer, Apple Computer, Compaq Computer, Dell Computer, Gateway 2000,
Hewlett-Packard, IBM, and Packard Bell NEC, Inc. See "--Competition." Rapid
technology advances have resulted in high rates of product innovation and
enhancements, and short product life cycles, creating difficult choices for both
current owners and prospective purchasers of PC systems. PC users occasionally
find that they cannot effectively use the latest software programs, or even the
latest enhancements to their existing software programs, because their PC has
insufficient memory, their CPU is too slow, or their hard drive is full and
cannot store additional data. Consequently, a user who does not wish to forego
the latest technology advancements must either attempt to upgrade his or her
existing PC (to the extent the system can be upgraded and which typically
requires technical assistance) or make a substantial investment in a newer, more
powerful PC.
23
In recent months, a migration by end-users, especially among corporate
users, to next generation PCs, such as Windows NT/Pentium Pro and competing
systems, has begun to accelerate. The increase in the capabilities of such
systems is occurring concurrently with an increase in the number of variables,
such as compatibility with 32 bit software applications and multimedia
functionality, which PC buyers must consider in making purchasing decisions. The
result is a more intricate outlook for evaluation of PC technology advancements,
one illustration of which is the following recently published assessment of the
x86 microprocessor roadmap focusing on the anticipated availability of Intel's
MMX technology (which enchances performance of multimedia and communications
applications) and 16- versus 32- bit software performance among various vendor
lines:
16-bit performance 32-bit performance
Intel Pentium-200 Cyrix 6x86-P200+* Inten Pentium Pro*
Intel P55C** AMD K6**
Cyrix M2** Intel Klamath***
AMD K6** Intel Deschutes***
Intel Deschutes***
16-bit performance and MMX 32-bit performance and MMX
Intel P55C** Cyrix M2**
Cyrix M2** AMD K6**
AMD K6** Intel Klamath***
Intel Deschutes*** Intel Deschutes***
* Now
** Early 1997
*** Mid-1977
**** Late 1997
Source: BYTE Magazine, November 1996, Reproduced with permission.
(C) by the McGraw-Hill Companies, Inc. New York, NY. All rights reserved.
The above chart outlines the choices presented by the following array
of product releases anticipated for the next twelve months: In early 1997,
Intel, AMD and Cyrix are expected to introduce new microprocessors which
incorporate architectural enhancements to Pentium-class processors which provide
significant performance improvements when running multimedia applications. Intel
is expected to introduce MMX into its P55C model; AMD will support MMX on their
K6 CPU and the Cyrix M2 processor is expected to be MMX compatible. In mid-1997,
Intel is expected to introduce its code-named
24
Klamath processor, a next generation Pentium Pro-class CPU that supports MMX
technology and improves 16-bit software performance (the current Pentium-Pro,
which does not include MMX technology, is designed primarily for 32-bit
applications). In late 1997, Intel is expected to release Deschutes, the code-
name for a Pentium Pro CPU processor which is expected to support clock speeds
of 300 to 333 MHz.
Competing with x86 microprocessors in various computer markets are the
RISC (Reduced Instruction Set Computing) microprocessor lines, such as DEC's
Alpha, the PowerPC offered by IBM, Motorola and Apple and CPUs offered by Sun
Microsystems, Silicon Graphics and others. RISC, which was developed for use in
high performance systems such as UNIX network servers and workstations, is a
modern microprocessor architecture requiring significantly fewer transistors
than the older x86 architecture. RISC processors are highly scaleable and
well-suited for performing high speed calculations. The more established x86
vendors have dominated the RISC-based lines due in part to software
compatibility issues, which are starting to diminish as more applications are
written to work on RISC processors and enhancements (such as DEC's FX!32
translation software) become available to permit software which previously could
only run on x86 CPUs to work with a RISC microprocessor. DEC has recently
sharply reduced the price of its Alpha CPU in order to compete in the PC market,
claiming that the Alpha is twice as fast as Intel's Pentium Pro for Window's NT
applications or other complex design analysis for applications such as image
rendering, video editing, video conferencing, and mechanical design, and
applications requiring 3-D graphics, such as modeling, animation or simulations.
This rapid escalation of technology has caused instability in the PC
industry. Because several months may lapse between the manufacture and the
actual sale date of a conventional, pre-configured system, PC manufacturers face
substantial business risk in forecasting which components to include and the
pricing of the system. As technology advancements and price reductions occur,
vendors which have shipped pre-configured systems to their resellers are forced
to offer price protection by reducing the price of their products and issuing
credits to the reseller. These and other concessions further erode the profit
margin of the manufacturer. Meanwhile, resellers unavoidably accumulate
overpriced and aging inventory, and end-users are offered a discount on
yesterday's technology.
One of the fastest growing segments of the PC market is the telephone
and mail order direct response market. Companies in this market, primarily
Gateway 2000 and Dell Computer, have been able to capitalize on the
destabilizing effect of rapid technological advances and frequent price
reductions. According to IDC, 20 percent of PCs were sold directly to end-users
in 1995, up from 18.7 percent of a smaller market in 1994. Because direct
marketers sell directly to end-users on a build-to-order basis, they can sell
the latest technology to end-users more quickly than traditional PC suppliers.
In addition, because they have large and rapidly changing inventories of
components, direct marketers can also offer more configurations of their PCs at
the latest industry price points than resellers who are subject to longer
manufacturing to date-of-sale cycles. Some PC manufacturers have addressed the
same market challenge by "co-manufacturing" their PCs with their reseller
partners.
THE NEXAR PC SOLUTION
NEXAR believes that its approach of offering the reseller the ability
to provide systems designed for "just-in-time" delivery of key components and
easy upgradeability not only relieves the dissatisfaction of end-users regarding
rapid obsolescence of their systems, but also provides the channel reseller with
the most comprehensive solution available for addressing the fundamental causes
of the low profitability currently characterizing the PC distribution channel.
Because NEXAR's current and anticipated models simplify upgrades, and because
NEXAR XPA systems will permit cross-procesessor transitions, the
25
Company believes its PCs could have useful life cycles up to twice as long as
those of most conventionally designed PCs.
The NEXAR PC. The current NEXAR PC features an innovative architecture
including patent-pending technology which the Company has a license to market on
an exclusive worldwide basis. See "-- Intellectual Property." The key elements
of this architecture are a custom designed main integrated circuit board
("motherboard"), co-engineered by HCL Hewlett Packard Ltd., and a mid-tower
chassis design allowing ease of access through removable side panels, permitting
non-technically trained users to install and replace the key components with
industry-standard, off-the-shelf products. The CPU, RAM and cache of a
conventional PC typically reside on top of a motherboard (usually unaccessible
without opening the entire chassis) which also includes expansion board slots
for peripheral and controller cards for communicating with mass storage and
input/output components. The current NEXAR PC technology places sockets for the
CPU, RAM and cache on the undercarriage of the motherboard, which is accessible
through a removable side panel on the chassis. This design also provides access
through another removable side panel to the expansion slots for cards providing
features such as networking and multimedia functionality. The NEXAR PC also
features a lockable, removable hard disk drive mounted on rails in a design
similar to that used in many laptop computers. This provides the added benefits
of permitting increased portability of data and increased security, attributes
which appeal to many government and corporate buyers, and the use of multiple
operating systems on one PC.
The NEXAR XPA PC. When introduced, the Company's patent-pending NEXAR
XPA systems will offer the industry all of the same features and benefits as the
Company's current PCs and will also permit multiple and cross-processor upgrades
and transitions on a single PC. NEXAR XPA PCs which are scheduled for release in
mid-1997, will allow resellers or end-users to initially select or later vary
the type of microprocessor used in the system from among those based on
competing technologies, such as Pentium, Pentium Pro, Klamath and other x86
CPUs, or the RISC-based processors such as the Alpha and Power PC. The Company
believes this capability will become increasingly important as technology
advances and the demands of personal computing intensify. End-users without the
ability to cost- effectively upgrade or switch microprocessors and operating
platforms will face the daunting task of precisely forecasting their own
increasingly intensive information and other computing system requirements, not
only with regard to speed, memory, and data access, but also to accommodate the
demands of graphics-rich applications, Internet and intranet capability and
diverse multimedia functionality. Customers purchasing a NEXAR XPA system will
be able to not only increase their PC's speed and capacity as such advances
become available, but will also be able to custom-fit their operating platform
to ever-increasing application needs and capabilities by converting their system
from among various x86 or RISC-based processor lines, and from among Windows NT,
OS/2, Mac OS, UNIX and other operating systems. The Company believes that
whatever the demands of the end-user, a NEXAR XPA PC will be an optimal solution
to purchasers seeking investment protection of their system infrastructure.
NEXAR systems are designed to be sold by the Company without the key
system defining components. The reseller is then able to offer the NEXAR PC at a
competitive price by avoiding the typical PC manufacturer mark-up on those key
components typically representing more than 50% of the cost of the PC.
Conventional PC configurations are customarily determined at the manufacturing
site prior to shipment to the reseller thus forcing the end-user to accept the
manufacturers' pre-determined configuration and a price that includes the
manufacturers' mark-up on more than 50% of the cost of the PC. Unlike other
currently available "modular" PCs, NEXAR PCs are designed to be used with
industry-standard components, which can be obtained from numerous sources at the
optimal time and at a competitive price to the reseller or the end-user.
26
STRATEGY
The Company's objective is to claim a significant share of the desktop
PC market by offering open-architecture PCs incorporating technology which
enables end-users in an easy and cost-effective manner to upgrade and transition
to the new and varied CPU platforms of different manufacturers in accordance
with expected roadmaps of fundamental and leading-edge PC technology. The
principal elements of NEXAR's strategy to achieve its goal include the
following:
ESTABLISH AND MAINTAIN TECHNOLOGICAL LEADERSHIP IN UPGRADEABLE AND
CROSS-PROCESSOR PCS
The Company intends to devote most of its research and development
efforts to the implementation of the NEXAR XPA technology to a broad range of
microprocessor platforms and to monitoring and participating in developments in
the computer markets in which it competes generally. The Company believes that
these efforts will ensure that its future products offer the distribution
channel and end-users the same benefits of investment protection and technical
flexibility as the Company's current and next generation PCs. The Company
intends to periodically advance the design of its PCs, including the NEXAR XPA
technology, to address announced and anticipated technological advances by
leading makers of the system defining components. See "--Product Development."
FOCUS ON ADVANTAGES OF NEXAR PC DESIGN
The Company believes that its level of success to date (more than $11
million in net sales in the first six months shipping its current PCs) in the
intensely competitive PC marketplace demonstrates that its central focus on
offering state-of-the art PCs which forestall system obsolescence is well
received in the PC marketplace. The Company further believes that the increased
flexibility of its next generation of PCs featuring NEXAR XPA will provide NEXAR
a significant competitive advantage as more variables, such as multimedia
performance and 32-bit software applications, become factors in the purchasing
decisions within the PC markets in which the Company participates. The design of
the Company's existing PCs currently allow, and the upcoming NEXAR XPA systems
will permit, NEXAR resellers to offer a significantly broader range of
configurations than is possible with conventionally designed PCs. The benefits
of NEXAR's PCs to end-users include the following:
* Protects the consumer's PC investment by allowing end-users to
purchase a customized PC and to later upgrade components to
keep up with technology advances without incurring the expense
of a new system.
* Saves MIS departments of large and small enterprises time and
expense upgrading components or replacing outdated systems.
* End-users are not locked into the upgrade path of a single
manufacturer, but, instead, can utilize numerous
widely-available, industry-standard components and platforms.
27
LEVERAGE INDUSTRY EXPERIENCE OF MANAGEMENT TEAM
The Company believes that one of its key competitive advantages is its
sales, marketing and management teams. Several members of the Company's senior
management team, including its Chairman and Chief Executive Officer, Albert J.
Agbay, have worked together for a number of years at various PC companies. Mr.
Agbay has more than twenty years experience working for computer companies,
including PC makers such as NEC, Panasonic and Leading Edge. Under Mr. Agbay's
leadership, Leading Edge grew from approximately $10 million to $200 million in
revenues in less than three years. See "Management."
FOCUS ON CHANNEL MARKETING
The Company markets its products through multiple channels of
distribution, using a controlled distribution model in which authorized
resellers and distributors are given exclusive or shared responsibility for
certain territories or market segments in exchange for best-efforts sales volume
or marketing commitments. The Company is initially targeting commercial entities
rather than the home consumer market. Accordingly, the Company primarily
distributes its PCs not through retail outlets, but through the following
channels:
Distributors and Resellers. The Company plans to expand its network of
distributors and resellers by emphasizing the following advantages attained by
carrying NEXAR PCs:
* Reduced inventory depreciation risk and improved profit
margins enhanced by using one system platform and sourcing
components on a "just-in-time" basis.
* The ability to be "first to market" with the latest technology
on a consistent basis by offering customers "next generation"
components without concern for existing pre- configured
inventory levels.
* Lower inventory costs due to the ability to stock one line of
semi-configured NEXAR systems in place of several lines of
pre-configured PCs.
* The ability to custom-configure a system on a build-to-order
basis in order to compete effectively against direct marketers
such as Gateway 2000 and Dell Computer.
In order to enlist resellers to carry NEXAR PCs, the Company has
established a Reseller Partnership Program, under which resellers receive volume
price discounts negotiated by NEXAR on components, making it possible for
resellers to configure and sell the NEXAR PC at competitive prices.
Government Resellers. The Company believes that, in addition to the
other advantages of NEXAR PCs and the increased security and other benefits of
the removable hard disk drive described herein, the NEXAR PC is particularly
appealing to many government buyers because the time required for ordering
entirely new systems is often prohibitive under government regulations, while
component parts can be more timely requisitioned, thereby allowing a government
office to more easily remain technologically current. The Company has entered
into an agreement with Government Technology Services, Inc. (GTSI), a leading
supplier of desktop systems to the U.S. government, pursuant to which GTSI
serves as NEXAR's exclusive federal reseller with respect to GSA scheduled
purchases provided that GTSI purchase at least $35 million of the Company's
products in 1997. GTSI is, however, under no obligation to purchase any products
of
28
the Company. In the nine months ended September 30, 1996, GTSI accounted for a
majority of the Company's revenues. The Company expects that GTSI will continue
to be an important customer, but that sales to GTSI as a percentage of total
revenue will decline substantially as the Company further expands its
distribution network and increases its overall sales. See "--Customers." The
Company also pursues relationships with resellers selling to government agencies
not purchasing from the GSA Schedule.
VARs, Systems Integrators and OEMs. The Company believes its PCs enable
value-added resellers (VARs) and systems integrators to offer their clients a
more flexible and cost effective PC and network solution. The Gartner Group has
estimated that the average total cost of ownership of a single Windows 3.x-based
PC in a business setting over a five year period is in excess of $44,000. By
offering NEXAR PCs, VARs and system integrators are able to minimize
depreciation of their inventory and deliver a custom configured system solution
virtually on demand, and enable their customers to reduce their MIS costs. The
Company seeks to capture market share in some territories by entering into
agreements with OEMs who will deliver PCs to their customers with both the OEM's
brand name and a product label identifying that the base unit contains NEXAR
technology.
PENETRATE INTERNATIONAL MARKETS
Industry forecasts indicate that the overall international PC market
will grow faster than the domestic market during the next several years.
Initially, the Company's international strategy is to keep its overseas sales
and marketing costs low by partnering with established channel participants,
especially in Europe where end-users are just beginning to migrate to the
Pentium processor. In South America, through an OEM agreement with Bull
Information Systems Worldwide, NEXAR is providing its PCs to Bull's South
American division to enable it to configure systems with components obtained
within the borders of various countries, thereby producing savings on import
taxes and related charges. To enter the Japanese market, NEXAR has entered into
a sales representation agreement with Marubeni International, a leading Asian
distributor of computers and other electronic products.
SALES AND MARKETING
The Company's marketing strategy is channel-based, focused primarily on
distributors, value added and other resellers, system integrators, rather than
to end-users. During its initial marketing period, NEXAR has concentrated on
building awareness of NEXAR and its innovative PC architecture with its channel
resellers. To accomplish this, NEXAR advertises regularly in industry
publications such as Computer Reseller News and VAR Business. To generate
end-user "pull-through" demand, NEXAR also advertises in publications such as PC
Week, PC World and PC Magazine. The current NEXAR PC has been reviewed in
publications such as Windows Sources, Windows Magazine, PC World, Computer
Shopper, Computer Reseller News, Computer Life and Government Computer News.
NEXAR provides broad co-op advertising and joint marketing support to its
channel-reseller customers. In particular, NEXAR has co-marketed extensively
with GTSI, its largest customer, to the federal government market. See
"--Strategy--Government Resellers." The Company conducts its marketing primarily
through meetings with and sales presentations to national and regional
resellers. In addition, the Company displays its products at national trade
shows such as COMDEX and PC Expo.
The Company executes its marketing strategy primarily through the
efforts of a direct sales force and through independent manufacturer sales
representatives. As of November 30, 1996, NEXAR's sales force consisted of 16
people, nine located at its Westborough, Massachusetts headquarters and the
remainder in regional locations. The Company intends to increase the size of its
sales force as its revenue
29
grows. As of November 30, 1996, the Company was also a party to agreements with
four independent manufacturer sales representatives. These sales representatives
are primarily responsible for securing sales of NEXAR products to regional
resellers and are paid commissions based on such sales.
CUSTOMERS
The Company manufactures and sells its PCs to resellers of varying size
and market share, including national and regional distributors, value-added and
other resellers, computer and office superstores, system integrators, mass
merchandisers, direct response resellers, and independent dealers.
The following is a representative listing of NEXAR resellers:
<TABLE>
<CAPTION>
National and Regional Distributors Computer Superstores Direct Response Retailer
---------------------------------- -------------------- ------------------------
<S> <C> <C>
Ingram Micro Fry's Electronics Micro Warehouse
Laguna Distributing Elek-tek
Gates Arrow Nationwide
MicroMatix Computer Factory
MicroAge Communications Expo
Indecon Computer Attic
Avnet Inc.
OEMs and VARs Government Resellers
------------- --------------------
Bull Worldwide Government Technology
CompUSA Corporate Services, Inc.
MJ Distribution Comstor/GE Capital
Net Superstore Pulsar Data
Schoolcom
Supreme Computers
</TABLE>
In the nine months ended September 30, 1996, GTSI accounted for a majority of
the Company's revenues. The Company expects that GTSI will continue to be an
important customer, but that sales to GTSI as a percentage of total revenue will
decline substantially as the Company further expands its distribution network
and increases its overall sales.
PRODUCTS
The NEXAR PC is a high-performance system platform configured with the
following components: system chassis with removable side panels, custom designed
motherboard, power supply, video controller, input/output controller, floppy
disk drive, caddy for removable hard disk, keyboard, mouse, and hardware
manuals. The Company occasionally includes additional components, including the
key system defining components (CPU, memory and hard drive) and peripherals such
as monitors and modems at the customer's request. NEXAR PCs sold by resellers
fully configured have list prices ranging from $1,200 to $2,500, depending upon
the components included.
30
The following graphic illustrates the broad range of configurations
made possible by a NEXAR PC:
GRAPHIC DEPICTING NEXAR PC INDICATING ALTERNATIVES AVAILABLE WITH RESPECT TO
REPLACEABLE COMPONENTS. THE GRAPHIC CONTAINS THE FOLLOWING TEXT POINTING TO THE
RELEVANT PORTIONS OF THE PC:
* Removable hard drive caddy slides in and out, and locks in place
* DIMM and SIMM memory (RAM) sockets
* Secondary cache socket
* Easy access to CPU socket for upgrades
* Right side, removable panel to access processor, memory, cache and
voltage regulator module
* Left side, removable panel to access modem, video, audio and network
interface cards
* Voltage regulator module socket to accommodate higher performing CPUs
operating at varying voltages
CPU Alternatives: A single Socket 7 with zero insertion force (ZIF)
lever allows for easy removal and insertion of the microprocessor. The
motherboard is designed to accept current and future Pentium and compatible
processors by adjusting the bus speed and synchronizing the voltage output of
the motherboard. NEXAR's custom designed motherboard not only accommodates these
future processor technologies but allows the end user to install the processor
and make the adjustments to bus speed and voltage without technical assistance.
Hard Drive Alternatives: The removable caddy supports industry standard
EIDE or SCSI hard drives. The Company offers a SCSI controller as an option.
Memory Alternatives: For random access memory, the NEXAR PC motherboard
includes 2 SIMM and 2 DIMM sockets supporting up to 128MB of either Fast Page
Mode, Extended Data Output or Synchronous Dynamic Random Access Memory. For
secondary cache memory, a single socket supports either 256K or 512K "cache on a
stick" modules.
NEXAR XPA PCs. NEXAR currently plans to begin shipping its
patent-pending NEXAR Cross-Processor Architecture systems in the second quarter
of 1997. The NEXAR XPA systems will offer all of the same features and benefits
as the Company's current PCs and will also permit cross-processor upgrades on a
single PC. A NEXAR XPA PC will allow resellers or end-users to initially select
or later vary the type of microprocessor used in the system from one of several
state-of-the-art CPU families, and, as NEXAR introduces replaceable circuit
boards compatible with the initial system purchased, RISC-based microprocessors.
Initially, NEXAR XPA systems will enable the use of either Pentium CPUs or the
Pentium Pro CPUs which currently have different socket configurations and are
thus not currently replaceable in conventional PCs. The multi-platform support
will be designed to accept either Microsoft
31
Windows 95, Windows NT or RISC-based operating systems. In addition, NEXAR XPA
systems will support emerging expansion bus technologies, such as universal
serial bus, Fire Wire (IEEE1394) and accelerated graphics port (AGP).
The NEXAR Server. NEXAR plans to offer in the second quarter of 1997 a
state-of-the-art conventionally-designed, high performance file server offering
the option of one to four Pentium Pro CPUs with fault tolerance and redundant
design of critical components to support mission-critical database,
Internet-server and transaction processing applications. This product is being
designed and offered because NEXAR's reseller-customers requested a server of
this design to complete NEXAR's product offerings to the corporate end-users.
In addition to supporting symmetric multi-processing for up to four
Pentium Pro processors, the NEXAR server will allow hot-swapping of the
hard-drives and the multiple power supplies. The super-tower design accommodates
a total of 17 hard disk drives. The system will have a RAID controller to
provide for redundant disk drive data storage and error checking and correcting
memory. The system will be shipped with 64 megabytes of RAM expandable to two
gigabytes with four way memory interleaving. Unlike most servers, NEXAR's server
places the Pentium Pro processors on the main system board, not a proprietary
system board. Nine expansion slots are planned: six utilizing the 32-bit PCI
bus, two 32-bit EISA buses and one PCI/EISA shared slot. NEXAR's server will
include Novell's ManageWise(TM) software suite that manages server hardware and
gathers performance data. ManageWise optimizes network performance and ensures
maximum server availability by monitoring network conditions, and automatically
alerting the network manager of errors, failures or overloads.
CUSTOMER SERVICE AND SUPPORT
NEXAR PCs are sold with a three-year limited hardware warranty with
one-year on-site service. To provide its customers with technical support, NEXAR
has entered into an agreement with Wang, pursuant to which Wang provides NEXAR's
customers with the one year on-site hardware support, including diagnostics and
repair. Wang also provides telephone support for software products bundled with
NEXAR's systems for a period of ninety days after purchase. Wang support is
provided directly to NEXAR's customers. In addition, service contract extensions
are available. Customers can also obtain hardware support via the Internet or a
toll free telephone number. While the Company selected Wang based on its belief
that Wang has the capability to perform these warranty obligations on a timely
and efficient basis, the failure of Wang to meet the demands of the end-users of
the Company's products could materially and adversely affect the reputation of
the Company and its products, which in turn could result in lower sales and
profits.
PRODUCT DEVELOPMENT
The market for NEXAR's products is characterized by rapid technological
change involving the application of a number of advanced technologies, including
those relating to computer hardware and software, mass storage devices, and
other peripheral components. The Company's ability to remain competitive depends
upon its ability to anticipate and effectively react to technological change.
The Company currently has only a limited product development staff. The Company
has entered into a Development Agreement with GDA Technologies, Inc., a provider
of computer engineering services (GDA), to develop its new patent-pending
Cross-Processor Architecture and to implement this technology on several main
integrated circuit boards to be introduced for use in NEXAR PCs in mid- 1997.
Although the Company believes that it could find and engage equivalent
development and
32
engineering services elsewhere within a reasonable period of time, or hire
sufficient capable engineers to perform such development work in-house, the
inability of GDA to adequately perform such services on a timely basis could
have a short-term material adverse effect on the Company.
From its inception, NEXAR has devoted continuing efforts to research
and development activities both to develop the current line of NEXAR PCs and to
introduce new models that further leverage the Company's proprietary technology
in providing simplified upgradeability of major components and the ability to
accommodate emerging and future technologies. Current development efforts are
principally directed to implementation of its new NEXAR XPA architecture by the
development of multiple motherboards. The Company's future success will be
highly dependent upon its ability to develop, produce and market products that
incorporate new technology, are priced competitively and achieve significant
market acceptance. There can be no assurance that the Company's products will be
technically advanced or commercially successful due to the rapid improvements in
computer technology and resulting product obsolescence. There is also no
assurance that the Company will be able to deliver commercial quantities of new
products in a timely manner. The success of new product introductions is
dependent on a number of factors, including market acceptance, the Company's
ability to anticipate and manage risks associated with product transitions, the
effective management of inventory levels in line with anticipated product demand
and the timely manufacturing of products in appropriate quantities to meet
anticipated demand. The failure of the Company to develop, produce and market
commercially viable products could result in the Company's business, operating
results and financial condition being materially and adversely affected.
The Company's product development efforts will continue to require
substantial investments by the Company for third-party research, refinement and
testing, and there can be no assurance that the Company will have the resources
sufficient to make such investments. Participants in the PC industry generally
rely on the creation and implementation of technology standards to win the
broadest market acceptance for their products. The Company must successfully
manage and participate in the development of standards while continuing to
differentiate its products in a manner valued by customers. While industry
participants generally accept, and may encourage, the use of their intellectual
property by third parties under license, nonetheless, when intellectual property
owned by competitors or suppliers becomes accepted as an industry standard, the
Company must obtain a license, purchase components utilizing such technology
from the owners of such technology or their licensees, or otherwise acquire
rights to use such technology. The failure of the Company to license, purchase
or otherwise acquire rights to such technologies could result in the Company's
business, operating results and financial condition being materially and
adversely affected.
MANUFACTURING
The Company operates a 100,000 square foot manufacturing facility in
Hayward, California. The Company's manufacturing operations consist primarily of
assembly, test and quality control of its PC systems. A single shift capacity of
the facility is capable of producing 15,000 units per month, although NEXAR's
actual manufacturing capacity depends in part on the ability of NEXAR's
suppliers to provide it with assembled circuit boards.
The Company uses industry standard components for its products and
contracts with specific vendors to manufacture certain components included in
its products, primarily circuit boards. Most of these components are generally
available from multiple sources; however, NEXAR relies on two contract
manufacturers to manufacture motherboards used in its PCs and relies on a sole
outside
33
contractor to manufacture the motherboard used in its server product. The
Company conducts testing and quality control evaluations and integrates the
circuit boards into the finished product. The Company intends to seek ISO 9000
certification during 1997.
COMPETITION
The desktop PC industry is intensely competitive and may become more so
as the result of, among other things, the introduction of new competitors
(including large multi-national, diversified companies) and possibly weakening
demand. The Company currently competes in the desktop PC market principally with
Acer, Apple Computer, Compaq Computer, Dell Computer, Gateway 2000,
Hewlett-Packard, IBM and Packard Bell NEC, Inc. In addition, the Company expects
to compete in the network server market in the first quarter of 1997 with
established companies such as ALR, Compaq, Dell, Hewlett-Packard and IBM. All of
these companies have stronger brand recognition, greater financial, marketing,
manufacturing, technological and distribution resources, broader product lines
and larger installed customer bases than does the Company. Principal competitive
factors include product features, product performance, quality and reliability,
customer service and support, marketing and distribution capabilities and price.
There can be no assurance that the Company will be able to maintain or improve
its current position with respect to any of these or other competitive factors.
This intense competition could result in loss of customers or pricing pressures,
which would negatively affect the Company's results of operations.
The Company's ability to compete favorably is dependent, in significant
part, upon its ability to control costs, react timely and appropriately to
short- and long-term trends and competitively price its products while
preventing erosion of its margins, and there is no assurance that the Company
will be able to do so. Many of the Company's competitors can devote greater
managerial and financial resources than the Company can to develop, promote and
distribute products and provide related consulting and training services. Some
of the Company's competitors have established, or may establish, cooperative
arrangements or strategic alliances among themselves or with third parties, thus
enhancing their ability to compete with the Company. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that the competitive pressures faced by the Company will not
materially and adversely affect its business, operating results and financial
condition.
INTELLECTUAL PROPERTY
The Company relies primarily on copyright, trade secret and trademark
law to protect its technology and trade secrets. While the Company currently has
0no patents, it is prosecuting an application for a United States patent on
portions of its PCs relating to its NEXAR XPA architecture. No such patent has
been issued, however. Likewise, the licensor of the technology included in the
Company's current PCs represents that it has applied for a patent on such
licensor's technology. The Company has not been notified that any such patent
has been issued. There can be no assurance that a patent will be granted
pursuant to either such application, or that if granted, such patent or patents
would survive a legal challenge to its or their validity, or provide adequate
protection. In addition, there can be no assurance that the Company will be able
to afford the expense of any litigation which may be necessary to enforce its
rights under any such patent. The Company generally enters into confidentiality
agreements with its employees, consultants and vendors. There can be no
assurance such measures will effectively protect the Company's trade secrets or
other intellectual property.
34
The Company's current PCs are shipped with motherboards based on
technology licensed from Technovation Computer Labs, Inc., a Nevada Corporation
(Technovation), which, to the best of the Company's knowledge is owned by Babar
Hamirani, a former executive officer of the Company whose employment was
terminated by the Company on November 29, 1996. Although no formal claim has
been made, an attorney representing Mr. Hamirani has informed the Company that
Mr. Hamirani may file a lawsuit against the Company regarding Mr. Hamirani's
employment termination and the license agreement with Technovation. Under the
terms of its license agreement with Technovation, which the Company believes it
is in compliance with in every material respect, the Company has the exclusive
right to use the licensed technology through August 1998 in exchange for a per
unit sold royalty amount, and a non-exclusive right to use such technology for
up to seven additional years at the same royalty rate. The Company intends to
cease manufacturing PCs with motherboards originally designed under the
technology licensed from Technovation by mid-1997 after it begins shipping PCs
with its new patent-pending NEXAR XPA technology, but the Company does intend,
in any event, to continue to pay royalties to Technovation to the extent
required under the license agreement. In addition, patent counsel for Mr.
Hamirani has informed the Company that such counsel is in the process of
prosecuting a continuation to Technovation's patent application covering
additions and improvements to the original invention which is the subject of
such application. Such counsel has informed the Company of the nature of such
additions and improvements and it appears to the Company that they may have
aspects in common with the Company's new NEXAR XPA technology. While the Company
has not had an opportunity to review this continuation, it appears that it may
conflict with the Company's patent application. Through September 30, 1996,
potential royalties which had accrued under the license agreement were less than
the Company's tooling and development costs, which the Company is entitled to
offset against royalties under the license agreement. See "Certain
Transactions."
The Company's success is dependent, in part, upon its licensed and
owned and other intellectual property rights. While the Company has applied for
a patent on its NEXAR XPA technology, and Technovation has applied for a patent
on its technology, no patents have been issued and the Company currently relies
on copyrights, unpatented trade secrets and trademarks to protect its
proprietary technology. No assurance can be given that the Company's competitors
will not independently develop or otherwise acquire substantially equivalent
techniques or otherwise gain access to the Company's proprietary technology or
that the Company can ultimately protect its rights to such proprietary
technology. The Company also relies on confidentiality agreements with its
collaborators, employees, advisors, vendors and consultants to protect its
proprietary technology. There can be no assurance that these agreements will not
be breached, that the Company would have adequate remedies for any breach or
that the Company's trade secrets will not otherwise become known or be
independently developed by competitors. Failure to obtain or maintain patent and
trade secret protection, for any reason, could have a material adverse effect on
the Company's business, financial condition and results of operations.
Although the Company believes that its products do not infringe patents
or other proprietary rights of third parties, there can be no assurance that the
Company is aware of patents or other proprietary rights that may be infringed by
the Company's products, that any infringement does not exist or that
infringement may not be alleged by third parties in the future. If infringement
is alleged, there can be no assurance that the necessary licenses would be
available on acceptable terms, if at all, or that the Company would prevail in
any related litigation. Patent litigation can be extremely protracted and
expensive even if the Company ultimately prevails, and involvement in such
litigation could have a material adverse effect on the business, results of
operations and financial condition of the Company.
EMPLOYEES
As of September 30, 1996, NEXAR had 58 employees, including executive
officers, sales, marketing, technical support, finance, manufacturing,
engineering, and administrative personnel. Twenty-eight of these employees are
employed at the Westborough Massachusetts facility, and 30 are employed at the
Hayward, California facility. In addition, the Company currently utilizes
contract labor to meet its manufacturing needs on an ongoing basis. None of the
Company's employees is represented
35
by a collective bargaining agreement, nor has the Company experienced work
stoppages. The Company believes that its relations with its employees are
satisfactory.
FACILITIES
The Company's headquarters and executive offices are located in a
leased facility in Westborough, Massachusetts. The Westborough facility also
serves as the base for NEXAR's sales, marketing, technical support, and general
and administrative functions. The facility, totaling approximately 7,000 square
feet, is leased through August 1998. The annual rent under the terms of the
lease agreement is approximately $84,000 per year. The Company believes that
suitable additional or alternative space will be available, when needed, on
commercially reasonable terms.
The Company's manufacturing, engineering, and warehousing operations
are located in a leased facility in Hayward, California, which is leased for a
five year period expiring in August 2001, with a five year option to extend. The
annual base rent under the lease agreement begins at approximately $288,000 in
the first year and increases annually to approximately $528,000 in 2001. The
Company is also responsible for the operating expenses and real estate taxes
relating to the leased premises. See "Manufacturing."
LITIGATION
As of the date of this Prospectus, the Company is not a party to any
material legal proceedings, except as arise in the ordinary course of its
business. A former executive officer of the Company whose employment was
terminated by the Company in November 1996 has threatened to sue the Company
regarding his termination and a technology license agreement between a company
he controls and the Company. See "--Intellectual Property" above and "Risk
Factors -- Uncertainty Regarding Intellectual Property Rights; Potential
Litigation With Former Executive."
36
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Albert J. Agbay 48 Chairman of the Board, Chief Executive Officer and
President
Gerald Y. Hattori 45 Vice President of Finance, Chief Financial Officer and
Treasurer
Michael J. Paciello 45 Executive Vice President
Liaqat Y. Khan 45 Executive Vice President of Manufacturing
Victor J. Melfa, Jr. 38 Senior Vice President of Sales
E. Craig Conrad 38 Vice President of Marketing
James P. Lucivero 41 Vice President - Eastern United States Sales
Steven Georgiev 62 Director and Secretary
Joseph E. Levangie (1) 51 Director
Buster C. Glosson (1) 54 Director
Joseph P. Caruso 37 Director
</TABLE>
- ----------------------------------
(1) Member of the Audit Committee
Albert J. Agbay has been Chief Executive Officer and President of the
Company since March 1995 and its Chairman of the Board of Directors since
October 1995. From July 1994 to February 1995, Mr. Agbay served as Chief
Executive Officer of Columbia Advanced Systems Corporation (Columbia Advanced
Systems), a manufacturer of PCs and a subsidiary of Apaq, Inc., also a
manufacturer of PCs. From August 1993 to July 1994, Mr. Agbay served as Chairman
and Chief Executive Officer of Swan Technologies, Inc. (Swan), a direct response
supplier of PCs and peripheral computer products. Swan filed a petition for
reorganization under Chapter 11 of the United States Bankruptcy Code in December
1994. From January 1990 to March 1993, Mr. Agbay served as President and Chief
Executive Officer of Leading Edge Products, Inc. (Leading Edge), a manufacturer
of PCs. From April 1988 to January 1990, Mr. Agbay served in senior management
as Northeast Region General Manager for Panasonic Communications and Systems
Company, a manufacturer of electronics and telecommunications products. From
August 1985 to April 1989, Mr. Agbay worked for Panasonic Industrial Company, in
its Computer Products Division as Northeast Region Manager and later assumed
more territorial responsibility as Group General Manager, Eastern Region.
Gerald Y. Hattori has been Vice President of Finance, Chief Financial
Officer and Treasurer of the Company since October 1996. Prior to joining the
Company, from September of 1987 to September 1996, Mr. Hattori served as
corporate controller at SIPEX Corporation, a manufacturer of
37
analog semiconductors. Mr. Hattori previously held various corporate and
divisional financial management positions from January 1975 to August 1987 at
Sanders, a Lockheed Martin Company.
Michael J. Paciello has been Executive Vice President of the Company
since March 1995. From July 1994 to March 1995, Mr. Paciello served as Executive
Vice President of Columbia Advanced Systems. From August 1993 to July 1994, Mr.
Paciello served as Executive Vice President of Swan. Before joining Swan, Mr.
Paciello served from October 1991 to August 1993 as Executive Vice President,
and from January 1990 to October 1991 as Vice President of Sales, of Leading
Edge.
Liaqat Y. Khan has been Executive Vice President of Manufacturing for
the Company since December 1996. He was Vice President of Manufacturing from
September 1995 to November 1996. From August 1993 to May 1995, Mr. Khan served
as Vice President at Intelligent Computers and Technologies, Inc., a PC
manufacturer which filed a petition for reorganization under Chapter 11 of the
Bankruptcy Code in May 1995. From February 1992 to May 1993, he was Vice
President of Manufacturing for Asina, Inc., which subsequently changed its name
to Apaq, Inc., a computer products manufacturer. From August 1991 to February
1992 Mr. Khan served as Director of Manufacturing for Synergistic Computers,
Inc., a desktop computer manufacturer. During this period, Mr. Khan was also
President of A&M Research, a manufacturer of mechanical components for high tech
applications.
Victor J. Melfa, Jr. has been Senior Vice President of Sales for the
Company since March 1995. From July 1994 to February 1995, Mr. Melfa served as
Vice President of Sales for Columbia. From February 1994 to July 1994, Mr. Melfa
worked at Swan Technologies as Vice President of Marketing. From February 1993
to February 1994, Mr. Melfa served as an Executive Vice President of Ameriquest
Technologies, Inc., a computer products distributor and wholly-owned subsidiary
of Computer 2000. In February of 1993, Ameriquest Technologies acquired Vitronix
Corp., a computer products distributor situated in Westborough, Massachusetts.
Mr. Melfa was President of Vitronix Corp. from September 1984 to February 1993.
E. Craig Conrad is Vice President of Marketing for the Company, a
position he has held since joining the Company in April 1996. From May 1995 to
April 1996, Mr. Conrad served as the Director of Consumer Marketing for Digital
Equipment Corporation in Maynard, Massachusetts. From May 1993 to April 1995,
Mr. Conrad worked at IBM as Program Director of Consumer Desktop Brand
Management for the Aptiva line of PCs and was a Director of Marketing
Communications for AMBRA Computer Corporation, a subsidiary of IBM formed in
1993. From February 1990 to April 1993, Mr. Conrad was Director of Marketing at
Leading Edge.
James P. Lucivero has been Vice President - Eastern United States Sales
of the Company since March 1995. From September 1994 to February 1995 Mr.
Lucivero served as Vice President of Sales at Columbia Advanced Systems. From
September 1993 to July 1994, Mr. Lucivero was Vice President of Sales at Swan
Technologies, Inc. From January 1990 to July 1993, Mr. Lucivero served as Senior
Vice President at Leading Edge Products, Inc.
Steven Georgiev has been a director of the Company since March 1995 and
was Chairman of the Board of Directors from March 1995 to September 1995. He has
served as Chief Executive Officer of Palomar since November 12, 1993, becoming a
full time employee in January 1995. Mr. Georgiev was a consultant to Dymed
Corporation, (Dymed), Palomar's predecessor, from June 1991 until the September
1991 merger of Dymed with Palomar, at which time he became Palomar's Chairman of
its Board of Directors. Mr. Georgiev is a financial and business consultant to a
variety of emerging, high growth companies. Mr. Georgiev has been a director of
Excel Technology, Inc., a publicly-held company located in Hauppauge, New York,
since October 1992, and was a director of Cybernetics
38
Products, Inc., a publicly-held company, from August 1988 until January 1992.
Mr. Georgiev was Chairman of the Board of Directors of Dynatrend, Inc. a
publicly-traded consulting firm that he co- founded in 1972, until February
1989. Dynatrend, Inc. was subsequently acquired by EG&G, Inc., a publicly-held
company. Mr. Georgiev is also Chairman of the Board of The American Materials
and Technologies, Inc., a publicly-held company.
Joseph E. Levangie has been a director of the Company since March 1995
and a director of Palomar since August 1991. He was a consultant to Dymed from
June 1991, until its merger with Palomar, at which time he became Palomar's
part-time Chief Financial Officer, a position he held until December 1992. He is
currently a part time consultant to Palomar. Mr. Levangie is also Chief
Executive Officer of JEL & Associates, a private financial consulting firm which
he founded in 1980. Currently Mr. Levangie serves as a director for GreenMan
Technologies, Inc., a publicly-held corporation.
Buster C. Glosson has been a director of the Company since December
1996. From 1965 until June 1994, he was an officer in the United States Air
Force (USAF). Most recently, he served as a Lieutenant General and Deputy Chief
of Staff for plans and operations, Headquarters USAF, Washington, D.C. Mr.
Glosson is a veteran of combat missions in Vietnam and, during the Gulf War, he
commanded the 14th Air Force Division and was the architect of the Gulf War Air
Campaign. In 1994 he founded and has since served as President of Eagle Ltd., a
consulting firm concentrating on international business opportunities in the
high-technology arena. He is also Chairman and CEO of Alliance Partners Inc., an
investment holding company developing international oil and power projects. He
has also served as a director of GreenMan Technologies, Inc., a publicly-held
company, since August 1994, of The American Materials and Technologies
Corporation, and of Skysat Communication Network Corporation, a publicly held
company, since July 1996.
Joseph P. Caruso has been a director of the Company since December
1996. He was previously a director from March 1995 to September 1995 and
President of the Company in March 1995. Mr. Caruso joined Palomar in March 1992
as Controller in a part-time capacity, becoming a full-time employee in June
1992 and their Chief Financial Officer in January 1993. From October 1989 to
June 1992, Mr. Caruso was the Chief Financial Officer of Massachusetts
Electrical Manufacturing Co., Inc., a privately held manufacturer of power
distribution equipment.
CLASSES OF DIRECTORS
Each director currently holds office until the next annual meeting of
stockholders and until that director's successor has been elected and qualified.
Pursuant to the Company's Restated Charter, upon the closing of the Offering,
the Company's Board of Directors will be composed of three classes serving
staggered three year terms.
EXECUTIVE OFFICERS
Executive officers of the Company are elected by the Board of Directors
on an annual basis and serve until the next annual meeting of the Board of
Directors and until their successors have been duly elected and qualified. There
are no family relationships among any of the executive officers or directors of
the Company.
39
BOARD COMMITTEES
The Company's Board of Directors has established an Audit Committee and
appointed Messrs. Glosson and Levangie to be its members. The Audit Committee
will be responsible for nominating the Company's independent accountants for
approval by the Board of Directors, reviewing the scope, results and costs of
the audit with the Company's independent accountants and reviewing the financial
statements and audit practices of the Company. The Company does not currently
have a Compensation or Nominating Committee, or committees performing equivalent
functions of either a Compensation or Nominating Committee.
DIRECTOR COMPENSATION
No compensation has ever been paid to any of the directors of the
Company for service in such capacity to the Company. Non-employee directors of
the Company are eligible to receive stock options under the 1996 Non-Employee
Director Stock Option Plan (the "Director Plan"). See "--Stock Plans--Director
Plan."
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by
or paid for services rendered to the Company in all capacities during the fiscal
year ended December 31, 1995 by the Company's Chief Executive Officer. No other
executive officer of the Company earned more than $100,000 in 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
NUMBER OF
ANNUAL COMPENSATION OTHER SECURITIES
------------------- ANNUAL UNDERLYING
NAME YEAR SALARY($) COMPENSATION($)(1) OPTIONS(2)
- ---- ---- --------- ------------------ ----------
<S> <C> <C> <C> <C>
Albert J. Agbay, Chief Executive
Officer and President.......... 1995 $182,423 $12,000 1,651,200
</TABLE>
- --------------------------
(1) Consists of amounts paid as car allowances.
(2) See footnote (1) to the following table entitled Option Grants in Last
Fiscal Year.
40
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR(1)
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERMS ($)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SH.) DATE 5% 10%
- ---- --------------- ------------- --------- ------ -- ---
<S> <C> <C> <C> <C> <C> <C>
Albert J. Agbay................. 1,651,200 39.5% $.004 08/30/2005 $4,154 $10,526
</TABLE>
- -------------------------
(1) All of the option grants set forth in the table above were cancelled in
September 1995 pursuant to an agreement between Mr. Agbay and Palomar
Electronics Corporation (PEC), a wholly-owned subsidiary of Palomar, in
connection with a September 1995 reorganization in which the Company became a
wholly-owned subsidiary of PEC. Pursuant to such agreement, Mr. Abgay received
options exercisable for capital stock of PEC in consideration of his agreement
to cancel the options described in the table above. In December 1995 such option
grant issuable for stock of PEC was subsequently cancelled pursuant to a
cancellation agreement between Mr. Agbay and PEC. Mr. Agbay separately received
a new option grant in 1996 as reflected in his beneficial ownership set forth in
the table appearing under "Beneficial Ownership of Management" below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a Compensation Committee. No executive officer of
the Company has served as a director or a member of the compensation committee
(or other committee serving an equivalent function) of another entity, whose
executive officers served as a director of the Company. Mr. Agbay, Chairman of
the Board of Directors and the Chief Executive Officer and President of the
Company, participated in deliberations of the Board of Directors concerning
executive officer compensation.
STOCK PLANS
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Plan") was adopted by
the Board of Directors and approved by the sole stockholder of the Company as of
March 1995. The 1995 Plan provides for the grant of stock awards, restricted
stock awards, stock options, stock appreciation rights and performance shares,
to employees, officers and directors of, and consultants or advisors to, the
Company and its subsidiaries. Under the 1995 Plan, the Company may grant options
qualified as "incentive stock options" under U.S. federal tax law or
non-qualified stock options. Incentive stock options may only be granted to
employees of the Company or its parents or subsidiaries. A total of 4,800,000
shares of Common Stock may be granted under the 1995 Plan. Unless sooner
terminated pursuant to its terms, the 1995 Plan will terminate in June 2005.
41
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors and approved by its stockholders in
December 1996 and will become effective upon the closing of the Offering. The
Purchase Plan authorizes the issuance of up to a total of 200,000 shares of
Common Stock to participating employees.
All employees of the Company whose customary employment is in excess of
20 hours per week and more than five months per year, other than those employees
who own 5% or more of the stock of the Company, will be eligible to participate
in the Purchase Plan. As of September 30, 1996, approximately 57 of the
Company's employees would have been eligible to participate in the Purchase
Plan. The Purchase Plan will be implemented by one or more offerings of such
duration as the Board of Directors or a committee thereof may determine,
provided that no offering period may be longer than 27 months. An eligible
employee participating in an offering will be able to purchase Common Stock at a
price equal to the lessor of: (i) 85% of its fair market value on the date the
right was granted, or (ii) 85% of its fair market value on the date the right
was exercised. Payment for Common Stock purchased under the Purchase Plan will
be through regular payroll deduction or lump sum cash payment, or both, as
determined by the Board of Directors or a committee thereof. The maximum value
of Common Stock an employee may purchase during an offering period is 10% of the
employee's base salary during such period, calculated on the basis of the
employee's compensation rate on the date the employee elects to participate in
that offering.
DIRECTOR PLAN
The Director Plan was adopted by the Board of Directors and approved by
its stockholders in December 1996 and will become effective upon the closing of
the Offering. Under the terms of the Director Plan, options to purchase 15,000
shares of Common Stock (the "Initial Options") will be granted to each person
who becomes a non-employee director after the closing date of the Offering and
who is not otherwise affiliated with the Company, effective as of the date of
election to the Board of Directors. The Initial Options will vest in equal
annual installments over three years after the date of grant. In addition each
non-employee director will receive 10,000 shares ("Annual Options") on the date
of each annual meeting of the Company's stockholders held after the closing of
the Offering. The Annual Options will vest on the first anniversary of the date
of grant. Both Initial Options and Annual Options will be exercisable at the
fair market value of the Common Stock on the date of grant. A total of 100,000
shares of Common Stock may be issued upon the exercise of stock options granted
under the Director Plan. Unless sooner terminated pursuant to its terms, the
Director Options Plan will terminate in December 2006.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Mr. Agbay entered into an employment agreement with the Company for a
five-year term commencing in April 1995. The agreement automatically renews for
five successive one-year periods unless terminated pursuant to its terms. The
agreement provides that Mr. Agbay is entitled to receive an initial annual base
salary of $200,000 subject to annual inflation and is eligible to receive an
annual bonus of not less than $25,000 based upon the achievement of mutually
agreed upon objectives determined annually by the Company's Board of Directors
and Mr. Agbay. Under the agreement, if Mr. Agbay's employment is terminated by
the Company without cause, he shall receive severance compensation in an amount
equal to 12 months base salary. In the event of a change in control (as defined
in the employment agreement) of the Company, or if there is a substantial change
in his duties
42
which is at the direction of the Company's Board of Directors and not consented
to by Mr. Agbay, Mr. Agbay is entitled to receive a lump sum payment equal to 12
months base salary or the amount equal to the salary due under the terms of the
contract at the time of termination, whichever is less. Any termination of Mr.
Agbay's employment by Mr. Agbay pursuant to a material change in his duties or
responsibilities is deemed to be termination without cause, and triggers a 12
month severance payment to Mr. Agbay. Pursuant to the agreement, throughout the
term of his employment, Mr. Agbay will serve as Chief Executive Officer of the
Company.
The Company is also party to substantially similar employment
agreements with Messrs. Hattori, Khan, Bill, Paciello, Melfa, Lucivero and
Conrad, which provide for either a 1 or 2-year term of employment. The
agreements provide for annual base salaries ranging from $85,000 to $110,000, as
well as an annual bonus based upon the achievement of mutually agreed upon
revenue and profit objectives between the Chairman, the President of the Company
and the employee.
All of the employment agreements described above include a
non-competition covenant pursuant to which executive officers of the Company are
prohibited from competing with the Company during their respective terms of
employment and for a period of either 6 or 12 months thereafter. In addition,
each of the above employment agreements provided for stock option grants to the
executive officers, all of which options were terminated by agreements dated as
of December, 1995 between the Company and each of the executive officers (other
than Mr. Hattori who joined the Company in October 1996). Information with
respect to options subsequently granted to the executive officers is set forth
above in this Executive Compensation section and below under the heading
"Beneficial Ownership of Management."
CERTAIN TRANSACTIONS
CONVERSION OF PALOMAR DEBT AND ESCROW OF CONTINGENT SHARES
The Company wishes to advise potential investors that the net income
after taxes, revenue and per share value of the Common Stock benchmarks set
forth below are not intended to and do not in any manner constitute a forecast,
projection or expectation of the Company, its management, Palomar or the
Underwriters for the Company's future results of operations or appreciation in
the value of Common Stock. See "Risk Factors."
Palomar and its wholly-owned subsidiary PEC have provided all of the
Company's funds for operations to date in the form of non-interest bearing
loans. The total amount of funds provided by Palomar and PEC has been
$17,543,449 and $2,025,000, respectively, through September 30, 1996. On
December 19, 1996 the Company entered into an agreement with Palomar whereby
upon the closing of the Offerings, $5,000,000 of such indebtedness will be
repaid to Palomar, $4,568,449 will be converted into 45,684 shares of
Convertible Preferred Stock with the terms described below, and $10,000,000 will
be converted into 1,900,000 shares of the Common Stock, of which 700,000 shares
will be issued without restriction. Pursuant to such agreement, the balance of
1,200,000 shares of the Common Stock (the "Contingent Shares") shall be subject
to mandatory repurchase, in whole or in part, by the Company at $0.01 per share
at any time after the 48 month anniversary of the Offering unless released from
escrow as described below. The Contingent Shares shall be placed in escrow,
subject to release to Palomar in installments of 400,000 shares each (upon
achievement of any 3 of the 4 milestones specified below; none, some, or all of
which may occur) as follows:
43
(a) if the Company achieves $7,000,000 in net income after
taxes or $100 million in total revenues for the fiscal year
ended December 31, 1997;
(b) if the Company achieves $14,000,000 in net income after
taxes or $200 million in total revenues for the fiscal year
ended December 31, 1998;
(c) if the Company achieves $21,000,000 in net income after
taxes or $300 million in total revenues for the fiscal year
ended December 31, 1999; and
(d) if the Company achieves $28,000,000 in net income after
taxes or $400 million in total revenues for the fiscal year
ended December 31, 2000.
Alternatively, all of the Contingent Shares will be released
to Palomar immediately upon the happening of any one of the following:
(y) if the average per share market value closing bid price of
the Company's Common Stock is (i) 175% of the initial public
offering price for ten consecutive trading days at any time
prior to the 12-month anniversary of the Offering, or (ii)
225% of the initial public offering price for ten consecutive
trading days at any time prior to the 24-month anniversary of
the Offering, or (iii) 275% of the initial public offering
price for ten consecutive trading days at any time prior to
the 36-month anniversary of the Offering, or (iv) 325% of the
initial public offering price for ten consecutive trading days
at any time prior to the 48-month anniversary of the Offering;
or
(z) if the Company achieves $70,000,000 in cumulative net
income after taxes for the four fiscal years ended December
31, 2000.
If any or all of the alternative conditions for release of the
Contingent Shares has not occurred by the 48-month anniversary of the Offering,
the balance of the Contingent Shares in escrow at such time shall be repurchased
by the Company as described above.
The 45,684 shares of Convertible Preferred Stock issued to Palomar upon
the closing will be convertible into shares of Common Stock at the option of the
holders thereof.
At an assumed initial public offering price of $12.00 per share, the
45,684 shares of Convertible Preferred Stock issued to Palomar upon the closing
shall be convertible into 304,560 shares of Common Stock. Prior to any such
conversion, the holders of shares of such Convertible Preferred Stock shall have
voting rights equal to the number of shares of Common Stock on an "as-converted'
basis on the record date of any matter voted on by the stockholders of the
Company. Other terms of the Convertible Preferred Stock are set forth in this
Prospectus under the caption "Description of Capital Stock."
