AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 1997
Registration No. 333-18489
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
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. |_|
--------------------
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.
================================================================================
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one
to be used in connection with an initial public offering of 2,500,000 shares of
Common Stock by the Company (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 JANUARY 24, 1997
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 67.5% 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 does not achieve certain performance
milestones set forth in an agreement between the Company and Palomar and shares
which Palomar may acquire upon conversion of shares of Convertible Prefered
Stock. See "Certain Transactions" and "Description of Capital Stock."
Shares of the Company beneficially owned by Palomar and three
institutional investors are being registered for sale from time-to-time in the
open market. Such transactions are being registered by separate prospectus
concurrently with this offering. The Company will not receive any proceeds from
any sale of such shares.
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."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 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) $ $ $
================================================================================
(1) Does not reflect additional compensation to Sands Brothers & Co., Ltd.,
the representative (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 four-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's 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
NEXAR
FOR PEOPLE WHO BUY PCS. AND FOR PEOPLE WHO SELL THEM.
[PHOTOGRAPH OF NEXAR PC WITH SIDE PANELS BEING REMOVED]
Every computer end-user market is concerned about obsolescence. Corporate
America and small businesses. The government and the education system. Small and
home offices. This is what makes NEXAR personal computers so refreshing -- they
forestall system obsolescence.
NEXAR offers PCs to its resellers without the CPU, RAM, cache and hard drive
pre-installed, allowing them to configure the PC with their customers' choice of
components. Unlike other upgradeable or modular computers, NEXAR PCs are not
based on a proprietary architecture. Industry-standard components can be used.
The customer, not the manufacturer's technician, is in control of enhancements
to the system. Upgrading can be done in a matter of minutes. Without any tools.
Without training. Without the help of a technician. When more performance is
needed, only specific components need upgrading. Not the whole PC.
The removable hard drive is a feature that's particularly desirable where
security is an issue, or when a user wants portable data to go. It also makes
possible the use of multiple operating systems on a single PC.
NEXAR resellers can precisely meet their customer's technical and budgetary
requirements without exposing themselves to inventory depreciation caused by
the rapid advance of technology coupled with frequent price declines. Today's
best technology at today's best price. [NEXAR LOGO]
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
NEXAR TECHNOLOGY
MAKES CUSTOM CONFIGURATIONS EASY!
[PHOTOGRAPH OF RIGHT SIDE OF NEXAR PC WITH SIDE PANEL REMOVED]
Snap off the right side panel of a NEXAR personal computer and uncover the
difference between a NEXAR PC and conventional models: direct access to the key
system defining components. A second side panel on the left side provides access
to expansion card slots.
NEXAR PCs are sold as high performance system platforms, usually shipped to
resellers fully configured except for the CPU, RAM, Cache, and Hard Drive, all
of which can be installed by the reseller in minutes. No tools. No custom parts.
No special training.
This means that NEXAR resellers can offer a competitively priced,
custom-tailored, high-performance PC. Resellers save on labor and are less
exposed to the high costs of holding older inventory.
The new NEXAR 11 supports SDRAM, EDO, or FPM memory, pipeline burst Cache, EIDE
or SCSI Hard Drives, concurrent PCI bus and Universal Serial Bus. All industry
standard components - no proprietary parts.
NEXAR PCs support Pentium processors with MMX multi media extension technology,
while its ISA/PCI controller supports state-of-the-art video, fax, network and
sound cards. Today's PC ready for tomorrow's technology.
3
NEXAR
Easy to customize now.
Easy to upgrade later.
NEXAR offers current and next-generation compatibility combined with an
innovative, patent-pending design which allows the CPU, RAM, and cache to be
accessed without technical assistance and without opening the entire chassis.
This means that the components which become obsolete the fastest can be easily
replaced. The result is an extended lifespan, lower cost of ownership and
investment protection.
* Configures and upgrades easily in seconds - no tools needed.
* CPU, cache and RAM are located at the outside of the cabinet, under a
removable side panel.
* A second removable side panel provides easy access to expansion card
slots.
* Slide-in slide-out hard drive caddy.
* Concurrent PCI bus and universal serial bus (USB).
* Supports 33,600 DSVD modem ISDN and video, fax, network and sound cards
for telephone and video conferencing.
* Upgradable to next-generation Intel Pentium and AMD chips with MMX(TM).
* Upgradable to 128 MB SDRAM
[NEXAR LOGO]
4
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, except for
the key system defining components (microprocessor, memory and hard drive), is
typically shipped to resellers fully configured. 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 easily 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 recently released Pentium
processor with MMX 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
5
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.
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>
<CAPTION>
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
========= =========== =======
</TABLE>
6
<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>
- -------------------
(1) Based on the number of shares of Common Stock outstanding on December 31,
1996. Excludes (i) 3,055,920 shares of Common Stock issuable upon exercise of
stock options outstanding as of December 31, 1996 at a weighted average exercise
price of $0.51 per share, of which options to purchase 1,061,680 shares were
then exercisable, and (ii) 800,000 shares of Common Stock reserved for issuance
under stock options to be granted upon the effectiveness of the Offering at an
exercise price equal to the initial public offering price. 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."
<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>
- ------------------
(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.
7
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. 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 America Corporation, Apple Computer Corporation, Compaq Computer, Dell
Computer, Gateway 2000, Hewlett-Packard Company, IBM and Packard Bell NEC, Inc.
In addition, the Company expects to compete in the network server market
commencing in the third quarter of 1997 with a server complementing its desktop
PCs against established companies such as Advanced Logic Research, Inc. (ALR),
Compaq Computer, Dell Computer, Hewlett-Packard and IBM. All of these companies
have stronger brand recognition, significantly 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,
the ability to deliver product to customers in a timely fashion, customer
service and support, marketing and distribution capabilities and price. Also in
order to compete successfully, the Company must attract and retain a sufficient
number of management sales and technical personnel with high levels of relevant
skills and meaningful experience. Although the Company has assembled an
experienced senior management team, there can be no assurance that the Company
will be able to attract and retain sufficient numbers of additional personnel,
as the need for such individuals increases with the Company's anticipated
growth, or 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
8
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. 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, 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."
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
9
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 third 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. Similarly, while Technovation Computer Labs, Inc. (Technovation)
represents that 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
10
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 I. 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 or seek
arbitration proceedings 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. The Company would consider such a claim by Mr. Hamirani to be
without merit and would vigorously defend its intellectual property rights if
such a conflict develops in the patent office.
The Company does not believe that any of Mr. Hamirani's threatened claims
against the Company have merit and it intends to vigorously defend against them
if Mr. Hamirani initiates litigation or arbitration proceedings. There can be no
assurance, however, that the Company would prevail in any such litigation or
arbitration proceedings. Also, any litigation or arbitration proceedings
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 or
arbitration 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."
11
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 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 warranty
on hardware 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
12
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 outside contractors to manufacture motherboards used in its PCs
and plans to rely 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 beneficially own
approximately 66% of the Company's Common Stock (approximately 63% 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 milestones 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 304,560 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. The holders of such
shares of Convertible Preferred Stock shall have identical further rights as
holders of shares of Common Stock, with the sole exception that such shares of
Convertible Preferred Stock shall have the additional right to a liquidation
preference of $100 per share ($4,568,400 in the aggregate and equal to $15.00
per share of Common Stock into which such shares of Convertible Preferred Stock
are convertible, assuming an initial public offering price of $12.00 per share),
plus, in the case of each such share of Convertible Preferred Stock, an amount
equal to any dividend declared but unpaid thereon, over the Common Stock. Such
liquidation preference would be payable
13
upon any voluntary or involuntary liquidation, dissolution or winding up of the
Company and also upon certain change of control transactions, such as a merger
or a sale of substantially all the assets of the Company. See "Description of
Capital Stock-Preferred Stock."
As a result of its current holdings of and rights to acquire additional
shares of Common Stock, 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 26.7% of the Common Stock assuming the exercise of all such
options (approximately 25.9% if the over-allotment option is exercised in full).
Approximately 65.7% of the 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. 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
14
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."
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
Representative 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
15
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."
SUBSTANTIAL NUMBER OF REGISTERED 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 31, 1996), which
shares the Company intends to register for resale under the Securities Act soon
after consummation of the Offering. "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."
16
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.
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.
17
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."
18
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 (i) 3,055,920 shares of Common Stock
issuable upon exercise of stock options outstanding as of December 31, 1996, at
a weighted average exercise price of $0.51 per share, of which options to
purchase 1,061,680 shares were then exercisable, and (ii) 800,000 shares of
Common Stock reserved for issuance under stock options to be granted upon the
effectiveness of the Offering at an exercise price equal to the initial public
offering price. See "Management--Stock Plans," "Beneficial Ownership of
Management" and "Certain Transactions."
19
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.
20
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. During 1997, 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 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.
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
21
(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
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
22
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 general and administrative
expenses as a result of the Company's anticipated growth and a $525,000 charge
to operations in December 1995 to settle a 1995 complaint, regarding a business
dispute, filed against the Company and its Chief Executive Officer. The Company
anticipates that general and administrative expenses will continue to increase
due to its forecasted growth.
23
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 believes that its
existing capital resources together with proceeds of the Offering, and interest
earned thereon, will be adequate to satisfy its capital requirements for at
least the next twelve months.
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."
24
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, except for
the key system defining components (microprocessor, memory and hard drive), is
typically shipped to resellers fully configured. 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 easily 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 Corporation and Gateway 2000,
Inc., 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 recently released Pentium
processor with MMX 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
25
compatible CPUs. The NEXAR XPA technology will also accommodate microprocessors
based on other technologies, such as the Alpha CPU made by Digital Equipment
Corporation (DEC) or the PowerPC processor offered jointly by IBM, Motorola,
Inc. and Apple Computer, Inc.
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 Technologies,
Panasonic and Leading Edge. See "Management." 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 incorporated 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 significantly. 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 America Corporation, Apple Computer Corporation, Compaq Computer,
Dell Computer, Gateway 2000, Hewlett-Packard Company, 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
26
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.
In recent months, a migration by end-users, especially among corporate
users, to next generation PCs, such as Windows NT(R)/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 enhances 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+* Intel 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.
27
The above chart outlines the choices presented by the following array
of product releases anticipated for the next twelve months: In early 1997,
Intel, Advanced Micro Devices, Inc. (AMD) and Cyrix Corporation 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(R) M2 processor
is expected to be MMX compatible. In mid-1997, Intel is expected to introduce
its code-named 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, Inc., Silicon Graphics, Inc. and others. RISC, which was developed
for use in high performance systems such as UNIX(R) 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.
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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-processor transitions, the 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(R), Mac(R)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.
29
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.
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.
30
* 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.
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.
FOCUS ON CHANNEL MARKETING
The Company markets its products through multiple channels of
distribution, using a controlled distribution model in which a limited number of
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
31
of the Company's products in 1997. GTSI is, however, under no obligation to
purchase any products of 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,
Inc. has estimated that the average total cost of ownership of a single
Windows(R) 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
Worldwide Information Systems, 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 Corporation, 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 international 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
32
remainder in regional locations. The Company intends to increase the size of its
sales force as its revenue 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:
National and Regional Distributors Computer Superstores
- ---------------------------------- --------------------
Ingram Micro, Inc. Fry's Electronics, Inc.
Laguna Corporation Elek-tek, Inc.
Gates/Arrow Distributing, Inc. Nationwide Computers & Electronics, Inc.
MicroMatix Distributing Co., Inc. The Computer Factory
MicroAge Computer Centers, Inc. Communications Expo
Indecon Distributors Inc. Computer Attic
Avnet, Inc.
OEMs and VARs Direct Response Retailer Government Resellers
- ------------- ------------------------ --------------------
Bull Worldwide MicroWarehouse, Inc. Government Technology
Information Services, Inc.
Systems Comstor/GE Capital
CompUSA Inc. Pulsar Data
MJ Distribution
Net Superstore
Supreme Computer Co.
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. The Company's business
plan for 1997 anticipates that sales to GTSI will represent a significant
portion (but less than a majority)of the Company's sales during the fiscal year.
See "- Strategy - Channel Marketing - Focus on Government Resellers." The
Company has entered into an agreement with GTSI pursuant to which GTSI must
purchase at least $35 million worth of products in order to retain its status as
the Company's exclusive reseller with respect to GSA scheduled purchases, but
GTSI is under no obligation to purchase any products from the Company. The loss
of GTSI as a significant customer, or if GTSI purchases significantly less
products than the Company anticipates, would have a material adverse effect on
the Company.
33
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.
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.
34
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 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 and accelerated
graphics port (AGP).
The NEXAR Server. NEXAR currently plans to offer in the third 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, as currently planned, 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. The Company expects that its server will include a software suite that
manages server hardware and gathers performance data. This software will
optimize 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 warranty on hardware 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
35
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 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. The
Company estimates that it will spend approximately $200,000 in the first six
months of 1997 for various product development activities, predominately
engineering services performed by GDA.
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
36
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 plans to rely on a
sole outside contractor to manufacture the motherboard used in its server
product. In November 1996, the Company was unable to obtain sufficient
quantities of certain key components to meet all of its outstanding purchase
orders. It has since taken certain steps, including increasing inventory levels,
developing additional suppliers and improving management procedures, to reduce
the likelihood of such shortages in the future. The Company conducts testing and
quality control evaluations and integrates the circuit boards into the finished
product. The Company intends to seek ISO 9002 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, significantly 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, the ability to deliver product to customers in a timely
fashion, customer service and support, marketing and distribution capabilities
and price. Also, in order to compete successfully, the Company must attract and
retain a sufficient number of management, sales, and technical personnel with
high levels of relevant skills and meaningful experience. Although the Company
has assembled an experienced senior management team, there can be no assurance
that the Company will be able to attract and retain sufficient numbers of
additional personnel, as the need for such individuals increase with the
Company's anticipated growth, or 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.
37
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. Similarly, 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.
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
38
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 "Litigation" and "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 December 31, 1996, NEXAR had 71 employees, including executive
officers, sales, marketing, technical support, finance, manufacturing,
engineering, and administrative personnel. Forty of these employees are employed
at the Westborough Massachusetts facility, and 31 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 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
39
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 initiate litigation
or arbitration proceedings 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."
40
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 and Assistant Secretary
</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 analog
semiconductors. Mr. Hattori previously held various corporate and divisional
financial management positions from January 1974 to August 1987 at Sanders, a
Lockheed Martin Company.
41
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 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.
42
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.
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.
43
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 shall be eligible to receive stock options under the Company's 1996
Non-Employee Director Stock Option Plan after consummation of the Offering. 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
years ended December 31, 1995 and December 31, 1996 by the Company's Chief
Executive Officer and the other four most highly compensated executive officers
of the Company (collectively, the "Named Executive Officers"). Pursuant to rules
of the Securities and Exchange Commission (SEC), information with respect to
years prior to 1996 is not provided with respect to the Named Executive
Officers, other than the Chief Executive Officer, for whom information was
previously filed pursuant to an SEC filing requirement.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Number of
Annual Compensation Securities
------------------- Other Annual Underlying All Other
Year Salary($) Bonus($) Compensation ($)(1) Options Compensation (2)
---- ---------- -------- ------------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Albert J. Agbay, Chief Exective
Officer and President.................. 1996 $225,000 $51,472 $12,000 1,044,480 $4,750
1995 182,423 -- $12,000 1,651,203(3) --
Michael J. Paciello, Executive Vice
President.............................. 1996 110,000 18,720 6,000 241,080 $4,750
Liaqat Y. Kahn, Exective Vice
President-Manufacturing................ 1996 111,923 15,840 8,250 361,560 $4,750
Victor J. Melfa, Jr., Senior Vice
President-Sales........................ 1996 100,384 16,115 6,000 241,080 $4,750
James P. Lucivero, Vice President
of Sales-Eastern United States......... 1996 100,000 15,645 6,000 241,080 $4,750
- ----------------------
(1) Consists of amounts paid as car allowances.
(2) Consist of the Company's contribution under Palomar's deferred
compensation plan established by Palomar for it and its
subsidiaries under Section 401(k) of the Internal Revenue
Code.