Palomar and PEC incurred general and administrative expenses on behalf
of the Company, totalling approximately $100,000 and $128,000 for the period
from inception (March 7, 1995) to December 31, 1995 and for the nine months
ended September 30, 1996, respectively. There is no intention by Palomar to
charge management fees to the Company.
44
OTHER RELATED PARTY TRANSACTIONS
The Company's current PCs are shipped with motherboards based on
technology licensed from Technovation Computer Labs, Inc., a Nevada corporation
which, to the best of the Company's knowledge is owned by Babar Hamirani, a
former executive officer of the Company whose employment was terminated by the
Company on November 29, 1996. Liaqat Khan, an executive officer of the Company,
has notified the Company that he is entitled to an ownership interest in
Technovation, but that Mr. Hamirani has disputed Mr. Khan's claim. Under its
license agreement with Technovation, the Company has the exclusive right to use
the licensed technology through August 1998 in exchange for a per unit sold
royalty amount, and a non-exclusive right to use such technology for up to seven
additional years at the same royalty rate. Through September 30, 1996, potential
royalties which had accrued under the license agreement were less than the
Company's tooling and development costs, which the Company is entitled to offset
against royalties under the license agreement. See "Business-- Intellectual
Property."
During the nine month period ended September 30, 1996, the Company was
party to several purchase and sale transactions with Computer Universe, a trade
name of Amerisel, Inc. which was a dealer of the Company's PCs located in San
Francisco, California. Amerisel, Inc. was owned during such period by Mr. Khan,
an executive officer of the Company, by Babar Hamirani, who was during such
period an executive officer of the Company, and members of Mr. Khan's and Mr.
Hamirani's families. Mr. Khan and his wife have since disposed of their
ownership in Amerisel, Inc. Such transactions were in the aggregate approximate
amount of $830,000 during such period, including approximately $430,000 in
purchases of components by Computer Universe. As of September 30, 1996,
approximately $271,000 in amounts receivable owed by Computer Universe were past
due and the Company took charges in the amount of $220,000 with respect to such
overdue amounts. The Company believes that the substantial majority of these
transactions were on terms no less favorable to the Company than could be
obtained from unaffiliated parties considered to be important customers. In
December 1996, the Board of Directors of the Company established a policy for
considering transactions with directors, officers, and shareholders of the
Company and their affiliates. Pursuant to this policy, the Board of Directors of
the Company will not approve any such related party transactions unless the
Board of Directors has determined that the terms of the transaction are no less
favorable to the Company than those available from unaffiliated parties. Because
this policy is not contained in the Company's Certificate Of Incorporation or
Bylaws, this policy is subject to change at any time by the vote of the Board of
Directors. It currently is not contemplated that this policy will be changed.
45
STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of December 20, 1996 by its two
stockholders. No other person beneficially owns more than 5% of the Common
Stock, other than Mr. Agbay for whom information is provided in the following
table.
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT
- ------------------------------------ ------------------ -------
Palomar Medical Technologies, Inc. 4,600,000(1) 95.8%
66 Cherry Hill Drive
Beverly, Massachusetts 01915
The Travelers Insurance Company 200,000 4.2%
One Tower Square
Hartford, Connecticut 06183
- -------------------
(1) The shares of the Common Stock beneficially owned by Palomar are held
by Palomar Electronics Corporation (PEC), a wholly-owned direct
subsidiary of Palomar. After the sale of the Common Stock in the
Offering, Palomar (through its ownership of PEC) will beneficially own
approximately 71% (6,500,000 shares) of the outstanding Common Stock
(approximately 68% if the Underwriters' over allotment option is
exercised in full), including 1,900,000 shares of Common Stock that
will be issued upon the closing of the Offering to Palomar and PEC in
exchange for retirement of $10,000,000 of indebtedness owed by the
Company to Palomar and PEC. See "Certain Transactions."
46
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock (as of November 30, 1996) as well as
information regarding the beneficial ownership of the common stock of Palomar,
with respect to (i) each director of the Company, (ii) the Chief Executive
Officer and (iii) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
COMPANY COMMON STOCK PALOMAR COMMON STOCK
-------------------- --------------------
NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Albert J. Agbay. ........................... 1,044,480 (1) 17.87% 150,000 (1) *
c/o Nexar Technologies, Inc.
182 Turnpike Road
Westborough, Massachusetts 01581
Directors and Executives Officers of
Palomar Serving as Nexar Directors**
- ------------------------------------
Steven Georgiev............................ 4,640,170 (2) 96.7 1,004,154 (4) 3.31%
Joseph E. Levangie.......................... 4,640,170 (2) 96.7 632,485 (5) 2.21
Joseph P. Caruso............................ 4,640,170 (2) 96.7 733,493 (6) 2.44
Buster C. Glosson........................... 4,600,000 (2) 95.8 53,333 (7) *
All directors and executive officers as
a Group (12 persons)........................ 6,096,430 (3) 96.8% 2,423,465 8.04%
</TABLE>
- ----------------
* Less than 1%
** Each with an address c/o Palomar as set forth above under Principal
Stockholder.
(1) Consists entirely of shares issuable upon the exercise of options
exercisable within sixty days of November 30, 1996.
(2) Includes, under the deemed beneficial ownership rules of the Securities
and Exchange Commission, 4,600,000 shares of Common Stock held by PEC,
as to which each such director disclaims beneficial ownership and
shares issuable upon the exercise of options exercisable within sixty
days of November 30, 1996.
(3) Includes 1,496,430 shares issuable upon exercise of options exercisable
within sixty days of November 30, 1996 and 4,600,000 shares held by
PEC, as to which each director deemed to beneficially own such shares
disclaims beneficial ownership.
(4) Includes options to purchase 100,000 shares issuable upon exercise of
five-year options expiring August 26, 2001, at an exercise price of
$8.00 per share; 157,000 shares issuable upon exercise of five-year
warrants granted in July 1995, at an exercise price of $2.00 per share;
80,000 shares issuable upon exercise of five-year warrants granted in
August 1995, at an exercise price of $2.125 per share; and 300,000
shares issuable upon exercise of five-year warrants granted in February
1996, at an exercise price of $6.75 per share.
(5) Includes 60,000 shares issuable upon exercise of five-year warrants
granted in March 1992, at an exercise price of $.60 per share; 150,000
shares issuable upon exercise of five-year warrants granted in July
1995, at an exercise price of $2.00 per share; 100,000 shares issuable
upon
47
exercise of five-year warrants granted in August 1995, at an exercise
price of $2.125 per share; and 150,000 shares issuable upon exercise of
five-year warrants granted in February 1996, at an exercise price of
$6.75 per share.
(6) Includes 30,000 shares issuable upon the exercise for five-year options
expiring June 14, 1998, at an exercise price of $3.50 per share; 70,000
shares of Palomar Common Stock issuable upon exercise of five-year
options expiring April 6, 1999, at an exercise price of $2.375 per
share; 150,000 shares issuable upon exercise of five-year options
expiring July 4, 2000, at an exercise price of $2.00 per share; 66,666
shares issuable upon exercise of five-year options expiring August 26,
2001, at an exercise price of $8.00 per share; 100,000 shares issuable
upon exercise of five-year warrants granted in August 1995, at an
exercise price of $2.125 per share; and 150,000 shares issuable upon
exercise of five-year warrants granted in February 1996, at an exercise
price of $6.75 per share.
(7) Includes 20,000 shares issuable upon exercise of four-year warrants
granted in August 1996, at an exercise price of $2.125; and 33,333
shares issuable upon exercise of five-year warrants granted in August
1996, at an exercise price of $8.00 per share.
48
DESCRIPTION OF CAPITAL STOCK
Effective upon the filing of the Restated Charter upon the closing of
the Offering, the authorized capital stock of the Company will consist of
30,000,000 shares of Common Stock, $0.01 par value, and 10,000,000 shares of
preferred stock, $0.01 par value per share (the "Preferred Stock"), which may be
issued in one or more series.
COMMON STOCK
As of September 30, 1996, there were 4,600,000 shares of Common Stock
outstanding, all held of record by PEC. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the 2,500,000
shares of Common Stock offered by the Company hereby and the issuance of
1,900,000 shares of Common Stock to related parties upon conversion of
$10,000,000 of indebtedness (see "Certain Transactions"). but assuming no
exercise of the Underwriters' over-allotment option or exercise of outstanding
stock options, there will be 9,200,000 shares of Common Stock outstanding upon
the closing of the Offering.
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. Upon the closing of the Offering, there will
be no shares of Preferred Stock outstanding.
PREFERRED STOCK
Upon filing of the Restated Charter, the Board of Directors will be
authorized, subject to certain limitations prescribed by law, without further
stockholder approval, to issue from time to time up to an aggregate of
10,000,000 shares of Preferred Stock in one of more series and to fix or alter
the designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
such series. The Board of Directors has authorized and approved the issuance of
a new series of Preferred Stock designated Convertible Preferred Stock with the
terms thereof being set forth in the Restated Charter as summarized in the
following paragraph. Upon the closing of the Offerings, $4,568,449 of
indebtedness owed by the Company to related parties will be converted into
45,684 shares of Convertible Preferred Stock. The issuance of any additional
shares of Preferred Stock may have the effect of delaying, deferring or
49
preventing a change of control of the Company. The Company has no present plans
to issue any additional shares of Preferred Stock. See "Risk Factors--Effect of
Anti-Takeover Provisions."
Each outstanding share of the Convertible Preferred Stock shall be
entitled to vote on each matter on which the stockholders of the Company shall
be entitled to vote, and each holder of Convertible Preferred Stock shall have
the voting rights equal to the number of shares of Common Stock such Convertible
Preferred Stock is convertible into on the record date of any matter to be voted
on by the stockholders of the Company. The holders of the Convertible Preferred
Stock shall have neither preemptive rights to acquire additional shares of the
stock of the Company nor the right to cumulate their shares for the purpose of
electing directors of the Company, or for any other purpose. The Board of
Directors may cause dividends to be paid to holders of shares of the Convertible
Preferred Stock out of funds legally available for the payment of dividends. Any
dividend or distribution on the Convertible Preferred Stock shall be paid at the
same rate and in the same manner as the Common Stock.
Each share of the Convertible Preferred Stock is convertible into
Common Stock at the option of the holders thereof. At an assumed initial public
offering price of $12.00 per share, the 45,684 shares of Convertible Preferred
Stock issued to Palomar upon the closing shall be convertible into 304,560 share
of Common Stock. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, then, before any distribution or
payment shall be made to or set apart for the holders of Common Stock, the
holders of the Convertible Preferred Stock shall be entitled to receive a
liquidation preference of $100.00 per share plus, in the case of each share, an
amount equal to any dividend declared but unpaid thereon. A merger or
consolidation of the Company into or with any other corporation, a merger of any
other corporation into the Company, or a sale, lease, exchange, transfer or
similar disposition by the Company in one or a series of related transactions of
all or substantially all of its assets may be deemed a liquidation, dissolution
or winding up of the Company and in such case, the holders of the Convertible
Preferred Stock shall be entitled to receive their liquidation preference,
subject to the liquidation provisions set forth in the Restated Charter.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within the prior three years did own) 15% or more of the
corporation's voting stock. The Company may elect not to be governed by Section
203 by means of an amendment to the Company's Restated Charter or By-Laws which
has been approved by stockholders holding a majority of its outstanding voting
securities.
The Restated Charter provides for a classified Board of Directors, that
vacancies on the Board shall be filled solely by the remaining directors, and
that stockholders may remove a director only for cause. The Company's By-Laws
provide that stockholders may nominate candidates for directorships only upon
written notice delivered to the Company not less than 90 days prior to any
meeting of stockholders. The Restated Charter also provides that stockholders
action may be taken only by a vote at a meeting of stockholders and not by
written consent in lieu of a meeting and that special meetings of stockholders
may only be called by the Board or the President.
50
Finally, the Restated Charter provides that none of its provisions may
be amended except by the vote of two-thirds of the outstanding voting shares
unless such amendment has been proposed and declared advisable by the Board.
The foregoing provisions may discourage unsolicited takeover attempts.
The Company believes that the potential benefits of encouraging persons seeking
to acquire control of the Company to negotiate with the Company outweigh the
potential disadvantages of discouraging such proposals.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is The
First National Bank of Boston.
51
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have an aggregate of
9,200,000 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options to
purchase Common Stock. All of these shares, including the 2,500,000 shares sold
in the Offering, are freely tradable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act").
Also, as of the date of this Prospectus, employees and directors of the
Company hold options exercisable for the acquisition of 3,855,920 shares of
Common Stock (27.5% of which were exercisable as of December 20, 1996), at an
average weighted exercise price of $0.51 a share. Shares acquired upon exercise
of options held by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act ("Rule 144"), may generally only be sold in
compliance with the limitations of Rule 144 described below. In addition to the
6,500,000 shares of Common Stock held by Palomar which have been registered
under the Registration Statement of which this Prospectus is a part, Palomar,
upon the closing of the Offering, will also hold 45,684 shares of Convertible
Preferred Stock which would be convertible into 304,563 shares of Common Stock,
assuming an initial public offering price of $12.00 per share. See "Certain
Transactions."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, by means of a broken
transaction, within any three-month period commencing 90 days after the
effective date of the Offering (the "Effective Date"), a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 92,000 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least three years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of the Company, such stockholder's holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate. The Securities and Exchange Commission has proposed an amendment to
Rule 144 which would reduce the holding period required for shares subject to
Rule 144 to become eligible for sale in the public market from two years to one
year and from three years to two years in the case of Rule 144(k). Although
Palomar is an affiliate of the Company, because it has registered such shares
under the Registration Statement of which this Prospectus is a part, the volume
and other limitations of Rule 144 are not applicable to the sale of such
registered shares.
Prior to the Offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the personal
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock in the public market could adversely
affect the market price of the Company's Common Stock and could impair the
Company's ability to raise capital through an offering of its equity securities.
52
As of the Effective Date, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Company's 1995 Stock Option Plan, the Director Plan and
the Stock Purchase Plan (collectively, the "Stock Plans"). See
"Management--Stock Plans." Such registration statement is expected to be become
effective immediately upon filing, and shares covered by that registration
statement will thereupon be eligible for sale in the public markets, subject to
Rule 144 limitations applicable to affiliates, and the "lock-up" agreements
described in the next paragraph.
All directors and executive officers of the Company, who hold in the
aggregate options exercisable for 3,430,000 shares (30.1% of which are
exercisable as of December 20, 1996) shares of Common Stock, have agreed,
pursuant to agreements with Sands Brothers & Co., Ltd, who is acting as the
representative for the several Underwriters (the "Representative"), that they
will not, without the prior written consent of the Representative, sell or
otherwise dispose of any shares of Common Stock or options to acquire shares of
Common Stock during the 180-day period following the Effective Date.
Prior to the Offering, there has not been any public market for the
Common Stock of the Company. Further sales of substantial amounts of Common
Stock in the open market may adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through the
sale of its equity securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, for whom
Sands Brothers & Co., Ltd. is acting as the Representative, and each of the
Underwriters has severally agreed to purchase from the Company, the respective
number of shares of Common Stock set forth opposite its name below.
Number
Underwriter of Shares
----------- ---------
Sands Brothers & Co., Ltd. ....................
Total...........................................2,500,000
The Underwriters have agreed, subject to the terms and conditions of
the Underwriting Agreement, to purchase all of the shares of Common Stock
offered hereby if any of such securities are purchased.
The Underwriters have advised the Company that they propose to offer
the shares of Common Stock to the public at the public offering price set forth
on the cover page of this Prospectus. The
53
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD") concessions, not in excess
of $_____ per share of Common Stock, of which not in excess of $_____ per share
of Common Stock may be reallowed to other dealers which are members of the NASD.
The Company has granted to the Underwriters an option, exercisable
within 45 days from the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions.
The Underwriters may exercise this option in whole or, from time to time in
part, solely for the purpose of covering over-allotments, if any, made in
connection with the sale of shares of Common Stock offered hereby.
The Company has agreed to pay the Representative a non-accountable
expense allowance of 2% of the gross proceeds of this offering, of which $50,000
of which has been paid to date. The Company has also agreed to pay all expenses
in connection with qualifying the shares of Common Stock offered hereby for sale
under the laws of such states as the Underwriters may designate, including
expenses of counsel retained for such purpose by the Underwriters.
The Company has agreed to sell to the Representative or its designees,
for nominal consideration, warrants (the "Representative's Warrants") to
purchase up to 250,000 shares of Common Stock at an exercise price of $_____ per
share. The Representative's Warrants may not be transferred for one year from
the date of this Prospectus, except to the officers or shareholders of the
Representative or members of the selling group, and are exercisable during the
five year period commencing on the first anniversary date of this Prospectus
(the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of
the Representative's Warrants are given, at nominal cost, the opportunity to
profit from a rise in the market price of the Company's Common Stock. To the
extent that the Representative's Warrants are exercised, dilution to the
interests of the Company's shareholders will occur. Further, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Representative's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Representative's Warrants. Any profit realized by the
Representative on the sale of the Representative's Warrants or the underlying
shares of Common Stock may be deemed additional underwriting compensation. The
Representative's Warrants contain provisions providing for the adjustment of the
exercise price upon the occurrence of certain events, including
reclassifications, dividends, splits and other similar events. Subject to
certain limitations and exclusions, the Company has agreed, at the request of
the holders of a majority of the Representative's Warrants, at the Company's
expense, to register the Representative's Warrants and the shares underlying the
Representative's Warrants under the Securities Act on one occasion during the
Warrant Exercise Term and to include the Representative's Warrants and all such
underlying shares in any appropriate registration statement which is filed by
the Company during the five years following the date of this Prospectus.
The Company and its principal shareholders have granted the
Representative a three-year right of first refusal to underwrite or place any
public or private sale of debt or equity securities (excluding sales to
employees) of the Company, any subsidiary or successor to the Company, subject
to certain limited exceptions. The foregoing right of first refusal, however,
shall not apply to Company directed private placement transactions of up to $5
million. Additionally, in the context of a contemplated offering of the
Company's securities by a "Bulge Bracket Underwriter" or a top tier technology
underwriter, the Company shall satisfy its right of first refusal obligations to
the Representative if the
54
Company utilizes its best efforts to cause the Representative to participate in
such offering as a co-manager.
The Company has also agreed, for a period commencing the date of this
Prospectus and expiring upon the earlier of (i) three (3) years from the date of
this Prospectus or (ii) such time in which the Company consummates an
underwritten secondary equity public offering, to nominate and use its best
efforts to elect a designee of the Representative as a member of or, at the
Representative's option, as a non-voting advisor to the Board of Directors of
the Company. As of the date of this Prospectus, the Representative has not yet
exercised its right to designate such person.
All of the Company's executive officers and directors have agreed not
to sell or dispose of any securities of the Company for a period of six months
following the date of this Prospectus, without obtaining the prior written
approval of the Representative.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Prior to this offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Representative. Among the factors considered in determining the offering price
were the Company's financial conditions and prospects, market prices of similar
securities of comparable publicly traded companies, certain financial and
operating information of companies engaged in activities similar to those of the
Company and the general conditions of the securities markets.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus
will be passed upon for the Company by Choate, Hall & Stewart (a partnership
including professional corporations), Boston, Massachusetts. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Littman Krooks Roth & Ball P.C., New York, New York.
EXPERTS
The financial statements included in this Prospectus or elsewhere in
the Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report and are included herein upon
the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the shares of Common Stock offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus omits certain information
contained in the Registration Statement. For further information with respect to
the Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus
55
as to the contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
filed therewith, may be inspected without charge at the Commission's Public
Reference Room, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at Seven World Trade Center,
13th Floor, New York, New York 10048 and at Northwest Atrium Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 10048. Copies of the Registration
Statement may be obtained from the Commission from its Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees.
The Registration Statement is also available on the Commission site on the World
Wide Web at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent accountants and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial statements.
TRADEMARKS
The Company's logo is a trademark, and Cross-Processor Architecture,
Nexar, Nexar Technologies, NEXAR XPA and XPA are trade names, of the Company.
This Prospectus also includes trade names and trademarks of companies other than
the Company.
56
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants....................................................... F-2
Consolidated Balance Sheets as of December 31, 1995, September 30, 1996 and
Pro forma as of September 30, 1996 (unaudited)............................................ F-3
Consolidated Statements of Operations for the period from inception (March 7, 1995)
to December 31, 1995 and for the Nine Months Ended September 30, 1996...................... F-4
Consolidated Statements of Stockholder's (Deficit) Equity for the period from
inception (March 7, 1995) to December 31, 1995 and for the Nine Months
Ended September 30, 1996................................................................... F-5
Consolidated Statements of Cash Flows for the period from inception (March 7, 1995)
to December 31, 1995 and for the Nine Months Ended September 30, 1996...................... F-6
Notes to Consolidated Financial Statements ..................................................... F-7
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nexar Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Nexar
Technologies, Inc. (a Delaware corporation and wholly owned subsidiary of
Palomar Medical Technologies, Inc.) and subsidiary as of December 31, 1995 and
September 30, 1996, and the related consolidated statements of operations,
stockholder's (deficit) equity and cash flows for the period from inception
(March 7, 1995) to December 31, 1995 and for the nine months ended September 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nexar Technologies, Inc. and
subsidiary as of December 31, 1995 and September 30, 1996, and the results of
their operations and their cash flows for the period from inception (March 7,
1995) to December 31, 1995 and for the nine months ended September 30, 1996, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 14, 1996 (Except with respect to the matters discussed
in notes 2,4 and 7(d), as to which the date is December 19, 1996).
F-2
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31,
1995 ACTUAL PRO FORMA
CURRENT ASSETS: (UNAUDITED)
<S> <C> <C> <C>
Cash $ 980,618 $ 8,147,918 $ 8,147,918
Accounts receivable, net of allowance for doubtful accounts of
$12,000 and $60,000, respectively 327,471 8,149,422 8,149,422
Inventories 8,432 2,992,698 2,992,698
Prepaid expenses and other current assets 52,150 183,550 183,550
--------------- --------------- ---------------
Total current assets 1,368,671 19,473,588 19,473,588
--------------- --------------- ---------------
PROPERTY AND EQUIPMENT, NET 100,674 216,819 216,819
--------------- --------------- ---------------
OTHER ASSETS - 492,911 492,911
--------------- --------------- ---------------
$ 1,469,345 $ 20,183,318 $ 20,183,318
=============== =============== ===============
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable $ 178,154 $ 4,804,378 $ 4,804,378
Accrued expenses 609,333 1,052,547 1,052,547
--------------- --------------- ---------------
Total current liabilities 787,487 5,856,925 5,856,925
--------------- --------------- ---------------
DUE TO RELATED PARTIES 2,942,892 19,568,449 5,000,000
--------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDER'S (DEFICIT) EQUITY:
Preferred Stock, $.01 par value-
Authorized-10,000,000 shares
Issued and Outstanding-none at December 31, 1995 and September 30,
1996 and 45,684 shares pro forma - - 457
Common stock, $.01 par value-
Authorized-30,000,000 shares
Issued and outstanding-4,800,000 shares at December 31, 1995
and September 30, 1996 and 6,700,000 shares pro forma 48,000 48,000 67,000
Additional paid-in-capital (47,600) (47,600) 14,501,392
Accumulated deficit (2,261,434) (5,242,456) (5,242,456)
---------------- ---------------- ----------------
Total stockholder's (deficit) equity (2,261,034) (5,242,056) 9,326,393
--------------- ---------------- ---------------
$ 1,469,345 $ 20,183,318 $ 20,183,318
=============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION (MARCH 7, NINE MONTHS ENDED
1995) TO SEPTEMBER 30,
DECEMBER 31, 1995 1996
<S> <C> <C>
NET REVENUES $ 619,629 $ 11,341,426
COST OF REVENUES 574,611 9,338,342
--------------- ---------------
Gross profit 45,018 2,003,084
--------------- ---------------
OPERATING EXPENSES:
Research and development 104,383 301,007
Selling and marketing 581,482 2,987,211
General and administrative 1,620,587 1,695,888
--------------- ---------------
Total operating expenses 2,306,452 4,984,106
--------------- ---------------
Net loss $ (2,261,434) $ (2,981,022)
=============== ================
PRO FORMA NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE (Note 3) $ (0.35)
=========
PRO FORMA WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note 3) 8,421,838
==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
NUMBER $.01 ADDITIONAL ACCUMULATED STOCKHOLDER'S
OF SHARES PAR VALUE PAID-IN-CAPITAL DEFICIT (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF COMMON STOCK ON 4,800,000 $ 48,000 $ (47,600) $ - $ 400
MARCH 7, 1995
Net loss - - - (2,261,434) (2,261,434)
--------------- --------------- --------------- ---------------- ----------------
BALANCE, DECEMBER 31, 1995 4,800,000 48,000 (47,600) (2,261,434) (2,261,034)
Net loss - - - (2,981,022) (2,981,022)
--------------- --------------- --------------- ---------------- ----------------
BALANCE, SEPTEMBER 30, 1996 4,800,000 $ 48,000 $ (47,600) $ (5,242,456) $ (5,242,056)
=============== ============== =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE MONTHS
(MARCH 7, 1995) ENDED
TO DECEMBER 31, SEPTEMBER 30,
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,261,434) $ (2,981,022)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 2,119 18,090
Changes in current assets and liabilities-
Accounts receivable (327,471) (7,821,951)
Inventories (8,432) (2,984,266)
Prepaid expenses and other current assets (52,150) (131,400)
Accounts payable 178,154 4,626,224
Accrued expenses 609,333 210,213
--------------- ---------------
Net cash used in operating activities (1,859,881) (9,064,112)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (102,793) (134,235)
Increase in other assets - (90,910)
--------------- ----------------
Net cash used in investing activities (102,793) (225,145)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial issuance of common stock 400 -
Proceeds from related parties 2,942,892 16,456,557
--------------- ---------------
Net cash provided by financing activities 2,943,292 16,456,557
--------------- ---------------
NET INCREASE IN CASH 980,618 7,167,300
CASH, BEGINNING OF PERIOD - 980,618
--------------- ---------------
CASH, END OF PERIOD $ 980,618 $ 8,147,918
============== ===============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred offering costs $ - $ 402,001
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS
Nexar Technologies, Inc. (the Company or Nexar) is in its early stages
and manufactures, markets and sells personal computers with a unique
circuit board design that enables end users to easily upgrade and replace
the microprocessor, memory and hard drive components. The Company markets
its products through multiple channels of distribution.
The Company's personal computers are in the early stage of product
development, and as such, success of future operations is subject to a
number of risks similar to those of other companies in the same stage of
development. Principal among these risks are the successful development
and marketing of its products, short product life cycles, reliance on a
single customer, the need to achieve profitable operations, intense
competition from substitute products and significantly larger companies,
the need to obtain adequate financing to fund future operations and
dependence on key individuals.
(2) RELATIONSHIP WITH PALOMAR MEDICAL TECHNOLOGIES, INC. AND PALOMAR
ELECTRONICS CORPORATION
Nexar Technologies, Inc. was incorporated in Delaware on March 7, 1995.
The Company is a wholly owned subsidiary of Palomar Electronics
Corporation (PEC). PEC is a wholly owned subsidiary of Palomar Medical
Technologies Inc. (Palomar).
Palomar and PEC have funded all of the Company's operations to date. The
total amount of funds provided by Palomar and PEC has been $17,543,449
and $2,025,000, respectively, through September 30, 1996. The weighted
average balances of these contributions were approximately $767,000 and
$6,496,000 for the periods ended December 31, 1995 and September 30,
1996, respectively. All of these loans have been non-interest-bearing. On
December 19, 1996 the Company entered into an agreement with Palomar,
whereby $10,000,000 of advances from Palomar and PEC will be converted
into 1,900,000 shares of the Company's common stock upon the closing of
the proposed initial public offering contemplated herein. In addition, by
an agreement between the Company, its underwriters and Palomar, 1,200,000
of these shares will be held in escrow subject to a contingent repurchase
right of the Company, at a nominal price per share, and will only be
released upon the attainment of certain revenue, net income and stock
price milestones, as defined. See Notes 3(a) and (b). The Company has
also agreed to repay Palomar $5,000,000 upon the closing of the proposed
initial public offering contemplated herein, and convert $4,568,449 due
to Palomar and PEC into 45,684 shares of Convertible Preferred Stock.
The pro forma balance sheet at September 30, 1996 reflects the conversion
of $10,000,000 of amounts owed to Palomar and PEC, into 1,200,000 shares
of the Company's common stock and the conversion of $4,568,449 due to
Palomar and PEC into 45,684 shares of Convertible Preferred Stock.
F-7
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(2) RELATIONSHIP WITH PALOMAR MEDICAL TECHNOLOGIES, INC. AND PALOMAR
ELECTRONICS CORPORATION (Continued)
The accompanying consolidated financial statements include the assets,
liabilities, income and expenses of the Company as included in Palomar's
consolidated financial statements, but do not include PEC's general
corporate debt, which is used to finance operations of all of PEC's
respective business segments, or an allocation of PEC's interest expense.
Palomar has incurred certain general and administrative expenses on
behalf of Nexar, totaling approximately $100,000 and $128,000 for the
period from inception (March 7, 1995) to December 31, 1995 and for the
nine months ended September 30, 1996, respectively. These expenses have
been reflected in the historical consolidated financial statements of
Nexar for the respective periods. Management believes the method for
allocating expenses is reasonable and approximates the cost on a
standalone basis.
Included in accounts receivable in the accompanying consolidated balance
sheet at September 30, 1996 is approximately $105,000 due from Palomar
for product purchases. There was no amount due from Palomar at December
31, 1995.
Palomar has issued guarantees to several vendors of the Company for
payment of trade payables on behalf of the Company. The total amount
guaranteed by Palomar at September 30, 1996 was approximately $1,800,000.
In 1995, as part of the Company's organization, the Company agreed to
settle a complaint brought against the Company and its Chief Executive
Officer. As part of the settlement, the Company was required to pay
$525,000 and Palomar agreed to issue warrants to purchase 108,000 shares
of Palomar's common stock at $5.00 per share, the fair value of Palomar
common stock at that date. This warrant had minimal value. The Company
recorded the $525,000 as a general and administrative expense, which is
included in operating expenses in the accompanying consolidated statement
of operations for the period ended December 31, 1995.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the
application of certain accounting policies described below and elsewhere
in the accompanying notes to consolidated financial statements.
F-8
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(a) Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet as of September
30, 1996, reflects the conversion of $10,000,000 due to Palomar
and PEC into 1,900,000 shares of the Company's common stock and
the conversion of $4,568,449 due to Palomar and PEC into 45,684
shares of Convertible Preferred Stock In connection with this
conversion of amounts due to related parties, by agreement between
Palomar, the Company and its underwriters, 1,200,000 of the common
shares will be held in escrow and only be released to Palomar
based upon the Company's achievement of certain revenue, net
income and stock price milestones, as defined, through December
31, 2000.
(b) Pro Forma Net Loss per Common and Common Equivalent Share
Pro forma net loss per common and common equivalent share for the
nine months ended September 30, 1996 is computed by dividing the
net loss by the pro forma weighted average number of common and
common equivalent shares outstanding during the period. Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, and Accounting Principles Board Opinion No. 15 , the pro
forma weighted average number of common and common equivalent
shares outstanding assumes the conversion of $10,000,000 due to
Palomar into 700,000 shares of the Company's common stock
(excluding 1,200,000 shares of common stock subject to a
contingent repurchase right of the Company at a nominal price per
share and will only be released upon the attainment of certain
revenues net income and stock price milestones, as defined, in an
agreement between Palomar, the Company and its underwriters), and
assumes that all common stock and common stock equivalents issued
within 12 months prior to the registration statement related to
the Company's anticipated initial public offering have been
included in the calculation, using the treasury stock method, as
if they were outstanding for all periods immediately preceding the
initial public offering. Options issued more than 12 months prior
to this Registration Statement have not been included as their
effect would be anti-dilutive. Historical net loss per share has
not been presented as such information is not considered to be
relevant or meaningful.
(c) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Intelesys
Corporation (a Delaware Corporation). All significant intercompany
balances and transactions have been eliminated in consolidation.
F-9
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(e) Revenue Recognition
The Company recognizes product revenue upon shipment. The Company
has established programs which, under specified conditions,
provide price protection and or enable customers to return
products. The effects of these programs are estimated and current
period revenues and cost of revenues are reduced accordingly. This
is standard industry practice and no other contingencies exist
relating to these programs. Provisions are made at the time of
sale for any applicable warranty costs expected to be incurred.
During the period ended September 30, 1996, the Company recognized
revenue totaling approximately $2,500,000 for products, whose
title passed to a customer and such customer instructed the
Company to hold the product at its manufacturing facility on the
customer's behalf. Included in accounts receivable at September
30, 1996 is approximately $2,500,000 due from this customer.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist of the following:
DECEMBER 31, SEPTEMBER 30,
1995 1996
Raw materials $ 8,432 $ 2,197,770
Work-in-process - 104,901
Finished goods - 690,027
--------------- ---------------
$ 8,432 $ 2,992,698
============== ==============
Work-in-process and finished goods inventories consist of
material, labor and manufacturing overhead.
F-10
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Depreciation and Amortization
Property and equipment are stated at cost. The Company provides
for depreciation and amortization on property and equipment using
the straight-line method by charges to operations that allocate
the cost of assets over their estimated useful lives. The cost of
property and equipment and their estimated useful lives are
summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL DECEMBER 31, SEPTEMBER 30,
ASSET CLASSIFICATION LIFE 1995 1996
<S> <C> <C> <C>
Machinery and equipment 5 Years $ 102,093 $ 150,893
Computer equipment 5 Years 700 52,385
Leasehold improvements Life of lease - 33,750
-------------- --------------
102,793 237,028
Less--Accumulated depreciation and
amortization 2,119 20,209
-------------- --------------
$ 100,674 $ 216,819
=========== ===========
</TABLE>
F-11
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Other Assets
As of September 30, 1996, the Company has incurred costs of
approximately $402,000 in connection with the proposed initial
public offering of the Company's common stock, contemplated
herein. These costs have been deferred and are included in other
assets in the accompanying September 30, 1996 consolidated balance
sheet. Upon consummation of the proposed initial public offering,
the deferred offering costs will be charged to stockholder's
(deficit) equity as a reduction of the gross proceeds.
(i) Concentration of Credit Risk
Statement of Financial Accounting Standards (SFAS) No. 105,
Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with
Concentration of Credit Risk, requires disclosures of any
significant off-balance-sheet and credit risk concentrations. The
Company has no significant off-balance-sheet concentration of
credit risk such as foreign currency exchange contracts, options
contracts or other foreign hedging arrangements. The Company's
accounts receivable credit risk is limited to three customers for
the period from inception (March 7, 1995) to December 31, 1995 who
accounted for approximately $440,000 of total revenues and
approximately $275,000 of accounts receivable at December 31,
1995, and one customer for the nine months ended September 30,
1996, who represented approximately $8,432,000 of total revenues
and approximately $6,082,000 of accounts receivable at September
30, 1996. To reduce risk, the Company routinely assesses the
financial strength of its customers and, as a consequence,
believes that its accounts receivable credit risk exposure is
limited. The Company maintains an allowance for potential credit
losses. During the period ended September 30, 1996, the Company
sold approximately $430,000 of product to a company owned by a
former officer of Nexar. The Company collected $211,000 of this
amount and wrote off the remaining balance, approximately,
$219,000, as uncollectible during the nine months ended September
30, 1996. The Company has not experienced any other significant
losses related to individual customers or groups of customers in
any particular industry or geographic area.
(j) Financial Instruments
The estimated fair value of the Company's financial instruments,
which include cash, accounts receivable, accounts payable and
amounts due to related parties, approximates their carrying value.
F-12
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Research and Development Expenses
The Company charges research and development expenses to
operations as incurred.
(l) New Accounting Standard
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation, which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 establishes a fair-value-based
method of accounting for stock-based compensation plans. The
Company has adopted the disclosure only alternative under SFAS No.
123, which requires disclosure of the pro forma effects on
earnings and earnings per share as if SFAS No. 123 had been
adopted, as well as certain other information.
The Company has computed the pro forma disclosures required under
SFAS No. 123 for all stock options granted as of September 30,
1996 using the Black-Scholes option pricing model prescribed by
SFAS No. 123. The effect of applying SFAS No. 123 was
approximately $275,000, or $(.03) per share, of additional pro
forma expense to the results of operations of the Company for the
nine months ended September 30, 1996. The assumptions used for the
period ending September 30, 1996 are as follows:
Risk free interest rate............ 6.97 %
Expected dividend yield............ -
Expected lives..................... 10 years
Expected volatility................ -
F-13
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) STOCKHOLDER'S (DEFICIT) EQUITY
(a) Recapitalization
On December 18, 1996, the amended its Certificate of Incorporation
increasing the number of authorized shares of the Company's
capital stock to 40,000,000, of which 30,000,000 shares shall be
designated as common stock, $.01 par value, and 10,000,000 shares
shall be designated as preferred stock, $.01 par value, and also
authorized a 120-for-1 stock split of the Company's common stock,
effected in the form of a stock dividend. This stock split has
been retroactively reflected in the accompanying consolidated
financial statements and notes to consolidated financial
statements for all periods presented.
On December 19, 1996, the Board of Directors and Stockholders also
approved the issuance of up to 45,684 shares of Convertible
Preferred Stock, effective on the closing of the initial public
offering contemplated herein. The Convertible Preferred Stock will
be entitled to voting rights equal to the number of common shares
into which the preferred stock may be converted. The Convertible
Preferred Stock will be convertible into common shares at the
option of the holder thereof at a price based on the initial
public offering price. The holder of the Convertible Preferred
Stock will be able to convert each share of Convertible Preferred
Stock into 6.67 shares of common stock based on an assumed initial
public offering price of $12.00 per share. The Convertible
Preferred Shares also have a preference upon liquidation.
(b) Stock Option Plans
In August 1995 the Company established its 1995 Stock Option Plan
(the Plan) that provides for the issuance of a maximum of
4,800,000 shares of common stock, which may be issued as incentive
stock options (ISOs) or nonqualified stock options. Under the
terms of the Plan, ISOs may not be granted at less than the fair
market value on the date of grant. ISO grants to holders of 10% or
more of the combined voting power of all classes of Company stock
must be granted at an exercise price of 110% of the fair market
value at the date of grant. Pursuant to the Plan, options are
generally exercisable at varying dates over one to three years as
determined by the Board of Directors and must have terms not to
exceed 10 years (five years for 10% or greater stockholders).
F-14
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) STOCKHOLDER'S (DEFICIT) EQUITY (Continued)
(b) Stock Option Plans (continued)
The following table summarizes stock option activity under the
Plan:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF SHARES PRICE
<S> <C> <C>
Inception, March 7, 1995 - $-
Granted 20,640 -
-------------------- -------------------------
Balance, December 31, 1995 20,640 $-
Granted 3,296,840 $.003-$4.25
-------------------- -------------------------
Balance, September 30, 1996 3,317,480 $.003-$4.25
==================== =========================
Exercisable, September 30, 1996 1,059,387 $.003-$4.25
==================== =========================
</TABLE>
In October 1996, the Company granted options to purchase 100,000 shares
of Common Stock, to an officer at an exercise price of $10.00 per share.
On December 19, 1996 the Board of Directors approved the issuance of
stock options to purchase 800,000 shares of the Company's common stock at
the initial public offering price upon the effectivity of the proposed
initial public offering price to certain employees, directors and
officers of Palomar and the Company. These stock options vest over a five
year period, or earlier, upon the achievement of certain revenue, net
income and stock price milestones, as defined, through December 31, 2000.
F-15
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) STOCKHOLDER'S (DEFICIT) EQUITY (Continued)
(b) Stock Option Plans (continued)
On December 18,1996, The Director Plan was adopted by the Board of
Directors and stockholders. The Director Plan will become effective upon
the closing of the proposed initial public offering. Under the terms of
the Director Plan, options (the Initial Options) to purchase 15,000
shares of common stock will be granted to each person who becomes a
non-employee director after the closing date of the proposed initial
public offering and who is not otherwise affiliated with the Company,
effective as of the date of election to the Board of Directors. The
Initial Options will vest in equal annual installments over three years
after the date of grant. In addition, each non-employee director will
receive options to purchase 10,000 shares (Annual Options) on the date of
each annual meeting of the Company's stockholders held after the closing
of the initial public offering. The Annual Options will vest one year
from the date. A total of 100,000 shares of common stock may be issued
upon the exercise of stock options granted under the Director Plan.
Unless sooner terminated pursuant to its terms, the Director Plan will
terminate in December 2006.
(c) Employee Stock Purchase Plan
On December 19, 1996, the Company's Board of Directors and its
stockholders adopted the Company's 1996 Employee Stock Purchase Plan (the
Purchase Plan). The Purchase Plan will become effective upon the closing
of the proposed initial public offering and authorizes the issuance of up
to a total of 200,000 shares of Common Stock to participating employees.
(d) Underwriter's Warrant
In connection with the proposed initial public offering contemplated
herein, the Company will sell to the underwriter, for $100, warrants to
purchase 250,000 shares of the Company's common stock at a price equal to
120% of the initial public offering price per share.
(5) INCOME TAXES
The Company and Palomar file a consolidated income tax return. The
consolidated tax return reflected net operating losses for the year ended
December 31, 1995. If Palomar's equity ownership drops below 80%, which
is anticipated to occur upon the completion of the proposed initial
public offering, the Company will file its own income tax return.
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, on a separate Company basis. Under SFAS No.
109, deferred tax assets or liabilities are computed based on the
differences between the financial statement and income tax bases of
assets and liabilities using currently enacted tax rates. Deferred income
tax expenses or credits are based on changes in the assets or liability
from period to period.
F-16
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(5) INCOME TAXES (Continued)
Through September 30, 1996, the Company had generated net operating loss
carryforwards for federal and state income tax purposes of approximately
$4,976,000 which expire through 2011. The Company also has certain tax
credits available to offset future federal and statement income taxes, if
any. Net operating loss carryforwards and credits are subject to review
and possible adjustment by the Internal Revenue Service and may be
limited in the event of certain cumulative changes in ownership interests
of significant stockholders over a three-year period in excess of 50%, as
defined. The Company may experience a change in ownership in excess of
50% upon completion of the proposed initial public offering, contemplated
herein. The Company does not believe that these changes in ownership will
significantly impact the Company's ability to utilize its net operating
loss carryforwards.
The approximate income tax effect of each type of temporary difference
and carryforward is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C> <C>
Net operating loss carryforwards $ 830,000 $ 2,004,000
Other temporary differences 75,000 86,000
----------- ------------
905,000 2,090,000
Valuation allowance (905,000) (2,090,000)
------------ -----------
$ - $ -
============= =============
</TABLE>
Under SFAS No. 109, the Company cannot recognize a deferred tax asset for
the future benefit of the net operating loss carryforwards unless it
concludes that it is "more likely than not" that the deferred tax asset
would be realized. Due to its early stage of development and history of
operating losses, the Company has recorded a full valuation allowance
against its otherwise recognizable deferred tax asset.
F-17
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C> <C>
Accrued payroll and related costs $ 51,452 $ 252,678
Accrued settlement costs 500,000 -
Other accrued expenses 57,881 799,869
--------------- ---------------
Total $ 609,333 $ 1,052,547
============= =============
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases its corporate office and manufacturing facility
under operating lease arrangements expiring through August 2001.
The Company also leases certain equipment under operating leases
expiring through September 2000.
Future minimum lease payments under all operating leases at
September 30, 1996 are as follows:
Fiscal Year Ended Amount
----------------- ------
1996, 3 months remaining $ 100,000
1997 418,000
1998 450,000
1999 453,000
2000 506,000
2001 352,000
--------------
$ 2,282,000
============
Rent expense related to all operating leases was approximately
$85,000 and $88,000 for the period from inception (March 7, 1995)
to December 31, 1995 and the nine months ended September 30, 1996,
respectively.
F-18
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES (Continued)
(b) License Agreements
In August 1995, the Company entered into a license agreement with
Technovation Computer Labs, Inc. (Licensor). The Licensor is
affiliated with an officer of the Company. The license agreement
gives Nexar the right to manufacture, sell and use a system
designed by the Licensor, which allows external replacement of
certain component parts. In exchange for these rights, the Company
pays a royalty on each unit sold, as defined. The term of the
agreement is for five years (three years on an exclusive basis),
renewable for an additional five-year period at the option of the
Company. For the nine months ended September 30, 1996 and for the
period from inception (March 7, 1995) to December 31, 1995,
royalties charged to operations were immaterial.
In March 1996, the Company entered into a software license
agreement with 4-Home Productions (4-Home), a Division of Computer
Associates International, Inc. The license agreement gives the
Company the right to use, reproduce, display and distribute
certain of 4-Home's software application programs within the
United States, Canada and Puerto Rico. In exchange for these
rights, the Company paid 4-Home a nonrefundable fee of $25,000 and
will pay a royalty on all units sold, as defined, that are bundled
with 4-Homes' software applications. The term of the agreement is
for one year and will automatically renew for additional one-year
periods unless written notice of termination is made by either
party 60 days prior to the end of the initial or any subsequent
term. No royalties have been incurred under this agreement as of
September 30, 1996.
F-19
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES (Continued)
(c) Service Agreement
In March 1996, the Company entered into a maintenance service
agreement with Wang Laboratories, Inc. (Wang). The agreement
states that Wang will provide certain maintenance services for
certain equipment manufactured by the Company for a term of three
years and, thereafter, on a year-to-year basis at the option of
the Company. The payment terms are based on the greater of certain
minimum amounts or the failure rate, as defined, multiplied by the
number of units sold per month. As of September 30, 1996, the
Company incurred and charged to operations approximately $226,000
under this agreement, of which approximately $189,000 is included
in accrued expenses in the accompanying consolidated balance
sheet.
(d) Development Agreement
In November 1996, the Company entered into a development agreement
with another company (the Developer) whereby the Developer would
develop certain technology for the Company for approximately
$250,000, in accordance with the development agreement. In
addition, the Company may be required to pay additional amounts
based on product sold, not to exceed $500,000.
(e) Milestone Agreement
In connection with the Company's proposed initial public offering,
Palomar will place 1,200,000 shares of the Company's common stock
received for the conversion of certain amounts due to Palomar and
PEC in escrow (See Note 2). These shares will only be released
from escrow upon the achievement by the Company of a minimum
revenue and net income milestone or minimum stock price, as
defined.
F-20
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES (Continued)
(f) Employment Agreement
The Company has employment agreements with substantially all of
its executive officers which provide for severance payments
ranging from 6 to 12 months salary upon termination, as defined,
in the agreement. In addition, the Company's employment agreement
with its Chief Executive Officer provides for a royalty on each
unit sold, as defined. During the nine months ended September 30,
1996 the Company charged $20,400 to cost of revenues under this
agreement.
(8) 401(K) PROFIT SHARING PLAN
In April 1996, the Company began participating in a 401(k) plan (the
401(k) Plan) established by Palomar. The 401(k) Plan covers substantially
all employees who have satisfied a six-month service requirement and have
attained the age of 18. Employees may contribute up to 15% of their
salary, as defined, subject to restrictions defined by the Internal
Revenue Service. Matching contributions equal to 50% of all employee
contributions are made in the form of Palomar's common stock. Upon the
closing of the initial public offering contemplated herein, it is
management's intention to establish its own 401(k) plan. The matching
contributions vest ratably over a three-year period. The Company's
expense under this matching contribution has been insignificant through
September 30, 1996.
F-21
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(9) FINANCING ARRANGEMENTS
In August 1996, the Company entered into a financing program with IBM
Credit Corporation (IBM), whereby IBM will finance all hardware, software
and associated products sold or marketed by the Company to any entity
(Remarketer) that has already executed a financing agreement with IBM to
purchase products from the Company. This financing program gives title of
the products sold by the Company to the Remarketer, and IBM finances the
purchase price of the products. In addition, under certain circumstances,
as defined, IBM has the right to require the Company to repurchase
products upon default by the Remarketer. As of September 30, 1996, the
Company has not received any proceeds under this agreement.
In August 1996, the Company entered into a financing agreement with AT&T
Capital Corporation (AT&T) whereby AT&T would provide to certain
distributors or dealers, financing for the purchase of the Company's
products. Under certain circumstances, as defined, AT&T has the right to
require the Company to repurchase products upon default of payment by the
distributor to AT&T. As of September 30, 1996, the Company has not
received any proceeds under this agreement.
F-22
================================================================================
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus in connection with the offer contained herein, and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company, the Selling Stockholders, or by any of the
Underwriters. This Prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
an offer to buy, those to which it relates in any state to any person to whom it
is not lawful to make such offer in such state. The delivery of this Prospectus
at any time does not imply that the information herein is correct as of any time
subsequent to its date.
--------------------
TABLE OF CONTENTS
Page
Prospectus Summary.....................................................
Risk Factors...........................................................
Use of Proceeds........................................................
Dividend Policy........................................................
Capitalization.........................................................
Dilution...............................................................
Selected Consolidated Financial Data...................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................................................
Business...............................................................
Management.............................................................
Certain Transactions...................................................
Stockholders...........................................................
Beneficial Ownership of Management.....................................
Description of Capital Stock...........................................
Shares Eligible for Future Sale........................................
Underwriting...........................................................
Legal Matters..........................................................
Experts................................................................
Additional Information.................................................
Trademarks.............................................................
Index to Consolidated Financial Statements.............................
--------------------
Until ______, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
2,500,000 SHARES
[LOGO]
COMMON STOCK
--------------------
PROSPECTUS
______________, 1997
--------------------
SANDS BROTHERS & CO., LTD.
================================================================================
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 20, 1996
PROSPECTUS
6,700,000 SHARES
Nexar
[LOGO]
COMMON STOCK
This Prospectus relates to the resale of up to 6,700,000 shares of Common
Stock of Nexar Technologies, Inc. ("NEXAR" or the "Company") held by Palomar
Medical Technologies, Inc. ("Palomar") and The Traveler's Insurance Company,
("Travelers") (together, the "Selling Security Holders"). Prior to the Offering,
there has not been a public market for the Common Stock of the Company. The
shares of Common Stock being offered hereby were acquired by the Selling
Security Holders pursuant to a private offering of Common Stock in private
transactions exempt from registration under federal and state securities laws.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.
The Selling Security Holders and their agents, donees, distributees,
pledgees and other successors in interest may offer and sell the remainder of
the shares from time to time in one or more transactions on The Nasdaq Stock
Market, or otherwise, at market prices then prevailing or in negotiated
transactions. The shares may also be sold pursuant to option, hedging or other
transactions with broker-dealers. The shares may also be offered in one or more
underwritten offerings, although no such arrangments have been made. The
underwriters in an underwritten offering, if any, and the terms and conditions
of any such offering will be described in a supplement to this Prospectus. See
"Selling Security Holders" and "Plan of Distribution."
On ___________, 1997, the Company completed an initial public offering of
2,500,000 shares of Common Stock through Sands Brothers & Co., Ltd. (the
"Representative") as the representative of several underwriters. The Company
will not receive any of the proceeds from the sale of the shares by the Selling
Security Holders. See "Use of Proceeds". The Common Stock of the Company is
traded on the National Market of the Nasdaq Stock Market (the "Nasdaq National
Market") under the symbol "NEXR". On ____________, 1997, the last reported sale
price of Common Stock on the Nasdaq National Market was $ ________ per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ___________, 1997.
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
THE OFFERING
The 6,700,000 shares of Common Stock offered by the Selling Security
Holders are identical to the 2,500,000 shares of Common Stock offered and sold
by the Company in its underwritten initial public offering (the "Offering") by
separate prospectus. Upon completion of the Offering, 9,200,000 shares of Common
Stock were outstanding based on the number of shares of Common Stock outstanding
on December 20, 1996 and excluding (i) 3,855,920 shares of Common Stock issuable
upon exercise of stock options outstanding as of December 20, 1996 at a weighted
average exercise price of $0.51 per share, of which options to purchase
1,061,680 shares were then exercisable. See "Capitalization," "Management--Stock
Plans" and "Beneficial Ownership of Management." Such 9,200,000 shares
outstanding includes 1,900,000 of shares of Common Stock which were issued to
related parties upon conversion of $10,000,000 of indebtedness upon the closing
of the Offering. See "Certain Transactions."
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
USE OF PROCEEDS
The Company will receive no proceeds from the sale of Common Stock by the
Selling Security Holders. The net proceeds to the Company from the sale of the
2,500,000 shares of Common Stock offered by the Company pursuant to the Offering
are estimated to be $25,850,000 million ($29,877,500 million if the Underwriters
exercise their over-allotment option in full), assuming an initial public
offering price of $12.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company.
The principal purposes of the Offering are to increase the Company's
equity capital and to create a public market for the Company's Common Stock,
which will facilitate future access by the Company to the public equity markets,
enhance the ability of the Company to use its Common Stock as consideration for
acquisitions and as a means for attracting and retaining key employees. The
Company intends to use the proceeds of the Offering for general corporate
purposes, including working capital, product development and capital
expenditures and to repay $5,000,000 of non-interest bearing demand indebtedness
to related parties. See "Certain Transactions." The amount and timing of
expenditures may vary significantly depending upon numerous factors including
the success of the Company's currently marketed product, the continued progress
in, and magnitude of the Company's research and product development programs,
market acceptance of the Company's new products, the timing and costs involved
in obtaining regulatory clearances and approvals, the costs involved in filing,
prosecuting, enforcing and defending patent claims, and competing technological
and market developments and the costs and success of its commercialization
activities. Based upon its current operating plan, the Company believes that its
existing capital resources together with the proceeds of the Offering and
interest earned thereon, will be adequate to satisfy its capital requirements
for at least the next twelve months.
A portion of the net proceeds of the Offering may also be used for
investments in or acquisitions of complementary businesses, products or
technologies, although the Company has not entered into any commitments or
negotiations with respect to any such transactions. Pending such use, the
Company expects to invest the net proceeds in short-term, interest-bearing,
investment grade securities.
14
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
SELLING SECURITY HOLDERS
Set forth below, with respect to each of the Selling Security Holders, is
the number of shares of Common Stock beneficially owned as of December 20, 1996,
the number of shares of Common Stock offered pursuant to this Prospectus and the
number of shares to be owned after completion of this offering (assuming the
sale of all of the shares offered hereby).
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES
TOTAL NUMBER OF SHARES TO BE TO BE OWNED AFTER
NAME AND ADDRESS SHARES OWNED(1) OFFERED OR SOLD THE OFFERING
- ---------------- --------------- --------------- -----------------
<S> <C> <C> <C>
Palomar Medical 6,500,000 6,500,000 0
Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
The Travelers Insurance Company 200,000 200,000 0
One Tower Square
Hartford, Connecticut 06183
</TABLE>
CONCURRENT OFFERING
The Registration Statement of which this Prospectus is a part also covers
2,500,000 shares of Common Stock offered by the Company made pursuant to a
separate prospectus.
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
PLAN OF DISTRIBUTION
The Selling Security Holders and their agents, donees, distributees,
pledgees and other successors in interest may, from time to time, offer for sale
and sell or distribute the shares to be offered by them hereby (a) in
transactions executed on the Nasdaq National Market, or any securities exchange
on which the shares may be traded, through registered broker-dealers (who may
act as principals, pledgees or agents) pursuant to unsolicited orders or offers
to buy, (b) in negotiated transactions, or (c) through other means. The shares
may be sold from time to time in one or more transactions at market prices
prevailing at the time of sale or a fixed offering price, which may be changed,
or at varying prices determined at the time of sale or at negotiated prices.
Such prices will be determined by the Selling Security Holders or by agreement
between the Selling Security Holders and their underwriters, dealers, brokers or
agents. The shares may also be offered in one or more underwritten offerings.
The underwriters in an underwritten offering, if any, and the terms and
conditions of any such offering will be described in a supplement to this
Prospectus.
In connection with distribution of the shares, the Selling Security
Holders may enter into hedging or other option transactions with broker-dealers
in connection with which, among other things, such broker-dealers may engage in
short sales of the shares pursuant to this Prospectus in the course of hedging
the positions they may assume with one or more of the Selling Security Holders.
The Selling Security Holders may also sell shares short pursuant to this
Prospectus and deliver the shares to close out such short positions. The Selling
Security Holders may also enter into option or other transactions with
broker-dealers which may result in the delivery of shares to such broker-dealers
who may sel1 such shares pursuant to this Prospectus. The Selling Security
Holders may also pledge the shares to a broker-dealer and upon default the
broker-dealer may effect the sales of the pledged shares pursuant to this
Prospectus.
The distribution of the shares by the Selling Security Holders is not
subject to any underwriting agreement. Any underwriters, dealers, brokers or
agents participating in the distribution of the shares may receive compensation
in the form of underwriting discounts, concessions, commissions or fees from the
Selling Security Holders and/or purchasers of shares, for whom they may act.
Such discounts, concessions, commissions or fees will not exceed those customary
for the type of transactions involved. In addition, the Selling Security Holders
and any such underwriters, dealers, brokers or agents that participate in the
distribution of shares may be deemed to be underwriters under the Securities
Act, and any profits on the sale of shares by them and any discounts,
commissions or concessions received by any of such persons may be deemed to be
underwriting discounts and commissions under the Securities Act. Those who act
as underwriter, broker, dealer or agent in connection with the sale
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
of the shares will be selected by the Selling Security Holders and may have
other business relationships with the Company and its subsidiaries or affiliates
in the ordinary course of business.
The aggregate proceeds to the Selling Security Holders from the sale of
the shares offered by the Selling Security Holders hereby will be the purchase
price of such shares less any broker's commissions.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdiction only through registered
or licensed brokers or dealers. In addition, in certain states the shares may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration of qualification
requirement is available and is complied with.
The Selling Security Holders and any broker-dealer, agent or underwriter
that participates with the Selling Security Holders in the distribution of the
shares may be deemed to be "underwriters" within the meaning of the Securities
Act, in which event any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares offered hereby may not simultaneously
engage in market making activities with respect to the shares for a period of
two business days prior to the commencement of such distribution. In addition,
and without limiting the foregoing, the Selling Security Holders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-2, lOb-5, lOb-6 and lOb-7,
which provisions may limit the timing of sales of the shares by the Selling
Security Holders.
There is no assurance that the Selling Security Holders will sell any or
all of the shares described herein and may transfer, devise or gift such
securities by other means not described herein. The Company is permitted to
suspend the use of this Prospectus in connection with sales of the shares by
holders during certain periods of time under certain circumstances relating to
pending corporate developments and public filings with the Commission and
similar events. Expenses of preparing
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
and filing the registration statement and any and all amendments thereto will be
borne by the Company.
================================================================================
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus in connection with the offer contained herein, and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company, the Selling Security Holders, or by any of the
Underwriters. This Prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
an offer to buy, those to which it relates in any state to any person to whom it
is not lawful to make such offer in such state. The delivery of this Prospectus
at any time does not imply that the information herein is correct as of any time
subsequent to its date.
--------------------
TABLE OF CONTENTS
Page
Prospectus Summary.....................................................
Risk Factors...........................................................
Use of Proceeds........................................................
Dividend Policy........................................................
Capitalization.........................................................
Dilution...............................................................
Selected Consolidated Financial Data...................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................................................
Business...............................................................
Management.............................................................
Certain Transactions...................................................
Selling Security Holders...............................................
Beneficial Ownership of Management.....................................
Description of Capital Stock...........................................
Shares Eligible for Future Sale........................................
Underwriting...........................................................
Legal Matters..........................................................
Experts................................................................
Additional Information.................................................
Trademarks.............................................................
Index to Consolidated Financial Statements.............................
================================================================================
================================================================================
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS PROSPECTUS
6,700,000 SHARES
Nexar
[LOGO]
COMMON STOCK
--------------------
PROSPECTUS
______________, 1997
--------------------
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable by the Registrant in connection with the sale of the Common Stock
offered hereby are as follows:
SEC Registration fee......................................... $ *
NASD Filing fee.............................................. *
Nasdaq National Market fee................................... *
Printing and mailing expenses................................ *
Legal fees and expenses...................................... *
Accounting fees and expenses................................. *
Blue Sky fees and expenses (including legal fees)............ *
Transfer agent and registrar fees and expenses............... *
Miscellaneous................................................ *
---------
Total........................................................$1,000,000
=========
- ---------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides that a corporation may indemnify a director, officer, employee or agent
against expenses (including attorneys' fees), judgments, fines and for amounts
paid in settlement in respect of or in successful defense of any action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Article Tenth of the Registrant's Restated Certificate of Incorporation
provides that no director of the Registrant shall be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. Article Tenth further provides
that a director's personal liability shall be eliminated or limited in the
future to the fullest extent permitted from time to time by the Delaware General
Corporation Law.
Article Eleventh of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted from time to
time under the Delaware General Corporation Law, indemnify each of its directors
and officers against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement in respect of any action, suit or proceeding in
which such director or officer may be involved or with which he may be
threatened, while in office or thereafter, by reason of his or her actions or
omissions in connection with services to the Registrant, such indemnification to
include prompt payment of expenses in advance of the final disposition of any
such action, suit or proceeding.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement,
the Registrant has issued the following securities that were not registered
under the Securities Act:
(a) In March 1995, the Registrant issued 40,000 shares of Common
Stock to Palomar (which subsequently transferred such shares
to PEC without consideration) for consideration of $400.
No underwriters were involved in the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder. All of the foregoing securities are deemed restricted
securities for the purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
Exhibit Description
1.1 Draft of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant, as amended
3.2 Form of Restated Certificate of Incorporation to be filed by
the Registrant
3.3 By-laws of the Registrant, as amended
4.1 Articles Fourth, Seventh, Twelfth and Thirteenth of the
Restated Certificate of Incorporation of the Registrant to be
filed by the Registrant (included in Exhibit 3.2)
4.2 Articles II, III, IV, V, VI, VII, VIII, XII and XXV of the
Registrant's By-laws, as amended (included in Exhibit 3.3)
4.3 Agreement dated December 19, 1996 between Palomar Medical
Technologies, Inc. and the Registrant
*5.1 Opinion of Choate, Hall & Stewart with respect to legality of
the shares of Common Stock of the Registrant being registered
10.1 Lease dated as of July 28, 1995 between the Registrant and
W.D.P. Corp., a Massachusetts corporation
10.2 Lease dated as of August 9, 1996 between the Registrant and IBG
Huntwood Associates, a California general partnership
**10.3 License Agreement between the Registrant and Technovation
Computer Labs, Inc. dated as of August 1, 1995
**10.4 International Service Agreement between the Registrant and Wang
Laboratories, Inc. dated September 1, 1996
**10.5 On-Site Maintenance & Service Agreement between the Registrant
and Wang Laboratories, Inc. dated October 2, 1995
10.6 Letter agreement dated as of December 17, 1996 between the
Company and Government Technology Services, Inc.
*10.7 1995 Stock Option Plan
*10.8 1996 Employee Stock Purchase Plan
*10.9 1996 Non-Employee Directors Stock Option Plan
*10.10 Key Employee Agreement between the Company and Albert J. Agbay
*10.11 Key Employee Agreement between the Company and Gerald Y. Hattori
II-2
*10.12 Key Employee Agreement between the Company and Michael J.
Paciello
*10.13 Key Employee Agreement between the Company and Liaqat Khan
*10.14 Key Employee Agreement between the Company and Victor J. Melfa,
Jr.
*10.15 Key Employee Agreement and James P. Lucivero
*10.16 Key Employee Agreement and E. Craig Conrad
11.1 Statement of Computation of Per Share Earnings
21.1 List of Registrant's subsidiaries
*23.1 Consent of Choate, Hall & Stewart (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (contained on page II-5)
27.1 Financial Data Schedule
- --------------------
* To be filed by amendment.
** Confidential Treatment requested as to portions of the exhibit indicated.
(b) Financial Statement Schedules:
Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
required under the instructions, or all of the information required is set forth
in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes (1) to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser; (2) to file, during any period in
which offers or sales are being made, a post-effective amendment to this
registration statement; (3) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; (4) to include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement; (5) to
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering;
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the town of
Westborough, Massachusetts on December 19, 1996.
NEXAR TECHNOLOGIES, INC.
By /S/ Albert J. Agbay
----------------------------------------
Albert J. Agbay
Chief Executive Officer, President and
Chairman of the Board
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Nexar Technologies, Inc.,
hereby severally constitute and appoint Albert J. Agbay, Stephen K. Fogg and
William C. Rogers, and each of them singly, our true and lawful attorneys, with
full power to them and each of them singly, to sign for us in our names in the
capacities indicated below, all pre-effective and post-effective amendments to
this registration statement and any related subsequent registration statement
for the same offering which may be filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, and generally to do all things in our names
and on our behalf in such capacities to enable Nexar Technologies, Inc. to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures, as they may be signed by our said attorneys, or any
of them, to said registration statement and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
- --------- -------- ----
<S> <C> <C>
/S/ Albert J. Agbay Chief Executive Officer (Principal Executive December 19, 1996
- ------------------------ Officer), President and Chairman of the
Albert J. Agbay Board of Directors
/S/ Gerald Y. Hattori Vice President of Finance and Chief December 19, 1996
- ------------------------ Financial Officer (Principal Financial and
Gerald Y. Hattori Accounting Officer)
/S/ Steven Georgiev Director December 19, 1996
- ------------------------
Steven Georgiev
/S/ Joseph E. Levangie Director December 19, 1996
- ------------------------
Joseph E. Levangie
/S/ Joseph P. Caruso Director December 19, 1996
- ------------------------
Joseph P. Caruso
/S/ Buster C. Glosson Director December 19, 1996
- ------------------------
Buster C. Glosson
</TABLE>
II-4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Nexar Technologies, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Nexar Technologies, Inc. and subsidiary
included in this registration statement and have issued our report thereon dated
October 14, 1996 (except with respect to the matters discussed in Notes 2, 4,
and 7(d), as to which the date is December 19, 1996). Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 16(b) above is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein, in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 14, 1996 (except with respect
to the matters discussed in Notes 2,
4, and 7(d), as to which the date is
December 19, 1996)
NEXAR TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE, BALANCE,
BEGINNING OF END OF
PERIOD INCREASES DEDUCTIONS PERIOD
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C>
December 31, 1995 $ - $ 12,000 $ - $ 12,000
========== ========== ========== ==========
September 30, 1996 $ 12,000 $ 267,143 $ (219,143) $ 60,000
========== ========== =========== ==========
</TABLE>
EXHIBIT 1.1
Draft of December 19, 1996
2,500,000 Shares
NEXAR TECHNOLOGIES, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
December , 1996
Sands Brothers & Co., Ltd.
As Representative of the Several Underwriters
90 Park Avenue
New York, New York 10016
Dear Sirs:
Nexar Technologies, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the underwriters named in Schedule A
(the "Underwriters") of this Underwriting Agreement (the "Agreement"), for whom
you are acting as representative (the "Representative"), 2,500,000 shares (the
"Firm Shares") of Common Stock, par value $.01 per share of the Company (the
"Common Stock"). In addition, the Company has agreed to grant to the
Underwriters an option (which may be exercised by the Representative,
individually) to purchase an additional 375,000 shares of Common Stock (the
"Option Shares") for the purposes set forth in Section 3 hereof. The Firm Shares
and the Option Shares are hereinafter collectively referred to as the "Shares."
The Company also proposes to issue and sell to you (for your
own account and not as Representative of the Several Underwriters) and/or your
designees, warrants (the "Representative's Warrants") to purchase an aggregate
of 250,000 shares of Common Stock at an exercise price of $ per share, which
sale will be consummated in accordance with the terms and conditions of the form
of Representative's Warrant Agreement filed as an exhibit to the Registration
Statement. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter sometimes referred to as the "Warrant
Shares." The Shares, the Representative's Warrants and the Warrant Shares
(collectively, the "Securities") are more fully described in the Registration
Statement and the Prospectus, as defined below.
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Firm Shares and that you have been authorized by the
Underwriters to execute this agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Firm Shares by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1. Purchase and Sale of Firm Shares. (a) Subject to - the
terms and conditions of this Agreement, and upon the basis of the
representations, warranties, and agreements herein contained, the Company agrees
to issue and sell to the Underwriters, and each such Underwriter agrees,
severally and not jointly, to buy from the Company at $ for each Firm Share, at
the place and time hereinafter specified, the number of Firm Shares set forth
opposite the names of the Underwriters in Schedule A attached hereto plus any
additional Firm Shares which such Underwriters may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
2. Payment and Delivery; Representative's Warrants.
(a) Delivery to the Underwriters of and payment for the Firm
Shares shall take place at 10:00 a.m., New York Time, on the third full business
day (or, if the Firm Shares are priced, as contemplated in Rule 15c6-1(c) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after 4:30
p.m., New York Time, the fourth full business day) following the date of the
initial public offering, at the offices of the Representative, 90 Park Avenue,
New York, New York 10016 or at such time on such other date, as may be agreed
upon by the Company and the Underwriters (such date hereinafter is referred to
as the "Closing Date").
(b) The Company will make the certificates for the Shares to
be purchased by the Underwriters hereunder available to you for inspection at
least 24 hours prior to the Closing Date or the Option Closing Date (which are
collectively referred to herein as the "Closing Dates"). The certificates shall
be in such names and denominations as you may request, at least two (2) full
business days prior to the Closing Dates. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of each Underwriter.
Definitive certificates in negotiable form for the Firm Shares
to be purchased by the Underwriters hereunder will be delivered by the Company
to you for the accounts of the several Underwriters against payment of the
respective purchase prices therefor by the several Underwriters, by federal wire
transfer to the Company. The Representative's written confirmation of the
effectuation of such federal wire transfer, detailing the specific federal wire
number, shall be satisfactory evidence that payment of the purchase price for
the Firm Shares has been made for purposes of the Closing Date and, upon
presentation of such confirmation, the Company shall be required to deliver
certificates in negotiable form for the Firm Shares at such time.
2-
In addition, in the event the Underwriters (or the
Representative, individually) exercise the option to purchase from the Company
all or any portion of the Option Shares pursuant to the provisions of Section 3
hereof, payment for such securities shall be made to the Company by the
effectuation of a federal wire transfer at the date of delivery of such
securities as required by the provisions of Section 3 hereof.
It is understood that you, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Firm Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or underwriters of any of its or their obligations hereunder.
It is also understood that you individually rather than all of the Underwriters
may (but shall not be obligated to) purchase the Option Shares (as hereinafter
defined).
It is understood that the several Underwriters propose to
offer the Firm Shares to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Shares by the Company to the Underwriters
shall be borne by the Company. The Company will pay and save each Underwriter
and any subsequent holder of the Shares harmless from and any and all
liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of Shares sold by such entity.
(b) On the Closing Date, the Company will sell the
Representative's Warrants to Sands Brothers, for its own account and not as
Representative of the several Underwriters, or to its designees. The
Representative's Warrants will be in the form of, and in accordance with, the
provisions of the Representative's Common Stock Purchase Warrant attached as an
exhibit to the Registration Statement. The aggregate purchase price for the
Representative's Warrants is $100.00. The Representative's Warrants will be
restricted from sale, transfer, assignment or hypo- thecation for a period of
one year from the Effective Date, except to officers and shareholders of Sands
Brothers and to members of the selling group. Payment for the Representative's
Warrants will be made to the Company by check or checks payable to its order on
the Closing Date against delivery of the certificates representing the
Representative's Warrants. The
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certificates representing the Representative's Warrants will be in such
denominations and such names as Sands Brothers may request prior to the Closing
Date.
3. Option to Purchase Option Shares.
(a) For the purposes of covering any over- allotments
in connection with the distribution and sale of the Firm Shares as contemplated
by the Prospectus, the Company hereby grants an option to the several
Underwriters (which may be exercised, at its option, by the Representative,
individually) to purchase all or any part of the Option Shares from the Company.
This option may be exercised in whole or in part at anytime and from time to
time within 45 days after the effective date of the Registration Statement upon
written notice (each, an "Option Share Notice") by the Representative to the
Company setting forth the aggregate number of Option Shares to be purchased, the
names and denominations in which the certificates for such Option Shares are to
be registered and the time and date for such purchase. Such time and date shall
be determined by the Representative but shall be at least two and no more than
five full business days before the date specified for closing in the Option
Share Notice (each an "Option Closing Date"). Delivery of the Option Shares
against payment therefor shall take place at the offices of the Representative,
90 Park Avenue, New York, New York 10016. The number of Option Shares to be
purchased by each Underwriter, if any, shall bear the same percentage to the
total number of Option Shares being purchased by the several Underwriters
pursuant to this subsection (a) as the number of Firm Shares such Underwriter is
purchasing bears to the total number of Firm Shares being purchased pursuant to
subsection (a) of Section 1, as adjusted, in each case by the Representative in
such manner as the Representative may deem appropriate. The purchase price to be
paid for the Option Shares will be the same price per Option Share as the price
per Firm Share set forth in Section 1 hereof.
(b) Payment for any Option Shares purchased will be
made to the Company by the effectuation of a federal wire transfer, against
receipt of the certificates for such securities by the Representative for the
respective accounts of the several Underwriters registered in such names and in
such denominations as the Representative may request. The Representatives'
written confirmation of the effectuation of such federal wire transfer,
detailing the specific federal wire number, shall be satisfactory evidence that
payment of the purchase price for the Option Shares has been made for purposes
of the Option Closing Date and, upon presentation of such confirmation, the
Company shall be required to deliver certificates in negotiable form for the
Option Shares at such time.
4-
(c) The obligation of the Underwriters to purchase
and pay for any of the Option Shares is subject to the accuracy and completeness
(as of the date hereof and as of the Option Closing Date) in all material
respects of the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the Option Closing Date, and to the delivery to
the Underwriters of opinions, certificates and letters dated the Option Closing
Date substantially similar in scope to those specified in Section 5, 6(b), (c),
(d) and (e) hereof, but with each reference to "Firm Shares," and "Closing Date"
to be, respectively, to the Option Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) Each of the Company and Intelesys Corporation
(the "Subsidiary") is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full power and authority,
corporate and other, to own or lease and operate its properties and to conduct
its business as described in the Registration Statement. Each of the Company and
the Subsidiary is duly licensed or qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the nature of
its activities conducted by each of them or the character of the assets owned or
leased by each of them makes such license or qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
materially and adversely effect the financial condition, results of operations,
business or properties of the Company and its Subsidiary, when taken as a whole.
Except as set forth in the Prospectus, the Company (i) does not own, and at the
Closing Date and, if later, the Option Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any equity interest in any corporation, firm,
partnership, joint venture, association or other entity and (ii) is not, and at
the Closing Date and, if later, the Option Closing Date will not be, engaged in
any discussions or a party to any agreement or understanding, written or oral,
regarding the acquisition of an interest in any corporation, firm, partnership,
joint venture, association or other entity. Complete and correct copies of the
certificate of incorporation, the bylaws or other organizational documents of
the Company and the Subsidiary and all amendments thereto have been delivered to
the Representative, and no changes therein will be made subsequent to the date
hereof and prior to Closing Date or, if later, the Option Closing Date.
5-
(b) The Company has full corporate power and
authority to enter into this Agreement and the Representative's Warrants, to
issue and sell the Shares and the Representative's Warrants and to perform its
respective obligations thereunder. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and the Representative's Warrant Agreement, when executed and delivered
by the Company on the Closing Date, will be valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, in each case subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. The execution, delivery and performance of this
Agreement and the Representative's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement and the
Representative's Warrant Agreement do not and will not, with or without the
giving of notice or the lapse of time, or both, (i) result in any violation of
the certificate of incorporation, by-laws or other organizational documents of
the Company or the Subsidiary; (ii) result in a breach of or conflict with any
of the terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or the Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
is a party or by which the Company or the Subsidiary or any of their respective
properties or assets is or may be bound or affected; (iii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business which, in the case of clause (ii) or (iii),
would have a material adverse effect on the financial condition, results of
operations, business or properties of the Company and the Subsidiary, when taken
as a whole or the ability of the Company to consummate the transactions
contemplated hereby.
(c) The Company has prepared in conformity with the
requirements of the Securities Act of 1933 (the"Act") and the rules and
regulations (the "Regulations") of the Securities and Exchange Commission (the
"Commission") and filed with the Commission a registration statement (File No.
333- ) on Form S-1 and has filed one or more amendments thereto, covering the
registration of the Shares under the Act, including the related preliminary
prospectus or preliminary prospectuses (each thereof being herein called a
"Preliminary Prospectus") and a proposed final prospectus. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(c)(5) of Regulation
S-K of the
6-
Regulations, including, if applicable, Rule 430A of the Regulations. Such
registration statement including any documents incorporated by reference therein
and all financial schedules and exhibits thereto, as amended at the time it
becomes effective, and the final prospectus included therein are herein,
respectively, called the "Registration Statement" and the "Prospectus," except
that, (i) if the prospectus filed by the Company pursuant to Rule 424(b) of the
Regulations differs from the Prospectus, the term "Prospectus" will also include
the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration
Statement is amended or such Prospectus is supplemented after the effective date
of the Registration Statement (the "Effective Date") and prior to the Option
Closing Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include the Registration Statement as amended or
supplemented.
(d) Neither the Commission, nor to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
(e) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date, as the case may be, will comply as to form with the Act and the
Regulations and will in all material respects conform to the requirements of the
Act and the Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, on such dates, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of the Underwriters in connection with the
Registration Statement or Prospectus or any amendment or supplement thereto by
the Underwriters expressly for use therein.
(f) Arthur Andersen, LLP, the accountants who have
certified certain of the financial statements filed and to be filed with the
Commission as part of the Registration Statement and the Prospectus, are
independent public accountants within the meaning of the Act and Regulations.
The financial statements and schedules and the notes thereto and the selected
financial statements and summary financial statements filed as part of the
Registration Statement and included in the Prospectus present fairly in all
material respects the financial position of the Company as of the dates thereof,
and the results of oper-
7-
ations and changes in financial position of the Company for the periods
indicated therein, in conformity with generally accepted accounting principles
(which, as applied to the Company for the periods involved, are substantially
identical in all material respects) applied on a consistent basis throughout the
periods involved except as otherwise stated in the Registration Statement and
the Prospectus.
(g) The Company had at the date or dates indicated in
the Prospectus a duly authorized and outstanding capitalization as set forth in
the Registration Statement and the Prospectus. Based on the assumptions stated
in the Registration Statement and the Prospectus, the Company will have on the
Closing Date referred to below the adjusted stock capitalization set forth
therein. Except as disclosed in the Registration Statement or the Prospectus, on
the Effective Date and on the Closing Date referred to below, there will be no
options to purchase, warrants or other rights to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of the Company's capital stock or any such warrants,
convertible securities or obligations. Except as set forth in the Prospectus, no
holders of any of the Company's securities have any rights, "demand,"
"piggyback" or otherwise, to have such securities registered under the Act.
(h) The descriptions in the Registration State- ment
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) The Company has filed with the appropriate
federal, state and local governmental agencies, and all foreign countries and
political subdivisions thereof, all tax returns, including, without limitation,
franchise tax and sales tax returns, which are required to be filed, which
returns are complete and correct in all material respects and has paid all taxes
shown on such returns and all assessments received by it to the extent that the
same have become due. All payroll withholdings required to be made by the
Company or the Subsidiary with respect to employees have been made. The Company
has not executed or filed with any taxing authority, foreign or domestic, any
agreement extending the period for assessment or collection of any income taxes
and is not a party to any pending action or proceeding by any foreign or
domestic governmental agency for assessment or collection of taxes; and no
claims for assessment or collection of taxes have been asserted against the
Company. The Company has no tax deficiency which has been or might be
8-
asserted or threatened against the Company or its business, properties, business
prospects, condition (financial or otherwise), net worth or results of
operations.
(j) The outstanding shares of Common Stock and
outstanding options and warrants to purchase shares of Common Stock have been
duly authorized and validly issued. The outstanding shares of Common Stock are
fully paid and nonassessable. The outstanding options and warrants to purchase
Common Stock constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms, in each case subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and except that
rights to indemnification and contribution thereunder and under this Agreement
may be limited by United States or state securities laws or public policy
relating thereto. None of the outstanding shares of Common Stock or options or
warrants to purchase shares of Common Stock has been issued in violation of the
preemptive rights of any shareholder of the Company. None of the holders of the
outstanding Common Stock is subject to personal liability solely by reason of
being such a holder. The offers and sales of the outstanding Common Stock and
outstanding options and warrants to purchase Common Stock were at all relevant
times either registered under the Act, the applicable state securities or Blue
Sky laws or exempt from such registration requirements. The authorized Common
Stock and outstanding options and warrants to purchase Common Stock conform in
all material respects to the descriptions thereof contained in the Registration
Statement and Prospectus.
(k) The issuance and sale of the Shares have been
duly authorized and, when issued and delivered against payment therefor as
contemplated by this Agreement, the Shares will be validly issued, fully paid
and nonassessable. The holders of the Shares will not be subject to personal
liability solely by reason of being such holders and none of the Shares will be
subject to preemptive rights of any shareholder of the Company.
(l) The issuance and sale of the Representative's
Warrants have been duly authorized and, when issued, paid for and delivered
pursuant to the terms of this Agreement or the Representative's Warrant
Agreement, as the case may be, the Representative's Warrants will constitute
valid and binding obligations of the Company, enforceable as to the Company in
accordance with their terms, in each case subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except that rights to
indemnification and contribution thereunder and under this Agreement may be
limited by United States or state securities laws or public policy relating
thereto. A sufficient number of shares of Common Stock
9-
have been duly reserved for issuance upon exercise of the Representative's
Warrants in accordance with the provisions of the Representative's Warrants. The
Representative's Warrants will conform in all material respects to the
descriptions thereof contained in the Registration Statement and Prospectus.
(m) The Company is not in violation of, or in default
under, (i) any term or provision of its certificate of incorporation, by-laws,
or any other organizational documents; (ii) any material term or provision or
any financial covenants of any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or any of
its property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business, which, in the case of clause (ii) and (iii),
would have a material adverse effect on the financial condition, results of
operations, business or properties of the Company or the ability of the Company
to consummate the transactions contemplated hereby. The Company and the
Subsidiary own, possess or have obtained all governmental and other licenses,
permits, certifications, registrations, approvals or consents and other
authorizations ("Permits") necessary to own or lease, as the case may be, and to
operate their respective properties, and to conduct their respective business or
operations as presently conducted, except where the failure to own, possess or
obtain such Permits would not have a material adverse effect on the financial
condition, results of operations, business or properties of the Company and the
Subsidiary, when taken as a whole. All such Permits are outstanding and in good
standing, and there are no proceedings pending or, to the best of the Company's
or the Subsidiary's knowledge, threatened, or any basis therefor, seeking to
cancel, terminate or limit such Permits.
(n) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or involving the
Company's properties or business which, if determined adversely to the Company,
would, individually or in the aggregate, have a material adverse effect on the
financial position, results of operations, properties, or business of the
Company or which question the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to,
or in connection with, this Agreement; nor, to the best of the Company's
knowledge, except as disclosed in the Prospectus, is there any reasonable basis
for any such claim, action, suit, proceeding, arbitration, investigation or
inquiry. There are no outstanding orders, judgments or decrees of any
10-
court, governmental agency or other tribunal naming the Company and enjoining
the Company from taking, or requiring the Company to take, any action, or to
which the Company, or the Company's properties or business is bound or subject
which would be material to the Company.
(o) The Company has not incurred any liability for
any finder's fees or similar payments in connection with the transactions herein
contemplated other than payments previously made to the Representative.
(p) (i) The Company has sufficient title and
ownership of, or license or other rights to, or have applied for, all patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, copyrights, trade secrets, information,
proprietary rights, technologies, know-how and processes (collectively,
"Intellectual Property") necessary for its business as now conducted and as
proposed to be conducted, as described in the Prospectus.
(ii) Except as disclosed in the Prospectus, no claims
have been asserted by any person to the ownership or use of any Intellectual
Property or challenging or questioning the validity or effectiveness of any such
license or agreement and the Company has no knowledge of any valid basis for any
such claim. The use of the Intellectual Property by the Company does not
infringe on the rights of any person and there are no pending or, to the
knowledge of the Company, threatened claims nor has it been alleged that the
Intellectual Property is engaged in such infringements. All of the trademark and
trade name registrations, patents and copyrights are in full force and effect.
Other than potential sublicensees of the Company, no other person has any right
to use any Intellectual Property for similar or related products in competition
with the products of the Company and no other person is infringing any of the
Intellectual Property.
(iii) The Company has taken reasonable steps
sufficient to safeguard and maintain the secrecy and confidentiality of, or
their respective proprietary rights in, all of the unpatented know how,
technology, proprietary processes, formulae, and other information owned by it.
Without limiting the generality of the foregoing, the Company has obtained
confidentiality and secrecy agreements from all past and present employees and
independent third parties involved in the invention or creation of their
respective Intellectual Properties.
(q) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not incurred any material liability
11-
or obligation (absolute or contingent), except liabilities and obligations
incurred in the ordinary course of business, and has not sustained any material
loss or interference with its business from fire, storm, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree; and since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, there have not been, and prior to the Closing Date referred to below
there will not be, any changes in the capital stock or any material increases in
the long-term debt of the Company or any material adverse change in or affecting
the general affairs, management, financial condition, shareholders' equity,
results of operations or prospects of the Company, other than as set forth or
contemplated in the Prospectus.
(r) The Company owns no real property. The Company
has good title to all material personal property (tangible and intangible) owned
by it, free and clear of all security interests, charges, mortgages, liens,
encumbrances and defects, except such as are described in the Registration
Statement and Prospectus or such as do not materially affect the value or
transferability of such property and do not interfere with the use of such
property made, or proposed to be made, by the Company. The leases, licenses or
other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid and subsisting and
neither the Company, nor, to the best of the Company's knowledge, any other
party is in default thereunder and, to the best of the Company's knowledge, no
event has occurred which, with the passage of time or the giving of notice, or
both, would constitute a default thereunder. The Company has not received any
notice of any violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties the violation of which
would have a material adverse effect on the Company.
(s) Each material contract or other instrument
(however characterized or described) to which the Company is a party or by which
its properties or business is or may be bound or affected and to which reference
is made in the Prospectus has been duly and validly executed by the Company and,
assuming that such contracts or other instruments have been properly executed by
parties other than the Company, is in full force and effect in all material
respects and is enforceable against the parties thereto in accordance with its
terms, in each case subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally; and none of such contracts or instruments has
been assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's
12-
knowledge, no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default there- under.
(t) The employment agreements between the Company and
its officers and employees, described in the Registration Statement, are binding
and enforceable obligations upon the respective parties thereto in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity and public policy and subject to the possible finding by a court of
competent jurisdiction that the scope, time period or geographic range of any
post-employment non-competition restriction exceeds that required to protect the
Company's legitimate interests.
(u) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974. To the best of the Company's knowledge, no labor problem exists with any
of the Company's employees or is imminent which could have a material adverse
affect on the Company.
(v) The Company has filed a registration statement
pursuant to Section 12(g) of the Exchange Act to register the Common Stock, has
filed an application to list the Shares on the NASDAQ National Market, and has
received notification that the listing has been approved, subject to notice of
issuance.
(w) The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains, in amounts which
it deems, in good faith, to be adequate, such other insurance, including but not
limited to, liability insurance, as is usually maintained by companies engaged
in the same or similar businesses located in its geographic area.
(x) Neither the Company nor, to its knowledge, any of
its officers, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company
13-
(or to assist the Company in connection with any actual or proposed transaction)
which (a) might subject the Company or any other such person, to any damage or
penalty in any civil, criminal or governmental litigation or proceeding
(domestic or foreign); (b) if not given in the past, might have had a material
adverse effect on the assets, business or operations of the Company; or (c) if
not continued in the future, might adversely affect the assets, business,
operations or prospects of the Company, taken as a whole.
(y) Except as set forth in Prospectus, no officer,
director, principal stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficial interest
in any contract or agreement to which the Company is a party or by which it may
be bound or affected. Except as set forth in the prospectus under "Certain
Transactions," there are no existing, agreements, arrangements, understandings
or transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, Principal
Stockholder (as such term is defined in the Prospectus) of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(z) The minute books of the Company have been made
available to the Underwriters and contain a complete record in all material
respects of all meetings and actions of the directors and stockholders of the
Company since the time of its respective incorporation, and accurately reflects
all transactions referred to in such minutes in all material respects.
Any certificate signed by an officer of the Company and
delivered to the Representative or to counsel for the Representative shall be
deemed to be a representation and warranty by the Company to the Representative
as to the matters covered thereby.
14-
5. Certain Covenants of the Company. The Company covenants
with the several Underwriters as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Firm Shares
by the several Underwriters, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Representative has not been
previously advised and furnished a copy, or to which the Representative shall
object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the
Representative immediately, and, if requested by the Representative, confirm
such advice in writing, (i) when the Registration Statement, or any
post-effective amendment to the Registration Statement or any supplemented
Prospectus is filed with the Commission; (ii) of the receipt of any comments
from the Commission; (iii) of any request of the Commission for amendment or
supplementation of the Registration Statement or Prospectus or for additional
information and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Firm Shares for offering or sale in any
jurisdiction, or of the initiation of any proceedings for any of such purposes.
The Company will make every reasonable effort to prevent the issuance of any
such stop order or of any order preventing or suspending such use and to obtain
as soon as possible the lifting thereof, if any such order is issued.
(c) The Company will deliver to the several
Underwriters, without charge, from time to time until the Effective Date, as
many copies of each Preliminary Prospectus as the Underwriters may reasonably
request, and the Company hereby consents to the use of such copies for purposes
permitted by the Act. The Company will deliver to the several Underwriters,
without charge, as soon as the Registration Statement becomes effective, and
thereafter from time to time as requested, such number of copies of the
Prospectus (as supplemented, if the Company makes any supplements to the
Prospectus) as the Underwriters may reasonably request. The Company has
furnished or will furnish to the Representative two conformed copies of the
Registration Statement as originally filed and of all amendments thereto,
whether filed before or after the Registration Statement becomes effective, two
copies of all exhibits filed therewith and two conformed copies of all consents
and certificates of experts.
(d) The Company will comply with the Act, the
Regulations, the Exchange Act, and the rules and regulations thereunder so as to
permit the continuance of sales of and
15-
dealings in the Firm Shares, and in any Option Shares which may be issued and
sold. If, at any time when a prospectus relating to such Securities is required
to be delivered under the Act, any event occurs as a result of which the
Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper informa-
tion as may be required and otherwise cooperate in qualifying the Shares for
offering and sale under the securities or Blue Sky laws relating to the offering
or for sale in such jurisdictions as the Representative may reasonably
designate, provided that no such qualification will be required in any
jurisdiction where, solely as a result thereof, the Company would be subject to
service of general process or to taxation or qualification as a foreign
corporation doing business in such jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Representative and its counsel as soon as practicable and in any
event not later than 45 days after the end of its fiscal quarter in which the
first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Representative and to Representative's
Counsel on a timely basis (i) a copy of each report or document, including,
without limitation, reports on Forms 8-K, 10-C, 10-K and 10-Q and exhibits
thereto, filed or furnished to the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. (the "NASD"); (ii) as soon as
practicable, copies of any reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as practicable, a copy of
any Schedule 13D, 13G, 14D-1 or 13E-3 or Form 3, 4 and 5 received or prepared by
the Company from time to time; (iv) monthly statements setting forth such
information regarding the Company's results of operations and financial position
(including balance sheet, profit and loss statements but excluding data
regarding outstanding purchase orders) as is regularly prepared by
16-
management of the Company; and (v) such additional information concerning the
business and financial condition of the Company as the Representative may from
time to time reasonably request and which can be prepared or obtained by the
Company without unreasonable effort or expense. The Company will furnish to its
shareholders annual reports containing audited financial statements and such
other periodic reports as it may determine to be appropriate or as may be
required by law.
(h) Neither the Company nor any person that is
controlled by the Company will take any action designed to or which might be
reasonably expected to cause or result in the stabilization or manipulation of
the price of the Firm Shares.
(i) If the transactions contemplated by this
Agreement are consummated, the Representative shall retain the Fifty Thousand
Dollars ($50,000) previously paid to it, and the Company will pay or cause to be
paid the following: all costs and expenses incident to the performance of the
obligations of the Company under this Agreement, including, but not limited to,
the fees and expenses of accountants and counsel for the Company, the
preparation, printing, mailing and filing of the Registration Statement
(including financial statements and exhibits), Preliminary Prospectuses and the
Prospectus, and any amendments or supplements thereto, the printing and mailing
of the Selected Dealer Agreement, the issuance and delivery of the Shares to the
several Underwriters; all taxes, if any, on the issuance of the Shares; the
fees, expenses and other costs of qualifying the Shares for sale under the Blue
Sky or securities laws of those states in which the Shares are to be offered or
sold, the cost of printing and mailing the "Blue Sky Survey" and fees and
disbursements of counsel in connection therewith, including those of such local
counsel as may have been retained for such purpose; the filing fees incident to
securing any required review by the NASD; the cost of furnishing to the
Underwriters copies of the Registration Statement, Preliminary Prospectuses and
the Prospectus as herein provided; the costs of "bound volumes" for the
Representative and its counsel, and all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, Sands Brothers will, in its individual rather
than its representative capacity, deduct from the payment for the Firm Shares or
any Option Shares purchased, two percent (2%) of the gross proceeds of the
offering (less the sum of Fifty Thousand Dollars ($50,000) previously paid to
the Representative), as payment for the Representative's non-accountable expense
allowance relating to the transactions contemplated hereby.
17-
(j) In the event the transactions contemplated
hereby are not consummated by reason of any action by the Underwriter (except if
such prevention is based upon a breach by the Company of any covenant,
representation or warranty contained herein or because any other condition to
the Underwriter's obligations hereunder required to be fulfilled by the Company
is not fulfilled) the Company shall be liable for the actual accountable
out-of-pocket expenses of the Underwriter, including legal fees. In the event
the transactions contemplated hereby are not consummated by reason of any action
of the Company or because of a breach by the Company of any covenant,
representation or warranty herein, the Company shall be liable only for the
actual accountable out-of-pocket expenses of the Underwriter, including legal
fees. In the event the transactions contemplated hereby are not consummated for
any reason, should the Underwriter's out-of-pocket expenses equal an amount that
is less than the $50,000 advance received, the remaining sum will be returned to
the Company. In addition, if the Company elects not to proceed with the offering
contemplated hereby for any reason and subsequently engages in any public
offering, private placement, merger, acquisition of securities, joint venture or
other similar transaction within twelve (12) months following the Company's
election not to proceed, Representative shall have the right to act as
investment banker for the Company and to receive a fee in connection therewith
equal to five percent (5%) of the consideration paid or received in any such
transaction.
(k) The Company will apply the net proceeds from the
sale of the Shares in the manner set forth in the Prospectus under "Use of
Proceeds" and shall file such reports with the commission with respect to the
sale of the Shares and the application of the proceeds therefrom as may be
required in accordance with Rule 463 under the Act.
(l) During the six month period following the date
hereof, none of the Company's officers or directors will offer for sale or sell
or otherwise dispose of any securities of the Company owned by them, directly or
indirectly, in any manner whatsoever (including pursuant to Rule 144 under the
Act), and no holder of registration rights relating to the securities of the
Company will exercise any such registration rights, in either case, without
obtaining the prior written approval of the Representative. The Company will
deliver to the Representative the written undertakings as of the date hereof of
its officers and directors to this effect.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the twelve (12) months
following the date hereof without the Representative's prior written consent;
provided, however that the Company shall be permitted to file a Registration
18-
Statement on Form S-8 to cover Shares underlying options granted pursuant to the
Company's Stock Option Plan.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(o) The Company will maintain the listing of the
Shares on the NASDAQ National Market for so long as the Shares remain qualified
for such listing.
(p) Intentionally Omitted.
----------------------
(q) Subject to the sale of the Firm Shares, for a
period commencing the date of the Prospectus and expiring upon the earlier of
(i) three (3) years from the date of the Prospectus or (ii) such time in which
the Company consummates an underwritten secondary equity public offering, the
Company will, at Representative's option and if so requested by Representative,
recommend and use its best efforts to elect one designee of Representative, at
the option of Representative, either as a member of or nonvoting advisor to its
Board of Directors; such designee, if elected or appointed, shall attend
meetings of the Board and receive no more or less compensation than is paid to
other non-management directors of the Company and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to, food, lodging and transportation. The Company
agrees to indemnify and hold Representative and its designee harmless, to the
maximum extent permitted by law, against any and all claims, actions, awards and
judgments arising out of such designee's service as a director or advisor and in
the event the Company maintains a liability insurance policy affording coverage
for the acts of its officers and directors, to include each of Representative
and its designee as an insured under such policy.
If Representative does not exercise its option to
designate such member of or advisor to the Company's Board of Directors,
Representative shall nonetheless have the right to send a representative (who
need not be the same individual from meeting to meeting) to observe each meeting
of the Board of Directors. The Company agrees to give Representative notice of
each such meeting and to provide Representative with an agenda
19-
and minutes of the meeting no later than it gives such notice and provides such
items to the directors.
(r) Subject to the sale of the Firm Shares, the
Representative shall have the right of first refusal with respect to any public
or private sale of debt or equity securities (excluding sales to employees) of
the Company, any subsidiary or successor of the Company, or held by any of the
"Principal Shareholders" (i.e., holders of 5% or more of the Company's Common
Stock) during a three (3) year period following the date hereof; provided,
however, that Albert J. Agbay, the Company's Chairman and Chief Executive
Officer shall have the right to sell up to 20,000 shares of Common Stock per
calendar quarter pursuant to Rule 144 under the Act without offering the
Representative such right of first refusal. It is understood that if such a
proposed financing is offered to the Representative, the Representative shall
have ten (10) business days in which to determine whether or not to accept such
offer and, if the Representative refuses, and provided that such a financing is
consummated (a) with another underwriter or placement agent upon the same terms
and conditions as those offered to the Representative and (b) within six months
after the end of the aforesaid ten (10) business day period, this right of first
refusal shall thereafter be forfeited and terminated; provided, however, if the
financing is not consummated under the conditions of clauses (a) and (b) above,
then the right of first refusal shall once again be reinstated under the same
terms and conditions set forth in this paragraph (r). Anything contained in this
paragraph (r) to the contrary notwithstanding, (i) in the event that the Company
receives a letter of intent or other agreement in principle from a "Bulge
Bracket" Underwriter (as such term is commonly known in the investment
community) or a top tier technology underwriter and is otherwise ready, willing
and able to proceed with such offering, then the Company shall satisfy its
obligations under this paragraph (r) if the Company utilizes its BEST EFFORTS to
cause the Representative to participate in such offering as a co-manager (it
being understood that such participation by the Representative shall nonetheless
be at the discretion of the lead underwriter) and (ii) the foregoing right of
first refusal shall not apply to Company directed private placement transactions
of up to $5 million.
(s) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Representative, within a reasonable period
from the date hereof, four (4) bound volumes, including the Registration
Statement, as amended or supplemented, all exhibits to the Registration
Statement, the Prospectus and all other underwriting documents.
(t) INTENTIONALLY OMITTED.
20-
(u) The Company shall retain a transfer agent for
the shares of Common Stock, reasonably acceptable to the Representative, for a
period of five (5) years following the Effective Date. In addition, for a period
of three (3) years from the Effective Date, the Company, at its own expense,
shall cause such transfer agent to provide the Representative, if so requested
in writing, with copies of the Company's daily transfer sheets, and, when so
requested by the Representative, a current list of the Company's security
holders, including a list of the beneficial owners of securities held by a
depository trust company and other nominees.
(v) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Moody's Industrial Manual (Moody's OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing for a
period of five (5) years from the Effective Date.
(w) For a period of two (2) years following the
Effective Date, the Company shall provide the Representative, on a not less than
annual basis, with internal forecasts setting forth projected results of
operations for each quarterly and annual period in the two (2) fiscal years
following the respective dates of such forecasts. Such forecasts shall be
provided to the Representative more frequently than annually if revised
forecasts which reflect more current information, and significantly revised
assumptions or indicate future results that differ materially from those set
forth in the forecasts.
(x) For a period of five (5) years following the
Effective Date, or until such earlier time as the shares of Common Stock are
listed on the New York Stock Exchange or the American Stock Exchange, the
Company shall cause its legal counsel to provide the Representative with a list,
to be updated at least annually, of those states in which the shares of Common
Stock may be traded in non-issuer transactions under the Blue Sky laws of the 50
states.
(y) For a period of five (5) years following the
Effective Date, the Company shall continue to retain Arthur Andersen, LLP (or a
nationally recognized accounting firm acceptable to the Representative) as the
Company's independent public accountants and shall promptly, upon the Company's
receipt thereof, submit to the Representative copies of such accountants'
management reports and similar correspondence between such accountants and the
Company.
(z) For a period of five (5) years following the
Effective Date, the Company, at its expense, shall cause its then independent
certified public accountants, as described in
21-
Section 5(x) above, to review (but not audit) the Company's financial statements
for each of the first three fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to shareholders.
(aa) For a period of twenty-five (25) days following
the Effective date, the Company will not issue press releases or engage in any
other publicity without the Representative's prior written consent, other than
normal and customary releases issued in the ordinary course of the Company's
business or those releases required by law.
6. Conditions of the Underwriters' Obligation to Purchase
Shares from the Company. The obligation of the several Underwriters to purchase
and pay for the Firm Shares which it has agreed to purchase from the Company is
subject (as of the date hereof and the Closing Date) to the accuracy in all
material respects of the representations and warranties of the Company herein,
to the accuracy of the statements of the Company or its officers made pursuant
hereto, to the performance in all material respects by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement will have become
effective not later than 10:30 A.M., New York City time, on the day following
the date of this Agreement, or at such later time or on such later date as the
Representative may agree to in writing; prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings for that purpose will have been initiated or will be pending
or, to the best of the Representative's or the Company's knowledge, will be
contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Representative's Counsel.
(b) At the time that this Agreement is executed and
at the Closing Date, there will have been delivered to the Underwriters a signed
opinion of Choate, Hall & Stewart, counsel for the Company, dated as of the date
hereof or the Closing Date, as the case may be (and any other opinions of
counsel referred to in such opinion of Company Counsel or relied upon by Company
Counsel in rendering their opinion), substantially as set forth in Exhibit 6b.
(c) At the Closing Date (i) the Registration
Statement and the Prospectus and any amendments or supplements thereto will
conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement
22-
thereto will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there will not have been any
material adverse change in the financial condition, results of operations or
general affairs of the Company from that set forth or contemplated in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicates might occur after the Effective Date;
(iii) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no material
transaction, contract or agreement entered into by the Company, other than in
the ordinary course of business, which would be required to be set forth in the
Registration Statement and the Prospectus, other than as set forth therein; and
(iv) no action, suit or proceeding at law or in equity will be pending or, to
the best of the Company's knowledge, threatened against the Company which is
required to be set forth in the Registration Statement and the Prospectus, other
than as set forth therein, and no proceedings will be pending or, to the best of
the Company's knowledge, threatened against the Company before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially adversely affect the
business, property, financial condition or results of operations of the Company,
other than as set forth in the Registration Statement and the Prospectus. At the
Closing Date, there will be delivered to the several Underwriters a certificate
signed by the Chairman of the Board or the President or a Vice President of the
Company, dated the Closing Date, evidencing compliance with the provisions of
this Section 6(c) and stating that the representations and warranties of the
Company set forth in Section 4 hereof were accurate and complete in all material
respects when made on the date hereof and are accurate and complete in all
material respects on the Closing Date as if then made; that the Company has
performed all covenants and complied with all conditions required by this
Agreement to be performed or complied with by the Company prior to or as of the
Closing Date; and that, as of the Closing Date, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been initiated or, to his knowledge, are contemplated or
threatened. In addition, the Representative will have received such other and
further certificates of officers of the Company as the Representative or
Representative's Counsel may reasonably request.
(d) At the time that this Agreement is executed and
at the Closing Date, the several Underwriters will have received a signed letter
from Arthur Andersen, LLP dated the date such letter is to be received by the
Underwriters and addressed
23-
to them, confirming that it is a firm of independent public accountants within
the meaning of the Act and Regulations and stating that: (i) insofar as reported
on by them, in their opinion, the financial statements of the Company included
in the Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable Regulations; (ii) on the
basis of procedures and inquiries (not constituting an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus and the latest available unaudited
interim financial statements of the Company, if more recent than that appearing
in the Registration Statement and Prospectus, inquiries of officers of the
Company responsible for financial and accounting matters as to the transactions
and events subsequent to the date of the latest audited financial statements of
the Company, and a reading of the minutes of meetings of the shareholders, the
Board of Directors of the Company and any committees of the Board of Directors,
as set forth in the minute books of the Company, nothing has come to their
attention which, in their judgment, would indicate that (A) during the period
from the date of the latest financial statements of the Company appearing in the
Registration Statement and Prospectus to a specified date not more than three
business days prior to the date of such letter, there have been any decreases in
net current assets or net assets as compared with amounts shown in such
financial statements or decreases in net sales or increases in total or per
share net loss compared with the corresponding period in the preceding year or
any change in the capitalization or long-term debt of the Company, except in all
cases as set forth in or contemplated by the Registration Statement and the
Prospectus, and (B) the unaudited interim financial statements of the Company,
if any, appearing in the Registration Statement and the Prospectus, do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly presented in
conformity with generally accepted accounting principles and practices on a
basis substantially consistent with the audited financial statements included in
the Registration Statement or the Prospectus; and (iii) they have compared
specific dollar amounts, numbers of shares, numerical data, percentages of
revenues and earnings, and other financial information pertaining to the Company
set forth in the Prospectus (with respect to all dollar amounts, numbers of
shares, percentages and other financial information contained in the Prospectus,
to the extent that such amounts, numbers, percentages and information may be
derived from the general accounting records of the Company, and excluding any
questions requiring an interpretation by legal counsel) with the results
obtained from the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the letter,
and found them to be in agreement.
24-
(e) There shall have been duly tendered to the
Representative certificates representing the Firm Shares to be sold on the
Closing Date.
(f) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Shares
by the Underwriters.
(g) No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any time
prior to the Closing Date or the Option Closing Date, as the case may be, for
any member firm of the NASD to execute transactions (as principal or as agent)
in the Shares, and no proceedings for the purpose of taking such action shall
have been instituted or shall be pending, or, to the best of the Underwriters'
or the Company's knowledge, shall be contemplated by the Commission or the NASD.
The Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(h) All proceedings taken at or prior to the Closing
Date or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Representative and to Representative's Counsel, and
such counsel shall have been furnished with all such documents, certificates and
opinions as they may reasonably request for the purpose of enabling them to pass
upon the matters referred to in Section 6(c) hereof and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any covenants of the Company, or
the compliance by the Company with any of the conditions herein contained.
If any of the conditions specified in this Section
6 have not been fulfilled, this Agreement may be terminated by the
Representative on notice to the Company.
7. Indemnification.
----------------
(a) The Company agrees to indemnify and hold
harmless each Underwriter and each officer, director, partner, employee and
agent of each Underwriter, and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, from and against any and all losses, claims, liabilities, expenses and
damages, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, any and all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts paid in
settlement of,
25-
any action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject, under the Act or otherwise, insofar as such losses,
claims, liabilities, expenses or damages (i) arise out of or are based on any
untrue statement or alleged untrue statement of any material fact contained in
(A) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto or (B) any blue sky application or other
document executed by the Company specifically for that purpose or based on
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or the omission or alleged
omission to state in such document or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company contained
herein; or (iii) arise out of or are based on any failure of the Company to
perform its obligations hereunder or under law in connection with the
transactions contemplated hereby; provided, however, that the Company will not
be liable in any such case to the extent, but only to the extent, that any such
loss, claim, liability, expense or damage arises from the sale of Units in the
public offering to any person by an Underwriter and is based on an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance on and in conformity with written information furnished to the Company
by or on behalf of the Underwriters specifically for inclusion in the
Registration Statement or any such amendment or supplement thereof or any such
preliminary Prospectus or the Prospectus or any such amendment or supplement
thereto. This indemnity will be in addition to any liability which the Company
may otherwise have.
(b) Each Underwriter severally, but not jointly,
will indemnify and hold harmless the Company, each of its directors, each
nominee (if any) for director named in the Prospectus, each of its officers who
have signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
each Underwriter, as set forth in Section 7(a), but only insofar as such losses,
claims, liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement or any omission or alleged omission made
in reliance on and in conformity with written information furnished to the
Company by you or by any Underwriter through you specifically for use in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto.
26-
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify in writing the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 7. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions herein stated, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is an Underwriter or a person who controls such
Underwriter within the meaning of the Act, the fees and expenses of such counsel
shall be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the named parties to any such action (including any impleaded parties)
include both such Underwriter or such controlling person and the indemnifying
party and in the judgment of the Representative, it is advisable for the
Representative or such Underwriters or controlling persons to be represented by
separate counsel (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of such Underwriter or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for all such Underwriters
and controlling persons, which firm shall be designated in writing by you). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnifying party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnifying party.