(3) Such option grant was cancelled pursuant to an agreement
between Mr. Agbay and Palomar Electronics Corporation (PEC), a
wholly-owned subsidiary of Palomar, in connection with a
September 1995 reorganization in which the Company became a
wholly-owned subsidiary of PEC. Pursuant to such agreement,
Mr. Agbay received an option exercisable for shares of common
stock of PEC in consideration of his agreement to cancel such
options. Such option grant issuable for common stock of PEC
was subsequently cancelled pursuant to a cancellation
agreement between Mr. Agbay and PEC. Mr. Agbay separately
received a new option grant in 1996 as reflected in his
beneficial ownership set forth in the table appearing under
"Beneficial Ownership of Principal Stockholder and Management"
below.
</TABLE>
44
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION
UNDERLYING EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERMS ($)(1)
NAME OPTIONS GRANTED FISCAL YEAR ($/SH.) DATE 5% 10%
- ---- --------------- ------------- --------- ------ -- ---
<S> <C> <C> <C> <C> <C> <C>
Albert J. Agbay................. 1,044,480 36.0% .0025 01/30/2001 $721.43 $1,594.16
Michael J. Paciello............. 241,080 8.3% .0025 01/30/2001 $166.51 $ 367.95
Liaqat Y. Kahn.................. 361,560 12.5% .0025 01/30/2001 $249.73 $ 551.84
Victor J. Melfa................. 241,080 8.3% .0025 01/30/2001 $166.51 $ 367.95
James P. Lucivero............... 241,080 8.3% .0025 01/30/2001 $166.51 $ 367.95
- -------------------------
(1) As required by rules of the SEC, potential values stated are
based on the prescribed assumption that the Company's Common
Stock will appreciate in value from the date of grant to the
end of the option term at rates (compounded annually) of 5%
and 10%, respectively, and therefore are not intended to
forecast possible future rates of appreciation, if any, in the
price of the Company's Common Stock. The total of all stock
options granted to the Company's directors and employees,
including executive officers, during fiscal 1996 was
approximately 71% of the total shares of Common Stock
outstanding at the end of the fiscal year.
</TABLE>
FISCAL YEAR END OPTION VALUES
The following option year-end value table sets forth information with
respect to the unrealized value (the difference between the exercise price and
fair market value of the Common Stock ($12.00) as determined by the Board of
Directors) of unexercised options issued by the Company and held by the Named
Executive Officers on December 31, 1996. No options were exercised by any of the
Named Executive Officers in 1996. Only vested options as of such date were then
exercisable.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL YEAR END MONEY OPTIONS AT FISCAL YEAR END ($)
(ALL EXERCISABLE AT FISCAL YEAR-END) (ALL EXERCISABLE AT FISCAL YEAR END)
------------------------------------ ------------------------------------
NAME VESTED UNVESTED TOTAL VESTED UNVESTED TOTAL
---- ------ -------- ----- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Albert J. Agbay................ 1,044,480 - 1,044,480 $12,531,149 - $12,531,149
Michael J. Paciello............ - 241,080 241,080 - $2,892,357 2,892,357
Liaqat Y. Khan................. - 361,560 361,560 - 4,337,816 4,337,816
Victor J. Melfa................ - 241,080 241,080 - 2,892,357 2,892,357
James P. Lucivero.............. - 241,080 241,080 - 2,892,357 2,892,357
</TABLE>
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.
45
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 options 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.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors in December 1996, and approved by its
stockholders in January 1997 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 December 31, 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 Company's 1996 Non-Employee Director Plan (the "Director Plan") was
adopted by the Board of Directors in December 1996 and approved by its
stockholders in January 1997 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.
46
401(K) PLAN OF PALOMAR
The Company's employees are eligible to participate in Palomar's
deferred compensation plan under 401(k) of the Internal Revenue Code (the
"401(k) Plan"). The 401(k) Plan is available to all employees who are over the
age of 18 and have been employed by the Company for more than six months.
Employees may contribute a maximum of 15% of their salary to the 401(k) Plan and
matching contributions equal to 50% of an employee's contribution is made to a
designated fund of the 401(k) Plan in the form of Palomar common stock. The
Company intends to establish its own 401(k) Plan following the initial public
offering of the Common Stock.
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 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, 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."
47
CERTAIN TRANSACTIONS
CONVERSION OF PALOMAR DEBT AND ESCROW OF CONTINGENT SHARES
The Company wishes to advise potential investors that the net income
after taxes, total revenues and per share value of the Common Stock milestones
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
after the 48 month anniversary of the Offering unless earlier 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:
(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.
48
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.
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 I. Hamirani, a
former executive officer of the Company whose employment was terminated by the
Company on November 29, 1996. Liaqat Y. 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. The Company believes that 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 has advised the Company that he
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,
49
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.
Comtel Corporation ("Comtel"), a wholly-owned subsidiary of Dynaco,
Corporation (a wholly-owned subsidiary of Palomar), is a contract manufacturer
of PC modem cards and PC boards. In the fourth quarter of 1996 the Company
purchased components from Comtel for consideration in the amount of $693,000.
Comtel purchased products from the Company totaling $80,000. As of December 31,
1996, the Company had paid all of its obligations to Comtel for the components
it purchased in the fourth quarter of 1996 but Comtel owed the Company $80,000
for its purchases during such period. The Company believes that all of its
transactions with Comtel were on terms no less favorable to the Company than
could be obtained from unaffiliated parties.
50
STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of December 31, 1996 by its
stockholders. Other than Palomar, PEC, certain of their officers and directors,
and Mr. Agbay, Chairman and Chief Executive Officer of the Company, no other
person beneficially owns more than 5% of the Common Stock. Information with
respect to Mr. Agbay is provided in the following table.
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT
- ---------------- --------------------- -------
Palomar Medical 4,200,000(1) 87.4%
Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
The Travelers Insurance 200,000 4.2
Company
One Tower Square
Hartford, Connecticut 06183
GFL Advantage Fund Limited 200,000 4.2
- --------------------------
- --------------------------
- --------------------------
Clearwater Fund IV LLC 200,000 4.2
611 David Road East
Suite 200
Clearwater, Florida 34616
- ---------------------
(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 66.3% (6,100,000 shares) of the outstanding Common Stock
(approximately 63.7% 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."
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of December 31, 1996, as well as
information regarding the beneficial ownership of the common stock of Palomar as
of October 2, 1996, with respect to (i) each of the Named Executive Officers and
Directors of the Company, and (ii) 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) 17.9% 50,000 (1) *
Chairman and Chief Executive Officer
c/o Nexar Technologies, Inc
182 Turnpike Road
Westborough, Massachusetts 01581
Michael J. Paciello ............................ 60,270 (1) 1.2
Executive Vice President
Liaqat Y. Kahn ................................. 90,370 (1) 1.8
Executive Vice President -
Manufacturing
Victor J. Melfa, Jr. ........................... 60,270 (1) 1.2
Senior Vice President, Sales
James P. Lucivero .............................. 60,270 (1) 1.2
Vice President,
Eastern United States Sales
Directors and Executives Officers of
Palomar Serving as Nexar Directors**
- ------------------------------------
Steven Georgiev................................ 4,240,170 (2) 88.3 1,004,154 (4) 3.31%
Joseph E. Levangie.............................. 4,240,170 (2) 88.3 632,485 (5) 2.21
Joseph P. Caruso................................ 4,240,170 (2) 88.3 733,493 (6) 2.44
Buster C. Glosson............................... 4,200,000 (2) 87.5 53,333 (7) *
All directors and executive officers as a
Group (12 persons).............................. 5,696,430 (3) 90.5% 2,423,465 8.04%
</TABLE>
- ----------------
* Less than 1%
** Each with an address c/o Palomar as set forth above.
51
(1) Consists entirely of shares issuable upon the exercise of options
exercisable within sixty days of December 31, 1996.
(2) Includes, under the deemed beneficial ownership rules of the Securities
and Exchange Commission, 4,200,000 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 December 31, 1996.
(3) Includes 1,484,590 shares issuable upon exercise of options exercisable
within sixty days of December 31, 1996 and 4,200,000 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 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.