27-
8. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) any Underwriter makes claim
for indemnification pursuant to Section 7 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 8 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
respective controlling persons in the aggregate were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Section 7
and (b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of Units
purchased by such Underwriter to the number of Units purchased by all
contributing Underwriters) of the portion of such losses, claims, damages or
liabilities for which the Underwriters are responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to
28-
contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the term "Underwriter" includes
any officer, director, or other person who controls an Underwriter within the
meaning of Section 15 of the Act, the word "Company" includes any officer,
director, or person who controls the Company within the meaning of Section 15 of
the Act. If the full amount of the contribution specified in this paragraph is
not permitted by law, then any Underwriter and each person who controls any
Underwriter shall be entitled to contribution from the Company, its officers,
directors and controlling persons to the full extent permitted by law. The
foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
9. Substitution of Underwriters. If any Underwriters shall for
any reason not permitted hereunder cancel their obligations to purchase the Firm
Shares hereunder, or shall fail to take up and pay for the number of Firm Shares
set forth opposite their respective names in Schedule A hereto upon tender of
such Firm Shares in accordance with the terms hereof, then:
(a) If the aggregate number of Firm Shares which
such Underwriter or Underwriters agreed but failed to purchase does not exceed
10% of the total number of Firm Shares, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase.
(b) If any Underwriter or Underwriters so default
and the agreed number of Firm Shares with respect to which such default or
defaults occurs is more than 10% of the total number of Firm Shares, the
remaining Underwriters shall have the right to take up and pay for (in such
proportion as may be agreed upon among them) the Firm Shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If such
remaining Underwriters do not, at the First Closing Date, take up and pay for
the Firm Shares which the defaulting Underwriter or Underwriters agreed but
failed to purchase, the time for delivery of the Firm Shares shall be extended
to the next business day to allow the several Underwriters the privilege of
substituting within twenty-four hours (including nonbusiness hours) another
underwriter or underwriters satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid, within such
twenty-four hour period, the time of delivery of the Firm Shares may, at the
option of the Company, be
29-
again extended to the next following business day, if necessary, to allow the
Company the privilege of finding within twenty-four hours (including nonbusiness
hours) another underwriter or underwriters to purchase the Firm Shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Firm Shares of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective numbers of Firm Shares to be purchased
by the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Firm Shares agreed
to be purchased by the defaulting Underwriters or substitute another underwriter
or underwriters as aforesaid, and the Company shall not find or shall not elect
to seek another underwriter or underwriters for such Firm Shares as aforesaid,
then this Agreement shall terminate.
If, following exercise of the option provided in Section 3(a) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Shares at the Option Closing Date,
or shall fail to take up and pay for the number of Option Shares, which they
become obligated to purchase at the Option Closing Date upon tender of such
Option Shares in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Shares of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all such Option Shares, then the Underwriters shall be entitled
to purchase the number of Option Shares for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
30-
10. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Underwriters, the Company or any of its directors and
officers, or any controlling person referred to in said Sections, and shall
survive the delivery of, and payment for, the Shares.
11. Termination of Agreement.
-------------------------
(a) The Company, by written or telegraphic notice to
the Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Firm Shares for public offering. The time when the
Underwriter "releases the Firm Shares for public offering" for the purposes of
this Section 10 means the time when the Underwriter releases for publication the
first newspaper advertisement, which is subsequently published, relating to the
Firm Shares or the time when the Underwriter releases for delivery to members of
a selling group copies of the Prospectus and an offering letter or an offering
telegram relating to the Firm Shares, whichever will first occur.
(b) This Agreement, including without limitation,
the obligation to purchase the Firm Shares and the obligation to purchase the
Option Shares after exercise of the option referred to in Section 3 hereof, are
subject to termination in the absolute discretion of the Underwriter, by notice
given to the Company prior to delivery of and payment for all the Firm Shares or
the Option Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or covenants in Section 5 hereof
cannot be complied with; (iii) trading in securities generally on the New York
Stock Exchange or the American Stock Exchange will have been suspended; (iv)
limited or minimum prices will have been established on either such Exchange;
(v) a banking moratorium will have been declared either by United States federal
or New York State authorities; (vi) any other restrictions on transactions in
securities materially affecting the free market for securities or the payment
for such securities, including the Firm Shares or the Option Shares, will be
established by NASDAQ, by the Commission, by any other United States federal or
state agency, by action of the Congress or by Executive Order; (vii)
31-
trading in any securities of the Company shall have been suspended or halted by
any national securities exchange, the NASD or the Commission; (viii) there has
been a materially adverse change in the condition (financial or otherwise),
prospects or obligations of the Company; (ix) the Company will have sustained a
material loss, whether or not insured, by reason of fire, flood, accident or
other calamity; (x) any action has been taken by the government of the United
States or any department or agency thereof which, in the judgment of the
Underwriter, has had a material adverse effect upon the market or potential
market for securities in general; or (xi) the market for securities in general
or political, financial or economic conditions will have so materially adversely
changed that, in the judgment of the Underwriter, it will be impracticable to
offer for sale, or to enforce contracts made by the Underwriter for the resale
of, the Firm Shares or the Option Shares, as the case may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 11 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 10 of this
Agreement.
12. Information Furnished by the Underwriters to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(e), 7(a), 7(b) and
8 hereof, the only information given by the Underwriters to the Company for use
in the Prospectus are the statements set forth on page [2] with respect to
stabilization, under the heading "Underwriting" and the identity of counsel to
the Underwriters under the heading "Legal Matters"], as such information appears
in any Preliminary Prospectus and in the Prospectus.
13. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Placement Agent, to 90 Park Avenue, New York, New
York 10016, Attention: Howard Sterling, Executive Vice President, with a copy to
Littman Krooks Roth & Ball P.C., Attn: Mitchell C. Littman, Esq., 655 Third
Avenue, New York, New York 10017; if to the Com- pany, addressed to it at 182
Turnpike Road, Westborough, MA 01581 Attention: Albert J. Agbay, Chairman and
Chief Executive Officer,
32-
with a copy to Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston,
MA 02109, Attention: Stephen K. Fogg, Esq. and William C. Rogers, Esq.; or, in
each case, to such other address as the parties may hereinafter designate by
like notice.
This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
14. Parties in Interest. This Agreement is made solely for the
benefit of the several Underwriters, the Company and, to the extent expressed,
any person controlling the Company or any of the Underwriters, each officer,
director, partner, shareholder, employee and agent of the several Underwriters,
the directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns, and, no other person will acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" will not include any
purchaser of the Shares from any of the several Underwriters, as such purchaser.
15. Validity. In case any term of this Agreement will be held
invalid, illegal or unenforceable, in whole or in part, the validity of any
other terms of this Agreement will not in any way be affected thereby.
16. Entire Agreement. This Agreement contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and there are no representations, inducements, promises or agreements,
oral or otherwise, not embodied herein.
33-
17. Counterparts. This Agreement may be executed in
counterparts and each of such counterparts will for all purposes be deemed to be
an original, and such counterparts together will constitute one and the same
instrument.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
NEXAR TECHNOLOGIES, INC.
By: ______________________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
SANDS BROTHERS & CO., LTD.
By:_________________________________
For itself and as Representative
of the several Underwriters
34-
SCHEDULE A
Name of Underwriter Number of Firm Shares to be Purchased
- ------------------- -------------------------------------
Sands Brothers & Co., Ltd.
Total: 2,500,000
=========
9.
1.311982
35-
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION, AS AMENDED
----------------------------------------
OF
--
Nexar Technologies,Inc.
-----------------------
-----------------------
The undersigned, a natural person, for the purpose of
organizing a corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware
Code and the acts amendatory thereof and supplemental thereto, and known,
identified and referred to as the "General Corporation Law of the State of
Delaware"), hereby certifies that:
FIRST: The name of the Corporation (hereinafter called the
"corporation") is
Nexar Technologies, Inc.
SECOND: The address, including street, number, city, and
county, of the registered office of the corporation in the State of Delaware is
32 Lookerman Square, Suite L-100, City of Dover, County of Kent; and the name of
the registered agent of the corporation in the State of Delaware is the
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the
corporation shall have authority to issue is 40,000,000, of which 30,000,000
shall be Common Stock, $0.01 par value per share, and 10,000,000 shall be
Preferred Stock, $0.01 par value per share.
The Preferred Stock may be divided into, and may be issued
from time to time in one or more series. The Board of Directors of the
Corporation (the "Board of Directors") is authorized from time to time to
establish and designate one or more series of Preferred Stock by fixing and
determining the variations in the relative rights and preferences as between and
among such series and any other classes of capital stock of the corporation and
fixing or altering the number of shares comprising any such series and the
designation thereof. The authority of the Board of Directors from time to time
with respect to each series shall include, but not be limited to, determination
of the following:
(a) The designation of the series;
(b) The number of shares of the series and (except where
otherwise provided in the creation of the series) any subsequent
increase or decrease therein;
(c) The dividends, if any, for shares of the series and the
rates, conditions, times, and relative preferences thereof;
(d) The redemption rights, if any, and price or prices for
shares of the series;
(e) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series;
(f) The relative rights of shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation;
(g) Whether the shares of the series shall be convertible into
shares of any other class or series of shares of the Corporation, and,
if so, the specification of such other class or series, the conversion
price or prices or rate or rates, any adjustments thereof, the date or
dates as of which such shares shall be convertible and all other terms
and conditions upon which such conversion may be made;
(h) The voting rights, if any, of the holders of such series:
and
(i) Such other designations, powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof.
FIFTH: The name and the mailing address of the incorporator
are as follows:
NAME MAILING ADDRESS
---- ---------------
N.S. Truax 32 Lookerman Square, Suite L-100
Dover, Delaware 19904
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and
its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this corporation under Section 279 of
Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all of the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this corporation, as the
case may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the ByLaws.
The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning, to wit, the total number of
directors which the corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other By-Laws of the corporation have
been adopted, amended, or repealed, as the case may be, in accordance
with the provisions of Section 109 of the General Corporation Law of
the State of Delaware, and, after the corporation has received any
payment for any of its stock, the power to adopt, amend, or repeal the
By-Laws of the corporation may be exercised by the Board of Directors
of the corporation; provided, however, that any provision for the
classification of directors of the corporation for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the
General Corporation Law of the State of Delaware shall be set forth in
an initial By-Law or in a By-Law adopted by the stockholders entitled
to vote of the corporation unless provisions for such classification
shall be set forth in this certificate of incorporation.
2
3. Whenever the corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the provisions
of paragraph (2) of subsection (b) of section 242 of the General
Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the
corporation is hereby eliminated to the fullest extent permitted by the
provisions of paragraph (7) of subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented.
TENTH: The corporation shall, to the fullest extent permitted
by the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws.
and all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on March 7, 1995.
N.S. Truax
Incorporator
ds1/312270
3
EXHIBIT 3.2
FORM OF
FIRST RESTATED
CERTIFICATE OF INCORPORATION
OF
NEXAR TECHNOLOGIES, INC.
Nexar Technologies, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is:
Nexar Technologies, Inc.
2. The Certificate of Incorporation of the corporation was filed with
the Secretary of State of Delaware on March 7, 1995 under its original name,
Tantric Systems Corp. A Certificate of Amendment was filed with the Secretary of
State of Delaware on March 28, 1995 changing the corporation's name to Dynasys
Systems Corporation. Additional Certificates of Amendment were filed with the
Secretary of State of Delaware on January 22, 1996 and March 28, 1996, the
latter of which changed the name of the corporation to Nexar Technologies, Inc.
3. This First Restated Certificate of Incorporation integrates and
further amends the Certificate of Incorporation of the corporation, as
previously restated and amended, by amending Articles Second, Fourth, Eighth,
Ninth, Tenth and Eleventh, and by adding Articles Twelfth, Thirteenth,
Fourteenth and Fifteenth, all as set forth in this First Restated Certificate of
Incorporation.
4. This First Restated Certificate of Incorporation was duly proposed
and declared advisable by the Board of Directors of the corporation in
accordance with the applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State
of Delaware. The stockholders of the corporation duly approved this First
Restated Certificate of Incorporation without a meeting by less than unanimous
written consent, and prompt notice has been given to those stockholders who have
not consented in writing, all in accordance with Section 228 of the General
Corporation Law of the State of Delaware. The capital of the corporation has not
been reduced by the amendments effected by this First Restated Certificate of
Incorporation.
5. This First Restated Certificate of Incorporation, as amended and
restated herein, shall upon the effective date hereof, read as follows:
FIRST: The name of the corporation is:
Nexar Technologies, Inc.
SECOND: The registered office of the corporation in the State of
Delaware is located at 32 Loockerman Square, Suite L-100, City of Dover, County
of Kent and the name of its registered agent is Corporation Service Company,
formerly known as The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the
corporation shall have authority to issue is 40,000,000, of which 30,000,000
shall be common stock, $0.01 par value per share ("Common Stock"), and
10,000,000 shall be preferred stock, $0.01 par value per share ("Preferred
Stock"). The preferences, qualifications, limitations, restrictions and special
or relative rights of each class of stock are as set forth below:
A. Common Stock. All shares of Common Stock will be identical
and will entitle holders thereof to the same preferences,
qualifications, limitations, restrictions and relative and
special rights.
(1) Voting Rights. Each outstanding share of Common Stock
shall be entitled to vote on each matter on which the
stockholders of the corporation shall be entitled to vote,
and each holder of Common Stock shall be entitled to one vote
for each share of such Common Stock held by such holder.
2
(2) Preemptive Rights. The holders of Common Stock shall not
have preemptive rights to acquire additional shares of the
stock of the corporation.
(3) Cumulative Voting. The holders of Common Stock shall not
be entitled to cumulate their shares for the purpose of
electing directors of the corporation, or for any other
purpose.
(4) Dividends. The Board of Directors of the corporation (the
"Board of Directors") may cause dividends to be paid to
holders of shares of Common Stock out of funds legally
available for the payment of dividends. Any dividend or
distribution on the Common Stock shall be subject to the
rights of the holders of the Preferred Stock.
(5) Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation,
the holders of the Common Stock shall be entitled, after
payment or provision for payment of the debts and other
liabilities of the corporation and the payment to the holders
of the Preferred Stock of any preference on distributions in
the liquidation, dissolution or winding up of the
corporation, to share on a per share basis in the remaining
net assets of the corporation.
B. Preferred Stock. The Preferred Stock may be divided into, and
may be issued from time to time in, one or more series. The
Board of Directors is authorized from time to time to
establish and designate one or more series of Preferred
Stock, in addition to the series established and designated
in this Article FOURTH, by fixing and determining the
variations in the relative rights and preferences as between
and among such series and any other classes of capital stock
of the corporation and fixing or altering the number of
shares comprising any such series and the designation
thereof. The authority of the Board of Directors from time to
time with respect to each subsequent series of Preferred
Stock shall include, but not be limited to, determination of
the following: (1) the designation of the series; (2) the
number of shares of the series and (except where otherwise
provided in the creation of the series) any subsequent
increase or decrease therein; (3) the dividends, if any, for
shares of the series and the rates, conditions, times, and
relative preferences thereof; (4) the redemption rights, if
any, and price or prices for shares of the series; (5) the
terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series; (6) the
relative rights of shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the corporation; (7) whether the shares
of the series shall be convertible into shares of any other
class or series of shares of the corporation, and, if so, the
specification of such other class or series, the conversion
price or prices or rate or rates, any adjustments thereof,
the date or dates as of which such
3
shares shall be convertible and all other terms and
conditions upon which such conversion may be made; (8) the
voting rights, if any, of the holders of such series; and (9)
such other designations, powers, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof.
Subject to the foregoing powers of the Board of Directors
with respect to series of Preferred Stock, the following is a
statement of the designation of a series of Preferred Stock
designated Convertible Preferred Stock, which shall consist
of 45,684 shares, and the powers, preferences and relative
rights, qualifications, limitations and restrictions thereof:
(1) Voting Rights. Each outstanding share of Convertible
Preferred Stock shall be entitled to vote on each matter on
which the stockholders of the corporation shall be entitled
to vote, and each holder of Convertible Preferred Stock shall
have the voting rights equal to the number of shares of
Common Stock such Convertible Preferred Stock is convertible
into on the record date of any matter to be voted on by the
stockholders of the corporation.
(2) Preemptive Rights. The holders of Convertible Preferred
Stock shall not have preemptive rights to acquire additional
shares of the stock of the corporation.
(3) Cumulative Voting. The holders of Convertible Preferred
Stock shall not be entitled to cumulate their shares for the
purpose of electing directors of the corporation, or for any
other purpose.
(4) Dividends. The Board of Directors may cause dividends to
be paid to holders of shares of Convertible Preferred Stock
out of funds legally available for the payment of dividends.
Any dividend or distribution on the Convertible Preferred
Stock shall be paid at the same rate and in the same manner
as on the Common Stock.
(5) Conversion Rights. Each share of the Convertible
Preferred Stock shall be converted at any time at the option
of the holder thereof
at the office of the corporation or any transfer agent for
the Convertible Preferred Stock into such number (rounding to
the closest whole number) of fully paid and non-assessable
shares of Common Stock of the corporation as is determined by
dividing the number of shares of Convertible Preferred Stock
being converted by _____________.
(6) Liquidation.
4
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation,
then, before any distribution or payment shall be made to or
set apart for the holders of Common Stock, the holders of the
Convertible Preferred Stock shall be entitled to receive from
the assets of the corporation, with respect to each share of
Convertible Preferred Stock held, an amount equal to $100.00
per share (the "Convertible Preferred Liquidation Preference")
(such amount to be adjusted appropriately in the event of any
stock dividend, stock split or a combination, or a similar
recapitalization affecting the Convertible Preferred Stock)
plus, in the case of each share, an amount equal to any
dividend declared but unpaid thereon. If, upon the occurrence
of any such liquidation, dissolution or winding up, the assets
to be thus distributed among the holders of the Convertible
Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amount, then
each issued and outstanding share of Convertible Preferred
Stock shall entitle the holder thereof to a proportion of the
assets to be distributed on a pro rata basis according to the
Convertible Preferred Liquidation Preference, and the holders
of the Common Stock shall in no event be entitled to
participate in any such distribution in respect of their
shares.
(b) A merger or consolidation of the corporation into
or with any other corporation, a merger of any other
corporation into the corporation, or a sale, lease, exchange,
transfer or similar disposition (other than a mortgage, grant
of a security interest or pledge) by the corporation in one
or a series of related transactions of all or substantially
all of its assets shall be deemed, for purposes of this
section (6) to be a liquidation, dissolution or winding up of
the corporation unless, in the case of any such merger or
consolidation, (i) the holders of Convertible Preferred Stock
retain their existing shares of Convertible Preferred Stock
or receive a security of the surviving or resulting
corporation which entitles them to substantially equivalent
rights and obligations as those of the Convertible Preferred
Stock held by them or (ii) the holders of at least sixty
percent (60%) of the then outstanding shares of the
Convertible Preferred Stock agree that such merger or a
consolidation or sale shall not be deemed a liquidation,
dissolution or winding up of the corporation. Written notice
of any proposed merger, consolidation, sale, lease, exchange,
transfer or similar disposition meeting the foregoing
description, in reasonable detail, shall be furnished to the
holders of the Convertible Preferred Stock no later than
thirty (30) days prior to the anticipated effective date
thereof.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
Name Mailing Address
---- ---------------
5
N.S. Truax 32 Loockerman Square, Suite L-100
Dover, Delaware 19904
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appoint for this corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequent of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH: The management of the business and the conduct of the affairs
of the Corporation shall be vested in the Board of Directors. In furtherance and
not in limitation of the powers conferred by statute, the Board of Directors is
expressly authorized:
To make, alter, amend, or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real
and personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property and assets
of the corporation, including its good will and its corporate franchises, upon
such terms and conditions and for such consideration, which may consist in whole
or in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its Board of Directors
shall deem expedient and for the best interests of the corporation.
6
To determine the extent, if any, to which and the time and place at
which, and the conditions under which any stockholder of the Corporation may
examine books and records now or hereafter required by statute to be kept open
for inspection of stockholders of the Corporation.
To provide, in any vote or votes authorizing liquidation of the
Corporation or proceedings for its dissolution, for the distribution pro rata
among the stockholders of the Corporation of assets of the Corporation, wholly
or in part or kind, whether such assets be in cash or other property, that the
board of directors of the Corporation may determine the value of the different
assets of the Corporation for the purpose of such liquidation and that the board
of directors may divide or authorize the division of such assets of the
Corporation or any part thereof among the stockholders and the Corporation so
that each stockholder will receive a proportionate amount in value (determined
as aforesaid) of cash or property of the Corporation upon such liquidation or
dissolution even though every stockholder may not receive a strictly
proportionate part of each such asset.
NINTH: Meetings of stockholders may be held at such place, either
within or without the State of Delaware, as the by-laws may provide. The books
of the corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the by-laws of the
corporation. Elections of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
TENTH: Any amendment, repeal, or other alteration of this First
Restated Certificate of Incorporation shall, unless proposed and declared
advisable by the Board of Directors, require the affirmative vote of at least
two-thirds of the outstanding shares of capital stock of the corporation
entitled to vote in the election of directors. Subject to the foregoing, the
corporation reserves the right to amend, alter, change or repeal any provision
contained in this certificate of incorporation, in the manner now or hereafter
prescribed by statute and this certificate of incorporation, and all rights
conferred upon a stockholder, director or officer herein, are granted subject to
this reservation.
ELEVENTH: Whenever the corporation shall be authorized to issue more
than one class of stock, no outstanding share of any class of stock which is
denied voting power under the provisions of the certificate of incorporation
shall entitle the holder thereof to the right to vote at any meeting of
stockholders except as the provisions of paragraph (2) of subsection (b) of
Section 242 of the General Corporation Law of the State of Delaware shall
otherwise require; provided, that no share of any such class which is otherwise
denied voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
TWELFTH: No director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability, (i) for any breach of the director's
duty of loyalty to
7
the corporation or its stockholders, (ii) for acts of omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware General Corporation Law is amended after approval by the stockholders
of this Article TWELFTH to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended from time to
time. Any repeal or modification of this Article TWELFTH shall not increase the
personal liability of any director of the corporation for any act or occurrence
taking place prior to such repeal or modification, or otherwise adversely affect
any right or protection of a director of the corporation existing hereunder
prior to the time of such repeal or modification.
THIRTEENTH: The corporation shall, to the fullest extent permitted
under the General Corporation Law of the State of Delaware, as amended from time
to time, indemnify each of its directors, officers, employees and agents (each
an "Indemnified Party") against all expenses (including, without limitation,
attorneys' fees and expenses), liabilities, judgments, fines and amounts paid or
otherwise due in respect of any action, suit or proceeding in which such
Indemnified Party may be involved or with which he may be threatened, as a party
or otherwise, whether or not he continues to be such at the time such expenses
and liabilities shall have been imposed or incurred, by reason of his actions or
omissions in connection with services rendered directly or indirectly to the
corporation, such indemnification to include prompt payment of expenses in
advance of the final disposition of any such action, suit or proceeding.
FOURTEENTH:
(a) Number, Terms and Election of Directors.
Subject to the rights, if any, of the holders of any class or series of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors of the corporation shall be fixed and may be increased or
decreased from time to time by the Board of Directors, but in no case shall the
number be less than three nor more than fifteen.
The directors shall be divided into three classes, as nearly equal in
number as possible. One class of directors has been initially elected for a term
expiring at the annual meeting of stockholders to be held in 1996, another class
of directors has been initially elected for a term expiring at the annual
meeting of stockholders to be held in 1997, and another class of directors has
been initially elected for a term expiring at the annual meeting of stockholders
to be held in 1998, with members of each class to hold office until their
successors are elected and qualified. At each succeeding annual meeting of the
stockholders of the corporation, the successors of the class of directors whose
term expires at that meeting shall be elected by plurality vote of all votes
cast at such meeting to hold
8
office for a term expiring at the annual meeting of stockholders held in the
third year following their year of election.
(b) Newly Created Directorships and Vacancies.
Subject to the rights, if any, of the holders of any and all series of
Preferred Stock to elect additional directors pursuant to the terms and
conditions of such Preferred Stock, newly created directorships resulting from
any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the board
of directors, or by a sole remaining director. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of an incumbent director.
(c) Removal.
Subject to the rights, if any, of the holders of any and all series of
Preferred Stock to elect additional directors pursuant to the terms and
conditions of such Preferred Stock, any director may be removed from office by
the stockholders only for cause and only in the following manner. At any annual
meeting or special meeting of the stockholders of the corporation, the notice of
which shall state that the removal of a director or directors is among the
purposes of the meeting, the affirmative vote of the holders of at least a
majority of the outstanding shares of capital stock of the corporation entitled
to vote generally in the election of the directors, voting together as a single
class, may remove such director or directors for cause.
FIFTEENTH: Subject to the rights of the holders of any and all series
of Preferred Stock:
(a) any action required or permitted to be taken by the
stockholders of the corporation must be effected at a duly called
annual or special meeting of the stockholders of the corporation and
may not be effected by any consent in writing of such stockholders; and
(b) special meetings of stockholders of the corporation may be
called only by the Chairman of the Board of Directors or the Chief
Executive Officer of the corporation or by the Secretary of the
corporation within ten (10) days after receipt of the written request
of a majority of the Board of Directors.
9
[Signatures appear on the following page.]
10
IN WITNESS WHEREOF, said NEXAR TECHNOLOGIES, INC. has caused its
corporate seal to be hereunto affixed and this First Restated Certificate of
Incorporation to be signed by Albert J. Agbay, its President, and attested by
Steven Georgiev, its Secretary, this ____ day of December, 1996.
By: ____________________________
Albert J. Agbay, President
ATTEST:
- ---------------------------
Steven Georgiev, Secretary
[Corporate Seal]
ds1-294649.1
11
EXHIBIT 3.3
FIRST AMENDED AND RESTATED BY-LAWS
OF
NEXAR TECHNOLOGIES, INC.
(the "Corporation")
ARTICLE I.
----------
Certificate of Incorporation
----------------------------
These by-laws, the powers of the Corporation and of its directors and
stockholders, and all matters concerning the conduct and regulation of the
business of the Corporation, shall be subject to such provisions in regard
thereto as are set forth in the certificate of incorporation filed pursuant to
the General Corporation Law of Delaware which is hereby made a part of these
by-laws.
The term "certificate of incorporation" in these by-laws, unless the
context requires otherwise, includes not only the original certificate of
incorporation filed to create the Corporation but also all other restated
certificates, amendments, agreements of merger or consolidation, plans of
reorganization, or other instruments, howsoever designated, filed pursuant to
the General Corporation Law of Delaware which have the effect of amending or
supplementing in some respect the Corporation's original certificate of
incorporation.
ARTICLE II.
-----------
Annual Meeting
--------------
The annual meeting of stockholders shall be held, within or without the
State of Delaware, on the date and at the time fixed, from time to time, by the
directors, provided that the first annual meeting shall be held on a date within
thirteen months after the organization of the corporation, and each successive
annual meeting shall be held on a date within thirteen months after the date of
the preceding annual meeting. Purposes for which an annual meeting is to be
held, in addition to those prescribed by law, by the certificate of
incorporation or by these by-laws, may be specified by the directors or the
president and shall be included in the notice of the meeting. If the board of
directors determines that, in the interest of an informed stockholder vote on
any matter, it is appropriate to adjourn the annual meeting of stockholders to a
later date in order to make available information materially relevant to
consideration of such matter, the president or other officer presiding at such
meeting may defer any action on such matter and, without a stockholder vote on
the matter of adjournment, adjourn the meeting for the purpose of considering
and acting on such matter at a session to be convened at a later date. When the
annual meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. If the adjournment is for more than
thirty days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
ARTICLE III.
------------
Special Meetings of Stockholders
--------------------------------
Special meetings of the stockholders may be held either within or
without the State of Delaware, at such time and place and for such purposes as
shall be specified in a call for such meeting made by the board of directors,
the Chief Executive Officer or the President of the Corporation or by the
Secretary within 10 days after receipt of the written request of a majority of
the directors.
ARTICLE IV.
-----------
Notice of Stockholders' Meetings
--------------------------------
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, which notice shall be given
not less than ten nor more than sixty days before the date of the meeting,
except where longer notice is required by law, to each stockholder entitled to
vote at such meeting, by leaving such notice with him or by mailing it, postage
prepaid, directed to him at his address as it appears upon the records of the
Corporation. In case of the death, absence, incapacity or refusal of the
secretary, such notice may be given by a person designated either by the
secretary or by the person or persons calling the meeting or by the board of
directors. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
An affidavit of the secretary or an assistant secretary or of the
transfer agent of the Corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2
ARTICLE V.
----------
Quorum of Stockholders; Stockholder List
----------------------------------------
At any meeting of the stockholders, a majority of all shares issued and
outstanding and entitled to vote upon a question to be considered at the meeting
shall constitute a quorum when represented at such meeting by the holders
thereof in person or by their duly constituted and authorized attorney or
attorneys, but holders of a lesser interest may adjourn any meeting from time to
time, and the meeting may be held as adjourned without further notice. When a
quorum is present at any meeting, a majority of the stock so represented thereat
and voting on any question brought before such meeting shall be determinative,
except where a larger vote is required by law, by the certificate of
incorporation or by these by-laws, and except that the vote required for the
election of directors shall be as set forth in the certificate of incorporation.
The secretary or other officer having charge of the stock ledger shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten days prior to the
meeting, either at a place within the city or town where the meeting is to be
held, which place shall have been specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. Said list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders required by this Article or
the books of the Corporation, or the stockholders entitled to vote in person or
by proxy at any meeting of stockholders.
ARTICLE VI.
-----------
Proxies and Voting
------------------
Except as otherwise provided in the certificate of incorporation, each
stockholder shall at every meeting of the stockholders be entitled to one vote
for each share of the capital stock held by such stockholder. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Any other action shall be authorized by a majority of the votes cast
except where the General Corporation Law prescribes a different percentage of
votes and/or a different exercise of voting power, and except as may be
otherwise prescribed by the provisions of the certificate and these bylaws. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for him by proxy but
3
(except as otherwise expressly permitted by law) no proxy shall be voted or
acted upon after three years from its date, unless (a) the proxy provides for a
longer period, or (b) the proxy states that it is irrevocable and is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
Prior to, but not after, the consummation of an offer and sale of
common stock of the Corporation to the public pursuant to a registration
statement filed by the Corporation on Form S-1 under the Securities Act of 1933,
as amended (the "1933 Act"), unless otherwise provided in the certificate of
incorporation, any action required by law to, or which may, be taken at any
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote therein
were present and voted. Prompt notice of the taking of such action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE VII.
------------
Stockholders' Record Date
-------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
If no record date is fixed:
(1) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(2) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
4
(3) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
ARTICLE VIII.
-------------
Conduct of Meetings
-------------------
Meetings of the stockholders shall be presided over by one of the
following officers in the order of seniority and if present and acting - the
Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the
President, a Vice-President, or, if none of the foregoing is in office and
present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
ARTICLE IX.
-----------
Inspectors
----------
In advance of any meeting of stockholders, the board of directors shall
appoint one or more inspectors to act at the meeting and make a written report
thereof. If no inspector or alternate is able to act at a meeting os
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability.
The inspectors shall:
(1) Ascertain the number of shares outstanding and the voting power
of each;
(2) Determine the shares represented at a meeting and the validity
of proxies and ballots;
(3) Count all votes and ballots;
(4) Determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the
inspectors; and
(5) Certify their determination of the number of shares represented
at the meeting and their count of all votes and ballots.
5
ARTICLE X.
----------
Board of Directors
------------------
Except as otherwise provided by law or by the certificate of
incorporation, the business and affairs of the corporation shall be managed by
the board of directors. Subject to the rights of holders of preferred stock,
nominations for the election of directors may be made by the board of directors
or a committee appointed by the board of directors or by any stockholder
entitled to vote in the election of directors generally. However, any
stockholder entitled to vote in the election of directors may nominate one or
more persons for election as directors at a meeting only if written notice of
such stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
secretary of the corporation not later than 90 days prior to the date of any
annual or special meeting. In the event that the date of such annual or special
meeting was not publicly announced by the corporation by mail, press release or
otherwise more than 90 days prior to the meeting, notice by the stockholder to
be timely must be delivered to the secretary of the corporation not later than
the close of business on the tenth day following the day on which such
announcement of the date of the meeting was communicated to the stockholders.
Each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
board of directors; and (e) the consent of each nominee to serve as a director
of the corporation if so elected.
The classification of the board of directors, the term of each class of
directors and the manner of election and removal of directors shall be as set
forth in the certificate of incorporation. Each director shall hold office until
his successor is elected and qualified or until his earlier resignation or
removal. Any director may resign at any time upon written notice to the
corporation. No director need be a stockholder.
6
ARTICLE XI.
-----------
Committees
----------
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The board may designate one or more
directors as alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee and may define the number
and qualifications which shall constitute a quorum of such committee. Except as
otherwise limited by law, any such committee, to the extent provided in the
resolution appointing such committee, shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
ARTICLE XII.
------------
Meeting of the Board of Directors and of Committees
---------------------------------------------------
Regular meetings of the board of directors may be held without call or
formal notice at such places either within or without the State of Delaware and
at such times as the board may by vote from time to time determine.
Special meetings of the board of directors may be held at any place
either within or without the State of Delaware at any time when called by the
president, treasurer, secretary or two or more directors, reasonable notice of
the time and place thereof being given to each director. A waiver of such notice
in writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent to such
notice. In any case it shall be deemed sufficient notice to a director to send
notice by mail at least forty-eight hours, or to deliver personally or to send
notice by telegram at least twenty-four hours, before the meeting, addressed to
him at his usual or last known business or residence address.
Unless otherwise restricted by the certificate of incorporation or by
other provisions of these by-laws, (a) any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof may
be taken without a meeting if all members of the board or of such committee, as
the case may be, consent thereto in writing and such writing or writings are
filed with the minutes of proceedings of the board or committee, and (b) members
of the board of directors or of any committee designated by the board may
participate in a meeting thereof by means of conference telephone or similar
7
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
ARTICLE XIII.
-------------
Quorum of the Board of Directors
--------------------------------
Except as otherwise expressly provided in the certificate of
incorporation or in these by-laws, a majority of the total number of directors
at the time in office shall constitute a quorum for the transaction of business,
except when a vacancy or vacancies prevents such majority, whereupon a majority
of the directors in office shall constitute a quorum, but a smaller number of
directors may adjourn any meeting from time to time. Except as otherwise so
expressly provided, the vote of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the board of directors,
provided, however, that the affirmative vote in good faith of a majority of the
disinterested directors, even though the disinterested directors shall be fewer
than a quorum, shall be sufficient to authorize a contract or transaction in
which one or more directors have interest if the material facts as to such
interest and the relation of the interested directors to the contract or
transaction have been disclosed or are known to the directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
ARTICLE XIV.
------------
Waiver of Notice of Meetings
----------------------------
Whenever notice is required to be given under any provision of law or
the certificate of incorporation or these by-laws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver of
notice unless so required by the certificate of incorporation or the by-laws.
8
ARTICLE XV.
-----------
Officers and Agents
-------------------
The Corporation shall have a president, secretary and treasurer, who
shall be chosen by the directors, each of whom shall hold his office until his
successor has been chosen and qualified or until his earlier resignation or
removal. The Corporation may have such other officers and agents as are desired,
each of whom shall be chosen by the board of directors and shall hold his office
for such term and have such authority and duties as shall be determined by the
board of directors. The board of directors may secure the fidelity of any or all
of such officers or agents by bond or otherwise. Any number of offices may be
held by the same person. Each officer shall, subject to these by-laws, have in
addition to the duties and powers herein set forth, such duties and powers as
the board of directors shall from time to time designate. In all cases where the
duties of any officer, agent or employee are not specifically prescribed by the
by-laws, or by the board of directors, such officer, agent or employee shall
obey the orders and instructions of the president. Any officer may resign at any
time upon written notice to the Corporation.
ARTICLE XVI.
------------
President, Chief Executive Officer
----------------------------------
The president shall, subject to the direction and under the supervision
of the board of directors, be the chief executive officer of the Corporation and
shall have general and active control of its affairs and business and general
supervision over its officers, agents and employees. Except as otherwise voted
by the board, he shall preside at all meetings of the stockholders and of the
board of directors at which he is president. The president shall have custody of
the treasurer's bond, if any. Notwithstanding the foregoing, the board of
directors may provide that an executive committee of the board of directors
shall have general and active control of the affairs and business of the
Corporation and general supervision over its officers, agents and employees, in
which event the president shall not be the chief executive officer but shall
have such duties and authority as may be assigned by the board of directors and
the executive committee.
ARTICLE XVII.
-------------
Secretary
---------
The secretary shall record all the proceedings of the meetings of the
stockholders and directors in a book, which shall be the property of the
Corporation, to be kept for that purpose; and perform such other duties as shall
be assigned to him by the board of directors. In the absence of the secretary
from any such meeting, a temporary secretary shall be chosen, who shall record
the proceedings of such meeting in the aforesaid book.
9
ARTICLE XVIII.
--------------
Treasurer
---------
The treasurer shall, subject to the direction and under the supervision
of the board of directors, have the care and custody of the funds and valuable
papers of the Corporation, except his own bond, and he shall, except as the
board of directors shall generally or in particular cases authorize the
endorsement thereof in some other manner, have power to endorse for deposit or
collection all notes, checks, drafts and other obligations for the payment of
money to the Corporation or its order. He shall keep, or cause to be kept,
accurate books of account, which shall be the property of the Corporation.
ARTICLE XIX.
------------
Removals
--------
The board of directors may, at any meeting called for the purpose, by
vote of a majority of their entire number, remove from office any officer or
agent of the Corporation or any member of any committee appointed by the board
of directors or by any committee appointed by the board of directors or by any
officer or agent of the Corporation.
ARTICLE XX.
-----------
Vacancies
---------
Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the authorized number of directors, may be filled by a majority
of the directors then in office (though less than a quorum) or by a sole
remaining director and each of the incumbents so chosen shall hold office for
the unexpired term in respect of which the vacancy occurred and until his
successor shall have been duly elected and qualified or for such shorter period
as shall be specified in the filling of such vacancy or, if such vacancy shall
have occurred in the office of director, until such a successor shall have been
chosen by the stockholders.
ARTICLE XXI.
------------
Certificate of Stock
--------------------
Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of the Corporation by the chairman or
vice-chairman of the board of directors (if one shall be incumbent) or the
president or a vice-president and by the treasurer or an assistant treasurer, or
the secretary or an assistant secretary, certifying the number of shares owned
by him in the Corporation. If such certificate is countersigned (1) by a
transfer agent other than the Corporation or its employee, or (2) by a registrar
other
10
than the Corporation or its employee, any other signatures on the certificate
may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of issue.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificates which the Corporation shall issue to represent such
class or series of stock or there shall be set forth on the face or back of the
certificates which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish, without charge to each
stockholder who so requests, the designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Any restriction imposed upon the transfer of shares or
registration of transfer of shares shall be noted conspicuously on the
certificate representing the shares subject to such restriction.
ARTICLE XXII.
-------------
Loss of Certificate
-------------------
The Corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the directors may require the owner of the lost, stolen of
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate in its place and upon such other terms or
without any such bond as the board of directors shall prescribe.
ARTICLE XXIII.
--------------
Seal
----
The corporate seal shall, subject to alteration by the board of
directors, consist of a flat-faced circular die with the word "Delaware"
together with the name of the Corporation and the year of its organization cut
or engraved thereon. The corporate seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
11
ARTICLE XXIV.
-------------
Execution of Papers
-------------------
Except as otherwise provided in these by-laws or as the board of
directors may generally or in particular cases authorize the execution thereof
in some other manner, all deeds, leases, transfers, contracts, bonds, notes,
checks, drafts and other obligations made, accepted or endorsed by the
Corporation, shall be signed by the president or by the treasurer.
ARTICLE XXV.
------------
Fiscal Year
-----------
Except as from time to time otherwise provided by the board of
directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
ARTICLE XXVI.
-------------
Restrictions of Transfer
------------------------
The following restrictions are imposed upon the transfer of shares of
the capital stock of the Corporation:
(a) The Corporation shall have the right to purchase, or to direct the
transfer of, the shares of its capital stock in the events and subject to the
conditions and at a price fixed as provided below; each holder of shares of such
capital stock holds his shares subject to this right and by accepting the same
upon original issue or subsequent transfer thereof, the stockholder agrees for
himself, his legal representatives and assigns as follows:
(b) in the event of any change in the ownership of any share or shares
of such capital stock (made or proposed) or in the right to vote thereon
(whether by the holder's act or by death, legal disability, operation of law,
legal processes, order of court, or otherwise, except by ordinary proxies or
powers of attorney) the Corporation has the right to purchase such share or all
or any part of such shares or to require the same to be sold to a purchaser or
purchasers designated by the Corporation or to follow each such method in part
at a price per share equal to the fair value thereof at the close of business on
the last business day next preceding such event as determined by mutual
agreement or, failing such agreement, by arbitration as provided below.
(c) In any such event the owner of the share or shares concerned
therein (being for the purposes of these provisions, all persons having any
property interest therein) shall give notice thereof in detail satisfactory to
the Corporation. Within ten days after receipt of
12
said owner's notice, the Corporation shall elect whether or not to exercise its
said rights in respect of said shares and, if it elects to exercise them, shall
give notice of its election.
(d) Failing agreement between the owner and the Corporation as to the
price per share to be paid, such price shall be the fair value of such shares as
determined by three arbitrators, one designated within five days after the
termination of said ten-day period by the registered holder of said share or
shares or his legal representatives, one within said period of five days by the
Corporation and the third within five days after said appointment last occurring
by the two so chosen. Successor arbitrators, if any shall be required, shall be
appointed, within reasonable time, as nearly as may be in the manner provided as
to the related original appointment. No appointment shall be deemed as having
been accomplished unless such arbitrator shall have accepted in writing his
appointment as such within the time limited for his appointment. Notice of each
appointment of an arbitrator shall be given promptly to the other parties in
interest. Said arbitrators shall proceed promptly to determine said fair value.
The determination of the fair value of said share or shares by agreement of any
two of the arbitrators shall be conclusive upon all parties interested in such
shares. Forthwith upon such determination the arbitrators shall mail or deliver
notice of such determination to the owner (as above defined) and to the
Corporation.
(e) Within ten days after agreement upon said price or mailing of
notice of determination of said price by arbitrators as provided below
(whichever shall last occur), the shares specified therein for purchase shall be
transferred to the Corporation or to the purchaser or purchasers designated
therein or in part to each as indicated in such notice of election against
payment of said price at the principal office of the Corporation.
(f) If in any of the said events, notice therefor having been given as
provided above, the Corporation elects in respect of any such shares or any part
thereof not to exercise its said rights, or fails to exercise them or to give
notice or make payment all as provided above, or waives said rights by vote or
in authorized writing, then such contemplated transfer or such change may become
effective as to those shares with respect to which the Corporation elects not to
exercise its rights or fails to exercises them or to give notice or to make
payment, if consummated within thirty days after such election, failure or
waiver by the Corporation, or within such longer period as the Corporation may
authorize.
(g) If the owner's notice in respect of any of such shares of capital
stock is not received by the Corporation as provided above, or if the owner
fails to comply with these provisions in respect of any such shares in any other
regard, the Corporation, at its option and in addition to its other remedies,
may suspend the rights to vote or to receive dividends on said shares, or may
refuse to register on its books any transfer of said shares or otherwise to
recognize any transfer or change in the ownership thereof or in the right to
vote thereon, one or more, until these provisions are complied with to the
satisfaction of the Corporation; and if the required owner's notice is not
received by the Corporation after written demand by the Corporation it may also
or independently proceed as though a proper
13
owner's notice has been received at the expiration of ten days after mailing
such demand, and, if it exercises its rights with respect to said shares or any
of them, the shares specified shall be transferred accordingly.
(h) In respect of these provisions with respect to the transfer of
shares of capital stock, the Corporation may act by its board of directors. Any
notice or demand under said provisions shall be deemed to have been sufficiently
given if in writing delivered by hand or addressed by mail postpaid, to the
Corporation at its principal office or to the owner (as above defined) or to the
holder registered on the books of the Corporation (or his legal representative)
of the share or shares in question at the address stated in his notice or at his
address appearing on the books of the Corporation.
(i) Nothing herein contained shall prevent the pledging of shares, if
there is neither a transfer of the legal title thereto nor a transfer on the
books of the Corporation into the name of the pledgee, but no pledgee or person
claiming thereunder shall be entitled to make or cause to be made any transfer
of pledged shares by sale thereof or otherwise (including in this prohibition
transfer on the books of the Corporation into the name of the pledgee) except
upon compliance herewith and any such pledge shall be subject to those
conditions and restrictions.
(j) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this by-law:
(1) A stockholder's transfer of any or all shares held either
during such stockholder's lifetime or on death by will or intestacy to or to a
trust or a custodian for the benefit of such stockholder or such stockholder's
immediate family. "Immediate family" as used herein shall mean spouse, lineal
descendant, father, mother, brother, sister, aunt, uncle, niece or nephew.
(2) A stockholder's transfer of any or all of such
stockholder's shares to any other stockholder of the Corporation.
(3) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the Corporation.
(4) A corporate stockholder's transfer of any or all of its
shares (i) pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or (ii) to any or all of its stockholders.
(5) A transfer by a stockholder which is a limited or general
partnership to any or all of its partners or retired partners.
14
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this by-law, and there
shall be no further transfer of such stock except in accordance with this
by-law.
(k) The restrictions on transfer contained in this Article XXVI shall
terminate immediately prior to the time securities of the Corporation are first
offered to the public pursuant to a registration statement on Form S-1 filed
with, and declared effective by, the United States Securities and Exchange
Commission under the 1933 Act.
(1) Notwithstanding the foregoing provisions of this Article
XXVI with respect to the determination of purchase price of shares of stock, in
the event of any inconsistency between such provisions and those of employee
purchase or other agreements between the Corporation and persons who purchase
shares of its capital stock, those of such employee purchase or other agreements
shall govern.
ARTICLE XXVII.
--------------
Amendments
----------
Except as otherwise provided by law or by the certificate of
incorporation, these by-laws, as from time to time altered or amended, may be
made, altered or amended at any annual or special meeting of the stockholders
called for the purpose, of which the notice shall specify the subject matter of
the proposed alteration or amendment or new by-law or the article or articles to
be affected thereby. If the certificate of incorporation so provides, these
by-laws may also be made, altered or amended by a majority of the whole number
of directors.
ds1/297351
15
EXHIBIT 4.3
Agreement Between
Palomar Medical Technologies, Inc.
and Nexar Technologies, Inc.
This Agreement dated as of the 19th day of December, 1996 is by and
between Palomar Medical Technologies, Inc. ("Palomar") and Nexar Technologies,
Inc. ("Nexar") a wholly owned subsidiary of Palomar.
Palomar has provided all of Nexar's funds for operations to date in the
form of non-interest bearing loans. The total amount of funds provided by
Palomar through September 30, 1996 has been $19,568,449 (the "Indebtedness") .
The purpose of this Agreement, among other things, is to set forth the terms and
conditions for repayment or contribution to capital of Nexar for the
Indebtedness. Accordingly, the parties hereby agree as follows:
1. General Terms. Upon the closing of an initial public offering (an
"IPO") of the common stock of Nexar, $5,000,000 of the Indebtedness
will be repaid to Palomar, $4,568,449 will be converted into 45,684
shares of Nexar's Convertible Preferred Stock, and $10,000,000 will be
converted into 1,900,000 shares of Nexar's common stock, of which
700,000 will be issued without restriction. The balance of 1,200,000
shares (the "Contingent Shares") shall be subject to mandatory
repurchase, in whole or in part, by Nexar at $0.01 per share at any
time after the 48 month anniversary of the IPO unless released from
escrow under Section 2, below.
2. Escrow of Contingent Shares. The Contingent Shares shall be placed in
escrow, subject to release to Palomar in installments of 400,000 shares
each (upon achievement of any 3 of the 4 milestones specified below;
none, some, or all of which may occur) as follows:
(a) if Nexar achieves $7,000,000 in net income after taxes or
$100 million in total revenues for the fiscal year ended
December 31, 1997;
(b) if Nexar achieves $14,000,000 in net income after taxes or
$200 million in total revenues for the fiscal year ended
December 31, 1998;
(c) if Nexar achieves $21,000,000 in net income after taxes or
$300 million in total revenues for the fiscal year ended
December 31, 1999; and
(d) if Nexar achieves $28,000,000 in net income after taxes or
$400 million in total revenues for the fiscal year ended
December 31, 2000.
Alternatively, all of the Contingent Shares will be released
to Palomar immediately upon the happening of any one of the following:
(y) if the average per share market value closing bid price of
Nexar's common stock is (i) 175% of the IPO price for ten
consecutive trading days at any time prior to the 12 month
anniversary of the IPO, or (ii) 225% of the IPO price for ten
consecutive trading days at any time prior to the 24 month
anniversary of the IPO, or (iii) 275% of the IPO price for ten
consecutive trading days at any time prior to the 36 month
anniversary of the IPO, or (iv) 325% of the IPO price for ten
consecutive trading days at any time prior to the 48 month
anniversary of the IPO; or
(z) if Nexar achieves $70,000,000 in cumulative net income
after taxes for the four fiscal years ended December 31, 2000.
If any or all of the alternative conditions for release of the Contingent Shares
has not occurred by the 48 month anniversary of the IPO, any of the Contingent
Shares remaining subject to escrow at such time shall be repurchased by Nexar as
described above.
3. Accelerated Vesting for Performance Options. Performance stock options,
issued, or to be issued, by Nexar to key employees covering up to
800,000 shares of Nexar's common stock will vest in accordance with
their terms or, if earlier, upon the achievement of the milestones set
forth in Section 2 above, as follows:
(a) pro rata among the holders thereof in one-third
installments based on achievement of the milestones set forth
in clauses (a) through (d) in Section 2 above, or
(b) all such options shall vest immediately upon the
occurrence of any of the alternative conditions set forth in
Section 2 above prior to the 48 month anniversary of the IPO.
This Agreement amends, restates and supersedes in its entirety an
agreement between the parties hereto with respect to the subject matter hereof
dated October 1, 1996.
[Signatures appear on the following page.]
2
Executed as a sealed instrument as of the date first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
----------------------------------
Steven Georgiev
Chairman and CEO
NEXAR TECHNOLOGIES, INC.
By: /s/
----------------------------------
Albert J. Agbay
President
3
EXHIBIT 10.1
LEASE
-----
PARTIES:
- --------
LEASE dated as of 28th day of July 1995, by and between W.D.P. Corp., a
Massachusetts Corporation with a usual place of business in the Commonwealth at
22 Greenleaf Farms Circle, Shrewsbury, Massachusetts, (herein "Landlord") and
Dynasys System Corporation, a DELAWARE Corporation with a usual place of
business in the Commonwealth at 300 West Main Street, Northborough,
Massachusetts (herein "Tenant").
W I T N E S S E T H
-------------------
PREMISES:
- ---------
1. (a) Landlord hereby leases to Tenant and Tenant agrees to lease from
Landlord, upon the terms and conditions herein set forth, 7,000 square feet of
space, including common areas, on the second floor of the commercial building
located at 182 Turnpike Road, Westborough, Massachusetts (herein the "Demised
Premises"), together with appurtenant rights thereto belonging, including the
use, in common with all others lawfully entitled thereto, of all parking areas,
common areas and entrances.
TERM:
- -----
2. To have and to hold the Demised Premises for an initial term of
three (3) years unless sooner terminated as herein provided, commencing at 12:01
a.m. E.S.T. on the 1st day of September 1995 or if later, the date by which all
of Landlord's Improvements (as defined in Section 7 below) to the Demised
Premises are completed so as to permit the operation of Tenant's permitted uses
in the Demised Premises in accordance with law.
BASIC RENT:
- -----------
3. Tenant agrees to pay Landlord basic rent for the initial three year
term at the rate of Eight-Four Thousand ($84,000.00) Dollars per year which rent
shall be payable in advance on the first day of each month in equal monthly
installments of Seven Thousand ($7,000.00) Dollars.
4. If the said term commences or terminates on other than the first day
of any month, said rent shall be equitably apportioned. All rent, whether basic
or otherwise, shall be payable in lawful money of the United States to Landlord
at 22 Greenleaf Farm Circle, Shrewsbury, Massachusetts, or such other place as
Landlord may, from time to time, designate in writing to Tenant. In addition,
Tenant shall pay to Landlord the last month's rent, in advance, upon the signing
of this Lease. Tenant shall pay to Landlord a late charge equal to three (3%)
percent of any monthly installment not paid within fifteen (15) days of the due
date.
UTILITIES:
- ----------
5. Tenant shall, during the term hereof, pay for electricity consumed
on or in connection with its use and occupancy of the Demised Premises, provided
however, Tenant's liability for electricity hereunder shall be limited to a
total maximum annual liability of Seven Thousand ($7,000.00) Dollars, payable to
the Landlord as herebefore set forth, along with the basic rent, in monthly
installments of Five Hundred Eighty-Three Dollars and Thirty-Three ($583.33)
Cents. Tenants electrical use shall be reviewed on an annual basis, on the
anniversary of the commencement date, and if Tenants electrical use is less than
the above payments, Landlord shall provide Tenant with a credit based on actual
use.
CONDITION OF PREMISES, REPAIRS, MAINTENANCE AND CLEANING:
- ---------------------------------------------------------
6. (a) Tenant accepts the Demised Premises in the condition which they
are on the date of commencement of the term thereof, acknowledging that they are
in good order and condition and sufficient for the uses intended by Tenant.
Tenant agrees that it has had full and adequate opportunity to inspect the
Demised Premises and has done so to its satisfaction. Landlord has made, and
Tenant has relied on, no representations and warranties, whether express or
implied, as to the condition of the Demised Premises or their suitability for
Tenant's use other than those which may be specifically set forth in this Lease.
The Tenant shall not permit the Demised Premises to be overloaded, damaged,
stripped or defaced, nor suffer any waste. Landlord agrees to make such
improvements to the Demised Premises prior to the commencement of the Lease
term, in accordance with the plans and specifications agreed to by the Landlord
and Tenant.
(b) The Tenant shall perform such ordinary day to day
maintenance as shall be required to maintain the Demised Premises, in the same
condition they are at the commencement of the term, or as they may be put in
during the term of this Lease, reasonable wear and tear, damage by fire and
other casualities only excepted, and whenever necessary, to replace plate glass
therein at Tenant's expense, and acknowledging that said Demised Premises are
now in good order and glass whole. The Tenant shall not permit the Demised
Premises to be overloaded, damaged, stripped or defaced, nor suffer any waste.
(c) Landlord shall, at its sole cost and expense, maintain in
good repair and condition the Demised Premises, including, but not limited to,
repairs required due (i) to mechanical and utility systems, including without
limitation, all heating, plumbing, hot water, ventilating, electrical,
air-conditioning, security systems and elevators, of the Demised Premises, (ii)
to structural members of the Demised Premises including without limitation,
exterior walls, roof, foundation, supporting columns, and underground or
otherwise concealed interior or exterior structure, or (iii) any act, omission,
or default of Landlord's. Landlord shall make necessary repairs within a
reasonable period of time after Tenant has given Landlord written notice of the
need for repair. Landlord shall maintain in good condition all lawns and planted
areas, and keep in good repair, clean, neat, and free of snow and ice all
surfaced roadways, walks, and parking and loading areas.
2
ALTERATIONS AND IMPROVEMENTS:
- -----------------------------
7. (a) Tenant shall not make any alterations, additions or improvements
to the Demised Premises, except with the Landlord's written consent.
(b) Any and all alterations, additions or improvements to the
Demised Premises during the term of this Lease shall become the property of the
Landlord at the end of the Term without payment therefore by the Landlord.
(c) On or before September 1, 1995, Landlord shall, at
Landlord's sole cost and expense, complete construction of the build out of the
Demised Premises (the "Landlord Improvements"), in accordance with plans and
specifications approved by Tenant described on Exhibit B hereto. Landlord shall
promptly commence and prosecute with diligence the construction of the Landlord
Improvements in accordance with such plans and the terms and provisions of this
Lease, and shall have substantially complete the Landlord Improvements by
September 1, 1995. In the event that said improvements have not been completed
by September 1, 1995, despite Landlord's diligent efforts to complete same,
Landlord shall have up to an additional thirty (30) days to complete Landlord
Improvements. Landlord covenants that the Landlord Improvements shall be
constructed and performed using first-class workmanship and materials to comply
with all applicable laws, ordinances, orders, rules, regulations and
requirements, including, without limitation, those pertaining to zoning,
building, utility service, fire safety and all other applicable laws. During the
construction of the Landlord Improvements and until completion thereof, Landlord
shall obtain, at Landlord's sole expense, public liability insurance and
workmen's compensation liability insurance in reasonable amounts.
USE AND RESTRICTIONS:
- ---------------------
8. (a) Tenant may use the Demised Premises solely for commercial office
space. The Landlord represents that such use of the Premises will not violate
any restrictions imposed upon the Premises, and is not in violation of the
Certificate of Occupancy issued for the Premises nor contrary to any zoning
ordinance or regulation affecting the Premises.
(b) Tenant shall not use nor suffer or permit the use by any
person of the Demised Premises and its appurtenant rights for any purpose or in
any manner which is contrary to any applicable law or regulation and which may
constitute a nuisance or be offensive or which could cause injury or damage to
the Demised Premises.
(c) Landlord represents that the land and building comprising
the Premises are currently not in violation under any federal, state and/or
municipal codes, ordinances, zoning rules, and regulations.
3
RULES AND REGULATIONS:
- ----------------------
9. Tenant shall, at its own cost and expense, subsequent to the
commencement date hereof, promptly comply with all present and future laws,
ordinances, rules and regulations of any duly constituted governmental authority
relating to the use or occupancy of the Demised Premises, provided that Tenant
shall not be required to make any alterations or additions to the structure,
mechanical and utility systems, roof or foundation of the Building on account
thereof. Tenant shall promptly pay all fines, penalties and damages that may
arise out of or be imposed because of Tenant's failure to comply with the
provisions of this paragraph. Landlord is responsible for making the Demised
Premises comply with all applicable provisions of Title III of the Americans
with Disabilities Act of 1990, 42 U.S.C. 12101-12213 and 47 U.S.C. 225 and 611
and the regulations adopted pursuant thereto at 28 C.F.R. Part 36. The parties
acknowledge and agree that the Demised Premises shall not be accessed by an
elevator.
INDEMNIFICATION AND LIABILITY:
- ------------------------------
10. Tenant shall indemnify and hold Landlord harmless from any and all
claims for injury to persons or damage to property by reason of any accident or
happening on the Demised Premises unless caused by the fault or negligence of
Landlord or its agents, servants or employees. Tenant shall carry public
liability insurance in limits of at least $500,000.00 for injury or death to one
person, and $1,000,000.00 for injury or death to more than one person in the
same accident and $50,000.00 for damage to property. On the commencement of the
term of this Lease and thereafter not less than thirty (30) days prior to the
expiration date of the policies of insurance required by this paragraph 10,
Tenant shall deliver to Landlord copies of such policies or certificates of the
insurer with respect thereto reasonably satisfactory to Landlord, accompanied by
evidence of the payment of the premiums for the policies. Said insurance shall
name the Landlord as an insured, as its interest may appear. All.such insurance
policies shall provide that no cancellation thereof or material change therein
shall be made unless Landlord shall have been given twenty (20) days' prior
written notice thereof and that no act or omission by Tenant shall invalidate
such policies as they apply to Landlord. All insurance policies required to be
maintained under this lease may be blanket policies, provided such policies
reference and incorporate the obligations to insure hereunder.
FIRE AND EXTENDED COVERAGE INSURANCE:
- -------------------------------------
11. Tenant shall be responsible for providing fire and extended
coverage insurance for its own fixtures, equipment, furniture and possessions on
the Demised Premises.
TENANT'S FAILURE TO PERFORM:
- ----------------------------
12. If Tenant shall at any time fail to pay any tax or assessment as
required in this Lease or to take out, pay for, maintain or deliver any of the
insurance policies provided for in this Lease or shall fail to make any other
payment or perform any other act on its part to be made or performed under this
Lease, then Landlord, after ten (10) days' notice to Tenant, except
4
when other notice is expressly provided for in this Lease (or without notice in
case of an emergency), and without waiving or releasing Tenant from any
obligation of Tenant contained in this Lease, may (but shall be under no
obligation to):
(a) pay any tax or assessment so payable by Tenant; or
(b) take out, pay for and maintain any of the insurance
policies provided for in this Lease; or
(c) make any other payments or perform or cause to be
performed any act on Tenant's part to be made or
performed as in this Lease provided;
and may enter upon the Demised Premises for any such purpose and take all such
action thereon as may be necessary therefore.
MECHANICS' LIENS:
- -----------------
13. Notice is hereby given that Landlord shall not be liable for any
labor or materials furnished, or to be furnished, for the Tenant, except for
those improvements furnished by the Landlord as provided herein, and that no
mechanics' liens or other liens for any such labor or materials shall attach to
or affect the reversionary or other estate or interest of Landlord in and to the
Demised Premises. Tenant further agrees to indemnify and hold harmless Landlord
against any and all costs it may suffer on account of the same.
LANDLORD'S ACCESS:
- ------------------
14. (a) Tenant agrees that Landlord, upon reasonable advance notice to
Tenant (or without notice in case of emergency), may enter upon the Demised
Premises at reasonable hours so as not to unduly interfere with the normal
conduct of Tenant's business (or at any time in case of emergency) for the
purpose of inspecting the same and making repairs and constructing additions
thereto as it may be required or permitted to do under the terms of this Lease.
(b) Landlord shall have the right, during the last six (6)
months of the lease term to place signs upon the Demised Premises indicating
they are for sale or for rent.
EXPIRATION OF TERM:
- -------------------
15. (a) Tenant, at the expiration of the term hereof, or at any prior
termination as herein provided, shall peaceably yield up the Demised Premises
and all additions, improvements and alterations made thereupon in the same
condition and repair as the same were in at the commencement of the term hereof,
or may have been put in thereafter, reasonable wear and use, damage by fire or
other casualty, acts of God, acts of war and the enemy and acts of paramount
authority only excepted.
5
(b) Tenant and those claiming by, through or under Tenant may,
at any time prior to the expiration of the term or prior termination thereof,
then or within a reasonable time thereafter not to exceed five (5) days, remove
its personal property, trade fixtures and any equipment installed by it from the
Demised Premises, provided that if such removal causes any damage to the Demised
Premises, Tenant shall promptly repair the same.
(c) Any property, fixtures or equipment of Tenant's remaining
on the Demised Premises after said five (5) day period shall be deemed abandoned
and may be removed and disposed of by Landlord as Landlord shall determine and
Landlord may charge the cost of such removal and any repairs or replacements to
the Demised Premises necessitated thereby to Tenant.
HOLDING OVER:
- -------------
16. In the event that Tenant or anyone claiming by, through or under
Tenant shall remain on the Demised Premises after the termination of this Lease
or any renewals, extensions or modifications thereof, it shall be deemed to be a
tenancy from month to month subject to all the terms and conditions hereof as
may be applicable.
ASSIGNMENT AND SUBLETTING:
- --------------------------
17. Tenant shall not transfer, sublet, assign, hypothecate or otherwise
alienate this Lease or Tenant's interest in and to all or any part of the
Demised Premises, nor shall Tenant grant any person any license or permission to
use the Demised Premises without Landlord's prior written consent on each
occasion.
SIGNS:
- ------
18. No signs, billboards, posters or advertising material of any type
or description shall be erected or kept on the Demised Premises without the
prior written consent and approval of Landlord. Landlord agrees that Tenant may
have a sign posted at the building entrance on Route 9, subject to local codes
and regulations Tenant shall receive top billing on any sign posted at said
entrance.
DESTRUCTION BY CASUALTY:
- ------------------------
19. (a) If the Demised Premises are partially damaged or destroyed by
storm, fire, lightening, earthquake or other casualty, but are still usable by
Tenant for the conduct of its business in substantially the same manner as it
was conducted immediately prior to such damage or destruction, the basic rental
hereunder shall be equitably adjusted from the date of such damage or
destruction to take into account the value of any leased space lost as a result
of the damage or destruction. Said rental adjustment shall apply until the
damage is repaired or the destroyed areas are restored by Landlord to at least
as good condition as existed immediately prior to the damage or destruction, and
Landlord shall use due diligence to effect such repairs
6
or restoration. Tenant shall have the right to terminate this lease by written
notice if Landlord fails to repair or restore the premises within sixty (60)
days. If the damage or destruction is so extensive as to render the Demised
Premises not suitable for the said conduct of Tenant's business, this Lease
shall terminate unless there are sufficient insurance proceeds available to
complete the repair or restoration to the condition of the building prior to the
damages or destruction, in which event, at Tenant's election by notice within
thirty (30) days thereafter, Landlord shall promptly commence repair or
restoration to render the said premises tenantable and shall proceed with due
diligence, to the extent of available insurance proceeds. During the period of
such repairs or restoration, the rent hereunder shall be abated in such
entirety, except to the extent Lessee is able to use the Demised Premises, in
which event the rent shall be adjusted to reflect such use. If the Landlord
fails to repair or restore the Demised Premises within sixty (60) days from the
event, Tenant shall have the right to terminate this Lease by written notice
within fifteen (15) days after the expiration of said sixty (60) day period or
of the failure (which shall then be continuing) by Landlord to diligently pursue
such repair or restoration, as the case may be.
(b) Tenant hereby irrevocably transfers, sets over and assigns
to Landlord all Tenant's rights in and to the insurance proceeds payable on
account of damage or destruction to the Demised Premises. If Landlord shall so
elect to repair or restore, Tenant shall immediately pay over to Landlord any
such proceeds which may be paid to it directly or to it and Landlord jointly.
EMINENT DOMAIN:
- ---------------
20. (a) If the entire Building or Demised Premises shall be taken for
public or quasi-public purposes, then this Lease shall terminate as of the date
Tenant shall be required by law to vacate the premises and surrender them to the
authority making the taking.
(b) If such portion of the Demised Premises or the Building
shall be taken as to render the Demised Premises unsuitable for the continuance
of Tenant's business in substantially the same manner as the same was being
conducted immediately prior to such taking, then Tenant shall have the right to
terminate this Lease by giving written notice to Landlord within thirty (30)
days after receipt of Notice of Entry for purposes of effectuating the taking.
If the costs of repairing or restoring the Demised Premises after a partial
taking is more than fifty (50%) percent of their value immediately prior to such
taking, Landlord may, at its option, terminate this Lease by written notice to
Tenant within thirty (30) days after the date of the taking.
(c) If this Lease shall not be so terminated, Landlord shall
restore the Building with all reasonable dispatch to a complete architectural
unit as close as possible to the condition of the Building was in immediately
prior to said taking. Any provision of this subparagraph (c) to the contrary
notwithstanding, Landlord shall not be required to restore if Landlord's
mortgagees shall refuse to permit application of Landlord's condemnation
proceeds towards the costs of such restoration.
7
(d) If the Demised Premises, or any part thereof, shall be
rendered untenantable and the Lease is not terminated, the rent herein reserved,
or a just and proportionate part thereof, shall be suspended or abated according
to the nature and extent of the taking from the date of such taking until the
Demised Premises are smaller than they were prior to the taking or the utility
thereof to Tenant otherwise diminished, the annual rent shall be equitably
reduced.
(e) In the event of any such taking, the proceeds thereof
shall be payable to Landlord or Landlord's mortgagee, if so required by the
applicable terms of the mortgage. Tenant shall have absolutely no right or
interest in any award except if awarded as otherwise provided by law. Tenant
hereby irrevocably appoints Landlord as its attorney in fact for purposes of
collecting any such condemnation award and dealing with all governmental
authorities with respect thereto. This power of attorney is coupled with an
interest and hence is irrevocable. By execution of this Lease, the Landlord does
not reserve to itself, and the Tenant does not assign to the Landlord, any
damages payable upon condemnation of trade fixtures or equipment installed by
the Tenant or maintained and owned by the Tenant whether or not such trade
fixtures or equipment are a part of the realty. It is also agreed and understood
that the Tenant does not waive any relocation benefits to which it is entitled
by reason of its status as a tenant in the event of any taking or condemnation
of any or all of the Demised Premises. Nothing herein shall prohibit the Tenant
from taking independent action against the condemning authority to recover any
other damage or cost to which it may be entitled.
(f) If Landlord shall be obligated to repair or restore as
aforesaid, and if the Demised Premises are not repaired or restored within four
(4) months after the date of such taking, then Tenant may, in addition to all
other rights and remedies it may have, terminate this Lease.
DEFAULT AND TERMINATION OF LEASE:
- ---------------------------------
21. If the rent herein reserved shall not have been paid when due, and
shall remain unpaid for fifteen (15) days after written notice, or other
obligations of Tenant under this Lease shall not be performed within fifteen
(15) days after notice by Landlord to Tenant thereof; or in the event that
Tenant shall be adjudicated a bankrupt or should a permanent receiver in
insolvency or permanent trustee in bankruptcy of Tenant be appointed and said
appointment shall not have been vacated within sixty (60) days, or should Tenant
make a general assignment for the benefit of creditors, or file a voluntary
petition for reorganization under the Bankruptcy Act, then Landlord may, in
addition to any of Landlord's other rights set forth elsewhere herein, (a) cure
any default or breach of warranty of Tenant hereunder, and perform any covenants
which Tenant has failed to perform, and any sums expended by Landlord in curing
such default or breach of warranty and performing such covenants shall be paid
by Tenant to Landlord immediately upon demand, and shall bear interest at the
rate of 1.5% per month from the date of demand; (b) bring suit to recover from
Tenant all sums due Landlord from Tenant together with reasonable attorney's
fees and interest thereon at the rate set forth above; (c) declare this Lease to
be terminated, and enter into the Demised Premises, using such force as may be
8
necessary to do so and so to repossess and enjoy the said premises as of
Landlord's former estate, without being guilty of trespass, forcible entry,
detainer or other tort.
ADDITIONAL REMEDIES ON DEFAULT:
- -------------------------------
22. Notwithstanding any termination pursuant to Paragraph 21 above or
any entry or re-entry by Landlord, Tenant agrees to pay and be liable for, on
the days originally fixed herein for the payment thereof, amounts equal to the
several installments of rent and any other charges herein reserved as they
would, under the terms of this Lease, become due if this Lease had not been
terminated or if Landlord had not entered or re-entered as aforesaid, and
whether the Demised Premises be relet or remain vacant in whole or in part or
for a period less than the remainder of the term, or for the whole thereof; but
in the event the Demised Premises be relet, in whole or in part, by Landlord,
Tenant shall be entitled to a credit in the net amount of rent received by the
Landlord in reletting the Demised Premises and in collecting the rent in
connection therewith. Tenant shall also be liable to Landlord for all expenses
(including reasonable attorney's fees) incurred by Landlord in enforcing its
rights under this Lease in the event of a default by Tenant and such expenses
may also be deducted from any credit due Tenant on account of any reletting by
Landlord.
ESTOPPEL CERTIFICATE:
- ---------------------
23. Upon not less than fifteen (15) days prior written request,
Landlord and Tenant agree, each in favor of the other, to execute, acknowledge
and deliver a statement in writing certifying that this Lease is unmodified and
in full force and effect (or, if there have been any modifications that the same
are in full force and effect as modified and stating the modifications), and the
dates to which the basic rent hereunder and other charges have been paid and any
other information reasonably requested. Any such statement delivered pursuant to
this paragraph may be relied upon by any prospective purchaser, mortgagee or
lending source.
SUBORDINATION AND RECORDING:
- ----------------------------
24. This Lease shall be subject and subordinate to any mortgages)
hereinafter placed upon the Demised Premises; provided that Tenant receives a
so-called non-disturbance and attornment agreement, in form and substance
satisfactory to Tenant acting in a commercially reasonable manner from such
mortgagee.
BROKERS' COMMISSIONS:
- ---------------------
25. Landlord shall pay a brokers commission to ComVest Realty Service,
Inc., as agreed. Tenant represents and warrants that it has not dealt with any
other broker and agrees to indemnify and hold Landlord harmless, as aforesaid,
from any claims for any other brokers' commissions arising by reason of its
having dealt with such brokers.
9
FAILURE OF APPROVAL:
- --------------------
26. Wherever the consent or approval of either party to this Lease is
required, the same shall not be unreasonably conditioned, withheld or delayed.
WAIVER OF SUBROGATION:
- ----------------------
27. Landlord waives, discharges and releases all rights of recovery
against Tenant and its agents and employees for any loss or damage to property
of Landlord located on the Demised Premises or comprising a part thereof and
insured under valid and collectible insurance policies, to the extent of any
recovery actually collected under such insurance, provided that this waiver
shall only be operative with respect to loss or damage occurring during such
time as Landlord's policies of insurance contain a clause providing that such
waiver shall not affect or impair the policy and the Landlord's right to recover
thereunder. Tenant waives, discharges and releases and will require any
permitted subtenants or assignees to waive, discharge and release all rights of
recovery against Landlord and the agents and employees of Landlord for loss or
damage to property of Tenant or to the property of any subtenants located on the
Demised Premises and insured under valid and collectible insurance policies to
the extent of any recovery actually collected under such insurance, provided
that this waiver shall only be operative with respect to loss or damage
occurring during such time as Tenant's policies of insurance contain a clause
providing that such waiver shall not affect or impair the policy and the
Tenant's rights to recover thereunder.
Each of the parties agrees with the other party (1) that such insurance
policies as it may have in effect during the term of this Lease or any extension
or renewal thereof, shall, if the insurance carrier permits the inclusion of
such clause or endorsement in such policies, include a clause or endorsement
which provides in substance that the insurance company waives any right of
subrogation which it might otherwise have against Landlord or Tenant, as the
case may be, and (2) upon demand of the other party hereto, will reimburse the
other party for any extra premium costs incurred by the latter in obtaining such
clause or endorsement.
DISPUTES:
- ---------
28. It is agreed between the parties that if at any time a dispute
should arise as to the propriety or necessity of Tenant making any payment or
performing any obligations required hereunder, Tenant may pay or perform the
same under protest and such payment or performance under protest shall not be
considered to be voluntary on the part of the Tenant.
ASSENTS:
- --------
29. No assent, express or implied, by one party to any breach of any
covenant or condition herein contained on the part of the other to be performed
or observed and no waiver, express or implied, of or failure by one party to
insist on the other's prompt performance or observance of any such covenant or
condition, shall be deemed to be a waiver of or assent to
10
any succeeding breach of the same or any other covenant or condition and, except
as provided herein, any party may assert its rights and remedies hereunder
without any prior or additional notice to the other that it proposes to do so.
The payment by Tenant, and acceptance by Landlord of rent or other payment
hereunder or silence by either party as to any breach, shall not be construed as
waiving any of such party's rights hereunder unless such waiver is in writing.
No payment by Tenant or acceptance by Landlord of a lesser amount than shall be
due Landlord from Tenant shall be deemed to be anything but payment on account
and the acceptance by Landlord of a check for a lesser amount with an
endorsement or statement thereon or upon a letter accompanying said check shall
not be deemed in accord and satisfaction and Landlord may accept said check
without prejudice to recover the balance due or pursue any other remedy which
may be available to it.
CUMULATIVE RIGHTS:
- ------------------
30. Any and all rights and remedies which either party may have
hereunder shall be cumulative and the exercise of any one of such rights shall
not bar the exercise of any other right or remedy which said party may have.
NOTICES:
- --------
31. Whenever in this Lease it shall be required or permitted that
notice, demand or other communication be given or served by either party to this
Lease or upon the other, such notice shall be deemed to have been duly given or
served if in writing and forwarded by a nationally recognized overnight delivery
service requiring a return receipt, postage prepaid, addressed to the party to
whom it is to be given or served,at his or its address first above written. Each
party may change its above address for purposes of notices by notice to the
other party in the manner hereinbefore provided.
ENTIRE AGREEMENT:
- -----------------
32. This instrument contains the entire and exclusive agreement between
the parties and supersedes and terminates all prior or contemporaneous
arrangements, understandings and agreements, whether oral or written. This Lease
may not be amended or modified, except by a writing executed by Landlord and
Tenant.
CONSTRUCTION:
- -------------
33. In construing this Lease, feminine or masculine pronouns shall be
substituted for those of neuter form and vice versa and the plural for singular
and singular for plural in any place where the context may require.
11
GOVERNING LAW AND SEVERABILITY:
- -------------------------------
34. This Lease shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts. In the event any provision of
this Lease shall be determined to be invalid or unenforceable under applicable
law, such provision shall, insofar as possible, be construed or applied in such
manner as will permit enforcement; otherwise, this Lease shall be construed as
if such provision had never been made part hereof.
HEADINGS:
- ---------
35. The headings used herein are used only for convenience of reference
and are not to be considered a part of this Lease or to be used in deter-mining
the intent of the parties hereto.
BINDING EFFECT:
- ---------------
36. This Lease shall be binding upon and inure to the benefit of all
administrators, executors, personal representatives, heirs, successors and
permitted assigns, including all permitted subtenants, of the parties hereto.
Each subtenant or assignee shall, as a precondition to Landlord's approval of
Tenant's subletting the Demised Premises or assigning this Lease, execute such
written instrument as Landlord shall reasonably require evidencing his agreement
to be bound by each and every term of this lease, provided that such an
agreement shall not, unless specifically provided, operate to release Tenant
from its obligations hereunder. Tenant represents and warrants that the person
signing this Lease on behalf of Tenant is authorized to so execute this Lease
and to bind the Tenant.
ENVIRONMENTAL MATTERS:
- ----------------------
37. The LESSEE will comply with all laws and regulations applicable to
the LESSEE pertaining to the protection of the environment from any
contamination and except as hereinafter provided shall be responsible for
correcting and hereby indemnities the Landlord against the cost of correcting
any situation which shall be determined by lawful authority to amount to
environmental contamination caused or permitted by the LESSEE. This obligation
shall survive the termination of the Lease. The LESSEE shall not be responsible
for any remedial action or expense necessary to correct any release of hazardous
materials, substances, or oil on the Premises or on the premises adjacent
thereto which took place prior to the date of the commencement of the Lease
term. The costs of any remedial action for any such prior release shall be borne
entirely by Landlord.
QUIET ENJOYMENT:
- ----------------
38. The Landlord covenants that, so long as the LESSEE is not in breach
of the terms and conditions of this Lease, the LESSEE shall peaceably and
quietly have, hold and enjoy the Premises for the term hereof, subject to the
provisions of this Lease.
12
LANDLORD'S REPRESENTATIONS AND COVENANTS:
- -----------------------------------------
39. Landlord hereby warrants and represents to, and covenants and
agrees with, Tenant as follows:
(a) The Demised Premises (including all parking) and the
related areas are and will be in good condition and repair, and all utilities,
including oil, electricity, telephone, water and sewer are sufficient to meet
Tenant's reasonable requirements for the permitted uses.
(b) The heating, ventilating and air conditioning ("HVAC")
serving the Demised Premises are and shall be sufficient to maintain
temperature, ventilation and humidity levels to Tenant's reasonable satisfaction
to permit Tenant to conduct its business in accordance with the terms of this
Lease.
LANDLORD'S DEFAULT:
- -------------------
40. In the event Landlord shall fail to perform any obligation
specified in this Lease or if any material representation or warranty of
Landlord in this Lease shall be breached, then Tenant, in addition to and not in
limitation of any other remedies, may after the continuance of such default for
thirty (30) days after notice thereof by Tenant (provided that emergency repairs
which are Landlord's responsibility under this Lease may be made upon 25 hours'
notice to Landlord) on behalf and at the expense of Landlord, do all necessary
work and make all necessary payments in connection therewith, and Landlord shall
on demand, pay Tenant forthwith the amount so paid by Tenant, provided herein
nothing shall limit or condition Tenant's obligation to otherwise pay rent and
all other sums due Landlord, as provided herein.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the day and year first written above.
LANDLORD,
W.D.P. CORP.
By: /s/ William D. Paine, Pres.
----------------------------
TENANT,
DYNASYS SYSTEM CORPORATION
By: /s/ Albert J. Agbay
--------------------------
Albert J. Agbay
President & CEO
13
GUARANTY
--------
In consideration of the letting of the Demised Premises above
described, Palomar Medical Technologies, Inc., a Delaware Corporation, with a
usual place of business in the at 66 Cherry Hill Drive, Beverly, Massachusetts
01915, the parent company of the Tenant, hereby guarantees the prompt and
punctual payment and the performance of all of the covenants of the Tenant in
the above Lease to be paid and performed by said Tenant, without requiring any
notice of nonpayment or nonperformance, or proof of notice or demand being made
in order to charge the Guarantor therefore. Guarantor represents and warrants
that the person signing this Guaranty on behalf of the Guarantor is authorized
to so execute this Guaranty and to bind the Guarantor.
IN WITNESS WHEREOF, the Guarantor hereto has set its hand and seal this
27th day of July, 1995.
PALOMAR MEDICAL TECHNOLOGIES, INC.
/s/ Michael Smotrich By: /s/ Joseph P. Caruso
- --------------------- -------------------------
Michael Smotrich, Secr.
DS1-308339
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EXHIBIT 10.2
STANDARD INDUSTRIAL LEASE
Dated (for reference) as of: August 9, 1996
1. DEFINED TERMS. Each reference in this Lease to any of the following terms
shall include the data for such term as stated below with any additional terms
used in this Lease to have the meaning and definition given hereafter:
<TABLE>
<S> <C> <C>
Tenant: NEXAR TECHNOLOGIES, INC., Landlord: IBG HUNTWOOD ASSOCIATES,
a Delaware corporation a California general partnership
Tenant's Address: 30551 Huntwood Ave. Landlord's c/o Warehouse Properties, Inc.
Hayward, CA 94545 Address: 1400 Fashion Island Blvd., #1000
San Mateo, CA 94404
and a copy to: 182 Turnpike Road
Westborough, MA 01581
</TABLE>
Description of the Premises: Street Address: 30551 Huntwood Avenue, Hayward
Floor Area of Improvements: Approximately 100,000 sq. ft. (see attached
Exhibit "A")
Term: Five (5) years Scheduled Term Commencement Date: August 15, 1996
Rent: $24,000 per month for the first 12 months of the Term; see
Paragraph 43 thereafter.
Taxes, Insurance, and Maintenance Reserve Deposit: $5,500 per month
Security Deposit: $66,000
Insurance Amounts:
Bodily Injury per Person: $3,000,000
Bodily Injury per Occurrence: $3,000,000
Property Damage: $1,000,000
Landlord's Construction Representative: Mike Schonenberg
Tenant's Construction Representative: Liaqat Khan
Uses: Storage, assembly, integration and distribution of computer
related products and related administrative uses.
Tenant's Share of: Real Property Taxes 100 %, Insurance Expenses 100%,
Maintenance Expenses 100%
2. PREAMBLE. Landlord hereby leases to Tenant, and Tenant hereby leases and
accepts from Landlord, that certain real property described in Paragraph 1 (the
"Premises") for the Term and upon the covenants and conditions hereinafter
specified. Any statement of square footage set forth in this Lease is an
approximation which Landlord and Tenant agree is reasonable and the rental is
not subject to revision whether or not the actual square footage is more or
less. The Security Deposit and first month's Rent are due at execution of the
Lease by Tenant.
3. COMMENCEMENT. SECTION DELETED BY PARTIES.
4. RENT; NET LEASE. Tenant agrees to pay Landlord at Landlord's address, or at
such other place designated by Landlord by written notice to Tenant, the Rent,
in lawful money of the United States, in advance, without demand, off-set or
deduction, on the first day of each calendar month of the Term hereof. In the
event the Term commences or the date of expiration of this Lease occurs other
than on the first day or the last day of a calendar month, the Rent for such
month shall be prorated. This Lease is what is commonly called a "net lease"; it
being understood that Landlord shall receive the Rent free and clear of any and
all impositions, taxes, liens, charges or expenses of any nature or kind
whatsoever in connection with the ownership and operation of the Premises. If
Rent is not received as provided above and on or before the first day of each
calendar month, a 6% late charge shall be payable by Tenant as provided in
Paragraph 13.4 to compensate Landlord for expense incurred by Landlord for
recordkeeping and collection. In the event that a late charge is payable,
whether or not collected, four times in any six month period, then Rent shall
automatically become due and payable quarterly in advance for the next twelve
month period.
5. DEPOSITS.
5.1 TAXES, INSURANCE AND MAINTENANCE RESERVE. Tenant shall deposit with
Landlord each month the amount set forth in Paragraph 1 as a reserve to be used
to pay real property taxes, maintenance expenses and insurance expenses on the
Premises which are payable by Tenant under the terms of this Lease. Tenant's
expense obligations shall include a 10% management fee on Tenant expenses
(excluding taxes and insurance expenses) collected by Landlord. At least once
annually (within 120 days after close of calendar year) Landlord shall provide
Tenant with a written reconciliation of expenses which Tenant shall have the
right to audit. If the amounts deposited with Landlord by Tenant under the
provisions of this Paragraph are insufficient to discharge the obligations of
Tenant, Tenant shall deposit with Landlord, within thirty (30) days of
Landlord's demand, the additional sums necessary to fully satisfy such
obligations. If Tenant's deposits are in excess of the expenses, the excess
shall be credited to the next month's rent (unless the term has expired, in
which case Landlord shall pay Tenant the excess within thirty (30) days of
Landlord's reconciliation). All monies deposited with Landlord under this
Paragraph may be intermingled with other monies of Landlord and shall not bear
interest.
5.2 SECURITY DEPOSIT. Tenant has deposited with Landlord the Security
Deposit set forth in Paragraph 1 above as security for Tenant's faithful
performance of Tenant's obligations hereunder. If Tenant fails to pay Rent or
other charges due hereunder, or otherwise defaults with respect to any provision
of this Lease, and after expiration of all notice and grace periods as provided
hereunder, Landlord may use, apply or retain all or any portion of said deposit
for the payment of any Rent or other charge in default, or for the payment of
any other sum to which Landlord may become obligated by reason of Tenant's
default (beyond all applicable notice and grace periods), or to compensate
Landlord for any loss or damage which Landlord may suffer thereby. If Landlord
so uses or applies all or any portion of said deposit, Tenant shall, within ten
(10) days after written demand therefor, deposit cash with
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Landlord in an amount sufficient to restore said deposit to the full amount
stated in Paragraph 1, and Tenant's failure to do so shall be a material breach
of this Lease. Landlord shall not be required to keep said deposit separate from
its general accounts. If Tenant performs all of Tenant's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Landlord, shall be returned, to Tenant (or, at Landlord's option, to the last
assignee, if any, of Tenant's interest hereunder) promptly at the expiration of
the Term hereof, and after Tenant has vacated the Premises. No trust
relationship is created herein between Landlord and Tenant with respect to said
Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the uses
stated in Paragraph 1.
6.2 COMPLIANCE WITH LAW: PRIOR RESTRICTION. Tenant shall, at Tenant's
sole expense, comply promptly and continuously with all applicable statutes,
ordinances, rules, regulations, orders, restrictions of record, and requirements
in effect during the Term, or any part of the Term hereof, regulating the Use of
the Premises. Tenant shall not use or permit the use of the Premises in any
manner that will tend to create waste or a nuisance. Outside storage shall not
be allowed under any circumstances unless it is in full compliance with all City
of Hayward regulations.
6.3 CONDITION OF PREMISES. Tenant hereby accepts the Premises in their
condition existing as of the date of the execution hereof, with the exception of
any latent defects not reasonably apparent by physical inspection, and subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations and any covenants or restrictions of record governing and regulating
the use of the Premises, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Tenant shall be
solely responsible for any costs of, or liabilities resulting from failure to
comply with, ADA or related requirements or regulations. Tenant acknowledges
that neither Landlord nor Landlord's agents has made any representation or
warranty as to the suitability of the Premises for the conduct of Tenant's
business, and that Tenant has made such legal and factual inquiries with respect
thereto as it deems appropriate and has relied solely thereon.
6.4 HAZARDOUS MATERIALS. Tenant shall not cause any Hazardous Materials
to be used, generated, stored or disposed of on or about the Premises except in
the ordinary course of Tenant's business, and then only in compliance with all
Hazardous Materials Laws. Hazardous Materials means those substances described
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and
Recovery Act, as amended 42 U.S.C Section 6901 et seq., any applicable state or
local laws and the regulations adopted under these acts (collectively,
"Hazardous Materials Laws"). Tenant shall be liable to Landlord for any and all
damages caused by Tenant's breach of the foregoing covenants. Landlord shall not
be liable for any claims, damages or losses due to the effects of Hazardous
Materials on the Premises that is caused by owners, tenants, licensees, and
invitees of other properties or is not directly caused by Landlord. Tenant shall
indemnify, defend by counsel acceptable to Landlord and hold Landlord harmless
from and against any claims, damages or liabilities arising out of a breach of
any provision of this Paragraph 6.4. Landlord and Tenant each agree to promptly
notify the other party of, and provide copies of, any communication received
from any governmental entity concerning Hazardous Materials or the violation of
Hazardous Materials Laws that relate to the Premises. If Landlord requires
testing to ascertain whether there has been any violation of Hazardous Materials
Laws on the Premises, then upon prior written notice to Tenant, Landlord, may
require any such testing that is then customarily used for that purpose,
provided such testing does not unreasonably interfere with Tenant's use and
occupancy of the
3
Premises. The cost of such testing shall be an expense of Landlord if Tenant has
not violated any Hazardous Material Laws. In the event that Tenant has violated
any Hazardous Material Laws, then the cost of testing, together with all other
costs for remediation or any other related liability, shall be borne by Tenant.
The covenants contained herein shall survive the expiration or earlier
termination of the Lease. Landlord shall indemnify, defend by counsel acceptable
to Tenant and hold Tenant harmless from and against any claims, damages or
liabilities due to the existence of any hazardous substance in, on or about the
Premises or the violation of any government requirement with respect to
environmental protection which is caused by Landlord.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 TENANT'S OBLIGATIONS. Tenant shall keep in good order, condition
and repair the Premises and every part thereof (structural and nonstructural),
including the walls, floor, roof, all adjacent sidewalks, landscaping,
driveways, parking lots, fences located in the areas which are adjacent to and
included in the Premises except as provided for in Paragraph 7.4. At the
reasonable cost and expense of Tenant, the landscaping shall be maintained by a
professional gardener and the exterior of the building shall be repainted at
least once every four (4) years.
7.2 SURRENDER. On the last day of the Term hereof, or on any sooner
termination, Tenant shall surrender the Premises to Landlord in the same
condition as when received, clean and free of debris with reasonable wear and
tear and damage caused by casualty and condemnation excepted. Tenant shall
repair any damage to the Premises occasioned by the removal of Tenant's trade
fixtures, furnishings and equipment. Tenant shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the Premises in good operating condition,
reasonable wear and tear and damage caused by casualty and condemnation
excepted.
7.3 LANDLORD RIGHTS. If Tenant fails to perform Tenant's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Landlord
may, at its option (but shall not be required to), enter upon the Premises,
after fifteen (15) days' prior written notice to Tenant (except in the case of
an emergency, in which case no notice shall be required), perform such
obligations on Tenant's behalf and put the same in good order, condition and
repair, and the cost thereof shall become due and payable as additional Rent to
Landlord together with Tenant's next Rent payment.
7.4 LANDLORD'S OBLIGATIONS. Except for the obligations of Landlord
under Paragraph 7, 9 and 14, it is intended by the parties hereto that Landlord
shall have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or non-structural, all of which obligations are intended to be that
of the Tenant. Tenant hereby waives the provisions of California Civil Code
Section 1941 and 1942 or any related or successor provision of law which would
otherwise afford Tenant the right to make repairs at Landlord's expense, or to
terminate this Lease because of Landlord's failure to keep the Premises in good
order, condition and repair. Landlord shall at Landlord's expense keep the
foundation, roof structure (not including roof membrane) and structural walls of
the Premises in good condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without Landlord's prior written consent
(which consent shall not be unreasonably withheld or delayed), make any
alterations, improvements, additions or Utility Installations in, on or about
the Premises, except for non-structural alterations not exceeding Twenty-five
4
Thousand Dollars ($25,000.00) in cumulative costs in any twelve (12) month
period, during the Term of this Lease. As used in this Paragraph 7.5, the term
"Utility Installations" shall include carpeting, window coverings, air lines,
power panels, electrical distribution systems, lighting fixtures, space heaters,
air conditioning, plumbing, and fencing. Landlord may require that Tenant remove
any or all of said alterations, improvements, additions or Utility Installations
at the expiration of the Term, and restore the Premises to their prior condition
unless Tenant obtains Landlord's approval not to require any such removal at
time of consent. Landlord may require Tenant to provide Landlord with, at
Tenant's sole cost and expense, a lien and completion bond in an amount equal to
the estimated cost of such improvements, to insure Landlord against any
liability for mechanic's and materialmen's liens and to insure completion of
work. Should Tenant make any alterations, improvements, additions or Utility
Installations without the prior approval of Landlord except as permitted as
aforesaid, Landlord may require that Tenant immediately remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises, that Tenant shall desire to make, and
which require the consent of the Landlord as aforesaid, shall be presented to
Landlord in written form, with proposed detailed plans. If Landlord shall give
its consent, the consent shall be deemed conditioned upon Tenant acquiring a
permit to do so from appropriate governmental agencies, the furnishing of a copy
thereof to Landlord prior to the commencement of the work and the compliance by
Tenant with all conditions of said permit in a prompt and expeditious manner.
(c) Tenant shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Tenant at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Tenant shall
give Landlord not less than ten (10) days' notice prior to the commencement of
any work in or on the Premises, and Landlord shall have the right to post
notices of non-responsibility in or on the Premises as provided by law.
(d) Unless Landlord requires their removal at the time of
Landlord's consent, as set forth in Paragraph 7.5(a), all alterations,
improvements, additions and Utility Installations excluding trade fixtures of
Tenant), which may be made on the Premises, shall become the property of
Landlord and remain upon and be surrendered with the Premises at the expiration
of the Term. Notwithstanding the provisions of this Paragraph 7.5(d),Tenant's
machinery and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises and cannot be
restored by Tenant, shall remain the property of Tenant and may be removed by
Tenant subject to the provisions of Paragraph 7.2.
7.6 COMMON AREA MAINTENANCE. Landlord, at Landlord's option, may
arrange for any portion of the exterior or common area maintenance and repair.
Tenant shall pay to Landlord upon demand a reasonable proportion to be
determined by Landlord of all costs.
8. INSURANCE, INDEMNITY.
8.1 COVERAGE. The following insurance and any additional insurance
coverage that may be required by law, or reasonably required by holders of
mortgages or deeds of trust, shall be carried protecting Landlord and the
holders of any mortgages or deeds of trust covering the Premises. Any insurance
polices provided by Tenant shall provide that such policies are primary and
non-contributing with any insurance carried by the Landlord.
5
(a) Insurance covering loss or damage to the Premises in the
amount of the full replacement value thereof, as the same may exist from time to
time, but in no event less than the total amount required by lenders having
liens on the Premises, against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, and special extended
perils ("all risk" as such term is used in the insurance industry). Said
insurance shall provide for payment of loss thereunder to Landlord or to the
holders of mortgages or deeds of trust on the Premises. A stipulated value or
agreed amount endorsement deleting the co-insurance provision of the policy
shall be procured with said insurance. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $5,000 per occurrence,
and Tenant shall be liable for such deductible amount.
(b) Comprehensive general liability (Landlord's risk only
including without limitation bodily injury, personal injury and property damage
insurance) in the amount of six (6) million dollars or such higher limits as
Landlord may reasonably require.
(c) Insurance against abatement or loss of rent in case of
fire or other casualty in an amount equal to the Rent, Real Property Taxes, and
insurance premium payments to be made by Tenant during one (1) year; and
(d) Commercial general liability insurance (including without
limitation bodily injury, personal injury and property damage), with limits at
least as high as the amounts respectively stated in Paragraph 1 or such higher
limits as Landlord may reasonably require. If insurance with a general aggregate
limit is used, the general aggregate limit shall apply separately to the
Premises.
8.2 PAYMENT OF PREMIUMS. Tenant shall obtain the insurance policy
called for in Paragraph 8.1 (d). Landlord shall obtain the insurance policies
called for in Paragraphs 8.1 (a), (b), and (c) and Tenant shall pay the cost
thereof upon demand as additional rent. If Tenant fails to maintain insurance
which Tenant has undertaken to provide, Tenant shall pay for any loss or cost
resulting from said failure.
8.3 INSURANCE POLICIES. Insurance required hereunder shall be with
companies holding a Best's Insurance Guide "General Policyholder's Rating" of at
least "A" and a " Financial Size Category" rating of at least Class VII.
Insurance policies shall not be cancelable or subject to reduction in coverage
or other modification except after thirty (30) days' prior written notice to
Landlord. The insuring party shall deposit with such mortgage holders as
Landlord may require, policies, duplicates or certificates as such holders may
reasonably require, and shall in all cases furnish the other party with
policies, duplicates and certificates. Tenant shall not violate or permit to be
violated any of the conditions or provisions of any policy provided for in
Paragraph 8. 1, and Tenant shall so perform and satisfy the requirements of the
companies writing such policies so that at all times companies of good standing
reasonably satisfactory to Landlord shall be willing to write and/or continue
such insurance.
8.4 WAIVER OF SUBROGATION. Tenant and Landlord each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
hereunder, which perils occur in, on or about the Premises, whether due to the
negligence of Tenant or Landlord or their agents, employees, contractors and/or
invitees. Tenant and Landlord shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
8.5 INDEMNITY. Except to the extent caused by the negligence of
Landlord or its agents, Tenant shall indemnify and hold harmless Landlord from
and against any and all claims arising from Tenant's
6
use of the Premises, or from the conduct of Tenant's business or from any
activity, work or things done, permitted or suffered by Tenant in or about the
Premises or elsewhere, and shall further indemnify and hold harmless Landlord
from and against any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease, or arising from any negligence of Tenant, or any of Tenant's
agents, contractors, or employees, and from and against all costs, attorneys'
fees, expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon; and in case any action or proceeding be
brought against Landlord by reason of any such claim, Tenant, upon notice from
Landlord, shall defend the same at Tenant's expense by counsel satisfactory to
Landlord. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Premises arising from any cause, and Tenant hereby waives all claims in
respect thereof against Landlord, except for damage or injury arising or
resulting from the negligence of Landlord or its agents.
8.6 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that
Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom, or for damage to the goods, wares, merchandise or other
property of Tenant, Tenant's employees, invitees, customers, or any other person
in or about the Premises; nor shall Landlord be liable to the person of Tenant,
Tenant's employees, agents or contractors whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning or lighting fixtures, or from any other
cause, whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, regardless of whether the cause of such
damage or injury or the means of repairing same is inaccessible to Tenant.
Landlord shall not be liable for any damages arising from any act or neglect of
any other tenant, if any, of the building or complex in which the Premises are
located. The provisions of this paragraph 8.6 shall not apply to liability
arising from the negligence of Landlord or its agents.
9. DAMAGE OR DESTRUCTION.
9.1 PARTIAL DAMAGE--INSURED. Subject to the provisions of Paragraphs
9.3 and 9.4, if the Premises are damaged and such damage was caused by a
casualty covered under an insurance policy, Landlord shall, or at Landlord's
option, Tenant shall repair such damage to the extent of net insurance proceeds
received by Tenant as soon as reasonably possible (but no later than one hundred
fifty (150) days from the date the damage occurred) and this Lease shall
continue in full force and effect. If Tenant repairs the damage, Landlord shall
reimburse Tenant or pay on submission of invoice for the costs of repair to the
extent of insurance proceeds received by Landlord.
9.2 PARTIAL DAMAGE--UNINSURED. Subject to the provisions of Paragraphs
9.3 and 9.4, if at any time during the Term hereof the Premises are
substantially damaged so as to materially affect Tenant's use, except by a
negligent or willful act of Tenant (in which event Tenant shall make the repairs
at its expense), and such damage was caused by a casualty not covered under an
insurance policy required to be maintained pursuant to Paragraph 8.1, Landlord
shall give written notice to Tenant, within thirty (30) days after the date of
the occurrence of such damage, of Landlord's intention to either a) repair such
damage as soon as reasonably possible at Landlord's expense (but no later than
one hundred fifty (150) days from the date the damage occurred), in which event
this Lease shall continue in full force and effect, or (b) cancel and terminate
this Lease as of the date of the occurrence of such damage. In the event
Landlord elects to give such notice of Landlord's intention to cancel and
terminate this Lease, Tenant shall have the right within ten (10) days after the
receipt of such notice to give written notice to Landlord
7
of Tenant's intention to repair such damage at Tenant's expense, without
reimbursement from Landlord, in which event this Lease shall continue in full
force and effect, and Tenant shall proceed to make such repairs as soon as
reasonably possible. If Tenant does not give such notice within such ten (10)
day period, this Lease shall be canceled and terminated as of the date of the
occurrence of such damage.
9.3 TOTAL DESTRUCTION. If at any time during the Term of this Lease
there is damage, whether or not an insured loss (including destruction required
by any authorized public authority), to the building of which the Premises are a
part to the extent that the cost of repair exceeds sixty percent (60%) of the
then replacement cost of such building as a whole, then this Lease shall
automatically terminate as of the date of such destruction. In the event,
however, that the damage or destruction was caused by Tenant's gross negligence
or willful misconduct, Landlord shall have the right to recover Landlord's
damages from Tenant.
9.4 DAMAGE NEAR END OF TERM. If the Premises are substantially damaged
during the last year of the Term of this Lease, Landlord may, at Landlord's
option, cancel and terminate this Lease as of the date of occurrence of such
damage by giving written notice to Tenant of Landlord's election to do so within
thirty (30) days after the date of occurrence of such damage.
9.5 ABATEMENT OF RENT. In the event of damage described in Paragraphs
9.1 or 9.2, and Landlord or Tenant repairs or restores the Premises, Rent for
the period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Tenant's use of the Premises is
impaired. Except for the abatement of Rent, if any, Tenant shall have no claim
against Landlord for any damage suffered by reason of any such damage,
destruction, repair or restoration except for damage or injury caused by the
negligence of Landlord or its agents.
9.6 WAIVER. Tenant and Landlord hereby waive the provisions of
California Civil Code Paragraphs 1932 (2) and 1933 (4) or any related or
successor provision of law which relate to termination of leases when the thing
leased is destroyed and agree that such event shall be governed by the terms of
this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Tenant shall pay the Real Property Tax, as
defined in Paragraph 10.2, applicable to the Premises during the Term of this
Lease. If deposits collected for real property taxes as provided in Paragraph
5.1 are not sufficient to discharge Tenant's obligations, payment of the balance
shall be made the later of (i) at least ten (10) days prior to the delinquency
date by depositing the balance with Landlord or (ii) thirty (30) days after
written notice from Landlord. If any such taxes paid by Tenant shall cover any
period of time after the expiration of the Term hereof, Tenant's share of such
taxes shall be equitably prorated to cover only the period of time within the
tax fiscal year during which this Lease shall be in effect, and Landlord shall
reimburse Tenant to the extent required within thirty (30) days following
expiration of the Term. If Tenant shall fail to pay any such taxes as set forth
above, Landlord shall have the right to pay the same, in which case Tenant shall
repay such amount to Landlord with Tenant's next Rent installment, together with
interest at the maximum rate then allowable by law.
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term Real
Property Tax shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income,
franchise, transfer or estate taxes of Landlord) imposed on the Premises by any
8
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Landlord in the Premises, or in the real property of which
the Premises are a part, as against Landlord's right to rent or other income
therefrom, and as against Landlord's business of leasing the Premises. Real
Property Tax shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of Real Property Tax or (ii) the
nature of which was hereinbefore included within the definition of Real Property
Tax.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Tenant's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Landlord from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Landlord's reasonable determination thereof, in good
faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all personal property of Tenant contained in the Premises or elsewhere. When
possible, Tenant shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Landlord.
11. UTILITIES. Tenant shall pay for heat, water, gas, electricity, and any other
utilities and services supplied to the Premises, together with taxes thereon.
Tenant shall be responsible for any installation or hook-up charge. Landlord
shall not be liable to Tenant for interruption in or curtailment of any utility
service, nor shall any such interruption in or curtailment constitute a
constructive eviction or grounds for rental abatement. If any such services are
not separately metered to Tenant, Tenant shall pay a reasonable proportion, to
be determined by Landlord, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law assign, mortgage, sublet, or otherwise transfer or encumber all
or any part of Tenant's interest in this Lease or in the Premises without
Landlord's prior written consent. Landlord shall not unreasonably withhold or
delay its consent to an assignment or sublet, provided the proposed assignee or
subtenant is reasonably satisfactory to Landlord as to credit and will occupy
and use the Premises for the same purposes specified in Paragraph 1. Any
attempted assignment, transfer, mortgage, encumbrance or subletting without such
consent shall constitute a breach of this Lease and be voidable at Landlord's
election. Tenant shall pay to Landlord five hundred dollars ($500) as
compensation for expenses in connection with any request by Tenant for
Landlord's consent.
12.2 NO RELEASE OF TENANT. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant of Tenant's obligation, or alter
the primary liability of Tenant to pay the Rent and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of Rent by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting.
12.3 RECAPTURE OF PREMISES. In connection with any proposed assignment
or sublease, Tenant shall submit to Landlord in writing (a) the name of the
proposed assignee or subtenant, (b) such
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information as to its financial responsibility and standing as Landlord may
reasonably require, and (c) all of the terms and conditions upon which the
proposed assignment or subletting is to be made.
12.4 EXCESS SUBLEASE RENTAL. If, on account of or in connection with
any assignment or sublease, Tenant receives rent or other consideration in
excess of the Rent called for hereunder, or in the case of the sublease of a
portion of the Premises, in excess of the pro rata Rent based on the floor area
of such portion, after appropriate adjustments to assure all other payments
called for hereunder are appropriately taken into account, Tenant shall pay to
Landlord fifty percent (50%) of the excess of such payment of rent or other
consideration received by Tenant promptly after its receipt, after deduction of
Tenant's costs reasonably incurred in connection with any such assignment or
sublease.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant for
more than 30 consecutivedays.
(b) The failure by Tenant to make any payment of Rent or any
other payment required to be made by Tenant hereunder, as and when due,
where such failure shall continue for a period of three (3) days after
written notice thereof from Landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by Tenant, other than described in Paragraph 13.1 (b), where
such failure shall continue for a period of thirty (30) days after
written notice thereof from Landlord to Tenant; provided, however, that
if the nature of Tenant's default is such that more than thirty (30)
days are reasonably required for its cure, then Tenant shall not be
deemed to be in default if Tenant commences such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure
to completion.
(d) (i) The making by Tenant of any general arrangement or
assignment for the benefit of creditors; (ii) the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt or a petition
for reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee
or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days; or (iv)
the attachment, execution or other judicial seizure of substantially
all of Tenant's assets located at the Premises or of Tenant's interest
in this Lease, where such seizure is not discharged within thirty (30)
days.
(e) The discovery by Landlord that any financial statement
given to Landlord by Tenant, any assignee of Tenant, any subtenant of
Tenant, any successor in interest or any guarantor of Tenant's
obligations hereunder was materially false.
13.2 REMEDIES. In the event of any material default or breach by
Tenant, Landlord may at any time thereafter, with or without notice or demand,
except as set forth below, and without
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limiting Landlord in the exercise of any right or remedy which Landlord may have
by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises, in
which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all reasonable
damages incurred by Landlord by reason of Tenant's default including,
but not limited to, the cost of recovering possession of the Premises;
expenses of reletting including necessary renovation and alteration of
the Premises, reasonable attorneys' fees, and any real estate
commission actually paid; the worth at the time of award by the court
having jurisdiction thereof of the amount which the unpaid Rent for the
balance of the Term after the time of such award exceeds the amount of
such rental loss for the same period that Tenant proves could be
reasonably avoided; and that portion of the leasing commission paid by
Landlord applicable to the unexpired Term of this Lease. Unpaid
installments of Rent or other sums shall bear interest from the date
due at the maximum rate then allowable by law.
(b) Maintain Tenant's right to possession in which case this
Lease shall continue in effect whether or not Tenant shall have
abandoned the Premises. In such event, Landlord shall be entitled to
enforce all of Landlord's rights and remedies under this Lease,
including the right to recover the Rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the State of
California.
13.3 DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within thirty (30)
days after written notice by Tenant to Landlord, and to the holder of any
mortgage or deed of trust covering the Premises whose name and address shall
have theretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligations; provided however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within 10 days of written notice of default and thereafter
diligently prosecutes the same to completion. If Landlord does not cure default
within the specified time frame, Tenant shall have the right to cure and offset
any expense to cure against Rent.