52
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 December 31, 1996, there were 4,800,000 shares of Common Stock
outstanding, 4,200,000 of which were 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 Palomar and PEC 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 Offering, $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
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
53
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 the liquidation preference
described above.
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 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.
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.
54
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 December 31, 1996, the date of this Prospectus, employees
and directors of the Company hold options exercisable for the acquisition of
3,055,920 shares of Common Stock (27.5% of which were exercisable as of December
31, 1996), at an average weighted exercise price of $0.51 a share. In addition,
certain employees and directors of the Company shall be granted options upon the
effectiveness of the Offering exercisable for an aggregate of 800,000 shares of
Common Stock at an exercise price equal to the initial public offering price.
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 6,200,000 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.
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
55
"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 will hold upon
closing of the Offering in the aggregate options exercisable for 3,430,000
shares (30.1% of which were exercisable as of December 31, 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 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.
56
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 (120% of the initial public offering price). The Representative's Warrants
may not be exercised or 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 four 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 greater than five percent stockholders 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 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
57
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 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.
58
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, Cross-Processor Architecture, Nexar, Nexar
Technologies, NEXAR XPA and XPA are trademarks of the Company. This Prospectus
also includes trademarks of companies other than the Company.
59
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) $ (0.27) $ (0.35)
========= =========
PRO FORMA WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note 3) 8,421,838 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 an
unconventional 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 majority 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 1,900,000 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.
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
period from inception (March 7, 1995 to December 31, 1995) and 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
current officer and 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.
F-13
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l) New Accounting Standard (Continued)
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 assumptions used for the period from inception (March 7, 1995)
to December 31, 1995 and for the period ending September 30, 1996
and the weighted average information as of September 30, 1996 are
as follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(MARCH 7, 1995) TO NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
<S> <C> <C>
Risk free interest rate............ 6.11% 5.74%
Expected dividend yield............ - -
Expected lives..................... 5 years 5 years
Expected volatility................ 51% 51%
Weighted average grant-date fair
value of options granted during the
period............................. $0.001 $0.12
Weighted-average exercise price.... - $0.12
Weighted-average remaining
contractual life of options
outstanding........................ - 4.36 years
Weighted average exercise price
for 1,059,387 options exercisable.. - $0.025
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(MARCH 7, 1995) TO NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
<S> <C> <C>
Pro forma net loss.................. $(2,261,434) $(2,997,092)
Pro forma net loss per share........ $(0.27) $(0.36)
</TABLE>
F-14
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) STOCKHOLDER'S (DEFICIT) EQUITY
(a) Recapitalization
On December 18, 1996, the Company 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
are designated as common stock, $.01 par value, and 10,000,000
shares are designated as preferred stock, $.01 par value, and also
declared 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 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-15
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 $.0025-$4.25
-------------------- -------------------------
Balance, September 30, 1996 3,317,480 $.0025-$4.25
==================== =========================
Exercisable, September 30, 1996 1,059,387 $.0025-$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-16
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. 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 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-17
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-18
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-19
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 a former 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-20
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-21
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.
(g) Contingency
The Company is aware that an attorney for a former executive
officer of the Company may file a lawsuit or seek arbitration
proceeding against the Company regarding this executive's
employment and the Company's license agreement with the Licensor.
Management believes that any potential suit would be without merit
and the Company intends to contest any such suit vigorously.
Management believes this potential claim will not have a material
adverse effect on the Company's consolidated financial position or
results of operations.
(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-22
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-23
Product engineering and manufacturing are located in NEXAR's l00,000 sf facility
in Hayward, Calilornia. Corporate headquarters are in Westborough,
Massachusetts.
[PHOTOGRAPHS OF EXTERIOR AND INTERIOR OF CALIFORNIA MANUFACTURING FACILITY]
[NEXAR LOGO]
182 Turnpike Road
Westborough, MA 01581
l -888-NEXAR-PC
================================================================================
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 _____________, 1997
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 Travelers Insurance
Company, GFL Advantage Fund Limited and Clearwater Fund IV LLC,(collectively,
the "Selling Security Holders"). Prior to the Company's initial public offering,
as described below, 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 8 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 (the
"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) 3,055,920 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, and (ii) 800,000 shares of Common Stock
reserved for issuance under stock option to be granted upon the effectiveness of
the Offering at the initial public offering price. 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.
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 31, 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 6,100,000 6,100,000 0
Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
The Travelers Insurance 200,000 200,000 0
Company
One Tower Square
Hartford, Connecticut 06183
GFL Advantage Fund Limited 200,000 200,000 0
c/o Advantage Fund Limited
Kaya Flamboyan 9
Curacao, Netherlands, Antilles
Clearwater Fund IV LLC 200,000 200,000 0
611 David Road East
Suite 200
Clearwater, Florida 34616
</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 or the Selling Security Holders. 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 Amended and Restated By-laws of the Registrant
4.1 Articles Fourth, Seventh, Eighth, Ninth, Tenth, Eleventh,
Twelfth and Fifteenth 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, IX, X, XIV, XXI, XXVI,
XXVII, 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
Registrant 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 Registrant and Albert J.
Agbay
*10.11 Key Employee Agreement between the Registrant and Gerald Y.
Hattori
*10.12 Key Employee Agreement between the Registrant and Michael J.
Paciello
*10.13 Key Employee Agreement between the Registrant and Liaqat Khan
II-2
*10.14 Key Employee Agreement between the Registrant and Victor J.
Melfa, Jr.
*10.15 Key Employee Agreement the Registrant and James P. Lucivero
*10.16 Key Employee Agreement the Registrant and E. Craig Conrad
**10.17 Development Agreement dated as of November 12, 1996 between the
Registrant and GDA Technologies, Inc.
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
27.1 Financial Data Schedule
- --------------------
+ Previously Filed.
* To be filed by amendment.
** Confidential Treatment requested as to portions of the exhibit indicated
which have been filed separately with the Securities and Exchange
Commission.
(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 Pre-Effective Amendment No. 1 to 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 January 24, 1997.
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
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 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 January 24, 1997
- ------------------------ Officer), President and Chairman of the
Albert J. Agbay Board of Directors
/S/ Gerald Y. Hattori Vice President of Finance and Chief January 24, 1997
- ------------------------ Financial Officer (Principal Financial and
Gerald Y. Hattori Accounting Officer)
* Director January 24, 1997
- ------------------------
Steven Georgiev
* Director January 24, 1997
- ------------------------
Joseph E. Levangie
* Director January 24, 1997
- ------------------------
Joseph P. Caruso
* Director January 24, 1997
- ------------------------
Buster C. Glosson
* By: /S/ Albert J. Agbay
------------------------
Attorney-in-Fact
</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 3.3
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 six months of
the end of the previous fiscal year of the Corporation, within or without the
State of Delaware, on the date and at the time fixed, from time to time, by the
directors. 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 10.3
LICENSE AGREEMENT
CONFIDENTIAL MATERIAL DELETED (DENOTED BY "[CMD]") AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION TOGETHER WITH CONFIDENTIAL TREATMENT REQUEST
REGARDING DELETIONS.
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
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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
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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
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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.
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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
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(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
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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
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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
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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 (DENOTED BY "[CMD]") AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION TOGETHER WITH CONFIDENTIAL TREATMENT REQUEST
REGARDING DELETIONS.
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.
18
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 (DENOTED BY "[CMD]") AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION TOGETHER WITH CONFIDENTIAL TREATMENT REQUEST
REGARDING DELETIONS.
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 [$CMD]
- --------------------------------------------------------------------------
TC Changes/Analysis/Monitoring for OEM requested Services [$CMD]
- --------------------------------------------------------------------------
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 10.17
CONFIDENTIAL TREATMENT DELETED (DENOTED BY "[CMD]") AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION TOGETHER
WITH CONFIDENTIAL TREATMENT REQUEST REGARDING DELETIONS.
DEVELOPMENT AGREEMENT
BETWEEN NEXAR TECHNOLOGIES, INC.
AND GDA TECHNOLOGIES, INC.
1. INTRODUCTION
1.1 This is an agreement for GDA Technologies, Inc. ("GDA"), a
California corporation, to perform engineering services in
connection with the development of certain computer
circuit boards and related technology for Nexar
Technologies, Inc. ("Nexar"), a Delaware corporation, in
accordance with an agreed-upon set of Specifications and a
Milestone and Payment Schedule. To the extent that GDA has
performed portions of the services described herein prior
to the date hereof, all such services shall be considered
for all purposes as performed under and pursuant to the
terms hereof.