13.4 LATE CHARGES. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent and other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Tenant,
Tenant shall pay to Landlord a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
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14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "Condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the building or the Premises, or more than twenty-five percent (25%) of
the land area of the Premises which is not occupied by any building, is taken by
Condemnation; then Tenant may, at Tenant's option to be exercised in writing
only within ten (10) days after Landlord shall have given Tenant written notice
of such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession), terminate this Lease as of
the date the condemning authority takes such possession. If Tenant does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Rent shall be reduced in the proportion that the floor area taken bears
to the total floor area of the building situated on the Premises. No reduction
in Rent shall occur if the only area taken is that which does not have a
building or parking located thereon. Any award for the taking of all or any part
of the Premises under the power of eminent domain, or any payment made under
threat of the exercise of such power, shall be the property of Landlord, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Tenant shall be entitled to any award for loss or damage to
Tenant's trade fixtures, removable personal property moving and other relocation
costs. In the event that this Lease is not terminated by reason of such
Condemnation, Landlord shall, to the extent of severance damages received by
Landlord in connection with such Condemnation, repair any damage to the Premises
caused by such Condemnation, except to the extent that Tenant has been
reimbursed therefor by the condemning authority, within ninety (90) days of
Landlord's receipt in total of any award from the condemning authority.
15. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of, or option to, lease.
This instrument is not effective as a lease or otherwise until execution and
delivery by Landlord and Tenant.
16. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time during the Term, upon twenty (20) days
prior written notice from Landlord, execute, acknowledge and deliver to Landlord
a statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification, and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the Rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Landlord's option, Tenant's failure to deliver such statement,
within twenty (20) days of receipt of written notice, shall be a material breach
of this Lease or shall be conclusive upon Tenant (i) that this Lease is in full
force and effect, without modification except as may be represented by Landlord,
(ii) that there are no uncured defaults in Landlord's performance, and (iii)
that not more than one month's Rent has been paid in advance.
(c) If Landlord desires to finance, refinance or sell the Premises, or
any part thereof, Tenant hereby agrees, upon ten (10) days prior written notice,
to deliver to Landlord such financial statements of Tenant as may be reasonably
required by a lender or purchaser. Such statement shall include the past
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three years' financial statements of Tenant to the extent available. All such
financial statements shall be received by Landlord in confidence and shall be
used only for the purposes herein set forth.
17. LANDLORD'S LIABILITY. Whenever Landlord conveys its interest in the
Premises, Landlord shall be automatically released from all liability as
respects the further performance of covenants on the part of Landlord herein
contained provided the assignee executes an assumption agreement agreeing to
assume all of Landlord's obligations with respect to this Lease including
without limitation Landlord's obligation with respect to Tenant's Security
Deposit. If requested, Tenant shall execute a form of release and such other
documentation as may be required to further effect these provisions. Tenant
agrees to look solely to Landlord's estate and interest in the Premises for the
satisfaction of any liability, duty or obligation of Landlord in respect to this
Lease, or the relationship of Landlord and Tenant hereunder, and no other assets
of Landlord shall be subject to any liability therefor. Tenant agrees it will
not seek, and hereby waives, any recourse against the individual partners,
directors, officers, employees or shareholders of Landlord, or any of their
personal assets, for such satisfaction.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Landlord not paid when due, shall bear interest at the maximum
rate then allowable by law from the date due not to exceed fourteen percent
(14%). Payment of such interest shall not excuse or cure any default by Tenant
under this Lease.
20. TIME OF ESSENCE. Time is of the essence in this Lease and every provision
thereof.
21. ADDITIONAL RENT. Any monetary obligations of Tenant to Landlord under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal service or by certified mail, return
receipt requested. Notice by certified mail shall be deemed served on the date
of delivery as shown on the postal receipt. Either party may, by notice to the
other, specify a different address for notice purposes, except that, upon
Tenant's taking possession of the Premises, the Premises and any additional
address of Tenant set forth in Paragraph 1 shall constitute Tenant's address for
notice purposes. A copy of all notices to be given to Landlord hereunder shall
be concurrently transmitted by Tenant to such party or parties at such addresses
as Landlord may hereafter designate by notice to Tenant. A courtesy copy of all
notices to Tenant shall also be sent to: Choate, Hall & Stewart, Exchange Place,
53 State Street, Boston, MA 02109-2891., Attn: Stephen K. Fogg, Esq.
24. WAIVERS. No waiver by Landlord of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. Landlord's consent to or approval of any act
shall not be deemed to render unnecessary the obtaining of Landlord's consent to
or approval of any subsequent act by Tenant. The acceptance of Rent hereunder by
Landlord
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shall not be a waiver of any preceding breach by Tenant or of any provision
hereof, other than the failure of Tenant to pay the particular Rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such Rent. Partial or incomplete payments accepted by Landlord
shall not be a waiver or considered an accord and satisfaction of any amounts
due.
25. CAPTIONS. Paragraph captions are not a part hereof.
26. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the Term without the express written consent of
Landlord, such occupancy shall be a tenancy from month to month at a rental
equal to the Rent during the last month of the Term increased by fifty percent
(50%) and upon all the terms hereof applicable to a month-to-month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by any
party shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to the provisions of Paragraphs 12
and 17, this Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns and legal representatives. This
Lease shall be governed by the laws of the State of California and any
litigation between Landlord and Tenant shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate to any
mortgage, deed of trust or any other hypothecation or security now or hereafter
placed upon the real property of which the Premises are a part, and to any and
all advances made on the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof. Landlord's election to
subordinate this Lease shall not be effective unless the mortgagee or trustee
shall execute with Tenant a non-disturbance agreement recognizing that Tenant's
right to quiet possession of the Premises shall not be disturbed, if Tenant is
not in default, and so long as Tenant shall pay the Rent and observe and perform
all the provisions of this Lease. If any mortgagee or trustee shall elect to
have this Lease prior to the lien of its mortgage or deed of trust, and shall
give written notice thereof to Tenant, this Lease shall be deemed prior to such
mortgage or deed of trust, whether this Lease is dated prior or subsequent to
the date of said mortgage or deed of trust or the date of recording thereof.
(b) To the extent Tenant has received a non-disturbance agreement as
aforesaid, Tenant agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Tenant's failure to
execute such documents within ten (10) days after written demand shall
constitute a default by Tenant hereunder, or at Landlord's option, Landlord
shall execute such documents on behalf of Tenant as Tenant's attorney-in-fact.
Tenant does hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact and in Tenant's name, place and stead to execute such
documents.
31. AS IS. Except for the express representations and warranties of Landlord
contained herein including without limitation Paragraph 47 below, Tenant is
leasing the Premises "AS IS" without any warranty of Landlord, express or
implied, as to the nature or condition of, or title to the Premises, or its
fitness
14
for Tenant's intended use of same. Tenant is relying solely upon its own
independent inspection, investigation and analysis of the Premises as it deems
necessary or appropriate in so leasing the Premises from Landlord (including,
without limitation, any and all matters concerning the condition, use or
suitability of the Premises). Except as provided above, Tenant is not relying in
any way upon any representations, statements, agreements, warranties, studies,
plans, reports, descriptions, guidelines or other information or material
furnished by Landlord or its representatives, whether oral or written, express
or implied, of any nature whatsoever regarding any of the foregoing matters.
32. LANDLORD'S ACCESS. Landlord and Landlord's agents shall have the right to
enter the Premises upon reasonable notice and at reasonable times for the
purpose of inspecting the same, showing the same to prospective purchasers,
lenders, or tenants, and making such tests, alterations, repairs, improvements
or additions to the Premises, or to the building of which they are a part, as
Landlord may deem necessary or desirable. Landlord may, at any time during the
last one hundred eighty (180) days of the Term hereof, place on or about the
Premises any ordinary "For Sale" or "For Lease" signs, all without rebate of
Rent or liability to Tenant.
33. AUCTIONS. Tenant shall not conduct any auction without Landlord's prior
written consent.
34. SIGNS. Any sign placed on the Premises shall contain only Tenant's name or
the name of any affiliate of Tenant actually occupying the Premises, but no
advertising matter. No such sign shall be erected until Tenant has obtained
Landlord's written approval, which approval shall not be unreasonably withheld
or delayed, of the location, materials, size, design, and content thereof and
any necessary permit therefor. Tenant shall remove any such sign upon
termination and return the Premises to their condition prior to the placement of
said sign.
35. MERGER. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord, shall not work a
merger and shall, at the option of the Landlord, terminate all or any existing
subtenancies or may, at the option of Landlord, operate as an assignment to
Landlord of any or all of such tenancies.
36. EASEMENTS, BOUNDARY CHANGES. Landlord reserves to itself the right, from
time to time, to grant such easements, rights, dedications and enact boundary
and common area configuration adjustments that Landlord deems necessary or
desirable and to cause the recordation of parcel maps and restrictions, so long
as they do not unreasonably interfere with the use of the Premises by Tenant or
diminish Tenant's rights hereunder. Tenant shall sign any of the aforementioned
documents upon request of Landlord and failure to do so shall constitute a
breach of this Lease by Tenant.
37. QUIET POSSESSION. Upon Tenant's paying the Rent, additional rent and other
sums provided hereunder and observing and performing all of the covenants,
conditions and provisions on Tenant's part to be observed and performed
hereunder, Tenant shall have quiet possession of the Premises for the entire
Term hereof, subject to the provisions of this Lease.
38. GUARANTOR. It shall constitute a material default of the Tenant under this
Lease if any Guarantor fails or refuses, upon reasonable request by Landlord to
give: a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf,
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(b) current financial statements of Guarantor as may from time to time be
requested by Landlord or (c) written confirmation that the guaranty is still in
effect.
39. SECURITY MEASURES. Tenant hereby acknowledges that the rental payable to
Landlord hereunder does not include the cost of guard service or other security
measures, and that Landlord shall have no obligation whatsoever to provide same.
Tenant assumes all responsibility for the protection of the Premises, Tenant,
its agents and invitees and their property from the acts of third parties.
40. AUTHORITY. If Tenant is a corporation, trust or partnership, each individual
executing this Lease on behalf of such entity represents and warrants that he is
duly authorized to execute and deliver this Lease on behalf of said entity. If
Tenant is a corporation, trust or partnership, Tenant shall, within thirty (30)
days after execution of this Lease, deliver evidence of such authority
satisfactory to Landlord.
41. DISCLAIMERS ON AUTHORSHIP. Landlord and Tenant have contributed to the final
form of this Lease. Therefore, neither Landlord or Tenant should be considered
to be the author of this Lease should authorship affect the interpretation of
this Lease by any tribunal.
42. AMENDMENTS. This Lease may be modified only in writing, signed by the
Landlord and Tenant at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Rent or other rent payable under this Lease. As long as they do not materially
change Tenant's obligations or rights hereunder, Tenant agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
43. RENT INCREASES. The Rent as called for in Paragraph 1 shall commence at
$24,000.00 per month. The Rent shall be increased every 12 months during the
Term of the Lease by the following schedule:
August 16, 1996 to August 15, 1997: $24,000 per month
August 16, 1997 to August 15, 1998: $29,000 per month
August 16, 1998 to August 15, 1999: $34,000 per month
August 16, 1999 to August 15, 2000: $39,000 per month
August 16, 2000 to August 15, 2001: $44,000 per month
44. TENANT IMPROVEMENT ALLOWANCE.
(a) Landlord shall provide a tenant improvement allowance (the
"Improvement Allowance") in the amount of One Hundred Thousand and no/l00
Dollars ($100,000.00) for all costs (including design, permits and construction
costs) associated with Tenant's proposed general purpose office improvements to
the Premises. Tenant's proposed improvements shall be submitted to Landlord for
approval prior to commencement of construction which approval shall not be
unreasonably withheld or delayed. Subject to the provisions of subparagraph (c)
below, in the event that Tenant's improvements cost more than the Improvement
Allowance, Tenant shall pay all additional costs.
(b) Advances of the Improvement Allowance shall not be made more than
once each month and within thirty (30) days upon which an advance is requested
provided Tenant has supplied Landlord with all materials and information
required below. The amount of each request by Tenant shall represent the
16
cost of that portion of the tenant improvements completed as of the date of such
request, the cost of all equipment, fixtures and furnishings which shall be
incorporated into the tenant improvements provided such materials are suitably
stored, secured and insured and other third party design fees and city fees
incurred by Tenant and related to the construction of the tenant improvements.
As a condition to Tenant's right to receive any of the proceeds of the
Improvement Allowance, Tenant shall have furnished to Landlord:
i) a copy of the application for payment issued by the
Tenant's Contractor, together with Tenant's
certification that all of the tenant improvements or
any portion thereof covered by a given application
for payment have been completed by the Contractor and
have not been the subject of prior applications for
payment; and
ii) receipted bills paid by Tenant to the Contractor for
the tenant improvements covered by the prior
application for payment and appropriate lien waivers
from the Contractor and all subcontractors waiving
any and all lien rights which any of them may have or
acquire for work or material supplied for the tenant
improvements.
The advances from the Improvements Allowance may be paid by check made
out jointly to Tenant and the Contractor and/or subcontractors (as applicable).
(c) Landlord shall provide up to an additional One Hundred Thousand and
no/l00 Dollars ($100,000) (the "Additional Funds") after August 16, 1997 as
reimbursement of Tenant's actual expenditure on additional improvements to the
Premises provided that Tenant i) is not and has not been in material default
under the terms of this Lease, and ii) submits receipts for improvement work in
excess of the original Improvement Allowance. Payment of the Additional Funds
shall be made as provided for in Paragraph 44(b). The actual Additional Funds
contributed by Landlord shall be amortized over the remaining Term of the Lease
at a rate of eleven percent (11% ) (e. g. a $10,000 allowance would be
reimbursed to Landlord as additional Rent over the remaining Term of 48 months
at a rate of $258.46 per month).
45. EARLY ENTRY. With the prior written consent of Landlord, Tenant shall have
the right within thirty (30) days prior to the Scheduled Term Commencement Date,
at its sole risk, cost and expense, to enter upon and install racks and
improvements in the Premises, and the same will not cause Rent to commence;
provided that (a) Tenant shall have paid for and provided evidence to Landlord
of all insurance required under the Lease having been secured; (b) Tenant shall
pay utility charges and other costs and expenses incurred by Landlord which
would not have been incurred except for such early entry by Tenant, and (c)
Tenant does hereby indemnify Landlord from any costs or liabilities that may be
incurred due to Tenant's early entry. Tenant shall not use the Premises for the
storage of inventory or otherwise commence the operation of business without the
express prior written consent of Landlord which consent shall not be
unreasonably withheld or delayed. If an event of default under the Lease occurs
during the period between the date of occupancy and the date Rent is to begin
("Early Occupancy Period"), then, on the occurrence of such event of default,
Tenant shall then be responsible for Rent due and payable from Tenant to
Landlord. By entry, Tenant accepts Premises as being in good order, condition
and repair in accordance with the provisions of the Lease. It is further
understood that any improvement of the Premises by the Tenant without written
consent of Landlord is hereby prohibited unless otherwise permitted under the
terms of the Lease.
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46. REIT PROVISION. Notwithstanding anything that may be contained in this Lease
to the contrary, no provision in this Lease shall be interpreted so as to have
the effect of providing for payment of Rent, or any increment thereof, based in
whole or in part on the income, net revenues, net income, or profits derived by
the Tenant from the Premises, but may, if applicable, be construed to provide
for Rent, or any increment thereof, based in part on a fixed percentage of gross
receipts or sales or otherwise included in the term "rents from real Property"
as such term is defined in Section 856(d) of the Internal Revenue Code. Further,
no assignment of this Lease, or sublet under this Lease, will be approved if the
effect thereof shall result in payment to the Landlord of rental based in whole
or in part on the income, net revenues, net income or profits derived by the
Tenant, Tenant's assignee or Tenant's sublessee from the Premises, but may, if
applicable, result in payment to the Landlord of rental based in part on a fixed
percentage of gross receipts or sales or otherwise included in the term "rents
from real property" as such term is defined in Section 856(d) of the Internal
Revenue Code. All documents relating to any permitted assignment or sublet shall
refer to this restriction.
47. CONDITION ON DELIVERY. Landlord shall deliver the Premises to Tenant clean
and free of debris on the Scheduled Term Commencement Date or such earlier date
as agreed upon by Tenant and Landlord, and Landlord warrants and represents to
the Tenant that the existing plumbing, electrical, and mechanical systems in the
Premises shall be in good operating condition as of the Scheduled Term
Commencement Date.
48. OPTION TO EXTEND TERM. In the event that Tenant i) has not been and is not
in material default during the Term of this Lease, and ii) has not assigned or
sublet more than 25 percent (25%) of the Premises during the last two (2) years
of the Term to other than an affiliate of Tenant, Tenant is hereby granted the
Option to extend the term of this Lease for an additional five (5) year term by
giving Landlord written notice ("Written Notice") of its intention to do so at
least seven (7) months prior to the expiration of the initial Term of this
Lease. The terms and conditions as contained in this Lease shall remain in
effect during this five (5) year extension term (the "Extension Term"), except
that the Rent shall be increased (but not decreased) as set forth below:
The initial Rent for the Extension Term shall be at the then fair market rental
for the Premises (but no less than the Rent payable in the month immediately
preceding the first month of the Extension Term). In the event that Tenant and
Landlord do not agree on the fair market rental, then Tenant and Landlord shall
select a qualified appraiser to determine such fair market rental. The cost of
said appraisal shall be borne equally by Landlord and Tenant. In the event that
Tenant and Landlord shall not agree on the appraiser within sixty (60) days of
Tenant's Written Notice to Landlord, then the President of the San Francisco
chapter of the Society of Industrial and Office Realtors shall select an
independent and qualified appraiser whose decision shall be binding on the
parties. Notwithstanding the foregoing, the Rent for the Extension Term shall be
increased as of the 31st month of the Extension Term in proportion to the
increase in the Consumer Price Index for the prior 30 months. The Security
Deposit shall be reduced to Thirty Three Thousand and no/100's Dollars ($33,000)
during the Extension Term.
49. LEGAL FEES. In the event of the bringing of any action or suit by a party
hereto against another party hereunder by reason of any breach of any of the
covenants or agreements or any inaccuracies in any of the representations and
warranties on the part of the other party arising out of this Agreement, then in
that event, the prevailing party in such action or dispute, whether by final
judgment, or out of court settlement shall be entitled to have and recover of
and from the other party all costs and expenses of suit, including actual
attorneys' fees.
18
50. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original, but all of which, together, shall
constitute one and the same instrument.
51. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California and venue in Alameda County.
52. FEES AND OTHER EXPENSES. Except as otherwise provided herein, each of the
parties shall pay its own fees and expenses in connection with this Agreement.
53. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure
to the benefit of the successors and assigns of the parties hereto.
54. SUBORDINATION. In the event Landlord records a new mortgage encumbering the
Premises, Landlord agrees to obtain a subordination, nondisturbance and
attornment agreement from Landlord's lender and deliver such to Tenant within
sixty (60) days after the later of i) the Scheduled Term Commencement Date or
ii) the recordation of any new mortgage encumbering the Premises.
55. ENTIRE AGREEMENT. This Agreement supersedes any prior agreements,
negotiations and communications, oral or written, and contains the entire
agreement between Buyer and Seller as to the subject matter hereof. No
subsequent agreement, representation, or promise made by either party hereto, or
by or to an employee, officer, agent or representative of either party shall be
of any effect unless it is in writing and executed by the party to be bound
thereby.
The Parties hereto have executed this Lease on the dates above their respective
signatures.
Dated: August 9, 1996 Dated:____________________________________
NEXAR TECHNOLOGIES, INC., IBG HUNTWOOD ASSOCIATES,
a Delaware corporation a California General Partnership
By: EastGroup Properties
General Partner
By: /s/ Thomas J. Bill By: /s/
-------------------- ---------------------------
Its: V.P. of Administration Its: Vice President
"Tenant" "Landlord"
19
GUARANTEE OF LEASE
WHEREAS NEXAR TECHNOLOGIES, INC., a Delaware corporation, is desirous
of entering into the lease hereinafter mentioned, as Tenant, and is hereinafter
referred to as "Tenant"; and
WHEREAS, Palomar Medical Technologies, Inc., a Delaware corporation,
hereinafter referred to as "Guarantor" has requested IBG Huntwood Associates,
hereinafter referred to as "Landlord", to enter into that certain lease dated
the 9th day of August, 1996 (attached hereto as Exhibit "A") with the Tenant,
hereinafter referred to as the "Lease"; and
WHEREAS, the Landlord has declined to enter into the Lease unless the
Guarantor guarantees the Lease in the manner hereinafter set forth.
NOW, THEREFORE, to induce the Landlord to enter into the Lease, the
Guarantor hereby agrees as follows:
1. (a) The Guarantor unconditionally guarantees to the Landlord and the
successors and assigns of the Landlord the full and punctual payment,
performance and observance, by the Tenant, of all the terms, covenants and
conditions in the Lease contained on Tenant's part to be kept, performed or
observed.
(b) If, at any time, a material default shall be made by the Tenant
as defined in Paragraph 13 of the Lease in the performance or observance of any
of the terms, covenants or conditions in the Lease contained on Tenant's part to
be kept, performed or observed, the Guarantor will keep, perform and observe the
same, as the case may be, in place and stead of the Tenant.
2. Any act of the Landlord, or the successors or assigns of the
Landlord, consisting of a waiver of any of the terms or conditions of the Lease,
or the giving of any consent to any manner or thing relating to the Lease, or
the granting of any indulgences or extensions of time to the Tenant, may be done
without notice to the Guarantor and without releasing the obligations of the
Guarantor hereunder.
3. The obligations of the Guarantor hereunder shall not be released by
Landlord's receipt, application or release of security given for the performance
and observance of covenants and conditions in the Lease contained on the
Tenant's part to be performed or observed; nor by any modification of the Lease.
4. The liability of the Guarantor hereunder shall in no way be affected
by (a) the release or discharge of the Tenant in any creditors, receivership,
bankruptcy or other proceedings, (b) the impairment, limitation or modification
of the liability of the Tenant or the estate of the Tenant in bankruptcy, or of
any remedy for the enforcement of the Tenant's liability under the Lease,
resulting from the operation of any present or future provision of the National
Bankruptcy Act or other statute or from the decision in any court; (c) the
rejection or disaffirmance of the Lease in any such proceedings; (d) the
assignment or transfer of the Lease by the Tenant; (e) any disability or other
defense of the Tenant; or (f) the exercise by Landlord of any rights or remedies
reserved to Landlord under the Lease, provided or permitted by law or by reason
of any termination of the Lease.
20
5. The Guarantor further agrees that (a) Guarantor may be joined in any
action against Tenant in connection with the obligations of the Tenant under the
Lease as covered by this Guarantee and recovery may be had against the Guarantor
in any such action; (b) Landlord may enforce the obligations of the Guarantor
hereunder without first taking any action whatsoever against Tenant or its
successors and assigns after a material default of Tenant as defined in
Paragraph 13 of the Lease; and (c) Landlord may pursue any other remedy or apply
any security it may hold.
6. Until all the covenants and conditions in the Lease on the Tenant's
part to be performed and observed are fully performed and observed, the
Guarantor: (a) shall not have any right of subrogation against the Tenant by
reason of any payments or acts of performance by the Guarantor hereunder; (b)
waives any right to enforce any remedy which the Guarantor now or hereafter
shall have against the Tenant by reason of any one or more payments or acts of
performance in compliance with the obligations of the Guarantor hereunder; and
(c) subordinates any liability or indebtedness of the Tenant to the Landlord
under the Lease.
7. This Guarantee shall apply to the Lease, any extension, renewal,
modification or amendment thereof and to any assignment, subletting or other
tenancy thereunder or to any holdover term following the term granted under the
Lease or any extension or renewal thereof.
8. In the event this Guarantee shall be held ineffective or
unenforceable by any court of competent jurisdiction or in the event of any
limitation of liability of the Guarantor hereon other than as expressly provided
herein, then the Guarantor shall be deemed to be a tenant under the Lease with
the same force and effect as if the Guarantor were expressly named as a joint
and several tenant therein with respect to the obligations of the Tenant
thereunder hereby guaranteed.
9. In the event of any litigation between the Guarantor and Landlord
with respect to the subject matter hereof, the unsuccessful party to such
litigation agrees to pay to the successful party all reasonable costs and
expenses incurred therein by the successful party, including reasonable
attorneys' fees and expenses.
10. No delay on the part of Landlord in exercising any right hereunder
or under the Lease shall operate as a waiver of such right or of any other right
of Landlord under the Lease or hereunder, nor shall any delay, omission or
waiver on any one occasion be deemed a bar to or a waiver of the same or any
other right on any other future occasion.
11. If there is more than one undersigned Guarantor, the term
Guarantor, as used herein, shall include all of such persons undersigned and
each and every provision of this Guarantee shall be binding on each and every
one of the undersigned and they shall be jointly and severally liable hereunder
and Landlord shall have the right to join one or all of them in any proceeding
or to proceed against them in any order.
12. This instrument constitutes the entire agreement between the
Landlord and the Guarantor with respect to the subject matter hereof,
superseding all prior oral or written agreements or understandings with respect
thereto and may not be changed, modified, discharged or terminated orally or in
any manner other than by an agreement in writing signed by the Guarantor and the
Landlord.
21
13. This Guarantee shall be governed by and construed in accordance
with the laws of the State of California and any litigation between Landlord and
Guarantor relating to the Guarantee and/or the Lease shall be initiated in
Alameda County, California, U.S.A.
IN WITNESS WHEREOF, the Guarantor has executed this Guarantee as of the
12th day of August, 1996.
- ---- ------
Palomar Medical Technologies, Inc.,
a Delaware Corporation
By: /s/ Joseph P. Caruso
--------------------
Its: CFO
-------------------
State of MASS )
County of ESSEX )
On this 12th day of August, 1996, before me, Joseph P. Caruso the
undersigned Notary Public, personally appeared THE ABOVE, proved to me on the
basis of satisfactory evidence to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/S/
- ------------------------------
MY COMMISSION EXPIRES
JULY 11, 1997
337:nexleas
22
EXHIBIT 10.3
LICENSE AGREEMENT
CONFIDENTIAL MATERIAL DELETED ("CMD")
I. INTRODUCTION
1.1 Parties. This License Agreement, dated as of August 1, 1995, is
between Technovation Computer Lab, Inc. ("Licensor"), a Nevada corporation with
a place of business at 180 Victory Circle, San Ramon, CA 94583, and Dynasys
Systems Corporation ("Licensee"), a Delaware corporation with a principal place
of business at 300 West Main Street, Northborough, Massachusetts 01532.
1.2 Licensed Technology and Know-How. Licensor is the owner of certain
technology and possesses certain proprietary information and know-how
(collectively, the "Licensed Technology and Know-How") set forth on EXHIBIT 1 to
this Agreement.
1.3 Purpose. Licensee wishes to obtain, and Licensor is willing to
grant to Licensee, on the terms and conditions set forth herein, a license to
use the Licensed Technology and Know-How for the purpose of using, having used,
developing, having developed, producing, having produced, manufacturing and
having manufactured, marketing, having marketed, selling, having sold, reselling
and otherwise distributing and having distributed, worldwide, products of any
description which incorporate the Licensed Patent Rights.
1.4 Consideration. In consideration of the mutual promises contained in
this Agreement, the parties agree as follows:
II. DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings
specified in EXHIBIT 2 to this Agreement.
III. LICENSE GRANTS
3.1 Grants of Licenses. Licensor hereby grants to Licensee, and
Licensee hereby accepts, the Licenses set forth on EXHIBIT 3 to this Agreement.
3.2 Ownership of Licensed Technology and Know-How. Licensor owns
sufficient rights to the intellectual property rights associated with the
Licensed Technology and Know- How to enter into this Agreement and grants the
Licenses hereunder and has full corporate right and authority to enter into this
Agreement and perform its obligations hereunder.
DS1:311152
IV. REPRESENTATIONS, WARRANTIES AND OBLIGATIONS OF LICENSOR
4.1 Representations and Warranties of Licensor. Licensor represents and
warrants to Licensee as follows:
4.1.1 The execution and delivery of this Agreement, and the
performance by Licensor of its obligations hereunder, including the grant of the
Licenses, have been duly authorized by all necessary corporate and other action
on the part of Licensor, and no consents, waivers or permissions that have not
already been granted are required for such actions. This Agreement constitutes
the valid and binding obligation of Licensor, enforceable against it in
accordance with its terms.
4.1.2 Licensor is the sole owner of the Licensed Technology
and Know-How and all of the intellectual property rights contained therein, free
and clear of the claims, liens and demands of any other person or entity.
4.1.3 To the best of Licensor's knowledge after due inquiry,
Licensor has full power, authority and right to grant to Licensee all of the
rights and Licenses granted by this Agreement, including all rights under
copyrights, trade secrets, tradenames, patents, patent applications, trademarks
and other intellectual property and proprietary rights, and the grant of such
rights and Licenses does not violate the intellectual property rights of any
other person or entity.
4.1.4 To the best of Licensor's knowledge after due inquiry,
the grant of the rights and Licenses to Licensee under this Agreement do not and
will not constitute a default, breach or violation of the charter or by-laws of
Licensor, any statute, law, rule, regulation, or any order or decree of any
court or legislative or governmental agency applicable to Licensor or the
Licensed Technology and Know-How, or under any contract, agreement, instrument,
document or indenture binding on or applicable to Licensor or the Licensed
Technology and Know-How.
4.1.5 Except as set forth in EXHIBIT 4.1 to this Agreement,
Licensor has not granted to any other person the right to use the Licensed
Technology and Know-How.
4.1.6 A true, complete and correct copy of the U.S. Patent
Application, together with any assignments thereof and documents filed with the
U.S. Patent and Trademark Office in connection therewith, is attached as part of
EXHIBIT 4.1 to this Agreement.
4.1.7 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, LICENSOR AND ITS DIRECTORS, OFFICERS AND EMPLOYEES EACH MAKE NO
REPRESENTATION AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE
DS1:311152
2
AND THE ABSENCE OF LATENT OF OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE WITH
RESPECT TO THE LICENSED TECHNOLOGY AND KNOW- HOW.
4.2 Other Rights and Obligations of Licensor. In addition to the other
covenants and agreements of Licensor set forth in this Agreement, during the
term of this Agreement, Licensor shall have the rights and obligations set forth
in EXHIBIT 4.2 to this Agreement.
V. REPRESENTATIONS AND WARRANTIES AND OBLIGATIONS OF LICENSEE
5.1 Representations and Warranties of Licensee. Licensee represents and
warrants to Licensor as follows:
5.1.1 The execution and delivery of this Agreement, and the
performance by Licensee of its obligations hereunder have been duly authorized
by all necessary corporate and other action on the part of Licensee, and no
consents, waivers or permissions that have not already been granted are required
for such actions. This Agreement constitutes the valid and binding obligation of
Licensee, enforceable against it in accordance with its terms.
5.1.2 Licensee's use of the Licensed Technology and Know-How
as contemplated by this Agreement does not and will not constitute a default,
breach or violation of the charter or by-laws of Licensee, any statute, law,
rule, regulation, or any order or decree of any court or legislative or
governmental agency applicable to Licensee, or under any contract, agreement,
instrument, document or indenture binding on or applicable to Licensee.
5.2 Obligations of Licensee. During the term of this Agreement,
Licensee shall have the following obligations:
5.2.1 Licensee shall have the obligation to pay to Licensor
the royalties set forth on EXHIBIT 6 to this Agreement, subject to the terms and
conditions set forth on EXHIBIT 6.
5.2.2 Prior to the issuance of U.S. patents covering the
Licensed Patent Rights, Licensee agrees to mark Licensed Products made, sold or
otherwise disposed of by it with the words "Patent Pending," and following the
issuance of one or more patents, with the serial numbers of the U.S. and foreign
patents, as appropriate.
5.3 Other Rights and Obligations of Licensee. In addition to the other
covenants and agreements of Licensee set forth in this Agreement, during the
term of this Agreement, Licensor shall have the rights and obligations set forth
in EXHIBIT 5.3 to this Agreement.
VI. ROYALTIES AND PAYMENTS
DS1:311152
3
6.1 Licensee's Royalty Obligations.
(a) Royalties. In consideration of the Licenses granted
hereunder, Licensee agrees to pay to Licensor the Royalties set forth on EXHIBIT
6 to this Agreement.
(b) Payments. Royalties shall be paid by Licensee to Licensor
in accordance with the payment terms set forth on EXHIBIT 6 to this Agreement.
(c) Audit Rights. Licensor shall have the audit rights set
forth on EXHIBIT 6 to this Agreement.
VII. DOMESTIC AND FOREIGN PATENT MATTERS; AUTHORIZATIONS
7.1 Patent Prosecution. Licensor agrees to take responsibility for the
preparation, filing, prosecution and maintenance of any and all domestic and
foreign patent applications or patents included in the Licensed Patent Rights
and shall furnish copies of relevant patent- related documents to Licensee.
Licensor may permit Licensee to handle the prosecution of some or all of the
Licensed Patent Rights. In the event that Licensor decides not to prepare, file,
prosecute and maintain any and all domestic and foreign patent applications or
patents included in the Licensed Patent Rights, Licensee shall have the right,
but not the obligation, to handle such preparation, filing, prosecution and
maintenance to prevent loss of Licensed Patent Rights. Any costs reasonably and
necessarily incurred by Licensee in connection with the prosecution of any
Licensed Patent Rights shall be credited against earned royalties. Licensor
agrees to cooperate with Licensee and perform all acts necessary and proper in
order to timely process any Licensed Patent Rights and obtain the issuance of
patent(s) thereunder. Each party shall provide to the other prompt notice as to
all matters that come to its attention that may affect the preparation, filing,
prosecution or maintenance of the Licensed Patent Rights.
7.2 Authorizations. Licensee shall have the right, but not the
obligation, to obtain any licenses, permits, consents, approvals, authorizations
and orders of U.S. and foreign governmental authorities, including without
limitation the FCC, which may be required in connection with the manufacture or
distribution of products utilizing the Invention (collectively, the
"Authorizations"), and to handle the preparation, filing, prosecution and
maintenance of any Authorizations. Any costs reasonably and necessarily incurred
by Licensee in connection with obtaining any Authorizations shall be credited
against earned royalties. Licensor agrees to cooperate with Licensee and perform
all acts necessary and proper in order to timely process any applications for
Authorizations. Each party shall provide to the other prompt notice as to all
matters that come to its attention that may affect the preparation, filing,
prosecution or maintenance of Authorizations.
VIII. IMPROVEMENTS
DS1:311152
4
8.1 During the term of this Agreement, Licensor shall give written
notice (each, an "Improvement Notice") to the Licensee within thirty (30) days
of any actual or constructive reduction to practice of any Improvement made to
the Licensed Technology and Know-How by Licensor's employees, agents, and
officers. The Improvement Notice shall set forth the particulars of the nature
of the Improvement and any test data obtained by Licensor; and in the case of
Improvements to an Invention, Licensor shall state in such notice whether it
intends to prepare, file, prosecute and maintain domestic and/or foreign patent
applications related thereto.
8.2 Any Improvement shall, at the option of Licensee, be deemed to be
included within the Licensed Technology and Know-How under this Agreement,
without the payment of any additional royalties; and, without limiting the
generality of the foregoing, any Improvement to an Invention, any patent
application filed by Licensor or any patent application to which Licensor
acquires rights and any patent issuing therefrom, including any counterpart
foreign patent application or patent therefrom and any U.S. patent and patent
application resulting from the Improvement and any divisionals, continuations,
and continuations-in-part for these applications in addition to any reissues,
reexaminations and extensions of patents issued therefrom, shall, at the option
of Licensee, be deemed to be a Licensed Patent Right hereunder.
8.3 If in the Improvement Notice Licensor advises Licensee that
Licensor declines to prepare, file, prosecute and maintain any domestic and/or
foreign patent applications related thereto, then Licensee shall have the right,
but not the obligation, to handle such preparation, filing, prosecution and
maintenance, in Licensee's own name and at Licensee's own cost, to prevent loss
of Licensed Patent Rights. Any costs incurred by Licensee in connection with
such preparation, filing, prosecution and maintenance shall be credited against
earned royalties. Licensor agrees to cooperate with the Licensee and perform all
acts necessary and proper in order to timely process any patent application and
obtain the issuance of a patent in the name of Licensee.
8.4 Any Improvements made to the Licensed Technology and Know-How by
Licensee's or its Affiliates' employees, agents and officers (other than Babar
Hamirani and Liaqat Khan) (but in the case of such Improvement to an Invention,
only those Improvements which do not themselves infringe on any allowed claims
of any patent issued in respect of such Invention) shall be the sole property of
Licensee, subject only to Licensor's allowed claims in the Invention.
IX. PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
9.1 Intellectual Property Infringement of Licensed Technology and
Know-How.
9.1.1 Licensor at its own expense will defend any action
brought against Licensee based on a claim that the Licensed Technology and
Know-How infringes on any patents, copyrights, trade names, trademarks, trade
secret, moral right, license or other
DS1:311152
5
proprietary or intellectual property right of any third party, provided that
Licensor is immediately notified in writing of such claim. Licensor shall have
the right to control the defense of all such claims, lawsuits and other
proceedings with counsel reasonably satisfactory to Licensee. In no event shall
Licensor settle any such claim, lawsuit or proceeding which may involve any
affirmative or negative obligation on the part of Licensee without Licensee's
prior written approval, which shall not be unreasonably withheld or delayed.
Licensor will pay any costs and damages finally awarded by a court of competent
jurisdiction against Licensee in such action which are attributable to the
claims set forth above.
9.1.2 Licensor shall have no liability or obligations under
this Section 9.1 if the claimed infringement arises out of the use of the
Licensed Technology and Know-How or any Improvements thereto if such
infringement does not derive from the Licensed Technology and Know-How or any
Improvements thereto in the original form furnished by Licensor to Licensee.
9.2 Actions for Infringement of Licensed Technology and Know-How by
Third Parties.
9.2.1 Licensee and Licensor shall promptly give notice to each
other of any actual or potential infringement of the Licensed Technology and
Know-How by a third party. If, in Licensee's reasonable opinion, Licensor does
not take appropriate action to cease or prevent an actual or potential
infringement of the Licensed Technology and Know-How within sixty (60) days
after receiving such notice, or otherwise does not diligently pursue such
infringement action, Licensee has the right to request of Licensor that it take
appropriate action to cease or prevent the infringement. If, in Licensee's
reasonable opinion, Licensor does not take appropriate action within thirty (30)
days after delivery of such request, Licensee shall have the right, but not the
obligation, to take such action as it deems appropriate in its sole discretion,
including the right to file suit to the extent provided by applicable laws,
rules and regulations. Licensee may proceed with such action immediately upon
notice to Licensor. In the event that Licensee proceeds with such action,
Licensor hereby agrees to being named and joined as a party plaintiff to such
actions to the extent required by law.
9.2.2 All non-reimbursed costs incurred by Licensee in
proceeding with any action undertaken reasonably and prudently against any third
party infringer may be credited by Licensee against earned royalties.
9.2.3 In the event Licensee secures a judgment or settlement
against any third party infringer, after accounting for and paying all of
Licensee's costs associated with prosecution of such actions, Licensee shall pay
Licensor royalties, as set forth in EXHIBIT 6 to this Agreement, on any balance
of proceeds actually received by Licensee, and Licensee shall retain any such
remaining balance of proceeds.
DS1:311152
6
X. CONFIDENTIALITY
10.1 Mutual Obligations. All know-how, data and other information,
including the Licensed Technology and Know-How and all other trade secrets,
developments and processes, which is disclosed by one party to another during
the term of this Agreement shall be maintained in confidence by the receiving
party and shall not be disclosed by the receiving party to any parties not a
party hereunder, or used other than as contemplated by this Agreement, in each
case, without the prior written consent of the disclosing party except to the
extent that the information:
(a) is known at the time of its receipt as documented in written
records;
(b) is properly in the public domain;
(c) is subsequently disclosed to the receiving party without any
obligations to keep such information confidential, by a third party who may
lawfully do so;
(d) is required to be disclosed to governmental agencies in order to
gain approval to for the uses of such information permitted by this Agreement or
to gain patent or copyright protection; or
(e) is necessary to be disclosed and is disclosed only on a
need-to-know basis to agents, consultants, sublicensees or other third parties,
who have entered into a confidentiality undertaking substantially similar to
that contained herein, for the purposes permitted by Section 1.3 of this
Agreement.
XI. INDEMNIFICATION
11.1 Licensor agrees to indemnify Licensee and hold it harmless against
and in respect of any and all Losses which arise or result from or are related
to any breach or inaccuracy of any of the representations and warranties of
Licensor, or the failure of Licensor to perform any of its obligations or
covenants hereunder, including without limitation, any Losses which arise or
result from or are related to (i) any infringement by the Licensed Technology
and Know-How and any Improvements, in the original form furnished by Licensor to
Licensee, on any patents, copyrights, trade names, trademarks, trade secret,
moral right, license or other proprietary or intellectual property right of any
third party and (ii) any costs or expenses incurred by Licensee under Articles
VII or IX of this Agreement. Any Losses may, at Licensor's option, be recovered
by Licensor by set-off against earned royalties. The obligations of Licensee
under this Section 11.1 shall survive the termination of this Agreement.
11.2 Licensee agrees to indemnify Licensor and hold it harmless against
and in respect of any and all Losses which arise or result from or are related
to any breach or inaccuracy of any of the representations and warranties of
Licensee, or the failure of
DS1:311152
7
Licensee to perform any of its obligations or covenants hereunder, including
without limitation, any Losses which arise or result from or are related to any
infringement by any Improvements made by Licensee, on any patents, copyrights,
trade names, trademarks, trade secret, moral right, license or other proprietary
or intellectual property right of any third party. The obligations of Licensee
under this Section 11.2 shall survive the termination of this Agreement.
XII. TERM AND TERMINATION
12.1 Termination. This Agreement and the Licenses granted hereunder
shall commence on the date set forth above and shall continue until the
expiration of the Term unless earlier terminated upon the first to occur of the
following events (unless termination is waived in writing by the non-breaching
party):
12.1.1 in the event that either party has committed a material
breach of this Agreement (including without limitation a breach of Section VI or
Section IX of this Agreement), and such breach is not cured within sixty (60)
days after notice thereof has been given by the non-breaching party to the
breaching party; or
12.1.2 on the written agreement of the parties to terminate
this Agreement; or
12.1.3 by the non-insolvent or non-breaching party in the
event of the liquidation or dissolution of the other party, the filing by or
against the other party of a petition in bankruptcy or insolvency, the
assignment by the other party of its assets for the benefit of its creditors,
the admission by the other party of its inability to pay its debts as they come
due, the appointment of a receiver or trustee for the assets of the other, or
the making of any voluntary arrangement by the other party with its creditors,
which event is not discharged, waived or cured within sixty (60) days after the
occurrence thereof; or
12.1.4 by Licensee, upon thirty (30) days notice to Licensor,
if letters patent do not issue within three (3) years from the date of this
Agreement with a claim or claims covering an Invention utilized in the Licensed
Products, and none of the enumerated applications, including without limitation
the U.S. Patent Application (or continuations or divisions of any of them),
pending at the end of such three (3) year period contains an allowed claim
having such coverage.
12.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Sections 12.1.1, 12.1.2 or 12.1.3:
12.2.1 Licensee may continue to sell any inventory of Licensed
Products in its possession which were manufactured prior to the effective date
of termination using the Licensed Technology and Know-How, subject to the
payment and Royalty provisions of this Agreement; and
DS1:311152
8
12.2.2 Any amounts owed by a party to the other party as of
the termination date shall immediately be due and payable.
12.3 Effect of Termination Pursuant to Section 12.1.4. In the event of
the termination of this Agreement pursuant to Section 12.1.4, any amounts owed
by a party to the other party as of the termination date shall immediately be
due and payable; and this obligation shall be the sole obligation of any party
to the other.
XIII. MISCELLANEOUS PROVISIONS
13.1 Assignment. No party may assign this Agreement (by operation of
law or otherwise), except that Licensee may assign this Agreement to any
Affiliate or to any purchaser of all or substantially all of the capital stock
or assets of Licensor, whether by merger or otherwise.
13.2 Complete Agreement. Each party acknowledges that it has read and
understands this Agreement and agrees to be bound by its terms. The parties
further agree that this Agreement, including the Exhibits hereto, is the
complete and exclusive statement of the Agreement between the parties with
respect to its subject matter, and supersedes and merges all prior proposals,
understandings and all other agreements, oral or written, between the parties.
13.3 Amendments. This Agreement may not be modified or altered except
by a written instrument duly executed by both parties.
13.4 Notices. All notices required or permitted under this Agreement
shall be in writing and delivered personally or mailed, registered or certified
mail, return receipt requested, or sent by reputable overnight carrier with
receipt confirmed, to the address of the parties set forth in Section 1.1 of
this Agreement, in each case to the attention of the President. Either party may
change the addresses or addressees hereunder upon written notice to the other.
All notices shall be deemed given on the earlier of the date actually received
and, if delivery is refused, the date of such refusal.
13.5 Governing Law and Jurisdiction. This Agreement and performance
hereunder shall be governed by and construed under the laws of The Commonwealth
of Massachusetts, as though made between two parties, each resident and
domiciled in The Commonwealth of Massachusetts.
13.6 Dispute Resolution; Consent to Venue and Jurisdiction.
13.6.1. General. In the event that any dispute should arise
among the parties hereto with respect to any matter covered by this Agreement,
the parties hereto shall resolve such dispute in accordance with the procedures
set forth in this Section 13.6.
DS1:311152
9
13.6.2. Consent of the Parties. In the event of any dispute
among the parties with respect to any matter covered by this Agreement, the
parties shall first use their best efforts to resolve such dispute among
themselves. If the parties are unable to resolve the dispute within 30 calendar
days after the commencement of efforts to resolve the dispute, the dispute will
be submitted to arbitration in accordance with Section 13.6.3 hereof.
13.6.3. Arbitration. (i) Either Licensor or Licensee may
submit any matter referred to in Section 13.6.1 hereof to arbitration by
notifying the other, in writing, of such dispute. Within 20 days after receipt
of such notice, Licensor and Licensee shall designate in writing one arbitrator
to resolve the dispute; provided, that if the parties hereto cannot agree on an
arbitrator within such 20-day period, the arbitrator shall be selected by the
American Arbitration Association. The arbitrator so designated shall not be an
employee, consultant, officer, director or stockholder of any party hereto of
any Affiliate of any party hereto.
(ii) Within 15 days after the designation of the
arbitrator, the arbitrator, Licensor and Licensee shall meet, at which time
Licensor and Licensee shall be required to set forth in writing all disputed
issues and a proposed ruling on each such issue.
(iii) The arbitrator shall set a date for a hearing,
which shall be no later than 30 days after the submission of written proposals
pursuant to paragraph (ii) above, to discuss each of the issues identified by
Licensor and Licensee. Each such party shall have the right to be represented by
counsel. The arbitration shall be governed by the rules of the American
Arbitration Association; provided, that the arbitrator shall have sole
discretion with regard to the admissibility of evidence.
(iv) The arbitrator shall use his best efforts to
rule on each disputed issue within 30 days after the completion of the hearings
described in paragraph (iii) above. The determination of the arbitrator as to
the resolution of any dispute shall be binding and conclusive upon all parties
hereto. All rulings of the arbitrator shall be in writing and shall be delivered
to the parties hereto.
(v) The arbitrator may, in his discretion, award
reasonable attorneys fees and expenses in connection with the arbitration
determination.
(vi) Any arbitration pursuant to this Section 13.6
shall be conducted in Boston, Massachusetts, United States of America. Any
arbitration award may be entered in and enforced by any court having
jurisdiction thereover.
(vii) WITHOUT LIMITING THE GENERALITY OF THE
PRECEDING PARAGRAPH (vi), EACH OF LICENSOR AND LICENSEE HEREBY CONSENTS TO
SERVICE OF PROCESS, AND TO BE SUED, IN THE COMMONWEALTH OF MASSACHUSETTS OR THE
STATE OF CALIFORNIA AND CONSENTS TO THE JURISDICTION OF THE COURTS OF THE
COMMONWEALTH
DS1:311152
10
OF MASSACHUSETTS OR THE STATE OF CALIFORNIA AND THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS OR THE STATE OF CALIFORNIA, AS WELL AS TO THE
JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE TAKEN FROM SUCH COURTS, FOR
THE PURPOSE OF THE ENFORCEMENT OF ANY ARBITRATION AWARD, AND EACH OF LICENSOR
AND LICENSEE EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN
ANY SUCH COURTS. EACH OF LICENSOR AND LICENSEE FURTHER AGREES THAT A SUMMONS AND
COMPLAINT COMMENCING A PROCEEDING IN ANY OF SUCH COURTS SHALL BE PROPERLY SERVED
AND SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY CERTIFIED MAIL
OR REPUTABLE OVERNIGHT COURIER TO IT AT ITS ADDRESS PROVIDED IN SECTION 1.1 OR
AS OTHERWISE PROVIDED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS OR THE
STATE OF CALIFORNIA. EACH OF LICENSOR AND LICENSEE IRREVOCABLY WAIVES ALL RIGHT
TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER INSTITUTED IN RESPECT OF THIS
AGREEMENT.
13.7 Waiver. Any waiver by any party of any right provided for herein
shall not be effective unless consented to in writing by the party waiving such
right. The waiver or failure of either party to exercise in any respect any
right provided for herein shall not be deemed a waiver of any further right
hereunder.
13.8 Severability. If any provision of this Agreement is or is held to
be invalid, illegal or unenforceable under any applicable statute or rule of
law, it shall be deemed to be amended to the extent necessary to be valid, legal
or enforceable under applicable law, and the remaining provisions shall not be
affected in any way.
13.9 Headings; Counterparts. The headings contained in this Agreement
are intended for convenience or reference only and shall not control or affect
the meaning or construction of any provisions of this Agreement. This Agreement
may be executed in multiple counterparts, each of which shall be considered an
original but all of which shall constitute one and the same agreement. One or
more counterparts may be delivered via telecopier; any such telecopied
counterpart shall have the same force and effect as an original counterpart
hereof.
13.10 Independent Contractors. Under the terms of this Agreement,
Licensor and Licensee are independent contractors. Neither party is an employee,
agent, partner or representative of the other party. Nothing contained herein
shall be deemed to create a joint venture relationship between the parties. Each
party specifically acknowledges that it does not have authority to incur any
obligations or responsibilities on behalf of the other party.
13.11 Force Majeure. No failure or omission by the parties hereto in
the performance of any obligation of this Agreement shall be deemed a breach of
this Agreement or create any liability if the same shall arise from any cause or
causes beyond the control of
DS1:311152
11
the parties, including without limitation the following: acts of God; fire;
storm; flood; earthquake; accident; war; rebellion; insurrection; riot;
invasion; strikes and lockouts; provided that any failure or omission resulting
from any of such causes is cured as soon as practicable after the cessation
thereof.
13.12 Exhibits. The following Exhibits are attached to, made a part of
and incorporated by reference in this Agreement:
Exhibit 1 The Licensed Technology and Know-How
Exhibit 2 Definitions
Exhibit 3 License Grants
Exhibit 4.1 Ownership and Grants of Rights to Others; U.S. Patent
Application
Exhibit 4.2 Rights and Obligations of Licensor
Exhibit 5.3 Rights and Obligations of Licensee
Exhibit 6 Royalties
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date and year first above written.
TECHNOVATION COMPUTER DYNASYS SYSTEMS
LAB, INC. CORPORATION
By: /s/ Babar Hamirani By: /s/ Albert J. Agbay
------------------ ----------------------
Name: Babar Hamirani Name: Albert J. Abgay
---------------- --------------------
(Type or Print) (Type or Print)
Title: CEO & President Title: President & CEO
---------------- -------------------
DS1:311152
12
ASSENT
Babar Hamirani, whose address is set forth below, warrants that he has
assigned to Licensor his entire right, title, and interest in and to the
Licensed Technology and Know- How identified as such in the foregoing License
Agreement and Exhibits thereto, including the right to recover for and to grant
releases for past infringement. Babar Hamirani hereby acknowledges that Licensor
has the right and license to grant the rights, releases, and sublicenses granted
to License in the License Agreement, and to the extent that any of his rights
are or may be affected, agrees to be bound by the terms and conditions of the
said agreement, and further agrees that he will look to Licensor, and not to
Licensee, for any and all royalty payments and other remunerations, if any, due
or which might become due him by virtue of the licenses, rights, and releases
granted to Licensee under the License Agreement. Babar Hamirani further agrees
that if the assignment which he has granted to Licensor and which is now in
effect and under the authority of which the License Agreement has been entered
into between Licensor and Licensee is cancelled, terminated or disputed for
whatever reason, the rights, licenses, and releases granted under the License
Agreement shall continue in full force and effect, the same as if he, Babar
Hamirani, had been the original Licensor thereunder. Babar Hamirani further
agrees that the terms, conditions, and obligations of this Assent shall be
binding upon himself and his heirs, assigns and legal representatives.
/s/ Babar Hamirani
- ---------------------
Babar Hamirani
Dated: July 31, 1995
-------------
Address:
180 Victory Circle
San Ramon, CA 94583
DS1:311152
13
ASSENT
Liaqat Y. Khan, whose address is set forth below, warrants that he has
assigned to Licensor his entire right, title, and interest, if any, in and to
the Licensed Technology and Know-How identified as such in the foregoing License
Agreement and Exhibits thereto, including the right to recover for and to grant
releases for past infringement. Liaqat Khan hereby acknowledges that Licensor
has the right and license to grant the rights, releases, and sublicenses granted
to License in the License Agreement, and to the extent that any of his rights
are or may be affected, agrees to be bound by the terms and conditions of the
said agreement, and further agrees that he will look to Licensor, and not to
Licensee, for any and all royalty payments and other remunerations, if any, due
or which might become due him by virtue of the licenses, rights, and releases
granted to Licensee under the License Agreement. Liaqat Khan further agrees that
if the assignment which he has granted to Licensor and which is now in effect
and under the authority of which the License Agreement has been entered into
between Licensor and Licensee is cancelled, terminated or disputed for whatever
reason, the rights, licenses, and releases granted under the License Agreement
shall continue in full force and effect, the same as if he, Liaqat Khan, had
been the original Licensor thereunder. Liaqat Khan further agrees that the
terms, conditions, and obligations of this Assent shall be binding upon himself
and his heirs, assigns and legal representatives.
/s/ Liaqat Khan
- -----------------------
Liaqat Y. Khan
Dated: July 31, 1995
----------------
Address:
164 Victory Circle
San Ramon, CA 94583
DS1:311152
14
EXHIBIT 1
---------
Licensed Technology and Know-How
--------------------------------
1.1.1 The Invention is described as follows: "A System Permitting the
External Replacement of the CPU and/or DRAM SIMMs Microchip Boards"
1.1.2 The Licensed Technology and Know-How, in addition to the
Invention, consists of the following: None.
1.1.3 The Licensed Technology and Know-How includes the following
Technical Information and/or Documentation: None.
1.1.4 The Licensed Technology and Know-How includes the following
patents, patent applications, trademarks, trademark applications and trade
names:
(a) The Licensed Patent Rights, including without limitation the U.S.
Patent Application.
DS1:311152
15
EXHIBIT 2
---------
Definitions
-----------
Capitalized terms used in this Agreement shall have the meanings set forth in
this EXHIBIT 2:
"Affiliate" means any entity controlling, controlled by or under common
control with another entity. For purposes of this definition, "control" means
the power, whether or not normally exercised, to direct the management and
affairs of another corporation or other legal entity, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise. In
the case of a corporation, the direct or indirect ownership of 50% of more of
its outstanding voting shares shall in any case be deemed to confer control,
provided that the direct or indirect ownership of a lower percentage of such
securities shall not necessarily preclude the existence of control.
"Authorizations" has the meaning set forth in Section 7.2 of this
Agreement.
"Documentation" means all manuals, workbooks and other supporting
materials furnished together with or intended to be used in connection with the
Licensed Technology and Know-How including without limitation the documentation
described on EXHIBIT 1 to this Agreement.
"FCC" means the U.S. Federal Communications Commission.
"Improvement" means any modification of an Invention described in the
Licensed Patent Rights, provided such modification, if unlicensed, would
infringe one or more claims of the Licensed Patent Rights.
"Improvement Notice" has the meaning set forth in Section 8.1 of this
Agreement.
"Invention" means the invention described on EXHIBIT 1 to this
Agreement.
"Licensed Patent Rights" refer collectively to the specific patent
claim subject matter of the Invention, as identified in EXHIBIT 1 to this
Agreement, as contained in:
(1) any U.S. patent and patent application, including without
limitation the U.S. Patent Application, which may result from
the Invention and any divisionals, continuations and
continuations-in-part for these applications;
(2) any counterpart foreign patents and foreign patent
applications and any counterpart divisionals and continuations
of these applications described in (1) above; and
DS1:311152
16
(3) any reissues, reexamination and extensions of the aforesaid
U.S. and foreign patent applications described in (1) and (2)
above.
"Licensed Products" means personal computer motherboards and cases (1)
whose manufacture utilizes Licensed Patent Rights or (2) whose manufacture or
sale in any country would, but for this Agreement, comprise an infringement of
one or more valid patent claims in such country or (3) which are manufactured
using a process which is covered in whole or in part in an active pending patent
application included in the Licensed Patent Rights.
"Licensed Technology and Know-How" means the proprietary technology and
know- how of Licensee described on EXHIBIT 1, including the Invention, Technical
Information, Documentation and Licensed Patent Rights (including without
limitation the U.S. Patent Application).
"Licensee" means the entity identified as such in Section 1.1 of this
Agreement, and Licensee's Affiliates.
"Licenses" means the rights granted pursuant to Article 3 of this
Agreement and set forth on EXHIBIT 3 to this Agreement.
"Licensor" means the entity identified as such in Section 1.1 of this
Agreement.
"Loss" means any and all direct or indirect payments, obligations,
damages, claims, liabilities, costs and expenses (including without limitation
reasonable attorneys' fees) paid or incurred, or reasonably likely to be paid or
incurred, in connection with investigating or defending any demands, claims,
actions or causes of action, that if adversely determined could reasonably be
expected to result in losses, and all amounts paid in settlement of claims or
actions.
"Royalties" means the payments to be made by Licensee to Licensor and
set forth on EXHIBIT 6.
"Sales" means the sale or other disposition of a Licensed Product by
Licensee or its Affiliates or other Sublicensees to an unaffiliated third party.
A Licensed Product shall be deemed to have been Sold upon receipt of payment (or
royalties, in the case of Sales by Sublicensees) therefor by Licensee or its
Affiliates.
"Sublicensee" means any person or entity sublicensed by Licensee or any
Affiliate of Licensee.
"Technical Information" means all recorded information, regardless of
form or the media on which it may be recorded, which is of a scientific or
technical nature, such as by way of example and not of limitation, data,
computer software, drawings, photographs,
DS1:311152
17
process information, sample equipment, specifications and the like, including
without limitation the technical information described on EXHIBIT 1 to this
Agreement.
"Term" means the period commencing on the date of this Agreement and
ending on the earlier of (i) five (5) years thereafter or (ii) the expiration or
abandonment of the last of all of the Licensed Patent rights; unless this
Agreement is sooner terminated in accordance with its provisions; provided, that
Licensee, by written notice to Licensor, may extend the Term for one additional
five-year period.
"U.S. Patent Application" means application no. 08/409,317, filed by
Babar Hamirani with the U.S. Patent and Trademark Office on 3/23/95, and
assigned on the date of this Agreement to Licensor.
DS1:311152
18
EXHIBIT 3
---------
License Grants
--------------
During the Term of this Agreement, Licensor grants to Licensee and
Licensee's Affiliates the following Licenses:
3.1.1 An exclusive (for an initial term of three (3) years from the
date of this Agreement; and non-exclusive for the remainder of the Term of this
Agreement thereafter), worldwide, transferable, royalty-bearing License to use
the Licensed Technology and Know- How; to develop, have developed, produce, have
produced, manufacture, have manufactured, market, have marketed, sell, resell
and otherwise distribute or dispose of products utilizing the Licensed
Technology and Know-How and any Improvements thereto; and without limiting the
foregoing, to make, use and sell products embodying the Invention (and any
Improvements) thereof.
3.1.2 The License, subject to the terms and conditions of this
Agreement, to grant sub-licenses. Licensee shall notify Licensor of every
sublicense agreement and amendment thereto, within forty-five (45) days after
execution, and indicate the name of the Sublicensee, territory of the
sublicense, scope of the sublicense, and the nature, timing and amounts of all
royalties to be paid thereunder. Any sublicense granted by Licensee shall
provide for its termination upon termination of this Agreement, provided,
however, that a sublicense granted to any Sublicensee may permit such
Sublicensee by written notice to Licensor within ninety (90) days of the
Sublicensee's receipt of written notice of such termination, to elect to
continue its sublicense. No such election shall be valid unless such Sublicensee
agrees in writing at the time of election to assume in respect to Licensor all
of the obligations (including obligations for payment) contained in its
sublicense agreement with Licensee.
3.1.3 The License to use in connection with the purposes set forth in
this EXHIBIT 3, all trademarks and tradenames associated with the Licensed
Technology and Know-How, including, without limitation, those set forth on
EXHIBIT 1 to this Agreement.
3.1.4 To the extent not heretofore set forth specifically, the License
to use all intellectual property and proprietary rights, including moral rights,
inherent in the Licensed Technology and Know-How for the purposes set forth in
this EXHIBIT 3.
DS1:311152
19
EXHIBIT 4.1
-----------
Ownership and Grants of Rights to Others; U.S. Patent Application
-----------------------------------------------------------------
None.
DS1:311152
20
EXHIBIT 4.2
-----------
Rights and Obligations of Licensor
----------------------------------
In addition to its other obligations set forth in the Agreement,
Licensor shall have the following rights and obligations:
4.2.1 Access to Licensor. Licensor shall make available to Licensee
those of Licensor's personnel as were involved in the development or production
of the Licensed Technology and Know-How and any Improvements to consult with
Licensee to the extent that such personnel continue to be employed or otherwise
affiliated with Licensor.
4.2.2 Source Materials and Documentation. Licensor shall furnish a
current copy of all Technical Information and/or Documentation, and any
amendments thereto as the same may be developed or produced, used to produce the
Licensed Technology and Know-How and any Improvements.
DS1:311152
21
EXHIBIT 5.3
-----------
Rights and Obligations of Licensee
----------------------------------
In addition to its other obligations set forth in the Agreement, during
the period that the Licenses granted by this Agreement are exclusive, Licensor
shall have the following rights and obligations:
5.3.1 Distribution. Licensee shall (provided that any required
Authorizations have been obtained) use its commercially reasonable efforts to
market, sell and otherwise distribute Licensed Products in the licensed
territory, and to collect payments due from purchasers and Sublicensees.
5.3.2 Production Capacity. Licensee shall use its commercially
reasonable efforts to achieve and maintain production capacity sufficient to
fill customer orders for Licensed Products in a commercially reasonable manner.
DS1:311152
22
EXHIBIT 6
---------
Royalties to Licensor
---------------------
6.1.1 Base Royalty Rate. Licensee shall pay to Licensor as a royalty
the amount of [$CMD] per unit for each Licensed Product Sold by Licensee or its
Affiliates (other than to Sublicensees, as to which the provisions of Section
6.1.3 shall apply), subject to adjustment as set forth herein. All amounts shall
be paid in U.S. Dollars.
6.1.2 Escrow of Royalties Pending Issuance of Patent; Adjustment to
Royalty if No Patent Issued. (a) The royalties provided for in Section 6.1.1
shall be paid by Licensee for Licensed Products covered by any pending claim of
the U.S. Patent Application comprising the Licensed Patent Rights; provided,
however, until such time as letters patent containing a claim covering the
Invention utilized in the Licensed Products shall be allowed, [CMD%] of the
royalty amount set forth in Section 6.1.1 shall be accrued but not paid by
Licensee. Licensee shall deposit accrued royalties in one or more blocked
interest-bearing bank savings accounts. All interest in such account shall
accrue to the benefit of Licensor, unless payable to Licensee pursuant to
Section 6.1.2(b). In the event Licensee fails to pay any current installment of
royalties when due, Licensor shall be entitled to have access to the blocked
account and to set-off the amount of any such deficiency against amounts in such
account, in which case Licensee shall reimburse the account promptly for any
such amount paid out to Licensor.
(b) If no claim(s) covering an Invention utilized in the
Licensed Products shall be allowed on the U.S Patent Application within three
(3) years of the date of this Agreement, Licensee shall be entitled to retain
such accrued but unpaid royalties and interest thereon, and thereafter the
royalty amount set forth in Section 6.1.1 shall be reduced to [$CMD] per unit
for each Licensed Product Sold by Licensee or its Affiliates.
(c) Notwithstanding any other provision in this Agreement, no
royalty fee shall be payable by Licensee for Sales of Licensed Products or for
sublicenses in any given country on the earliest of the dates that (1) a patent
application, including without limitation the U.S. Patent Application, covering
the Licensed Patent Rights has been abandoned and not continued; (2) the patent,
including without limitation any patent(s) issued under the U.S. Patent
Application, covering the Licensed Patent Rights expires; (3) the patent,
including without limitation any patent(s) issued under the U.S. Patent
Application, covering the Licensed Patent Rights is no longer maintained by any
of the parties; or (4) the patent claim(s) in the Invention has been held to be
invalid by an unappealed or unappealable decision of a court of competent
jurisdiction.
6.1.3 Royalties on Sublicenses. In the event that Licensee or any of
its Affiliates sublicenses the Licensed Technology and Know-How to a third party
(other than an Affiliate of Licensee), Licensee will pay royalties to Licensor
in an amount equal to [CMD%] of the proceeds received by Licensee or its
Affiliates from Sublicensees.
DS1:311152
23
6.1.4 Quarterly Reporting and Payments. Licensee shall furnish a
statement to Licensor quarterly, within thirty (30) days after the end of each
calendar quarter, which shall show the Sales of Products, and the amount due and
payable to Licensor in respect of such quarter. Licensee shall pay to Licensor
the royalties due within forty-five (45) days after the end of each calendar
quarter.
6.1.5 Licensor's Audit Rights. For a period of at least two (2) years
following the applicable royalty payment, Licensee and its Affiliates shall keep
true and accurate records of all data necessary for determination of the royalty
fees payable hereunder, and upon request, shall permit Licensor, at Licensor's
sole expense, to examine such records no more than once a year through an
independent third party audit, such third party to be reasonably acceptable to
Licensee. Such audit shall be conducted during Licensee's business hours, and
shall be subject to Licensee's building security rules. If, as a result of such
examination, it is found that Licensee owes additional royalties in excess of
five percent (5%) of the amount previously paid for the period audited, Licensee
shall reimburse Licensor for the costs of such audit. If, as a result of such
examination, it is found that Licensee previously paid excess royalties for the
period audited, Licensor shall, at Licensee's option, either reimburse Licensee
in an amount of the excess or apply the excess as a credit against future
royalties due hereunder.
6.1.6 Offsets to Royalties for Costs Expended by Licensee. Royalties
payable hereunder shall be offset by any advances or costs expended by Licensee
for tooling and development for production of Licensed Products, and any other
advances or costs expended by Licensee under Sections VII and IX of this
Agreement.
6.1.7 No Multiple Royalties. No multiple royalties shall be payable
because any Licensed Products are covered by more than one of the Licensed
Patent Rights.
6.1.8 Deduction for Royalties Payable to Third Parties. If Licensee or
an Affiliate is required to pay an unrelated third party a royalty in a given
country in order to sell or use a Licensed Product in that country, then [CMD%]
of that royalty will be deducted from the royalty otherwise payable hereunder
for Sales of such Licensed Product in that country. Such reduction shall be
effective thirty (30) days after notice from Licensee to Licensor.
6.1.9 Reduction for Compulsory Licenses to Third Parties. If at any
time or from time to time, an unrelated third party in any country shall, under
right of a compulsory license granted or ordered to be granted by a competent
governmental authority, manufacture, use or sell any Licensed Product with
respect to which royalties shall be payable at a rate less than that set forth
in this EXHIBIT 6, then Licensee, upon notice to Licensor and during the period
such compulsory license shall be effective, shall have the right to reduce such
royalty to Licensor on each unit of Licensed Products sold in such country to an
amount no greater than the amount payable by said third party in consideration
of its compulsory license. ds1-311152.1
DS1:311152
24
EXHIBIT 10.4
CONFIDENTIAL MATERIAL DELETED ("CMD")
INTERNATIONAL SERVICE AGREEMENT
between
WANG LABORATORIES, INC.
and
NEXAR TECHNOLOGIES, INC.
INDEX
Page No.
1. DEFINITIONS....................................................... 1
2. SCHEDULES......................................................... 3
3. RESPONSIBILITIES OF WANG.......................................... 3
4. RESPONSIBILITIES OF OEM........................................... 4
5. TERM AND TERRITORY................................................ 5
6. DEFAULT AND TERMINATION........................................... 5
7. INSURANCE AND LIMITATION.......................................... 6
8. FORCE MAJEURE..................................................... 6
9. NON-DISCLOSURE.................................................... 7
10. AUTHORIZED REPRESENTATIVES AND NOTICES............................ 7
11. STATUTE OF LIMITATIONS............................................ 8
12. NON-SOLICITATION OF EMPLOYEES..................................... 9
13. WARRANTY.......................................................... 9
14. GENERAL........................................................... 9
SCHEDULE A - REMEDIAL MAINTENANCE SERVICE.................................. 11
SCHEDULE B - OEM EQUIPMENT................................................. 14
SCHEDULE C - PRICING & PAYMENT TERMS....................................... 15
SCHEDULE D - DOCUMENTATION AND ESCALATION.................................. 17
SCHEDULE E - WANG DISPATCH PROCEDURES...................................... 18
SCHEDULE F - UNITED STATES SERVICE ADDENDUM................................ 19
SCHEDULE G - CENTRAL/NORTH EUROPE SERVICE ADDENDUM......................... 31
SCHEDULE H - JAPAN/OKINAWA SERVICE ADDENDUM................................ 36
INTERNATIONAL SERVICE AGREEMENT
between
WANG LABORATORIES, INC.
and
NEXAR TECHNOLOGIES, INC.
DATED: September 1, 1996
This Agreement, by and between WANG LABORATORIES, INC. (hereinafter "Wang"), a
Delaware corporation, with its principal place of business at 600 Technology
Park Drive, Billerica, MA 01821-4130 and NEXAR TECHNOLOGIES, INC. (hereinafter
"OEM"), a Massachusetts corporation, with its principal office at 182 Turnpike
Road, Westborough, MA 01581, is made effective as of September 1, 1996 (the
"Effective Date").
WHEREAS, OEM desires that Wang provide certain maintenance service for certain
equipment manufactured by OEM, and
WHEREAS, Wang is willing to perform such services upon the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings set
forth herein, Wang and OEM hereby agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms shall have the following
meanings:
1.1 "DOA" shall mean "dead on arrival" and refers to any
replacement equipment or part(s) which arrives at an End User
location, does not function and requires replacement.
1.2 "CRE" shall mean a Wang Customer Resource Engineer.
1.3 "End User" shall mean a party to whom OEM is obligated with
respect to maintenance of Equipment.
1.4 "Equipment" shall mean the electronic hardware equipment
identified in Schedule B to this Agreement.
1.5 "Escalation" shall mean the provision of increasing technical
expertise by OEM for assistance to Wang Technicians as
described in Schedule D to this Agreement.
1.6 "Hardware Call Support" shall mean screening and diagnosis of
End User problems with Equipment.
1.7 An "Incident" is deemed to have occurred when (a) Wang has
been advised that a single unit of OEM Equipment at an End
User Location has an undetermined problem, (b) a replacement
part has arrived at the Wang Service location, and (c) after a
Wang CRE has arrived and the repair of the reported failed
Equipment has been made. A repair Incident is limited to the
repair of one inoperable serial numbered unit of Equipment.
Should additional Equipment require repair at the time the
Wang CRE is at the End User Location, the End User will be
requested to place another repair request. Multiple unit
repairs resulting from a single repair call are deemed
multiple repair Incidents and shall be billed individually as
separate Repair Incidents.
1.8 "Load or Loading" shall mean the process of manual or
electronic installing of any type of software product that can
be used with the Equipment.
1.9 "Location" shall mean a site where Equipment is installed.
1.10 "Parts" shall mean modules, subassemblies, boards, components
and materials related to the Equipment.
1.11 "PPM" shall mean "prime period of maintenance" which, is 8 AM
to 5 PM, local country time, Monday through Friday of each
week, exclusive of holidays locally observed by Wang.
1.12 "Preventive Maintenance" shall mean regularly scheduled
maintenance designed to minimize failures per the
manufacturer's recommendations.
1.13 "RSL" shall mean those lists of spare parts that make up OEM's
recommended Parts list for the Equipment.
1.14 "Remedial Maintenance Service" shall mean the service required
in order to correct the improper functioning of Equipment
described in Schedule B to this Agreement.
1.15 "Repair" shall mean the repair of defective parts as described
in Schedule E of this Agreement.
2
1.16 "Response Time" shall mean the amount of time required for a
Wang CRE to arrive on site at an End User Location measured
from the later of the time End User's or the OEM's call is
received by Wang or availability of the required Part.
1.17 "Service City" shall mean those cities listed in any country
addendum of this Agreement in which Wang maintains a service
office.
1.18 "Service Desk" shall mean the Wang Customer Support Center or
local country service support process.
1.19 Other capitalized terms shall have the meanings set forth in
the text of this Agreement.
2. SCHEDULES
Schedules A through H are incorporated into, and are made part of, this
Agreement. Local country pricing, terms and conditions may be added to
this Agreement by additional Schedules from time to time.
3. RESPONSIBILITIES OF WANG
3.1 Wang shall provide Remedial Maintenance Service as set forth
in Schedule A during the manufacturers warranty term for the
Equipment set forth in Schedule B which is installed at End
User Locations in the designated countries from and after the
Effective Date or any extension thereof.
3.2 Wang shall provide trained maintenance personnel for the
performance of Remedial Maintenance Service.
3.3 Wang shall perform Remedial Maintenance Service in a competent
and workmanlike manner.
3.4 Wang shall receive all requests for Remedial Maintenance
Service directly from End Users. Wang shall (i) screen all
requests for on-site service, (ii) perform fault isolation
routines, and (iii) dispatch its CREs or local country service
provider in response to such request as provided in Schedule
E.
3.5 Remedial Maintenance Service will be considered to be complete
when the Equipment is operating in accordance with the
manufacturers published specifications and/or has successfully
executed industry-standard software diagnostic testing
commonly utilized in connection with such item of Equipment.
3
3.6 Wang shall arrive on site for repair of End User's Equipment
based on the specified response time. Such performance is
contingent upon the receipt of the repair Part(s) and the
availability of the End User at the repair location.
3.7 Wang shall not provide telephone assistance or labor for the
Loading of any software application or operating system or
other on site software support unless specifically provided
for in this Agreement.
3.8 Any service requested by the OEM which is out of the scope of
this Agreement shall be performed at the sole discretion of
Wang and at the then current local country Wang hourly rates
and any applicable minimum charges.
4. RESPONSIBILITIES OF OEM
4.1 OEM shall pay Wang for Remedial Maintenance Service pursuant
to the payment terms defined in Schedule C of this Agreement.
4.2 OEM shall provide to Wang an Escalation Procedure and/or
Documentation as defined in Schedule D to this Agreement.
4.3 OEM shall provide to Wang, at no charge, any special
diagnostics, tools and/or test equipment required to perform
Remedial Maintenance Service. Such items will be returned to
OEM upon termination of this Agreement, in good operating
condition, less any reasonable wear and tear.
4.4 OEM shall provide such RSLs, Parts and Repair as defined in
each country addendum to this Agreement.
4.5 OEM shall provide and staff a U. S. technical support "help
desk" for use by Wang Customer Support Center personnel.
4.6 OEM hereby grants to Wang the right of first refusal to have
included under this Agreement such other new equipment as may
be manufactured and/or sold by OEM. Notice of the right to
exercise such option shall be given to Wang by OEM promptly,
and Wang shall inform OEM as to its acceptance or refusal, or
its request such additional information as h may require,
within forty-five (45) days of receipt of such notice.
4.7 OEM shall be charged the "reasonable and customary" cost of
mileage or commercial land and air travel when it is required
for the performance of Remedial Maintenance Service beyond
83km (50 miles) of a Wang local country Service City.
Commercial travel includes, but is not limited to, such items
as airfare, ferry and rental vehicles. Wang and OEM shall
mutually agree to such reasonable and customary travel cost in
each instance prior to incurring the cost.
4
Locations which typically require additional travel cost
include, without limitation, Diego Garcia; Havana, Cuba,
Guantanamo Bay, Cuba; Azores; Herakliou, Crete; Adana, Turkey;
and Greenland.
4.8 OEM will be charged the actual charges for reasonable lodging
and meals, when, if in the best interest of Wang and OEM, it
is determined that a Wang CRE remain overnight at or near the
End User Location.
4.9 OEM shall be charged the actual cost of renting or leasing any
special test equipment when required to isolate a problem
property.
5. TERM AND TERRITORY
5.1 This Agreement shall be effective as of the Effective Date.
5.2 Unless otherwise terminated as provided herein, this Agreement
shall have an initial term of thirty-six (36) months ("Initial
Term") and shall continue thereafter from year to year unless
terminated in writing by either party.
5.3 Either party shall have the right to terminate this Agreement
at the end of the Initial Term or at the end of any extended
term upon not less than ninety (90) days prior written notice
to the other party.
5.4 OEM hereby appoints Wang as its exclusive authorized service
organization for Remedial Maintenance Services for the
equipment set forth in Schedule B. This appointment, however,
shall not apply, nor is it intended to prevent, those
authorized dealers and "value-added resellers" of OEM from
servicing equipment units sold b them to their respective end
user customers. OEM shall provide Wang with a listing of such
dealers and value added resellers who are providing services
similar to those specified in this Agreement, and shall update
such list on a regular basis.
5.5 The services to be provided by Wang hereunder shall be
provided in countries where Wang has local CREs or designated
service providers. The services may be performed by Wang, an
affiliate of Wang, or Wang designated service provider.
6. DEFAULT AND TERMINATION
6.1 If either party defaults in performance of any material
obligation under this Agreement, and such default is not cured
within sixty (60) days after receipt of written notice from
the non-defaulting party, the non-defaulting party shall have
the right to terminate this Agreement effective after the
expiration of such sixty (60) days.
5
6.2 In addition, if OEM fails to pay any moneys within forty-five
(45) days of written notice from Wang that such moneys are
due, OEM will pay upon demand all costs, including attorney's
fees, expended in collecting overdue charges, as well as
interest on all unpaid charges at the rate of 1.5% per month,
and Wang may suspend its performance under this Agreement
until all moneys owed are paid in full.
6.3 Termination of this Agreement shall not affect any rights
existing as of the effective date of termination.
6.4 Except as provided in Section 7.2, the rights and remedies
provided in this Agreement are cumulative and in addition to
any other rights or remedies available at law or in equity.
7. INSURANCE AND LIMITATION
7.1 OEM shall, at its sole expense, maintain such insurance as is
reasonably necessary to protect itself and Wang against any
and all product liability claims with respect to Equipment.
Upon Wang's request, OEM shall provide Wang with a certificate
of insurance evidencing the existence of such insurance and
naming Wang as a loss payee in the event of loss by Wang. OEM
shall indemnify and save Wang harmless from any and all
liabilities, costs and expenses (including attorneys' fees and
costs) with respect to any claim of an End User or third party
relating to said product liability claims.
7.2 EACH PARTY SHALL ONLY BE LIABLE FOR DIRECT DAMAGES FOR ANY
BREACH OF THIS AGREEMENT AND IN NO EVENT SHALL EITHER PARTY BE
LIABLE UNDER ANY PROVISION OF THIS AGREEMENT OR OTHERWISE FOR
ANY RELIANCE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES OR FOR THE LOSS OF PROFIT, REVENUE OR DATA EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR
DAMAGE. THE PARTIES ACKNOWLEDGE THAT THE CHARGES FOR THE
SERVICES PROVIDED HEREUNDER HAVE BEEN ESTABLISHED IN
CONTEMPLATION OF THE FOREGOING ALLOCATION OF RISKS.
8. FORCE MAJEURE
Neither party shall be liable for any delay in performance, or failure
to perform, under this Agreement caused by shortages of materials, acts
of God, fire, flood, war, embargo, labor trouble, riots and laws,
rules, regulations and orders of any governmental authority or any
other similar cause beyond the control of the party affected at the
time such cause arises. If any delay or inability to perform continues
for more than sixty (60) days, either party shall have the right to
terminate this Agreement upon written notice
6
to the other party, or to suspend its obligations hereunder until such
time as such delay or inability to perform is corrected.
9. NON-DISCLOSURE
9.1 Wang and OEM agree to maintain in confidence and not, without
the written permission of the disclosing party, to disclose,
reproduce or copy any information, software, materials, or
documents received from the other party that are marked
confidential or proprietary or, in the Case of information
disclosed orally, orally disclosed information that is
identified as confidential at the time of its disclosure and
identified to the receiving party as confidential information
in a writing that describes the confidential information with
reasonable specificity within five days of its oral
disclosure. The obligations under this Section shall survive
the expiration or termination of this Agreement for whatever
reason, and shall be binding on OEM's successors and assigns.
9.2 All confidential or proprietary information provided by one
party to the other pursuant to this Agreement is provided
solely for the receiving party's use in performing its
obligations hereunder and shall not be used or made available
for any other purpose.
9.3 The obligations of this Section 9 shall not apply to
information that is: (a) already known to the receiving party
at the time of its disclosure; (b) becomes publicly available
without breach of this Agreement; (c) independently developed
by the receiving party outside the scope of this Agreement; or
(d) received from a third party without obligation of
confidentiality.
9.4 OEM acknowledges that Wang's business includes the design and
development of products which may be similar to the Equipment
and, notwithstanding the foregoing, nothing in this Agreement
shall preclude or in any way impair the conduct of such
business by Wang.
10. AUTHORIZED REPRESENTATIVES AND NOTICES
10.1 Each party shall designate one representative who shall be
authorized to take any and all action and/or grant any
approvals required in the course of performance of this
Agreement. Such representative shall be fully authorized to
act for and bind such party, including the approval of
amendments to this Agreement. Until written notice to the
contrary is provided, the authorized representatives of the
parties are as follows:
7
for Wang: for OEM:
Timothy B. Tormey Thomas J. Bill
Director, Services Marketing Vice President-Finance & Admin.
Wang Laboratories, Inc. Nexar Technologies, Inc.
600 Technology Park Drive 182 Turnpike Road
Billerica, MA 01821-4130 Westborough, MA 01581
10.2 Any notice or other communication required or permitted under
this Agreement shall be in writing and shall be delivered in
person or sent by certified mail, return receipt requested,
addressed as set forth below:
In the case of Wang: with a copy to:
Wang Laboratories, Inc. Wang Laboratories, Inc.
600 Technology Park Drive 600 Technology Park Drive
Billerica, MA 01821-4130 Billerica, MA 01821-4130
Attention: Timothy B. Tormey Attention: Law Department
In the case of OEM: with a copy to:
Nexar Technologies, Inc. Nexar Technologies
182 Turnpike Road 182 Turnpike Road
Westborough, MA 01851 Westborough, MA 01851
Attention: Thomas J. Bill Attention: Law Department
10.3 Either party may change the name or address to which notices
or other communications are to be sent by giving written
notice of such change to the other party. Mailed notice shall
be deemed given when received as indicated by the return
receipt, property addressed and first class postage paid.
10.4 In addition to the authorized representatives identified in
this Section 10, either party may nominate authorized
representatives in each of the local countries where Wang
service is performed pursuant to this Agreement.
11. STATUTE OF LIMITATIONS
No action, whether in contract, tort, or otherwise, arising out of the
performance of Remedial Maintenance Service or other services under
this Agreement, may be brought by either party more than two (2) years
after the cause of action arises, except for an action by Wang to
collect payments due hereunder, which may be brought within two (2)
years of the time the last payment was due. or an action to collect
taxes.
8
12. NON-SOLICITATION OF EMPLOYEES
During the period of time extending to the later of one year after the
expiration of the Initial Term, or of any extension thereof, neither
party shall, without the prior written approval of the other party,
directly solicit for hire, hire, or enter into a consulting
relationship with any employee of such other party directly connected
with performance under this Agreement.
13. WARRANTY
Wang warrants to OEM that service under this Agreement will be
performed in a good and workmanlike manner. If any failure to meet the
foregoing warranty appears within ninety (90) days from the date
service is furnished, Wang will re-perform the service without
additional charge to OEM.
The preceding paragraph sets forth the exclusive remedy for claims
based on a failure of or defect in service, whether such claim is based
on contract, warranty, tort (including negligence), strict liability,
or otherwise, and however instituted, and upon expiration of the
warranty period all such liability will terminate. The foregoing
warranty is exclusive and in lieu of all other warranties, whether
written, oral, implied or statutory. NO IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WILL APPLY.
14. GENERAL
14.1 Neither this Agreement nor any rights granted hereunder may be
assigned by either party without the prior written consent of
the other party, except to an acquirer of substantially all
the assets of the business with which this Agreement is
associated. Any such attempted assignment shall be void.
14.2 The terms and conditions of this Agreement may be waived,
modified, or supplemented only in writing by duly authorized
representatives of the parties.
14.3 No failure or delay by either party in exercising any right,
power or privilege hereunder shall operate as a waiver or
preclude further exercise thereof.
14.4 Section headings are for convenience of reference only.
14.5 If any part of this Agreement shall be adjudged by any court
of competent jurisdiction to be invalid, such judgment will
not affect or nullify the remainder of this Agreement, but the
effect thereof will be confined to the part immediately
involved in the controversy adjudged.
9
14.6 This Agreement shall be deemed to have been made in, and shall
be construed pursuant to the laws of, the Commonwealth of
Massachusetts, in the United States Of America.
14.7 BOTH PARTIES ACKNOWLEDGE HAVING READ THIS AGREEMENT AND AGREE
TO BE BOUND BY ITS TERMS. THIS AGREEMENT IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE MUTUAL UNDERSTANDING OF THE PARTIES
AND SUPERSEDES AND CANCELS ALL PREVIOUS AND CONTEMPORANEOUS
WRITTEN AND ORAL AGREEMENTS AND COMMUNICATIONS RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
Effective Date.
WANG LABORATORIES, INC. NEXAR TECHNOLOGIES, INC.
By: By: Michael J. Paciello
-------------------------- -----------------------------------
(Printed Name) (Printed Name)
Title: Title: /s/ Michael J. Paciello Exec. V.P.
-------------------------- -----------------------------------
Date: Date: 9/l7/96
-------------------------- -----------------------------------
10
SCHEDULE A
REMEDIAL MAINTENANCE SERVICE
1. REMEDIAL MAINTENANCE SERVICE
Wang shall provide Remedial Maintenance Service with respect to
Equipment at End User Locations within 83km (50 miles) of a local
country Wang Service City in those countries and at the prices set
forth in Schedule C. Wang shall endeavor to restore the Equipment to
good working order. Remedial Maintenance Service shall be deemed
complete with respect to an item of Equipment when such item of
Equipment is operating in accordance with the manufacturers published
specifications and/or has successfully executed industry-standard
diagnostic testing commonly utilized in connection with such Rem of
Equipment. When Remedial Maintenance Service is complete, Wang's CRE
will close the call.
2. EXCLUSIONS TO REMEDIAL MAINTENANCE SERVICE
The following work is not included in Remedial Maintenance Service.
Wang shall have no obligation to provide:
(a) Electrical work external to Equipment;
(b) Supplies or accessories, painting or refinishing Equipment;
(c) Service of Equipment which, because of a safety hazard,
exposes Wang personnel to a risk of injury;
(d) Equipment determined by Wang to be unserviceable;
(e) Restoration of data;
(f) Repair of damage or loss resulting from accident,
transportation, neglect, misuse or abuse, operator error,
failure of electrical power or air conditioning or humidity
control, or use for which Equipment was not designed;
(g) Service which is impractical for Wang to render because of, or
which is required because of, attachment, addition or
connection of the Equipment to another machine or device;
(h) Service when no problem is found;
(i) Service to any products other than those listed in Schedule B.
11
3. TIME AND MATERIAL SERVICE
The following work is not included in Remedial Maintenance Service.
Wang shall endeavor to provide these services, subject to availability
of resources, at Wang's local country Time and Material hourly service
rates in effect at the time of the service request.
(a) Remedial Maintenance Service beyond 83km (50 miles) of a Wang
Service City;
(b) Preventive maintenance;
(c) Making specification or field engineering changes, performing
services connected with relocation of Equipment, or adding or
moving accessories, attachments or other devices
(d) Software programming, software program maintenance or Loading.
(e) Service required as a result of work on Equipment by parties
other than Wang personnel;
(f) Service in connection with the installation, discontinuance or
removal of Equipment;
(g) Time and travel expense incurred to obtain Parts as a result
of OEM's failure to provide Wang with Parts as required
herein;
(h) Service when in connection with user-replaceable units;
4. ENGINEERING, FEATURE AND SAFETY CHANGES
Engineering changes, feature changes, or safety changes for the
Equipment shall be installed by OEM. However, if OEM requests, Wang
shall install such changes on a "Time and Materials" Service basis, and
OEM shall provide all components, parts and instruction packages
necessary for Wang to perform such work.
5. MAINTENANCE OF RELOCATED EQUIPMENT
If Equipment is to be relocated within a country, Wang shall continue
to maintain such Equipment at the new Location within that country,
provided the new Location is within 83km (50 miles) of a Wang Service
City. If such Equipment is not installed by Wang at the new Location,
Wang shall have the right to conduct an inspection after installation
of the Equipment at the new Location to determine if the same is
acceptable for performance of Remedial Maintenance Service.
12
If, in the opinion of Wang after inspection, Equipment which has been
relocated by persons other than Wang personnel does not qualify for
Remedial Maintenance Service because of damage from any cause
including, without limitation, improper installation, Wang shall not be
required to provide Remedial Maintenance Service for such Equipment. If
Wang is requested by OEM to perform such repairs necessary to re-
qualify such Equipment for Remedial Maintenance Service, OEM shall pay
Wang the cost of such repairs. Charges for such repairs shall be Wang's
then current Time and Material Service charges.
6. NOTIFICATION OF SHIPMENT TO WANG
On a monthly basis, OEM will provide to Wang via a diskette or by some
other electronic means, a text file listing, by serial and model number
and date shipped, all of the Equipment shipped to End Users in the
respective local countries for which warranty Remedial Maintenance
Service is to be provided hereunder.
7. ADDITIONAL REMEDIAL MAINTENANCE SERVICE TERMS
(a) Wang will provide Remedial Maintenance Service only to End
Users whom Wang reasonably determines to be authorized to
receive such services using the verification procedure
provided by OEM.
(b) Wang will provide Remedial Maintenance Service only with
respect to Equipment.
13
SCHEDULE B
OEM EQUIPMENT
The Equipment subject to this Agreement is:
Description
-----------
NEXAR Desktop PC
All future products of the same class released by OEM shall be added to the
foregoing list.
14
SCHEDULE C
PRICING & PAYMENT TERMS
1. PRICING
The prices payable by OEM for Next Business Day ("NBD") Remedial
Maintenance Service to be delivered pursuant to this Agreement are as
set forth in each country addendum.
2. PAYMENT TERMS
2.1 Wang shall invoice OEM monthly in the U.S. for warranty
service based upon shipments of Equipment during the month.
2.2 Invoices are due and payable in U.S. Dollars 30 days from date
of invoice.
2.3 In addition to the local country service charge, Wang shall
add a 15% administration charge to all invoices for services
performed outside the U.S. Local country service charges are
subject to annual adjustment should currency exchange rates
fluctuate more than 10% per year.
2.4 All prices for Remedial Maintenance Service are calculated
based on a Wang in country Service City within 83km of End
User Locations. Locations beyond 83km (50 miles) are subject
to local country travel charge adders, where applicable.
2.5 Custom duties and shipping charges are the responsibility of
OEM. These include any related fees Wang or its authorized
Distributors incur when taking delivery of OEM supplied Parts.
2.6 In the event Wang removes a Distributor or ceases providing
Remedial Maintenance Service in a local country, Wang will
provide OEM 30 days prior written notice. In such event, Wang
shall provide OEM an estimate of the cost to support End Users
from the nearest practical location.
2.7 For each Tier A country (as identified in schedules G1 and H1)
outside the U.S. where Wang provides Remedial Maintenance
Service for Equipment, OEM shall pay Wang a one time set up
fee of [CMD].
2.8 For each Tier B country (as identified in schedules G1 and H1)
outside the U.S. where Wang provides Remedial Maintenance
Service for Equipment, OEM shall pay Wang a one time set up
fee of [CMD].
15
2.9 For each Tier C country (as identified in schedules G1 and H1)
outside the U.S. where Wang provides Remedial Maintenance
Service for Equipment, OEM shall pay Wang a one time set up
fee of [CMD].
16
SCHEDULE D
DOCUMENTATION AND ESCALATION
1. Documentation
(a) OEM shall provide Wang one complete set of documentation and
diagnostics for each OEM product or product family identified
in Schedule B at no charge to Wang and grant Wang the right to
copy and distribute these materials to its employees and
subcontractors solely for use in fulfilling obligations under
this Agreement.
(b) As soon as practical and from time to time, OEM shall provide
Wang with one set of all changes and updates to documentation
for each current OEM product. For each future OEM product, OEM
shall furnish Wang with one complete set of documentation as
promptly after completion of preparation of such documentation
as possible.
(c) All changes and updates to documentation and diagnostics for
each current OEM product and complete sets of documentation
for OEM future products shall be provided to Wang at no
charge. OEM hereby grants Wang the right to copy and
distribute such material to its employees and subcontractors
solely for use in fulfilling obligations under this Agreement.
2. Escalation Path
(a) OEM shall provide Wang a telephone number for the purpose of
contacting OEM's technical support group to refer to End User
problems and issues that are outside the scope of this
Agreement and to obtain technical assistance in the resolution
of End User problems.
(b) OEM shall provide this service, at the least, Monday through
Friday each week, 8:00 A.M. to 5:00 P.M. U.S. Eastern Time.
(c) When the End User's problem cannot be resolved over the phone
or through the application of Remedial Maintenance Service by
Wang, then OEM may opt to provide its technical support on
site. Such support will be provided at no cost to Wang.
(d) All OEM technical support service shall be provided to Wang at
no cost.
17
SCHEDULE E
WANG DISPATCH PROCEDURES
(a) Wang maintains a telephone support "service desk" and will perform
"first call screening" of End Users who are experiencing problems with
their Equipment.
(b) At the time of the call to Wang, the End User will be asked to provide
the model and serial number of the failing Equipment, the name of the
End User, account contact, the End User's address and telephone number.
(c) If the Wang CRE is unable to resolve the problem with the End User, the
local Wang Service Desk will contact the Wang Customer Support Center
for assistance.
(d) When the Wang CRE has completed the call, the CRE will note in Wang's
records that the call has been "closed out. The entry will include the
CRE's on-site arrival and departure time.
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SCHEDULE F
UNITED STATES SERVICE ADDENDUM
Schedule No. Description
- ------------ -----------
F-1 Wang U.S. Service Cities
F-2 U.S. Price Schedule and Payment Terms
F-3 Parts
19
SCHEDULE F-1
WANG U.S. SERVICE CITIES
Sorted by State Sorted by City
- --------------- --------------
City State City State
- ---- ----- ---- -----
Anchorage AK Akron OH
Birmingham AL Albany NY
Little Rock AR Albuquerque NM
Phoenix AZ Allentown PA
Tucson AZ Anchorage AK
Fresno CA Atlanta GA
Oakland CA Austin TX
Sacramento CA Baltimore MD
San Francisco CA Birmingham AL
Santa Clara CA Bloomfield NJ
San Jose CA Bloominton IN
Los Angeles CA Boise ID
Orange County CA Boston MA
San Diego CA Brooklyn NY
Denver CO Buffalo NY
Hartford CT Burlington MA
New Haven CT Charleston SC
Stamford CT Charlotte NC
Springfield CT Chattanooga TN
Washington DC Chicago IL
Hollywood FL Cincinnati OH
Clearwater FL Clearwater FL
Orlando FL Cleveland OH
Tampa FL Columbia SC
Jacksonville FL Columbus OH
Miami FL Dallas TX
Atlanta GA Dayton OH
Hawaii HI Delaware MD
Honolulu HI Denver CO
Maui HI Des Moines IA
Des Moines IA Detroit MI
Boise ID E. Rutherford NJ
Chicago IL Edison NJ
20
Sorted by State Sorted by City
- --------------- --------------
City State City State
- ---- ----- ---- -----
Springfield IL El Paso TX
Bloomington IN Eugene OR
Fort Wayne IN Fort Wayne IN
Indianapolis IN Fort Worth TX
South Bend IN Fresno CA
Kansas City KS Grand Rapids MI
Wichita KS Greensboro NC
Louisville KY Harrisburg PA
New Orleans LA Hartford CT
Boston MA Hawaii HI
Burlington MA Hollywood FL
Worcester MA Honolulu HI
Delaware MD Houston TX
Baltimore MD Indianapolis IN
Rockville MD Jacksonville FL
Portland ME Kansas City KS
Detroit MI Knoxville TN
Grand Rapids MI Lansing MI
Lansing MI Las Vegas NV
Minneapolis MN Little Rock AR
St. Paul MN Los Angeles CA
St. Louis MO Louisville KY
Charlotte NC Madison WI
Greensboro NC Manchester NH
Raleigh NC Maui HI
Omaha NE Memphis TN
Manchester NH Miami FL
Bloomfield NJ Milwaukee WI
Edison NJ Minneapolis MN
Morristown NJ Morristown NJ
Toms River NJ Mt. Laurel NJ
E. Rutherford NJ Nashville TN
Mt. Laurel NJ New Haven CT
Princeton NJ New Orleans LA
Albuquerque NM New York City NY
Las Vegas NV Newport News VA
Albany NY Oakland CA
21
Sorted by State Sorted by City
- --------------- --------------
City State City State
- ---- ----- ---- -----
Buffalo NY Oklahoma City OK
Rochester NY Omaha NE
Syracuse NY Orange County CA
New York City NY Orlando FL
Syossett NY Philadelphia PA
Brooklyn NY Phoenix AZ
Akron OH Pittsburgh PA
Cincinnati OH Portland ME
Cleveland OH Portland OR
Columbus OH Princeton NJ
Dayton OH Providence RI
Oklahoma City OK Raleigh NC
Tulsa OK Richmond VA
Portland OR Rochester NY
Eugene OR Rockville MD
Salem OR Rosslyn VA
Allentown PA Sacramento CA
Harrisburg PA Salem OR
Philadelphia PA Salt Lake City UT
Valley Forge PA San Antonio TX
Pittsburgh PA San Diego CA
Providence RI San Francisco CA
Charleston SC San Jose CA
Columbia SC Santa Clara CA
Memphis TN Seattle WA
Chattanooga TN South Bend IN
Knoxville TN Spokane VA
Nashville TN Springfield CT
Austin TX Springfield IL
Dallas TX St. Louis MO
Fort Worth TX St. Paul MN
Houston TX Stamford CT
El Paso TX Syossett NY
San Antonio TX Syracuse NY
Salt Lake City UT Tacoma WA
Rosslyn VA Tampa FL
Newport News VA Toms River NJ
22
Sorted by State Sorted by City
- --------------- --------------
City State City State
- ---- ----- ---- -----
Richmond VA Tucson AZ
Spokane VA Tulsa OK
Seattle WA Valley Forge PA
Tacoma WA Washington DC
Madison WI Wichita KS
Milwaukee WI Worcester MA
23
SCHEDULE F-2
U.S. PRICE SCHEDULE AND PAYMENT TERMS
1. U.S. Price Schedule for Next Business Day On-Site Service
Year One Pricing - Labor Only
-----------------------------
Fails/ % Units Warranty
Unit Failed Charge/Unit
---- ------ -----------
0.025 2.50% [$CMD]
0.030 3.00% [$CMD]
0.040 4.00% [$CMD]
0.050 5.00% [$CMD]
0.060 6.00% [$CMD]
0.070 7.00% [$CMD]
0.080 8.00% [$CMD]
0.090 9.00% [$CMD]
0.100 10.00% [$CMD]
0.200 20.00% [$CMD]
0.300 30.00% [$CMD]
0.400 40.00% [$CMD]
0.500 50.00% [$CMD]
0.600 60.00% [$CMD]
0.700 70.00% [$CMD]
0.800 80.00% [$CMD]
0.900 90.00% [$CMD]
1.000 100.00% [$CMD]
For each month during the term of this Agreement, OEM shall pay Wang a fee for
the performance by Wang of Remedial Maintenance Service in the U.S. (the
"Monthly Fee "). The amount of each Monthly Fee, and the date on which same is
due, shall be determined in accordance with the provisions of this Schedule, as
follows:
1. Each Monthly Fee shall be the greater of (a) [$CMD] or (b) the amount
determined by operation of the formula described below as the "Failure
Rate Formula") or (c) a total annual fee agreed upon divided by 12
months.
(a) The payment for the 1st quarter of the initial term will be as
shown in 1.(d).
24
(b) The 1st quarter payments are based on a [$CMD] per unit
shipped or a [CMD%] failure rate as shown in Section I of the
Price Schedule:
(c) This payment schedule is applicable only to the 1st year of
this agreement.
(d) The following table indicates the required payments:
Month 1 Month 2 Month 3
------- ------- -------
[$CMD] [$CMD] [$CMD]
2. For purposes of the Failure Rate Formula, the following terms shall be
applicable:
(a) An "Equipment Failure" is deemed to have occurred when (i) the
End User advises Wang that a unit of Equipment at the End User
Location requires Remedial Maintenance Service, and (ii) Wang
has dispatched a CRE to perform such Remedial Maintenance
Service.
(b) The "Base Failure Rate" shall be the assumed annual rate(s) of
failure of the Equipment which OEM has elected to have apply
to the Equipment. The per- unit fee applicable to the Base
Failure Rate is set forth in the U.S. Price Schedule above
(the "Base Failure Rate Fee"). The Price Schedule also
contains the per-unit fees applicable to various failure rates
other than the Base Failure Rate.
(c) "Covered Units" shall be the number of pieces of Equipment for
which Wang is required to perform Remedial Maintenance Service
in each calendar month during the term hereof. The number of
Covered Units subject to Remedial Maintenance Service in any
given calendar month shall be deemed to be the total number of
pieces of Equipment shipped by OEM to End Users on or before
the expiration of the prior month.
(d) The "Actual Failure Rate" shall be the percentage determined
by dividing (i) the product of (x) number of Equipment
Failures occurring in a calendar month times (y) twelve (12)
by (ii) the number of Covered Units deemed to be applicable to
such calendar month.
25
(e) The "Average Actual Failure Rate" shall be the average of the
Actual Failure Rates during any period of three (3)
consecutive months during the term of the Agreement.
3. OEM shall advise Wang in writing of the number of units of Equipment
which OEM has shipped to End Users as of each of the fifteenth day and
the last day of each month in the term. Such written reports shall be
delivered to Wang on or before the twentieth day of the month, and the
fifth day of the following month, respectively. The total shipment of
units of Equipment in any month shall be the total of the units of
Equipment shown in the two reports (an "Actual Monthly Shipment").
4. Wang shall provide to OEM, on or about the tenth day of each month, an
invoice for the Monthly Fee applicable to that month, which shall be
due and payable within five (5) business days of the date of receipt
thereof by OEM. For the first month of the term, the Monthly Fee shall
be the product of (a) the Base Failure Rate times (b) the estimated
Actual Monthly Shipment for the first month, as reasonably agreed upon
by Wang and OEM in writing, plus any applicable Zone Travel Charges.
For the second and third months of the term, such invoice shall be the
product of (a) the Base Failure Rate times (b) the Actual Monthly
Shipment for the first and second months, respectively, plus any
applicable Zone Travel Charges.
5. Promptly after the expiration of the third (3rd) month of the term,
Wang shall determine the Average Actual Failure Rate applicable to the
first three (3) months of the term (the "Ql Failure Rate"). The Monthly
Fees payable in the fourth, fifth and sixth months of the term shall be
the product of the Q1 Failure Rate times the Actual Monthly Shipments
in the third, fourth and fifth months, respectively, plus any
applicable Zone Travel Charges. Promptly after the expiration of the
sixth (6th) month of the term, Wang shall determine the Average Actual
Failure Rate applicable to the fourth, fifth and sixth months of the
term (the "Q2 Failure Rate"). The Monthly Fees payable in the seventh,
eighth and ninth months of the term shall be the product of the Q2
Failure Rate times the Actual Monthly Shipments for the sixth, seventh
and eighth months, respectively, plus any applicable Zone Travel
Charges. The Monthly Fees payable for each three-month period in the
balance of the term shall be similarly determined, using the Average
Actual Failure Rate for the prior quarter in each case.
6. Unless otherwise agreed in writing by Wang and OEM, each unit of
Equipment shall be included in the total of the Covered Units only for
a period of twelve (12) months. After the expiration of twelve (12)
months after the month in which such unit of Equipment was shipped by
OEM, Wang shall no longer be obligated to provide
26
Remedial Maintenance Service with respect to such unit of Equipment,
and the total of the Covered Units shall be appropriately reduced.
7. In addition, each Monthly Fee is subject to adjustment to account for
the difference, if any between (a) the Monthly Fee (less Zone Travel
Charges) paid by OEM with respect to such month, and (b) the amount
determined by multiplying the fee applicable to the Actual Failure Rate
for such month times the Actual Monthly Shipment for such month. The
amount of such difference shall be added to, or subtracted from, as the
case may be, the invoice for the next Monthly Fee after such
determination has been made. In no event shall any such adjustment
cause any Monthly Fee to be less than the [$CMD] minimum or the amount
shown in paragraph 1 of this Schedule.
8. Effective not sooner than one (1) year from the Effective Date and upon
not less than ninety (90) days prior written notice to OEM, Wang may
increase the per-unit fees set forth in the U.S. Price Schedule,
provided, however, that such increase shall not exceed ten percent
(10%) during any twelve (12) month period.
9. In the event that Wang responds to an Equipment Failure, and OEM has
not caused the appropriate Part or Parts to be available to Wang in
connection with such Failure as provided herein, OEM shall pay Wang at
the then current labor rates with a two (2) hour minimum, for each
return visit.
II. Extended Warranty Pricing
(Years Two, Three & Four) Pricing - Parts &- Labor
--------------------------------------------------
Parts & Labor = [$CMD]
Within six (6) months of the date of this Agreement, the monthly minimum billing
for Extended Warranty Service shall be [$CMD] ("Minimum Monthly Billing"). If
the Minimum Monthly Billing falls below [$CMD] during any subsequent period of
three (3) consecutive months, Wang may withdraw the Extended Warranty Service
option for new End Users.
III. Zone Travel Charges
Zone Travel Charges payable for Remedial Maintenance Service are
determined based on the distance from the nearest Wang U.S. Service
City to End User's Location. Mileage is determined on a straight line
basis utilizing Rand McNally's Road Atlas for the United States and
from the center of the Wang Service City.
27
Zone I 00 - 50 miles [$CMD]
Zone 2 51 - 75 miles [$CMD]
Zone 3 76 - 100 miles [$CMD]
Zone 4 101 - 199 miles [CMD]
[CMD]
200 - up *
Wang shall not be obligated to perform Remedial Maintenance Service at
an End User's Location located beyond Zone 4 unless it has given its
prior written approval in each case. Such travel is normally
impractical by ground transport within a 9 hour PPM.
Wang reserves the right to bill Travel Zone Charges on a separate
invoice.
IV. Response Time Terms
Wang will provide Standard Next Business Day Remedial Maintenance
Service (i.e., with an eight hour Response Time), provided that the End
User Location is within 50 miles of a Wang Service City, and unless
otherwise requested by OEM. Wang will provide Remedial Maintenance
Service at Locations beyond 50 miles from a Wang Service City with a
standard, or designated in writing, Response Time plus four (4) hours
for each fifty (50) mile increment beyond fifty (50) miles from a Wang
Service City. Wang will also use reasonable efforts to contact the End
User by telephone within two hours of receipt of a call to confirm
receipt of the call and assignment of CRE. Wang's performance shall be
based on items within its control and shall not include items such as,
but not limited to, End User delay and End Users located beyond fifty
miles of a Wang Service City.
28
SCHEDULE F-3
Parts
1. OEM shall provide the following Parts services to Wang in the U.S.:
1.1 Furnish, upon verbal notice from Wang, for Next Business Day
delivery, a replacement Part necessary to perform Remedial
Maintenance Service;
1.2 Bear the expenses of shipment of and risk of loss to Parts
from OEM location to Wang's storage locations, and stamp,
etch, tag or label each Part for the purpose of proper
identification when received by Wang;
1.3 Supply Wang with one copy of a packing slip, or other
comparable document, for each delivery of Parts to Wang, and
return addressed, self-adhesive shipping label;
1.4 Replenish Parts within 15 days of request by Wang (including
DOA parts) and take all necessary action to maintain the
availability of sufficient Parts such that Wang may satisfy
its commitments including, without limitation, extended
warranty service;
1.5 In the event it becomes necessary for Wang to notify OEM that
one or more Parts are required on an emergency basis, OEM will
use its best efforts to ship the Parts required by Wang, by
the method specified by Wang, the same day of receipt of such
notice when notice is received by OEM during the PPM and
within 24 hours of OEM receipt of such notice outside the PPM;
1.6 Repair or replace defective Parts at no cost to Wang;
1.7 Provide Wang a quarterly forecast of shipments for future
spares purchases;
1.8 Sell Wang motherboards for the Equipment at a per unit price
not to exceed [CMD];
1.9 Purchase from Wang all obsolete parts at the price charged to
Wang.