2. DEFINITIONS
As used in this Agreement, the following definitions shall apply:
2.1 "Agreement" shall mean this Agreement between Nexar and
GDA, including the Schedules and Exhibits hereto.
2.2 "Boards" shall mean the integrated circuit boards to be
engineered by GDA hereunder based on the [CMD] described
in this Agreement, which shall consist of all Deliverables
as stated in the Specifications (Schedule A), and the
Milestone and Payment Schedule (Schedule B).
2.3 "Confidential Information" shall mean any information
relating to or disclosed in the course of this Agreement,
which is or should be reasonably understood to be
confidential or proprietary to the disclosing party.
"Confidential Information" shall not include information
(a) already lawfully known to the receiving party, (b)
disclosed in published materials, (c) generally known to
the public, or (d) lawfully obtained from any third party.
2.4 "Deliverables" are the items that are specified in the
Specifications and the Milestone and Payment Schedule as
items to be delivered to Nexar.
2.5 "Final Deliverables" are the items that are specified in
the Milestone and Payment Schedule as the last and final
delivery to Nexar.
2.6 "Milestone and Payment Schedule" shall mean the schedule
of time for delivery of and payment for the Deliverables,
as set forth in Schedule B.
2.7 "Specifications" shall mean requirements for the Boards'
required operation, functions, capabilities and
performance and the documentation to be delivered
therewith, as described in Schedule A attached hereto, or
as revised by the parties under procedures set forth in
this Agreement.
2.8 "Technical Manuals" shall mean a complete description of
the Boards, written in accordance with the requirements of
the Specifications.
2.9 "Technology" shall mean all of the technology, proprietary
information and/or intellectual property which has been or
is developed by GDA under this Agreement, as well as
apparatus, articles of manufacture, prototypes, and
documentation or other tangible media embodying such
technology, proprietary information and/or intellectual
property or in which they are expressed.
3. REPRESENTATIONS AND WARRANTIES
3.1 Nexar represents and warrants that it has the corporate
authority to enter into this Agreement and to perform its
obligations under this Agreement.
3.2 GDA represents and warrants that it has the corporate
authority to enter into this Agreement and to perform its
obligations under this Agreement.
4. DEVELOPMENT OF BOARDS
4.1 GDA shall complete the development of the Boards and other
Deliverables by the respective dates set forth in the
Milestone and Payment Schedule and shall apply such
resources and efforts as shall be reasonably necessary to
accomplish this task.
5. CHANGES IN SPECIFICATIONS AND MILESTONE AND PAYMENT SCHEDULE
5.1 Either Nexar or GDA may propose changes in the
Specifications or to the Milestone and Payment Schedule.
Nexar and GDA must agree, in writing, to the changes prior
to any such modifications, and to the effect, if any, on
payments due under this Agreement.
5.2 Nexar may not require work or features not set forth in
the Specifications unless agreed to in writing. GDA will
not be compensated, other than as stated in this
Agreement, unless such additional payments are agreed to
in advance in writing.
- 2 -
6. RESOURCES TO BE PROVIDED TO GDA BY NEXAR
6.1 Nexar shall supply to GDA all information and resources
that GDA shall reasonably require to carry out the work
required by this Agreement, including:
(a) [CMD]
(b) [CMD]
(c) [CMD]
(d) [CMD]
(e) [CMD]
(f) [CMD]
(g) [CMD]
(h) [CMD]
(i) [CMD]
(j) [CMD]
(k) [CMD]
7. CONFIDENTIALITY
7.1 Each party acknowledges that it will receive Confidential
Information of the other party relating to technical,
marketing, product, and/or business affairs. Each party
agrees that all Confidential Information of the other
party shall be held in strict confidence and shall not be
disclosed or used without express written consent of the
other party, except as may be required by law.
7.2 Upon or prior to its execution of this Agreement GDA shall
have each of its employees, independent contractors and
any other individual or entity engaged by GDA who have
worked on and/or are working on the Technology sign a
confidentiality and assignment of technology agreement, in
the form of Exhibit A hereto, which includes a covenant to
maintain confidentiality as required by this Agreement and
which assigns to GDA any and all right, title and interest
of all such individuals and entities to any and all of the
Technology (which right, title and interest GDA, in turn,
assigns to Nexar under Section 11 hereof). GDA shall
deliver all such agreements to Nexar together with this
Agreement at the time of its execution hereof and GDA
hereby represents and warrants to Nexar that the
representations and warranties of each such individual or
entity set forth in such agreements are true and accurate.
Attached hereto as Exhibit B is a list of all GDA
employees, directors, independent contractors, and any
other individual or entity engaged by GDA who have worked
on and/or are working on the
- 3 -
Technology and a copy of any other confidentiality and
assignment of technology agreements between all such
individuals or entities and GDA, all of which (including
Exhibit B) GDA represents and warrants is accurate and
complete as of the date hereof. GDA shall update Exhibit B
from time to time upon Nexar's request and shall have all
future employees, independent contractors and any other
individual or entity engaged by GDA who work on the
Technology sign confidentiality and assignment of
technology agreements, in substantially the form of
Exhibit A, prior to any such individuals or entities
receiving any Confidential Information relating to or
working on the Technology.
7.3 In addition to the foregoing provisions of this Section 7,
GDA agrees that from the date hereof none of the terms of
this Agreement shall be disclosed by GDA or any of its
officers, directors, independent contractors or employees,
to any other party, including any employee of Nexar unless
expressly authorized in writing by the Chief Executive
Officer of Nexar. A list of the only Nexar employees whom
the Chief Executive Officer of Nexar has authorized from
the date hereof to receive information with respect to
this Agreement is attached hereto as Exhibit C.
8. NON-COMPETITION
8.1 From the date hereof until the acceptance of the Final
Deliverables, and for a period of ten years thereafter,
GDA shall not supply or agree to supply to any party other
than Nexar technology with a form factor substantially
similar to the Boards or technology that will or is likely
to be directly competitive with the [CMD]. The provisions
of this paragraph shall survive termination of this
Agreement.
9. DELIVERY AND ACCEPTANCE OF DELIVERABLES
9.1 GDA shall deliver various Deliverables at the times and in
the manner specified in the Milestone and Payment
Schedule.
9.2 If GDA fails to make timely delivery of any Deliverable as
specified in the Milestone and Payment Schedule, Nexar may
give GDA notice of the failure. After such notice, GDA
shall have thirty (30) days to make the specified
delivery. Failure to submit the Deliverables within such
period shall be a material breach that shall entitle Nexar
to terminate this Agreement in accordance with the
provisions on Termination.
9.3 Nexar may inspect and test each of the Deliverables when
received to determine if it conforms to the requirements
of the Specifications. Any
- 4 -
Deliverable not rejected by Nexar within thirty (30) days
shall be deemed accepted.
9.4 If any Deliverable is rejected, Nexar shall give GDA
notice of the rejection and the reasons for rejection. GDA
shall then have thirty (30) days to cure deficiencies.
After resubmission within such thirty (30) day period,
Nexar may again inspect the Deliverable to confirm that it
conforms to requirements of the Specifications. If the
resubmitted Deliverable does not conform to the
requirements of this Agreement, the failure will be a
material breach that shall entitle Nexar to terminate this
Agreement in accordance with the provisions on
Termination. If the resubmitted Deliverable is rejected,
Nexar shall give notice to GDA stating the reasons for
rejection.
9.5 Notice of failure to make timely delivery, rejection, or
subsequent resubmission shall not affect the due date for
subsequent Deliverables as required by this Agreement
unless otherwise agreed in writing.