2. Wang will provide the following Parts services to OEM:
2.1 Keep records of the receipt, disbursement and use of Parts;
29
2.2 Utilize the same procedures in the safekeeping and record
keeping of Parts as used in maintaining its own parts and
records;
2.3 Return to OEM, at Wang's expense and risk of loss, all
defective Parts provided by OEM and affix to such defective
Parts a defective material tag to permit appropriate
identification.
3. Upon termination of this Agreement, Wang shall provide OEM with a final
reconciliation of all OEM outstanding defective material in transit and
shall ship the remaining Parts to the OEM at OEM's expense.
3.1 If OEM does not notify Wang of any discrepancies within thirty
(30) days of receipt of the final reconciliation, and
specifically identify any discrepancies, such inventories
shall be deemed to be conclusively agreed to by OEM; and OEM
shall thereupon be deemed to release and discharge Wang from
any liability for discrepancies in the inventory discovered
thereafter. Wang's responsibility for unreconciled inventory
discrepancies shall be subject to a 2% annual
industry-standard "shrinkage" factor.
3.2 OEM shall purchase from Wang all inventories of Parts upon
termination of this Agreement. Repurchase price shall be at
the most recent price charged to Wang for such Parts.
30
SCHEDULE G
CENTRAL/NORTH EUROPE SERVICE ADDENDUM
Schedule No. Description
------------ -----------
G-1 Wang Service Cities
G-2 Price Schedule and Payment Terms
G-3 Parts
31
SCHEDULE G-1
WANG SERVICE CITIES
Central Europe Tier
Austria A
Gatz
Innsbruck
Linz
Salzburg
Vienna
Germany A
Berlin
Bonn
Bremen
Cologne
Frankfurt
Hamburg
Hanover
Munich
Stuttgart
Switzerland A
Bern
Geneva
Zurich
Northern Europe Tier
Belgium A
Antwerp
Brussels
The Netherlands A
Amsterdam
Rotterdam
The Hague
Denmark A
Copenhagen
Finland A
Helsinki
32
Ireland A
Belfast
Dublin
Luxembourg A
Luxembourg
Norway A
Oslo
Sweden A
Goteborg
Jonkoping
Malmo
Orebro
Omskoldsvik
Stockhom
Sundsvall
Vaxjo
United Kingdom A
Edinburgh
London
33
SCHEDULE G-2
CENTRAL/NORTH EUROPE PRICE SCHEDULE AND PAYMENT TERMS
I. Price Schedule for Next Business Day On-Site Service
Year One Pricing - Labor Only
-----------------------------
Fails/ % Units Warranty
Unit Failed Charge/Unit
---- ------ -----------
0.025 2.50% [$CMD]
0.030 3.00% [$CMD]
0.040 4.00% [$CMD]
0.050 5.00% [$CMD]
0.060 6.00% [$CMD]
0.070 7.00% [$CMD]
0.080 8.00% [$CMD]
0.090 9.00% [$CMD]
0.100 10.00% [$CMD]
0.200 20.00% [$CMD]
0.300 30.00% [$CMD]
0.400 40.00% [$CMD]
0.500 50.00% [$CMD]
0.600 60.00% [$CMD]
0.700 70.00% [$CMD]
0.800 80.00% [$CMD]
0.900 90.00% [$CMD]
1.000 100.00% [$CMD]
II. Extended Warranty Pricing
(Years Two, Three & Four) Pricing - Parts & Labor
-------------------------------------------------
Parts & Labor = [$CMD]
Within six (6) months of the date of this Agreement, the monthly minimum billing
for Extended Warranty Service shall be [$CMD] ("Minimum Monthly Billing"). If
the Minimum Monthly Billing falls below [$CMD] during any subsequent period of
three (3) consecutive months, Wang may withdraw the Extended Warranty Service
option for new End Users.
34
SCHEDULE G-3
Parts
1. Spare part(s) will be drawn from consigned or NEXAR shipped inventory.
The replenishment cycle for spare parts used in providing maintenance
service must be consistent with meeting the contracted response
requirements of this Agreement.
2. All spare parts are to be provided by NEXAR, at no charge to Wang, for
the term of the agreement. The level of spares provided for these
countries must be sufficient to enable service delivery per agreed
contract terms.
3. All defective parts will be returned to NEXAR, or its authorized agent
at no charge to Wang. Any applicable duty/customs fees and shipping
costs are the responsibility of NEXAR. In no case should repair
turnaround exceed 5 days after receipt of Wang returned defective
parts.
4. NEXAR will provide, at no charge to Wang, any packaging materials
necessary for returning defective parts. Any required special packaging
is the responsibility of NEXAR.
5. Duties, Customs, and shipping fees are the responsibility of NEXAR.
This includes any related fees Wang or its Authorized Distributors
incur when taking delivery of NEXAR supplied spare parts.
35
SCHEDULE H
JAPAN/OKINAWA SERVICE ADDENDUM
Schedule No. Description
- ------------ -----------
H-1 Wang Service Cities
H-2 Price Schedule and Payment Terms
H-3 Parts
36
SCHEDULE H-1
WANG SERVICE CITIES
Tier
----
Japan A
Fukuoka
Kobe
Kyoto
Nagoya
Naha
Osaka
Sapporo
Tokyo
Okinawa
37
SCHEDULE H-2
JAPAN/OKINAWA PRICE SCHEDULE AND PAYMENT TERMS
I. Price Schedule for Next Business Day On-Site Service
Year One Pricing - Labor Only
Fails/ % Units Warranty
Unit Failed Charge/Unit
---- ------ -----------
0.025 2.50% [$CMD]
0.030 3.00% [$CMD]
0.040 4.00% [$CMD]
0.050 5.00% [$CMD]
0.060 6.00% [$CMD]
0.070 7.00% [$CMD]
0.080 8.00% [$CMD]
0.090 9.00% [$CMD]
0.100 10.00% [$CMD]
0.200 20.00% [$CMD]
0.300 30.00% [$CMD]
0.400 40.00% [$CMD]
0.500 50.00% [$CMD]
0.600 60.00% [$CMD]
0.700 70.00% [$CMD]
0.800 80.00% [$CMD]
0.900 90.00% [$CMD]
1.000 100.00% [$CMD]
II. Extended Warranty Pricing
(Years Two, Three & Four) Pricing - Parts & Labor
-------------------------------------------------
Parts & Labor = [$CMD]
Within six (6) months of the date of this Agreement, the monthly minimum billing
for Extended Warranty Service shall be [$CMD] ("Minimum Monthly Billing"). If
the Minimum Monthly Billing falls below [$CMD] during any subsequent period of
three (3) consecutive months, Wang may withdraw the Extended Warranty Service
option for new End Users.
38
EXHIBIT 10.5
CONFIDENTIAL MATERIAL DELETED ("CMD")
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ----------------------------------------------- ------------------------
<TABLE>
<CAPTION>
INDEX
SECTION # ITEM PAGE
- --------- ---- ----
<S> <C> <C>
1 DEFINITIONS 3-4
2 SCHEDULES 4
3 WANG RESPONSIBILITIES 4
4 OEM RESPONSIBILITIES 5
5 TERM 5
6 DEFAULT AND TERMINATION 6
7 TITLE, RISK OF LOSS AND PRODUCT LIABILITY AND DISCLAIMERS 6
8 FORCE MAJEURE 6
9 NON-DISCLOSURE 7
10 AUTHORIZED REPRESENTATIVES AND NOTICES 7
11 STATUTE OF LIMITATIONS 8
12 NON-SOLICITATION 8
13 GENERAL 8
SCHEDULE A EQUIPMENT AND PRICE LIST 9-10
SCHEDULE B ESCALATION, TRAINING AND DOCUMENTATION 11
SCHEDULE C INSTALLATION AND SUPPLEMENTAL SERVICES 12-13
SCHEDULE D REMEDIAL MAINTENANCE SERVICE 14-15
SCHEDULE E SPARE PARTS 16
SCHEDULE F SERVICE CITIES 17-19
SCHEDULE G CALL PROCEDURE 20
SCHEDULE H REMEDIAL MAINTENANCE SERVICE PAYMENT TERMS 21-22
SCHEDULE I OEM INSTALLATION/RELOCATION REQUEST FORM 23
SCHEDULE J APPLICATION SOFTWARE LISTING
</TABLE>
Page 1 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ----------------------------------------------- ------------------------
ON-SITE MAINTENANCE SERVICE AGREEMENT
BETWEEN
DYNASYS SYSTEMS CORPORATION
AND
WANG LABORATORIES INC.
DATED: October 2, 1995
This Agreement, by and between WANG LABORATORIES, INC. (hereinafter "Wang"), a
Massachusetts corporation, with its principal place of business at 600
Technology Park Drive Billerica, Massachusetts and Dynasys Systems Corp.
(hereinafter "OEM") a corporation, with its principal office at 182 Turnpike
Road, Westborough, MA 01851, and is made effective as of October 2, 1995, (the
"Effective Date").
WHEREAS, OEM desires that Wang provide certain maintenance services for certain
equipment manufactured by OEM, and
WHEREAS, Wang is willing to perform such services upon the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings set
forth herein, Wang and OEM hereby agree as follows:
Page 2 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ----------------------------------------------- ------------------------
1. DEFINITIONS
For the purposes of this Agreement, the following terms shall have the following
meanings:
1.1 "AAFR" shall mean average annualized failure rates as shown on
Schedule A to this agreement.
1.2 "Call Screening" shall mean OEM screening and diagnosis of End
User problems with Equipment.
1.3 "DOA" shall mean "dead on arrival" and refers to any
replacement equipment or part(s) that arrives at an End User
location, does not function and requires replacement.
1.4 "End User" shall mean a party to whom OEM is obligated with
respect to maintenance of Equipment.
1.5 "Equipment" shall mean the electronic hardware equipment
identified in Schedule A to this Agreement.
1.6 "Escalation" shall mean the provision of increasing technical
expertise by the OEM for assistance to Wang Technicians as
described in Schedule B to this Agreement.
1.7 "Installation Service" shall mean the services described in
Schedule C to this Agreement.
1.8 "Load or Loading" shall mean the process of manual or
electronic installing of any type of software product that can
be used in the Equipment.
1.9 "Location" shall mean a site where Equipment is installed.
1.10 "Non-Remedial Calls" shall mean any telephone calls relating
to problems with user operation, software, power, data loss,
external media defects or any other problem related to the
Equipment which is not covered by Remedial Maintenance
Service.
1.11 "OOPM" shall mean "outside the PPM".
1.12 "Parts" shall mean modules, subassemblies, boards, components
and related materials described in Schedule C to this
Agreement.
1.13 "Preventative Maintenance" shall mean regularly scheduled
maintenance designed to minimize failures per the
manufacturers recommendations.
1.14 "PPM" shall mean "prime period of maintenance" which, is 8 AM
to 5 PM, Eastern Time, Monday through Friday of each week,
exclusive of holidays observed by Wang.
1.15 "Remedial Calls" shall mean any telephone calls directly
concerned with the delivery of Remedial Maintenance Service.
1.16 "Remedial Maintenance Service" shall mean the service required
in order to correct the improper functioning of Equipment, as
described in Schedule D and G to this Agreement.
1.17 "Repair" shall mean the repair of defective parts as described
in Schedule E of this Agreement.
1.18 "Service City" shall mean those cities listed on Schedule F of
this Agreement in which Wang maintains a service office.
1.19 "Software Support" shall mean any Wang support rendered by
telephone to the OEM's End Users. Such support will be limited
to feature and function support to those software packages as
noted in Schedule J.
1.20 "Time and Material Service" shall mean the services described
in of Schedule C of this Agreement.
1.21 "Training" shall mean the education and training of Wang
personnel described in Schedule B of this Agreement.
1.22 "Zone Travel Charge" shall mean the additional charge that is
applied to Remedial Maintenance Service and Time and Material.
Page 3 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------ ------------------------
1.23 Other capitalized terms shall have the meanings set forth in
the text of this Agreement.
2. SCHEDULES
Schedules A through I are incorporated into, and are made part of, this
Agreement.
3. RESPONSIBILITIES OF WANG
3.1 Wang shall provide Remedial Maintenance Service for all
Equipment installed at an End User location from and after the
Effective Date or at any time during the term of this
Agreement or any extension thereof.
3.2 Wang shall provide trained maintenance personnel for the
performance of Remedial Maintenance Service.
3.3 Wang shall perform Remedial Maintenance Service in a competent
and workmanlike manner.
3.4 Wang shall not provide telephone assistance or labor for the
Loading of any software application or operating system unless
specifically provided for in this Agreement.
3.5 Wang shall receive all requests for Remedial Maintenance
Service directly from the OEM End Users. Wang shall dispatch
its technicians in response to such request as provided in
Schedule G.
3.6 Equipment in need of Remedial Maintenance Service shall be
restored to good working order. Remedial Maintenance Service
will be considered to be complete when the Equipment is
operating in accordance with the OEM's published
specifications and/or has successfully executed
industry-standard software diagnostic testing commonly
utilized in connection with such item of Equipment.
3.7 Preventative Maintenance shall be performed on Equipment at
time of a Remedial Maintenance Service call.
3.8 Wang shall arrive on site for repair of OEM End User equipment
on the next business day at a level no less than for 90% of
the total number of calls from OEM requesting Remedial
Maintenance Service. Such performance is contingent upon the
receipt of the repair part and the availability of the End
User at the repair location after arrival of repair part(s) at
Wang-designated location.
3.9 Wang shall receive all requests directly from OEM End Users
and shall provide for the support of DOS/Windows software
applications as limited to those listed in Schedule J.
3.10 Software support will be limited to telephone support. On site
support of software is not a part of this Agreement.
3.11 Wang shall provide the OEM with an 800 number for the use of
the OEM's End Users as set forth in Schedule A of this
Agreement. This toll free number will be electronically routed
to Wang's 800 service in the Customer Service Center in
Smyrna, GA. However if the carrier of the 800 number
terminates its agreement with Wang, Wang shall have no further
obligation to provide an 800 number under this provision.
3.12 Wang shall perform hardware dispatch as set forth in Schedule
G.1.
3.13 Wang shall perform software problem resolution as shown in
Schedule G.2 for those applications shown in Schedule J.
3.14 Wang shall perform hardware problem resolution as described in
Schedules D and E.
3.15 Should the OEM require any 800 number advanced features such
as call prompting, call direction or recording, Wang will
provide a written price quotation within 10 days of the OEM's
written request to Wang.
Page 4 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------ ------------------------
4. RESPONSIBILITIES OF OEM
4.1 OEM shall pay Wang for Remedial Maintenance Service pursuant
to the payment terms defined in Schedule H of this Agreement.
4.2 OEM shall provide to Wang an Escalation Procedure, Training,
Training Aids and/or Documentation as defined in Schedule B to
this Agreement.
4.3 OEM shall provide to Wang, at no charge, any special
diagnostics, tools and/or test equipment required to perform
Remedial Maintenance Service. Such items will be returned to
OEM upon termination of this Agreement, in good operating
condition, less any reasonable wear and tear.
4.4 OEM shall provide to Wang, at no charge, any special
diagnostics, tools and/or test equipment required to perform
Remedial Maintenance Service. Such items will be returned to
OEM upon termination of this Agreement, in good operating
condition, less any reasonable wear and tear.
4.5 OEM hereby appoints Wang as its exclusive, nationally
authorized service organization for the Remedial Maintenance
Service. The exclusive appointment, however, shall not apply,
nor is it intended to prevent, those authorized dealers and a
"value-added resellers" of OEM which service equipment units
sold by them to their respective End User customers. OEM shall
provide Wang with a listing of such dealers and value added
resellers who are providing services similar to those
specified in this Agreement, and shall update such list on a
regular basis.
4.6 OEM shall provide such RSLs, Parts and Repair as defined in
Schedule E to this Agreement.
4.7 OEM shall provide and staff a technical support "help desk"
for use by Wang personnel and shall provide a toll-free
telephone number for such help desk.
4.8 OEM hereby grants to Wang the right of first refusal to have
included under this Agreement such other new equipment as may
be manufactured and/or sold by OEM. Notice of the right to
exercise such option shall be given to Wang by OEM promptly,
and Wang shall inform OEM as to its acceptance or refusal, or
its request such additional information as it may require,
within forty-five (45) days of receipt of such notice.
4.9 OEM shall be charged the "reasonable and customary" cost of
commercial travel when it is required for the performance of
Remedial Maintenance Service. Commercial travel includes, but
is not limited to, such items as airfare, ferry and rental
vehicles.
4.10 OEM will be charged the actual charges for reasonable lodging
and meals, when, if in the best interest of Wang and OEM, it
is determined that a Wang technician remain overnight at or
near the End User Location.
4.11 OEM shall be charged the actual cost of renting or leasing any
special test equipment when required to isolate properly a
problem.
5. TERM
This Agreement shall be effective on the Effective Date. Unless otherwise
terminated as provided herein, this Agreement shall have an initial term of
three (3) years ("Initial Term") and thereafter shall continue from year to
year. Either party shall have the right to terminate this Agreement at the end
of the Initial Term or at the end of any extended term upon not less than ninety
(90) days prior written notice to the other party.
Page 5 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------ ------------------------
6. DEFAULT AND TERMINATION
6.1 If either party defaults in performance of any material
obligation under this Agreement, and such default is not cured
within sixty (60) days after receipt of written notice from
the non-defaulting party, the non-defaulting party shall have
the right to terminate this Agreement effective after the
expiration of such 60 days.
6.2 In addition, if OEM fails to pay any monies when due, OEM will
pay upon demand all costs, including attorney's fees, expended
in collecting overdue charges, as well as interest on all
unpaid charges at the rate of 1.5% per month, and Wang may
suspend its performance under this Agreement until all monies
owed are paid in full.
6.3 Termination of this Agreement shall not affect any rights
existing as of the effective date of termination.
6.4 Except as provided in Section 7.4, the rights and remedies
provided in this Agreement are cumulative and in addition to
any other rights or remedies available at law or in equity.
7. INSURANCE AND LIMITATION
7.1 OEM shall, at its sole expense, maintain such insurance as is
reasonably necessary to protect itself and Wang against any
and all product liability claims with respect to Equipment.
Upon Wang's request, OEM shall provide Wang with a certificate
of insurance evidencing the existence of such insurance and
naming Wang as a loss payee in the event of loss by Wang. OEM
shall indemnify and save Wang harmless from any and all
liabilities, costs and expenses (including attorneys' fees and
costs) with respect to any claim of an End User or third party
relating to said product liability claims.
7.2 WANG SHALL ONLY BE LIABLE FOR DIRECT DAMAGES FOR ANY BREACH OF
THIS AGREEMENT AND IN NO EVENT SHALL WANG BE LIABLE UNDER ANY
PROVISION OF THIS AGREEMENT OR OTHERWISE FOR ANY SPECIAL,
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR FOR THE LOSS
OF PROFIT, REVENUE OR DATA EVEN IF WANG HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH LOSS OR DAMAGE. OEM ACKNOWLEDGES THAT
THE CHARGES FOR THE SERVICES PROVIDED HEREUNDER HAVE BEEN
ESTABLISHED IN CONTEMPLATION OF THE FOREGOING ALLOCATION OF
RISKS.
7.3 Wang shall not be responsible for the loss of, nor the cost of
reconstructing, data stored on disk files, tapes or memories,
or for information lost during the conduct or performance of
any services hereunder. OEM and its End Users are solely
responsible for the protection and backup of all data and
software used in conjunction with the Equipment.
8. FORCE MAJEURE
Neither party shall be liable for any delay in performance, or failure
to perform, under this Agreement caused by shortages of materials, acts
of God, fire, flood, war, embargo, labor trouble, riots and laws,
rules, regulations and orders of any governmental authority or any
other similar cause beyond the control of the party affected at the
time such cause arises. If any delay or inability to perform continues
for more than sixty (60) days, either party shall have the right to
terminate this Agreement upon written notice to the other party, or to
suspend its obligations hereunder until such time as such delay or
inability to perform is corrected.
Page 6 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------- ------------------------
9. NON-DISCLOSURE
9.1 Each party recognizes that performance hereunder may require
the use of data or information which is proprietary or
confidential to the other. Wang and OEM shall treat such data
or information of the other with the same degree of care as it
treats its own confidential data or information, and shall
inform its employees, agents or authorized representatives of
the confidential or proprietary nature of such data or
information.
9.2 Wang and the OEM agree to maintain in confidence and, except
as provided herein, not to disclose, reproduce or copy any
software, materials, or documents which are marked
confidential or proprietary. The obligations under this
Section shall survive the expiration or termination of this
Agreement for whatever reason, and shall be binding on OEM's
successors and assigns.
9.3 All confidential or proprietary information provided by one
party to the other pursuant to this Agreement is provided
solely for the receiving party's use in performing its
obligations hereunder and shall not be used or made available
for any other purpose.
9.4 Furthermore, OEM acknowledges that Wang's business includes
the design and development of products which may be similar to
the Equipment and, notwithstanding the foregoing, nothing in
this Agreement shall preclude or in any way impair the conduct
of such business by Wang.
10. AUTHORIZED REPRESENTATIVES AND NOTICES
10.1 Each party shall designate one representative who shall be
authorized to take any and all action and/or grant any
approvals required in the course of performance of this
Agreement. Such representative shall be fully authorized to
act for and bind such party, including the approval of
amendments to this Agreement. Until written notice to the
contrary is provided, the authorized representatives of the
parties are as follows:
for Wang: for Dynasys Systems Corp.
------------------------- --------------------------
Vice President Dynasys Systems Corp.
Wang Laboratories, Inc. 182 Turnpike Road
600 Technology Park Drive Westborough, MA 01851
Billerica, MA 01821-4130
10.2 Any notice or other communication required or permitted under
this Agreement shall be in writing and shall be delivered in
person or sent by certified mail, return receipt requested,
addressed as set forth below:
In the case of Wang: with a copy to:
John Larson Legal Council, Law Department
600 Technology Park Drive 600 Technology Park Drive
Billerica, MA 01821-4130 Billerica, MA 01821-4130
In the case of Dynasys
Systems Corp.: with a copy to:
========================== =========================
Dynasys Systems Corp. Dynasys Systems Corp.
182 Turnpike Road 182 Turnpike Road
Westborough, MA 01851 Westborough, Ma 01851
10.3 Either party may change the name or address to which notices
or other communications are to be sent by giving written
notice of such change to the other party. Mailed notice shall
be deemed given when received as indicated by the return
receipt, properly addressed and first class postage paid.
Page 7 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- -------------------------------------------------- -------------------------
11. STATUTE OF LIMITATIONS
No action, whether in contract, tort, or otherwise, arising out of the
performance of Remedial Maintenance Service or other services under this
Agreement, may be brought by either party more than two (2) years after the
cause of action arises, except for an action by Wang to collect payments due
hereunder.
12. NON-SOLICITATION OF EMPLOYEES
During the period of time extending to the later of one year after the
expiration of the Initial Term, or any extension thereof, OEM shall not, without
the prior written approval of Wang, hire or solicit for hire any Wang employee
directly or indirectly connected with performance by Wang under this Agreement;
provided, however, that this Section shall not prevent OEM from soliciting or
hiring any Wang employee after such employee has terminated his/or her
employment with Wang.
13. GENERAL
13.1 Neither this Agreement nor any rights granted hereunder may be
assigned by OEM without the prior written consent of Wang. Any
such attempted assignment shall be void.
13.2 The terms and conditions of this Agreement may be waived,
modified, or supplemented only in writing by duly authorized
representatives of the parties.
13.3 No failure or delay by either party in exercising any right,
power or privilege hereunder shall operate as a waiver or
preclude further exercise thereof.
13.4 Section headings are for convenience of reference only.
13.5 If any part of this Agreement shall be adjudged by any court
of competent jurisdiction to be invalid, such judgment will
not affect or nullify the remainder of this Agreement, but the
effect thereof will be confined to the part immediately
involved in the controversy adjudged.
13.6 This Agreement shall be deemed to have been made in, and shall
be construed pursuant to the laws of, the Commonwealth of
Massachusetts.
13.7 OEM ACKNOWLEDGES HAVING READ THIS AGREEMENT AND AGREES TO BE
BOUND BY ITS TERMS. THIS AGREEMENT IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE MUTUAL UNDERSTANDING OF THE PARTIES
AND SUPERSEDES AND CANCELS ALL PREVIOUS AND CONTEMPORANEOUS
WRITTEN AND ORAL AGREEMENTS AND COMMUNICATIONS RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT.
WHEREOF, the parties hereto have hereunto set their hands and seals
Effective Date.
Wang Laboratories Incorporated Dynasys Systems Corp.
By: By:
-------------------------- -------------------------------
- ----------------------------- ----------------------------------
(Printed Name) (Printed Name)
Title:_________________________ Title:________________________
Date:_________________________ Date:________________________
Page 8 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- --------------------------------------------------- ------------------------
SCHEDULE A
OEM EQUIPMENT LIST AND PRICE TABLE
MODEL DESCRIPTION AAFR
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
- -------- --------------------------------------------- ----------------
*Average Annualized Failure Rate
Page 9 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------- ------------------------
PRICE LIST WANG PROVIDED
FOR ONE YEAR HARDWARE, DEDICATED 800 LINE &
90 DAY SOFTWARE APPLICATIONS
CALL SCREENING
<TABLE>
<CAPTION>
=====================================================================================================================
ANNUALIZED ANNUALIZED ANNUALIZED
FAILS % UNITS WARRANTY
/UNIT FAILED CHARGE/UNIT
=====================================================================================================================
<S> <C> <C>
0.025 2.50% [$CMD]
0.030 3.00% [$CMD]
0.040 4.00% [$CMD]
0.050 5.00% [$CMD]
0.060 6.00% [$CMD]
0.070 7.00% [$CMD]
0.080 8.00% [$CMD]
0.090 9.00% [$CMD]
0.100 10.00% [$CMD]
0.200 20.00% [$CMD]
0.300 30.00% [$CMD]
0.400 40.00% [$CMD]
0.500 50.00% [$CMD]
0.600 60.00% [$CMD]
0.700 70.00% [$CMD]
0.800 80.00% [$CMD]
0.900 90.00% [$CMD]
1.000 100.00% [$CMD]
</TABLE>
A.2 800 Number support Prices
1. Costs
- --------------------------------------------------------------------------
Startup and Installation-One Time Charge [$CMD]
- --------------------------------------------------------------------------
Service Modifications Advanced Features [CMD]
- --------------------------------------------------------------------------
Cancellation (Contract Termination for cause) [$CMD]
- --------------------------------------------------------------------------
Billing for OEM requested Services [$CMD]
- --------------------------------------------------------------------------
TC Changes/Analysis/Monitoring for OEM requested Services
- --------------------------------------------------------------------------
2. Terms
a. OEM will indemnify and hold Wang harmless from and
against any liabilities, damages, costs and expenses
arising out or relating to the use of the 800 number.
b. OEM will pay actual administrative/technical charges
related to the 800 number quarterly.
c. Payment of all charges will be made prior to the
start of the next quarter.
d. OEM shall pay a billing charge of $100 for each
invoice required in connection with the 800 number's
use or technical support provided.
e. Wang reserves the right to terminate the 800 services
to the OEM's End Users for any non-payment by the
OEM.
Page 10 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- -------------------------------------------------- ------------------------
3. Pre-Payment
a. In addition to the prepayment as shown in Schedule H,
upon contract execution, OEM will be invoiced per the
example below. The initial payment terms will be 10
days.
EXAMPLE
Schedule:
Assume the contract amendment is signed 6/24/95
Assume billing on 6/25/95
Assume payment on 6/8/95
Assume service start on 6/22/95
Initial Billing:
The initial bill invoiced to the OEM will include the
following costs:
a. Start up and installation cost [$CMD]
b. Billing costs [$CMD]
NOTE: per minute charges are included [CMD]
in the per unit shipped price
Total [$CMD]
Page 11 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------- ------------------------
SCHEDULE B
TRAINING, DOCUMENTATION AND ESCALATION
B1. TRAINING
B1.1 Training classes conducted by OEM, at the request of Wang,
shall cover the installation, service and maintenance of OEM
products. Such classes may be limited to video tape training
or waived when authorized by Wang's Engineering Services
Group. The OEM may request such waiver, when requested by the
OEM in writing no more than 10 days after execution of this
agreement.
B1.2 All necessary instructors, training materials, supplies, and
Equipment for training classes shall be furnished by OEM at no
expense to Wang.
B1.3 If training classes are conducted at a facility other than
OEMs facility, OEM shall pay all reasonable Travel and Living
expenses for OEM instructor(s).
B1.4 Wang reserves the right to use and reproduce any or all
training materials when training other Wang employees.
B2. DOCUMENTATION
B2.1 OEM shall provided to Wang two sets of documentation and
software as shipped with each OEM product identified in
Schedule A at no charge to Wang. OEM shall provide Wang with
the right to copy such materials for distribution to Wang
personnel for purposes of delivering the Remedial Maintenance
shown in this agreement.
B2.2 As soon as practicable and from time to time, OEM shall
furnish each Wang Service City with one set of all changes and
updates to documentation for each current OEM product. For
each future OEM product, OEM shall furnish Wang with one
complete set of documentation as promptly after completion of
preparation of such documentation as possible.
B2.3 All changes and updates to documentation for each current OEM
product and complete sets of documentation for OEM future
products shall be furnished to Wang. Wang may copy such
documentation.
B.3 ESCALATION PATH (TECHNICAL)
B3.1 OEM shall provide a toll free telephone number for the purpose
of contacting the OEM's technical support group.
B3.2 The OEM shall provide this service, at the least, continuously
during the hours stated herein inclusive of both Eastern
Standard and Pacific Standard time zones.
B3.3 When the End Users problem can not be resolved over the phone
or through the application of Maintenance Service by Wang,
then the OEM may opt to provide its technical support on site.
Such support will be provided at no cost to Wang.
B3.4 All OEM Technical support service shall be provided to Wang at
no cost.
B3.5 OEM will provide all software problem resolution to its End
Users.
Page 12 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------- ------------------------
SCHEDULE C
HOURLY RATES SCHEDULE
C1. HOURLY RATES
Labor charges commence upon arrival of the technician at End User's
Location and cease upon completion of the work being charged as Time
and Material Service, which includes testing and verification.
Service requested to be performed within the PPM:
[$CMD] per hour with a 2 hour minimum
Service requested to be performed OPPM:
[$CMD] per hour with a 2 hour minimum
C2. ZONE TRAVEL CHARGE
The appropriate Zone Travel Charge is determined based on the distance
from the nearest Wang Service City to End User's Location. Mileage is
determined on a straight line basis utilizing Rand McNally's Road Atlas
for the United States and from the center of the Wang Service City.
Zone 1 00 - 50 miles [$CMD]
Zone 2 51 - 75 miles [$CMD]
Zone 3 76 - 100 miles [$CMD]
Zone 4 101 - up miles *
* Wang's then-current Time and Materials Service rates plus $0.275 per
mile round trip. OEM shall be charged only one Zone Travel Charge when,
through no fault of OEM, multiple visits are required to repair the
Equipment.
Page 13 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------- ------------------------
SCHEDULE D
REMEDIAL MAINTENANCE SERVICE
D1. REMEDIAL MAINTENANCE SERVICE
D1.1 Remedial Maintenance Service shall be provided as described in
Section 3 of the Agreement.
D2. EXCLUSIONS
The following work is not included in Remedial Maintenance Service.
Wang shall have no obligation for:
(a) Electrical work external to Equipment;
(b) Repair of damage or loss resulting from accident,
transportation, neglect, misuse or abuse, operator error,
failure of electrical power or air conditioning or humidity
control, or use for which Equipment was not designed;
(c) Preventative Maintenance that is designed to be performed by
an End User.
(d) Supplies or accessories, painting or refinishing Equipment,
making specification or field engineering changes, performing
services connected with relocation of Equipment, or adding or
moving accessories, attachments or other devices;
(e) Software programming, software program maintenance or Loading;
(f) Service which is impractical for Wang to render because of, or
which is required because of, attachment, addition or
connection of the Equipment to another machine or device;
(g) Service required as a result of work on Equipment by parties
other than Wang personnel;
(h) Service of Equipment which, because of a safety hazard,
exposes Wang personnel to a risk of injury;
(i) Equipment determined by Wang to be unserviceable;
(j) Service in connection with the installation, discontinuance or
removal of Equipment;
(k) Time and travel expense incurred to obtain Parts as a result
of the OEM's failure to provide Wang with Parts as required
herein;
(l) Service when in connection with user-replaceable units, such
as keyboards or monitors;
(m) Service when no problem is found;
(n) Service to any products other than normally considered desktop
equipment, multi processor units, etc.
Page 14 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ---------------------------------------------------- ------------------------
D3. ENGINEERING, FEATURE AND SAFETY CHANGES
If engineering changes, feature changes, or safety changes are developed by OEM
for the Equipment, such changes shall be installed by OEM. However, if OEM
requests, Wang shall install such changes on an Installation Service basis or a
"Time and Materials" Service basis, and OEM shall provide all components, parts
and instruction packages necessary for Wang to perform such work.
D4. MAINTENANCE OF RELOCATED EQUIPMENT
If Equipment is to be relocated, Wang shall continue to maintain such Equipment
at the new Location, and OEM shall deliver to Wang a fully completed and signed
Installation/Relocation Request Form (Schedule I) covering such relocation. If
such Equipment is not installed by Wang at the new Location, Wang shall have the
right to conduct an inspection after installation of the Equipment at the new
Location and to determine if the same is acceptable for performance of Remedial
Maintenance Service.
If, in the opinion of Wang after inspection, Equipment which has been relocated
by persons other than Wang personnel does not qualify for Remedial Maintenance
Service because of damage from any cause and/or improper installation, OEM shall
pay Wang for the cost of Wang's inspection. If Wang is requested to perform such
repairs as it deems necessary to re-qualify such Equipment for Remedial
Maintenance Service, Wang shall waive payment of the inspection fee, provided
OEM pays to Wang the cost of such repairs. Charges for such repairs shall be
computed in accordance with the terms and conditions of Time and Material
Service as described in Schedule C.
D5. EQUIPMENT
Schedule A lists the models of Equipment that shall be maintained in accordance
with the terms of this Agreement.
D6. CHARGES
Charges payable by OEM to Wang for Remedial Maintenance Service are set forth in
Schedule H.
D7. ZONE CHARGES
D7.1 Zone Travel Charges payable for Remedial Maintenance Service
are determined based on the distance from the nearest Wang
Service City to End User's Location. Mileage is determined on
a straight line basis utilizing Rand McNally's Road Atlas for
the United States and from the center of the Wang Service
City.
Zone 1 00 - 75 miles [$CMD]
Zone 2 76 - 100 miles [$CMD]
Zone 3 101 - up miles [CMD]
Wang shall not be obligated to perform Remedial Maintenance
Service at an End User's Location located in Zone 4 unless it
has given its prior written approval in each case.
Note: The fee of $150/incident shall be charged for all incidents
when the total of incidents in a calendar month exceed 5% of
the total calls taken in that month. Example: If 5000 calls
are taken by Wang then the total number of allowable incidents
over 75 miles would be no more than 250 during that 30 day
period.
D8. NOTIFICATION OF SHIPMENT TO WANG
On a monthly basis, OEM will provide to Wang via a diskette or by some
other electronic means, a text file listing, by serial and model number
and date shipped, all of the Equipment shipped to End Users in the
United States as to which Maintenance Service is to be provided
hereunder.
Page 15 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- --------------------------------------------------- ------------------------
SCHEDULE E
SPARE PARTS
E1. OEM shall provided the following Parts services to Wang:
E1.1 Furnish, upon verbal notice from Wang, for next business day
delivery, a replacement Part necessary to perform Remedial
Maintenance Service;
E1.2 Bear the expenses of shipment of and risk of loss to Parts
from OEM location to Wang's storage locations, and stamp,
etch, tag or label each Part for the purpose of proper
identification when received by Wang;
E1.3 Supply Wang with one copy of a packing slip, or other
comparable document, for each delivery of Parts to Wang, and
return addressed, self-adhesive shipping label.
E1.4 Replenish Parts as required by Wang (including DOA parts) and
take all necessary action to maintain the availability of
sufficient Parts such that Wang may satisfy its commitments,
hereunder;
E1.5 In the event it becomes necessary for Wang to notify OEM that
one or more Parts are required on an emergency basis, OEM will
use its best efforts to ship the Parts required by Wang, by
the method specified by Wang, the same day of receipt of such
notice when notice is received by OEM during the PPM and
within 24 hours of OEM receipt of such notice OPPM; and
E1.6 OEM will repair or replace defective parts at no cost to Wang.
E2. Wang will provide the following Parts services to OEM:
E2.1 Keep records of the receipt, disbursement and use of Parts;
E2.2 Utilize the same procedures in the safekeeping and record
keeping of Parts as used in maintaining its own parts and
records; and
E2.3 Return to OEM, at Wang's expense and risk of loss, all
defective Parts provided by OEM and affix to such defective
parts a defective material tag to permit appropriate
identification.
E3. Upon termination of this Agreement, Wang shall provide OEM with a final
reconciliation of all OEM outstanding defective material in transit and
shall ship the remaining Parts to the OEM at OEM's expense.
E3.1 If OEM does not notify Wang of any discrepancies within thirty
(30) days of receipt of the final reconciliation, and
specifically identify any discrepancies, such inventories
shall be deemed to be conclusively agreed to by OEM; and OEM
shall thereupon be deemed to release and discharge Wang from
any liability for discrepancies in the inventory discovered
thereafter. Wang's responsibility for unreconciled inventory
discrepancies shall be subject to a 2% annual
industry-standard "shrinkage" factor.
Page 16 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- -------------------------------------------------- ------------------------
SCHEDULE F
WANG SERVICE LOCATIONS
U.S. Wang Service Locations
<TABLE>
<CAPTION>
Sorted by State Sorted by City
City State City State
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Anchorage AK Akron OH
Birmingham AL Albany NY
Little Rock AR Albuquerque NM
Phoenix AZ Allentown PA
Tucson AZ Anchorage AK
Fresno CA Atlanta GA
Oakland CA Austin TX
Sacramento CA Baltimore MD
San Francisco CA Birmingham AL
Santa Clara CA Bloomfield NJ
San Jose CA Bloomington IN
Los Angeles CA Boise ID
Orange Cty CA Boston MA
San Diego CA Brooklyn NY
Denver CO Buffalo NY
Hartford CT Burlington MA
New Haven CT Charleston SC
Stamford CT Charlotte NC
Springfield CT Chattanooga TN
Washington DC Chicago IL
Hollywood FL Cincinnati OH
Clearwater FL Clearwater FL
Orlando FL Cleveland OH
Tampa FL Columbia SC
Jacksonville FL Columbus OH
Miami FL Dallas TX
Atlanta GA Dayton OH
Hawaii HI Delaware MD
Honolulu HI Denver CO
Maui HI Des Moines IA
Des Moines IA Detroit MI
Boise ID E. Rutherford NJ
Chicago IL Edison NJ
Springfield IL El Paso TX
Bloomington IN Eugene OR
Fort Wayne IN Fort Wayne IN
Indianapolis IN Fort Worth TX
South Bend IN Fresno CA
Kansas City KS Grand Rapids MI
Wichita KS Greensboro NC
Louisville KY Harrisburg PA
New Orleans LA Hartford CT
Boston MA Hawaii HI
</TABLE>
Page 17 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------- -------------------------
<TABLE>
<CAPTION>
Sorted by State Sorted by City
City State City State
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Burlington MA Hollywood FL
Worcester MA Honolulu HI
Delaware MD Houston TX
Baltimore MD Indianapolis IN
Rockville MD Jacksonville FL
Portland ME Kansas City KS
Detroit MI Knoxville TN
Grand Rapids MI Lansing MI
Lansing MI Las Vegas NV
Minneapolis MN Little Rock AR
St. Paul MN Los Angeles CA
St. Louis MO Louisville KY
Charlotte NC Madison WI
Greensboro NC Manchester NH
Raleigh NC Maui HI
Omaha NE Memphis TN
Manchester NH Miami FL
Bloomfield NJ Milwaukee WI
Edison NJ Minneapolis MN
Morristown NJ Morristown NJ
Toms River NJ Mt. Laurel NJ
E. Rutherford NJ Nashville TN
Mt. Laurel NJ New Haven CT
Princeton NJ New Orleans LA
Albuquerque NM New York City NY
Las Vegas NV Newport News VA
Albany NY Oakland CA
Buffalo NY Oklahoma City OK
Rochester NY Omaha NE
Syracuse NY Orange Cty CA
New York City NY Orlando FL
Syossett NY Philadelphia PA
Brooklyn NY Phoenix AZ
Akron OH Pittsburgh PA
Cincinnati OH Portland ME
Cleveland OH Portland OR
Columbus OH Princeton NJ
Dayton OH Providence H RI
Oklahoma City OK Raleigh NC
Tulsa OK Richmond VA
Portland OR Rochester NY
Eugene OR Rockville MD
Salem OR Rosslyn VA
Allentown PA Sacramento CA
Harrisburg PA Salem OR
Philadelphia PA Salt Lake City UT
Valley Forge PA San Antonio TX
Pittsburgh RI San Diego CA
</TABLE>
Page 18 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- --------------------------------------------------- ------------------------
<TABLE>
<CAPTION>
Sorted by State Sorted by City
City State City State
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Providence SC San Francisco CA
Charleston SC San Jose CA
Columbia TN Santa Clara CA
Memphis TN Seattle WA
Chattanooga TN South Bend IN
Knoxville TN Spokane VA
Nashville TN Springfield CT
Austin TX Springfield IL
Dallas TX St. Louis MO
Fort Worth TX St. Paul MN
Houston TX Stamford CT
El Paso TX Syossett NY
San Antonio TX Syracuse NY
Salt Lake City UT Tacoma WA
Rosslyn VA Tampa FL
Newport News VA Toms River NJ
Richmond VA Tucson AZ
Spokane VA Tulsa OK
Seattle WA Valley Forge PA
Tacoma WA Washington DC
Madison WI Wichita KS
Milwaukee WI Worcester MA
</TABLE>
Page 19 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------- ------------------------
SCHEDULE G
REPAIR CALL PROCEDURES
G.1 Hardware Calls
(a) Wang will perform "first call screening" of OEM End Users who are
experiencing problems with their Equipment.
(b) When the Wang Support Center is unable to resolve the End User's
problem or has discovered the defective component, the Wang Support
Center calls the OEM's service center to initiate a parts action or
request for technical assistance.
(c) At the time of the End User's call to the Wang Support Center, Wang
will obtain the model and serial number of the failing equipment, the
name of the OEM's customer, account contact, the customer's address and
telephone number.
(d) At the time of Wang's call to the OEM all the information obtained in
step (c) will be provided to the OEM. The OEM will be requested to
provide the estimated arrival date of the replacement parts, as well as
the responsible OEM individual who will be coordinating the repair
call.
(e) When the part has arrived at the Wang location Wang's Support Center
will dispatch a customer engineer.
(f) When the Customer Engineer is unable to resolve the problem in its work
with the customer, the Wang Support Center or Wang Sustaining
Engineering will contact the OEM Technical support for assistance at no
charge.
(g) When the Wang technicians have completed the call, the OEM will be
requested to note in its records that the call has been "closed out."
The WANG call tracking number given at the time the call was placed
should be used as the reference. The entry must include the
technician's on-site arrival and departure time.
(h) Wang will then "close out" the repair call.
G.2 Software Calls
(a) Wang will provide responses to the OEM's End Usertelephone requests for
Software Supportlimited to the software applications listed in Schedule
J.
(b) Support will be for a period of 90 days from the date of shipment of
the unit of Equipment.
Page 20 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- -------------------------------------------------- ------------------------
SCHEDULE H
REMEDIAL MAINTENANCE SERVICE PAYMENT TERMS
For each month during the term of this Agreement, OEM shall pay to Wang a
fee in respect of the performance by Wang of Remedial Maintenance Service (the
"Monthly Fee"). The amount of each Monthly Fee, and the date on which same is
due, shall be determined in accordance with the provisions of this Schedule, as
follows:
1. Each Monthly Fee shall be the greater of (a) [$CMD] or (b) the amount
determined by operation of the formula described below as the "Failure
Rate Formula") or (c) a total annual fee agreed upon divided by 12
months.
(a) The payment for the 1st quarter of the initial term will be
divided into the 3 increments the total of which shall equal
[$CMD].
(b) The 1st quarter payments are based on a [$CMD] per unit
shipped or a [CMD%] failure rate as shown in Schedule A Price
List:
(c) This payment schedule is applicable only to the 1st year of
this agreement.
(d) The following table indicates the required payments:
Month 1 Month 2 Month 3
------------------------------------------
[$CMD] [$CMD] [$CMD]
2. For purposes of the Failure Rate Formula, the following terms
shall be applicable:
(a) An "Equipment Failure" is deemed to have occurred when (i) the
OEM user shall advise Wang that a unit of Equipment at the End
User Location requires Remedial Maintenance Service, and (ii) Wang
shall have dispatched a technician to perform such Remedial
Maintenance Service.
(b) The "Base Failure Rate" shall be the assumed annual rate(s) of
failure of the Equipment which OEM has elected to have apply to
the Equipment. The per-unit fee applicable to the Base Failure
Rate is set forth in the "Price Table" attached to the Agreement
as Schedule A (the "Base Failure Rate Fee"). The Price Table also
contains the per-unit fees applicable to various failure rates
other than the Base Failure Rate.
(c) "Covered Units" shall be the number of pieces of Equipment as
to which Wang is required to perform Remedial Maintenance Service
in each calendar month during the term hereof. The number of
Covered Units subject to Remedial Maintenance Service in any given
calendar month shall be deemed to be the total number of pieces of
Equipment shipped by OEM to End Users on or before the expiration
of the prior month.
(d) The "Actual Failure Rate" shall be the percentage determined
by dividing (i) the product of (x) number of Equipment Failures
occurring in a calendar month times (y) twelve (12) by (ii) the
number of Covered Units deemed to be applicable to such calendar
month.
(e) The "Average Actual Failure Rate" shall be the average of the
Actual Failure Rates during any period of three (3) consecutive
months during the term of the Agreement.
(f) "Zone Travel Charge" shall be as shown in Schedule D - D.7..
3. OEM shall advise Wang in writing of the number of unit of Equipment
which OEM has shipped to End Users as of each of the fifteenth day and the last
day of each month in the term. Such written reports shall be delivered to Wang
on or before the twentieth day of the month, and the fifth day of the following
month, respectively. The total shipment of units of Equipment in any month shall
be the total of the units of Equipment shown in the two reports (an "Actual
Monthly Shipment").
4. Wang shall provide to OEM, on or about the tenth day of each month, an
invoice for the Monthly Fee applicable to that month, which shall be due and
payable within five (5) business days of the date of receipt thereof by OEM. For
the first month of the term, the Monthly Fee shall be the product of (a) the
Base Failure Rate times (b) the estimated Actual Monthly Shipment for the first
month, as reasonably agreed upon by Wang and OEM in writing, plus any applicable
Zone Travel Charges. For the second and third months of the term, such invoice
shall be the product of (a) the Base Failure Rate times (b) the Actual Monthly
Shipment for the first and second months, respectively, plus any applicable Zone
Travel Charges.
Page 21 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- --------------------------------------------------- ------------------------
5. Promptly after the expiration of the third (3rd) month of the term,
Wang shall determine the Average Actual Failure Rate applicable to the first
three (3) months of the term (the "Q1 Failure Rate"). The Monthly Fees payable
in the fourth, fifth and sixth months of the term shall be the product of the Q1
Failure Rate times the Actual Monthly Shipments in the third, fourth and fifth
months, respectively, plus any applicable Zone Travel Charges. Promptly after
the expiration of the sixth (6th) month of the term, Wang shall determine the
Average Actual Failure Rate applicable to the fourth, fifth and sixth months of
the term (the "Q2 Failure Rate"). The Monthly Fees payable in the seventh,
eighth and ninth months of the term shall be the product of the Q2 Failure Rate
times the Actual Monthly Shipments for the sixth, seventh and eighth months,
respectively, plus any applicable Zone Travel Charges. The Monthly Fees payable
for each three-month period in the balance of the term shall be similarly
determined, using the Average Actual Failure Rate for the prior quarter in each
case.
6. Unless otherwise agreed in writing by Wang and OEM, each unit of
Equipment shall be included in the total of the Covered Units only for a period
of twelve (12) months. After the expiration of twelve (12) months after the
month in which such unit of Equipment was shipped by OEM, Wang shall no longer
be obligated to provide Remedial Maintenance Service with respect to such unit
of Equipment, and the total of the Covered Units shall be appropriately reduced.
7. In addition, each Monthly Fee is subject to adjustment to account for
the difference, if any, between (a) the Monthly Fee (less Zone Travel Charges)
paid by OEM with respect to such month, and (b) the amount determined by
multiplying the fee applicable to the Actual Failure Rate for such month times
the Actual Monthly Shipment for such month. The amount of such difference shall
be added to, or subtracted from, as the case may be, the invoice for the next
Monthly Fee after such determination has been made. In no event shall any such
adjustment cause any Monthly Fee to be less than the $5,000 minimum or the
annual amount divided by 12 referred to in paragraph 1 of this Schedule.
8. Effective not sooner than one (1) year from the Effective Date and upon
not less than ninety (90) days prior written notice to OEM, Wang may increase
the per-unit fees set forth in the Price Table. Provided, however, that such
increase shall not exceed ten percent (10%) during any twelve (12) month period.
9. In the event that Wang responds to an Equipment Failure, and OEM has
not caused the appropriate Part or Parts to be available to Wang in connection
with such Failure as provided herein, OEM shall pay to Wang the price shown in
Schedule A for each return visit.
10. Wang reserves the right to bill Travel Zone Charges on a separate
invoice.
Page 22 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- ------------------------------------------------- ------------------------
SCHEDULE I
OEM INSTALLATION/RELOCATION REQUEST FORM
OEM Customer Site Information
Name
Address
City State
------------------------------------- --------------------
Phone # 1-
----------------------
Contact
-------------------------------------------------------
OEM PURCHASE ORDER NUMBER
---------------------------------------
OEM Requester Name
-----------------------------------------------
Phone # 1-
----------------------------------------------------
INSTALLATION DATE:
-----------------------
WARRANTY START DATE: IF APPLICABLE
-----------------------
LIST OF PRODUCTS TO INSTALL
QTY PRODUCT MODEL SERIAL #
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
- ----- ea --------------------------------------------- -------------------
Page 23 of 24
CONTRACT CONTROL NUMBER WCS-Dynasys-0001 rev aa Friday, October 20, 1995
- -------------------------------------------------- ------------------------
SCHEDULE J
APPLICATION SOFTWARE LIST
ENVIRONMENTS
Windows 3.X/95 Microsoft
DOS 6.X
INTEGRATED SYSTEMS
Microsoft Works for DOS Microsoft
Microsoft Works for Windows Microsoft
ELECTRONIC MAIL
Microsoft Mail Microsoft
WORD PROCESSING
Word for Windows Microsoft
Page 24 of 24
EXHIBIT 10.6
NEXAR TECHNOLOGIES, INC. LETTERHEAD
December 17, 1996
Mr. William E. Johnson
Government Technology Services, Inc.
4100 Lafayette Center Drive
Chantilly, Virginia 22021-0808
Re: Agreement Regarding Exclusivity
-------------------------------
Dear Mr. Johnson:
This letter is to confirm the agreement between Nexar Technologies,
Inc. ("NEXAR") and Government Technology Services, Inc. ("GTSI") with respect to
GTSI's exclusive GSA Schedule B/C Letter of Supply during the 1997/98 B/C
calendar year. Pursuant to this agreement, NEXAR has communicated its desire
that GTSI purchase at least $35,000,000 worth of product during calendar year
1997, and the essential spirit of the agreement is that GTSI would receive GSA
exclusivity from NEXAR in exchange for $35,000,000 in net sales. If GTSI does
not achieve the following quarterly purchase objectives for two consecutive
quarters, NEXAR reserves the right to withdraw GTSI's GSA exclusivity.
Q1 $ 4,900,000
Q2 $ 5,500,000
Q3 $12,700,000
Q4 $11,900,000
-----------
Total $35,000,000
Please sign below in acknowledgement of the above understanding of the
agreement.
Very truly yours,
/s/Anthony Colangelo
--------------------------
Anthony Colangelo
GOVERNMENT TECHNOLOGY SERVICES, INC.
/s/ William E. Johnson
- ------------------------
ds1/311525
EXHIBIT 11.1
<TABLE>
<CAPTION>
STATEMENT RE: EARNINGS PER SHARE
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
---------------------
<S> <C>
Net loss $(2,981,022)
------------
Weighted average common shares outstanding 4,800,000
Stock issued within twelve months of initial public offering 2,921,838
Pro forma conversion of amounts due to related parties 700,000
------------
Weighted average number of common and common equivalent shares outstanding 8,421,838
============
Net loss per share amount $(0.35)
============
</TABLE>
- --------------------------------------------
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, stock, stock options and stock warrants issued at prices below
the the initial public offering price during the 12-month period
immediately preceding the initial filing date of the Company's
Registration Statement of its initial public offering have been included
as outstanding for all periods presented. The dilutive effect of the
common stock equivalents was computed in accordance with the treasury
stock method.
EXHIBIT 21.1
SUBSIDIARY
Name Jurisdiction of Incorporation
- ---- -----------------------------
Intelesys Corporation Delaware
ds1\312232
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
December 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,147,918
<SECURITIES> 0
<RECEIVABLES> 8,209,422
<ALLOWANCES> (60,000)
<INVENTORY> 2,992,698
<CURRENT-ASSETS> 19,473,588
<PP&E> 237,028
<DEPRECIATION> (20,209)
<TOTAL-ASSETS> 20,183,318
<CURRENT-LIABILITIES> 5,856,925
<BONDS> 19,568,449
0
0
<COMMON> 48,000
<OTHER-SE> (47,600)
<TOTAL-LIABILITY-AND-EQUITY> 20,183,318
<SALES> 11,341,426
<TOTAL-REVENUES> 11,341,426
<CGS> 9,338,342
<TOTAL-COSTS> 9,338,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 267,143
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,981,022)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,981,022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,981,022)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