9.6 If the Final Deliverables in any material respect do not
conform to the Specifications, and such non-conformity is
not cured as provided in this Agreement, the failure will
be a material breach that shall entitle Nexar to terminate
this Agreement in accordance with the provisions on
Termination. Alternatively, Nexar, at its option, may
accept the Final Deliverables as non- conforming. If it
does so, it shall give prompt notice to GDA stating the
known defects, and may withhold and deduct, from amounts
otherwise due and payable to GDA upon acceptance of the
Final Deliverables, the amount of reasonable out-of-pocket
costs to correct, modify, and/or complete the Boards in
accordance with the Specifications. From time to time, and
as soon as is practicable, Nexar shall provide GDA with
notice of all sums withheld and expended and shall turn
over to GDA all funds withheld that are not so applied
when such remedial work is completed.
9.7 GDA shall provide to Nexar or to such other person as
Nexar shall designate, from time to time, as reasonably
required before production of the Boards, all assistance
and information reasonably necessary to ensure that a
Technical Manual for each of the Boards is complete and
accurate. GDA shall review a draft of each such Technical
Manual upon Nexar's request and promptly provide all
corrections required to Nexar, for which review and
correction Nexar shall pay GDA at the rate of [CMD] per
hour.
10. PAYMENT
10.1 Nexar shall pay GDA the amounts due upon the execution of
this Agreement as specified in the Milestone and Payment
Schedule. Upon acceptance of each Deliverable, Nexar shall
pay GDA the amounts as specified in the
- 5 -
Milestone and Payment Schedule. Payment shall be due
within twenty (20) days of acceptance of each Deliverable,
other than the deferred consideration component which
shall be paid as specified in the Milestone and Payment
Schedule. Payment by mail shall be deemed made when
mailed.
10.2 If any payment is not made as required, GDA may give
notice of the failure to pay. The failure to pay, if not
cured within thirty (30) days after notice, shall entitle
GDA to terminate this Agreement in accordance with the
provisions on Termination.
11. INTELLECTUAL PROPERTY RIGHTS IN THE TECHNOLOGY
11.1 GDA hereby irrevocably assigns and shall assign worldwide
the entirety of its right, title and interest in the
Technology to Nexar, its successors and assigns, such
assignment including by way of non-limiting example:
(a) all right, title and interest in any
invention, modification, or advance, whether or not
patentable, included in the Technology;
(b) all right, title and interest in any
invention, modification, or advance, whether or not
patentable, pertaining to the technology known as the
[CMD] and domestic or foreign patent applications
disclosing or claiming such invention, modification or
advance, any continuation, continuation-in- part or
division of such patent application and any patent issuing
thereon, and any reissue, re-examination or extension of
such patent;
(c) all right, title and interest in any
domestic or foreign patent application disclosing and/or
claiming the Technology, any continuation,
continuation-in-part, or divisional of such application,
and any patent issuing on any such application, and any
reissue, reexamination or extension of any such patent;
(d) all right, title and interest in any
invention based on the Technology and/or on any other
technology, proprietary information and/or intellectual
property of Nexar to which GDA had access in the course of
engagement by Nexar, which invention is conceived or
reduced to practice within two years after termination of
such engagement, any patent domestic or foreign patent
application disclosing or claiming any such invention, any
continuation, continuation-in-part, or divisional of such
application, and any patent issuing on any such
application, and any reissue, reexamination or extension
of any such patent;
(e) all right, title and interest in any
works created or authored by the GDA in the course of such
engagement or within one year after the
- 6 -
termination thereof pertaining to the Technology, and all
copyright, worldwide, in such works (as used in this
agreement, "copyright" refers to copyright, moral rights
and semiconductor mask work rights); and
(f) all right, title and interest to any
apparatus, articles of manufacture, prototypes, and
documentation or other tangible media included in or
embodying the Technology, including, without limitation,
all apparatus, articles of manufacture, prototypes, design
and engineering drawings and specifications, created,
authored, developed or otherwise acquired by GDA in the
course of such engagement or within one year after the
termination thereof.
11.2 GDA hereby covenants that it will promptly disclose to
Nexar, all inventions, modifications, or advances, whether
or not patentable, pertaining to the Technology made by
GDA (or those employees, independent contractors and any
other individual or entity engaged thereby GDA who have
worked on and/or are working on the Technology) during the
course of such engagement or within one year after
termination thereof.
11.3 GDA hereby covenants that no assignment, license, or other
transfer or encumbrance has, been, or will be made by them
that would conflict with this assignment of all entire
right, title and interest in the Technology and in the
intellectual property rights therein to Nexar.
11.4 GDA hereby covenants that all services performed by it
during the course of its engagement with Nexar have been
and shall be on a [CMD] and that any works resulting
therefrom are [CMD].
11.5 GDA shall execute such documents as Nexar shall reasonably
require to evidence and confirm the transfer of rights
made under this Agreement.
11.6 Nexar may patent, register copyrights, retain in secrecy,
and/or otherwise take actions to protect, any of the
Technology and any improvements, modifications, advances
and derivatives thereof in any and all countries and
jurisdictions as Nexar sees fit. GDA agrees to cooperate
with Nexar and perform all acts that are necessary and
proper, or that Nexar otherwise deems desirable, in order
to secure, maintain or enforce protection of the
Technology. By way of non-limiting example, GDA shall
provide timely cooperation to Nexar and its
representatives to facilitate preparation of patent
applications on the Technology, and GDA shall have a right
to review (but not approve) any such patent application
prior to the filing thereof. Nexar agrees to compensate
[CMD], at the rate of [CMD] per hour, for his time
- 7 -
spent on assisting Nexar in preparing, prosecuting,
maintaining or continuing any such patent applications.
11.6 No license, assignment, or other transfer of (or release
of obligations with respect to) intellectual property
rights by Nexar is intended or implied by the provisions
of this Section 11.
12. WARRANTY
12.1 GDA warrants, for a period of five years after acceptance
of the Final Deliverables (the "Warranty Period"), that
the Boards will perform in substantial conformity with the
Specifications. However, GDA and Nexar agree that due to
the nature of complex integrated circuit boards such as
the Boards, GDA may not be able to find and remove all
defects and errors. ACCORDINGLY, NEXAR'S SOLE AND
EXCLUSIVE REMEDY FOR ANY BREACH OF THIS WARRANTY SHALL BE
TO AVAIL ITSELF OF THE PROCEDURES SET FORTH IN THE SECTION
OF THIS AGREEMENT ENTITLED "MAINTENANCE." EXCEPT AS
EXPRESSLY STATED HEREIN, ALL WARRANTIES, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE ARE DISCLAIMED.
12.2 GDA WILL NOT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
13. MAINTENANCE
13.1 During the Warranty Period GDA shall use reasonable
efforts to provide to Nexar all corrections and/or
modifications necessary to correct problems, logical
errors, and bugs in the Boards reported to GDA in writing.
The first [CMD] hours of the efforts of GDA's employees on
such tasks shall be without charge. Thereafter GDA may
bill for the time of its employees at [CMD] per hour. Such
bills may be rendered to Nexar at month end and are
payable thirty (30) days after receipt. GDA shall have no
obligation to fix problems or errors resulting from
Nexar's modification of the Boards.
13.2 If GDA fails to correct any problem, logical error, or bug
reported during the Warranty Period within thirty (30)
days of notice, Nexar may contract for such work to be
done by any third party that agrees in writing to hold in
confidence the Confidential Information of GDA.
14. TECHNOLOGY WARRANTY
- 8 -
14.1 GDA represents and warrants to the best of its knowledge
it is the owner of all right, title and interest in the
Technology, that no other person or entity (other than
Nexar) has any license or ownership interest therein, that
the Technology and all aspects of it are original, and
that GDA has full and absolute right to transfer the
Technology. GDA will indemnify each of Nexar and its
officers, directors and employees from any and all
actions, suits, complaints, claims, judgments, orders,
costs, amounts paid in settlement, liabilities, losses,
and fees, including court costs and reasonable attorneys'
fees and expenses, or similar adverse consequences,
arising out of any failure of the foregoing
representations set forth in this Section 14 to be true.
Without derogation of the foregoing, Nexar acknowledges
that [CMD].
15. FUTURE PROJECTS; RIGHT OF FIRST REFUSAL
15.1 Nexar and GDA agree to work together in good faith to
reach agreement for development of the following [CMD] on
specification and milestone and payment terms mutually
acceptable to each:
(a) [CMD]
(b) [CMD]
(c) [CMD]
(d) [CMD]
15.2 For a period of five years from the date hereof, GDA
agrees to provide Nexar with a right of first refusal, and
to work with Nexar in good faith to reach agreement on
mutually acceptable terms, with respect to any future GDA
development proposal (other than one generated by a
customer, or prospective customer, of GDA other than
Nexar) which relates to Nexar's current or demonstrably
anticipated products or research and development, prior to
proposing to do any such development work for any other
party. Nexar agrees to notify GDA whether it will exercise
its right of first refusal within seven (7) days after
receiving notice from GDA of the bona fide terms of any
such GDA proposal. If Nexar declines to commit to such
development project on such terms (or on other terms
mutually satisfactory to GDA and Nexar), GDA shall be free
to offer such proposal to third parties on terms no less
favorable to GDA than those first offered to Nexar.
16. TERM AND TERMINATION
16.1 The term of this Agreement shall commence on the date
hereof, and shall continue until all requirements of this
Agreement are met, unless sooner terminated in accordance
with the provisions set forth in this Agreement.
- 9 -
16.2 Either party may terminate this Agreement:
16.2.1 In accordance with provisions
stated in this Agreement that
provide for termination,
16.2.2 In the event that the other
party ceases business operations
or is in any bankruptcy or state
insolvency or receivership
proceeding not dismissed in
thirty (30) days or assigns its
assets for the benefit of
creditors, or
16.2.3 In the event of any material
breach by the other party which
is not cured within thirty (30)
days after notice thereof from
the non-breaching party.
16.2.4 Upon any termination of this
Agreement by any party all
provisions of the Sections 3, 7,
8, 10, 11, 12, and 14 shall
remain in effect.
17. REMEDIES
17.1 Except as is otherwise provided in this Agreement, the
parties shall have such remedies for breach or termination
as are provided by applicable law.
17.2 The parties agree that in the case of the breach of any
provision of the section of this Agreement entitled
Confidentiality or Competition, the aggrieved party will
suffer immediate and irreparable harm, and that a petition
for immediate injunctive relief will therefore be
appropriate.
18. GENERAL PROVISIONS
18.1 RELATIONSHIP OF PARTIES. GDA shall be deemed to have the
status of an independent contractor, and nothing in this
Agreement shall be deemed to place the parties in the
relationship of employer-employee, principal-agent,
partners or joint venturers. [CMD].
18.2 PAYMENT OF TAXES. GDA shall be responsible for any
withholding taxes, payroll taxes, disability insurance
payments, unemployment taxes, and other taxes or charges
incurred in the performance of this Agreement.
18.3 FORCE MAJEURE. Neither party shall be deemed in default of
this Agreement to the extent that performance of their
obligations or attempts to cure any breach are delayed or
prevented by reason of any act of God, fire, nature
disaster, accident, act of government, shortages of
materials or supplies, or
- 10 -
any other cause beyond the control of such party ("Force
Majeure") provided that such party gives the other party
written notice thereof promptly and, in any event, within
fifteen (15) days of discovery thereof and uses its best
efforts to cure the delay. In the event of such a Force
Majeure, the time for performance or cure shall be
extended for a period equal to the duration of the Force
Majeure but not in excess of thirty days.
18.4 ASSIGNMENTS. Nexar may assign this Agreement, without
GDA's consent, to any third party which succeeds by
operation of law to, purchases, or otherwise acquires
substantially all of the assets of Nexar and assumes
Nexar's obligations hereunder. Notwithstanding the above,
Nexar shall retain the obligation to pay if the assignee
fails to pay as required by the payment obligations of
this Agreement. GDA may not assign its obligations under
this agreement without Nexar's written consent, which
Nexar may withhold in its complete discretion.
18.5 PARTIAL INVALIDITY. Should any provision of this Agreement
be held to be void, invalid, or inoperative, the remaining
provisions of this Agreement shall not be affected and
shall continue in effect as though such provisions were
deleted.
18.6 NO WAIVER. The failure of either party to exercise any
right or the waiver by either party of any breach, shall
not prevent a subsequent exercise of such right or be
deemed a waiver of any subsequent breach of the same or
any other term of this Agreement.
18.7 NOTICE. Any notice required or permitted to be sent
hereunder shall be in writing and shall be sent in a
manner requiring a signed receipt, such as Federal
Express, courier delivery, or if mailed, registered or
certified mail, return receipt requested. Notice is
effective upon receipt. Notice to Nexar shall be addressed
to the Chief Executive Officer or such other person or
address as Nexar may designate. Notice to GDA shall be
addressed to the President or such other person or address
as GDA may designate.
18.8 ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits thereto, states the entire agreement between
the parties on this subject and supersedes all prior
negotiations, understandings, and agreements between the
parties concerning the subject matter. No amendment or
modification of this Agreement shall be made except by a
writing signed by both parties.
18.9 GOVERNING LAW. This Agreement shall be governed and
interpreted in accordance with the substantive law of The
Commonwealth of Massachusetts without regard to choice of
law principles.
- 11 -
18.10 VENUE AND JURISDICTION OF LEGAL ACTIONS. Any legal action
brought concerning this Agreement or any dispute hereunder
shall be brought only in the courts of The Commonwealth of
Massachusetts or in the federal courts located in such
state, and both parties agree to submit to the
jurisdiction of these courts.
Executed under seal as a Massachusetts instrument as of November 12, 1996.
Nexar Technologies, Inc.
By: Albert J. Agbay, Chief Executive Officer
GDA Technologies, Inc.
By: Alanghat G. Karunakaran, President
ds1/319199
- 12 -
SCHEDULE A
SPECIFICATIONS
--------------
[CMD]
- -----
The [CMD] to be engineered by GDA will have the following features:
- [CMD]
- [CMD]
[CMD]
STATEMENT OF WORK
- -----------------
Development of the following [CMD]:
- [CMD]
- [CMD]
- [CMD]
- [CMD]
- [CMD]
GDA technologies is responsible for the following development
activities:
- [CMD]
- [CMD]
- [CMD]
- [CMD]
- [CMD]
- [CMD]
- [CMD]
- [CMD]
- [CMD]
- [CMD]
DELIVERABLES
- ------------
GDA will deliver the following at the completion of the project:
- Specifications
- Schematics, both hard and soft copies
- [CMD]
- [CMD]
- [CMD]
- 13 -
SCHEDULE B
MILESTONE AND PAYMENT SCHEDULE
------------------------------
The following Schedule shall govern milestones and payments for the
development of the Boards.
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
Development costs are split into [CMD] components. [CMD]. The cost per
hour is based on the complexity of the design. The following gives the NRE cost
outline for this project.
<TABLE>
<CAPTION>
===========================================================================================================================
No. Item Description Number $/Hr. Total
of Hrs.
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
1 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
2 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
3 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
4 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
5 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
6 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
7 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
8 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
9 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
10 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
11 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 14 -
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
[CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
12 [CMD] [CMD] [CMD] [CMD]
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
</TABLE>
The deferred consideration [CMD] shall be paid to GDA on a [CMD] basis
at the rates described below:
1. [CMD] [CMD]
2. [CMD] [CMD]
3. [CMD] [CMD]
4. [CMD] [CMD]
5. [CMD] [CMD]
- 15 -
EXHIBIT A
CONFIDENTIALITY AND ASSIGNMENT AGREEMENT
This Confidentiality and Assignment Agreement is effective this ___ day
of _____________, 1996.
WHEREAS, the individual whose name appears below (the "Assignor") has
been and/or may be engaged by GDA Technologies, Inc., a California corporation
("GDA") on behalf of Nexar Technologies, Inc., a Delaware corporation (the
"Assignee"), for purposes relating to the research, development, design,
development, fabrication and/or manufacture of technology pertaining to
computers, including, without limitation, [CMD];
WHEREAS, in the course of such engagement, the Assignor may have, or
may have had, access to technology, proprietary information and/or intellectual
property of Assignee;
WHEREAS, in the course of such engagement, the Assignor may conceive,
develop, author, or otherwise make, and/or may have conceived, developed,
authored or otherwise made, technology, proprietary information and/or
intellectual property (including but not limited to [CMD], as well as apparatus,
articles of manufacture, prototypes, and documentation or other tangible media
embodying such technology, proprietary information and/or intellectual property
or in which they are expressed (collectively, the "Technology");
WHEREAS, the Assignor is desirous of assigning all right, title and
interest in the Technology to GDA, and whereas GDA is, in turn, desirous of
assigning all right, title and interest in the Technology to Assignee;
WHEREAS, listed in Exhibit I hereto, by country, application serial
number, filing date, inventor(s), and patent number, if any, are all domestic
and foreign patents and patent applications, filed in the name of Assignor,
disclosing and/or claiming the Technology;
WHEREAS, listed in Exhibit II hereto, by title, author(s), publication
date, country, application serial number, filing date, and registration number,
if any, are all domestic and foreign copyright registrations and applications,
filed on works authored by the Assignor pertaining to the Technology;
NOW THEREFORE, in consideration of one dollar ($1.00) and other good
and valuable consideration the receipt of which is hereby acknowledged by
Assignor, Assignor hereby assigns and shall assign worldwide the entirety of his
or her right, title and interest in the Technology to GDA, and THEREFORE in
consideration for one dollar ($1.00) and other good and valuable consideration
the receipt of which is hereby acknowledged by GDA, GDA hereby assigns and shall
assign worldwide the entirety of its right, title and interest in the Technology
to Assignee, its successors and assigns, such assignment including by way of
non-limiting example:
- 16 -
(a) all right, title and interest in any invention,
modification, or advance, whether or not patentable, included in
the Technology;
(b) all right, title and interest in any invention,
modification, or advance, whether or not patentable, pertaining to
the technology known as [CMD] thereof, and domestic or foreign
patent applications disclosing or claiming the such invention,
modification or advance, any continuation, continuation-in-part or
division of such patent application and any patent issuing
thereon, and any reissue, re-examination or extension of such
patent;
(c) all right, title and interest in any domestic or
foreign patent application disclosing and/or claiming the
Technology, any continuation, continuation-in-part, or divisional
of such application, and any patent issuing on any such
application, and any reissue, reexamination or extension of any
such patent;
(d) all right, title and interest in any invention based
on the Technology and/or on any other technology, proprietary
information and/or intellectual property of Nexar to which
Assignor had access in the course of such engagement, which
invention is conceived or reduced to practice within one year
after termination of such engagement, any patent domestic or
foreign patent application disclosing or claiming any such
invention, any continuation, continuation-in-part, or divisional
of such application, and any patent issuing on any such
application, and any reissue, reexamination or extension of any
such patent;
(e) all right, title and interest in any works created or
authored by the Assignor in the course of such engagement or
within one year after the termination thereof pertaining to the
Technology, any copyright in such works, or domestic or foreign
copyright applications or registrations on such works, including
but not limited to the copyright applications and registrations
listed in Exhibit II (as used in this agreement, "copyright"
refers copyright, moral rights and semiconductor mask work
rights); and
(f) all right, title and interest to any apparatus,
articles of manufacture, prototypes, and documentation or other
tangible media included in the Technology, including, without
limitation, all apparatus, articles of manufacture, prototypes,
design and engineering drawings and specifications, created,
authored, developed or otherwise acquired by Assignor in the
course of such engagement or within one year after the termination
thereof.
As to inventions that qualify fully under the provisions of Section
2870 of the California Labor Code, the Assignor acknowledges that he or she has
been notified that this Agreement does not apply to any of those inventions that
Assignor developed entirely on his or her own time without using GDA's or
Nexar's equipment, supplies, facilities, or trade secret information, except for
those inventions that either: (1) relate at the time of conception or reduction
to practice of the invention to GDA's business (including that on behalf of
- 17 -
Nexar), or actual or demonstrably anticipated research or development of GDA, or
(2) result from any work performed by Assignor for GDA.
No license, assignment, or other transfer of (or release of obligations
with respect to) intellectual property rights by Nexar to GDA or Assignor, or by
GDA to Assignor, is intended or implied by the provisions hereof.
The Assignor hereby covenants that no assignment, license, or other
transfer or encumbrance has, been, or will be made by them that would conflict
with this assignment all entire right, title and interest in the Technology to
Assignee.
Assignor hereby covenants that the lists in Exhibits I and II are
complete and accurate.
Assignor hereby covenants that he or she will promptly disclose to GDA
(and, in turn, GDA will promptly disclose to Nexar), all inventions,
modifications, or advances, whether or not patentable, made by Assignor during
the course of such engagement or within one year after termination thereof
Assignor hereby covenants that all services performed by Assignor
during the course of such engagement were and/or are on a work-for-hire basis in
favor of Nexar and that any works resulting therefrom are "works made for hire"
(as that term is defined in Section 101 of the United States Copyright Act) on
behalf of Nexar.
Assignor hereby covenants they he or she will (i) provide, on request,
to the Assignee (or its representatives) all pertinent facts and documents
relating to the Technology (including, by way of example, any patents and patent
applications listed in Exhibit I, and any legal equivalent thereof in this or a
foreign country, and any further patents that may issue thereon) as may be known
and accessible to it, and (ii) testify as to the same in any interference,
opposition, litigation or proceeding related thereto, and (iii) will promptly
execute and deliver to the Assignee (or its representatives) such instruments or
affidavits as may be necessary or desirable to secure assignment of the rights,
titles and interests conveyed herein, and to protect and enforce the same or to
otherwise carry out the purposes thereof.
Assignor hereby covenants that he or she has and will maintain in
confidence and not disclose, duplicate or use any confidential information
contained in the Technology or in the technology, proprietary information and/or
intellectual property of Assignee to which (on behalf of himself/herself, heirs,
successors and assigns) the Assignor may have had access during the aforesaid
engagement, and that he or she has. As used herein, "confidential information"
means any information, except that which (i) is generally known in the industry
or trade, (ii) becomes generally known in the industry or trade without fault of
the covenanting party, (iii) can be shown covenanting party to have been known
by it prior to receipt from GDA or Assignee, or (iv) is disclosed to the
covenanting party by a third party in a lawful manner and without any
restriction on disclosure.
ASSIGNOR
- 18 -
---------------------------------------
Printed Name:
--------------------------
Residence:
-----------------------------
Date:
----------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
<S> <C> <C>
STATE OF _______________________
SS.
COUNTY OF _____________________
Before me this ________day of _________, 19____, personally appeared ________________________, known to me to be the person
whose name is subscribed in the foregoing Assignment and acknowledged that he executed the same as his free act and deed for the
purposes therein contained
------------------------------
NOTARY PUBLIC
[Notary's Seal Here] My Commission Expires:
====================================================================================================================================
</TABLE>
GDA Technologies, Inc.
By___________________________________
Alanghat G. Karunakaran, President
<TABLE>
<CAPTION>
====================================================================================================================================
<S> <C> <C>
STATE OF _______________________
SS.
COUNTY OF _____________________
Before me this ________day of _________, 19____, personally appeared Alanghat G. Karunakaran known to me to be the person
whose name is subscribed in the foregoing Assignment and acknowledged that he executed the same as his free act and deed for the
purposes therein contained
------------------------------
NOTARY PUBLIC
[Notary's Seal Here] My Commission Expires:
=====================================================================================================================
</TABLE>
- 19 -
EXHIBIT B
GDA PARTIES WORKING ON TECHNOLOGY
---------------------------------
[CMD]
[CMD]
[CMD]
[CMD]
- 20 -
EXHIBIT C
AUTHORIZED NEXAR EMPLOYEES
--------------------------
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
[CMD]
- 21 -
EXHIBIT 11.1
<TABLE>
<CAPTION>
STATEMENT RE: EARNINGS PER SHARE
--------------------------------
PERIOD FROM
INCEPTION NINE MONTHS
(MARCH 7, 1995) TO ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- --------------------
<S> <C> <C>
Net loss $(2,261,434) $(2,981,022)
------------ ------------
Weighted average common shares outstanding 4,800,000 4,800,000
Stock issued within twelve months of initial public offering 2,921,838 2,921,838
Pro forma conversion of amounts due to related parties 700,000 700,000
------------ ------------
Weighted average number of common and common equivalent shares outstanding 8,421,838 8,421,838
============ ============
Net loss per share amount $(0.27) $(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 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 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
January 23, 1997
